IMF tells Spain it must make far-reaching economic reforms

SPAIN must make far-reaching reforms of its industry, public finances and jobs market if it is to make its economy competitive again and prop up a fragile recovery, the International Monetary Fund (IMF) said yesterday.

As Madrid battles to see off the threat of a debt crisis similar to the one currently hammering Greece, the IMF focused on the broad structural reforms it said were needed to stabilise Spain's position and restore growth.

The euro fell broadly yesterday after the Spanish central bank's takeover of a savings institution added to jitters about the problems in some of the eurozone's weaker countries.

Spanish prime minister Jose Luis Rodriquez Zapatero said on Sunday that he would not bow to unions over a 15 billion (13bn) austerity plan, but markets remain worried about its implementation and the generally bleak outlook for the economy.

The IMF said in a regular review of the economy: "The challenges are severe: a dysfunctional labour market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anaemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness.

It continued: "This needs to be complemented with growth-enhancing structural reforms, building on the progress made on product markets and the housing sector, especially overhauling the labour market."

The IMF, which is co-funding the bailout of Greece with the European Union, said that Spain's economy would start growing again, but did not say exactly when. Spain was the only major European economy not to emerge from recession last year.

"Our central scenario is one of continued adjustment of the various imbalances with growth rising gradually to 1.5-2 per cent in the medium term," the report said.

The IMF said in April it saw Spain's economy contracting 0.4 per cent in 2010 from a year earlier and growing 0.9 per cent in 2011.