Note to George: the IMF doesn't always get it right

Ireland and Indonesia should make Osborne think again.

Samuel Longhorn Clemens, advised the young to "be respectful to your superiors, if you have any". The phrase comes to mind following the nice pat on the head and doggy discuit following the release of the International Monetary Fund's annual summary report on the UK economy:

The UK economy is on the mend. Economic recovery is underway, unemployment has stabilized, and financial sector health has improved. The government's strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability. The plan greatly reduces the risk of a costly loss of confidence in public finances and supports a balanced recovery.

The Chancellor, and the right-leaning press junket, has been duly respectful. But does the IMF's exercise the kind of superior judgment Twain would have us respect? Let's examine two recent cases.

Ireland, 2007 - 2010


As late as 25 September 2007 (ten days after the run on Northern Rock, a micro model of the entire Irish economy of the time) , the IMF:

commended Ireland's continued impressive economic performance, characterized by one of the highest growth rates of GNP per capita among advanced countries and one of the lowest unemployment rates. This performance has been underpinned by outward-oriented policies, prudent fiscal policy, low taxes, and labor market flexibility.

and congratulated Ireland on her "very strong" growth, "supported by sound policies". They branded the country's ruinuously overleveraged banking system "well-capitalized, profitable, and liquid".


The IMF's 2009 report on the Irish government's subsequent swingeing cuts was nicely summarised here:

Our main message to the Irish authorities is not on the course which they are taking, which support and we agree with, but on the need to sustain this over an extended period of time.

The goverment has indeed sustained the IMF-endorsed approach. The result is government bond yields are exploding, and will continue to do so now government debt has been downgraded to one notch above junk. Unemployment has been consistently rising to 13.8 percent, and is still

In July this year, the IMF recommended Ireland stay the course.

Indonesia, 1996 - 1998


The IMF was at the head of the pack in lauding the Asian Miracle of the 1990's. Michel Camdessus, the then managing director of the IMF, speaking in Jakarta on November 7, 1996 welcomed:

high and sustainable rates of growth and, equally important, the kind of "high-quality growth" that also fosters human development, promotes equity, safeguards the environment, and allows an enhancement of the cultural values of your countries.

However, as predicted by some, the ASEAN area and Indonesia in particular were in dire economic straits by July 2007.


In August the IMF heartily recommended Indonesia float the rupiah:

The management of the IMF welcomes the timely decision of the Indonesian authorities. The floating of the rupiah, in combination with Indonesia's strong fundamentals, supported by prudent fiscal and monetary policies, will allow its economy to continue its impressive economic performance of the last several years.

The promise of continued impressive performance was what Huck Finn would call a "stretcher". Indonesia, under Suharto was intimate with the IMF for years, and so the rupiah floated. Suharto also took the recommended fiscal tightening measures, including the cancelation of food subsidies to the poor.

As a result, the rupiah fell by 83.2 percent against the dollar. Indonesia's national debt rose from 3 per cent in 1968 to 129 per cent. The regime collapsed after widespread and deadly food riots. Suharto was forced to resign on 21 May. The recovery since then has been slow, and chiefly centered around the profusion of manufacturing in textiles and other low-paid industries with the attendant sweat-shop suffering and indignities.

Notably, in a recent interview with Charlie Rose, George Osborne cited Indonesia as one of the economic success stories of the last 30 years.

Back to Blighty

So, is the IMF's endorsement a prescient, objective, reassuring one? I think not, and I'm in good company. Back to Twain:

In religion and politics, people's beliefs and convictions are in almost every case gotten at second-hand, and without examination, from authorities who have not themselves examined the questions at issue, but have taken them at second-hand from other non-examiners, whose opinions about them were not worth a brass farthing.

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A hard Brexit is the best way to keep Scotland in the UK - here's why

Theresa May knows she has the upper hand. 

Conventional wisdom says soft Brexit is good for the union. If Theresa May steers the UK out of the EU but retains access to the single market, maybe a bit of freedom of movement it would make many Scots – the majority of whom voted to stay in Europe – think twice before voting Yes to independence.

After all, they’d be turning their back on some access to the EU for an uncertain future as an independent country who would still have to negotiate it’s way back into the club.

Conventional wisdom is wrong.

The reason Nicola Sturgeon is hell bent on keeping Scotland’s access to the single market is because a hard Brexit is bad news for the independence cause.

Never forget that while the SNP may claim to be Scotland’s party it is in fact a single issue movement focused on one goal only – independence.

If Sturgeon is opposed to the increasingly likely scenario that sees the whole of the UK crash out of Europe swapping single market access for full immigration controls, it’s because first and foremost it’s bad for her cause.

For if there is to be a hard Brexit, Sturgeon would have to sell the prospect of Scotland leaving the UK, joining the EU and being confronted with not just border posts for anyone wanting to travel south but tariffs for anyone wanting to trade with England.

She’d have her work cut out.The UK is a significantly more vital trading partner for Scotland than the remaining 27 countries of the EU. Scotland’s exports to the rest of the UK outstrip what it sell to Europe abour four to one, and it’s estimated that while 250,000 Scots jobs are tied to the EU, a million more rely on being in the UK.

It’s why Sturgeon for all her fighting talk is trapped. If there is to be a hard Brexit she needs to get Scotland out of the UK before the reality of that dawns. That’s looking like a two-and-a-half year window.

But the polls are stubbornly static.

She can’t have another referendum unless she knowns she’s going to win it. For to lose two votes on the same subject – and her draft legislation published last week suggests she’s going for the same question but banking on different arguments – would provide a definitive answer, closing the issue down for a generation for real this time and begging questions not just about what next for the SNP but what’s the point of the SNP.

With Yes still hovering around the 45 per cent mark in current polls Sturgeon needs to add a good 15 per cent before she can consider triggering indyref2.

Now, some of her supporters point to the last independence campaign when support for the proposition rose from a historic position of around 25 per cent to 45 per cent by polling day. They claim the same can be done again.

But that was a long campaign and Sturgeon does not have the time, never mind the fact that most of the soft Yes vote has been hoovered up now and convincing those that remain will prove much harder. 

And, according to my Number 10 source, Theresa May knows all this. 

That’s why she can dismiss Sturgeon’s bleating. Why she can sit around the Cabinet table with her as she did yesterday and, despite promising respect, actually give her short shrift.

May’s in the stronger position on this one. She’s newly installed, and confident that she can go to the country and win at will.

Sturgeon’s overseeing an increasingly tired SNP administration (albeit, like May, there is no credible opposition to speak of). If she doesn’t deliver independence it’s not just her political career but the future of her entire party that would be pitched into the balance.

Unlike David Cameron, May has no specifically Scottish special adviser and her dismissive tone towards Scotland has led some to speculate that she doesn’t get it or doesn’t care.

Quite the opposite. 

Whatever other drawbacks, hard Brexit brings it is the most sensible position to take if your number one priority is keeping Scotland in the UK.

In the absence of any evidence as to what else her strategy may consist of, perhaps that is May’s game.