It is still too early to withdraw the substantial support provided by governments and central banks; moreover, countries should take a comprehensive approach to managing their new assets, liabilities, off-balance sheet risks and contingent claims.
The IMF’s executive directors welcomed the opportunity to discuss “Crisis-Related Measures in the Financial System and Sovereign Balance Sheet Risks,” which they considered to be a useful and timely contribution. While recognizing that it is still too early to withdraw the substantial support provided by governments and central banks, the directors considered it appropriate to begin reflecting on how enlarged public balance sheets can be managed most effectively and to ensure orderly exits.
Framework and policy mandates
The directors recognized that, while the impact on fiscal deficits from public interventions in the financial sector has so far been limited, some sovereign balance sheets have expanded significantly and risk exposures have risen substantially, compounded by the impact of recession in many countries. They believe that countries should take a comprehensive approach to managing their new assets, liabilities, off-balance sheet risks and contingent claims—which encompass all public entities involved in crisis response.
The directors made the following points:
· wherever possible, and in order to protect fiscal solvency, unrequited support should be avoided, recovery rates on assets acquired should be maximized and measures should be taken to minimize the realization of contingent claims.
· asset management should be undertaken within clearly specified mandates and governments should exercise their ownership rights in accordance with best-practice corporate governance rules.
· while they recognize the challenges that appropriate valuation of assets present, particularly given impaired or inoperative markets, at the same time, it is important to adopt fair value principles because an aggressive shift away from marking-to-market valuation could be counter-productive.
· domestic debt management strategies should be reviewed to ensure they are sufficiently robust to accommodate the recent changes in the sovereign balance sheet. The development of comprehensive fiscal risk statements should help guide operational frameworks for managing contingent liabilities.
© International Monetary Fund
Documents associated with this article
|
|
IMF Report.pdf
|
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article