IMF's Lagarde sees improved world economic outlook

Last Updated: Thu, Jan 17, 2013 19:45 hrs

International Monetary Fund chief Christine Lagarde said Thursday that the threat of financial collapse in the global economy appears to have eased. But she warned that developed economies still need to follow through on financial reforms and debt reduction.

"We stopped the collapse. We should avoid the relapse. And it's not time to relax," she told a news conference on her outlook for 2013.

Lagarde said that big economic powers, including the United States and European countries, had taken important steps to shore up their financial systems but have a lot of work left to do. She warned that there are signs of a waning commitment to regulate the financial sector, despite the severe problems that began with the collapse of U.S. financial institutions in 2008. She said that reforms have been delayed and diluted, and she worries that banks are pushing back against necessary reforms.

On the United States, where President Barack Obama is locked in a standoff with congressional Republicans on how to lower the country's deficits, Lagarde said any cuts should be aimed at allowing time for an economic recovery to play out.

"They should clearly touch on entitlements, among other things," she said.

In Europe, Lagarde said she sees a lot of progress on reform. She said the European Union has a lot of new tools to deal with financial crisis.

"And yet, firewalls have not yet proven operational," she said. She added that the EU still has work to do on its banking union in order to prevent future problems.

On Greece, which has seen the most acute collapse of all the EU countries and which many believed would have to leave the currency union, Lagarde said recent reforms appeared to have restored confidence.

"This time it's different," she said.

More from Sify: