The impact of the crisis Jens Henriksson Executive Director IMF

Banking Crises 88 crises during 40 years WEO Oct 09

Currency crises 222 crises WEO Oct 09

Key facts for banking crises Output does not recover to pre-crisis trend Substantial medium term loss 10 percent Trend returns to old trend The variation of outcome is substantial In currency crisis, only 3 percent WEO Oct 09

Medium-Term Output per Capita after Financial Crises: Case Studies (Log scale) WEO Oct 09

What are the factors before? Economies with large current account deficits, rising inflation and deteriorating public finances before a crisis has larger output losses Currency crisis and banking crisis at the same time gives larger losses Countries with higher precrisis levels of employment protection has larger losses WEO Oct 09

What policies gives lower losses? Macroeconomic policy support - fiscal stimulus gives smaller medium term losses - evidence on monetary policy stance mixed (weaker transmission?) Structural reforms - some evidence on beneficial role External conditions matters WEO Oct 09

A longer perspective

My conclusions Deal with the banking crisis fast. Two rules: Blanket guarantee. And take shares! Let the automatic stabilisers work. If low, use discretionaty fiscal policy. Fiscal consolidation Think structurally but be consistent

What is good for the country is good for the small and medium sized enterprises!