“If this situation were to last a long time, it would be very negative for the U.S. economy and the world economy and could certainly harm the recovery,” he said.
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 be harmful to the entire world because it would be a blow to the confidence that is needed for businesses 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.”
Adopting language used Friday by the Group of 20 major economies, the IMF’s policy panel in its closing statement said, “The United States needs to take urgent action to address” the uncertainties created by the budget impasse.
The IMF 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.
Countries such as India and Indonesia have been among the hardest hit as their currencies and stock prices tumbled.