NCPA - National Center for Policy Analysis

IMF Fails To Spot Global Economic Concerns

August 30, 1999

The International Monetary Fund issues a forecast called the World Economic Outlook twice a year. Its purpose is to identify countries in which problems may be brewing and to evaluate how well countries that are recipients of its aid are performing.

But the Heritage Foundation recently reviewed those forecasts, going as far back as 1971, and found that the agency failed to spot some of the major trends in the global economy.

  • It failed to foresee the hyperinflation that plagued much of Latin America in the late 1980s -- and when the situation became obvious, it didn't predict how long it would last.
  • It did not foresee the collapse of the Soviet Union.
  • The IMF didn't predict the length and depth of Japan's recession -- and it didn't predict the coming Asian economic crisis until it was too late.
  • Nor did it envision the current U.S. economic expansion lasting as long as it has.

The one area in which the IMF has been fairly consistently on the mark is predicting gross domestic product growth and inflation among major industrialized countries -- getting things right a remarkable 96 percent of the time, according to the Heritage study.

  • But only about half its forecasts for developing countries were correct.
  • It consistently overestimated growth in the developing nations for the last 27 years -- while underestimating inflation.

The study's authors theorize that the IMF's forecasts are too optimistic because it believes that its own intervention will tidy up recipient countries' balance sheets.

Source: Charles Oliver, "How Accurate Are IMF Forecasts? New Study Finds Systematic Errors," Investor's Business Daily, August 30, 1999; William W. Beach, Aaron B. Schavey, and Isabel M. Isidro, "How Reliable are IMF Economic Forecasts?" CDA Report No. 99-05, August 26, 1999, Heritage Center for Data Analysis, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington, D.C. 20002, (202) 546-4400.

 

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