On Diagnosing the Causes of the Slump in Eastern Europe

Sidney Dell (1983) contributed a lively criticism of the Fund’s role in encouraging ‘overkill’ to the conference on IMF conditionality that I organized in 1982. He ranged over a number of themes: what he perceived to be an excessive emphasis on bringing inflation under control through single-minded deployment of demand deflation; a charge that the authorities in some countries welcomed the Fund’s insistence on tackling cost inflation by demand reduction because of a desire to curb union power; a failure to bring symmetrical pressures for adjustment action to bear on surplus countries; and instances (he cited Peru in 1978) of borrowing countries being forced to deflate despite the root cause of their problem (in Peru’s case a low copper price) being temporary, or being forced to adjust rapidly in response to problems not of their own making. I had far more sympathy with some of those complaints, notably the final pair, than with others, notably his demand for adjustment symmetry in a world where it seemed to me that the problem had been largely bypassed by the move to exchange-rate flexibility or what I felt was his excessive willingness to tolerate inflation (although after watching the Bundesbank and its ERM satellites in 1992–93 I am no longer so sure that an excessive preoccupation with inflation is an entirely hypothetical danger).