Fully Spend Stimulus Money to Back Crisis Recovery, Says IMF

• Author: IMF Survey online

"The latest economic news from around the world gives some reason for cautious optimism," said John Lipsky, the IMF's First Deputy Managing Director, in a speech in Paris on June 26. "Tentative signs are emerging that the rate of decline in global output is moderating and that financial conditions are improving."

Speaking at an IMF-organized conference, Lipsky said it was far too early to draw firm conclusions. But he said this news "offers positive reinforcement for the unprecedented efforts under way to resist the unprecedented challenge. After all, the breadth and severity of the financial crisis and economic slowdown are the most serious experienced since the 1930s."

Nevertheless, he said that ongoing policy support would be crucial in laying down firmer foundations for renewed growth, including the restoration of financial sector health.

Caution warranted

Lipsky said policymakers around the world had responded with flexibility and ingenuity, using all the weaponry available in their arsenal, including large-scale fiscal stimulus, very accommodative monetary policy, plus strong and often innovative support for the financial sector. "The speed and magnitude of the policy response no doubt played a key role in beginning to turn around market sentiment, in slowing the decline in economic activity, and in truncating the downside risks," he told the conference.

But while clear signs of recovery are visible in some emerging markets, particularly in Asia, the recovery still appears to be struggling to become established in most advanced economies, Lipsky stated.

Countries should not relax their fiscal stimulus measures. "Regarding fiscal policy, the implementation of the announced stimulus measures is an incomplete challenge."

Actual spending falls short

Lipsky said that although experience varied across countries and programs, actual spending of announced stimulus measures was relatively low in many cases. In the United States, for example, while payroll tax cuts had been implemented relatively quickly, only $46 billion or 11 percent of authorized spending measures, had taken place through mid-May, concentrated in health and human services.

"It is straightforward to conclude that the spending measures already announced must be implemented if they are to support the incipient recovery. Moreover, if the signs of recovery...