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.
