IMF’s Gopinath urges governments to provide ‘equity-like’ support for firms
TOKYO (JAPAN) – In the wake of coronavirus pandemic inflicting damage on firms, the governments should shift to “equity-like” support instead of the one focussed on loans, said International Monetary Fund Chief Economist Gita Gopinath.
Given the massive scale of the crisis, more companies are likely to become insolvent after suffering from sustained low revenue for months at a stretch.
She said that government support in the form of loans would put firms in debt and make it difficult for them to tide over the crisis.
“Because there’s a bigger insolvency issue here, government support would have to shift more towards being equity-like as opposed to debt-like. Otherwise, you would end up with a lot of firms that exit this crisis with a huge amount of debt over-hang,” she said.
“If the lending takes form more like equity … then that’s less onus on the firms. That will make it easier for firms to recover from the crisis,” Gopinath said in a webinar co-hosted by the IMF and the University of Tokyo on Friday.
The chief economist said economic recovery will be “highly uneven and highly uncertain,”, adding that governments should dole out fiscal and monetary stimulus packages.
“We have more concerns of inflation going too low, rather than inflation going too high,” she said.
(Photos syndicated via Reuters)
This story has been edited by BH staff and is published from a syndicated field