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Editorial: Why the IMF is wrong

The world is facing its worst economic crisis since the 1930s and no-one has a solution to the problems, least of all the IMF.

Much faith is being placed in the IMF to come up with both funding and policies to fix things. After all, the Bretton Woods institutions were created in the aftermath of the 1930s crisis to ensure there could never be a repeat performance.

But as one emerging market after another goes under, it's clear the IMF is way out of its depth. Unless there is a complete and immediate rethink, the 1997 crisis will be remembered as the one the IMF presided over rather than cured.

The problem is that the IMF has been treating one kind of illness for so long it now has a single remedy. Usually called in to deal with countries living beyond their means ­ characterized by budget deficits, large imports of luxury goods, inflation and easy credit ­ the IMF's usual prescription is austerity. Monetary and fiscal policies must be tightened to put the house back in order. A policy-induced recession works fine as it slashes consumer spending and imports.

The IMF has delivered this medicine for so long that many governments, and especially central banks, now instinctively respond to trouble by putting on the brakes.

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