Sunday, June 20, 2010

Osborne lacks luxury of an IMF bail-out!

A study issued yesterday concludes that the IMF lacks the capacity to meaningfully assist an economy the size of that of the UK. Issued by Futurus it concludes as follows:


The IMF does not have the capacity to bail-out Britain. In an extreme case, it might provide standby arrangements of US$ 30-40 billion a year for three years. Such amounts are small in relation to British fiscal deficits of US$ 240 billion per annum. Of course, it will be argued that, even in the case of an IMF bail-out, there will be no need for the IMF to totally fund UK borrowing. It is argued that once the IMF commits money and insists on a proper deficit and debt reduction programme, private international investors will fund the bulk of the necessary UK borrowing. That may, or may not, happen. It is a matter of confidence.

Without prospect of significant financing from the IMF, the politicians cannot avoid immediate and severe reductions in public spending. There is no risk of a British default on existing debt but, if these reductions do not happen, access to further funding may evaporate forcing an overnight reduction in spending so that it is covered by revenue.

George Osborne must therefore implement cuts in this week's budget that match or exceed those likely to be imposed in an actual call to the IMF for help!



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