IMF managing director: European governments may regret supporting protesting farmers

Governments in Europe should resist calls for greater financial support from protesting farmers in Europe, Kristalina Georgieva, managing director of the International Monetary Fund (IMF), warned during a press briefing in Washington, the Fund's representative office in Bulgaria said on February 8.

"We see the farmers are protesting. On the human level I understand they face more hardship and it is not easy to do the job they do. But if that sentiment continues and it pushes governments in a corner in which they find themselves unable to do what is necessary for (the) strength of the economies, then there may be days to regret," she said.

Georgieva added that she has spoken to politicians from finance ministries and they realise how complicated it is to take a step back in terms of support already given.

"It is easy to give it, but it is tough to take it back," the IMF managing director said.

The IMF's general call is for governments around the world to work to rebuild fiscal buffers depleted by the pandemic, debt buildup, high interest rates and the increased cost of servicing debt.

The lesson learned from the days, and from the war in Ukraine, was that countries with strong fundamentals withstand shocks better. That is why the IMF recommends that governments close the loopholes in their tax systems and assess the quality of existing public spending.

Other topics at the briefing were sovereign debt, interest rates, US financial policy, the outlook for the Chinese economy and IMF negotiations with Egypt and Argentina.

According to Georgieva, the US Federal Reserve Board can be expected to start cutting key interest rates "within a few months".

For the global economy, however, the greater risk was that central banks would rush to lower interest rates rather than if they started to act with a "slight" delay.

"Our team reviewed what has happened historically and concluded that the risk of premature easing is higher than the risk of a slight delay," Georgieva said.

At the same time, however, interest rates should not remain high longer than necessary and keeping an eye on the data is the way to strike the right balance, which the IMF managing director puts it this way: "Not too early, but not too late."

In her view, the U.S. central bank made the right decision to keep key interest rates unchanged while continuing to be cautious about declaring victory against inflation.

"If you carefully assess the Federal Reserve's position, it is one that recognizes that the job is not quite done yet, but we are close to the end," she noted.

The International Monetary Fund and Egypt are in the "final stages" of negotiations on an IMF programme to provide an additional loan to ease the pressure on the country from the Gaza war, Georgieva added. Egypt has a $3 billion agreement in place with the IMF.

Source: BTA