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Osborne locks horns with IMF economist over austerity

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(Globalpost/GlobalPost)

By William Schomberg

WASHINGTON (Reuters) - Britain's Chancellor George Osborne dismissed suggestions by the IMF's chief economist that he should consider relaxing his austerity program to help the country's stagnant economy.

Earlier this week, Olivier Blanchard said very weak private demand in Britain showed it might be time for policymakers to consider an adjustment to their fiscal plans.

"I think he is just one voice," Osborne told reporters on Friday. He said it was more important that the IMF's managing director, Christine Lagarde, had said the Fund was not changing its position on Britain's economy.

"She speaks for the whole organisation. She was clear that the IMF's position has not changed," Osborne said.

Osborne and the Conservative-led coalition government have come under mounting criticism from the Labour opposition, which urges it to move more slowly to fix the country's still wide budget deficit.

Data due next week could show the British economy slipped into its third recession in less than five years in early 2013 although many economists expect it might just escape that fate.

But the bad news kept on coming for the government on Friday when Fitch Ratings became the second international agency to strip the country of its top-notch credit rating, citing a weaker economic and fiscal outlook.

The IMF has previously said Britain should consider relaxing its belt-tightening if growth slows. Blanchard's comments this week, at the start of twice-yearly meetings of finance chiefs at the IMF, showed he thought the time had come for that rethink.

Lagarde said on Thursday that there was no change in the IMF's position although she also said there had been a clear deterioration in Britain's economic data.

Osborne suggested that he would not heed any formal call from the IMF to change policy when the Fund completes an annual review of the country's economy in May.

"It depends on whether you agree with that advice," he said when asked whether countries should follow IMF policy recommendations.

The IMF's so-called Article IV recommendations are often ignored by member countries.

Osborne defended his response to Britain's slowdown, saying he had already shown flexibility by allowing a target for cutting the country's debt to slip and announcing new measures to boost the housing market.

He also said the government and the Bank of England would announce "fairly shortly" changes to their Funding for Lending scheme. It provides banks and other lenders with cheap financing if they keep or raise lending to households and businesses.

The FLS was launched last year to increase lending for mortgages and businesses but so far it has not resulted in much more borrowing by small and medium-sized companies.

Osborne said Britain's problems were small compared with those of the euro zone.

"The principal cause of uncertainty has been the weakness of the real economy in the euro zone and the ongoing problems there," he said.

(Editing by Andrea Ricci)

http://www.globalpost.com/dispatch/news/thomson-reuters/130419/osborne-locks-horns-imf-economist-over-austerity