IMF calls for 'urgent' banking, labor reforms in Spain

24th May 2010, Comments 0 comments

The IMF called Monday for "urgent" labor and banking reforms in Spain as the Socialist government struggled to rein in its public deficit amid a mounting European debt crisis.

"Spain's economy needs far-reaching and comprehensive reforms," the Washington-based International Monetary Fund said in a report after annual consultations with the government.

The fund described the challenges facing Spain as "severe," citing a "dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private-sector and external indebtedness, anemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness."

Noting that "ambitious" fiscal consolidation was underway, the IMF said it needed to be "complemented with growth-enhancing structural reforms," especially in the banking sector and labor market.

The IMF urged the government of Spanish Prime Minister Jose Luis Rodriguez Zapatero to push ahead with reforms and austerity measures, saying they should be built on progress made especially in overhauling the labor market.

It called for a bold pension reform, along the lines proposed by the government, to be "quickly adopted."

It also said that the consolidation and reform of the banking system needed to be "accelerated," pointing out that "the risks remain elevated and unevenly distributed across institutions, focused mainly on the savings banks."

The Spanish government said it agreed with the IMF assessment.

"The IMF analysis of the situation coincides with that of the government, which believes the Spanish economy has entered into a phase of stabilization after the severe crisis of the last two years but that this recovery is still weak and therefore the government should not delay reforms," the finance ministry said.

Spain has unveiled major belt-tightening measures in the wake of a Greek public debt crisis that has shaken confidence in that country and other debt-riddled eurozone members such as Ireland, Italy and Portugal.

Earlier this month Greece received an unprecedented 110-billion-euro (136.2-billion-dollar) bailout from the European Union and the IMF to save it from bankruptcy.

Last week Zapatero's cabinet approved a two-year 15-billion-euro (18.6-billion-dollar) austerity plan that includes a freeze on state pensions and an average cut this year to civil servants' salaries of five percent.

The plan comes on top of a 50-billion-euro (62-billion-dollar) package announced in January designed to slash the public deficit to the eurozone limit of three percent of gross domestic product by 2013, from 11.2 percent last year.

Unions representing public-sector workers have called a strike for June 8 while Spain's largest trade union, Comisiones Obreras (CCOO), said Friday it would "probably" call a general strike over the tough new austerity measures.

On economic growth, the IMF said it expected the Spanish economy to expand gradually to 1.5-2.0 percent in the "medium term."

Financial markets were rattled Monday as the European debt crisis intensified with a weekend Spanish bailout of a troubled financial firm.

The rescue of regional savings bank CajaSur, taken over by the Bank of Spain, could cost up to 2.7 billion euros, a Spanish newspaper reported Monday, burdening Spain's already strained public finances.

© 2010 AFP

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