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IMF
moots insurance against recession
The
International Monetary Fund (IMF) has suggested that
banks make companies buy recession insurance from governments
before they can borrow. The aim would be to reduce uncertainty
about the future when economies are sliding.
The idea, documented in a 37-page paper on fiscal stimulus
which was released recently, is raised to help situations,
such as the present, in which economic uncertainty is
so high that companies and consumers cut spending, thus
deepening the economic downturn.
The paper said: “In this context, the government
could provide insurance against extreme recessions by
offering contracts with payment, for example, contingent
on GDP growth falling below some threshold level.”
Banks could make buying the insurance a condition for
loan approval. “Widespread use of such contracts
would provide an additional automatic stabiliser because
payments would be made when they are most needed, namely
in bad times,” the IMF said.
As the proposal is meant for internal discussion for
the moment, the IMF has not yet broached the subject
with any representatives of any government, said Carlo
Cottarelli, director of the IMF’s fiscal affairs
department.
However, one concern is that some governments may not
be able or willing to honour their obligations and countries
offering such insurance would need to budget accordingly.
Another concern is that in several countries, the government
could be responsible both for running the insurance
programmes and compiling the economic data that would
trigger payouts.
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