WASHINGTON, April 15 (Xinhua) -- Member countries should learn three key lessons from the recent financial crisis and improve transparency to effectively address fiscal challenges, Zhu Min, deputy managing director of the International Monetary Fund (IMF), said here on Monday.
"The whole world is facing deficits the way ahead. It's a major challenge we're facing today," Zhu said at a seminar on revitalizing the fiscal transparency agenda at IMF headquarters in Washington D.C., the first event IMF hosted during the spring meetings of the IMF and its sister agency World Bank this week, noting that we should learn three lessons from the financial crisis to understand "how and why we get there."
"The past data are not necessarily reliable," Zhu said of the first lesson, adding that "the past data, particularly for example the before-crisis data, are not necessarily useful and reliable when the crisis occurs for member states and experts to analyze the situation. The typical case is in Greece."
It is widely believed that the Greek government hired Wall Street firms, most notably Goldman Sachs, to help mask the true extent of its deficit when joining the Eurozone and sowed the seeds of Greece debt crisis that broke out in 2009. "The transparency is not there," Zhu noted.
"Secondly, the future data, the budget forecasting may not necessarily be credible. That means when we talk about future, talk about budget, we use different languages, we use different bases," Zhu said of the second lesson.
He cited an example in Europe that all the governments do the budget reports based on the cash flow rather than actual information, making it difficult to measure the government performance. "We realize what we used to call the forecasts not necessarily project the picture for us in the future," he added.
Zhu said that the third big lesson was that "we don't have risk factors in our fiscal analysis". For example, "one big risk comes from contingent liabilities if the country has big banking system like Iceland, Ireland and the UK," but we didn't have such "risk- focused analysis" in the fiscal report in the past five years.
He suggested that fiscal reports should cover all public sector entities, including contingent liabilities from the banking sector, pension, health care and other government-controlled enterprises.
Zhu stressed that member countries need to deal with the fundamental issues, including the quality of the data, risk analysis and greater transparency when tacking the current fiscal challenges, noting that "we're still in the crisis and we're not out of the woods yet."
"Transparency is the milestone to help us understand the situation in the future debt crisis," Zhu added.
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