Third, the IMF paper posits a strong dichotomy between “micro” and “macro” industrial policies. This distinction that the IMF draws between “macro” industrial policies (including intervention to weaken a currency) and “micro” industrial policies (sectoral support, whether from directed purchases, directed lending or outright subsidies) is theoretically helpful. But the correlation between macro industrial policies and micro industrial policies across Asia makes sorting out the relative contributions of micro-industrial policies and currency policy difficult. In practice, there is much more continuity between micro and macro industrial policies than in the IMF’s models—and the countries generally judged to have the most successful “micro” industrial policies also often have active “macro”-industrial policies to support exports through undervalued exchange rates. The interaction between the two often seems to generate large and persistent surpluses—the exports from industrial policy success stories making creating a political economy that makes policies suppress domestic consumption more sustainable over time. Sorting out the different impact of macro-industrial policies and micro-industrial policies is all the more difficult because the IMF’s standard framework for external assessment still doesn’t capture many policies—outflows through a sovereign wealth or pension fund, the buildup of foreign exchange in a state banking system—that would appear to meet the IMF’s definition of a “macro” industrial policy, and that in many cases have a clear impact on the foreign exchange market.***
