Specter of US debt default looms at Asia summit

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BANDAR SERI BEGAWAN, Brunei – The United States sought to reassure Asian leaders gathered for an annual summit Thursday that Washington would resolve its political stalemate, after China voiced concern over a possible US debt default.

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The specter of a calamitous default has emerged as a major issue at the Asian summit in Brunei, held in the absence of President Barack Obama after he was forced to stay home due to the US government shutdown.

With Asian countries like China sitting atop a mountain of Treasury bonds, Chinese Premier Li Keqiang expressed “Beijing’s concern about Washington’s debt-ceiling problem”.

Li conveyed that message in talks with Obama’s stand-in, US Secretary of State John Kerry, late Wednesday in Brunei, China’s official Xinhua news agency reported.

A US official travelling with Kerry confirmed Thursday that the debt ceiling was discussed, but downplayed Beijing’s concerns, saying Li had vowed continued investment in the world’s largest economy.

“Secretary Kerry made clear that this is a moment in Washington politics and reaffirmed the president’s commitment to resolving the issue,” the official told reporters.

“They also agreed that the United States has one of the strongest economies in the world and that they have a shared interest in continuing the close economic working relationship.”

China held $1.277 trillion in US debt as of July, according to Treasury Department figures.

Kerry and Li joined 16 other world leaders in Brunei on Thursday for the East Asia Summit — the climax of nearly a week of top-level meetings which began in Bali at the Asia-Pacific Economic Cooperation forum’s annual gathering.

As he did in Bali, Kerry sought to assure Asian leaders in Brunei that Obama’s no-show did not signal wavering US interest to the region.

He stressed Washington’s “continued commitment to the region” and offered verbal support to allies wary of China’s territorial ambitions, according to a copy of his address to the summit.

The crippling budget standoff in Washington forced Obama to cancel a visit to Asia where he had hoped to tout his “pivot” towards the region at the back-to-back summits.

Apart from reaching a budget deal to end a government shutdown, Congress must agree by October 17 to raise the $16.7 trillion US borrowing limit — or risk a default on sovereign debt.

Failure to do so could see the United States default on its obligations for the first time in its history and spark what the White House warns will be dire global economic consequences.

Emerging economies — which have already borne the brunt of recent market upheaval over the expected tapering of US monetary stimulus measures — are particularly anxious to see a breakthrough.

“(If) the world’s biggest economy turns belly-up, how can you actually protect yourself?” Philippines President Benigno Aquino 3rd told reporters. “But I don’t think that will happen.”

Aquino’s Finance Secretary Cesar Purisima termed a default the “unthinkable”, adding that Manila was girding for it by taking steps to keep Philippine liquidity flexible.

With Obama absent from the Asia summits, China has been free to wield its growing diplomatic and economic clout in the region.

Li offered an olive branch Wednesday to Southeast Asian nations wary of its territorial claims to most of the South China Sea, including waters near the coasts of its neighbours.

He called for peace in the sea and stepped up China-ASEAN trade.

The Philippines, Vietnam, Malaysia and Brunei — all ASEAN members — have competing claims to parts of the sea, and Manila and Hanoi have in recent years repeatedly accused China of becoming more aggressive in the dispute.

China has struck a friendlier tone of late, agreeing recently to discuss a code of conduct at sea with ASEAN aimed at preventing conflict.

Kerry’s prepared remarks called a code of conduct a “necessity for the long term” but also appeared to prod China over its disputed claims.

“All claimants have a responsibility to clarify and align their claims with international law,” his text said.

The South China Sea is believed to hold vast deposits of oil and natural gas and is regarded as a potential military flashpoint.

Japan’s ties with China — as well as with South Korea — also have been tense due to territorial disputes.

In bilateral talks with other leaders on the sidelines of the Brunei meetings on Wednesday, Japan’s Prime Minister Shinzo Abe consistently raised the South China Sea issue, Japanese officials said.

Abe agreed with his Australian counterpart Tony Abbott “to support ASEAN to be able to cope with issues relating to the South China Sea”, Japanese foreign ministry spokeswoman Kumi Sato told reporters in Brunei.

AFP

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