core sector communique

IMF Managing Director Christine Lagarde Calls for Action Now to Secure Global Recovery

September 24, 2012

Christine Lagarde, Managing Director of the International Monetary Fund, today urged policymakers to use the window of opportunity offered by recent policy decisions—and to take the actions needed to achieve a decisive turn in the global crisis.

“This time, we need a sustained rebound, not a bounce. If this time is to be different, we need certainty, not uncertainty. We need decision makers to be real action takers. We need delivery,” she said in a speech at the Peterson Institute for International Economics.

She described recent initiatives by major central banks as “big policy signals in the right direction”—the European Central Bank’s OMT bond-purchasing program, QE3 by the U.S. Federal Reserve, and the Bank of Japan’s expanded Asset Purchase Program. At the same time, Ms. Lagarde warned that the global economy is still fraught with risks and policy uncertainty is weighing growth down. The IMF continues to project a gradual recovery, but global growth will likely be a bit weaker than anticipated even in July, she said.

Speaking ahead of the joint Annual Meetings of the IMF and World Bank Boards of Governors in Tokyo, Ms. Lagarde focused on three key sets of policy challenges: the unfinished agenda for Europe and the United States; increased pressures in the rest of the world; and commitments on which the IMF also must deliver.

“Europe obviously remains the epicenter of the crisis and where the most urgent action is needed,” she said, calling on European policymakers to deliver on their commitments—including by establishing a single supervisory banking mechanism and enabling the direct recapitalization of banks. Other actions include implementing the European financial firewall—notably the European Stability Mechanism; the agreed plan for fiscal union; and, at the country level, the reforms that are essential for growth, jobs, and competitiveness.

Ms. Lagarde said that another major risk to the global economy is in the United States, where “current law implies a dramatic tightening of the deficit by about 4 per cent of GDP next year… Failure to reach a deal on raising the debt ceiling could also force a dramatic tightening.” She called for action to avoid this so-called “fiscal cliff” and a concrete plan “to bring down debt gradually over the medium term.”

Ms. Lagarde also noted how, after leading the global economy in the current recovery, the major emerging markets are now slowing; she urged them to focus on countering vulnerabilities, whether domestic or external. She added that she is pushing hard to ensure adequate financing for low-income countries, including through the IMF’s concessional lending via the Poverty Reduction and Growth Trust (PRGT). She also called for increased support from the international community so that successful transformation in the Middle East can be based on a “foundation of inclusive growth and employment.”

Finally, Ms. Lagarde said that the IMF is striving to be even more effective by improving its economic analysis and strengthening the global financial safety. The Fund is also making good progress in reaching final agreement on “the most significant governance changes in IMF history.” She said that the IMF was pushing to pass these reforms, aimed at giving greater representation to emerging market and developing economies, “if not by October, then as soon as possible thereafter.”