Pakistan News Service

Thursday Mar 28, 2024, Ramadan 18, 1445 Hijri
Logo
LATEST :
Pakistan News Home -> Top -> News Details

US shutdown will be disastrous for world: World Bank

14 October, 2013

  Related News  
Despite budget win, Obama has weak hand with Congress
51 dead as massive tornado roars through US suburb
  Related Articles  
The Police Occasionally Over-reacts
By Saeed Qureshi
U.S. Masses Distrust over Federal Govt
By Zaheerul Hassan
  Related Speakout  
Peolsi`s Trip to AXE of Evil
Did the President Lie
  More on this View All
  Related News Poll

WASHINGTON: A still-fragile global recovery is being put at risk by Washington's squabbling politicians, finance ministers and governors, central banks have warned as they stepped up the pressure on the US to avoid a catastrophic debt default this week.

In a series of attacks encouraged by the Obama administration, policymakers gathered in the US capital for the annual meeting of the International Monetary Fund used the platform to call for an agreement before Thursday's deadline to raise America's $16.7 trillion (£10.5tn) debt ceiling, The Guardian reports.

Mario Draghi, the president of the European Central Bank, said: "It is unthinkable that an agreement won't be found. If this situation were to last a long time this would be negative, very negative for the US economy and the world economy and could certainly harm the recovery."

Financial markets rallied strongly at the end of last week as hopes were raised that a deal might be achieved by the weekend. But after talks broke down on Saturday, there were concerns that dealers would take fright at the show of brinkmanship taking place in Washington.

Tharman Shanmugaratnam, Singapore's finance minister and chairman of the IMF's key policymaking committee, said: "It's a clear negative when you think about the key element of the recovery – private sector investment – that has to take place over the next one to two years.

"Private investment relies on confidence and if we don't see a resolution of the US fiscal dispute it is hard to see how that is going to come back."Asked to grade politicians in Washington as if he were a school teacher, Tharman replied: "Clearly room for improvement."

Jim Yong Kim, president of the World Bank, said: "We are now five days away from a very dangerous moment. I urge US policymakers to quickly come to a resolution before they reach the debt ceiling deadline. The closer we get to the deadline, the greater the impact will be for the developing world. Inaction could result in interest rates rising, confidence falling, and growth slowing.

"If this comes to pass, it could be a disastrous event for the developing world, and that in turn will greatly hurt the developed economies as well. I urge US policymakers to avert this potential crisis."

US administration sources said they had been encouraging the IMF and the G20 group of developed and developing countries to ratchet up the pressure on policymakers on Capital Hill to reach a budget deal.

A communique released by the IMF said: "The US needs to take urgent action to address short-term fiscal uncertainties." This echoed word-for-word a communiqué released by the G20.

Jens Weidmann, the Bundesbank's president, ruled out the possibility of a default. "I don't think it's a realistic scenario. I think one can trust that now, as in the past, the political [opponents] will manage to unite on a solution."

The IMF believes that the impasse in Washington is holding back what would otherwise be a recovery in the global economy. It singled out Britain as one of the areas where progress had been made.

"The recovery in the US has gained ground, stimulus measures have induced a recovery in Japan, the euro area is emerging from recession, and in some other advanced economies including the UK growth is already picking up."

The IMF told emerging market economies to prepare for likely volatility when the US starts to reduce the amount of stimulus it is providing for the world's biggest economy — the timetable for which is likely to be put back for several months by the government shutdown.

It said in certain circumstances, countries should seek to manage capital flows but the IMF's managing director, Christine Lagarde, said they should not "be the first tool that should be relied on".

The IMF meeting came five years after emergency action taken to bail out banks caught up in the financial panic that followed the bankruptcy of Lehman Brothers in September 2008.Paul Tucker, the deputy governor of the Bank of England, said the most important part of the reform programme prompted by the near-collapse of the financial system was to find a way of resolving the problems of the world's biggest banks without the need for taxpayer support.

In his last speech before leaving the Bank at the end of the week, Tucker said: "It is absolutely essential that the 'too big to fail' problem is cracked. Nothing is more important to the success of the international reform agenda. Without it, global finance would remain fragile; and to protect against that, the international financial system would balkanise as individual countries sought to protect themselves. The stakes are high."

Tucker said countries would have no excuse if they didn't solve the "too big to fail" problem through resolution regimes and reforms. "The necessary technology is clear. The necessary restructuring of firms is clear. The necessary degrees and forms of cross-border co-operation are clear. It is a matter of: just do it," he said.

The Bank of England was in principle prepared to step aside and allow the UK subsidiaries of big US financial groups to be reformed as part of a group-wide resolution led by the US authorities, Tucker said. Britain wants the US to offer a reciprocal deal, but has so far not happened.

End.

 What do you think about the story ? Leave your comments!

Heading (Optional)
Your Comments: *

Your Name:*
E-mail (Optional):
City (Optional):
Country (Optional):
 
 
Field marked(*) are mandatory.
Note. The PakTribune will publish as many comments as possible but cannot guarantee publication of all. PakTribune keeps its rights reserved to edit the comments for reasons of clarity, brevity and morality. The external links like http:// https:// etc... are not allowed for the time being to be posted inside comments to discourage spammers.

  Speak Out View All
Military Courts
Imran - Qadri long march
 
Candid Corner
Exclusive by
Lt. Col. Riaz Jafri (Retd)
Pakistan itself a victim of state-sponsored terrorism: Qamar Bajwa
Should You Try Napping During the Workday?
Suggested Sites