By Steven K. Beckner

TOKYO (MNI) – International Monetary Fund Managing Director
Christine Lagarde said Friday that the global economy needs major
industrialized nations to maintain “accommodative monetary policies” and
to move toward lower budget deficits — but not too rapidly.

Lagarde, addressing the annual meetings of the IMF and World Bank,
said the global economic recovery is still “too weak” and jobs are “too
scarce.”

Although there has been “progress,” much more needs to be done to
reform the financial system, she also said.

Lagarde said the IMF has an important role to play in assisting
economic development and financial reform with its greatly augmented $1
trillion lending capacity.

The world’s task is to “get beyond” the financial crisis and
“restore growth,” especially in the labor market, Lagarde said. She said
there is a “package” of priorities on which there is a large measure of
consensus.

The first element of this package is the need for “accommodative
monetary policy” and “the right pace of fiscal adjustment,” she said.

By “the right pace,” Lagarde meant that governments need to bring
down their deficits “over the medium-term,” not suddenly in a way that
would hurt economic growth.

“Reducing public debt is very difficult without economic growth,”
she said.

The other elements of the “package” include “structural reforms,”
financial reforms and “rebalancing global demand.”

Cooperation is needed to push forward with that agenda because “the
global recovery is still too weak, job prospects are still too scarce
and the gap between rich and poor is still way too big,” said Lagarde.

“It can be a positive sum game if we play it right,” she said.

Although “progress” has been made, Lagarde stressed, “we must
complete the agenda of financial reform.” She said there is still work
to be done on the “shadow banking system” and regulating “too important
to fail financial institutions.”

Lagarde said the euro zone is being severely tested, but said “we
must recognize that deeper economic and fiscal integration will fortify
its foundations and set the stage for a stronger future.”

Lagarde made clear she intends to lead the IMF into ever larger
influence in the world economy, noting that the fund now has $540
billion committed in 126 lending programs.

She said the IMF is working to strengthen “surveillance” of member
nations’ policies, including their exchange rate regimes.

Before Lagarde spoke, the annual meetings were formally opened by
Japanese Crown Prince Crown Prince Naruhito, who told officials
representing the IMF’s 188 member nations that Japan is “recovering
steadily” from the impact of the March 2011 earthquake, tsunami and
nuclear disaster.

After Lagarde spoke, World Bank President Jim Yong Kim said
“financial instability” in Europe still poses a threat to the global
economy. He also said “surging food prices are stretching the budgets of
the poor.”

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