Kerry reassures Asia as concerns grow over U.S. fiscal impasse

Reuters

By Lesley Wroughton and James Pomfret

BANDAR SERI BEGAWAN, Brunei, Oct 10 (Reuters) - Secretary ofState John Kerry assured Asian nations that the United Stateswas committed to resolving a fiscal impasse as some leaders,including Chinese Premier Li Keqiang, expressed anxiety over thelingering U.S. government shutdown and a possible debt default.

In a meeting on the sidelines of an Asian summit in Brunei,Kerry made clear to Li that the U.S. government shutdown, now inits ninth day, and friction over the U.S. budget "is a moment inWashington politics and reaffirmed the President's commitment toresolving the issue," a senior State Department official said.

The official said the debt issue was "briefly referenced"during the meeting.

China is the biggest holder of U.S. debt and some Chineseofficials have raised concerns over a drawn-out crisis inWashington. According to data from the U.S. Treasury, Beijingholds $1.28 trillion of Treasury debt. It also has additionalU.S. agency debt.

The U.S. Congress has so far failed to strike a deal toraise the U.S. government's $16.7 trillion borrowing limit,which is set to expire on Oct. 17, roiling markets and pushingthe dollar close to its recent eight-month low against othermajor currencies.

The budget crisis in Washington already forced PresidentBarack Obama to cancel his planned trip to the Asia-PacificEconomic Cooperation summit in Bali, and the East Asia Summitnow underway in Brunei.

Philippine President Benigno Aquino said the country'scentral bank had begun to take unspecified steps to cushion thepotential impact of a default.

"It's like if the world's biggest economy turns belly-up,how can you actually protect yourself? But I don't think thatwill happen," he told reporters.

Several diplomats expressed concern about the potentialimpact on the region's economies and markets if the crisis dragson, particularly if there is no agreement to raise the U.S. debtlimit, which could trigger a debt default after Oct. 17.

"The world is worried about it and everyone is bracing forits impact," said a senior indian official, who declined to beidentified.

"There is anxiety ... The longer it goes on, the more risksare magnified in the international financial system."

A chink of light emerged on Wednesday when a Republicanleadership aide said U.S. House of Representatives Republicansare considering signing on to a short-term increase in thegovernment's borrowing authority to buy time for negotiations onbroader policy measures.

How long of an increase might suffice - a few weeks or a fewmonths - was unclear. But agreement by Republicans and Democratsto raise the debt ceiling would at least stave off a possibledefault after Oct. 17, when Treasury Secretary Jack Lew hasdetermined the government will no longer be able to borrow.

The 10-member Association of Southeast Asian Nations(ASEAN)did not discuss the U.S. fiscal issue in formal talks onWednesday, but diplomats said the issue had come up in informaldiscussions. Several ASEAN economies, including regional giantIndonesia and Malaysia, have seen sharp falls in theircurrencies in recent months on concerns over an end to the U.S.Federal Reserve's super-easy monetary policy.

"While we want to sound outwardly that we're not concernedabout the U.S., we have to take into account all possible impactto our economy ... The U.S. has to get its act together," said asenior Malaysian diplomat.

"Our central bank is monitoring what's happening in theU.S., we are in touch with them."

Rates

View Comments (5)