High levels of household debt restrain consumer spending and delay recoveries, the Bretton Woods institution concluded in an analysis of crises over the past century.
While cutting interest rates and unemployment benefits help, the IMF said the authorities should consider going further with “targeted household debt reduction policies”.
Among its proposals, the fund suggested state-sponsored debt forgiveness plans for the most hard-hit families. Although the policies might initially be expensive, they would be beneficial by reinvigorating consumer spending and helping the economy, the IMF said.
It cited the actions of the US in 1933 in the midst of the Great Depression and Iceland after its recent banking collapse.
The Roosevelt administration in the US set up the Home Owners’ Loan Corporation to buy distressed mortgages from banks in exchange for government debt. It then restructured the mortgages “to make them more affordable”.
IMF urges authorities to consider debt forgiveness to restore growth - Telegraph