Bewildered Asian officials could only watch and hope for the best on Monday after US lawmakers failed to break a debt impasse that threatens to trigger a default and up-end global financial markets.
Asia, which holds close to $3 trillion in US government debt, has a powerful vested interest in Washington finding a workable compromise. Policymakers and economists contacted by Reuters were confident that lawmakers would strike a last-minute deal to avert a crisis.
Investors in Asia took a defensive stance, although there was no evidence of the sort of panic selling that some politicians in Washington had feared. Stocks slipped while the Swiss franc rose and gold hit a record high.
But with just eight days left before August 2, when the Treasury Department has estimated it will run short of money to pay all of its bills, the worry level was rising.
'Those in direct charge of reserves operations must be more nervous than before, but nobody thinks Americans will choose suicide when they have known solutions,' said a senior official at the Bank of Korea, who spoke on condition of anonymity because he was not authorised to speak to the news media.
Japanese finance minister Yoshihiko Noda, when asked about the breakdown in the US debt talks, said only: 'I will be watching the situation.'
Asian sources said the US debt troubles were primarily political, not economic. Finding a solution was a matter of mustering political will rather than securing rescue funding, which can be far more complicated, as Greece's recent difficulties showed.
'They will definitely reach a compromise,' said Xia Bin, an academic adviser to the People's Bank of China. 'Don't worry too much about it.'
China is the largest foreign owner of US government debt, with $1.16 trillion as of May, so a vote of confidence from Beijing carries significant weight.
A senior Indian government official said the Obama administration and lawmakers must be well aware of the consequences for global markets of failing to reach a deal.
'If you look at the world markets, they are jittery though they have not nose-dived, perhaps reflecting hope of a solution,' the Indian official said.
Australian treasurer Wayne Swan said a protracted debt ceiling debate adds uncertainty to the global economy.
'With the global recovery and confidence still fragile, it's in everyone's interests that US policymakers work towards a speedy resolution of these issues,' Swan said in an email to Reuters.
Congress has set the US government's borrowing limit at $14.3 trillion, but Treasury has already tapped that amount and needs more money to meet its obligations. Republicans want an agreement on spending cuts before they authorise more borrowing. Democrats want to see a mix of lower spending and higher taxes.
Source : New Age
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