MercoPress. South Atlantic News Agency

IMF says the US lacks a credible plan to cut its deficit in the mid term

IMF chief economist Olivier Blanchard in support of President Obama

The United States lacks a credible plan to cut its deficit over the medium term, the International Monetary Fund's chief economist Olivier Blanchard told French daily Le Monde in an interview published Wednesday.

“There are reasons to be worried. The United States lacks a credible plan, for the medium term, to reduce its budget deficit”, Blanchard was quoted as saying, after rating agency Standard & Poor's signalled on Monday that the United States' triple-A credit rating was under threat.

Blanchard also told Le Monde that Euro zone peripheral countries must considerably improve their productivity or trim salaries, or both, to get their economies back on track.

Blanchard is quoted as saying that the bipartisan agreement reached on April 8 to cut spending isn't enough and that the country needs decisions to be made, although President Barack Obama's speech on April 13 is a step in the right decision.

Blanchard also said the IMF has changed its position on the limits governments impose to the entry of foreign capitals. He said those limits are justified for a limited period to block volatile capital inflows that may cause its economy to overheat.

Blanchard is well acquainted with US economic policy, having served as an economics professor at Harvard and MIT for over 30 years. His endorsement of Obama’s speech, in which the US president blasted Republican cuts and championed tax hikes on the wealthiest, may be a source of consternation for Republicans, who celebrated S&P evaluation as a sign that their cuts are necessary.

Blanchard’s comments echo an official statement from the IMF last week asserting that the US needs to make “major” adjustments to its fiscal policy, lest it suffer further deficits, hugely exacerbated by accompanying increases on U.S. Treasury bond interest. The IMF lumped the US with Japan, whose own tremendous national debt has been compounded by restoration costs following March’s devastating earthquake and tsunami.

But Japan has since come out in support of its partner in debt. “The US is tackling fiscal issues in various ways, so I still think US treasuries is basically an attractive product for us,” Japanese Finance Minister Yoshihiko Noda said this week.