Stark Lagarde warning on US debt default

WASHINGTON: New IMF chief Christine Lagarde warned Sunday that a US debt default would jeopardize global economic stability and urged warring American politicians to forge a compromise budget deal.

A default "would certainly jeopardize the stability, but not just the stability of the US economy, it would jeopardize the stability at large," the first woman to head the International Monetary Fund told ABC News.

"And that's clearly against the purpose and the mission of the International Monetary Fund. So we are -- we are concerned."

Without an agreement, she said she could see "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 US is such a big player and matters so much for other countries."

Lagarde told ABC's "This Week" that she did not expect Washington to end up in default, despite tense negotiations between the White House and Republican leaders on measures to increase the US debt ceiling.

"I can't imagine for a second that the United States would default," she said.

"But, clearly, this issue of the debt ceiling has to be resolved, as, otherwise, there would a hike in interest rates. There would be you know a much heavier burden to be borne by, you know, all the US taxpayers at the end of the day."

She added that a default "would be a real shock, and it would be bad news for the US economy. So I would hope that there is enough bipartisan intelligence and understanding of the challenge that is ahead of the United States, but also of the rest of the world."

Lagarde, the former French finance minister, took over the job of managing director of the International Monetary Fund following the resignation of Frenchman Dominique Strauss-Kahn, who is fighting charges of sex assault.

She commented that Strauss-Kahn "has done an excellent job as managing director" but added that because of the circumstances there are "wounds" at the international institution.

"Some people are very hurt. Other people feel betrayed. It's a very strange chemistry of frustration, irritation, sometimes anger, sometimes very deep sadness as well."

Copyright AFP (Agence France-Presse), 2011