Sao Paulo - "Policymakers must act now to make the
financial system more robust," the IMF said in a report issued in Sao
Paulo.
"The current window of opportunity to prepare the
financial and economic system against potential systemic shocks, importantly by
providing clarity on euro area-wide solutions to strains in the periphery,
could close unexpectedly."
The fund noted that concerns about debt sustainability and
support for adjustment efforts in the eurozone periphery had intensified, in an
update of its April Global Financial Stability Report.
"Credit default swap spreads have risen to new highs in
Greece amid concerns over the degree of political resolve that will be needed
to implement adjustment and secure needed funding."
The IMF highlighted that worries about the bailed-out
eurozone periphery economies of Greece, Ireland and Portugal have renewed the
market’s focus on the potential for contagion of shocks to banks.
Banking systems in core European countries, such as Germany
and France, still have large exposure to peripheral countries, and the pace of
banking system repair has been too slow, it warned.
A market shock could come from an un unexpected sudden
pickup in risk aversion that "leads market participants to narrow their
tolerance for incomplete policy solutions".
"It could also be closed by political developments, either because adjustment programmes lose political support in debtor countries, or because populaces in creditor countries lose patience in continuing to finance those programs," the Washington-based institution said.
"Thus, a more robust financial system, notably in Europe, is needed to gird against shocks."