The IMF's number-two official, David Lipton, has warned that policymakers should temper austerity measures aimed at reducing debt if they are damaging economic growth.

Lipton, the International Monetary Fund first deputy managing director, said at a London conference overnight that despite progress since the 2008-2009 global financial meltdown, "this crisis is proving very hard to end".

Deleveraging by nations and banks was necessary to restore stability, he said, but it weighs on a rebound in economic activity by curbing credit and public investment.

"Fiscal consolidation alongside private sector deleveraging has dampened demand, and the near-term effect on activity has been larger than anticipated in several countries," he said, according to the prepared text of his speech.

"Deleveraging is necessary, but it should be implemented at a speed and in a way that minimizes the impact on growth," he added.

For several weeks, the IMF has suggested that it had underestimated the impact of austerity programs in Europe, particularly in the eurozone countries under IMF-European Union rescue programs, such as Greece and Portugal, and shown a more accommodating attitude.

"In case of large negative shocks or growth disappointments, the pace of consolidation should be smoothed in countries that can afford it," Lipton said.

The IMF official also cautioned against undesirable effects from reforms of the international banking system that could constrict lending.

"It is crucial to strike a proper balance between the necessary strengthening of the financial system via robust implementation, while cushioning the impact of the adjustment on activity with policies geared towards supporting growth," he said.

The new Basel III rules for strengthening banking capital are meeting resistance around the globe.

On Friday, the United States announced that it would not implement Basel III on the January 1 deadline, and gave no guidance on when it could meet the tougher capital standards.

The West Australian

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