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Global Financial Crisis: IMF prescribes new stability therapy

By Olisemeka Obeche

The latest International Monetary Fund’s Global Financial Stability Report has recommended a new set of guidelines that could help engineer smooth transition to a stable global financial system.

Briefing newsmen at the 2013 IMF/World Bank Annual Meetings yesterday in Washington D.C., the Fund’s Financial Counselor and Director, Monetary and Capital Markets Department, Mr José Viñals, disclosed that despite the bumpy road ahead, the global transition to a safer financial system remains certain.

“There is the global transition toward a safer financial system, toward better regulation, where much remains to be done,” Mr Viñals emphasized.

For the global economy to navigate the current turmoil, the United States, emerging markets, the Euro area and Japan must take certain measures. The United States Federal Reserve, the report recommends, must adopt clear and a well-timed communication strategy to minimize interest rates volatility.

“Increased macro-prudential oversight and transparency in the shadow banking system is essential to preserve financial stability,” it adds.

The Fund also recommends smooth portfolio adjustments and policies that can tackle domestic vulnerabilities for the emerging market economies while advising policy leaders in the euro area to implement policy actions that can address ‘weak corporate and bank balance sheets’.

“Keeping emerging markets resilient requires countries to address domestic vulnerabilities and enhance policy credibility,” says the Fund’s Financial Counselor. As for the Euro, he stresses: “The corporate debt overhang needs to be addressed in a more comprehensive manner. This may involve debt clean-ups, improvements to bankruptcy frameworks or special asset management companies to restructure loans.”

The Fund also instructed Japanese policymakers to ensure complete implementation of its monetary stimulus programme under the ‘Abenomics’ framework because “a failure to enact the planned fiscal and structural reforms could ignite deflation and intensify financial stability risks”.

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