Tells US that Debt Crisis Threatens World Economy

IMF Head Christine Lagarde Tells US that Debt Crisis Threatens World Economy

Posted by on October 5, 2013                                       /   Comments Off

    Category: World Economy   Tags: , ,

Christine Lagarde speaking ahead of the fund's annual meeting in Washington next week

Stephen: My gut tells me this woman is doing a lot of good work behind-the-scenes right now to ‘fix’ a range of financial circumstances. Stay tuned.

By Larry Elliott, economics editor,  The Guardian – October 4, 2013

Shares in New York fell sharply on Thursday after the US Treasury warned that the budget fight between Republicans and Democrats in Washington risked plunging the world’s biggest economy into its worst slump since the Great Depression.

President Barack Obama turned up the pressure on Republicans on Capitol Hill after the Treasury and the International Monetary Fund joined senior Wall Street figures in urging a deal well ahead of the deadline for raising America’s debt ceiling on 17 October.

“A default would be unprecedented and has the potential to be catastrophic,” the Treasury reported.

“Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”

The recession of five years ago was the most severe the US has suffered and the economy has recovered only slowly from the damage caused by the financial crash. A health check of the service sector showed a marked slowdown in activity even before large parts of the federal government were shut down as a result of the failure to agree a budget deal.

Obama accused the Tea Party wing of the Republicans of being “extremists” who were “demanding a ransom for doing their jobs”. The president added: “Congress has to pass a budget that funds our government with no partisan strings attached.”

Heightened anxiety in the financial markets was reflected in an early 170 point fall in the Dow Jones industrial average and a rise in interest rates for one-month US Treasury bonds.

Christine Lagarde, the IMF’s managing director, urged America’s politicians to settle their differences before the dispute harmed the entire global economy.

Speaking ahead of the fund’s annual meeting in Washington next week, Lagarde said it was “mission critical” that Democrats and Republicans raise the US debt ceiling before the 17 October deadline. Lagarde said the dispute was a fresh setback for a global economy that would take at least a decade to recover from the slump of 2008-09.

“I have said many times before that the US needs to “slow down and hurry up” – by that I mean less fiscal adjustment today and more tomorrow,” Lagarde said. She added that the world’s biggest economy needed to put its finances in order, but favoured back-loaded measures to raise revenues and limit entitlement spending such as medicare that did not jeopardise short-term growth.

“In the midst of this fiscal challenge, the ongoing political uncertainty over the budget and the debt ceiling does not help. The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy.

“So it is ‘mission-critical’ that this be resolved as soon as possible.”

Mario Draghi, the president of the European Central Bank, has also warned of the risks from a protracted federal shutdown.

Lagarde’s speech followed an appeal by senior figures on Wall Street for a budget to be passed in Washington. The IMF managing director said America’s recovery was being held back by over-hasty budget cuts. “Households are in better shape, the housing sector is looking brighter, and the private sector engine is humming again. And yet, growth this year will still be too low – below 2% – due to too much fiscal adjustment. This should ease up next year, with growth about a percentage point higher.”

Lagarde said: “We at the IMF are very familiar with the ebb and flow of economic cycles, with the shift from recession to recovery. Experience tells us that this process usually takes a year or two, or a bit longer if the situation is especially severe. The transitions I am talking about today are different. They will likely play out over the rest of the decade, if not longer.”

US-POLITICS-ECONOMY-IMF-LAGARDE<img style=”margin: 10px;” alt=”US-POLITICS-ECONOMY-IMF-LAGARDE” src=”×200.jpg” width=”200″ height=”200″ />Christine Lagarde: On Top of the World

The IMF managing director on the global economy and women in the workforce.

By Alexandra Wolfe, WSJ – October 4, 2013

One morning in late September, Christine Lagarde, managing director of the International Monetary Fund, was sitting on stage with former President Bill Clinton, U2 lead singer Bono and Facebook Chief Operating Officer Sheryl Sandberg, among others.

Dressed in a bright white shirt dress and orange paisley scarf that set off her deep tan, she was speaking at the Clinton Global Initiative in Manhattan. She looked like she could just as easily be lounging on the deck of a yacht in the Mediterranean. Among the topics: women’s underrepresentation in the labor market, about which the IMF has just released its first paper.

On the panel, Ms. Lagarde, 57, pointed out that women make 70% to 80% of the consumption decisions in most countries. She also noted the key role of women in bringing Iceland out of its recession. When its economy crashed, “the banks, the funds, the government—everything was taken over by women,” she said. “So when it’s messy, you get the women in. But when the mess is sorted, keep the women,” she added, chuckling.

