Reuters: Regulatory News: UPDATE 2-Credible debt reduction plans essential-IMF's Lagarde

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UPDATE 2-Credible debt reduction plans essential-IMF's Lagarde May 7th 2012, 18:15 Mon May 7, 2012 2:15pm EDT By Doug Palmer and Catherine Bosley WASHINGTON/ZURICH May 7 (Reuters) - The world's advanced economies must take steps to cut their huge public debt, but the right mix of policies will vary by country, International Monetary Fund Managing Director Christine Lagarde said on Monday. "The most important element is to lay out a credible medium-term plan to lower debt," Lagarde said in a speech delivered in Zurich. "Without such a plan, countries will be forced to make an even bigger adjustment soon." The former French finance minister also said countries should keep a "steady hand on the wheel" by sticking to announced fiscal measures, even if growth is weaker than expected and causes an unexpected drop in tax revenues or an increase in spending. She spoke one day after Francois Hollande, a Socialist running on an anti-austerity message, defeated center-right incumbent Nicolas Sarkozy in the French presidential election. The vote, combined with Greek voters' rejection of parties that slashed budgets to get a European Union/IMF bailout, undermined investor confidence in the euro zone's ability to tackle its debt crisis. In response to a question about how she envisioned the euro zone's future, Lagarde said: "There will be bumps on the road. But it will be there and it will be solid." Her speech in Zurich met with loud protests by left-wing student groups and an unusually large number of security guards. Lagarde acknowledged "austerity versus growth is very much the debate of the hour." But she termed it a "false debate", saying it was possible for countries to design strategies that are both good for stability and growth. "We know that fiscal austerity holds back growth and the effects are worse in downturns. So the right pace is essential - and the right pace will be country specific. The right mix between cutting spending and raising revenue is also critical," Lagarde said. "As next year looms on the horizon, countries need to keep a steady hand on the wheel. If growth is worse than expected, they should stick to announced fiscal measures, rather than announced fiscal targets," she said. "In other words, they should not fight any fall in tax revenues or rise in spending caused solely because the economy weakens," Lagarde said. Link this Share this Digg this Email Reprints

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