IMF gives Spain a must-do list to put crisis behind it

Lagarde calls for further labor reforms and indirect taxes to reduce deficit

Managing director of the IMF, Christine Lagarde, in Bilbao on Monday.
Managing director of the IMF, Christine Lagarde, in Bilbao on Monday.Alfredo Aldai (EFE)

Christine Lagarde took advantage of her first visit to Spain as managing director of the IMF to launch a message of support for the conservative Popular Party government of Prime Minister Mariano Rajoy but also to remind him of structural reforms that are still pending.

Lagarde, the star guest at the Global Forum Spain seminar being held in the northern port city of Bilbao, welcomed the fact the Spanish economy has returned to growth after a prolonged recession. She urged Rajoy for more reforms on the labor front, a reduction of the public deficit by increasing indirect tax revenues and to make it easier for entrepreneurs to set up companies.

“Thanks to the formidable actions over the past five years, Europe—and Spain—are now turning the corner. Yet the task is far from finished. Growth remains too low and unemployment too high for us to declare victory on the crisis,” Lagarde said in a speech.

The IMF chief also heralded the gradual improvement in the Spanish labor market, the growth in exports, the clean-up of the banking sector, and the fact that Spain booked a current account surplus in 2013 for the first time in 15 years.

Creating jobs must be the overriding focus for Spain"

She attributed a large part of the turnaround to the bailout to overhaul the financial sector, the labor reform introduced in February 2012 and fiscal reforms.

However, she insisted that while Spain has put its longest recession since the restoration of democracy behind it, she agreed with Rajoy that the crisis is still not over. “As is the case for Europe, so too in Spain—the scars of the crisis run deep and will take years to heal,” she said. “Perhaps the single most striking scar is that of unemployment. The crisis pushed up unemployment from 8 percent in 2007 to 26 percent in 2013.”

She pointed out that of the almost 6 million unemployed people in Spain, 3 million have been out of work for more than a year and also the “deeply distressing” fact that unemployment among young people is well above 50 percent. “Creating jobs must be the overriding focus for Spain,” she said.

The IMF chief insisted that there must be “no let-up in the reform momentum” to turn the situation around. She highlighted the need for further structural adjustments to the labor market. “Both firms and their workers need to be assured that they can reach appropriate agreements on working conditions and wages,” she said. “This is essential for jobs to be protected and created.”

"'Diligence is the mother of good fortune.’ Who am I to argue with Cervantes?”

The former French finance minister also said unemployed workers need more assistance to return to the labor market through enhanced skills training and job-search help.

Lagarde also insisted that public and private debt needed to be reduced. “For firms, this means helping insolvent but viable ones restructure their debts, so they can stay in business and continue to invest and hire people,” she said. “For the government, it means continuing to reduce the fiscal deficit in a gradual, growth-friendly way, especially by relying more on indirect taxes.”

The third area she identified was making it easier for businesses to start up and grow, which in turn will create employment.

Lagarde ended her speech by quoting from the author of Don Quixote. “Cervantes’ Quixote once said, ‘Diligence is the mother of good fortune.’ And who am I to argue with Cervantes?”

She pointed to how the city of Bilbao had transformed itself through “25 projects in 25 years.” “It is our collective responsibility not only to restore strong growth, but also to put millions of people back to work,” she said.

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