I.M.F. Director Says Global Recovery Is Not Yet Secure

Christine Lagarde, the I.M.F.’s managing director, said the euro zone debt crisis and the budget dispute in the United States could have brought growth to a halt, an outcome only avoided by decisions often made at the last minute.

In particular, she urged the United States to raise its borrowing limit and pressed Europe to follow through with commitments to tackle its debt crisis.

“Clearly, the collapse has been avoided in many corners of the world,” Ms. Lagarde told reporters, even as she expressed concern that policy makers’ resolve could weaken just because there is a “bit” of recovery in sight and financial stresses have eased.

“It’s important to follow through on policies to put uncertainty to rest,” she said. “There is still a lot of work to be done.”

In her first news conference of 2013, Ms. Lagarde focused on political battles over the budget in the United States and the risks the euro zone’s debt crisis still presents. That focus is not new, but Ms. Lagarde made clear she worried that complacency could set in.

Ms. Lagarde warned that a fight in the United States over raising the nation’s $16.4 trillion borrowing limit could be “catastrophic” for the global economy if it is not raised in time.

“I very, very strongly hope that all parties, all views will converge in the national interest of the U.S. economy and in the international interest of the global economy,” she said. “To imagine that the U.S. economy would be in default, would not honor the payments that it owes, is just unthinkable.”

In Europe, she said, progress was made last year to tackle the debt crisis. Unfinished business included the need to press forward with plans for a banking union.

She also said that while a financial firewall against the debt crisis had been erected, it had not yet been made “operational,” a reference to a European Central Bank program to buy bonds from debt-laden euro zone countries that seek a rescue.

Further, she said, the central bank needed to keep monetary policy loose and perhaps try to lower borrowing costs further to help struggling member states.

“We recognize there has been progress, but the process has been very time consuming and continues to contribute to uncertainty,” Ms. Lagarde said. “We sense a sign of waning commitment. There is still momentum, but it is probably not as crucial as it was, and we regret it.”

Article source: http://www.nytimes.com/2013/01/18/business/global/imf-director-says-global-recovery-is-not-yet-secure.html?partner=rss&emc=rss