Oct 11, 2012
The draconian austerity measures issued to debt-stricken countries should be eased, the head of the International Monetary Fund admitted on Thursday, marking a shift in the policies the "troika" member has been pushing.
Speaking in Tokyo at the annual IMF/World Bank meetings, IMF managing director Christine Lagarde said, "What we have observed is that when many countries at the same time adopt the same austerity measures, it creates a bigger and deeper impact on growth."
Sometimes it's better to "go a little bit more slowly" in implementing the measures, and countries should "let the automatic stabilizers operate," Lagarde stated.
The Telegraphexplains further that Lagarde's emphasis is now not on "specific debt reduction targets but focus on implementing reforms."
Lagarde's statements come days after the IMF issued its World Economic Outlook. Reutersreports:
The IMF released new research this week showing that fiscal consolidation has a much sharper negative effect on growth than previously thought. Since the global financial crisis, these so-called fiscal multipliers have been as much as three times larger than they were before 2009, the IMF research shows.
That means aggressive austerity measures may inflict deep economic wounds that make it harder for an economy to get out from under heavy debt burdens.
Financial observer Yves Smith remarks that the IMF now recognizing the failure of these policies is "too little, too late," and "is tantamount to loosening a tourniquet once gangrene has set in."
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The IMF's Christine Lagarde spoke with CNN, explaining the Troika's review of the austerity plan.
IMF chief: Austerity is hurting growth
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