10 Dec 2012

Fiscal cliff deal urged by IMF

10:24 am on 10 December 2012

International Monetary Fund managing director Christine Lagarde has urged political leaders in the United States to reach a deal to avoid the "fiscal cliff", warning that the uncertainty was damaging the global economy.

Ms Lagarde said on Sunday the United States needs a balanced, comprehensive approach to tackle its fiscal woes that should include a mix of spending cuts and revenue increases.

She told the BBC that the US has a duty "to try to remove uncertainty and doubt as quickly as possible".

Tax rises and spending cuts are set to automatically come into force in January. They can be avoided only if Democrats and Republicans agree a budget deal.

Failure to do so could likely tip the economy back into a recession.

"The US has an economic leadership in the world, (the dollar is) an international reserve currency, and a safe haven,'' Ms Lagarde said.

"To protect that, to make sure that leadership endures, this uncertainty has to be removed, because uncertainty fuels doubt as to that leadership."

"The US is about 20% of the global economy,'' she added. ''If the US suffers as a result of the fiscal cliff, a complete wiping out of its growth, it is going to have repercussions around the world.

Ms Lagarde also warned both sides against making a false compromise that would kick the fiscal cliff problem down the road temporarily, as was done 12 months ago.

"I don't think that is enough," she said on CNN,

The BBC reports both parties have proposed plans to reach a deal, but are divided over how to reach it.

President Barack Obama wants to see tax rises on wealthy Americans and Republicans want larger government spending cuts.