July 08, 2015

The IMF, like a member in good standing of a mutual admiration club, keeps total mum about the mistakes of colleagues.

Sir, Takatoshi Ito writes: “perhaps the IMF cannot be frank with Europe… — its management, after all, is dominated by Europeans” “Someone should have spoken truth to Europe” July 8.

Of course that might influence, but IMF’s silence is more based on the reluctance to criticize other members in their small mutual admiration club of technocrats.

In September 2006 in a letter published in FT I wrote:

“The Fund's problem is that it has now turned into the clubhouse of the "independent" central bankers… Though I agree…that the top job should not be reserved for a European… may I also advance the idea that it should not be reserved for a central banker either?”

And even more directly related to the subsequent events in Greece, in November 2004, in a letter that was also published by FT, I wrote:

“Our bank supervisors in Basel are unwittingly controlling the capital flows in the world….

How many Basel propositions will it take before they start realizing the damage they are doing by favoring so much bank lending to the public sector? In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.

Please, help us get some diversity of thinking to Basel urgently; at the moment it is just a mutual admiration club of firefighters trying to avoid bank crisis at any cost - even at the cost of growth”

The IMF, as to this moment, has yet not warned in clear and unequivocal terms about the dangerous distortions that credit-risk-weighted capital requirements for banks cause. And that though the evidence is there for all to see. A Greece brought to its knees because of excessive borrowings by its government, and unable to stand up, because of the lack of access to bank finance for its SMEs and entrepreneurs.