IMF chief wants 'more firepower' to fight crises

TOM RAUM Associated Press Published:

WASHINGTON (AP) -- The managing director of the International Monetary Fund said Tuesday that the global recovery is growing stronger but still is very fragile, calling on the international community to give her organization "more firepower" to help keep tottering economies from going under.

"We certainly need more resources," Christine Lagarde told the annual meeting of The Associated Press, without specifying how much more was needed. Lagarde said the IMF would address that question at its spring meeting in two weeks.

The IMF currently has about $400 billion in resources that it can use to provide loans to countries in trouble. Lagarde has talked about expanding those resources to close to $1 trillion.

Lagarde said the global economy is making some advances in digging itself out of the worst downturn in decades, but that the recovery remains particularly frail in Europe. She suggested cutting government spending too quickly in developed countries like the United States and larger European nations could make things worse, not better.

Policymakers on both sides of the Atlantic need "breathing space to finish the job," she said. Lagarde also said that Europe's faltering would quickly spread and the U.S. recovery, slowly gaining strength, "might well be in jeopardy."

"America has a large stake" in how Europe and the rest of the world fares," Lagarde said.

The IMF official said it is important to continue and expand emergency programs among the 17 countries that use the euro to help heavily indebted countries there.

"We should not delude ourselves into a false sense of security," she said. "The recovery is still very fragile. The financial system in Europe is still under heavy strain. Debt is still too high, public and private. Stubbornly high unemployment is straining the seams of society. ....Rising oil prices are clearly another cloud on the horizon."

Lagarde's remarks came after the Eurozone countries on Friday boosted their emergency bailout funds for heavily indebted countries by $1.1 trillion (800 billion euros). That was short of the $1.3 trillion (1 trillion euros) that Lagarde and other international leaders have said is needed to calm financial markets.

On Tuesday, she said, since the Europeans have moved first to raise their firewall, "the time has come to increase our firepower." While short of what the IMF had hoped for, it was a good first step -- and something she said the IMF could work with.

During a brief question-and-answer period, Lagarde was asked whether some of the more debt-burdened countries would be better off leaving the group.

"As to the size of the eurozone and whether Greece, Portugal and whoever else should or should not be in, you know, it's a very deeply rooted sentiment that the Europeans, particularly from that area, have, that what they have built over the last 50 years or so, right after the second World War, is something that they are very, very attached to.

"And from discussions I've had with many leaders, including from the lead countries in the Eurozone, I don't think that there is any political intention, disclosed or hidden, to actually break up that zone," she said.

Lagarde also suggested that bold steps are needed such as those taken by the U.S. Federal Reserve and the European Central Bank to help "keep growth strong and steady."

And she said that most countries are running deficits that are too high and "need to bring down debt over time" And while "some countries under pressure have no choice but to cut deficits today...a global undifferentiated rush to austerity will prove self-defeating. Countries like the United States with low costs of borrowing should not move too quickly."

Those remarks thrust her into the U.S. presidential debate, where Republicans are united in calling for deep cuts in federal spending, while President Barack Obama -- who also addressed the meeting -- and congressional Democrats are calling for more job-creating spending, along with raising taxes on the wealthy to help trim budget deficits now exceeding $1 trillion a year.

Lagarde noted that over 200 million people globally, including nearly 13 million in the U.S., are without work, declaring that "jobs must be a priority."