TRADE PAIN:
Western-imposed tariffs prevent farmers in the developing world, like these in Costa Rica, from exporting
Posted Sunday, January 18, 2004; 13.35GMT The federal budget deficit now stands at around 4.5% of GDP, its highest level since 1992. If that degree of stimulus had not got the juices flowing, every economics textbook in the world should have been burned. And the risks of American deficit spending are enormous: the International Monetary Fund (IMF) recently warned that although U.S. fiscal policies had "undoubtedly provided valuable support to the recovery so far," continued large deficits "may come at the eventual cost of upward pressure on interest rates" and leave "the budget even less well-prepared to cope with the retirement of the baby-boom generation." Any rise in interest rates, the IMF's economists noted, would not be limited to the U.S. but would be felt worldwide, so that the "adverse effects of U.S. fiscal deficits would spill over into global investment and output."
Growing U.S. indebtedness just as the textbooks would predict is already placing strain on the dollar, though currency realignments are, at present, distributed unevenly. Floating freely, the euro has climbed more than 40% against the greenback since the end of 2001, while some Asian currencies, which are in effect pegged to the dollar, have barely budged. "Although the dollar's adjustment could occur gradually over an extended period," the IMF warned, "the possible global risks of a disorderly exchange-rate adjustment, especially to financial markets, cannot be ignored."
Just as the story of the American economic recovery is more nuanced than it looks from Washington, so U.S. geopolitical priorities make less sense when seen from outside the country. The need to focus not just on security but on development, global health and poverty has rarely been greater. In a magnificent speech last September at the World Bank annual meeting in Dubai, Bank president James Wolfensohn pointed out that the proportion of rich-world budgets devoted to development assistance has never been lower than it is now. The development goals adopted at the U.N.'s Millennium Summit four years ago are not being met. Sub- Saharan Africa is getting relatively poorer. Cash transfers for education in the developing world the single best way to improve lives are falling well short of what is needed. Developing countries worry, said Wolfensohn, that aid money goes "to the latest crisis or to fight drugs or terror, rather than to long-term development."
Wolfensohn's warning has been echoed since by many other leaders. At Monterrey, Brazil's President Luiz Inácio Lula da Silva said, "If we want a stable and secure world, we must build a more just and equitable world." And Wolfensohn is even more concerned about the lack of attention to development goals today than he was four months ago. With reason: security concerns skew development priorities. Within the next few years, tens of billions of dollars for aid and reconstruction will be spent on roughly 50 million people in Iraq (which will soon be a major oil exporter) and Afghanistan. Yet African nations still wait for access to the rich world's markets for their textile exports.
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The federal budget deficit now stands at around 4.5% of GDP, its highest level since 1992. If that degree of stimulus had not got the juices flowing, every economics textbook in the world should have been burned. And the risks of American deficit spending are enormous: the International Monetary Fund (IMF) recently warned that although U.S. fiscal policies had "undoubtedly provided valuable support to the recovery so far," continued large deficits "may come at the eventual cost of upward pressure on interest rates" and leave "the budget even less well-prepared to cope with the retirement of the baby-boom generation." Any rise in interest rates, the IMF's economists noted, would not be limited to the U.S. but would be felt worldwide, so that the "adverse effects of U.S. fiscal deficits would spill over into global investment and output." 
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