Rato urges US to cut budget deficit

17th September 2004, Comments 0 comments

17 September 2004, MADRID- The Spanish head of the International Monetary Fund urged the United States Friday to limit its gaping budget deficit, which he said threatens the world economy.

17 September 2004

MADRID- The Spanish head of the International Monetary Fund urged the United States Friday to limit its gaping budget deficit, which he said threatens the world economy.

IMF Managing Director Rodrigo Rato, in an interview with the Spanish radio network Cadena Ser, also predicted robust global economic growth next year and insisted that terrorism rather than the war in Iraq posed the greater risk to Middle Eastern stability.

"This imbalance (of the US budget) is one of the risks for the world economy," said Rato.

"But it's not the only risk. The lack of growth in Europe is another."

The US Congressional Budget Office reported earlier this month that the US government budget deficit would come to a record USD 422 billion - 3.6 percent of gross domestic product - for the fiscal year to 30 September.

Economists and analysts fear that a sustained US budget shortfall will drive up global interest rates, and thereby dampen growth, as the United States borrows huge amounts of money to finance the deficit.

In the same interview, Rato  praised US Federal Reserve authorities for what he said was a "return to normal" in monetary policy.

"They're doing it very well and everyone knows it," he said, adding that global markets and emerging economies now realize that "US monetary expansion is coming to an end."

"That suggests that the US economy does not need any special stimulation."

The Federal Reserve, the US central bank, is trying to bring interest rates back to a more normal level after a period of unusually low rates that were designed to stimulate a sluggish economy.

Federal  policymakers are expected to boost the Fed's key rate by a quarter-point on 21 September.

European economies, Rato said, "are doing better than last year and have a fresh opportunity that they should not miss."

He stressed that Europe should take advantage of "a recovery in demand" to carry out reforms and reduce their public deficits, which under eurozone regulations should be kept below three percent of gross domestic product.

The IMF chief said in addition that the global economy was on the mend.

"All the countries of the world, almost without exception, are seeing growth that is more significant than last year and they will continue to grow next year, barring unforeseen circumstances.

"That doesn't mean there are no risks. But risks such as a rise in interest rates or high oil prices are better absorbed today than they were five or 10 years ago."

A member of the right-wing and pro-US former Spanish government, Rato insisted that it is not the war in Iraq that is threatening to destabilize the Middle East.

"The problem is terrorist fundamentalism  ... From an economic point of view the problem is the existence of an organized terrorist force, one of whose principal objectives is the destabilization of regimes" in the region, he argued, maintaining that it is terrorism that is affecting the markets.
  

[Copyright EFE with Expatica]

Subject: Spanish news

 

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