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Market Watch: Eye on Small Business Owners

January 5, 2009 By: Travel Agent Central Contributor

Reuters reports that the International Monetary Fund (IMF) today proposed that banks force companies to buy "recession insurance" from governments before borrowing money. The suggested requirement is meant to aid situations in which economic uncertainty high enough that companies halt spending and, hence, deepen the economic downturn. The idea appears in an area labeled "some proposals for discussion" in a 37-page paper on fiscal stimulus. An IMF official told Reuters it was merely a topic of internal discussion for now and that hee IMF has not yet spoken with any government's representatives on the subject.

If the proposal were to be implemented, governments would offer contracts that pay out if economic growth falls below a particular threshold level and banks would make buying such insurance a condition for loan approval. It would provide stabilization, according to the IMF, as payments would continue to get paid even during bad times— when they are most needed. The IMF admitted the high risk involved if a government did not honor its obligations, and said countries offering such insurance must budget accordingly.

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