Aug 16, 2011, 06.10 AM | Source: Reuters
IMF`s Lagarde: govts still have options to aid jobs
In an opinion piece published on the Financial Times website on Monday, Lagarde said fiscal adjustment "must resolve the conundrum of being neither too fast nor too slow."
"Shaping a Goldilocks fiscal consolidation is all about timing. What is needed is a dual focus on medium-term consolidation and short-term support for growth and jobs. That may sound contradictory, but the two are mutually reinforcing," Lagarde wrote.
Without singling out the United States nor any other country, she said policymakers in some countries are pushing for sharp fiscal adjustments.
"But in many countries a short-term focus would be wrong," Lagarde said. "We should remember that markets can be of two minds: while they dislike high public debt -- and may applaud sharp fiscal consolidation -- as we saw last week they dislike low or negative growth even more."
She said short-term measures must be supportive of growth while economical in terms of their impact on fiscal sustainability and can support job creation, infrastructure and ease pain in housing markets.
"Nor will spending cuts alone do the trick -- revenues also must increase, and the first choice must be measures that have the lowest effect on demand," she said.
In the United States, Republican lawmakers have focused on spending cuts to shrink the U.S. budget deficit. They have resisted tax increases as a means to increase revenues.
A faltering global recovery would spread burdens far and wide, she said, but policymakers can restore confidence if they work together and act boldly and quickly.
"The priorities are clear: credible, medium-term fiscal consolidation, combined with aggressive exploration of all possible measures that could be effective in supporting short-term growth," Lagarde wrote.
(Reporting by David Lawder; Editing by Andrew Hay)