IMF tells US to sort out debt, quickly
By Andrew Beatty (AFP) – 1 day ago
via Google - 4-18-12
WASHINGTON — The International Monetary Fund issued a clarion call to bickering US politicians Tuesday, urging them to solve the country's debt problems before a still-vulnerable economy is tipped over the brink.
In a hallmark semi-annual report, the Washington-based fund warned policymakers on the other side of the US capital that, while the world's largest economy is improving, they invite trouble by not addressing a looming debt crisis.
"The first priority for US authorities is to agree on and commit to a credible fiscal policy agenda that places debt on a sustainable track over the medium term," the IMF said.
So far the United States has avoided the type of debt crisis that has ravaged Europe -- with the dollar's safe-haven status and moderate growth providing a sizable safety net even as agencies have downgraded the country's credit rating.
But with Washington hurtling toward November presidential polls, and with the country's politicians gripped by a culture of permanent campaigning, time may be running out to find a solution.
US debt is expected to balloon to 90 percent of total economic output by 2020, "an uncomfortably high burden," according to the IMF.
"Given the lengthy election season and ongoing gridlock in the US Congress there is little chance of meaningful medium-term debt reduction before 2013," the IMF acknowledged.
But there was some good news.
The IMF raised US growth projections for this year to 2.1 percent, that was up three tenths of a percentage point from a January estimate.
Still, the IMF warned: "Should growth disappoint, the lack of fiscal consolidation strategy may increase the US risk premium, which could have spillover effects for other major economies."
The threats to growth were legion.
"A flare-up in the euro area from increased sovereign and bank stress could easily undermine confidence in the US corporate sector and thereby squeeze investment and demand undermining growth."
The IMF predicted that US output could fall by 1.5 percent in the event of an intensified European crisis. That was a full 40 percent of the predicted drop in Europe itself.
Higher oil prices could also push up inflation and burden the recovery.
"Risks to the outlook are more balanced but still tend to the downside given fiscal uncertainty," the IMF concluded.
In the short term the IMF warned that a rapid end to tax breaks and stimulus spending could derail the recovery, highlighting the tricky act the United States faces to balance short- and long-term debt.
Spending cuts will automatically come into effect and major tax breaks will end in the next year if Congress does not act.
"Such a massive adjustment could significantly undermine the economic recovery," the IMF said.
For 2013 the IMF predicted growth would be 2.4 percent and unemployment would fall from 7.9 percent this year to 7.8 percent.
"The outlook is for only modest increases in employment during 2012 and 2013."
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