Back at the Carlyle Hotel, where she was staying along with a host of dignitaries for the United Nations General Assembly, she talked about the obstacles to getting more women to work: education, access and, in some countries, safety. The question is how to fix it: Some see it as a problem of individual initiative, others see at it as a collective, systemic issue. Ms. Lagarde, the first female chief of the IMF, hopes to reconcile the two views. “It’s both a collective responsibility, where society has to come together,…[and] an individual responsibility,” she said. “I’ve done things and decided my destiny was not just dependent on other people.”

The IMF paper was an unusual topic for the organization, whose annual meeting begins this week in Washington, D.C. “I don’t think we’ve ever had a paper focusing on women,” Ms. Lagarde said. It shows the extent of women’s underrepresentation in the global economy and how their contributions are often ignored in places like the Middle East and Japan. It also includes some female success stories, from Brazil to the Netherlands, and explains how bringing women into the workforce could raise some countries’ GDPs. “I was always lucky to operate in reasonably protected societies when it comes to women, whether it’s France or the United States,” she said. “There are barriers and discriminations, but it’s nothing compared with the struggle” of women from Pakistan, India or other parts of Asia. As for the impetus for the IMF paper, she admitted, “I did push them a little bit.”

Ms. Lagarde has been no less insistent in making known her wider policy views. She criticized Greek tax evasion at a time when most of the international community was sympathizing with the country’s plight. While she, too, was concerned, she says, “You have to respect the social contract, and you have to comply with the rules.”

Ms. Lagarde says that her respect for responsibility came from her childhood near Le Havre, France. “Certainly, my parents had that work ethic,” she says. Brought up as a Catholic, she was a girl scout and a synchronized swimmer before enrolling at a university in Paris. Swimming taught her a great deal, she says. “When you start competing seriously, you have to comply with the discipline, with routine, with boring laps after laps of swimming to improve your strength and your speed and your body,” she explains. Before college, she studied for a year in the U.S. on a scholarship while also interning for Rep. William Cohen during the Watergate hearings. A lawyer by training, she joined the Paris office of the international firm Baker & McKenzie in 1981 and spent many years working in its global offices, including the one in Chicago. She eventually became the firm’s first female chairman.

Ms. Lagarde has been comfortable in male-dominated environments from a young age. She grew up with three brothers and was one of three female students at the former all-boys school where her father taught. (Now divorced, she has two sons.) “I was surrounded by great role models,” she says, including her grandmother, mother and a female managing partner at Baker & McKenzie.

She is now trying to help other women. One initiative she has championed is a proposal by the European Commission to encourage more women to join the boards of companies. “We did that in France in 2010, and the number of female board members doubled in two years,” she says. And while it has made no noticeable change in the economy so far, she says, “I think it’s too early to say,” citing the European Commission’s long-term goal of having women make up 40% of nonexecutive board positions by 2020.

The leadership of the Group of 20 nations, at least, is improving its male-to-female ratio. “The fact that you have more women in that group—about 20% of them now—taking the floor, expressing their views, using different words than words used by men” is an improvement. She mentions Brazilian President Dilma Rousseff, who said in a recent discussion that she felt “emotional” about making certain decisions. “I’m not sure that range of words and the other side of oneself would have been mentioned by a male head of state,” she says. “I think it’s good because…it takes both halves of humanity to look at issues.”

Still, Ms. Lagarde isn’t comfortable using the term feminist. “In the ’60s, it was associated with an element of threat against men,” she says, “and I think you can only make progress if that movement is inclusive and brings men together with women.”

As for her own aspirations, Ms. Lagarde denies that she’d ever want to be president of France, a position in which some have precast her. “No, I’m so lucky” in her present role, she says. As president, “could I ever commission a study on women at work and rally the brainpower of all these great people?” she asks. “No, no, no, I’m fine, absolutely fine.”

For now, she would like to see the global economy have “as little uncertainty as possible.” Recent events in Syria haven’t helped, however. “It’s pretty basic and obvious but…anything that displaces people and that creates disruptions in neighbor countries—all of that is not good for the economy.”

She’ll also keep her eye on slowing growth in emerging-market economies. “We are seeing rebalancing,” she says. “I think it’s probably a welcome movement in that it will help those countries focus on either structural reforms [or] eliminating bottlenecks, giving signals to investors that they are serious about holding their public finances in order.” Still, she says, “I’m concerned about all of them because that’s my job, and I have to be on alert all the time.”