Published March 13, 2009

Geithner pledges to cut budget deficit by half

He urges G-20 leaders to take forceful action to end financial crisis

	Email this article
	Print article
	Feedback

(WASHINGTON) US Treasury Secretary Timothy Geithner, repeating congressional testimony that he gave last week, said that the Obama administration is 'determined' to cut the federal budget deficit by half in four years.

In prepared remarks for the Senate Budget Committee, Mr Geithner said yesterday that the administration projected a US$1.75 trillion deficit for the current fiscal year, representing 12.3 per cent of gross domestic product (GDP). President Barack Obama's budget plan would bring the deficit down to US$533 billion, or 3 per cent of GDP, by 2013, Mr Geithner said.

The Treasury chief said that short-term deficits are necessary to combat a recession that has seen 4.4 million job losses over the past year, as well as strains in financial markets. Mr Geithner also said that the US banking rescue 'might cost more' than the US$700 billion already approved by Congress.

Last month, Mr Obama sent Congress a US$3.55 trillion budget for the 2010 fiscal year that begins Oct 1.

In a statement released yesterday ahead of a meeting of finance ministers from 20 of the world's industrial and developing nations, Mr Geithner urged the Group of 20 nations to take 'forceful' actions to end the financial crisis and called for an expansion of the International Monetary Fund's (IMF) supplementary borrowing programme by about US$500 billion.

'This is a global crisis which requires a global response,' Mr Geithner said in the statement. 'G-20 countries must take strong macroeconomic and financial sector measures.'

A 'reasonable benchmark' is the IMF's recommendation for stimulus equivalent to 2 per cent of a nation's GDP, Mr Geithner said.

Mr Geithner will make the recommendations at the G-20 meeting starting today near London that will lay the groundwork for a summit of leaders on April 2 in London.

The Treasury secretary also proposed expanding, by as much as US$500 billion, the IMF's capacity to borrow extra funds from some of its member nations. The fund currently is able to borrow about US$50 billion through special supplementary financing arrangements. The US contribution is about 20 per cent, indicating a possible new commitment of about US$100 billion, Mr Geithner told reporters.

'We should consider further ways to strengthen the IMF's capacity to provide support to emerging markets and the poorest,' the Treasury said in a separate statement.

Mr Geithner last month pushed G-7 officials to soften criticism of China just weeks after he had said that the nation was 'manipulating' the yuan, according to a person briefed on the matter. G-7 finance ministers on Feb 14 welcomed China's 'commitment to a flexible exchange rate'.

The Obama administration soon will also push Congress for legislation that allows the IMF to 'mobilise' its stockpile of gold, Mr Geithner said on Wednesday. Congress would need to approve the IMF funding expansion, although it would not count against the budget deficit, he said.

Congress would not need to approve a separately planned trade financing initiative because that would be done within the existing resources of the Export-Import Bank and the US Overseas Private Investment Corp, Mr Geithner said. He said that the US wants to support efforts by the World Bank to give a coordinated boost to trade financing from governments around the world.

At the G-20 summit, Mr Geithner plans to compare notes with his counterparts about moves aimed at stemming the global financial crisis. The US is working on a new programme to help banks clear out the toxic assets that are 'gumming up the system,' using a mix of private investment and public financing, Mr Geithner said.

Mr Geithner said that there is a consensus among major economies that executive pay levels need to be reined in, since past practices have contributed to the buildup in leverage and risk that led to the current financial crisis. -- Bloomberg