US Fiscal Woes Cast Shadow Over IMF Annual Meeting

The US Congress reached an eleventh-hour deal preventing Washington from defaulting on its debts on Wednesday, within hours of an impending deadline. The prospect of a US default - and the likely ramifications abroad - had dominated last week’s Annual Meeting of the International Monetary Fund, which had aimed to focus primarily on the state of the global economy.

The prolonged fiscal impasse in Washington figured prominently during the three-day meetings of the IMF and World Bank Group, which were held concurrently in the US capital from 11-13 October. The next steps for developed country monetary policy, as well as the upcoming WTO ministerial conference in Bali, were among the other topics that were featured during the high-profile gathering.

Had a congressional deal not been reached by today, the US government would likely have run out of funds to meet its debt obligations in a timely manner, and would have instead been forced to rely solely on the daily balance between Treasury cash inflows and outflows. Under the terms of the agreement announced on Wednesday, Washington’s borrowing authority has now been raised through 7 February, momentarily averting a crisis that many warned would have widespread consequences on the international stage.

Were the US Treasury be forced to default on its debt, this would risk a “massive disruption the world over,” IMF Managing Director Christine Lagarde told NBC News in an interview late last week. Such fears were reiterated from private sector leaders, central bank governors, and finance chiefs alike over the three-day meetings.

Even coming this close to a default could be dangerous, officials said last week. The US’ “near miss” in 2011, World Bank President Jim Yong Kim noted, had “major impacts lasting for months.”

In light of these worrisome prospects, the IMF’s International Monetary and Financial Committee (IMFC) - which is made up of the organisation’s governors, specifically finance ministers and central bank governors of member countries - had urged Washington to take “urgent action to address short-term fiscal uncertainties.”

Multilateral institutions make trade facilitation pledge

This year’s IMF-World Bank meetings come just weeks before another multilateral institution - the WTO - holds its biennial ministerial conference in the Indonesian island province of Bali. The global trade body’s 159 members are working furiously toward clinching a deal from the 12-year Doha Round negotiations, mainly in the area of trade facilitation, along with some agriculture and development-related components.

However, the trade facilitation talks at the Geneva-based WTO continue to face hurdles, as developed and developing countries work to bridge their differences on topics ranging from customs cooperation to flexibilities with regards to implementing new commitments. Sources say over 400 brackets remain scattered throughout the current trade facilitation draft text, with the negotiating group tasked with the talks set to meet in Geneva again this week.

In this context, the IMF and World Bank, together with five regional banks - the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, and the Inter-American Development Bank- offered a pledge last week to help assuage developing country fears on this subject, should a trade facilitation pact be agreed at Bali.

The seven institutions have also said that they will aim to coordinate this support with that provided for complementary infrastructure development.

WTO Director-General Roberto Azevêdo welcomed the news, particularly at this “crucial stage” in the Bali preparation process.

“This will greatly assist WTO members’ efforts to conclude an agreement, because these institutions have strong expertise in this field,” Azevêdo said upon news of the group’s plans.