Global Finance Chiefs Call For U.S. To Resolve Paralysis
Washington (AFP) – A chorus of global finance chiefs called for the United States to quickly end the political deadlock over the budget and debt ceiling to avoid wrecking the world economy.
Top finance officials from China, Europe and Latin America joined International Monetary Fund Managing Director Christine Lagarde and World Bank President Jim Yong Kim in warning of a potential catastrophe if Washington is forced to slash spending or default on its debt.
“They should have the wisdom to solve this problem as soon as possible,” Gang Yi, deputy governor of the People’s Bank of China, said during the World Bank-IMF annual meetings in Washington, referring to demands that Congress increases the borrowing cap.
“We certainly need a very stable global economy,” he said.
In New York, European Central Bank chief Mario Draghi said a standoff between the Democrats and Republicans that lasts several weeks or months could “cause severe damage to the U.S. economy and to the world.”
“The world still doesn’t believe that the U.S. will not find a way out of this,” Draghi said.
As Republicans offered a short-term fix to the impasse that was not sure to be accepted by President Barack Obama, both Lagarde and Kim highlighted the dangers.
“It is not helping the U.S. economy to have this uncertainty and this protracted way of dealing with fiscal issues and debt issues,” Lagarde said.
“There will be very, very negative consequences for the U.S. economy, and there will be very negative consequences outside of the U.S. economy.”
If the United States is forced to default on its obligations, especially its debts, said Kim, “the impacts are going to be severe,” he said.
In a similar Washington budget fight that went to the wire in 2011, Kim recounted, developing countries paid in terms of higher borrowing costs for months afterward, despite it having been resolved without a U.S. default.
“It’s an issue that concerns all of us,”said Chilean Minister of Finance Felipe Larrain.
“It is a U.S. problem but ultimately it can kill the recovery of this economy and have a strong impact on the rest of the world.”
Karim Wissa, Egypt’s alternative executive director at the World Bank, said the Washington crisis “affects all of our countries tremendously.”
“Any positive outcome … will be a good thing,” he said.
U.S. Treasury Secretary Jacob Lew told the Senate Finance Committee Thursday that leaving the government unable to borrow more to finance the $60 billion a month deficit would have potentially disastrous effects.
“If Congress fails to meet its responsibility, it could be deeply damaging to the financial markets, the ongoing economic recovery, and the jobs and savings of millions of Americans,” Lew said.
The Treasury estimates it will run out of room to move under the $16.7 trillion borrowing limit as soon as October 17, putting it in a position of choosing obligations for default.
China’s worries, the largest foreign holder of U.S. debt, echoed in several forums. At an Asian summit in Brunei, Premier Li Keqiang expressed his “concern” about the debt cap to U.S. Secretary of State John Kerry.
And in Beijing, the state-run China Daily blasted “the astonishing failure” of the U.S. Congress.
Lagarde backed away from telling Washington’s politicians how to resolve their fight, though she has been clear that quickly increasing the debt limit is crucial for U.S. and global stability.
“The IMF does not take a stand, and does not make a recommendation, as to how politically this matter can be resolved,” Lagarde said.
But she stressed “that the fiscal house of the U.S. be put in order.”
Some were more sanguine about the problem.
“I don’t expect a U.S. default,” Haruhiko Kuroda, governor of the Bank of Japan, said in New York.
French Finance Minister Pierre Moscovici said: “I am convinced that an exit to the crisis is going to be found. A U.S. payment default would be so serious that it is improbable, even impossible.”