Wednesday, September 16, 2009

IMF Issues Guidelines for Ending Bank Relief

Posted in the Wall Street Journal by Bob Davies:

The International Monetary Fund, reinforcing its role in remaking the global economy, laid out detailed principles for scaling back government support of the financial industry over coming years.

Among the IMF suggestions: Nations should examine specific economic indicators before starting to curtail subsidies, loans and guarantees; nations also should put together risk assessments to guide policies.

Central banks should be reimbursed by governments for losses on loans and other guarantees they have made to financial institutions, the IMF said in a study released Tuesday. That will help ensure that central bank interest-rate decisions aren't hampered by other extraordinary actions banks have taken.

Before next week's Group of 20 summit, government officials are talking about the need to unwind fiscal and monetary backing. Most offered few specifics, in part because they fear spooking markets. A global recovery could be undermined by withdrawing stimulus early. The G-20 is likely to turn to the IMF to flesh out strategies, said people involved with the talks.

If handled correctly, the IMF said, the ultimate cost of the global government financial bailout may not be as high as often supposed. Although the IMF estimates that government debt in industrialized countries will increase about 40% from 2007 to 2014, only about 4.5 percentage points come from financial-industry bailouts.

The IMF said governments announced far larger support packages than they carried out, because they wanted the size of the package to impress markets and because many took a long time getting programs in place.

The paper can be downloaded here.

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