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IMF chief warns US on debt spat

New York, July 26, 2011

IMF chief Christine Lagarde on Tuesday urged the US to quickly resolve a political stalemate over raising the debt ceiling, warning that failure to reach an agreement would have serious consequences for the world economy.

"The clock is ticking and clearly the issue needs to be resolved immediately," she told the Council on Foreign Relations according to a text of her remarks.

Lagarde, who has been in the job for less than a month, called on the US to develop a credible fiscal adjustment plan but cautioned against being too hasty.

"The United States could face another jobless recovery.
 That is why we've advised against fiscal consolidation that is unduly hasty -- even as we stress the importance of getting a fiscal consolidation plan agreed soon," she said.

Her warning on the dangers of not raising the $14.3 trillion debt ceiling by August 2 came as the dollar fell across the board after U.S. President Barack Obama gave no sign of a breakthrough in deadlocked talks in a televised speech late on Monday.

The US faces a technical default on some of its government bonds outstanding unless it raises the debt limit.

"An adverse shock in the United States could have serious spillovers on the rest of the world," Lagarde cautioned.

She also urged European leaders to quickly implement measures agreed at a recent EU summit to tackle the euro zone's debt problems and to strengthen economic governance.  

Fiscal problems in euro zone periphery states such as Greece, Portugal and Ireland revealed the risks posed by an incomplete economic and monetary union, she said.

Turning to Japan, she called for ambitious measures to tackle the country's very high public debt levels, and urged emerging economies to act to curb signs of overheating.   

"Staying ahead of the curve will be essential to avoid the possible hard landing if policy action comes too late," she added.   

She said the IMF continued to forecast reasonable near-term global growth of about 4 to 4.5 percent through 2012 although the recovery was unevenly spread and risks are "clearly to the downside". - Reuters




Tags: IMF | Lagarde | debt row |

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