IMF warns rich states may fall back into recession

WASHINGTON Fri Nov 11, 2011 4:52pm EST

IMF Managing Director Christine Lagarde reacts during a news conference in Beijing November 10, 2011. The head of the International Monetary Fund called on Thursday for political clarity in efforts to tackle the debt crisis that has gripped Italy, saying uncertainty around who would succeed Prime Minister Silvio Berlusconi was fuelling market volatility. REUTERS/Petar Kujundzic

IMF Managing Director Christine Lagarde reacts during a news conference in Beijing November 10, 2011. The head of the International Monetary Fund called on Thursday for political clarity in efforts to tackle the debt crisis that has gripped Italy, saying uncertainty around who would succeed Prime Minister Silvio Berlusconi was fuelling market volatility.

Credit: Reuters/Petar Kujundzic

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WASHINGTON (Reuters) - The International Monetary Fund on Friday warned that advanced economies could fall back into recession unless policy-makers move with greater urgency to agree on policies to boost growth.

In a note prepared for the G20 summit in Cannes, France, last week but only published on Friday, the IMF said the economic recovery in advanced economies "remains in low gear."

"Policy paralysis and incoherence have contributed to exacerbating uncertainty, a loss of confidence, and heightened financial market stress," the IMF said.

The fund said advanced economies urgently need to spell out credible medium-term fiscal plans and outline further financial sector reforms. In key emerging economies, governments should allow for faster exchange-rate appreciation, it added.

In particular, the IMF said there was "considerable uncertainty" about how fiscal sustainability will be achieved in the United States, Japan, and some euro area economies.

"To reduce this uncertainty, these economies need to move quickly to put in place credible medium-term consolidation plans, which will help preserve room for adequate short-term fiscal support to the recovery," it added.

The G20 summit was taken up with trying to avert a euro- zone meltdown, in particular in Greece and Italy.

(Reporting by Lesley Wroughton; Editing by Jan Paschal)

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