Rodrigo Rato says waiting for the markets could prove costly The US needs to do more to reduce its deficits, the main engine driving the dollar to record lows, the head of the International Monetary Fund has said. In an interview with the IMF's in-house magazine, Rodrigo Rato said the US could not rely on market forces alone to avoid a "traumatic situation".
The dollar has weakened sharply against most major currencies in recent weeks.
US Treasury Secretary John Snow backs a "strong dollar", but has said it is up to the markets to set its level.
In comments made in the UK earlier this week, Mr Snow made it clear that he saw slow European growth as a big part of the problem, driving up deficits by making the US the importer of last resort.
Bridging the gap
Mr Rato's interview appeared on the eve of the G20 meeting of major countries' finance ministers in Frankfurt, at which the weakness of the dollar and the spiralling US deficits are likely to take centre stage.
The finance ministers of Argentina, France, Japan, Russia and South Korea will not be present at the meeting because of domestic engagements, it emerged on Friday afternoon.
The markets are asking for a change of policy
Rodrigo Rato, IMF managing director Mr Rato acknowledged that the reduction of the current account deficit - the gap between money coming in and going out of the US - was everybody's business.
And he agreed that Europe - and Japan - were failing to pull their weight.
But imbalances like that could not be fixed solely by the market, he insisted. That "could be much more costly and risky".
The US needed to take action itself, not least because there was a limit to how much other countries could continue to fill their coffers with dollars - the mechanism which allows both the current account deficit and the massive public budget deficit.
"The question is whether the build-up is sustainable, and there's growing evidence that (it) is very big and the markets are asking for a change of policy," Mr Rato said.
"I don't think it's a traumatic situation, but I do think a change in policy is needed to avoid getting into a traumatic situation."
US Federal Reserve chairman Alan Greenspan voiced his agreement on Friday.
"Current account deficits, even large ones, have been defused without significant consequences, but we cannot become complacent," he wrote in the text of a speech due to be delivered to the G20 conference on Friday evening.
Mr Snow says the dollar's slide is Europe's problem too The budget deficit needed urgently to be reduced, he said.
"We hope this will be reflected in the new administration's policies as soon as possible."
Bigger bills
On Thursday evening, the US Congress passed a bill to keep funding the US's massive public debt.
The bill, which added $800bn to take the total debt allowable to $8.2 trillion.
The deficit currently stands at more than $400bn for 2004.
Republicans in Congress blamed the red ink on Democrat-backed spending, and said they were trying to protect benefits for older citizens.
Democrats, however, point to a 15% increase in discretionary spending over the life of the last Republican-controlled Congress, coupled with massive tax cuts.
Republicans, they said, were effectively passing on the responsibility for their spending to future generations.
"I want someone to explain to me how it can be moral for a father to stick his kids with his bills," said Representative Gene Taylor from Mississippi.
