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APEC warned of threat from US fiscal cliff

US TAX increases and spending cuts set to take effect by the beginning of next year pose one of the biggest risks to the global economy, the managing director of the International Monetary Fund, Christine Lagarde, said yesterday.

While Ms Lagarde has warned about the US fiscal situation before, this time she took her case directly to leaders attending the Asia-Pacific Economic Co-operation forum in Vladivostok, Russia.

She said the fiscal cliff was one of three main risks, the other two being the euro crisis and medium-term public financing.

''We discussed over lunch with the leaders of APEC the global economic situation, with the three key risks that we see on the horizon,'' Ms Lagarde told reporters yesterday.

She said that there are a ''combination of factors that could also increase the vulnerabilities of emerging economies''.

Ms Lagarde made the comments to an organisation whose membership oversees 56 per cent of global economic output. The more than $US480 billion ($462 billion) so-called fiscal cliff of automatic spending cuts and revenue changes would probably cause a recession if left unchanged, the non-partisan Congressional Budget Office said in a report last month.


Leaders attending the summit included the President of Russia, Vladimir Putin, the President of China, Hu Jintao, the US Secretary of State, Hillary Clinton, and the Prime Minister of Japan, Yoshihiko Noda.

Ms Lagarde restated the IMF's support for the European Central Bank's plan to buy the bonds of member nations such as Italy and Spain. She said the IMF, if it were involved, would want to help in the design and the monitoring of any program.

''We don't particularly like to do monitoring without having participated actively in the design,'' she said.