their ill-advised conditions more than cancel out any good the international lender's resources could bring? In particular, critics charge that the IMf pushes countries to increase domestic interest rates when cuts would better serve to stimulate the economy. The IMF also stands accused of forcing crisis economies to tighten their budgets in the midst of recessions. Like the austerity argument, these critiques of basic IMF policy advice appear rather damning, especially when wrapped in rhetoric about how all economists at the IMF are third-rate thinkers so immune from outside advice that they wouldn't listen if John Maynard Keynes himself dialed them up from Of course, it would be wonderful if governments in emerging markets could follow Keynesian"countercyclical policies"that is, if they could stimulate their economies with lower interest rates, new public spending, or tax cuts during a recession. In its September 2002 World Economic Outlook"report, the IMF encourages exactly such policies where feasible. (For example, the IMF has strongly urged Germany to be flexible in observing the budget constraints of the European Stability and Growth Pact, lest the government aggravate Germany's already severe economic slowdown. )Unfortunately, most emerging markets have an extremely difficult time borrowing during a downturn, and they often must tighten their belts precisely when a looser fiscal policy might otherwise be desirable. And the IMF,or anyone else for that matter, can only do so much for countries that don't pay attention to the commonsense advice of building up surpluses during boom times--such as Argentina in the 1990s-to leave room for deficits during downturns According to some critics, though, a simple solution is staring the IMF in the face. If those stubborn fund economists would onl appreciate how successful expansionary fiscal policy can be in boosting output, they would realize countries can simply wave off a debt crisis by borrowing even more. Remember former U.S. President Ronald Reagan,s economic guru, Arthur Laffer, who theorized that by cutting tax rates, the United States would enjoy so much extra growth that tax revenues would actually rise? In much the same way, some IMF critics--ranging from Nobel Prize-winning economist Joseph Stiglitz to the relief agency Oxfam--claim that by running a fiscal deficit into a debt storm, a country can grow so much that it will be able to sustain those higher debt levels. Creditors would understand this logic and happily fork over the requisite extra funds. Problem solved, case closed. Indeed why should austerity ever be necessary? Needless to say, Reagan' s tax cuts during the 1980s did not lead to higher tax revenues but instead resulted in massive deficits. By the same token, there is no magic potion for troubled debtor countries Lenders simply will not buy into this storytheir ill-advised conditions more than cancel out any good the international lender's resources could bring? In particular, critics charge that the IMF pushes countries to increase domestic interest rates when cuts would better serve to stimulate the economy. The IMF also stands accused of forcing crisis economies to tighten their budgets in the midst of recessions. Like the austerity argument, these critiques of basic IMF policy advice appear rather damning, especially when wrapped in rhetoric about how all economists at the IMF are third-rate thinkers so immune from outside advice that they wouldn't listen if John Maynard Keynes himself dialed them up from heaven. Of course, it would be wonderful if governments in emerging markets could follow Keynesian "countercyclical policies"—that is, if they could stimulate their economies with lower interest rates, new public spending, or tax cuts during a recession. In its September 2002 "World Economic Outlook" report, the IMF encourages exactly such policies where feasible. (For example, the IMF has strongly urged Germany to be flexible in observing the budget constraints of the European Stability and Growth Pact, lest the government aggravate Germany's already severe economic slowdown.) Unfortunately, most emerging markets have an extremely difficult time borrowing during a downturn, and they often must tighten their belts precisely when a looser fiscal policy might otherwise be desirable. And the IMF, or anyone else for that matter, can only do so much for countries that don't pay attention to the commonsense advice of building up surpluses during boom times—such as Argentina in the 1990s—to leave room for deficits during downturns. According to some critics, though, a simple solution is staring the IMF in the face: If those stubborn fund economists would only appreciate how successful expansionary fiscal policy can be in boosting output, they would realize countries can simply wave off a debt crisis by borrowing even more. Remember former U.S. President Ronald Reagan's economic guru, Arthur Laffer, who theorized that by cutting tax rates, the United States would enjoy so much extra growth that tax revenues would actually rise? In much the same way, some IMF critics—ranging from Nobel Prize—winning economist Joseph Stiglitz to the relief agency Oxfam—claim that by running a fiscal deficit into a debt storm, a country can grow so much that it will be able to sustain those higher debt levels. Creditors would understand this logic and happily fork over the requisite extra funds. Problem solved, case closed. Indeed, why should austerity ever be necessary? Needless to say, Reagan's tax cuts during the 1980s did not lead to higher tax revenues but instead resulted in massive deficits. By the same token, there is no magic potion for troubled debtor countries. Lenders simply will not buy into this story