MercoPress. South Atlantic News Agency

IMF calls on G20 for more action to combat corrosive crisis

The IMF has urged the Group of Twenty (G-20) industrialized and emerging market countries to take more decisive policy action to combat the corrosive global financial and economic crisis by bolstering demand and cleaning up the financial sector.

In a note prepared for a meeting of G-20 deputies in London that took place January 31-February 1, the IMF portrayed a grim outlook for the global economy, with growth in 2009 virtually grinding to a halt around the world and contracting in advanced economies. "The dramatic worsening of the financial crisis since mid-September has generated historic declines in confidence and severe disruptions in credit intermediation. The precipitous decline in activity across the globe is in turn further damaging the financial sector," the IMF said. IMF said that wide-ranging policy actions have helped avert a global financial meltdown, but warned that risks remained substantial and world growth was at its lowest level since World War II. "The overarching risk revolves around the possibility of further corrosive interaction between more severe contraction in global economic activity and even greater and more prolonged financial strains than currently envisaged, particularly if policy implementation falls short" according to the IMF note released this week. The IMF cautioned against protectionist solutions to the crisis, saying that raising barriers to imports and subsidizing exports would undermine prospects for global recovery. The recent London meeting was in preparation for a G-20 summit in London on April 2 to assess progress with implementing an action plan drawn up in Washington last November to counter the crisis. The G-20 comprises the seven major industrialized nationsâ€"Britain, Canada, France, Italy, Japan, Germany, and the United Statesâ€"plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, and Turkey, along with the European Union. The heads of the United Nations, IMF, World Bank, and the Financial Stability Forum also attend the summit. In the IMF assessment, action taken by governments so far had not yet achieved a decisive breakthrough in reversing the crisis. "While there are pockets of improvement in some markets where policy intervention has taken place, financial markets remain under heavy strain and systemic institutions are still perceived as fragile. Challenges persist across a wide range of markets and instruments," it said. Governments around the world have cut interest rates and introduced fiscal stimulus packages to counter the downturn, triggered by the sub prime mortgage crisis that erupted in the United States in mid-2007. So far, the G-20 countries have adopted or plan to adopt fiscal stimulus measures amounting to, on average, around ½ percent of GDP in 2008, 1½ percent of GDP in 2009, and about 1¼ percent of GDP planned for 2010. But the IMF said this would not be enough. "More aggressive and concerted policy actions are urgently needed to resolve the crisis and establish a durable turnaround in global activity," the IMF said. To be effective, policies need to be comprehensive and internationally coordinated to limit unintended cross-border effects. The IMF'analysis showed considerable variation across G-20 countries in the size and composition of stimulus packages announced so far. Revenue measures have focused on cuts in personal income taxes and indirect taxes such as the value-added tax or excise duties, while three-quarters of the G-20 countries have announced plans to increase spending on infrastructure, mostly on transport networks. Other expenditure measures include transfers to states or local governments, support for housing sectors, and aid to small and medium-sized enterprises.