US warned on bor­row­ing

Shanghai Daily - - TOP NEWS -

THE In­ter­na­tional Mon­e­tary Fund yes­ter­day urged United States law­mak­ers to raise Amer­ica’s bor­row­ing limit. It said in­ac­tion could lead to a spike in in­ter­est rates that would harm the US econ­omy and world fi­nan­cial mar­kets.

The debt limit is the amount the govern­ment can bor­row to help fi­nance its op­er­a­tions. The US$14.3 tril­lion bor­row­ing limit was reached in May.

The US is at risk of de­fault­ing on its debt if it doesn’t raise the limit by Au­gust 2, but Pres­i­dent Barack Obama and Repub­li­cans have been at odds on a plan to raise it.

The bor­row­ing limit should be in­creased “ex­pe­di­tiously to avoid a se­vere shock to the econ­omy and world fi­nan­cial mar­kets,” the IMF said in its annual re­port on the US econ­omy.

Repub­li­cans are in­sist­ing on sub­stan­tial spend­ing cuts be­fore they agree to an in­crease. Democrats say they want any deal to in­clude some tax in­creases.

The IMF warned that ris­ing US bud­get deficits posed a risk to the econ­omy. But it ad­vo­cates a long-term strat­egy for re­duc­ing the deficits, not im­me­di­ate cuts or tax in­creases. Cut­ting the deficit too quickly could slow the weak US re­cov­ery, the Fund said.

The US econ­omy will grow this year and next but at a weak pace, the IMF fore­cast. It projects the US econ­omy will ex­pand 2.5 per­cent this year and 2.7 per­cent in 2012. Con­sumers are still pay­ing off debts, which will re­duce their buy­ing power. And bud­get cuts at the fed­eral, state and lo­cal lev­els will also re­duce de­mand.

The Fed­eral Re­serve ex­pects the econ­omy to grow by up to 3.3 per­cent next year.

France’s Fi­nance Min­is­ter Chris­tine smiles dur­ing a ses­sion at the French Na­tional As­sem­bly in Paris yes­ter­day. La­garde has been cho­sen to lead the In­ter­na­tional Mon­e­tary Fund, be­com­ing its first fe­male man­ag­ing di­rec­tor on July 5. — AP

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