News Column

IMF Head: U.S. Must Reduce Debt, Push Growth

Aug. 29, 2011
Christine Lagarde

The United States must reduce its public debt, stop the downward spiral of home foreclosures and push growth to get its economy back on track, said IMF chief Christine Lagarde on Saturday.

"(US) policymakers must strike the right balance between reducing public debt and sustaining the recovery - especially by making a serious dent in long-term unemployment," she said in a speech given in Jackson Hole, Wyoming.

She joined central bankers from around the world at an annual meeting at week's end sponsored by the US Federal Reserve.

"A fair amount has been done to restore financial sector health, but (US) house price declines continue to weaken household balance sheets," she said.

But she warned that there was "simply no room for half measures or delay" in light of falling home prices that have restrained consumption.

The speech comes amid pressure on US President Barack Obama to rejuvenate the US economy, which is slogging toward recovery at a sluggish pace. Obama is expected to announce a jobs plan sometime in early September, but the date has not been released.

Obama on Friday consulted with Lagarde and the two agreed on the need for policies that foster near-term growth and job creation while securing medium-term fiscal consolidation. The two also agreed on the importance of rebalancing global demand toward emerging markets.

On Friday, Fed chief Ben Bernanke said the US central bank is ready to act in order to help the country's troubled economy, although he did not announce any concrete plans.

Bernanke, an expert on the Great Depression, has been a proponent of stimulus measures to bolster the US economy, lest it spiral further downward.

The Fed chief said his own view is "more optimistic" and that "the growth fundamentals of the United States do not appear to be fundamentally altered."

Turning her attention toward Europe, Lagarde also outlined three steps the eurozone should take, including bank recapitalization and agreement on a common vision for the future.

"An unclear or confused message will add to market uncertainty and magnify the eurozone's economic tensions," she said.

Under a deal reached by European Union leaders last month, the role of the eurozone bailout fund - the European Financial Stability Facility - is to be expanded to allow it to take over bond purchasing from the ECB. But the agreement still has to be approved by the national parliaments of eurozone member states.

Lagarde also called for eurozone countries to keep their sovereign finances sustainable and possibly even mandate recapitalization of its banks.

Banks need "urgent recapitalization," she said. The most efficient solution would be "mandatory substantial recapitalization, seeking private resources first, but using public funds if nessesary," she said.

Source: Copyright 2011 dpa Deutsche Presse-Agentur GmbH