In a statement issued by the International Monetary Fund (IMF) recently, the global lending institution said the debt stricken countries like Portugal and Spain should have no reservations in seeking bail-out money.
Borrowing from IMF should not be interpreted as disgraceful and loss of sovereignty. Rather the EU safety-net will help these countries from possible default and higher borrowing costs.
“I can fully understand the reluctance of countries to ask for a joint programme from the EU and IMF, but such programmes can help”, said IMF Chief Economist Olivier Blanchard.
The rescue money to be provided will effectively cap the borrowing cost for a particular country, helping it better manage its international debts at a lower cost, said Blanchard. It further inspires international investors’ confidence as fiscal discipline is imposed on erring countries, he added.
Blanchard’s message will be seen as directed towards Spain and Portugal. These countries are believed to be in the queue for bailout money after last years rescue package to Greece and Ireland.
Blanchard said although recovery has gained some momentum, crisis hit countries will face a “long and tough slog” to manage their finances. Countries like Greece and Ireland – being members of the EU and sharing the common currency Euro, do not have the liberty to devalue the currency to boost exports.
Developing countries like India and China will continue to grow feverishly while industrialized nations like Britain and America will continue to battle with their huge public debts. Cautioning against expectations of any quick recovery, the IMF said the road to revival will be “long and slow”.
The healing process may take years and the prospect of full economic and job recovery will be slow, said the Washington based think tank.
“Markets are still uncertain about the true health of the banks and the result is a slow recovery, barely strong enough to decrease unemployment”, Mr. Blanchard reasoned.
Arguing that allowing the Chinese currency to appreciate alone will not solve financial problems, he said rebalancing needs to be done between countries running huge trade surpluses like Germany & China and countries running huge deficits like the US and the UK.