WASHINGTON — World finance officials pledged Saturday to deal with new risks to the global recovery while they kept up pressure on the United States to address the biggest threat of all — a market-rattling potential default on U.S. debt.
The International Monetary Fund’s policy committee said the United States must take “urgent action” on the budget impasse that has blocked approval of legislation to increase the government’s current $16.7 trillion borrowing limit before Thursday.
U.S. Treasury Secretary Jacob Lew, who has shuttled between the global finance talks and negotiations with Congress over the debt ceiling, has warned that he will exhaust his borrowing authority Thursday and the government will face the prospect of defaulting on its debt unless Congress acts.
Across town from the global finance meetings Saturday, an effort at the Capitol to pass a one-year extension of the borrowing limit failed to get sufficient votes. But in a more hopeful sign, negotiations to end a partial government shutdown, now in its 12th day, and raise the debt ceiling began between Democratic and Republican Senate leaders.
Global finance officials were nervously monitoring those talks during their three days of discussions, held around the annual meetings of the 188-nation IMF and its sister lending agency, the World Bank.
At a concluding news conference, World Bank President Jim Yong Kim stressed the urgency for Washington policymakers to raise the debt ceiling before Thursday.
Kim said that if the debt ceiling is not increased, the economic fallout could include increased interest rates, slower global economic growth and falling business confidence. Such an outcome, he said, would have a “disastrous impact” on poor nations.
Mario Draghi, head of the European Central Bank, said Saturday that he found it “unthinkable that an agreement won’t be found.”
“If this situation were to last a long time,” Draghi said, “it would be very negative for the U.S. economy and the world economy and could certainly harm the recovery.”
Asked what might happen if the U.S. budget debate were not resolved for six months or more, Singapore Finance Minister Tharman Shanmugaratnam, the chairman of the IMF committee, said it would harm the entire world because it would be a blow to the confidence that businesses need to make investment decisions.
“If we don’t clear resolution of the U.S. debt issue, it is hard to see how that confidence will come back so it is a critical issue for all of us.”
Meanwhile, the IMF’s policy panel called on emerging economies, which have been key in recent years to global growth, to undertake the reforms they need to better withstand the adjustments that will come as central banks such as the Federal Reserve begin the process of withdrawing the economic support that has kept interest rates at ultralow levels.
Emerging-market economies benefited from investment flows as investors poured money into those nations during the period when rates were low in the United States and other major economies. But many of the emerging economies have been rocked in the past few months as the investment flows reversed as investors rushed for the exits following the Fed’s signals in June that U.S. higher rates could be coming.
