UPDATE 2-Italy must tighten fiscal policy, step up reforms

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WASHINGTON, Oct 15 (Reuters) - International Monetary Fund chief, Rodrigo Rato, on Monday called on Italy to tighten fiscal policy and criticized recent pension and labor agreements he warned could reverse earlier reforms.

The IMF has forecast that Italian economic growth should slow in 2008 and the IMF Managing Director said it was important for the country to bolster its reform agenda.

"The fact that (Italian) growth is slowing shows the need for speeding up reform agenda," Rato told a group of reporters ahead of the fall meetings of the IMF and World Bank in Washington this week.

"Some of the recent agreements on labor issues, for instance, we see that could have the danger of going back on prior reforms, and in that respect we will stress a need for Italy to become more flexible to really benefit from the opportunities of the global economy," Rato added.

On Oct. 11, Italian workers voted in favor of a government plan to reform the country's pension and welfare system, which watered down reforms approved by the previous center-right government, which would have raised the minimum retirement age to 60 from 57 from January 2008.

Under the deal struck with the unions after months of talks, the retirement age would be raised by one year to 58 from January, with further adjustments in 2009 and 2011.

The deal will cost Italy 10 billion euros in terms of lost savings which were envisaged by the center-right's reform.

Turning to fiscal issues, Rato said fiscal policy was central to Italy's medium-term prospects because of the country's high debt levels versus gross domestic product.