IMF chief cautions on harmful impact of inequality

WASHINGTON Tue Feb 25, 2014 3:17pm EST

WASHINGTON Feb 25 (Reuters) - Rising inequality can damage economic growth and social ties, and may also cause political instability, the head of the International Monetary Fund warned in a speech on Tuesday.

IMF Managing Director Christine Lagarde sounded the trumpet on rising income disparities for the second time this month, in a speech at Stanford University, after also broaching the issue during a lecture at the BBC.

"Rising inequality and economic exclusion can have pernicious effects," she said, according to prepared remarks, pointing to IMF research that shows income gaps can lead to slower and less sustainable growth.

"In the years ahead, it will no longer be enough to look simply at economic growth," she said. "We will need to ask if this growth is inclusive."

Lagarde's recent speeches have sought to put the IMF at the forefront of some of the biggest global debates, including on inequality, gender and climate change.

The World Economic Forum (WEF) also warned this month that the chronic gap between rich and poor is getting wider, posing the single biggest risk to the world this year. Extreme weather events were the second most likely factor to cause systemic shocks, according to a WEF survey.

Lagarde said technology may be contributing to rising income disparities, and called for better education to prepare people to deal with a rapidly changing interconnected world.

She also said the world needs to focus on a "multilateralism" where all countries feel responsible for solving global problems.

"The good news is that we already have some key institutions of multilateralism at our disposal," she said. "Think about the IMF, for example."

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