A day after the US announces budget shortfall of more than $1tn, treasury secretary talks of need for balanced fiscal plan
Despite making progress on getting its fiscal house in order, the United States still has much work to do, treasury secretary Timothy Geithner told fellow financial leaders Saturday.
The comment came just hours after the US government announced that the budget deficit had topped $1tn for a fourth straight year, despite a modest improvement thanks to stronger economic growth.
"It is important that we in the US enact a balanced framework to bring down our fiscal deficit and debt over several years, while continuing to provide support for jobs and growth in the short term," Geithner told a meeting of the International Monetary and Financial Committee during the annual meeting of the IMF and World Bank, which is being held in Tokyo.
The Treasury Department said Friday that the deficit for the 2012 budget year totaled $1.1tn, though a 6.4% increase in tax revenues thanks to stronger growth had helped contain the deficit.
The risk of the US running into a "fiscal cliff" of tax increases and deep spending cuts next year, unless the Obama administration and Congress resolve a deadlock over the budget, has overshadowed the gathering of top financial officials. Such a prospect would deal a heavy blow to the economy, eroding progress made since the 2008 global crisis.
The overwhelming emphasis of the Tokyo gathering has been on coddling fragile growth around the globe.
At Saturday's meeting of the IMFC, which advises the IMF and monitors the world financial system, officials from developing and emerging economies urged the US and European nations to prevent malaise in their regions from slowing global growth.
"Advanced countries should rethink their macroeconomic strategies and avoid simultaneous fiscal contractions and the consequent overburdening of monetary policies," Guido Mantega, Brazil's finance minister, told the committee. "In many advanced economies, fiscal and structural policies are severely hampered by political paralysis."
He urged that spending be focused on areas that can have a maximum impact and on social safety nets to protect the poor.
Mantega and other finance ministers expressed concern over monetary easing in the US and other countries that is meant to encourage more bank lending: some worry could destabilize markets while failing to stave off recession.
During the meetings in Japan, IMF managing director Christine Lagarde has been urging countries to not sacrifice growth for the sake of austerity, saying they should temper spending cuts to help create jobs and support future growth.
Greece, Spain and other European countries laboring under massive debts have slashed spending and raised taxes, seeking to restore confidence in their public finances and qualify for emergency financing. The economies of financially healthier European countries, such as Germany and Finland, face a potential blow to growth if those troubled economies fail to get their financial houses in order.
The IMF has scaled back its global growth forecast for 2012 to 3.3% from 3.5%, and has warned that even its dimmer outlook might prove too optimistic if Europe and the United States fail to resolve their crises.
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