Posted on 08/05/2002 5:43:39 PM PDT by RCW2001
IMF warns increased US downside risks By Shihoko Goto WASHINGTON, Aug. 5 (UPI) -- Stock market jitters and increased wariness about corporate transparency are weighing heavily on U.S. economic prospects, the International Monetary Fund cautioned Monday. "While the outlook is still broadly favorable, the downside risks have intensified," the IMF reported in its annual assessment of the U.S. economy. The international agency evaluates the economies of all its member countries at least once a year, even if they are non-borrowing industrialized nations such as the United States. The agency also cautioned that foreign investments into U.S. markets would not continue at the robust pace they have for the past few years, likely would falter in coming years. As a result, the IMF urged the Bush administration to deal with its growing current account deficit sooner rather than later. Top government officials including Treasury Secretary Paul O'Neill, however, have argued that overseas interest in U.S. markets will remain high, given the country's strong economic fundamentals and continued weakness outside the U.S. borders. Such arguments, however, have fallen flat with most economists outside the United States. Meanwhile, there are other concerns about U.S. economic prospects. The Bush administration's "medium-term (budgetary) projections may be optimistic," the IMF said. "The budget assumes tight limits on discretionary spending, which may be difficult to realize, especially taking into account increases in defense and security-related outlays and in light of the apparent erosion of fiscal discipline in recent years." The agency called for the United States not only to place priority in balancing the budget, but also to boost domestic savings rates. Meanwhile, the IMF did not touch upon the wild card that remains on all investors' minds, namely the possibility of another terrorist attack on U.S. shores, and the negative impact such a disaster would have. Nor did the agency discuss the likelihood of the United States attacking Iraq, and what would result from further U.S. military engagement overseas. Another downside risk for the U.S. and indeed world economy is the continued weakness in Latin America, from Argentina to Brazil and Uruguay. Still, the agency also noted some bright spots in the U.S. economy, particularly the effectiveness of the Federal Reserve in keeping monetary policy under conrol. "Given minimal signs of inflation pressures and the still considerable uncertainty regarding the economic outlook, directors (of the IMF) generally supported a continuation of the accommodative stance of monetary policy for the time being," it reported. The agency also pointed out that U.S. banks broadly remain healthy in spite of the economic slowdown, and it welcomed too the passage of trade promotion authority, or fast track, to increase presidential power in signing off global trade agreements. The trade authority "should clear the way for continued active U.S. leadership to maintain and strengthen open markets on a multilateral basis," the IMF said.
UPI Senior Business Correspondent
From the Business & Economics Desk
Published 8/5/2002 6:20 PM
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