In its second report on the financial reform in Spain, the Fund indicates that “it will be important to make sure that the measures are well focused to assist those in need” so that they are given a chance to “start again” after a “reasonable” period of time.
The Fund requests that any person should be able to declare itself bankrupt and have the right to “a new start” when opting for a process of cease payment, something that would allow the reduction of the black economy in Spain.
These insolvency processes exist in countries such as the United States, where it is possible to resort to the so called Chapter 7 for individuals, so that the judge may decide to liquidate certain assets to pay the private creditors, freeing the individual from any debts after a certain period of time and enabling him to start from scratch and be productive for the society.
The IMF reminds that in Spain the insolvency process treats individuals and companies equally and does not allow a person to “get rid” of its debts, so that there are no incentives to opt for a process of legal insolvency.
“Those people who are insolvent and have no reasonable hope of paying their debts have very few incentives to produce an income in the formal sector, as it allows creditors to claim that income”, the IMF points out.
This situation, according to the Fund, promotes the black market and the exit of the labor force, which “potentially affects the growth and the tax equilibrium”.
The IMF recommends “more study to reinforce the (current) framework and face the personal insolvency efficiently, while maintaining a strong credit discipline and payment culture in Spain”.