I.M.F. Asks Rich Nations for Support 

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The International Monetary Fund said that cash-rich countries needed to step up large public investments to help keep the flagging global recovery on track.

The International Monetary Fund, showing heightened concern over a slowing world economy, said on Tuesday that cash-rich countries like Germany needed to step up large public investments to help keep the flagging global recovery on track.

The comments — from the fund’s managing director and its lead economist — reflect growing concerns within the I.M.F. that Germany, which recently passed China as the country with the largest trade surplus in the world, is not doing enough to spur growth in Europe.

In an interview on Friday, Christine Lagarde, the managing director of the fund, said global growth risked being stuck in a rut for a long time. “If nothing gets done in a bold way, there is a risk of a new mediocre” level of growth for the global economy, she said.

And she took note that Germany could do more to stoke growth in Europe. “Given Germany’s current position, it could certainly spend more on infrastructure,” she said.

For investors, the warnings in the I.M.F. forecast and the report from Germany helped send the broad stock market down sharply on Tuesday, with the Standard & Poor’s 500-stock index falling 1.5 percent. The Dow Jones industrial average and the Nasdaq each fell about 1.6 percent.

As a result, large investors and central banks have become aggressive purchasers of the dollar, betting that the currency will keep rising in value against the euro, the yen and the wobbly currencies of countries like Russia, Brazil and Turkey.
Economists have been warning for some time now that a situation in which the American economy becomes the prime engine for the global recovery brings with it significant risks by creating financial uncertainty in emerging markets as currencies weaken and capital flows reverse.

“At this stage, the question is, can the U.S. continue to power along while the rest of the world acts as a drag on global growth,” said Eswar Prasad, a professor of international finance at Cornell University and the author of a recent book on the dollar. “This is a very unbalanced recovery.”

The fund unveiled this week a paper arguing that large-scale infrastructure investments, if properly undertaken, could bring relatively quick growth benefits — a message that seemed to be directed at deficit-obsessed eurozone governments, including Germany.

Mr. Blanchard, who oversees economic research at the I.M.F., was behind the fund’s public recognition two years ago that heavy-handed austerity policies in Europe had a larger-than-expected impact on economic growth.

Source: NYT- I.M.F. Asks Rich Nations for Support

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