IMF chief urges US policymakers to help economy

IMF chief Christine Lagarde, speaking yesterday at an economic conference in Jackson Hole, said the United States should reach a "credible" plan to control government debts in the future, but push for stronger economic growth now.

If the economy stagnates, she said, plans to cut government spending in the future will lose credibility. "Who will believe that commitments to cut spending can survive a lengthy stagnation with prolonged unemployment and social dissatisfaction?" she said.

Her comments echoed those of Federal Reserve Chairman Ben Bernanke, who in a speech here Friday urged Congress to do more to help the ailing U.S. economy.

Congress, led by House Republicans, has emphasised reducing government budget deficits over short-term measures to create jobs.

Lagarde also pushed US policymakers to halt "the downward spiral of foreclosures, falling house prices and deteriorating household spending." She said they could move more aggressively to reduce amount of principal homeowners owe on their mortgages; about one in four US homeowners owe more on their mortgages than their homes are worth.

The government could help homeowners take advantage of super-low mortgage rates to refinance their homes and reduce their monthly payments, she said.

In July, Lagarde replaced Dominique Strauss-Kahn as managing director of the IMF. He had been accused of assaulting a hotel maid. Those charges were dismissed last week.

Private investors or governments must replenish the capital of banks facing potential losses if ailing European countries such as Greece, Italy and Portugal cannot meet government debt payments, Lagarde said.

Lagarde urged central banks around the world to keep interest rates low and consider "unconventional" steps if they are required to protect the fragile global recovery.

On Friday, Fed chief Bernanke did not announce any further steps to jolt the economy. He did say the Fed would discuss its options at its policy meeting next month. One unconventional step the Fed could take would be a third round of bond purchases, a policy known as "quantitative easing," designed to help the economy by lowering long-term interest rates.

"The downside risks to the global economy are increasing," Lagarde said. "Those risks have been aggravated further by a deterioration in confidence and a growing sense that policymakers do not have the conviction, or simply are not willing, to take the decisions that are needed."

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