Tag: international monetary fund

Did the IMF Deliberately Exaggerate the 2008 Financial Crisis?

This month, two vice-presidents of the Czech National Bank (CNB) have made very serious allegations against the International Monetary Fund. Below is the summary of their claims so far:

  1. Speaking to the Austrian daily newspaper Der Standard on April 2, Mojmir Hampl, the vice-president of the CNB, said that the IMF under Dominique Strauss-Kahn “wanted to expand its role in Eastern Europe and obtain new financial resources.” Hampl claimed that the IMF exaggerated problems with the financial systems in Eastern Europe. “We have always emphasized that the instability of the financial system [in 2008] was a Western European problem. That proved correct… According to a recent EU report, only nine out of 27 EU member states did not have to introduce any financial stabilization measures [during the crisis]. All nine were new [mostly Eastern European] member states.”
  2. Hampl’s claim was echoed by his colleague, CNB vice-president Miroslav Singer, in today’s edition of the Czech daily Hospodarske Noviny. According to Singer, “I cannot say nice things about the IMF’s role in the 2008 crisis.” The Financial Times, Singer continued, carried a lot of nonsensical stories about the state of the Czech financial sector prior to the crisis. Instead of dispelling those stories, the IMF produced a study about the Czech Republic based on incorrect data and then leaked it to the Financial Times.  “It is difficult to be certain… that the IMF wanted to harm the Czechs, Slovaks or Poles on purpose… More likely it was a combination of panic, lack of expertise and a desire to see problems everywhere.”

If true, these claims raise troubling questions about the incentives behind the largest increase of resources in the Fund’s history.

Latvia Retains Flat Tax, Disappointing Class-Warfare Advocates

The Baltic nation of Latvia is in the middle of a serious economic downturn resulting largely from a credit bubble and excessive government spending. This created an opening for those who have long wanted to undo the nation’s flat tax and impose a discriminatory system. Indeed, the economic Luddites at the Tax Research Network were already celebrating the expected demise of the single-rate tax. Unfortunately for them (but fortunately for Latvians), the government made a stunning announcement that the flat tax will be retained according to Reuters:

Latvia’s government is to reduce old age pensions and state sector salaries but not raise taxes, it said on Thursday as it tries to win more loans and avert crisis and possible currency devaluation. The five-party coalition government agreed with social partners such as unions and employers on ways to find savings of 500 million lats ($1.01 billion) to win further loans from the International Monetary Fund and European Union, which are seen as the only way to survive a deep economic slump. “It was a difficult decision and it will not be popular but it had to be done,” Prime Minister Valdis Dombrovskis told reporters after a marathon and sometimes chaotic government session of almost 12 hours. “Our decision is sending a signal to the EU that we are serious,” he added. Against expectations, the government decided against introducing a progressive income tax for the first time to replace the current flat tax of 23 percent. The moves will include a cut in old age pensions of 10 percent, a whopping 70 percent cut in the pensions of those who still work, and a 20 percent cut in state sector salaries.

To be sure, this may not be the last word on this issue. Latvian politicians eventually may decide to undo the flat tax. Or perhaps Iceland’s new left-wing government may be the first nation to backslide to a so-called progressive tax system. Regular readers of the blog may recall that we have a theme song that we include every time there is an announcement of a new flat tax nation. In preparation for bad news, we have selected a theme song for when a nation decides to go in the wrong direction.