IMF chief calls for urgent action on EU debt problems

The head of the International Monetary Fund on called today for urgent action to tackle Europe's debt problems and an approaching fiscal crisis in the US, warning that ripple effects from the global slowdown are being felt around the world.

IMF chief Christine Lagarde, addressing reporters as the IMF and World Bank began their annual meetings in Tokyo, praised recent steps taken by the European Central Bank and European governments, but said "more needs to happen, and faster".

Ms Lagarde also said two senior Chinese finance officials who cancelled their trip to Tokyo amid a territorial dispute with host Japan will "lose out" by not attending.

"Our concern is that they will be missing a great meeting," she said. "We have a lot of substantive issues to discuss."

Diplomatic tensions have flared between the two Asian giants over a cluster of tiny islands in the East China Sea controlled by Japan but also claimed by China.

In an apparent sign of Beijing's anger, People's Bank of China governor Zhou Xiaochuan was scheduled to give the event's closing speech on Sunday but the IMF said his deputy will represent him in the meeting and deliver the speech.

Ms Lagarde stressed that economies in Asia are critical to global growth, and hoped that disputes between countries in the region can be resolved for the good of economic co-operation of Asia and the world.

"We hope that differences, however long-standing, can be resolved harmoniously and expeditiously so that from an economic point of view co-operation can continue … since we are all very closely interconnected," she said.

Japanese car sales in China plunged last month, and tens of thousands of Chinese tourists have cancelled trips to Japan, which is depending on China as a source of growth amid the global slowdown.

Later in the day, finance ministers and central bankers from the G7 countries will hold informal gatherings where they are likely to discuss steps to address Europe's debt crisis, weaker growth in Asia and a budget impasse in the US

The IMF has scaled back its global growth forecast to 3.3% for this year from an earlier projection of 3.5%, and has warned that even its dimmer outlook might prove too optimistic if Europe and the United States fail to resolve their crises.

"We are not expecting a very, very strong recovery. The recovery continues, but it continues more slowly than we had expected earlier this year," said Ms Lagarde. The slowdown is "having a ripple effect on emerging markets, and in particular in Asia".

She praised the recent decision by the European Central Bank to buy unlimited amounts of government bonds to help lower borrowing costs. She also said European governments were taking steps to strengthen fiscal discipline and start to design a European banking supervision system.

"But more needs to happen and faster."

She also said the US faces major risks in the so-called "fiscal cliff" next year, when tax increases and deep spending cuts will take effect unless Congress breaks a budget impasse.

"Here, too, decisive action is expected," she said.

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