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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.
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