16 December 2008

IMF Strauss-Kahn: Actions taken so far are not enough

Government action needs to have a clear objective so that effective oversight of how public money is used is possible, Strauss-Kahn said and called for ‘stimulus measures that will last longer than one or two quarters’.

Governments need to take additional co-ordinated action to revive world financial markets and get credit flowing again, the IMF says, warning that the global economic outlook continues to deteriorate.

 

Action is needed on three fronts to prevent the current recession turning into a global depression, Managing Director Dominique Strauss-Kahn said and called for co-ordinated government intervention in financial markets to get credit flowing and support bank recapitalization, fiscal measures to offset the abrupt fall in private demand, and liquidity support for emerging market countries to reduce the adverse effects of the widespread capital outflows triggered by the financial crisis.

 

The actions taken so far are not enough, Strauss-Kahn said. "Government action needs to have a clear objective so that effective oversight of how public money is used is possible. This is still not always the case, and this lack of clarity goes some way to explaining the `bailout fatigue' which is a major political risk at the moment."

 

National plans must contain guarantees to depositors and assurances to creditors that are sufficient to ensure that markets function, he said. The plans should also provide liquidity and support bank recapitalization as well as encouraging banks to recognize the losses they have made. And they should promote the removal of distressed assets from banks' balance sheets.

 

Strauss-Kahn also called for ‘stimulus measures that are large and diversified, and that will last longer than one or two quarters’. But the IMF would not recommend reduction in corporate tax rates, dividends and capital gains taxes, or special incentives for businesses. ‘These are likely to be ineffective and difficult to reverse’, Strauss-Kahn said.

 

Full article

 

© International Monetary Fund