Saturday, October 12, 2013
DJ: G-20 Urges U.S. To Resolve Debt Impasse
WASHINGTON--Finance officials from the world's largest economies are calling for the U.S. to act swiftly to resolve the political gridlock that is pushing the country toward a possible default and threatening to make financial waves around the globe.
A draft communique from the Group of 20 largest economies says the "U.S. needs to take urgent action to address short-term fiscal uncertainties," a person familiar with the negotiations said. The final document is expected later Friday.
In the second week of a partial government shutdown, White House and congressional leaders are locked in a fight over the federal budget, with lawmakers so far unwilling to raise the country's borrowing limit. The impasse could force the U.S. government to default on its obligations in the coming weeks, an event likely to spread financial problems around the world. The Obama administration and House Republicans continued to negotiate Friday toward a deal that would extend the nation's borrowing authority for six weeks and reopen the federal government.
The debt impasse was a top concern for finance ministers and central bankers gathered at the meetings of the G-20, International Monetary Fund and World Bank this week.
Senior officials from two of the biggest global economies said they were looking at contingency plans in case there is a problem with U.S. debt.
"Those U.S. government bonds that are owned by countries and used as collateral for financial transactions could become worthless if the U.S. defaults on its debt," Japanese Finance Minister Taro Aso said Thursday after meeting with U.S. Treasury Secretary Jacob Lew. "This is not just an issue for the U.S. It could have a major impact on the global financial market...this is a major concern."
Japan is the second-largest foreign holder of U.S. government debt.
In the conversation with Mr. Aso, Mr. Lew said he a shared sense of urgency and was hopeful a deal would prevent a debt crisis but didn't offer a prediction on the timing, according to a source familiar with the conversation.
Meanwhile, China, the largest foreign holder of U.S. Treasurys, expressed nervousness. Yi Gang, deputy governor of the People's Bank of China, said Beijing hopes cooler heads will prevail before the crisis metastasizes.
The International Monetary Fund cut its forecast for global economic growth earlier this week, and the organization has warned that a failure of the U.S. to raise the debt ceiling could be "catastrophic."
"It could well be that what is now a recovery would turn into a recession or even worse," IMF chief economist Olivier Blanchard said Tuesday.
The U.S. hopes the international pressure and warnings about the global impacts could help negotiations.
"The timing of the IMF and World Bank annual meetings provide a critical demonstration of the importance of swift action. The whole world is watching, and Congress must act," said Lael Brainard, U.S. Under Secretary for International Affairs.
Mr. Lew, who has met with a slew of finance ministers from Asia to Latin America on the sidelines of the meetings, said officials have pressed him on the dispute.
"It's challenging when they look at you and they ask, what's going on in Washington? It makes them nervous about their economies," he told a Senate panel Thursday.
Mr. Lew also warned that the political crisis risks undermining the dollar as the world's central currency.