The revival of securitization markets is a key piece of the global economic recovery, but reform efforts must strike a balance between making the market more sustainable and maintaining cost-effectiveness, the IMF said this week. The Global Financial Stability Report studies the various proposals for fixing the misalignment of incentives and lack of due diligence that made the market so vulnerable, including higher capital requirements, tighter accounting standards for off-balance sheet entities, retention requirements, and enhanced disclosure requirements. The IMF said some of the most complicated securitized products, particularly those that were backed by other securitized products, "will not and should not reemerge."
The IMF has authorized the disbursement of the next loan tranche of USD2.72 billion to Romania, and said more stability in financial markets and declining inflation could provide room for further interest rate cuts. IMF First Deputy Managing Director John Lipsky, however, urged a cautious approach to monetary policy easing given still high inflation and vulnerabilities to outside pressures. .Against the backdrop of a significant deterioration in economic activity since the approval of the Stand-by Arrangement in May, policy implementation has been strong. "The deeper than expected economic downturn, however, requires a recalibration of policies so as to strike an appropriate balance between the short-term response to the crisis and the medium-term policy objectives," Lipsky stated.