IMF: global financial system shows signs of recovery

01 October 2009

Risks to the global financial system have subsided as a result of unprecedented policy actions. But the report also warns of significant policy issues on the road to financial recovery.

Risks to the global financial system have subsided as a result of unprecedented policy actions and, more recently, a nascent global economic recovery, according to the IMF’s latest Global Financial Stability Report (GFSR).

But the semi-annual report, released on September 30, cautions that the road to financial rehabilitation is unlikely to be straight and that there will be significant policy issues ahead.
"We are on the road to recovery, but this does not mean that risks have disappeared,” said José Viňals, Director of the IMF’s Monetary and Capital Markets Department.
The report points to the need to further repair bank balance sheets to enable institutions to make the loans needed to support the economic recovery. Without this step, downside financial and economic risks could reemerge, the report said.
 
Stability in core markets has helped to reduce risks in emerging market economies, especially in Asia and Latin America, while the new lending facilities and augmented resources of the IMF have helped lessen tail risks (those that are unlikely but with potentially devastating consequences) in vulnerable countries.
Still, a plan to mitigate the build-up of systemic risks and to ground expectations is necessary for sustained economic growth, the IMF report said. The report expresses concern that improving markets could result in a loss of urgency that allows the much-needed policy agenda to lapse with complacency taking over.
 
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