WASHINGTON: The International Monetary Fund (IMF) on Thursday (May 11) warned of severe consequences if the US defaults on its debt, ahead of a rapidly-approaching deadline for the country to raise or suspend its borrowing limit.
“Our assessment is that there would be very serious repercussions not only for the US but also for the global economy should there be a US debt default,” IMF communications director Julie Kozack told reporters, encouraging all parties to urgently resolve the matter.
Republicans and Democrats remain sharply divided over the debt ceiling, with Republicans in Congress insisting that President Joe Biden’s administration agree to significant budget cuts in exchange for support to lift the limit before the country runs out of money to pay its existing bills.
Democrats have been calling for a “clean” increase of the borrowing limit, accusing Republicans of using extreme tactics to try and push their political agenda ahead of the so-called “X-date” -- the point at which the US will be unable to meet its financial obligations.
The IMF warned on Thursday of the potential for higher borrowing costs, broader global instability and economic repercussions in the event of a US default.
“We have seen a world in the last few years that has been affected by many shocks, so we would want to avoid those severe repercussions,” Kozack said.
The lifting of the debt ceiling has historically been seen as a routine affair, given that it involves raising money to pay for spending commitments already made by Congress.
When Republicans won a narrow majority in the House of Representatives during last year's midterm elections, the right wing of the caucus insisted incoming speaker Kevin McCarthy tackle the ballooning US debt in exchange for their support.
But with the Biden administration refusing to negotiate on the debt ceiling, a standoff has arisen just weeks before the US risks running out of money to pay its obligations.
President Biden met with McCarthy earlier this week in a failed attempt to find common ground on the issue.
“Default is not an option,” Biden said after the talks had concluded, while McCarthy told reporters he “didn’t see any new movement” in the meeting, which was also attended by the Senate majority and minority leaders and the minority leader of the House.
In the latest development, the White House said in a statement on Thursday that crunch talks between Biden and senior Republicans have been postponed until early next week to allow staff to continue working.
A source familiar with the meetings between Democratic and Republican leaders said this was a positive development and that talks between the two sides were progressing, making Friday not the right moment for the leaders to meet.
But McCarthy accused Democrats, including Senate Minority Leader Chuck Schumer, of holding up the deal.
“President Biden and Senator Schumer are stuck on no, they have no plan, no proposed savings and no clue,” he told reporters shortly after the White House announced the talks had been postponed.
“The staff has met the last two days, we think it’s productive for the staff to meet again,“ McCarthy said, adding he expected there would be another meeting between senior Republican and Democratic leaders next week.
Calls for the US to avert a debt default have been growing as the X-date approaches.
“The debt ceiling is potentially catastrophic,” JPMorgan’s chief executive Jamie Dimon said in interview with Bloomberg TV on Thursday.
“People should remember the American financial system is the foundation to the global economic system,“ he said, adding he hoped a debt default could be avoided. – AFP