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G20, meeting in Washington, to seek answers on looming U.S. debt crisis

A lone worker passes by the U.S. Capitol Building in Washington, October 8, 2013. REUTERS/Jason Reed
A lone worker passes by the U.S. Capitol Building in Washington, October 8, 2013. REUTERS/Jason Reed

By Jason Lange

WASHINGTON (Reuters) - Top finance officials from the world's leading economies gathering later this week will look for straight answers from the United States over the political dysfunction that threatens to throw the world's largest economy into default.

Leaders from the Group of 20, a forum for the world's biggest rich and poor nations, met only a month ago, so major new agreements on economic policy are unlikely.

"The situation in the U.S. will likely dominate the talks," said a G20 official involved in drafting a group statement due on Friday following a two-day meeting in Washington.

Policymakers worry political deadlock in Washington might block the raising of the ceiling on U.S. government borrowing and lead the United States to default on its debt later this month. That could trigger a financial crisis and a global recession.

Still, it was unclear whether Washington's woes would get "substantial" mention in the final G20 statement, a South Korean official said.

A member of the German delegation said it would mostly be a "copy-paste" job from the statement issued when officials last met in St. Petersburg.

The official involved in drafting the statement said finance ministers and central bankers would use much of the phrasing from St. Petersburg as a starting point. The statement would highlight signs of improvement in Europe's economy, slowing growth in poor countries and the risks created by years of low interest rates in the developed world, the official said.

LOSING FOCUS

Heightened concerns over America's potential debt crisis come at a time when the G20 has appeared to lose its luster.

There has been a growing sense that these regular G20 meetings, held around the world several times a year, have lost focus since policymakers hustled to fight a financial crisis in 2008.

Some officials grumble that they meet too often, while others complain G20 statements have grown too large, especially following country leader meetings like the one held last month.

Part of this week's meetings will be about addressing these concerns.

"There will be discussions on reform plans for the G20 operations, including a process for restoring the G20's function," South Korea's finance ministry said in a statement.

The G20 official participating in the communique drafting process said the aim was to keep it as brief as possible.

It has been some time since the G20 issued forceful statements that calmed investor nerves, such as agreements struck in Washington, London and Pittsburgh in 2008 and 2009 to reform financial markets and avoid trade protectionism.

Now, every year, the list of issues on the agenda grows. It now includes everything from climate change to youth unemployment.

This week, the G20 will begin to pivot toward the meetings scheduled for next year when Australia will host.

"It will be an opportunity to stop the mission creep," said Tim Adams, who was the U.S. Treasury's undersecretary for international affairs between 2005 and 2007.

There is widespread agreement among the G20, whose members account for the vast majority of global economic output, that the forum is still valuable, even with its drawbacks.

During the financial crisis, the G20 supplanted the Group of Seven industrialized nations as the premier global forum for coordinating economic policy.

"You build a certain kind of trust or knowledgeable mistrust," said Jeff Shafer, another former top U.S. Treasury official. "You know what you can expect from people. It's really invaluable."

DEBT CEILING LOWDOWN

This week's meeting will be a chance for policymakers to get information on what could be the next global crisis.

If the U.S. Congress and the White House don't strike a deal in the coming days to raise a $16.7 trillion cap on government borrowing, America will likely begin defaulting on some obligations by the end of the month.

As that approaches, officials from around the world will almost certainly press their U.S. counterparts for intelligence on the prospects of default.

The United States, for example, has publicly said the government would be unable to prioritize payments on its obligations after it runs out of money. Many analysts think Washington would at least try to make debt payments a priority over other government obligations because missing them could create a panic in financial markets.

The G20 closed-door meetings will likely pick up that theme. They offer an opportunity for officials to get a sense of whether the U.S. political situation is as bad as it looks.

"It's true that G20 has changed in quality compared with the first three meetings, but we have no choice but to continue with this forum," said a G20 official. "If we close it, we would be in big trouble the next time a crisis happens."

(Reporting by Jason Lange; Additional reporting by Gernot Heller, Lidia Kelly, Tetsushi Kajimoto, Vincent Lee and Choonsik Yoo; Editing by Cynthia Osterman)

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