IMF Nations need customised action for full speed recovery: Lagarde

The International Monetary Fund (IMF) Director Christine Lagarde has called for “customised action” by countries to put the global economy on path of “full speed recovery” that is solid, sustainable and balanced.

In her interaction with the media on the sidelines of the annual Spring meeting of the IMF and World Bank yesterday, she expressed her dissatisfaction over what she termed as emergence of a “three speed” global economy.

These are countries that are doing well, those countries that are on the mend, and those countries that still have quite a distance to travel, she said.

“Now, with strong interconnections, and uneven recovery, that three-speed recovery is not the healthiest recovery we could think of. The three-speed recovery is not enough and what we need is a full-speed global economy- growth that is solid, sustainable, balanced, but also inclusive and very much rooted in green developments,” she said.

“This requires for the global economy to move from that three-speed recovery that we are observing to a full-speed recovery, with the kind of growth that we want, that requires clearly customised policy responses in each of the three groups that I have just identified.”

“Those that are doing well, those on the mend, and those that still have a way to go,” Ms. Lagarde said.

According to the IMF Director, the emerging markets face the new risk of avoiding financial excesses.

“They should rebuild policy space and strengthen financial regulation and supervision. Low-income countries, and in that group you really observe probably the fastest growth rates at the moment, they should build on success and invest in the future, including by meeting infrastructure and social needs,” she said.

“And that is where the inclusive growth really kicks in. It doesn’t only apply to that group, but it is very needed in that particular group. The international community, of course, needs to support these countries in addressing these challenges,” she added.

The second group, she said, includes the US, but also countries like Sweden, Switzerland, for instance. The US, has managed to avoid the fiscal cliff.

“It still needs, however, to fix the pace of its fiscal adjustment - less and better-quality adjustment now, well- planned, well-anchored, well-communicated for the future. This would certainly support the recovery in private demand. Not to say that there is no recovery in private demand at the moment. It is clearly picking up, but it would certainly comfort it and would make it stronger for the long run,” she said.

Ms. Lagarde said the third group includes the euro area and Japan.

“Japan is in a space of its own in a way, but we have put it in that group for the moment. On the euro area, policymakers have accomplished a great deal over a short period of time. The priority now is to fix frayed banking systems, and press ahead with banking union,” she said.

“In Japan, the recently announced framework of ambitious monetary easing is, from our point of view, a positive step. But, it is not enough. Japan needs more ambitious plans to bring down debt, plus structural reforms to shift the economy into higher gear. That is the whole plan behind these three arrows, policy mix which the prime minister has described, and we are certainly keen to see the other two arrows in action,” she said.