Shoot down the debt is undesirable, says the IMF to countries such as Germany – publico

                 

                         
                     

                 

 
                         

Take advantage of the current climate to start paying the debt accumulated during the crisis and make it fall faster is not desirable, argues the International Monetary Fund (IMF), a recommendation that is intended for countries with budgetary room for maneuver – which does not include Portugal.

                     

                          In line with the advice we have been giving in recent months, in its regular reports, the IMF published on Tuesday a study – signed by three economists of the institution and approved by the chief economist Olivier Blanchard – where analyzes what should be the management strategy of the following public debt in the coming years. All over the world, the international financial crisis has led states to accumulate debt and now that economies returned to growth, is launched the debate on what to do.

The IMF begins first by distinguishing the different circumstances in which they are the countries concerned. “While some countries facing debt sustainability constraints that leave them little choice, others are in the most comfortable position of being able to finance themselves at reasonable interest rates – and even exceptionally low,” says

In practice, the fund distinguishes between countries that have a comfortable budgetary room for maneuver and those who do not. Doing so is not easy, recognizes, and “can not be done through a mechanical rule or the establishment of a limit.” Therefore, demand compute through a series of indicators – such as the ability of a country to obtain market financing – which debt level from which one enters a high level of non-compliance situation that requires radical action by governments.

In view of the debt they have now, most countries are in a comfortable situation, including eurozone countries such as Germany, the Netherlands, Finland and Austria. Other countries are in a situation that requires “caution”, such as France, Spain and Ireland.

Portugal is lower, a debt level that is considered “significant risk”. Even worse, no longer any margin for maneuver and in situations of “serious risk”, are Japan, Italy, Cyprus and Greece.

In this report, the fund does not engage the countries in the debt has already reached risky levels, such as Portugal. It focuses are those in which the debt, although high, still offers room for maneuver which gives them two options. “For these countries, there is the matter of or living with a high debt, allowing the debt ratio to decline organically through growth, or pay deliberately to reduce the debt burden,” says the report.

The IMF board is clearly that countries follow the first option. “If the fiscal space to continue extensive, policies to deliberately reduce debt are undesirable normatively,” says the report. The main explanation is that “the cost of political distortion to deliberately shoot down the debt is likely to exceed the benefit of preventing crises resulting from lower debt.”

So, it is better now enjoy improved conjuncture to contribute to a stronger economic recovery and cause the debt ratio go progressively reducing precisely thanks to economic growth.

This recommendation applies especially in the euro area to Germany, where the government has decided to register a zero deficit that lets you quickly write off your debt. Several times, implicitly or explicitly, the leaders of the IMF have advised Berlin to enjoy their budgetary room for maneuver to launch more stimulus to the economy, for example through public investment.

For Portugal and other eurozone countries in which it does not consider budgetary room for maneuver, appears to remain another option, according to the IMF than to wait for the benefits of any less cautious policy of countries like Germany.