- The Washington Times - Tuesday, September 23, 2003

DUBAI, United Arab Emirates (AP) — U.S. Treasury Secretary John W. Snow told global bankers and economists worried about the tide of red ink in Washington that the massive U.S. budget deficit would be halved by the end of 2008.

Mr. Snow made the pledge yesterday at the annual meetings of the International Monetary Fund and World Bank, both of which have cited the growing U.S. trade and budget deficits as dark clouds looming over the fragile global recovery.

He called the budget deficit an “understandable” consequence of the recent recession, and told delegates from 184 countries that it would be tamed through “ample growth” and “disciplined spending,” having earlier ruled out any tax increases as “counterproductive.”

“We’re committed to cutting the deficit by half in the next five years,” he said, adding that level would be “certainly very manageable.”

He offered few other details on how the United States would reduce the deficit, which the Treasury Department has said reached $400.5 billion in the first 11 months of the 2003 budget year — twice the total for the same period a year earlier.

IMF Managing Director Horst Koehler acknowledged that the “sharp swing” in public spending in the United States had helped stimulate growth after the slowdown — a point Mr. Snow also made, calling it “Economics 101.”

Mr. Koehler said, however, that the United States now needed a “credible framework” to reduce its massive deficit as growth stabilizes, so as not to cause problems in the coming years.

Economists fear that the deficits, which are financed mainly through sales of government and corporate bonds overseas, will eventually have to be reined in, which could send the dollar plummeting and force U.S. interest rates up.

“A return to the path of strong, sustained growth requires action to improve imbalances — which not only persist, but are widening,” said Bank of France Governor Jean-Claude Trichet, who takes over as president of the European Central Bank in November.

Mr. Snow suggested that the trade imbalance would not be so bad if other countries worked at increasing domestic demand and making themselves more attractive to investors.

His Spanish counterpart agreed.

“The U.S. economy is significantly reactivating its growth,” boosting the rest of the world, said Spanish Finance Minister Rodrigo Rato. But that may not last “if we don’t include other zones in the world.”

Mr. Koehler also told Europe and Japan, where growth lags far behind the United States, that “ambitious” reforms of their hidebound economies must take “center stage.” He urged Japan to sort out its corporate and financial sectors and for Europe to reduce chronically high unemployment by making labor markets more flexible.

France and Germany were chided by fellow Europeans as well for their budget deficits, which are almost as bad as Washington’s as a percentage of gross domestic product.

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