In an economically rational world, such a multifaceted assessment that is supported by the majority of the IMF’s 189 members should be sufficient to deliver a better outcome -- and particularly when the organization itself, together with European governments and institutions there, has been a major lender and an anchor for the adjustment programs. But this is not the case here, as staff and management find themselves in a Mexican standoff with their European political masters.
The longer European governments oppose debt reduction for Greece, the harder it will be for the country to recover from the devastating collapse in output and living standards. The longer this persists, the greater the fuel for anti-establishment parties that attack the euro zone’s ineffectiveness and spotty accomplishments. The more this goes on, the higher the probability of concerns about the integrity of this important and historical regional project whose implications extend well beyond economics and finance.
The IMF also is worse off. Having been pressured strongly by its European members to make loans it shouldn’t have made (and wouldn’t have made) had management at that time stuck to the institution’s own guidelines and practices, the IMF is now being frustrated from righting the wrong. With that comes renewed doubt about attributes that are key to its effectiveness and credibility -- from uniformity of treatment to its technocratic excellence and its ability to be an honest and trusted adviser to countries and the international community. And all this casts an even brighter spotlight on the costs and unintended consequences of outdated governance and uneven practices.
Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco.
This column was provided by Bloomberg News.