–Will Be Honest But Will Also Be Demanding With Greek Government
–Global Econ Picture ‘Bleak'; Does Not Expect Major Uptick

By Brai Odion-Esene

WASHINGTON (MNI) – IMF Managing Director Christine Lagarde,
responding to reports of the international lender’s disquiet about
Greece’s lack of progress on implementing reforms required by its
creditors, Wednesday declared that once the fund enters an agreement
with a nation, it “never leaves the negotiation table.”

Briefing reporters from the International Monetary Fund’s
headquarters, Lagarde also described the current global economic picture
as “bleak” and noted that, in particular, there are “serious questions”
concerning the future of the U.S. economy.

Asked about reports that the IMF may refuse to continue supporting
Greece as part of the Troika — the European Commission and European
Central Bank are the other members — Lagarde replied, “the IMF never
leaves the negotiation table.”

She noted that IMF staff are in Greece working with other members
of the troika and engaged in a dialogue with the Greek government.

The IMF will work with the government on the basis of the program
already in place, and the onus is on Greek authorities to determine how
they will meet the targets and structural reforms mandated.

“Will the IMF lose its credibility in the process? I will do
everything I can to avoid that,” Lagarde said. “We will be honest but we
will be demanding and not complacent.”

There is still a lot Greece can do in terms of structural reforms
and boosting tax revenues, she added.

With regard to Spain, Lagarde said there is not much more in terms
of fiscal reform the IMF could ask Spain to implement if the struggling
eurozone member were to request assistance.

Spain’s fiscal consolidation so far has been a “huge effort,” she
said, and Spanish authorities “have done an awful lot” in terms of
structural reforms the last few months.

So the country’s problem, given the record high yields investors
continue to demand? “Clearly it’s the banking sector,” Lagarde said.

Commenting on the current economic situation, Lagarde said there is
“a decline of confidence,” fueled by a combination of relatively poor
economic data and the reaction of investors to the situation.

Even though the IMF forecasts the global economy to continue
growing, it has lowered its expecations, Lagarde said.

The outlook for the global economy is “bleak,” Lagarde continued,
as the fund does not see a major uptick in growth for either advanced or
emerging market economies.

“There is nothing which is very enouraging,” she said, other than
perhaps the fact that China is likely to experience a soft, not hard,
landing.

“Clearly all policymakers and all institutions should continue to
be in a crisis-management mode,” Lagarde said.

In terms of monetary policy, “more can be done,” she argued, aided
by the fact that core inflation is expected to remain low.

The ECB also already done a lot, Lagarde said, from lowering
interest rates to injecting massive amounts of liquidity in the
financial markets. “Certainly there is room for similar or equivalent
measures to be considered by the European Central Bank,” she said.

She noted, however, that since the declaration last week by ECB
President Mario Draghi that the central bank is determined to do
whatever it takes, within its mandate, to safeguard the euro, “things
have abated” in the last few days.

This underlines how “thin” confidence is in many ways, she said.
The issue of confidence — such as in governments and their ability to
policies in place — Lagarde added, seems to be behind “each and every”
current negative situation.

Lagarde said there are reasons to hope the situation in Europe will
improve, especially if its leaders act on the resolutions agreed to at
their last meeting on June 28-29.

Lagarde called the creation of a eurozone banking and fiscal union
as “necessary,” and that she hopes significant steps and the building
blocks towards achieving this will be agreed upon by European
authorities.

This would help stabilize the euro area and instill some confidence
in bondholders by laying out the long term vision for the monetary
union.

The euro area is not the only problem, however, she said.

Lagarde lauded the agreement reached by U.S. lawmakers and the
White House Tuesday on a 6-month stop-gap spending bill that will keep
the federal government funded and remove any threat of a shutdown.

Still, “there are serious questions concerning the U.S. economic
future,” she said, particularly as a result of the potential fiscal
cliff should Congress fail to agree on, at least, a temporary plan in
the coming months.

Lagarde warned that the U.S. still has “a lot of work” to do in the
medium and long term on fiscal policy and deficit reduction, and that
“solid” policies must be agreed upon without weighing on growth in the
short term.

There would be additional cause for hope, she added, if Congress
attempts to overcome some its internal divisions and come up with
measures to avoid the so-called fiscal cliff.

Lagarde also commented on the issue of financial reform, noting
that LIBOR scandal underlines that the financial regulation effort “is
not completed yet, far from it.”

She expressed the hope that the LIBOR manipulation probe would
boost the energy of governments and regulators to actually deliver
“credible” results on the reform front.

** MNI Washington Bureau: 202-371-2121 **

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