US and Canada

US stalemate overshadows IMF-World Bank meeting

World Bank Managing Director Sri Mulyani Indrawati (L) with IMF head Christine Lagarde
Image caption IMF head Christine Lagarde talks to World Bank chief Sri Mulyani Indrawati

There is often some cloud of economic uncertainty hanging over the annual meetings of the IMF and the World Bank.

This time the shadow was cast by the political developments just down the road at the White House and the US Congress - the political stalemate over the federal government's finances.

The mood here among finance ministers from the IMF's 188 member countries is best described as wary. The big anxiety is, as has been widely reported, whether the US would default on its debts in the financial markets, an event that would send massive shockwaves through the global financial system.

Everybody here thinks that surely the US would not let that happen.

The IMF's latest global economic forecasts, issued just before the annual meetings, are based on the assumption that it won't.

Still, there is just a hint of unease that the US political system has walked up to the edge of the precipice and might just trip and fall off.

'Pantomime'

Many ministers and central bankers here have taken the opportunity to remind their American counterparts that they really don't want that to happen. Please, they say, get it fixed quickly.

That kind of pressure won't be decisive in the American political wrangling, but it might just help a little.

Beyond that there's not much that visiting finance officials can do, apart from watch what one of them described as a pantomime, hoping that every day is the last performance.

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Media captionWorld Bank head Jim Yong Kim: "We are now five days away from a very dangerous moment"

Despite the importance that absolutely everybody at these meetings attaches to an agreement, it doesn't seem to have taken up very much of their time.

The US government's financial crisis gets just one sentence in a 1,200-word communique issued after the IMF meeting.

There are, after all, plenty of other things to think about.

First on the list is another American policy issue, tapering as it's called - when and how quickly will the Federal Reserve cut back on its quantitative easing programme of spending $85bn (£53bn) a month in the financial markets.

Even though the Fed hasn't even started to cut back, the mere expectation that it will do sooner or later has already caused significant disturbances in global financial markets.

I'm told it has also been disruptive for some central banks, even in low-income countries trying to manage their foreign exchange reserves. Many officials here want the Fed to be very careful about communicating its intentions so as not to cause excessive volatility in the markets.

Nonetheless, there isn't the same sense of exasperation with the Fed as there is with the current political logjam in Washington over the budget and the debt limit.

Everybody recognises that the Fed's monetary policy is going to have to get back to normal sooner or later. Quantitative easing is, after all, a truly exceptional response to the economic weakness that followed the financial crisis.

Cutting it back would be a sign that the US economy is healing, which is what everybody at these meetings wants to see.

It is striking that the two most immediate concerns are about the United States and not, for once, Europe. Not that the IMF thinks the eurozone is repaired - far from it.

It's just that there are other more clear and present dangers.

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