IMF director: World economy enters dangerous phase

Nations must work together to meet the growing risks, IMF Managing Director Christine Lagarde said Thursday. Banks must provide more capital, and governments need credible plans to get their debt under control.

Lagarde worries that some governments lack the political will to shrink rising deficits. That appeared to be a shot at the United States, where Congress has struggled to reach agreement on a deficit-reduction plan.

"The current economic situation is entering a dangerous phase," said Lagarde at a news conference kicking off the annual meetings of the 187-nation International Monetary Fund and its sister lending organization, the World Bank.

Lagarde says nations will make progress this week during the annual meetings and that they will ultimately meet the challenges ahead. The gathering of world finance leaders comes at a perilous time for the global economy. World markets are plunging on fears that the US economy has weakened and is adding few jobs, while Europe is confronted by a deepening debt crisis.

The Dow Jones industrial average fell more than 360 points in midday trading. Earlier this week, the IMF slashed its growth forecasts for this year and next. And in a separate report, the IMF said the global financial system is facing its greatest challenges since the 2008 financial crisis.

Europe's troubles center on Greece. The Mediterranean nation could default on its debt next month unless it receives a USD 10.9 billion installment from a bailout fund managed by the European Central Bank, the European Commission and the IMF.

A default by Greece could destabilize other financially troubled European countries, such as Portugal, Ireland, Spain and Italy. It would also deal a blow to many European banks, which are large holders of Greek government bonds.