IMF Must Continue to Adapt, Says Lagarde

Big challenges still ahead for global economy

IMF plays pivotal role, but need to complete quota reform

Need for more balanced global growth

The former French finance minister, who took over as head of the IMF on July 5, said the Fund had a pivotal role to play in the global economy. The world still faced huge challenges after going through what she termed a “fragmented recovery.” Here is the full text of her interview.

IMF Survey online: Madame Lagarde, what are the biggest challenges facing the global economy?

Lagarde: Oh, we are not short of challenges. There are plenty, plenty of challenges. Let us not forget that we are just coming out of one of the biggest financial crises in centuries. The financial crisis that hit the entire world, including most of the advanced economies, back in late 2008 has left scars. We need to deal with that.

We dealt with the crisis as a matter of emergency, and the Fund did very well under its previous management. The proposals that were made at the time were absolutely to the point. It changed the doctrine of the Fund, and it was necessary to do so. We moved from crisis resolution, to stimulus, to what people call “fragmented recovery.” But we still have huge challenges ahead of us.

You have sovereign debt issues in most of the advanced countries. This is most acute in a monetary zone called the euro zone—which I’m very familiar with—but it’s not the only one. The sovereign debt issue is pretty much all over the place in the advanced economies, from Japan to the United States, and obviously epitomized in the European Union, and the euro zone in particular.

Then you have some risk of overheating in emerging economies, which generally comes with inflation. And pretty much all around the globe you have unemployment rising, or not resolved, and not abating.

So we have got lots and lots of issues which clearly put the Fund in a critical and pivotal role. If we look at the Articles of the Fund: what’s the purpose of the Fund? Economic stability. Well, we have so much instability around, whether you look at exchange rates, whether you look at debt, whether you look at economic cycles, whether you look at external account—all of that indicates instability. So we’ve got a lot to do.

IMF Survey online: What is the role of the IMF in helping its member countries tackle some of these challenges that...