G7 ministers discuss US default risk

G7 financial representatives discussed for the first time the “high importance” of raising the US debt limit and avoiding the negative repercussions of a possible US government debt default on the world. The discussion takes place amid the difficulty of the White House and the US Congress to reach an agreement on raising the debt ceiling, which is already US$ 31.4 trillion.

US Treasury Secretary Janet Yellen reiterated that the failure of the US Congress to raise the debt limit will result in economic and financial catastrophe.

This Friday (12), in Niigata, Japan, the meeting of finance ministers and central bank governors of the G7, a group of the seven largest economies in the world, formed by the United States, Japan, Germany, United Kingdom , France, Italy and Canada. The Minister of Finance of Brazil, Fernando Haddad, participated in the event as a guest, as well as representatives of other emerging countries such as Indonesia and India.

For World Bank President David Malpass, the risk of a US default is adding to the problems faced by the global economic slowdown, with rising interest rates and high debt levels already stifling the investments needed to fuel a higher productive activity.

In an interview with Reuters, Malpass said there had been discussions during G7 meetings about the need to boost productivity and growth, and also deal with the high debt burden of a growing number of countries. According to him, global growth is expected to fall below 2% in 2023 and may remain low for several years.

One of the big challenges, for Malpass, is that advanced economies have taken on so much debt that they will require a lot of capital to service them, leaving very little investment for developing countries.

“And that means a prolonged period of slow growth. It’s a big concern, especially for people in the poorest countries,” he said. “The world is at a point of stress, but I think the financial systems are holding up. The big issue is growth, how to get more growth and productivity,” he added.

For the president of the World Bank, it is urgent to make progress in restructuring the debt of countries unable to pay them, so as not to impede the attraction of investments.

the minister Fernando Haddad said, yesterday (11), in Japan, after a meeting with the Secretary of the Treasury of the United States, Janet Yellen, that the United States has already gone through situations of high debt and has recovered. According to him, this is not a concern for Brazil. “The United States is the largest economy in the world and the debt issue will be properly addressed,” he highlighted.

Agenda bilateral

In addition to the G7 sessions, Haddad spoke with economist Joseph Stiglitz about green industrial policy. He also met with Indian Finance Minister Nirmala Sitharama. “We talked about the G20 baton change: next year, Brazil will assume the presidency of the bloc, currently occupied by India. Brazil has returned”, wrote Haddad in a publication on social networks.

He also met with the Japanese Minister of Finance, Shunichi Suzuki, and with the Executive Director of the IMF, Kristalina Georgieva.

The meeting of financial representatives precedes the G7 Summit, which will be held in Hiroshima, on May 20th and 21st. On the occasion, the group’s high-level meetings take place, with the participation of the presidents of the countries. At the invitation of the Japanese Prime Minister, Fumio Kishida, the President Luiz Inácio Lula da Silva will also visit Japan participate in the external engagement segment of the meeting.

*With information from Reuters