Financial markets could head into uncharted waters if US defaults: PM Lee
- POSTED: 08 Oct 2013 18:07
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Singapore's Prime Minister Lee Hsien Loong warns that financial markets could head into uncharted waters if the US defaults on its debt.
NUSA DUA, INDONESIA: Singapore's Prime Minister Lee Hsien Loong has warned that financial markets could head into uncharted waters if the US defaults on its debt.
Mr Lee was speaking to reporters at the tail-end of his visit to Bali, Indonesia for the APEC Leaders meeting.
The fiscal deadlock in the US continues even as lawmakers seek a short-term solution to raise the country's borrowing limit.
With the US government shutdown into its second week, there is growing concern that the US Congress will not be able to agree on the debt ceiling, which will hit the US$16.7 trillion limit on 17 October.
Beyond that, the US will have problems paying its bills.
Speaking to the Singapore media, Prime Minister Lee said there's no telling what the impact of a default will be as this would be a first for the US, if it happens.
Mr Lee said: "As far as the whole of the world's financial system is concerned, US government is the zero-risk option. If you lend to the US government, you buy US treasury bills or US government securities, that is by definition...the almost risk-free solution.
"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. So we are going into uncharted waters."
The budget impasse has caused US President Barack Obama to cancel his multi-nation trip to Asia, including the APEC leaders meeting in Bali and the ASEAN summit in Brunei.
Mr Lee was also asked about the impact of Mr Obama's absence on trade talks, such as the Trans-Pacific Partnership.
Mr Lee said: "Policy-wise, the substance is there, work will continue. Of course, it is disapponting that the president himself is not present.
"It is different, when the president says something and the secretary says something...the aura, the weight is something special."
On whether domestic politics will increasingly affect US presence in Asia Pacific, Mr Lee said the US will keep its armed forces going with a resolution to maintain armed forces spending.
But the concern is whether the US can sustain, fund and support its intentions to deepen engagement with Asia.