The Multilateralist

The World Bank and IMF on the Debt Ceiling Debate

The annual meetings of the World Bank and International Monetary Fund are underway–and officials from both institutions are fielding questions about what the U.S. political stalemate means for the world economy. Nothing good is the short answer. Here’s Bank president Jim Kim all but pleading with U.S. politicians to consider the global impact of their ...

The annual meetings of the World Bank and International Monetary Fund are underway–and officials from both institutions are fielding questions about what the U.S. political stalemate means for the world economy. Nothing good is the short answer. Here’s Bank president Jim Kim all but pleading with U.S. politicians to consider the global impact of their actions:

"Please consider politics beyond the Beltway, politics beyond your own districts," Kim said. "Really think about the impact that inaction can have on poor mothers in Africa, trying to feed their children. It will really have an impact on those mothers. It will have an impact on young men and women trying to create businesses in the Middle East. This is real. This is not a theoretical impact. It’s very real."

IMF managing director Christine Lagarde recently urged U.S. policymakers to move away from dramatic budget cuts and toward longer-term measures. Via The Guardian:

"I have said many times before that the US needs to "slow down and hurry up" – by that I mean less fiscal adjustment today and more tomorrow," Lagarde said. She added that the world’s biggest economy needed to put its finances in order, but favoured back-loaded measures to raise revenues and limit entitlement spending such as medicare that did not jeopardise short-term growth.

"In the midst of this fiscal challenge, the ongoing political uncertainty over the budget and the debt ceiling does not help. The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy.

"So it is ‘mission-critical’ that this be resolved as soon as possible."

And here’s IMF chief economist Olivier Blanchard:

[T]he IMF’s chief economist, Olivier Blanchard, warned there could be major financial disruptions throughout the world if the United States does not increase its borrowing limit in the coming days to avoid a default on its financial obligations. The U.S. government is in the midst of an eight-day partial shutdown and at the same time is running out of money to pay its bills….Blanchard said the government shutdown, if it does not last too long, is likely to have a limited effect on the world economy, but that a U.S. debt default could be calamitous.

"Failure to lift the debt ceiling would, however, be a major event. Prolonged failure would lead to an extreme fiscal consolidation and almost surely derail the U.S. recovery. But the effect of any failure to repay the debt would be felt right away, leading to potential major disruptions in financial markets, both in the United States and abroad," Blanchard stated.

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