IMF urges radical reforms in Spain
By Harold Heckle |
May 26, 2010, Wednesday
|
Print Edition
Print Edition
THE International Monetary Fund urged Spain to enact speedy and far-reaching economic reforms, saying its recovery from financial crisis was weak so far, according to a report released on Monday.
The Spanish government said it agreed with the findings, which were based on a periodic week-long appraisal by the IMF.
"The IMF's situation analysis coincides with that made by the government," the Finance Ministry said, adding that the Cabinet had passed measures last week that were broadly in line with the fund's recommendations.
The IMF said Spain should urgently and radically reform its labor market while consolidating the banking sector "to cement the soundness and efficiency of the system."
"The challenges are severe: a dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness," the report said.
It praised the country for taking some "bold" measures that enhanced the country's credibility, "such as cutting public sector wages."
Last week, the government reduced civil servants' pay by an average 5 percent to save 15.25 billion euros (US$18.81 billion) over two years and bring the annual deficit in line with the EU limit of 3 percent of gross domestic product by 2013. Last year's deficit was 11.2 percent of GDP.
The IMF report noted that output had stabilized as "imbalances accumulated during the long boom have begun to unwind." Competitiveness has improved, as productivity has risen and the core inflation differential turned negative.
The report also said Spain's banking sector was sound, albeit "under pressure" and in need of consolidation.
The Finance Ministry agreed, saying the government had agreed a restructuring path to merge weak banks with stronger ones.
The Spanish government said it agreed with the findings, which were based on a periodic week-long appraisal by the IMF.
"The IMF's situation analysis coincides with that made by the government," the Finance Ministry said, adding that the Cabinet had passed measures last week that were broadly in line with the fund's recommendations.
The IMF said Spain should urgently and radically reform its labor market while consolidating the banking sector "to cement the soundness and efficiency of the system."
"The challenges are severe: a dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness," the report said.
It praised the country for taking some "bold" measures that enhanced the country's credibility, "such as cutting public sector wages."
Last week, the government reduced civil servants' pay by an average 5 percent to save 15.25 billion euros (US$18.81 billion) over two years and bring the annual deficit in line with the EU limit of 3 percent of gross domestic product by 2013. Last year's deficit was 11.2 percent of GDP.
The IMF report noted that output had stabilized as "imbalances accumulated during the long boom have begun to unwind." Competitiveness has improved, as productivity has risen and the core inflation differential turned negative.
The report also said Spain's banking sector was sound, albeit "under pressure" and in need of consolidation.
The Finance Ministry agreed, saying the government had agreed a restructuring path to merge weak banks with stronger ones.
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