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Financial leaders concerned about US troubles

The United States must raise its debt ceiling and reopen its government or risk “massive disruption the world over,” said Christine Lagarde, the IMF’s managing director.

Alex Brandon/Associated Press

The United States must raise its debt ceiling and reopen its government or risk “massive disruption the world over,” said Christine Lagarde, the IMF’s managing director.

WASHINGTON — Leaders at World Bank and International Monetary Fund meetings on Sunday pleaded, warned, and cajoled: The United States must raise its debt ceiling and reopen its government or risk “massive disruption the world over,” as Christine Lagarde, the IMF’s managing director, put it.

The US fiscal problems overshadowed the official agendas for the meetings, with representatives from dozens of countries — including two of Washington’s most important economic partners, Saudi Arabia and China — publicly expressing worries about what was happening on Capitol Hill and in the White House.

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The leaders were in Washington to talk about the international recovery, Lagarde said on the NBC News program “Meet the Press.” “Then they found out that the debt ceiling was the issue,” she said. “They found out that the government had shut down and that there was no remedy in sight.”

“So it really completely transformed the meeting in the last few days,” Lagarde added.

With only three days left before a potential default, Senate leaders failed Sunday to agree on a plan to reopen the government and raise the debt limit.

Many leaders at the World Bank and IMF meetings said they believed the impasse would be resolved before Thursday, when the government would be at severe risk of not having enough money to pay all its bills.

But they pressed Treasury Secretary Jacob J. Lew and the Federal Reserve chairman, Ben S. Bernanke — they were both at the IMF meeting — on the issue, predicting that even a near-default would lead to higher borrowing costs and a slowdown of the global economy.

“This cannot happen, and this shall not happen,” Baudouin Prot, chairman of the French banking BNP Paribas, said at a meeting of the Institute of International Finance, also being held in Washington. “The consequences of this would be absolutely disastrous.”

Lew acknowledged the threat. “Our work begins at home,” he said. “We recognize that the United States is the anchor of the international financial system. With the deepest and most liquid financial markets, when risk rises, the flight to safety and to quality brings investors to US markets. But the United States cannot take this hard-earned reputation for granted.”

Lagarde said “that lack of certainty, that lack of trust in the US signature” would disrupt the world economy.

Wolfgang Schäuble, the German finance minister, issued his own urgent appeal. “The fiscal standoff has to be resolved without delay,” he said in a statement released by the IMF.

Jamie Dimon, chief executive of JPMorgan Chase, painted a bleak picture of the days ahead if there is no resolution.

“As you get closer to it, the panic will set in and something will happen,” Dimon said. “I don’t personally know when that problem starts.”

He added that JPMorgan had been “spending huge amounts of time and money and effort to be prepared.”

Many officials made open appeals to Congress, with warnings coming from many of Washington’s allies and creditors. Lagarde’s counterpart at the World Bank, US physician Jim Yong Kim, said the world was “days away from a very dangerous moment.”

“The closer we get to the deadline, the greater the impact will be for the developing world,” he said.

Fahad Almubarak, governor of the Saudi Arabian Monetary Agency, said “urgent political agreements on budget and debt issues are necessary to preserve and, indeed, reinforce the modest recovery.” Yi Gang, an official with China’s central bank, said the fiscal uncertainties “must be addressed promptly.”

Concern over the impasse has led to a slide in stocks — including the worst two-day dip iin months. US economic confidence has taken the worst hit since the collapse of Lehman Brothers in 2008. And investors have dumped certain short-term Treasury debt because of fears the Treasury might not pay them back on time.

Markets ended last week with a burst of optimism, after House Republicans took the first steps toward a compromise. But that optimism faded over the weekend. On Sunday, with negotiations stalled, the value of the dollar was sliding.

When stock markets open Monday, all eyes will be on the negotiations in Congress. Big companies will announce quarterly financial results this week, normally a significant event. But that is likely to attract little attention until the political negotiations are settled.

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