IMF chief Lagarde urges bold action to boost recovery

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Countries must "act now and act boldly" to kick start faltering economic recovery, IMF chief Christine Lagarde said on Friday ahead of a G7 meeting of top industrialised economies in France.

"The key message I wish to convey today is that countries must act now -- and act boldly -- to steer their economies through this dangerous new phase of the recovery," Lagarde said in a speech in London.

The world was suffering from "a crisis of confidence" amid heightened fears over the health of banks and sovereign debt, she said.

"All this is happening at a time when the scope for policy action is considerably narrower than when the crisis first erupted," she said. "But while the policy options may be fewer, there is a path to recovery."

Lagarde also reiterated previous controversial comments that some European banks needed more capital, saying such a move would allow the institutions to return to financing the real economy.

"In view of the heightened risks and uncertainties -- and the need to convince markets -- some banks need additional capital," she said.

"We must not underestimate the risks of a further spread of economic weakness, or even a debilitating liquidity crisis. That is why action is needed so urgently so that banks can return to the business of financing economic activity."

Speaking alongside British finance minister George Osborne, who has introduced deep cuts to public spending to reduce a huge deficit, she warned against making reductions too quickly.

While stressing that "credible consolidation plans" were necessary, she added: "We also know that consolidating too quickly will hurt the recovery and worsen job prospects."

She also welcomed US President Barack Obama's $447 billion jobs plan, announced on Thursday, which is aimed at giving a kick-start to the stalled American economy.

"We welcome the proposals announced by President Obama last night, which focus on supporting growth and job creation in the short term," Lagarde said in the speech at the Royal Institute for International Affairs think-tank.

© 2011 AFP

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