Lagarde Urges Strong Leadership to Put World on Firmer Footing

Lagarde says policies needed for recovery are clear

World needs collective leadership for synchronized solutions

Implementation, particularly for Europe, will take time

At her opening press conference ahead of the 2011 IMF-World Bank Annual Meetings in Washington, Lagarde outlined three main issues for the discussions—the weak global economic outlook, policies to safeguard the recovery, and the need for stronger leadership.

World growth had slowed, hitting jobs and throwing more into poverty, and risks had risen considerably, she said.

The job of the IMF, with its 187-country membership, would be to help facilitate comprehensive solutions. With strong, synchronized leadership, the world economy could rebound over time. “We are in this together and we can pull out of it together,” she said.

Recognizing the “anxiety and trepidation” of markets, she said the world needed to revive the collective spirit of the Group of Twenty (G-20) meeting in London in 2009, when leaders acted together.

Dangerous new phase

Repeating her earlier warning that the world economy had entered a dangerous new phase, Lagarde said that in advanced economies, the large debts of governments, households, and banks risked suffocating the recovery.

Some key emerging economies were also still not doing enough to boost domestic demand—for their own sake, and also to contribute to global demand.

According to the IMF’s latest global forecast, released on September 20, real GDP is expected to grow by a fairly robust 6.4 percent in emerging and developing economies but by only 1.6 percent in advanced economies in 2011.

About 10,000 policymakers, private sector and civil society representatives, journalists, and academics are expected to attend Meetings, which provide an opportunity for economic leaders to consider collective solutions to the major problems confronting the world.

The four ‘Rs’ for recovery

Although policy options had narrowed, there was still a path forward. Lagarde summarized these options as the four “Rs”: repair, reform, rebalance, and rebuild.

• Repair. Advanced countries need to get debt burdens under control through fiscal consolidation. But consolidating too quickly could hurt the recovery. Credible measures that deliver and anchor savings in the medium term will help create space for accommodating growth today—by allowing a slower pace of consolidation. In the United States, household debt also needs repair, while in Europe, it is the twin...