New IMF Chief Calls on U.S. to Raise Borrowing Limit

IMF Chief Calls on U.S. to Raise Borrowing Limit

July 10, 2011

AP - The International Monetary Fund's new chief foresees "real nasty consequences" for the U.S. and global economies if the U.S. fails to raise its borrowing limit.

Christine Lagarde, the first woman to head the lending institution, said in an interview broadcast Sunday that it would cause interest rates to rise and stock markets to fall. That would threaten an important IMF goal, which is preserving stability in the world economy, she said.

The U.S. borrowing limit is $14.3 trillion. Obama administration officials say the U.S. would begin to default without an agreement by Aug. 2.

"If you draw out the entire scenario of default, yes, of course, you have all of that — interest hikes, stock markets taking a huge hit and real nasty consequences, not just for the United States, but for the entire global economy, because the U.S. is such a big player and matters so much for other countries," she said.

Lagarde, who took over as managing director July 5, also addressed the fallout stemming from the sexual assault charges filed against her predecessor, Dominique Strauss-Kahn.

Strauss-Kahn resigned in May after he was accused of attacking a hotel maid in New York City. He has denied the charges. New York prosecutors have admitted in recent weeks that their case has weakened and that the accuser has lied about many aspects of her background.

Lagarde, a former French finance minister, told ABC's "This Week" that the scandal caused "a very strange chemistry of frustration, irritation, sometimes anger, sometimes very deep sadness" among the IMF's 2,500 employees.

Lagarde said she would be on her "best behavior all the time."

"When it comes to ethics and whatever I do, I always think to myself, would my mother approve of that," she said. "And if she did not, then there's something wrong."

President Barack Obama and congressional leaders from both parties planned to meet Sunday evening at the White House to resume negotiations on a debt deal.

House Speaker John Boehner, R-Ohio, said Saturday that the talks should aim to reduce the deficit by about $2 trillion over 10 years. That's about half the size of a more ambitious deal that Obama floated last week.

Republicans are insisting on deep spending cuts as a condition of voting in favor of raising the debt ceiling. Obama and congressional Democrats are insisting that more tax revenue should be part of the mix.

Lagarde did not address the European debt crisis or the IMF's recent aid to Greece. On Friday, the IMF's board approved a $4.2 billion loan to Greece, the latest installment of a bailout package intended to prevent the struggling nation from defaulting on its debt.

The IMF has 187 member nations and lends money to countries with troubled finances.