Countries must focus on jobs, finances after crisis - OECD

Governments must now focus on the key issue of securing jobs and bolstering their finances as they scale down the measures taken to cope with the global financial crisis, the OECD said yesterday.

"The global recession has left deep scars," OECD secretary-general Angel Gurria said in a statement.

"The only way to begin healing them is by taking effective action now to help our economies recover their lost (growth) potential," the head of the Organisation for Economic Cooperation and Development said.

In its latest "Going for Growth" report, the OECD said that as governments remove some of the emergency measures, "they must now ensure that the policies which remain - and new action in the months ahead - boost growth and living standards for the long-term."

The global recession eroded the potential output of OECD economies, resulting in a permanent loss of three percent on average across the group, it said.

Key elements in maintaining standards of living now include "urgent action on jobs, competition and taxes".

"In the current economic climate, the benefits could not only boost long-term living standards and speed up the jobs recovery but also help strengthen public finances," the Paris-based OECD said.

Some of the tax measures taken in response to the crisis could prove beneficial to long-term growth and should be left intact, it recommended.

At the same time, "because the crisis has wreaked havoc with public finances, some taxes which were cut will need to be raised," it said.

As revenues fell in the recession while government spending increased, many countries have found their public finances badly strained, forcing them to cut back despite the recovery still being very modest.

Some analysts and officials warn that to withdraw anti-crisis measures too early, before economic recovery is secure, threatens a fall back into a "double-dip" recession.

The OECD report said that "prudential banking regulation can be toughened without undermining competition. Strong supervision even appears to reduce the cost of credit as it helps to level the playing field.

"This is yet another reason why governments should resist allowing current financial sector reform proposals to be watered down," it added.

Excessive risk-taking in the banking sector has been blamed for the worst global slump since the 1930s, sparking talk of tough reforms to remedy the problem, but as the economy recovers, the financial sector has fought back against calls for radical change.

The report also identified priority reforms needed to sustain strong growth in Brazil, China, India, Indonesia and South Africa, with which the OECD has developed a policy of "enhanced engagement".

"Beyond strengthening social welfare and education systems, the report recommends relaxing highly stringent regulations in product markets, strengthening property rights and contract enforcement, deepening financial markets and reducing the size of informal sectors."