Protection of the Poor and the Millennium Development Goals
Chapter 12: Problems of Overoptimism and Ownership
Sustainability estimates by public creditors discussed in detail below have a rather unique characteristic: they have a sorry record of ‘overoptimism’. Unlike estimates in general that are revised once a bias is recognized, BWI forecasts of debtors’ export volumes and prices, even of growth in OECD countries, have systematically been biased towards predicting too optimistic trajectories. Published to ‘support’ the illiquidity theory first, and to ‘justify’ insufficient debt reductions later on, IFIs have routinely been ‘overoptimistic’. Routinely erring in this way leads to higher ‘sustainable’ debt burdens and thus less debt reduction. In the early 1980s very high growth rates of exports and GDP supported the assertion that countries were only temporarily illiquid, but would soon be able to pay fully, literally ‘growing out of debts’. More cautious and more realistic estimates would not have served the purpose of defending the illiquidity theory equally well. Over decades too optimistic forecasts have inflicted damages on debtor countries, rendering strategies based on such forecasts, especially debt reductions, useless. The crisis could not be solved, but has been dragged on. As rightly observed by the IBRD as early as 1992, this has inflicted heavy damage on debtor SCs – creditor caused damage that has especially hurt the poorest. ‘OVEROPTIMISM’ AT WORK The point that IFIs have systematically erred on the wrong side is no longer contentious, although examples to the contrary exist. Meanwhile IFIs themselves have repeatedly conceded this fact. IMF and IDA (2004, p. 13) wrote: Whether a country – and specifically its government...
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