Auditor Says IMF Bailout Forecasts Overly Optimistic

By Dow Jones Business News,  March 18, 2014, 11:45:00 AM EDT

WASHINGTON--The International Monetary Fund issued overly optimistic economic forecasts relating to its biggest bailouts in recent years, the fund's auditor said Tuesday.
The auditor said the IMF forecasts "tended to be optimistic in high-profile cases," such as the record bailout program for Greece.
The comments by the fund's Independent Evaluation Office reinforce criticism from some outside economists who questioned whether the IMF's forecasts were designed to help the board approve the bailouts. The auditor said the IMF at times revised downward its forecasts within months of releasing initial projections.
"We should further strengthen the learning culture in the Fund, including by enhancing our learning from past forecast errors," IMF Managing Director Christine Lagarde said in a written statement.
Higher growth forecasts cut the amount of predicted debt a country owes, a primary determinant for whether the board can approve a bailout.
In the record Greek bailout, for example, fund growth forecasts allowed IMF staff to say the country's debt was sustainable early in the program. Private investors were eventually forced to take losses on the sovereign bonds they held, however, to ensure the country didn't default.
High-profile bailouts represented the bulk of the IMF's lending in recent years and through the financial crisis
and involved "exceptional access" to the its resources, when the world's last-chance lender waives its normal rules, the auditor said.
The independent auditor said in the majority of lending programs, the fund's short-term forecasts for gross domestic product growth and inflation were unbiased.
"However, they tended to be optimistic in high-profile cases," fund auditors Moises Schwartz and Hans Genberg said in the report on the IMF's forecasting.
Write to Ian Talley at ian.talley@wsj.com
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