A senior IMF official urged countries to use tax and spending policies to combat the global financial crisis because lowering interest rates may not be enough.
"In the current environment, there is a risk that monetary policy will prove to be less effective than in past episodes," IMF first deputy managing director John Lipsky said in a speech on Wednesday in Washington. "We are advising our members to consider whether they have room to adopt temporary fiscal measures."
The call to boost government spending is a departure from the IMF's long-held stance in favor of fiscal restraint. Lipsky said the crisis that began in US mortgage lending has grown into "a global challenge" that threatens "sustained and stable global growth."
Lipsky said in a speech at the Peterson Institute that the risks of a further escalation were rising and "decisive" policies would be required to stabilize the economy.
"We are using our expertise and many years of experience in helping our member countries through crises to think about what policies might prove most effective," he said.
Policy makers, Lipsky said, need to "think the unthinkable" and consider how they would react should the financial system deteriorate further.
Lipsky said an IMF assessment indicates that major and emerging economies accounting for half of the global economy have the ability to implement fiscal stimulus measures to boost domestic demand.
The IMF has already given its approval to Asian nations' efforts to employ fiscal measures to boost growth.
Manila may discard plans to balance its budget this year as Philippine President Gloria Arroyo's government accelerates investment in public works and social services.
Thailand's government is spending 1.5 trillion baht (US$47 billion) to expand mass transportation and improve health care. Hong Kong is cutting taxes and Singapore is handing out cash to its citizens.
In an effort to spur demand, US President George W. Bush and congressional leaders agreed last month on a US$168 billion stimulus plan that has as its centerpiece tax rebates for most households. Taxpayers are expected to start receiving checks in May.
In addition, US House Financial Services Committee Chairman Barney Frank said he would introduce legislation this week to expand the government's role in preventing foreclosures.
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