So much for the great economy of W
IMF alarmed by U.S. foreign debt
Elizabeth Becker and Edmund L. Andrews/NYT
Thursday, January 8, 2004
Washington With its rising budget deficit and ballooning trade
imbalance, the United States is running up a foreign debt of such
record-breaking proportions that it threatens the financial stability
of the global economy, the International Monetary Fund said in a
report released Wednesday. The report — nearly 60 pages of
carefully worded analysis — was unusually harsh, raising a loud
alarm about the shaky fiscal foundation of the United States and
the rapid decline of the dollar. It also questioned the wisdom of
Bush’s tax cuts and warned that large budget deficits pose
‘‘significant risks,’’ not just for the United States but for the rest of
the world. The report warned that the United States’ net financial
obligations to the rest of the world could be equal to 40 percent of
its total economy within a few years, creating ‘‘an unprecedented
level of external debt for a large industrial country’’ that the Fund
said could play havoc with the value of the dollar and international
exchange rates. The dangers, according to the report, are that the
United States’ voracious appetite for borrowing could push up
global interest rates and slow global investment and economic
growth. The report added that an excessively steep decline in the
dollar ‘‘could possi bly lead to adverse consequences both
domestically and abroad’’ given that U.S. net external debt is at
record levels and an abrupt weakening in investors’ faith in the
dollar, the ‘‘abrupt weakening of investor sentiments vis-a-vis the
dollar,’’ the IMF said, according to Agence France-Presse. White
House officials dismissed the report as overly alarmist and said the
IMF had been wrong before in criticizing the wisdom of Bush’s
tax cuts. They said they were already bringing down the budget
deficit and were not worried about the declining dollar. Though the
IMF has criticized the United States on its budget and trade
deficits repeatedly in the past few years, its latest report was
unusually lengthy and critical.
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