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Oct 12, 2012, 08.17 AM IST | Source: CNBC-TV18

IMF prods First World to stem spread of euro-zone crisis

The IMF, on Thursday, prodded the world's advanced countries for swifter action on Europe's debt crisis which, the body says, is beginning to affect emerging markets such as China and Brazil

The IMF, on Thursday, prodded the world's advanced countries for swifter action on Europe's debt crisis which, the body says, is beginning to affect emerging markets such as China and Brazil, while the United States and Japan show scant progress in handling their budget-deficits.

Christine Lagarde, managing director of the International Monetary Fund, said political wrangling added to economic uncertainty, slowing growth in both advanced and emerging economies. The IMF cut its global growth forecast this week for the second time since April.

"We expect action and we expect courageous and cooperative action on the part of our members," Lagarde said in a news briefing ahead of the IMF's twice-yearly meetings in Tokyo.

The IMF has expressed frustration with Europe's piecemeal response to its debt crisis and warned that a recent respite in borrowing costs for debt-laden countries such as Spain may prove short-lived unless euro zone leaders come up with a comprehensive and credible plan.

Standard & Poor's cut its rating on Spain on Wednesday to a level just above junk territory, and Moody's may soon follow.

The IMF itself is struggling to muster the sort of decisive action that Lagarde wants to see from world leaders. Its 188 member-countries meet on Friday and Saturday, and will fall short of a goal to implement voting reforms that would give large emerging economies greater say and elevate China to the No. 3 spot in IMF power.

Christine Lagarde stressed the urgent need to pull advanced economies out of the current slowdown as the effect of the growth slowdown was hurting emerging markets.

"The biggest change compared with what we said earlier is that the crisis is not only affecting advanced economies, but emerging markets particularly in Asia. And the World Economic Outlook data, which was released a couple of days ago, certainly indicates the effect of the slowdown being felt in countries like China, Russia and Briazil."

A territorial dispute between Japan and China added another element of disharmony. China's top central bank and finance ministry officials backed out of the meetings and sent deputies to Tokyo instead. Lagarde said she hoped the world's second- and third-largest economies could resolve their differences "harmoniously and expeditiously."

"I think they lose out by not attending the meeting," she said of the Chinese officials. "And they will be missing something great."

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