Itsuo Inouye, Associated Press
TOKYO — Sacrificing growth for the sake of austerity could put the entire world economy in jeopardy, the head of the International Monetary Fund told global financial leaders Friday, calling for medium-term work to bring down debt levels and urgent action to get the unemployed back to work.
In a forward-looking speech to fellow financial leaders at the IMF and World Bank annual meeting in Tokyo, IMF chief Christine Lagarde also warned against backsliding on reforms needed to prevent future financial crises.
"The first priority, clearly, is to get beyond the crisis, and restore growth, especially to end the scourge of unemployment," Lagarde said.
That requires monetary policies that encourage banks to lend, and the "right pace" of adjustments in spending. Debts must be brought down in the medium term, and structural reforms are needed to sustain growth in the long term, she said.
"That's the package that is needed," Lagarde said. "Let us not delude ourselves. Without growth, the future of the global economy is in jeopardy."
The IMF has scaled back its global growth forecast for 2012 to 3.3 percent from 3.5 percent, and has warned that even its dimmer outlook might prove too optimistic if Europe and the United States fail to resolve their crises.
On Friday, the fund said economic growth in the Asia-Pacific region slowed to 5.5 percent in January-June — well above the global average, but the lowest for the region since the financial crisis in 2008 — largely because of sluggishness in Europe and the U.S. It also noted weakness in China and India, whose dynamism had helped counter weakness elsewhere.
"There are big challenges as well. We must not get carried away," she said. "The global recovery is still too weak. Job prospects for untold millions are still too scarce, and the gap between the rich and the poor is still way too big."
Europe's darkening economic outlook is drawing calls for more public support even from austerity champion Chancellor Angela Merkel, who said Thursday it was incumbent on Germany, whose 0.3 percent growth in the second quarter helped offset a 0.2 percent contraction in the 17-nation eurozone, to "do things to stimulate the European economy."
Lagarde has urged that European creditors give Greece an extra two years to meet austerity targets required to get and continue receiving loans, after nearly defaulting on its mountain of debt.
While the spending cuts and tax increases are required to get its public finances in order, with unemployment at over 25 percent, "It's sometimes better to have a little more time," she said Thursday.
Both Lagarde and Jim Yong Kim, president of the World Bank, stressed that without greater equity and equality, growth will be unsustainable.
The turmoil of the Arab Spring protests underscores the need to ensure that growth is shared and provides jobs for young workers and women, Kim said.
The gathering of top financial leaders in Tokyo, the first in nearly a half-century, has highlighted Japan's own struggle to escape two decades of economic malaise and grapple with its own huge debt burdens. It also has drawn praise for Japan's keenness to share lessons learned in rebuilding from its March 2011 earthquake, tsunami and nuclear disasters.
Finance ministers and central bankers from the Group of Seven richest nations met Thursday to discuss the European debt crisis and the looming budget impasse in the U.S. Local reports said Japan sought support for its own woes with the stubborn appreciation of the Japanese yen, which by making its exports more expensive in overseas market is hindering its own recovery.
The leaders released no communique, though Japan's Ministry of Finance announced that the group had supported moves to resolve debts and move ahead on new financing for Myanmar as it carries out sweeping economic reforms.
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