JAKARTA (TheInsiderStories) – The International Monetary Fund (IMF) stands ready to mobilize its US$1 trillion lending capacity to help countries lessen the blow from the coronavirus, said the managing director on Monday (03/16). Kristalina Georgieva also said the IMF was able to rapidly disburse up to $50 billion in loans to emerging and developing economies.
She asserted, the low income countries can access $10 billion in zero-interest-rate loans. So far, 20 countries have expressed an interest, she adds. The Fund already has 40 ongoing arrangements—both disbursing and precautionary—with combined commitments of about $200 billion.
“In many cases, these arrangements can provide another vehicle for the rapid disbursement of crisis financing. We also have received interest from about 20 countries and will be following up with them in the coming days,” said Georgieva.
In addition, the Fund’ Catastrophe Containment and Relief Trust can help the poorest countries with immediate debt relief, which will free up vital resources for health spending, containment, and mitigation.
“In this regard, I commend United Kingdom’ recent pledge of $195 million, which means the funds now has about $400 million available for potential debt relief. Our aim, with the help of other donors, is to boost it to $1 billion,” she adds.
According to her, there is three action areas to help the global economy. First, additional fiscal stimulus will be necessary to prevent long-lasting economic damage. She noted, fiscal measures already announced are being deployed on a range of policies that immediately prioritize health spending and those in need.
“We know that comprehensive containment measures—combined with early monitoring—will slow the rate of infection and the spread of the virus,” said Georgieva.
Then, governments should continue and expand these efforts to reach the most-affected people and businesses—with policies including increased paid sick leave and targeted tax relief. Beyond these positive individual country actions, as the virus spreads, the case for a coordinated and synchronized global fiscal stimulus is becoming stronger by the hour.
During the Global Financial Crisis, for an example, fiscal stimulus by the Group 20 amounted to about 2 percent of GDP, or over $900 billion in today’ money, in 2009 alone.
Second, monetary policy. In advanced economies, central banks should continue to support demand and boost confidence by easing financial conditions and ensuring the flow of credit to the real economy. For example, the United States Federal Reserve just announced further interest rate cuts, asset purchases, forward guidance and a drop in reserve requirements.
“Policy steps that we know have worked before—including during the global financial crisis are on the table. Yesterday, major central banks took decisive coordinated action to ease swap lines and thus lessen global financial market stresses,” Giorgieva stated.
Going forward, there may be a need for swap lines to emerging market economies. As the Institute for International Finance said last week, investors have removed nearly $42 billion from emerging markets since the beginning of the crisis. This is the largest outflow they have ever recorded.
So, central banks’ policy action in emerging-market and developing economies will need to balance the especially difficult challenge of addressing capital flow reversals and commodity shocks. In times of crisis such as at present, foreign exchange interventions and capital flow management measures can usefully complement interest rate and other monetary policy actions, said the managing director.
Third, the regulatory response. Financial system supervisors should aim to maintain the balance between preserving financial stability, banking system soundness and sustaining economic activity. This crisis will stress test whether the changes made in the wake of the financial crisis will serve their purpose.financial crisis
Banks should be encouraged to use flexibility in existing regulations, for example by using their capital and liquidity buffers, and undertake renegotiation of loan terms for stressed borrowers. Risk disclosure and clear communication of supervisory expectations will also be essential for markets to function properly in the period ahead.
“All this work—from monetary to fiscal to regulatory—is most effective when done cooperatively,” she claimed.
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