I The Desk Economist in an Area Department
- Marcello Caiola
- Published Date:
- August 1995
The desk economist can be defined as the IMF’s expert, in the broadest possible meaning of the term, on a certain country. This means that he should be fully knowledgeable about the economic and financial developments, as well as the political and social situation of his assigned country.1 Indeed, if the desk economist wishes to contribute to the shaping of the IMF’s policies on his country and have his views taken into account, he should know that country in every detail.
Political and social developments are of great importance in understanding certain economic trends or in evaluating the feasibility and realism of certain policies. For example, a weak government is not likely to carry out a forceful stabilization program, nor is a minority government likely to convince a hostile parliament to adopt new taxes or far-reaching policies. Similarly, a country with powerful labor unions may have difficulties in implementing tight incomes policies. Knowledge of the country’s history, its political institutions, and its social structure may help in understanding certain decisions and constraints on policy actions, as well as on the general process of policymaking in that country.
This expertise is acquired only by reading extensively about a country, by reviewing and analyzing developments, and by trying to foresee developments. The work of a desk economist covers three broad areas: the collection of broadly defined data, the review and analysis of data collected (including the preparation of projections), and the reporting of findings to the supervisor. Hence, it would be useful to organize the country desk along these three broad lines.
Newspapers, magazines, bank bulletins, and books are important sources of periodic information on the political situation of a country and on its economic and financial developments. Newspapers and magazines may report preliminary estimates on certain economic variables (for example, on production) that may be revised and updated later in other official publications. Traditionally, the desk economist collects large quantities of newspaper clippings that usually remain forgotten in divisional files and are too cumbersome to be consulted. It is more useful to compile periodic brief summaries of information provided by the media, classifying the material under broad sections (such as political developments, real economy, and prices and wages) and indicating the source of the information. Bear in mind that about three quarters of the information in newspaper articles is either repetitious or adds little to the desk economist’s knowledge of the country. The brief summaries can be easily consulted by the supervisor and are a more useful way for him to keep abreast of developments in the countries of the division and to prepare briefing papers and other reports.
Since most of the information to be collected by the desk economist refers to economic and financial variables, it is important that he organize a data base that includes statistics that are available periodically. In most developing countries, data that are available monthly include domestic price indices, treasury operations, banking system accounts, external trade statistics, and international reserve positions. Quarterly information typically covers some GDP data, operations of certain key state enterprises, and external debt statistics. Detailed national accounts (such as GDP by expenditure component and by sector), operations of the rest of the public sector, accounts of nonbank financial intermediaries, and detailed balance of payments transactions are usually only available on an annual basis. In addition, the desk economist should familiarize himself with data available in other departments of the IMF, such as the Statistics Department (STA), Policy Development and Review Department (PDR), and Fiscal Affairs Department (FAD).
The desk economist has to organize the data and decide how to use monthly data to estimate those variables that are available only quarterly or annually.2 The data base should be easily accessible to other staff, who can then consult it when the desk economist is away from headquarters. Moreover, to ensure continuity, desk economists should maintain a clear documentation of the data base, including the sources and the adjustments that have been made to the original data received from the country, since turnover on country desks can be frequent and at short notice.
The desk economist must follow developments over time and should, therefore, maintain time series that can be easily consulted. For example, in reviewing central government revenue collections for a certain month, the desk economist may wish to compare them with collections during the same month of previous years. Moreover, he may wish to compare cumulative collections since the beginning of the year both with receipts of previous years and with certain benchmarks, such as expected revenues for the entire year, domestic inflation, etc. In making these comparisons, the desk economist must make allowances for any change in the coverage of the variables for example, whether a tax rate was raised or a new tax adopted or eliminated.
But just to accumulate data is not sufficient. The desk economist should use the data at his disposal to analyze what has happened and forecast what may happen in the future. After an analysis has been made, short monthly or quarterly reports should be prepared that focus on major issues. These reports should point out when deviations from agreed paths emerge and the origins of such deviations.
The task of preparing projections, an important part of the IMF’s work, is facilitated if the data base has been organized in a logical and comprehensive manner. A newly appointed desk economist should test the methodology used by his predecessor to make projections. If he should conclude that such a methodology needs to be improved or does not exist, he should begin by projecting certain key financial variables for the following three months. The variables chosen will depend on the monthly information that is available. They could include treasury revenues and expenditures, monetary accounts, and some form of balance of payments. Initially, the new desk economist should maintain projections based on new or drastically revised methodology for his personal use, to acquire sufficient knowledge of the elements of the projections and confidence in their quality, and to avoid submitting untested and possibly erroneous forecasts to a supervisor. In this context, it is extremely important that the desk economist conduct a critical and candid review to pinpoint any errors or omissions made in the projections and to discover their causes. The desk economist’s skill and confidence in preparing these three-month moving projections will improve over time; once he is reasonably satisfied with the quality and reliability of his projections, he can present them to his supervisor.
Participation in missions, whether for consultations or to negotiate use of IMF resources, is invaluable for an economist working in an area department. Moreover, a mission offers the desk economist a unique experience to visit and enhance his knowledge of the assigned country and to contact local technicians. To better understand the economic, social, and political circumstances of the country, a desk economist should take advantage of the opportunity to see as much as possible of the country, particularly outside the capital.
To take full advantage of the mission experience, an area department economist should endeavor to rotate his assignment and gain expertise in the four broad areas of work (real economy, fiscal sector, money and credit, and external sector). This will also increase the economist’s understanding of the links between the sectors as well as of the reliability and shortcomings of the various available statistics. For certain countries, rotation of sector assignments may be difficult, because certain sectors may be covered by staff from other departments (such as PDR and FAD). Nevertheless, the desk economist should endeavor to become familiar with the issues and data in all areas.