Revista-E

Washington (Revista E) - The IMF has found that credit growth, when combined with other factors, can signal a build-up of systemic risk. In this interview, the IMF’s Srobona Mitra explains what to watch for.

Washington (Revista E) - The IMF says that deficit-cutting measures are gaining pace in many advanced countries, such as in most of Europe and Canada. Deficits have been partly curtailed by rising revenues from stronger growth. In the latest update to the Fiscal Monitor, the IMF said that the US outlook has improved slightly thanks to recovering activity.

“Actually, the major revision relates to the largest advanced economy, the United States, where revenues are flowing in a bit faster than we expected. Spending is taking place a bit more slowly. And as a result we are revising down the projected deficit for the United States –- fiscal deficit –- by about 1 percentage point of GDP. It remains a very large deficit. We are projecting for the general government, which is the federal government, the states, and the local governments, all together – we’re projecting a deficit of 10 percent of GDP which is still very large but is a bit smaller than before,” said Carlo Cottarelli, Director of the IMF’s Fiscal Affairs Department.

In many emerging markets, fiscal consolidation is well underway. However, Cottarelli warned that others need to cut back spending faster to reduce the risk of overheating. ”For emerging economies the main challenge is to tighten fiscal policy to avoid the pressures of overheating is already apparent in many of them,” Cottarelli said.

Even though the IMF has revised down its estimate of the projected US deficit, it still remains urgent that the authorities reach agreement on how to lower deficit levels.

“There is an issue of timing first of all. Fiscal cuts that are too much too soon are not good for economic recovery. So is excessive delay because this would lead to market reaction and increasing interest rates which also would not be very good for economic growth. So you need to strike the right balance,” Cottarelli said.

Japan is the other major advanced economy in urgent need of reducing debt levels.

“Countries that start from a relatively strong fiscal position like New Zealand and Australia can afford the gradual adjustment over the medium term. Japan’s fiscal accounts are not in a very strong position so the priority for Japan remains to be identified in medium term fiscal adjustment plan that is sufficiently clear in terms of goals and in terms of tools,” Cottarelli said.

Washington (Revista E) - Latin American economies are recovering faster than anticipated, with the region expected to growth by more than 5½ percent in 2010. In this interview, the IMF’s Director of the Western Hemisphere Department Nicolas Eyzaguirre says the main challenge for policymakers will be to avoid overheating.

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