Friday, March 20, 2009

Fiscal Policy?

Yesterday, the IMF released a statement, part of which is quoted below:

"Moreover, fiscal policy must play a central role in supporting demand while remaining consistent with medium-term sustainability. The report provides a careful assessment of the fiscal stimulus that is being provided by G-20 countries that suggests that while substantial stimulus is being provided in 2009, additional initiatives will be needed to sustain fiscal support for the global economy in 2010 by countries with fiscal space."

Interestingly, last night an interview on Lateline Business was conducted with Desmond Lachman (ex-deputy director of the IMF's Policy and Review Department). The closing comments of this interview were:

"But right now, it doesn't look good, you know, in the sense that there's no money forthcoming for the banks, and it looks like the fiscal stimulus package, really, was not as front loaded and as well designed as it should have been. The Obama Administration seems to have got sidetracked with a long-term agenda when the short term problems aren't being properly addressed."

Can the same be said about the Rudd's Government $42 Billion Nation Building Package? I think it can, two of my reasons are
  1. Bonus payments didn't work properly last time. Arguably, because of the deterioration in economic conditions they are even less likely to work properly now.
  2. Most of the initatives listed are described as "Long Term Nation Building Investments".

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