March 28, 2024

Monetary Fund Chief Warns Against ‘3-Speed’ Recovery

Ms. Lagarde, echoing an earlier warning, expressed concern about what she called a “three-speed” global economy, with developing nations growing rapidly, the United States healing faster than most other advanced industrial countries, but Europe continuing to suffer from insufficient demand and incomplete government policies.

“It’s not the healthiest recovery,” Ms. Lagarde said. But “we believe that we have avoided the worst, and the economic world no longer looks quite as dangerous as it did.”

She added: “The pickup in financial conditions, financial markets, is clearly not translating into a sustained pickup in growth and jobs.”

The news conference came shortly after news broke that a French court had ordered Ms. Lagarde to appear at a hearing on her handling of a financial scandal during her time as finance minister in Paris.

Asked about the affair at the news conference, Ms. Lagarde said that she had known of the possibility of being interviewed by the investigative commission for years. “There is nothing new under the sun,” Ms. Lagarde said, dismissing any concerns that the inquiry would affect her position as the head of the I.M.F. “I will be very happy to travel for a couple of days to Paris. I look forward to it.”

The investigation, which led to a police raid of Ms. Lagarde’s apartment in Paris last month, concerns her decision in 2007 to refer to an arbitration panel a decades-old dispute between Bernard Tapie, a wealthy friend of France’s president at the time, Nicolas Sarkozy, and the state-owned bank Crédit Lyonnais. The panel ultimately brokered a settlement that awarded Mr. Tapie, the flamboyant former owner of the Olympique Marseille soccer team, about $580 million, including interest.

The court’s summons of Ms. Lagarde could lead to the opening of a formal investigation of her role in the affair. But in France, being placed under formal investigation does not necessarily lead to charges and does not imply a presumption of guilt. Ms. Lagarde has repeatedly denied any wrongdoing in the Tapie matter.

At the news conference, Ms. Lagarde gave her blessing to recent actions taken by the Bank of Japan to help bolster growth. She also said that the European Central Bank had more room to aid the recovery in Europe, where many countries are still undergoing economic contraction, unemployment is still rising and the credit markets remain broken.

“Of all the major central banks in the world, the E.C.B. is the only one who clearly still has room to maneuver,” Ms. Lagarde said.

Asked if Spain needed more time for fiscal adjustment, Ms. Lagarde replied that it did. She added that the country needed to put a budget-tightening plan in motion, but that it need not be “upfront, heavy duty” fiscal consolidation.

At a separate news conference, Jim Yong Kim, the head of the World Bank, which focuses on economic development, laid out his vision for a “two-pronged approach for a world free of poverty.”

Dr. Kim has called for eradicating extreme poverty by 2030 and for fostering income growth for the bottom 40 percent in every country. “For that second goal,” he said, “we also mean sharing prosperity across generations, and that calls for bold action on climate change.”

Nicola Clark contributed reporting from Paris.

Article source: http://www.nytimes.com/2013/04/19/business/economy/imf-warns-against-three-speed-recovery.html?partner=rss&emc=rss

U.S. Endorses France’s Lagarde as New I.M.F. Chief

Treasury Secretary Timothy F. Geithner had announced earlier Tuesday that the United States would back Ms. Lagarde, France’s influential finance minister, over the Mexican central bank governor, Agustín Carstens, her only competitor for the job, a move that all but sealed her victory.

“Minister Lagarde’s exceptional talent and broad experience will provide invaluable leadership for this indispensable institution at a critical time for the global economy,” Mr. Geithner said in his statement. “We are encouraged by the broad support she has secured among the Fund’s membership, including from the emerging economies.

The I.M.F. executive board met Tuesday in Washington to decide between Ms. Lagarde and Mr. Carstens. But having secured the backing of China, most countries in Europe and then the United States — which holds the largest number of votes at the fund — Ms. Lagarde’s appointment for a five-year term was effectively a foregone conclusion.

Ms. Lagarde will be taking over at a delicate time, following the resignation last month of Dominique Strauss-Kahn after his indictment on charges of the attempted rape of a hotel maid in New York.

As the finance minister of one of Europe’s most powerful economies, she has been at the forefront of efforts to contain the European debt crisis, which has led Greece, then Ireland and Portugal, to seek bailouts to help them pay their huge sovereign debts.

But a year after Greece secured a €110 billion, or $140 billion, rescue package from the I.M.F., the European Union and the European Central Bank, the country’s debt problems have now re-emerged with a vengeance.

Financial markets have see-sawed in recent weeks as the Greek government was buffeted by widespread social unrest stemming in part from the I.M.F.’s demands for greater austerity measures as a condition of releasing more aid. The Greek Parliament is to vote on the measures Wednesday.

Although emerging markets fought to claim the I.M.F. leadership from Europe, which has produced every managing director since the fund’s inception more than 40 years ago, Ms. Lagarde received substantial backing from Europe, the United States and China. Her key argument was that only another European could continue the I.M.F.’s leadership in managing Europe’s deepening debt crisis.

Yet Ms. Lagarde also came under fire from critics who say she and other top European policy makers mishandled the crisis from the beginning and are now having to scramble to clean up problems of their own making.

“For the I.M.F. to be devoting so much financial and human capital to try to combat a problem in Europe which is largely political in origin and can only be solved by political agreement is controversial,” said Simon Tilford, the chief economist of the Center for European Reform in London. “It threatens the I.M.F.’s credibility.”

What is more, French banks have the largest exposure of any in Europe to Greece, having loaded up on sovereign debt over the years, while Ms. Lagarde has been a major player in negotiating the bailout for Greece. She has adamantly opposed a full-blown debt restructuring or any solution other than a voluntary restructuring by banks.

That has led some analysts to raise questions about whether her impartiality on the issue would be clouded as she leads the fund.

“There is a risk that her perceived objectivity will be brought into question because of this,” Mr. Tilford said. On the other hand, “it’s possible she will come to believe debt restructuring could be in France’s interest, and that kicking the can down the road could ultimately cost the French more than an earlier move to lance the boil.”

Article source: http://www.nytimes.com/2011/06/29/business/global/29fund.html?partner=rss&emc=rss