CTU Media Release

8 June 2012

IMF recommendations a recipe for failure

It is little comfort that the IMF thinks New Zealand’s economy is on the right track, says CTU economist Bill Rosenberg, commenting on the IMF report on New Zealand released today.

“The IMF has recommended expenditure cuts and austerity in Europe but with increasing numbers of economies going into deeper crisis rather than improving, the IMF is now desperately trying to find ways to do the impossible – have austerity and growth at the same time.”

“We risk continuing high unemployment and recession or stagnation under these policies,” says Rosenberg. “With the continuing high exchange rate – despite the latest falls – and international developments threatening export income, a continuing obsession with debt reduction above everything else is bad policy.”

The IMF report also appears to tolerate what it describes as “elevated” unemployment – which rose to 6.7 percent in March – as a way to keep down inflation and wage rises.

The report says that “spare capacity and elevated unemployment will contain wage and inflation pressures in the near term” without any recommendations for reducing unemployment.

“This matches the government’s continued inaction at the current high unemployment levels, while Australia’s is on a falling trend, at 5.1 percent in May.”

“These recommendations suit the government’s ‘leave it to the market’ policies to have low wage growth and continuing high unemployment rather than active labour market policies which encourage job creation and skill development, assistance for potential exporters, and finding ways to manage the exchange rate,” says Rosenberg.

ENDS

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