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The U.S. debt and its consequences to the world
On main street, citizen maybe don't know
the dimension of the serious problem
which can happen to the global economy
this is a stressing moment to all markets
The difficult negotiation between U.S. government and Congress over the debt ceiling
I'll talk now to Otaviano Canuto, former vice-chairman and senior counselor at World Bank
How are you, Otaviano?
How are you, Luciene? It's a pleasure to be here with you again
Pleasure is mine. Otaviano, what can happen if the U.S. default their international creditors
The consequences can be disastrous
To talk about some
Immediately, risk premiums of U.S. bonds will rise
and these bonds are on the basis of all world's interest rates curves
In the same way, all holders of U.S. debt bonds
would be forced to revise down the values of their reserves
due to the assets' devaluation
the scenario is so potentially disastrous
that everybody's is counting on a last time solution
with the resolution of short and medium term
Brazil is the third major U.S. creditor
Let's brinf the problem, or the possibility, to the main street guy
What can happen to the Brazilian people?
Immediately, central bank and many other private players
would have its equity reserves cut
due to the assets devaluation
The impacts could be even more terrible
with investments stoppage
downward revision of growth expectations
The scenario can be so complicated that
is unlikely to occur
It's possible that, before a default situation,
the U.S. government manages a Draconian fiscal adjustment
which would have a very strong effect
over the recovery that is still recent
We are talking to Otaviano Canuto
senior couselor at World Bank
he talks to La Presse directly from Washington DC
The IMF has released the World Economic Outlook
Which estimates a 3.0% world growth this year
The same as 2012. What do you say about that?
This IMF review of the last April report
Reflects a review of the big emerging markets' growth potential
Which includes China, Brazil, India, Turkey
We notice that the growth potential of these economies is weaker that one could imagine some months ago
But the report also highlight a certain recovery in the U.S. economy
if the political impasses would not lead the estimates to the a downward review
But the average scenario show an U.S. economy in recovery
and an European economy which could had reached the end of the line
and would be showing the first positive signals of growth
In average, the emerging economies are growing more than the advanced economies
but with a lower diferential
and the world economy would be accommodating in a slower global growth rhythm
Otaviano, in this report, IMF focus in localized actions
to fight this situation
the growth deceleration
In your opinion, which and where would be the emergencial actions?
In fact, the emphasis is on the need for emerging countries
resume their structural reform agendas
the growth potential of emerging economies remains high
since the reforms needed to open new investments
are done
in a certain way, the abundant liquidity in recent years
the relative success in response to the global crisis
eventually induce these economies to postpone these reforms
This is the case of all these economies, inlcuding Brazil
The point is to resume the reform agenda
which will vary from country to country according to their peculiar circumstances
This is Otaviano Canuto's hint to emerging countries, including Brazil
Thank you so much for joining us on La Presse's website
It's a pleasure, Luciene
Pleasure is mine.
From BM&FBOVESPA, São Paulo, Brazil, I'm Luciene Miranda