US debt default will rock global system: PM

(From left) Papua New Guinea's Prime Minister Peter O'Neill, Singapore's Prime Minister Lee Hsien Loong, Peru's Foreign Minister Eda Rivas and US Secretary of State John Kerry preparing to take the Apec family photo in Nusa Dua.

A United States debt default will shake a fundamental element of the global financial system and cause it to enter uncharted waters, Prime Minister Lee Hsien Loong warned on Tuesday.

"If that fundamental element is shaken - even the US government can default - I don't know what will happen to your spreads or the rest of the complicated system of financial markets. You're going into unchartered waters," he said.

The US government and lawmakers have until Thursday next week to reach an agreement and avoid a first-ever default on US Treasury bonds - a scenario that economists are warning could throw the world economy into a tailspin.

Mr Lee was speaking to reporters at the end of the Asia-Pacific Economic Cooperation (Apec) summit here on Tuesday.

He referred to the political brinkmanship as an experiment that should be avoided, saying "nobody knows what the impact will be", as it would be the first time such a US default happened.

The buying of US Treasury bills has been to date a "risk-free solution" for governments and institutions with surpluses.

In a CNN interview aired yesterday, Mr Lee said if a solution could not be reached, it would send a negative signal to the world that the US could not resolve its own practical problems.

"I mean, these are problems which you have created for yourself in a game of chicken," he said.

Asked if he was concerned about the impact on the superpower's presence in the Asia-Pacific, even as President Barack Obama has declared a strategic shift towards this region, Mr Lee said: "The concern of course is that if you're unable to get consensus on such important issues, then even though you may have good intentions, will you be able to sustain them and will you be able to support them and fund them and maintain that direction over a period of time?

"We have to hope the Americans will be able to overcome these problems and maintain that direction despite their domestic difficulties."

Mr Obama cancelled a week- long trip to the region and his attendance at both the Apec and East Asia Summits.

In Bali, the US had hoped to make significant strides towards sealing an ambitious trade pact by the year-end.

But Mr Obama's absence has thrown that into doubt, though a statement yesterday from the 12 countries involved in negotiations for the Trans-Pacific Partnership (TPP) said this was "on track".

Leaders from the 21-member Apec, which accounts for more than half of global GDP, pledged in their closing statement to boost trade and investment while avoiding protectionism. They promised to drive a global recovery, in part by implementing "prudent and responsible" economic policies.

limze@sph.com.sg


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