IMF steps up pressure on advanced economies

IMF Managing Director Christine Lagarde stepped up pressure Saturday on developed countries to both boost growth and undertake needed policy steps to put the crisis of five years ago firmly behind. She said Europe, Japan and the United States had lagged on needed actions to restore global growth at a firm and sustainable pace. "The global economy still faces headwinds, with lingering risks of a prolonged slump," she said in a policy statement at the International Monetary Fund's spring meetings with the World Bank. "Deep policy concerns and economic brakes are still at work, including from limited progress in post-crisis reforms," she said. "And new risks are appearing in the context of the emerging three-speed recovery." In a "report card" assessment of progress over the past year, she said major calamities had been averted, like the fracture of the eurozone. But she still gave the developed economies poor grades. "US public finances remain unsustainable and a comprehensive and backloaded plan involving higher revenues and entitlement reform is urgently needed." In Japan, with one of the world's largest debt loads, she said, short-term fiscal stimulus is heightening risks to state finances and Tokyo needs to come up with "an ambitious fiscal consolidation plan and growth strategy." In Europe, she warned, "the euro area has the clearest need to balance supporting growth with needed reform." Deep austerity programs demanded of the troubled periphery economies like Greece, Italy and Portugal are leading to "adjustment fatigue" "with growing tensions over the fairness of adjustment." "The global economy has avoided the worst, but it is by no means out of the woods, and prospects may be diverging." Her report, on the performance of the IMF and member countries over the past year, and a policy agenda for the next, reiterated the key challenges to the global economy the IMF has highlighted in recent months. But the language directed at the most advanced economies seemed to toughen. She highlighted the looming threat that their extraordinary monetary expansion program will, when pulled back, create great turbulence in capital and foreign exchange markets that could hurt less developed countries. "Many emerging market economies are concerned about the possible blow to output and financial system if large inflows of capital reverse rapidly." She warned emerging economies to develop more resilience to global market swings. At the same time, she questioned whether the breathing space earned by the monetary expansion programs "is being used by advanced economies to make progress on deeper fiscal, financial, and structural reforms."