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IMF Unveils Switzerland Report

by Ulrika Lomas,, Brussels

25 March 2010

In its annual report, the International Monetary Fund (IMF) noted that, by international comparison, Switzerland has managed the global financial and economic crisis well.

According to the IMF, the solid position of the country’s public finances provided scope for stabilization measures. It also notes that the monetary policy stance adopted by the Swiss National Bank (SNB), as well as measures taken by FINMA (the financial regulator) are appropriate, while warning that any exit from expansionary policies should be carried out gradually and with due regard to the remaining general economic risks.

Announcing the conclusions of the IMF’s report, Switzerland’s Federal Administration states that: “In spite of the deep slump up to the second half of 2009, Switzerland has weathered the global downturn relatively well. For the current year, the IMF economists expect growth of about 1.5 per cent. In the short term, the IMF counsels a gradual exit from expansionary economic policies. Growth prospects in the medium term are subject to a degree of uncertainty. These lie primarily with the financial sector and expected developments in immigration.”

It continues: “The monetary policy pursued by the SNB during the past year was considered to be adequate by the IMF. In particular, the measures implemented since March 2009 - the acquisition of CHF-denominated bonds, the extension of repo maturities and interventions on the foreign-exchange market - stabilized the monetary conditions in the face of currency appreciation pressure. Looking ahead, interest rates should not be increased too quickly according to the IMF. Given the slack in the economy, and as a result of the appreciation of the Swiss franc, inflationary pressures are expected to be subdued. In addition, the IMF currently sees no easing in the lending policies of financial institutions.”

The IMF praises Switzerland’s strong fiscal performance, which provided suitable scope for implementing economic policy stabilization measures, while noting that consolidation of the budget should not exceed the specifications of the debt brake rule. Consequently, possible structural modifications in revenues - in particular in the case of withholding tax - will have to be identified, it emphasizes. The IMF also points out the considerable challenges which exist due to demographic developments for securing the long-term sustainability of public finances.

In its report, the IMF also expresses support for the more stringent regulatory capital requirements introduced in November 2008 for Switzerland's two large banks, as well as the expansion of cross-border cooperation regarding financial market supervision and increased focus on corporate governance and risk management. Given the size of the financial centre, the IMF states that capital adequacy and liquidity requirements should go beyond international standards. The IMF also favours further clarification of the delineation of responsibilities between the SNB and FINMA. In the IMF's opinion, measures to reduce the risks posed to the national economy by large financial institutions will serve the economy as a whole well and enhance the reputation of the financial centre.

In view of the results of the consultation on the draft Federal Act on Deposit Protection, the IMF recommends preserving the immediate measures decided by the Federal Council in November 2008 to improve depositor protection beyond the end of this year by incorporating them into standard law.

TAGS: tax | economics | fiscal policy | gross domestic product (GDP) | budget | International Monetary Fund (IMF) | corporate governance | withholding tax | Switzerland | standards | inflation

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