by Don Alexander, MBA
Associate, RSD Solutions Inc.
The IMF released its latest semi-annual Global Financial Stability Report (GFSR) with emphasis on providing a more permanent fix to causes of the financial crisis. The GSFR made three observations:
1. financial stability was improving, but risks remain elevated;2. the advanced countries need to tackle rising debt levels and weak balance sheets; and
3. for emerging markets to guard against overheating and financial imbalances.
The report provides a roadmap for policymakers to focus their work and reduce the vulnerability to future financial shocks. Currently, policymakers need to shift their focus from the symptoms of the financial crisis and towards measures to treat the underlying causes. This includes: advanced countries addressing high government debt levels and strengthening private and public sector balance sheets. Secondly, bank’s clean up their balance sheets, increase their capital buffers and write down distressed mortgage loans and restructure existing ones as needed. Lastly, emerging markets must address potential overheating driven by capital inflows, narrowing output gaps and rising inflation expectations.
In addition, the GSFR specifically addressed: the lack of a “credible strategy” in the US to stabilize public debt levels, the market’s favorable reaction to Spanish policymaker’s efforts to reduce financial vulnerabilities. The IMF noted the US was the only major advanced country, with a rising budget deficit, when the economy was growing fast enough to stabilize or reduce borrowing. The IMF noted that Spanish officials had taken tougher measures on banking and fiscal reforms that helped to distinguish them from their more troubled neighbors. As a result of this action, credit default swaps (CDS) spreads have declined.
To obtain a copy of the IMF’s recent Global Financial Stability Report click on the link:
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