Make sure States are not forced to cut good programs: IMF

The IMF states the obvious (pdf) – even if we’ve not yet fully taken it on board.

First, and quite simply, governments should make sure that existing programs are not cut for lack of resources. In particular, central governments or sub-national governments that are facing balanced budget rules may be forced to suspend various spending programs (or to raise revenue). Measures should be taken to counteract the procyclicality built in these rules. For sub-national entities, this can be mitigated through transfers from the central government (suspending the rules for sub-national governments would not be appropriate as it will be difficult to reverse the suspension later.) In the U.S., for example, increased transfers from
the federal government would help states avoid cutting various spending programs.

Second, spending programs, from repair and maintenance, to investment projects delayed, interrupted or rejected for lack of funding or macroeconomi considerations, can be (re)started quickly. A few high profile programs, with good long-run justification and strong externalities, (for example, for environmental purposes) can also help, directly and through expectations. Given the higher degree of risk facing firms at the current juncture, the state could also take a larger share in private-public partnerships for valuable projects that would otherwise be suspended for lack of private capital.

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observa
observa
12 years ago

“First, and quite simply, governments should make sure that existing programs are not cut for lack of resources.”
The private sector might be doing it tough but what the hell, why should we in the public sector?

“Given the higher degree of risk facing firms at the current juncture, the state could also take a larger share in private-public partnerships for valuable projects that would otherwise be suspended for lack of private capital.”
After years of malinvestments due to central bankers lack of oversight of credit creation much private capital is at risk now, so we’ll promptly indulge in more risky public investments now, as if we weren’t involved in all that past malinvestment when the sun never set on increased tax takes.

As if you’d expect these public servants to ever recommend cutting their suit to the cloth.

vanaalst.robert
vanaalst.robert(@vanaalst-robert)
12 years ago

“In the U.S., for example, increased transfers from the federal government would help states avoid cutting various spending programs.”

Obviously so, and I doubt anyone would notice another hundred billion or two on the deficit anyway.