Moreover, non-performing loans continue to rise as further problems are revealed, and weak firms add to their problems by borrowing new money to make interest payments on their existing debt. This situation will continue to act as a brake on investment until financial claims are resolved. The fiscal costs of the crisis are huge. Without vigorous corporate and financial restructuring, sustainable growth will take longer to return, the costs of the crisis are likely to rise, and economies will remain vulnerable to new external and internal shocks, the report says. Government support for restructuring the banking system is critical to safeguard the payments system, restore credit availability and reduce fiscal costs.
Healthy banks are also better positioned to facilitate corporate restructuring.
The first step in this restructuring process calls for an evaluation of the losses incurred, and then identifying who is ultimately responsible. Once such claims are resolved, restructuring can be expected to occur normally through market forces. Government funds should not as a rule be required for corporate restructuring. Countries that depend on primary commodities have faced an enormous challenge in evening out consumption in the face of booms and busts in commodity prices during the 1990s. In several oil exporting countries, weak policies produced lower savings and lower investment over the oil price cycle.