By Arun Kumar,IANS,
Washington: The International Monetary Fund (IMF) suggests that to set the stage for strong, sustained, and balanced growth, anchored by price stability, policymakers need to formulate flexible, market-based, and integrated exit strategies.
The IMF’s Executive Board last week discussed principles for exiting from extraordinary and unprecedented crisis intervention policies implemented by countries across the globe following the onset of the financial crisis in the summer of 2007.
Directors agreed that exit strategies should be coherent and credible, an IMF release said.
“To be effective, exit strategies should also be flexible, market-based, and integrated across policy-making entities.”
The IMF noted that although the stimulus will be maintained in a majority of emerging market economies, several in this group including India are considering, or have already committed to, reducing their structural deficits in 2010 compared with 2009.
Other examples include Mexico, the Philippines, Turkey, and Vietnam. “In some instances, this reflects more rapid recovery from the crisis; more often, this reflects efforts to sustain sovereign risk ratings or, in rare cases, to avoid vulnerabilities.”
Central banks in most emerging economies are well on their way to unwinding their crisis intervention measures. For example, strengthening domestic economic conditions have led the Reserve Bank of India and Bank Indonesia to tighten domestic liquidity instruments such as statutory liquidity and reserve requirement ratios.
Financial sector support measures in emerging economies have been few, and the usage remains less than pledged amount. Debt guarantees remain largely underutilised, IMF said.
However, recapitalisation of banks is likely to continue, especially in Russia. In India, recapitalisation of state owned banks is expected to increase with the World Bank’s approval of a $2 billion loan for recapitalisation in September 2009.
IMF said directors recognised that the appropriate timing, pace, and mode of exiting from crisis-related policies depend on the state of the economy and the health of the financial system; synchronisation of unwinding among advanced and emerging market countries is in general neither possible nor desirable.
“The key challenge will be to map a course between unwinding such policies too early, which would jeopardise progress in securing economic recovery, and maintaining intervention for too long, which would distort private incentives and create macroeconomic risks,” it said.