Friday, April 16

Vitor Gaspar (IMF): “The biggest lesson of this crisis is that fiscal policy can be very powerful” | Economy


Vitor Gaspar, in a file image.
Vitor Gaspar, in a file image.Kim Haughton

Vitor Gaspar (Lisbon, 60 years old) today has a much more pleasant job than a decade ago, when as his country’s Minister of Finance, Portugal became the visible face of the cuts. At the head of the Public Finance Department of an International Monetary Fund (IMF) that has left behind the washington consensus and who is striving these days to show his most social and friendly face possible: no austerity – for now – and solidarity in the distribution of the burdens derived from the pandemic. He attends EL PAÍS by videoconference from his office in the US capital.

Question. Rich countries will emerge from this crisis earlier and stronger than emerging and poor ones, largely because they are being able to spend more. Are you worried?

Answer. There are risks, but now the largest possible measure of economic policy is vaccination. It is the priority: if the vaccine is deployed faster, in 2025 global GDP will be 9 trillion dollars [7,6 billones de euros, más de seis veces el PIB español] higher. The gains in terms of higher tax collection, in rich countries alone, would be close to a trillion. And the divergences between countries will be smaller.

P. But the asymmetry in public spending is clear.

R. Perhaps the biggest lesson we have learned in this crisis is that fiscal policy can be a very powerful tool. Countries with larger fiscal buffers and easier access to finance have been able to deploy stronger fiscal support and are being able to sustain that support over time and recover faster. The two clearest cases are the US and China.

P. How do you rate Joe Biden’s crash plans?

R. The case of the United States is extremely interesting. It has substantially expanded its fiscal action: 2.8 trillion is a lot. But we have revised its long-term debt path downwards, we have revised it downwards, due to low financing rates and higher economic growth. In 2022 its economy will even exceed the pre-crisis trend.

P. Are you afraid of overheating?

R. Macroeconomic management is the art of balancing risks, and we believe they are well balanced right now.

P. Europe is lagging behind, also in fiscal stimulus.

R. In both the EU and the US, the fiscal response has been swift and strong, and the ECB and the Next Generation EU program have managed to maintain financing conditions.

P. But the rollout of the recovery plan is being slow.

R. Europe acted very quickly in the emergency. There was political consensus around the need to think about growth in the medium and long term, prioritizing digitization and the environment … The answer has been the right one, and I don’t think we should look at this as if it were an Olympic competition.

P. There is an important debate pending on the reform of the fiscal rules.

R. It would be premature to pronounce myself.

P. Debt seems to be of much less concern than in previous crises.

R. Although interest rates are at historically low levels, both inflation and inflation expectations remain below target. And that suggests that rates will remain low for a long time. But lows for a long time does not mean lows forever.

P. In recent weeks, financing costs have already risen, following the new stimuli in the US.

R. Yes, we have seen some ramifications on bond markets around the world. But it is important to note that the effects of the US plans have been mostly positive through the trade channel: you only have to think of countries like Mexico or Canada. The problem is the countries that hardly export to the United States and that are financed in dollars: they do not benefit from increased trade, but suffer a deterioration in their financial conditions.

P. The IMF insists on the need to raise taxes, especially for the highest income groups and those who have benefited from the crisis. What fiscal figures should be touched?

R. The covid has worsened inequality and, taking a political reading of the situation, we believe that this may erode social trust. That is why we call for redistributive policies and for universal access to health, education or social security. Most countries have relatively low tax-to-GDP ratios and we believe they have to increase them to finance social spending. There may be room for a tax increase, especially in the case of the most progressive. The options that we see most promising go through an additional burden on the tax on natural persons [más ricas] or by one on excess business profits. Its symbolic effect would be to project that those who have done well in the context of the pandemic, and who have made capital gains in the context of the pandemic, contribute fairly to the fight against covid.


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