When facts change, I change my mind. What will you do, IMF?

In a paper published this week, “Rethinking Macroeconomic Policy”, the International Monetary Fund chief economist Olivier Blanchard recognises that the Fund was wrong in some of the macroeconomic policies advised in the last three decades. Stringent macroeconomic policies – such as very low inflation, neglecting the crucial role of fiscal policy, and financial sector deregulation – often attached as conditions to IMF loans for developing countries, are now listed among the old sins that made a bad crisis worse.

Such public recognition gives even more credit to academics and NGOs who said from an early stage that the IMF’s advice was hampering growth and poverty eradication in developing countries. However, this is just a first step in the right direction. The main challenge ahead for the IMF chief economist is to break the institution free from the straightjacket of their old policy framework, and acknowledge the need for a more nuanced approach to macroeconomic policy so that developing countries can implement alternative policies to ensure stability as much as equitable growth.