The misuse of numbers has proved an effective tool to pull wool over the eyes of people down the ages. The current economic and financial crisis is but the latest example.
Companies massage their numbers to mislead investors. Powerful lobbies and NGOs exaggerate social ills to attract attention and grab public funds. Banks hide their problems in opaque balance sheets. Authoritarian countries such as China rarely reveal slow growth or other economic strains.
This means that consumers of such data—from citizens to economists to journalists— have to accept what is dished out to them with a pinch of salt. It also means that they have to learn to give more importance to data put out by neutral agencies that have fewer axes to grind.
The International Monetary Fund (IMF) is one agency that has provided credible data and analyses, at least when compared with what has been put out by investment banks over the past few years. But now, even IMF has egg all over its face.
The latest edition of the multilateral lender’s biannual Global Financial Stability Report, published in April, had a table which suggested that many East European countries have very large levels of foreign debt compared with the size of their foreign exchange reserves, leading to growing worries of an implosion in those countries.
IMF coyly admitted on Wednesday that its numbers are plain wrong. It has now restated the numbers. For example, the external debt to reserves ratio for the Czech Republic was cut from 236% to 89%. Estonia’s was brought down from 210% to 132%. More such restatements could follow, making the former Communist countries seem less risky than earlier.
IMF said there were two mistakes—data entry errors and double counting. These are the sort of basic mistakes that one does not expect from a powerful agency such as IMF. There was undoubtedly no hidden agenda when IMF inadvertently painted a glum picture about East Europe. But yet IMF’s mea culpa is worrisome.
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