Economy in danger, warns IMF chief

The global economy has entered a dangerous phase and that the heavy debt burdens could “suffocate” a recovery, the head of the International Monetary Fund says.

Nations must work together to meet the growing risks, IMF managing director Christine Lagarde said.

Banks must provide more capital, and governments need credible plans to get their debt under control.

Mrs Lagarde worries that some governments lack the political will to shrink rising deficits. That appeared to be aimed at the US, where Congress has struggled to reach agreement on a deficit-reduction plan.

“The current economic situation is entering a dangerous phase,” said Mrs Lagarde at a news conference kicking off the annual meetings of the 187-nation IMF Fund and its sister lending organisation, the World Bank.

Mrs Lagarde says nations will make progress this week during the annual meetings and that they will ultimately meet the challenges ahead.

The gathering of world finance leaders comes at a perilous time for the global economy. World markets are plunging on fears that the US economy has weakened and is adding few jobs, while Europe is confronted by a deepening debt crisis.

Earlier this week, the IMF slashed its growth forecasts for this year and next. And in a separate report, the IMF said the global financial system is facing its greatest challenges since the 2008 financial crisis.