Leaders need to fix broken economic models: IMF chief

World leaders need to fix global trading systems instead of trying to tear them down, International Monetary Fund (IMF) chief Christine Lagarde said Wednesday, in a rebuke to nationalist politicians pushing tariffs and protectionism.

Her comments come as a trade spat between China and the US threatens economic growth around the world, with IMF experts warning of “new vulnerabilities” in the global system.

“We need to work together to de-escalate and resolve the current trade disputes,” Lagarde said at an IMF and World Bank gathering in Bali.

“We need to join hands to fix the current trade system, not destroy it,” she added.

Around 32,000 members of the global financial elite are on the Indonesian holiday island for a week of discussions that have been clouded by US President Donald Trump’s America First trade policy.

Trump has levied or threatened tariffs on goods from economies around the world, notably China, but also on traditional allies such as the European Union.

A rise of US interest rates has also helped send emerging market currencies into a tail spin, as countries that borrowed heavily in dollars race to pay back their debt.

The IMF’s latest report on world financial stability, released Wednesday, said global growth could be at risk if emerging markets deteriorate further or trade tensions escalate.

“New vulnerabilities have emerged and the resilience of the global financial system has yet to be tested,” it said in the biannual Global Financial Stability Report.

Market participants “appear complacent” about the potential risks from a “sudden, sharp tightening of conditions” – like rising interest rates or declining access to capital.

More tariffs and their countermeasures “could lead to a broader tightening of financial conditions, with negative implications for the global economy and financial stability,” the fund warned.

Lagarde told her audience Wednesday that she did not feel overly gloomy about global conditions.

“It’s tempting to be a bit depressed about this perspective but I’m actually hopeful because there is a clear appetite to improve and expand trade,” she said.