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Saturday, Oct. 13, 2012

Lagarde warns of 'wartime level' debt


Staff writer

Cutting public debt while encouraging economic growth will be vital in stabilizing the global economy, which is showing a slower than expected recovery, International Monetary Fund Managing Director Christine Lagarde said Friday.

Speaking at the annual plenary meeting of the IMF and World Bank Group in Tokyo, Lagarde stressed that "reducing public debt is very difficult without economic growth."

But she also warned that public debt in advanced economies is reaching "pretty much wartime levels."

Governments in such nations must walk a "narrow path" and work on curbing their bloated debt while not hampering economic growth, Lagarde said.

"There is probably no short cut," she added.

The first IMF and World Bank meetings in Tokyo in 48 years kicked off Tuesday with the IMF's World Economic Outlook report cutting the lender's prediction for worldwide growth to 3.3 percent from the 3.5 percent it forecast in July.

The report pointed out that slowdowns in advanced economies have caused ripple effects impacting emerging countries such as China.

Lagarde added to the somber assessment, saying economic recovery "is still too weak, job prospects for untold millions are still too scarce and the gap between rich and poor is still way too big."

She said deeper economic and fiscal integration by member countries of the IMF is required for strong global growth. Her organization, which has a lending capacity of $1 trillion, is ready to play a key role in assisting economic development and financial reforms, she said.

Touching on her visit to disaster-struck Miyagi Prefecture this week, Lagarde said she received inspiration from the people rebuilding from the aftermath of the 2011 earthquake and tsunami.

Progress can be achieved "only by standing together as one," she said.

Lagarde's speech was preceded by an address by Crown Prince Naruhito, who thanked the participants from 188 countries at the plenary meeting for their support toward Japan following the Great East Japan Earthquake.

"I am glad I can show you a nation that is recovering steadily from the damage, thanks to the support of the international community," he said.

The Crown Prince also touched on some global issues, saying the world faces "various challenges," including stabilizing finances and reducing poverty.

Mutual assistance and acting in solidarity will be key in overcoming such difficulties, he said.

World Bank Group President Jim Yong Kim, making his first appearance at the annual plenary meeting since being named to his position in July, also gave his views on issues affecting the world economy.

"Our era is once again defined by extraordinary challenges," he said, and the world is still "collectively seeking to rebuild stability and restore confidence" four years after the global financial crisis.

Kim said the eurozone crisis continues to hurt growth and job creation in developing countries. Rising food prices are also "stretching the budgets of the poorest," he pointed out.

The former president of Dartmouth College pledged to turn his organization into an "effective solutions bank" through strengthening partnerships with other groups and institutions, including the IMF and the U.N.

"The World Bank Group is ideally positioned to connect and convene multiple stakeholders from around the world, brokering knowledge exchanges across institutional boundaries," he said.



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