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Coordinated stimulus

(China Daily)
Updated: 2009-02-09 08:00

The international community should adopt robust fiscal measures along with monetary policies to boost the real economy, says an article in People's Daily. The following is an excerpt:

According to a recent UN report on this year's economic prospects, the ongoing global financial crisis is spreading to the real economy. To stabilize their financial markets, many countries have resorted to monetary policies. But only a few have taken substantial fiscal measures to spur the slowing real economy.

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Interest rates have been dropped to record lows but no signs of thaw have emerged in frosty credit markets. A strong monetary policy can help increase financial fluidity when consumer and producer confidence suffers and demand continues to shrink. But such measures do little to boost credit growth. Monetary policies alone will not effectively contain the world's economic slowdown, much less fuel economic revival. A large-scale fiscal stimulus package would help economic growth and expand employment.

So far only a small number of countries have worked out fiscal stimulus measures. Others remain hesitant, worried that a widening fiscal deficit could bring middle and long-term negative impacts to their economies. Decision-makers in all nations should be well aware they are confronted with an unprecedented crisis and that a controllable deficit will effectively curb recession and stabilize the employment market. A fiscal deficit program aimed at infrastructure construction, technological elevation, and dealing with climate change will also encourage sustained development.

An enormous stimulus package launched by China late last year offers valuable reference for other countries. A country's fiscal measures may bring more benefits to other countries than to itself, in the context of globalization. This is the main reason many countries remain reluctant to take such measures.

Under these circumstances, the UN report calls for strengthened international policy coordination. Concerted fiscal action by major economies will multiply the positive policy effects. The joint action to lower interest rates by the world's six leading central banks helped reduce international financial market fluctuations. Coordinated fiscal packages by major economies will also help minimize international financial fluctuation and consolidate the real economy.

Strengthening international coordination should also include offering more aid to developing nations. Contracting fiscal revenues from export and foreign investment decline have already limited their possible fiscal policy measures. Increasing aid will help them fend off the crisis and boost dwindling global demand.