IMF worried Spain is not planning for rainy days

21st April 2006, Comments 0 comments

21 April 2006, MADRID — The International Monetary Fund has called on Madrid to intervene more to tackle rising inflation which threatens the Spanish economy.

21 April 2006

MADRID — The International Monetary Fund has called on Madrid to intervene more to tackle rising inflation which threatens the Spanish economy.

Rodrigo Rato, IMF director, said Spain was losing competitiveness because of the steady increase of inflation.

Inflation is currently at 3.9 percent, 1.7 percentage points above the average in the euro zone which is where Spain does most of its trade.

The rising trade deficit has pushed the shortfall in its gross domestic product to 7.6 percent.

This means it is importing more than it is exporting, making a serious dent in its GDP.

The IMF expects this to rise to 8.7 percent of the GDP in 2007.

"Given the inflationary differential, it is necessary to go further with fiscal policy," Rato told El Pais newspaper.

Rato called for labour market reforms and for adjustments to the way in which prices are set in Spain.

He said growth had continued for the past 10 years so the best time to introduce changes was when the economy was buoyant.

"They (the Spanish) might think that as they are in the euro area, they won't suffer the consequences," Rato said.

"But bear in mind that when the day arrives in which demand starts to slow, without monetary policy and devaluation, the ability to reactivate the economy is very limited."

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Subject: Spanish news

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