On Middle East As On Subprime, IMF Puts Its Head in the Sand

As the International Monetary Fund releases its review of Israel including its financial stability, the narrowing scope of its analysis come into focus. Here is what the IMF says on geopolitical risk:

"The economy survived well past episodes of conflict, but ongoing regional turmoil could have a more severe impact, especially if of long duration and associated with a large increase in energy prices, inflation, and a reaction of much higher real interest rates around the globe."

While the above is true of many countries, the impact of the "ongoing turmoil" in Syria would surely impact Israel’s financial stability more than most, as would its relations with Iran.

The IMF, though ostensibly part of the UN system, goes out of its way to claim that its reviews are strictly financial. For example, while Sri Lanka engaged in the killing of civilians criticized last month in the UN Human Rights Council, the IMF declined to make any connection to the "program" it offered to the Rajapaksa government.

More recently, even as Sri Lanka’s defense spending continued to increase even after its bloody victory in Northern and Eastern Sri Lanka, the IMF has backed away from its own previous statements, and cooked the numbers to emphasize a decrease in military spending as a percentage of overall spending.

Finance and lending cannot credibly be so divorced from political factors. In Egypt, the IMF is considering binding the country to a multi-billion dollar loan it is negotiating with an unelected military government soon, it seems, to be replaced. What are Ms. Lagarde’s answers to these questions? We’ve yet to hear them.

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