The International Monetary Fund (IMF) is urging developing countries including the Philippines to formulate as early as now their “exit plans” for withdrawing their respective stimulus programs earlier put in place to combat the global economic crisis.
IMF managing director Dominique Strauss-Kahn said that while the global economy is already starting to recover, countries should remain cautious and continue to keep their stimulus interventions in place.“I am concerned about the social and economic costs of high unemployment, which will persist even as financial markets and output stabilizes,” said Strauss-Kahn, stressing that a jobless recovery could happen if governments do not have proper exit plans.
Given the fragility of the recovery, the Washington-based Fund warned that “policymakers shoulder on the side of caution as they decide when to exit from their crisis response policies.”Strauss-Kahn, however, said that governments should develop their exit plans now so that they are able to build public support and act when the time is right.
To be able to prepare for the post-crisis period, Strauss-Kahn said governments should first identify new sources of growth in their respective economies.On the demand side, “the baton will eventually need to be passed from the public to the private sector,” Strauss-Kahn said.
The next step he said is to push for sustainable improvement in financial markets. He urged policy makers to remain focused on the crisis response agenda, which includes undertaking a comprehensive diagnosis of banking systems and launching asset-management programs to deal with banks’ bad assets.
On financial regulation, he cautioned that reforms are not proceeding as quickly as necessary. He called for increasing capital requirements and making them more sensitive to risk. He added that the operational framework for macroprudential supervision remains a “work in progress.”
With regard to financial sector compensation, he noted that a culture of risk-taking in major financial firms had been an important factor in the crisis, and raised concerns that financial sector recovery could lead to “business as usual.” He said that the international community must “stand together to make meaningful progress in this area”.
Finally, Strauss-Kahn said that there is a need to make the international monetary system more stable.