The managing director of the International Monetary Fund (IMF) Kristalina Georgieva has criticized Washington’s ongoing debt-ceiling impasse between the Biden administration and top Republican figures, saying a US default would have a significant ripple effect on the world’s economic prosperity.
“The US Treasury market is the anchor of stability for the global financial system,” Georgieva said at a press conference on Friday following the IMF’s Article IV consultation with US economic figures. “You pull the anchor and the world economy – this ship on which we all travel – is in choppy, and, even worse, uncharted waters.”
Georgieva added that “right now, the most significant impact is anxiety around the world over something that should not be a problem to begin with,” and that default would “inevitably” prompt a contraction of the US and global economies. This would also, she said, be a “shock upon shock upon shock” for financial institutions still reeling from the one-two punch of the Covid-19 pandemic and vulnerabilities related to Moscow’s military operation in Ukraine
Talks between officials in the Biden administration and a team of Republican delegates led by House Speaker Kevin McCarthy have remained deadlocked for much of the past week.
Both sides have signaled belief that a breakthrough might be forthcoming, which would prevent a default early next month that would see Washington unable to make required payments to its bondholders. Experts, including Moody’s Analytics and the American Enterprise Institute, predict that this scenario would be economically devastating and could cause a global financial crisis.
US Treasury Secretary Janet Yellen said on Friday that she had moved the so-called ‘X-Date’ – when the Treasury would run out of funds to meet its required payments – to June 5 from an earlier estimate of June 1.
The US Treasury must make payments of around $92 billion in the first week of June – a figure in excess of the amount of funds predicted to be available – unless the US raises its debt ceiling. Republican negotiators are demanding concessions from the Biden administration, including imposing federal spending cuts and future restrictions on spending.
President Joe Biden insists on approving the raising of the debt ceiling with no strings attached, saying that the United States always pays its bills on time.
This impasse, though, is a vexing one for Georgieva and the International Monetary Fund. “It is frustrating for everyone to have a solvable problem that is in the hands of policymakers continuing to linger into the 12th hour,” she said.