Lagarde Says World Can’t Be Lulled Into Sense of Security

By Bloomberg News - Mar 18, 2012 9:22 AM GMT+0700

International Monetary Fund Managing Director Christine Lagarde urged policy makers to be vigilant as oil prices, debt levels, and the risk of slowing growth in emerging markets threaten global economic stability.

“Optimism should not give us a sense of comfort or lull us into a false sense of security,” Lagarde said today at a speech in Beijing at the China Development Forum. “We cannot go back to business as usual.”

Enlarge image

Christine Lagarde, managing director of the International Monetary Fund, speaks during a news conference in Beijing, China, on Thursday, Nov. 10, 2011. Photographer: Adam Dean/Bloomberg *** Local Caption *** Christine Lagarde

The IMF last week approved a 28 billion-euro ($36.6 billion) loan for Greece as part of a 130 billion euro second bailout by the European Union that requires more austerity and an overhaul of its economy. Greece completed the world’s largest sovereign-debt overhaul and agreed to deeper spending cuts to obtain new funds as it faces a fifth year of recession.

“The measures that were proposed are ambitious and it will be important to focus on steady rigorous implementation of the situation on the ground,” Lagarde said about Greece. “We have made important steps forward.”

Brent crude oil futures have rising 18 percent this year on concern Iran’s standoff with the West over its nuclear program will escalate into military action in a region that holds 54 percent of global petroleum reserves. Increased gasoline prices threaten to slow consumer spending in the U.S., tempering the recovery in the world’s largest economy.

Oil prices are “becoming a threat to global growth,” Lagarde said. “I think it’s a major threat.”

Praising China

Lagarde praised China’s rising leadership role in the world economy, while saying the world’s second-biggest economy must “continue shifting the drivers” of growth toward domestic consumption and away from investment and exports. China’s leadership should work to improve standards of living, she said.

The IMF chief said March 8 that the fund may raise its growth forecast for the U.S. on signs the recovery is picking up in new forecasts to be released in about a month.

“I wouldn’t be surprised if it was upward compared with our previous forecast of 1.8” percent for 2012, she said in an interview on the “Charlie Rose” show broadcast on PBS and Bloomberg Television.

The Washington-based IMF in January cut its global growth forecasts for this year and next and warned that the European debt turmoil could tip the world into another recession if it were to worsen. The fund has been seeking $600 billion from its members to be able to allow an increase in lending resource of $500 billion, to protect the world from consequences of the European debt crisis.

While euro nations have pledged about $200 billion, Group of 20 officials meeting in Mexico last month sided with the U.S. and said any decision on more funding hinges on the euro area delivering more of its own financial firepower first.

To contact Bloomberg News staff for this story: Henry Sanderson in Beijing at hsanderson@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net