UN urges global action on U.S. debt
By Elizabeth Becker The New York Times
Thursday, January 27, 2005
WASHINGTON The United Nations has urged all major industrial countries, especially Europe and Japan, to help the United States reduce its twin deficits by spurring their own economies to grow faster.
In its report, World Economic Situation and Prospects 2005, the world body said on Tuesday that the twin budget and trade deficits of the United States were throwing the global economy off balance.
It echoed warnings already issued by the International Monetary Fund and other financial institutions in saying that the United States cannot continue to maintain such huge debts.
"What we really need is a major advancement in cooperation among the advanced economies to help the U.S. get out of this problem," said José Antonio Ocampo, the UN under secretary general for economic and social affairs.
The U.S. deficit is a global problem in part because it is the fastest-growing economy among the leading industrial nations and, together with China, is largely responsible for helping pull the world economy out of doldrums.
But whereas China has become an economic engine through its huge growth in manufacturing and exports, the United States has pushed growth by consuming far more goods than it exports, raising concerns about sustainability.
The report said that the world economy grew at a healthy 4 percent rate in 2004 but that the cyclical recovery was now past its peak. Gross world product will grow by 3.25 percent this year, it predicted.
Over all, developing economies including those of China and India are doing better than the industrialized nations, the report said.
That, Ocampo said, is the case despite a "peculiar mix" of high commodity prices, high oil prices and a lack of major disturbances in financial markets.
The U.S. trade deficit is expected to come in at a record $600 billion for 2004. The Bush administration has promised to reduce spending in its new budget and has called on Beijing to revalue the yuan against the dollar to make Chinese exports more expensive, which in turn would help shave the U.S. trade deficit.
But the UN report said the problem was more complicated. Letting the dollar fall could spur U.S. growth and lead to more consumer spending there on foreign goods; but a greater drop in the dollar's value could hurt the economies of Europe and Japan that need to grow in order to buy U.S. exports and help right the trade imbalance.
The U.S. Treasury secretary, John Snow, already plans to ask for immediate help from the wealthiest U.S. trading partners at a meeting next week in London of the finance ministers and central bank governors of the Group of 7 leading industrialized democracies. Snow has said he will tell these countries that if they are concerned about the U.S. deficit, they should purchase more American goods and services.
For their part, the Europeans will argue, instead, that the countries should make a coordinated effort to stop the drop in the dollar, a move that would help spur their own growth but one the administration opposes.
The report urges the major industrial countries to work out a solution that will help the United States reduce its deficits by spurring their own economies to grow faster, especially Japan and the countries of Europe.
Most of the wealthiest European countries have trade surpluses, though not as large as those of China and Japan. The exceptions are Britain, which has a current-account deficit equivalent to 2 percent of its gross domestic product, and Italy, with a deficit of 1.1 percent of GDP.
"The message of our report is that the industrialized countries all have their own problems that will hurt growth," Ocampo said.
"The U.S. has its deficits, while Europe and Japan are slow in recovering. But the most challenging is the U.S. twin deficits."
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