August 26, 1999

August 26, 1999 | News Releases on International Organizations

IMF's Economic Forecasts Are Biased in Favor of its Own Programs, Study Says

WASHINGTON, AUG. 26, 1999-When the International Monetary Fund (IMF) tries to predict how fast the economies of industrialized countries will grow, it gets the numbers about right. But when it tries to do the same for developing countries, it consistently overstates the rate of economic growth. Why the disparity?

According to a new study by The Heritage Foundation, the key difference is that developing countries receive IMF assistance; industrialized countries do not. This suggests the IMF is biased in favor of its own programs, says William Beach, Director of Heritage's Center for Data Analysis.

Between 1986 and 1998, the IMF consistently made "overly optimistic" economic predictions for developing regions receiving IMF aid, according to the study. In the case of Africa, the IMF overestimated economic growth in every year studied. In Central and South America it overestimated growth in all years but two. It's also the case that the more IMF money a region receives, the bigger the forecasting error becomes.

By contrast, the agency's forecasts for the G-7 industrialized nations proved far more reliable. The forecasting errors were smaller, and the IMF underestimated growth nearly as often as it overestimated it.

IMF forecasts matter, Beach says, because they help gauge the effectiveness of the agency's programs and play a key role in determining the IMF's funding requests to the U.S. Congress. The United States gives vast sums of money to the International Monetary Fund-$18 billion in 1999 alone-and the accuracy of the agency's forecasts "is important to policymakers in considering appropriations for the organization."

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