IMF concedes major missteps in bailout of Greece
WASHINGTON — The International Monetary Fund released an internal report Wednesday that sharply criticizes its first bailout program for Greece, the latest in a series of partial mea culpas as the fund reassesses the austerity that it has insisted on for ailing, debt-plagued economies.
The 50-page report, titled “Greece: Ex Post Evaluation of Exceptional Access Under the 2010 Stand-By Arrangement,” acknowledges major mistakes in Greece’s first bailout, which totaled about $143 billion and came into effect in 2010. The fund bent or broke three out of four of its own rules with the lending program, the report concludes. It also seriously underestimated the severity of Greece’s downturn.
The first bailout failed to set Greece on a sustainable path. “Market confidence was not restored, the banking system lost 30 percent of its deposits, and the economy encountered a much deeper-than-expected recession with exceptionally high unemployment,” the report said.
In 2012, the IMF and its partners, the European Commission and the European Central Bank, agreed to a bigger second program, totaling about $170 billion and requiring Greece’s private sector bondholders to accept losses of at least 50 percent. The Greek economy has been shrinking for six consecutive years, with no end in sight, erasing a full decade of growth. The unemployment rate has hit 27 percent.
The report said that the fund miscalculated the so-called multiplier, or the effect that adding or subtracting a dollar of government spending would have on the broader economy during the downturn. It underestimated the scale of what has proved to be a devastating Greek depression, fueled in part by sharp government spending cuts and tax increases.
The initial program for Greece was “necessary” and “appropriate,” the report concludes. But it also bent the IMF’s own rules for lending to bankrupt countries.
In particular, the fund’s experts were “unable to vouch” that Greece would be able to repay its loans in the medium term. “Staff favored going ahead with exceptional access because of the fear that spillovers from Greece would threaten the euro area and the global economy,” the report said.
The IMF released the document after The Wall Street Journal reported some of its conclusions online.
—Annie Lowrey, The New York Times
Abe describes strategy to free up Japan’s economy
TOKYO — The fervor is fading.
Prime Minister Shinzo Abe on Wednesday rolled out the next phase of his aggressive strategy to kick-start Japan’s economy, with plans to encourage foreign investment, nurture innovation and improve regulation. But almost immediately, a big question surfaced: Will they go far enough?
Since taking office in December, Abe has promised to fight deflation and spur growth, through a combination of aggressive monetary easing, public works spending and economic overhauls. The initial efforts of his program showed promise, helping to drive the stock market up 80 percent from late last year.
But enthusiasm has waned in the last two weeks, as investors wondered whether the efforts were sustainable. The latest proposal did little to quell the concerns. The Nikkei 225-share index ended the day down 3.8 percent, another rout in an extended correction for the market.
For the next wave of so-called Abenomics, the prime minister laid out a wide range of policies aimed largely at the corporate sector. He plans to introduce tax breaks to increase foreign direct investment. He also said he would remove cumbersome regulations, for example, in the medical industry, by removing a ban on sales of nonprescription drugs on the Internet. And he pledged to combine Japan’s high-grade infrastructure and manufacturing prowess with the daring and creativity of a younger generation.
—Hiroko Tabuchi, The New York Times