Global economy better since start of 2012, Lagarde says

The global economy is in better shape than three months ago even as vulnerabilities still need to be addressed, International Monetary Fund Managing Director Christine Lagarde said.

"The situation is not as grim or as dire," Lagarde said in New Delhi on Tuesday at a conference about the Indian and Chinese economies. "We are really away from the abyss" compared with the start of the year, she said.

Signs of stabilization in Europe as the region fights its fiscal crisis, and a strengthening US recovery, have spurred an 11.8 percent rise in the MSCI World Index of stocks this year.

At the same time, Lagarde said in Beijing two days ago that optimism shouldn't lead to a "false" sense of security as a surge in oil prices and elevated debt levels are among risks.

"As far as India is concerned, infrastructure is the key priority," Lagarde said, along with shifting public spending toward capital investment.

Indian economic expansion slowed to 6.1 percent last quarter from a year earlier, the weakest pace in almost three years. The highest borrowing costs since 2008 to fight inflation and a drop in investment have hurt growth in Asia's third-largest economy.

Most Asian currencies in a basket of 11 tracked by Bloomberg have appreciated this year, led by a 5.5 percent rebound in the Indian rupee against the dollar following a 16 percent slide in 2011.

At the same conference, Reserve Bank of India Deputy Governor Subir Gokarn said developing the rupee into an international currency isn't a key strategic policy goal at the current time.

"The focus of short- to medium-term policy on our capital-account management is gradual liberalization," he said.

Lagarde reiterated that China must continue to shift toward domestic consumption as an engine of expansion.

Europe still has "a lot of work to do", though the sovereign-debt crisis there isn't as "acute" as previously, the IMF chief also said.

The European Central Bank is flooding the banking system with cheap money in a bid to avert a credit crunch after the market for unsecured bank debt seized up last year and funding from US money markets disappeared.

The IMF last week approved a 28-billion-euro ($37 billion) loan for Greece as part of a 130-billion-euro second bailout by the European Union that requires more austerity and an overhaul of its economy.

Greece completed the world's largest sovereign-debt overhaul and agreed to deeper spending cuts to obtain new funds.

Bloomberg News in New Delhi

(China Daily 03/21/2012 page16)