Spanish government looked forward to see the IMF’s preliminary findings on the country’s economy, but once revealed, Minister of Economy Luis De Guindos said they do not have to stick to them.
Mr De Guindos mainly referred to the recommendation of increasing the VAT and decreasing the corporate tax rate. However, the most controversial comments by the international organisation comprise a sort of haircut for small and medium size companies as well as an eventual reduction of salaries.
Madrid started some measures to reduce corporate bankrupcies. They decided, for instance, to safeguard debts contracted with public administrations on the grounds that not rendering taxes or the Social Security proved that a company was not operationally viable.
The IMF doesn’t see it that way and urged the Spanish government to extend help for insolvent small businessmen given their risk to not be saved by creditors is higher than in bigger sized companies.
“Consideration could be given to introducing a personal insolvency framework that would allow insolvent debtors to have a fresh start after having given up their non-exempt assets and a substantial period of good faith efforts to pay the outstanding debt,” the IMF’s 2014 Article IV report concluded.
“Experience in other European countries has shown that such a framework can be designed to be in the interests of the financial sector and preserve Spain’s strong payment culture,” they added.
Regarding the Spanish labour reform, the organisation led by Christine Lagarde is in favor of turning the screw even further for enabling companies to get out of collective bargaining. With its usual convoluted language, the IMF recommends to smooth Spanish companies the path to reduce their staff’s wages when suffering economic difficulties.
“Lowering regulatory barriers, together with continued wage moderation, would help ensure the recovery translates into more jobs for the unemployed, greater job security for the employed, and lower costs of living. These actions would also improve competitiveness,” they explained.
“Nobody discusses the need to help troubled firms, but the IMF’s officials know perfectly well that reaching a sustainable recovery is not possible if wages are continuously decreasing,” The Corner’s senior analyst Francisco López argues.
In fact, the Bank of Spain recently checked that salaries had fallen twice than statistical data say, considering these do not include the crisis’ intense impact on the worst quality jobs
The IMF’s also reported that Spain should reduce regulatory barriers and carry out the Market Unity law in order to promote growth and employment. They have also identified 2,700 barriers, mostly at a regional level, that constrain free circulation of products in the national territory. Finally, they recommend to follow the path of fiscal consolidation by increasing the collecting of indirect taxes, which are under the European average, and reducing the corporate tax rate to the EU level too.
The international organisation positively assessed Spain’s evolution of exports, employment and investments, as well as their efforts in deficit control, labour reform and financial reorganisation. On the contrary, they think private debt, lack of credit and risk of deflation could burden the country’s economic recovery.