IMF says Washington cutting budget deficits too quickly

WASHINGTON Mon May 20, 2013 4:11pm EDT

International Monetary Fund (IMF)'s Director of Fiscal Affairs Department Carlo Cottarelli presents the Fiscal Monitor Press Conference at the IMF Headquarters in Washington September 20, 2011. REUTERS/Stephen Jaffe/IMF/Handout

International Monetary Fund (IMF)'s Director of Fiscal Affairs Department Carlo Cottarelli presents the Fiscal Monitor Press Conference at the IMF Headquarters in Washington September 20, 2011.

Credit: Reuters/Stephen Jaffe/IMF/Handout

WASHINGTON (Reuters) - The International Monetary Fund on Monday said the United States was getting carried away with a government austerity drive, offering some of the institution's bluntest criticism yet of Washington's rush to cut its budget deficit.

Despite high unemployment, Washington is on track to slash its budget shortfall this year by the most in nearly a half century.

"We think this is too much," Carlo Cottarelli, head of the IMF's fiscal affairs division, told a conference.

The IMF has advised European governments embroiled in a debt crisis to shrink their deficits aggressively to win back the confidence of lenders who doubt their ability to pay back loans.

But there is very little risk of similar turmoil will ensnare the United States anytime soon, Cottarelli said. Interest rates remain low in the United States, even when factoring in inflation, a sign that lenders still trust the U.S. government to make good on its debts.

"There is no need for the U.S. to move so quickly," he said.

Cottarelli said a slower pace of fiscal consolidation should be accompanied by a long-term plan to keep the budget sustainable as America's population ages and demands more government services like health care and pensions.

Most economists think the U.S. economy would be growing much more quickly were it not for efforts to shrink the deficit. The U.S. public sector began to tighten its belt in 2011. This year, Washington stepped up its austerity drive, raising taxes in January and enacting sweeping budget cuts in March.

The nonpartisan Congressional Budget Office estimated last week that the deficit was on track to shrink this year to the equivalent of 4 percent of national economic output, down from 7 percent last year. That would be the sharpest contraction in the deficit since 1969.

The fiscal consolidation is putting further drag on an economy already held back by the weak household finances, which were battered by the 2007-09 recession.

A drop in federal spending led the economy to barely expand in the fourth quarter of 2012. The economy picked up in the first three months of this year, although it remained subdued and most economists expect the austerity will slow growth again in the April-June period.

"It's affecting growth unnecessarily," said Cottarelli.

(Reporting by Jason Lange; Editing by Neil Stempleman)

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