by Lesley Wroughton
Reuters TOKYO | Mon Oct 8, 2012 8:03am EDT
http://www.reuters.com/article/2012/10/08/us-imf-lipton-idUSBRE8970GX20121008
(Reuters) -
A polarized Washington
that cannot find a way around the looming "fiscal cliff" is
compounding economic uncertainty, freezing business investment and threatening
growth, the IMF's No. 2 official and its top-ranking
American said on Monday.
In an
interview with Reuters in Tokyo, IMF First Deputy Managing Director David
Lipton said the United States needs to do more to show it is trying to address
the expiring tax cuts and automatic spending reductions that will hit early
next year unless Congress acts.
The looming
fiscal tightening in the United
States and the euro zone
economic crisis are the two biggest risks facing the world economy, Lipton
said. While most of the focus has been on Europe, Lipton stressed that the U.S. fiscal
problems also posed a significant threat.
"We
would like to see the United States lower the level of uncertainty by embracing
more specifically the need to avoid the fiscal cliff and deal with the
medium-term problems," said Lipton, a former economic adviser to President
Barack Obama.
"Both
sides of the political isle (should) signal that they are willing to compromise
and that they're willing to get this done ... that could help lower the level
of uncertainty that is affecting U.S. investors and consumers,"
he added.
The IMF is
set to cut its forecasts for global growth on Tuesday when it unveils its World
Economic Outlook report ahead of meetings this week of global finance chiefs in Tokyo.
So far,
financial markets appear calm, judging from volatility indexes but Lipton said U.S. companies
were showing clear signs of concern.
"It is
hard to find short-term financial market indications of worry. On the other
hand, it is hard to find companies willing to invest money for the long term.
And when you ask them why not, they say it is because of uncertainty. To me that
is prima facie evidence there is a problem," Lipton said.
Lipton said
both Democrats and Republicans were sticking to their entrenched positions, and it would be good for confidence if whoever
wins the November U.S.
presidential election signals early on that he is willing to compromise.
"I know
that doesn't come naturally because in a negotiation people tend to do the
opposite," he said.
Lipton said
business confidence would be further damaged if political positions become more
polarized.
"Any
significant start would be a way to build confidence," said Lipton.
"That could be followed by a more comprehensive approach to dealing with
the problem, but for there to be a real reduction in uncertainty that opens the
gates for meaningful and increasing investment... the two parties need to show there is a path to resolution so business can
have some certainty."
If nothing
is done, U.S. tax increases
and spending cuts worth $600 billion, equivalent to 4 percent of U.S. GDP, will
take effect in fiscal 2013, Fitch Ratings has estimated.
Taxes would
rise in 2013 by an average of $3,500 per household for 90 percent of Americans,
the U.S. Tax Policy Center has said.
EURO ZONE
SOLUTIONS
Lipton said
the IMF and World Bank meetings will focus on how Europe can show unity in
implementing key decisions, including a bond-buying program promised by the
European Central Bank to lower the borrowing rates of troubled countries like Spain.
Euro zone members
have struggled during the crisis to show unity, partly as richer northern
countries resented having to finance their poorer southern neighbors.
Euro zone
finance ministers will meet on Monday to formally launch a 500 billion euro
($650 billion) permanent bailout fund, a significant step to erecting a
financial firewall for troubled European countries. IMF Managing Director
Christine Lagarde is in Brussels for the talks.
"Our
view is that Europe has taken key decisions
that could well open the way to a resolution of the crisis," Lipton said.
"The international community will want to discuss how Europe
can show unity in coming together to implement the things it has decided in a
timely and forceful way."
He said
actions to address Europe's problems needed to
be tackled on three fronts: national governments should work to improve their
own policies, European institutions should ensure that countries continue to
have access to markets; and politicians need to elaborate on how they will
redesign the euro zone financial system.
Lipton said
the IMF stood ready to help Spain
and other European countries. So far, none besides the three countries already
on IMF-EU programmes - Greece, Ireland
and Portugal
- has requested financial assistance.
"We are
open to further engagement with Spain
and other European countries if they want it, but they haven't asked for it. So
in essence we stand ready but await Europe
devising a more specific strategy," he added.
(Reporting
By Lesley Wroughton; Editing by Neil Fullick)