Lagarde Urges Vigilance on Global Economy
01/17/2013| 01:26pm US/Eastern
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WASHINGTON--World leaders have avoided collapse in the global economy, but with little improvement in dangerously high unemployment levels and a financial system still in disrepair, authorities must press ahead to prevent a relapse, International Monetary Fund Managing Director Christine Lagarde said Thursday.
"It's important to follow through on policies and put uncertainty to rest," Ms. Lagarde said in a press briefing.
She said that's particularly true for advanced economies such as in the euro zone, the U.S. and Japan, where debt levels and high deficits are keeping investors jittery and curbing growth.
The euro zone has made significant progress in the last several years, the head of the IMF and former French finance minister said.
"Yet firewalls have not yet been proven operational, progress needs to be made on banking union and clearly continued; if not, further monetary easing will be appropriate in order to sustain demand," she said.
Euro-zone countries, including Portugal, Italy, Greece and Spain, need to make more changes to the their economies to boost employment, competitiveness and growth.
For the U.S., Ms. Lagarde said policymakers must avoid further policy mistakes by increasing the debt ceiling--the federal government's borrowing limit--and agreeing on a medium-term debt reduction that cuts spending, including entitlements.
The IMF chief appeared to also back, with caveats, a new and controversial monetary policy plan intended to boost inflation and keep the yen's value low enough to encourage competitiveness on the global market.
She said that while the recently announced financial and monetary package is intended to create short-term growth, "We don't think that, if not associated with a mid-term solid anchoring that would indicate a determination to change the debt trajectory, reduce the deficit, it's particularly appropriate."
Any such measure must be part of an overall package and "there is clearly one part of the package that is missing."
But, she added, "Monetary policy with a different inflation target is, in and of itself, certainly a good and interesting project if associated with clear independence of the central bank."
New Prime Minister Shinzo Abe, who is set to appoint the top three officials at the Bank of Japan this year, is pushing to devalue the yen and expand the bank's monetary easing.
Ms. Lagarde also warned of a waning commitment to financial system repair, including raising capital cushions to healthy levels, determining how regulators should wind down major international banks, and boosting oversight of derivatives and hedge funds.
Write to Ian Talley at ian.talley@dowjones.com
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