WASHINGTON — Leaders at World Bank and International Monetary Fund meetings Sunday pleaded, warned and cajoled: The United States must raise its debt ceiling and reopen its government or risk massive disruption the world over, as Christine Lagarde, the IMFs managing director, put it.
By ANNIE LOWREY and NATHANIEL POPPER
The New York Times
The fiscal problems of the United States overshadowed the official agendas for the meetings, with representatives from dozens of countries publicly expressing worries about what was happening on Capitol Hill and in the White House.
The leaders came to Washington to talk about the international recovery, Lagarde said in an interview on NBCs Meet the Press. Then they found out that the debt ceiling was the issue, she said. They found out that the government had shut down and that there was no remedy in sight.
With only three days left before a potential default, Senate leaders failed Sunday to reach agreement on a plan to reopen the government and raise the debt limit.
Many leaders at the World Bank and IMF meetings said they believed the impasse would be resolved before Thursday, when the government would be at severe risk of not having enough money to pay all its bills on any given day going forward.
But they pressed Treasury Secretary Jacob Lew and the Federal Reserve chairman, Ben Bernanke who were both at the IMF meeting on the issue, predicting that even a near-default would lead to higher borrowing costs and a slowdown of the global economy.
This cannot happen, and this shall not happen, Baudouin Prot, chairman of the French banking giant BNP Paribas, said at a meeting of the Institute of International Finance that was also being held in Washington. The consequences of this would be absolutely disastrous.
Lew acknowledged the threat: We recognize that the United States is the anchor of the international financial system.
Participants at the meetings remained on edge, given the gravity of the threat. Lagarde said that lack of certainty, that lack of trust in the U.S. signature would disrupt the world economy.
Jamie Dimon, the chief executive of JPMorgan Chase, painted a bleak picture of the days ahead if there is no resolution.
As you get closer to it, the panic will set in and something will happen, Dimon said at the international institute event. I dont personally know when that problem starts.
Lagardes counterpart at the World Bank, U.S. physician Jim Yong Kim, said the world was days away from a very dangerous moment.
When U.S. and European markets open today, all eyes will be focused on the negotiations in Congress. (U.S. stock markets are open on Columbus Day, although the bond markets are closed.)
The IMF, which lends to governments that have trouble finding financing on the sovereign debt markets, said it had been planning for any market disruptions.
Meanwhile Sunday, talks between the Democratic and Republican leaders of the Senate failed to break the impasse over the spending level for a stopgap measure to reopen the government.
Senate Democratic leaders believing they have a political advantage in the continuing fiscal impasse refused Sunday to sign on to any deal that reopens the government but locks in more budget cuts for next year.
The core of the dispute is about how long a stopgap measure that would reopen the government should last. Democrats want across-the-board cuts known as sequestration to last only through mid-November; Republicans want them to last as long as possible.
Republicans accused Democrats of accepting nothing short of capitulation without offering anything in return.
The Democrats keep moving the goal posts, said Sen. Susan Collins of Maine, one of the lead Republican negotiators. Decisions within the Democratic conference are constantly changing.
Several Republican senators said that a new Democratic request to increase government spending is hurting chances of a deal.
Sen. Rand Paul, a Kentucky Republican, said maintaining spending cuts is the same for Republicans as maintaining the Affordable Care Act is for Democrats.
Theyre all about Obamacare being the law of the land, but sos the sequester, he said on CNNs State of the Union. If we exceed that, its real big step in the wrong direction.
GOP Sen. Bob Corker of Tennessee said House Republicans went too far in their initial proposals by trying to force repeal or delay of the new health care law as part of legislation needed to keep parts of the government open.
Now, he said, Senate Democrats are doing the same with their bid to end the sequester and increase spending.
They now are overreaching, he said on Fox News Sunday. Were at status quo right now. The last 24 hours have not been good.
Anita Kumar of McClatchy Newspapers and Jonathan Weisman of The New York Times contributed to this report.