Greece: An Expensive Gamble

by Desmond Lachman

American Enterprise Institute
May 7, 2010

Rudi Dornbusch, the late renowned MIT economist, used to say of the Mexican central bank board that he could understand their making mistakes. After all they were only human. However, what he could not understand was how the same people could make the same mistakes time after time.

One has to wonder whether the same might not be said of the IMF in relation to its recently announced US$150 billion led Greek bailout. After its disastrous experiences with major fiscal adjustment programs under fixed exchange rate regimes in both Argentina in 2000 and in Latvia in 2008, the IMF is now prescribing the same recipe of hair-shirt budget-retrenchment in the far more intractable Greek case. And throwing any semblance of caution to the wind, the IMF is gambling US$40 billion of its own money on the Greek program.

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