US warned on borrowing
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