U.N. Report Calls for Help to Ease U.S. Budget and Trade Deficits
By Elizabeth Becker
The New York Times
Wednesday 26 January 2005
WASHINGTON - The United Nations on Tuesday urged all the major industrial countries, especially Japan and the nations of Europe, to help the United States reduce its deficits by spurring their own economies to grow faster.
In a report, "World Economic Situation and Prospects 2005," the United Nations said that the budget and trade deficits of the United States were putting the global economy off balance.
It echoed warnings by the International Monetary Fund and other financial institutions in saying the United States cannot continue to carry its huge debts.
"What we really need is a major advancement in cooperation among the advanced economies to help the U.S. get out of this problem," said Josť Antonio Ocampo, the under secretary general for economic and social affairs at the United Nations, in an interview.
The United States deficit is a global problem in part because the country has the fastest-growing economy among industrial nations and, together with China, is largely responsible for helping to pull the world economy out of the doldrums. But whereas China has been an economic engine with its huge growth in manufacturing and exports, the United States has pushed growth by consuming far more goods than it exports.
The report said that the global recovery may have reached its zenith, with the world's economy growing by 4 percent in 2004, compared with 2.8 percent in 2003. The report estimated that the global economy will grow by 3.25 percent this year.
Over all, the developing economies, including China and India, are doing better than the industrialized nations, according to the United Nations report.
"We have a very peculiar mix that is almost unprecedented," Mr. Ocampo said. He said the mix included high commodity prices, high oil prices and a lack of major perturbances in financial markets, which routinely hurt the more vulnerable developing countries. The biggest problem facing developing nations is the money they have to give rich nations to repay old debt and the money they are spending to accumulate international reserves to protect against a future financial crisis.
Much of those reserves are made up of United States Treasury bonds, which in turn are underwriting the United States debt.
Despite the earlier warnings, the United States debt has deepened; its trade deficit is forecast to have reached a record $600 billion for 2004. The Bush administration has promised to reduce spending in its new budget and has called on China to revalue its currency against the dollar to make Chinese exports more expensive, which in turn would help lower the United States trade deficit.
But the United Nations report said the problem was made more complicated by the falling dollar. A continued drop in the dollar could hurt the economies of Europe and Japan, which need to grow so they can buy more American goods and help right the trade imbalance.
Instead, the United Nations report urges the major industrial countries to work out a solution that will help the United States reduce its deficits by spurring their own economies to grow faster, especially Japan and the countries of Europe.
The United States has amassed a debt without precedent. The International Monetary Fund calculates that the United States' current-account deficit stands at $631 billion, or 5.4 percent of gross domestic product.
Japan and China both have trade surpluses, as do most of the wealthiest European nations. The exceptions are Britain, which has a current-account deficit equivalent to 2 percent of its G.D.P., and Italy, with a deficit of 1.1 percent of G.D.P.
"The message of our report is that the industrialized countries all have their own problems that will hurt growth," Mr. Ocampo said. "The U.S. has its deficits while Europe and Japan are slow in recovering. But the most challenging is the U.S. twin deficits."