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US default will put financial markets in ‘uncharted waters’

NUSA DUA (BALI) — As jitters grow over whether the stand-off on Capitol Hill would end before the looming debt ceiling deadline next Thursday, Prime Minister Lee Hsien Loong yesterday warned that no one can predict the extent of the fallout of an unprecedented American default on its borrowings.

Prime Minister Lee Hsien Loong and Indonesian President Susilo Bambang Yudhoyono with other leaders at the APEC Summit in Nusa Dua yesterday. Photo: Reuters

Prime Minister Lee Hsien Loong and Indonesian President Susilo Bambang Yudhoyono with other leaders at the APEC Summit in Nusa Dua yesterday. Photo: Reuters

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NUSA DUA (BALI) — As jitters grow over whether the stand-off on Capitol Hill would end before the looming debt ceiling deadline next Thursday, Prime Minister Lee Hsien Loong yesterday warned that no one can predict the extent of the fallout of an unprecedented American default on its borrowings.

Speaking to Singapore reporters as the Asia-Pacific Economic Cooperation (APEC) summit wound to a close, Mr Lee noted that lending to the United States government is seen as a “zero-risk option” for the world’s financial system.

“If that fundamental element is shaken — even the US government can default — I don’t know what will happen to your spreads or the rest of the complicated system of financial markets,” he said. “So we are going into uncharted waters and if you don’t need to make such an experiment, I don’t think you should do that.”

The US federal government runs out of money to pay its bills on Oct 17 due to an impasse over budget spending that has entered its second week.

The deadlock has already resulted in a partial government shutdown which has forced President Barack Obama to scrap four Asia visits, including the two-day summit of leaders from the 21 APEC members. His no-show has cast doubts over whether talks on an ambitious American-driven free trade pact, which happened on the sidelines of the summit, can conclude by the end of the year, as targeted.

Mr Lee agreed that negotiations over the 12-nation Trans-Pacific Partnership (TPP), which Singapore is a part of, were “different” without Mr Obama’s presence. Although the “substance” of talks has been kept intact because representatives, such as US Secretary of State John Kerry, have taken Mr Obama’s place, Mr Lee said: “It is different when the President says something than when the Secretary says something; the aura and the weight is something special.”

Nevertheless, he said countries should “try hard” to keep to the deadline despite some kinks that have to be ironed out.

“We also find certain issues difficult to deal (with) and we are discussing how we can overcome these difficulties. Every country has some of them, but the countries have to get together to get a good deal, but you will not get a perfect deal,” he added.

At the TPP leaders’ meeting yesterday, Mr Lee stressed that the grouping will “create growth and prosperity for our peoples, enlarge our shared stake in one another’s success, and promote peace and stability in the Asia-Pacific”, and that it should remain open to new members. He also urged members to be “pragmatic” and not allow ambitious targets to undermine their individual important national goals.

Earlier, at the second retreat session for APEC leaders, Mr Lee said there was room to grow trade in services among the grouping, as well as improve connectivity, particularly in increasing air connections.

Noting that lowering trade costs in services by 10 per cent could grow the gross domestic product of APEC economies by US$100 billion (S$125 billion), he said good jobs and new opportunities will be created with more services exports. Air connectivity has “tremendous potential” as air travel in the APEC region is expected to triple by 2030 because of a growing middle class. The industry will employ 45 million workers and contribute US$3.2 trillion in GDP, he added.

Mr Lee, who left Bali yesterday, will attend the ASEAN Summit in Brunei today and tomorrow.

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