New IMF Forecast Will Once Again Miss Target
- By Knut Engelmann
- Dec. 23 1998 00:00
WASHINGTON -- Reader beware: Judging from past experience, the International Monetary Fund's latest projections on the world economy are set to miss their mark.
Just like in three previous reports, the IMF has trimmed its once-optimistic growth forecasts in its 170-odd page World Economic Outlook, issued with great fanfare Monday.
It projects world economic growth at 2.2 percent this year - down from the forecast of 4.3 percent made late last year - and predicts a weak recovery next year in crisis-hit Asia.
Each of the fund's previous reports has underestimated the severity of the global financial crisis since it erupted in July 1997 with the devaluation of the Thai baht currency.
"The IMF has a very poor track record. They've always been very rosy and optimistic," said Sung Won Sohn, chief economist at Wells Fargo & Co in Minneapolis. "I'd recommend they stop publishing forecasts."
While Asia's once-proud economies were succumbing to the crisis, the IMF forecast, in its October 1997 World Economic Outlook, growth rates of more than 7 percent a year for nations like Indonesia and Malaysia. South Korea, which almost defaulted on its international debts just months later, was seen enjoying a growth rate of 6 percent for both 1997 and 1998.
A chagrined IMF in December 1997 published an "Interim Assessment" and added it to its earlier report, cutting its 1997 forecasts by up to 2 percentage points for some Asian countries.
And in its latest assessment of South Korea, the IMF now sees the economy contracting by 7 percent this year.
The IMF, under attack for its handling of the crisis, had no more luck this year in foreseeing the spread of the firestorm from Asia's charred economies.
According to its May outlook, the agency saw the Russian economy expanding by 1 percent this year.
Three months later Moscow defaulted on its debts and devalued its currency after a $23 billion IMF-led rescue package failed to work.
The IMF now sees Russia's economy shrinking by 5.7 percent this year.
"They've had some spectacular failures, Russia being the most visible one," said Bradley Belt, head of international finance and economic policy at the Center for Strategic and International Studies.
Embattled IMF chief economist Michael Mussa, presenting the fund's latest report to the media on Monday, was quick to point out that his team had been no more wrong than other forecasters - even though the IMF often has access to otherwise hard-to-get economic data compiled by member governments.
"Basically, the fund wasn't getting it any more wrong than was the average of outside forecasters," Mussa said. "Clearly, the depth of the crisis has surprised all of us."