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An IMF Fiscal Adjustment for Spain.

Given her extreme structural deficit in the Current Account of the Balance of Payments,
closet o 5% of GDP, her Public Deficit of 11,1% of GDP in 2009 and reported 7% for 2,011, her
low International Reserves, her short maturity debt, her foreign debt over 179% of GDP, plus the
international enviroment after the Irish Crisis, in order to save the Euro and the European
Financial System, Spain will have to receive EU assitance and to signe an Urgent Agreement
with the IMF.

As it is known, IMF imposes very severe plans; the Spanish one could be like this:

Unemployment Benefits Cut of 10.000 MM €: According to the table 1.4.1 of the Consolidated
State Budget for 2010, The Spanish Central Government will expend 30.975 MM in
Unemployment benefits and 7.751 MM in New Job Subsidies Plans. Regional and Local
Governments amount is unkown but could be another 40%, so there is money for an urgent cut.

A Reduction in Pensions of 30.000 MM € in 2011: It would be a forced saving action
distributed along the period of the IMF agreement. This account comes inflated form the days of
wine and roses in the Real State Buble times, when its disequilibrium was not attended. The
Pensions Budget is rufly equilibrated but will soon enter in to a deficit, just look at the trend since
2006, so it is better to create an extra Found now (There is one already with 60.000 MM €).

An Increase in Direct Taxes of 30.000 MM €: Indirect taxes (VAT) have been already increased
and now it is the time of Direct Taxes. Total Direct Taxes are expected to be 198.025 MM in 2010,
but 107.377 were Social Security Taxes (see table 3.2. Cotizaciones Sociales) So, the Spanish tax
payer will have to pay an extra close to a 30% in Income taxes, if not more as taxes to Companies
are exhausted as profits have fallen.

Another 30.000 MM € in savings in the Public Sector: The Spanish Public Sector ( 45% of a
GDP of close to 1,050,000 MM ) subject to savings represents, once we have discounted the cut
expenses already affected above, an amount ofclose to 335.000 MM € and the target of the
agreement with the IMF would be “just” 9%. That must be generated via privatizations and/or cost
reductions but will take time, so a calendar of 7,500 MM per quarter is a possibility.

The Spanish Economy in General but The Public Sector in particular are highly inflated by the
public income coming from the Real State Buble, and the current government has refused to face
this reality since it took power in 2004. Now, that the Day of Reckoning is here, Spain will have
to do all the delayed “homework” urgently. The Plan would put the Fiscal accounts close to balance
and will mean three very difficult years of sacrifices and hard work in many areas for Spain with the
help of the EU; but if not the whole European Financial System is at risk, because behind Spain
come Belgium, Italy, France and Germany, as all the european banks assets are interelated.


Luis Riestra Delgado. 27/11/2.010.