Pressure on US and Japan over deficits
Source: Agencies |
January 29, 2011, Saturday
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Print Edition
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JAPAN and the United States faced new pressure to confront their swollen budget deficits as the IMF and rating agencies demanded more evidence they can bring their public debts under control.
The International Monetary Fund said the Group of 7's two biggest economies needed to spell out credible deficit-cutting plans before the markets lose patience and dump their bonds.
Yesterday, Japan's Prime Minister Naoto Kan vowed to push ahead with tax reforms aimed at curbing the country's debt, but an uncooperative opposition and divisions within his own party on policy made the chances of success slim.
"The important thing is to maintain fiscal discipline and ensure market confidence in Japan's public finances," Kan, who took over in June as Japan's fifth premier since 2006, told parliament's upper house.
Ratings agency Standard & Poor's cut Japan's long-term debt rating on Thursday for the first time since 2002, and hours later Moody's Investors Service warned the risk of the US losing its top AAA rating, although small, was rising.
Bond markets reacted calmly, but the latest warnings about the colossal liabilities piled up by the two countries raised fears of rising borrowing costs that could hamper attempts to restore fiscal discipline and consolidate a fragile recovery.
"In advanced economies where fiscal sustainability has not been a market concern, credible plans going well beyond 2011 need to be put in place urgently to lock in benevolent market sentiment," the IMF said in its "Fiscal Monitor" report.
The 2007/08 financial crisis prompted a dramatic rise in developed world debt, as governments spent billions of dollars propping up sinking economies and bailing out stricken banks.
In the US, outstanding public debt has ballooned to more than 60 percent of total output since the financial crisis, and, with a record US$1.5 trillion budget deficit expected this year, is set to grow further.
Japan is in an even worse position. Its debt has been growing for years as it tried to revive the economy from a huge asset bubble burst in the 1990s and outstanding long-term government debt stands at 180 percent of GDP.
Kan has made tax and social security reform, including a future rise in the 5 percent sales tax, a priority.
The International Monetary Fund said the Group of 7's two biggest economies needed to spell out credible deficit-cutting plans before the markets lose patience and dump their bonds.
Yesterday, Japan's Prime Minister Naoto Kan vowed to push ahead with tax reforms aimed at curbing the country's debt, but an uncooperative opposition and divisions within his own party on policy made the chances of success slim.
"The important thing is to maintain fiscal discipline and ensure market confidence in Japan's public finances," Kan, who took over in June as Japan's fifth premier since 2006, told parliament's upper house.
Ratings agency Standard & Poor's cut Japan's long-term debt rating on Thursday for the first time since 2002, and hours later Moody's Investors Service warned the risk of the US losing its top AAA rating, although small, was rising.
Bond markets reacted calmly, but the latest warnings about the colossal liabilities piled up by the two countries raised fears of rising borrowing costs that could hamper attempts to restore fiscal discipline and consolidate a fragile recovery.
"In advanced economies where fiscal sustainability has not been a market concern, credible plans going well beyond 2011 need to be put in place urgently to lock in benevolent market sentiment," the IMF said in its "Fiscal Monitor" report.
The 2007/08 financial crisis prompted a dramatic rise in developed world debt, as governments spent billions of dollars propping up sinking economies and bailing out stricken banks.
In the US, outstanding public debt has ballooned to more than 60 percent of total output since the financial crisis, and, with a record US$1.5 trillion budget deficit expected this year, is set to grow further.
Japan is in an even worse position. Its debt has been growing for years as it tried to revive the economy from a huge asset bubble burst in the 1990s and outstanding long-term government debt stands at 180 percent of GDP.
Kan has made tax and social security reform, including a future rise in the 5 percent sales tax, a priority.
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