IMF Reccomends Stronger Measures to Fight the Global Financial Crisis

imf-building-2The International Monetary Fund (IMF) has recently published a comprehensive report called “Global Financial Stability Report – Responding to the Financial Crisis and Measuring the Systemic Risk.”. The IMF paper covers the history of the recent global financial crisis, as well as the measures taken by the governments and the companies to fight against it.

The report analyzes why the financial institutions have all been hit so hard by the current financial crisis, from the pension funds to the life insurance companies. These institutions were impacted despite the fact that most of them took preventive measures to manage potential surges in the risks of their assets. The report also underlines that there is a strong retrenchment from foreign markets, which outpaces strongly the overall de-leveraging process. The sharp decline of the cross border funding actuall created the crisis in the emerging markets, whilst the re-financing needs of those markets are still very large (estimated by the IMF at $1.8 trillion in 2009). IMF also mentioned that:

“Despite unprecedented official initiatives to stop the downward spiral in advanced economies—including massive amounts of fiscal support and an array of liquidity facilities—further determined policy action will be required to help restore confidence and to relieve the financial markets of the uncertainties that are undermining the prospects for an economic recovery. However, the transfer of financial risks from the private to the public sector poses challenges. There are continuing concerns about unintended distortions and whether the short-term stimulus costs, including open-ended bank support packages, will combine with longer-term pressures from aging populations to put strong upward pressure on government debt burdens in some advanced economies. Home bias is also setting in as officials are encouraging banks to lend locally and consumers to keep their spending domestically oriented.”

In other words, the financial crisis is creating a de-globalisation, which is quite the opposite of what the current financial system would need from the IMF’s perspective. Being known as the advocates of the free trade and the free capital flows, IMF has retrieved itself now rather as a guardina of the current fragile state of things, in several desperate attempts to restore the confidence in the markets and push them again on the spiral of growth. (to be continued on doitinvest.com)

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