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Spain's caixas no threat to policies: IMF

Source: Reuters - Sat 19th Jun 2010

Some of Spain's small regional savings banks may need assistance but pose no threat to the success of the country's new austerity measures, the deputy managing director of the IMF said on Saturday.

"Certainly the caixas in Spain and other places have had some difficulty" John Lipsky told Reuters Insider in an interview at the St Petersburg economic forum.

"The size should be kept in mind. There is no reason to think these issues would derail the broad pace of policy reform." He added, "Certain institutions may require specific steps to address their problems."

The fund has thrown its support behind Spain's hastily imposed austerity measures and labor market reforms, helping to dispel worries the country could have to tap a 500 billion euro emergency fund for a Greek style bailout.

The fund has applauded Spain's readiness to publicize 'stress tests' to put on display the health of its banks, a measure Lipsky said would soothe investor fears.

Lipsky said funding was ample for additional support measures in Europe if required. The fund is in talks with Hungary about a new economic support program in addition to a 20 billion euro IMF-led package already in place.

"We are in discussions" Lipsky said. "It is an open question, the period ... which a program would cover."

He said the fund also had a staff mission in the Ukrainian capital of Kiev to meet the government of newly elected President Viktor Yanukovich and assess its policies before deciding on new aid to follow last year's package.

It is seeking a new $19 billion loan. A $16.4 billion facility was suspended last year on grounds of lack of fiscal restraint.

"The runup to the election created a political stalemate that froze policies" he said. "Now the government is in place and is forming its policies and we are exactly in discussion about those policies."

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