U.S. faces risk of bankruptcies, unemployment if fiscal support not maintained

IMF Managing Director Kristalina Georgieva speaks at the Global Women's Forum in Dubai, United Arab Emirates

The head of the International Monetary Fund on Friday warned that the United States faced a possible “dangerous wave” of bankruptcies and unemployment if it did not maintain fiscal support until the coronavirus heath crisis ended.

IMF Managing Director Kristalina Georgieva told reporters the United States, the world’s biggest economy, had scope to take further action and doing so would provide positive spillover effects for the global economy.

Asked if she supported President Joe Biden’s $1.9 trillion relief plan, Georgieva said the IMF supported the plan’s focus on vaccinations, health care, support for the unemployed and aid to state and local governments.

Despite the economy’s nascent recovery, Georgieva said risks remained, especially if support was not maintained long enough.

“There is still that danger that if support is not sustained until we have a durable exit from the health crisis, there could be a dangerous wave of bankruptcies and unemployment,” she said.

In 2020, she said U.S. bankruptcies were lower than average in normal years due to fiscal support and it was important to continue to calibrate that support in 2021 while preparing carefully for the moment when some businesses did not survive

“We want to see careful, well-calibrated policy action. We are keen for policy support to be there,” she said, adding, “Great care is necessary so we don’t find ourselves in a difficult situation.”

Georgieva acknowledged concerns raised by former Treasury Secretary Lawrence Summers about a possible overheating of the U.S. economy, but said she was confident that new Treasury Secretary Janet Yellen would keep a careful eye on those risks.

“Indeed we have to be watchful of risks, but we have the best possible Secretary of the Treasury for this potential risk, she said, “And I’m confident that there will be a lot of attention being paid on anticipating and, if necessary, taking appropriate action to address these risks.”

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