Shadow of US risk of default hangs over summit despite Kerry reassurances

Kerry reassures leaders over US political deadlock as China takes advantage of Obama's absence by stepping up diplomatic efforts

PUBLISHED : Friday, 11 October, 2013, 12:00am
UPDATED : Friday, 11 October, 2013, 8:32am

US Secretary of State John Kerry sought to reassure Asian leaders yesterday that Washington would resolve its political stalemate, after China voiced concern over a possible US debt default.

The spectre of a calamitous default has emerged as a major issue at an annual Asian summit in Brunei, held in the absence of US President Barack Obama after he was forced to stay home due to the US government shutdown.

With Asian countries like China sitting atop a mountain of US Treasury bonds, Premier Li Keqiang expressed "Beijing's concern about Washington's debt-ceiling problem".

Li conveyed that message in talks with Obama's stand-in, Kerry, late on Wednesday in Brunei, Xinhua reported.

A US official travelling with Kerry confirmed yesterday that the debt ceiling was discussed, but downplayed Beijing's concerns, saying Li had vowed continued investment in the world's largest economy.

"Secretary Kerry made clear that this is a moment in Washington politics and reaffirmed the president's commitment to resolving the issue," the official said.

"They also agreed that the United States has one of the strongest economies in the world and that they have a shared interest in continuing the close economic working relationship."

China held US$1.277 trillion in US debt as of July, according to Treasury Department figures.

Kerry and Li joined 16 other world leaders in Brunei yesterday for the East Asia Summit between the Association of Southeast Asian Nations (Asean) and China, Japan and South Korea. It was the climax of nearly a week of top-level meetings that began at the Asia-Pacific Economic Co-operation forum's annual gathering.

As he did in Bali, Kerry sought to assure Asian leaders that Obama's no-show did not signal wavering US interest. He stressed Washington's "continued commitment to the region" and offered verbal support to allies wary of China's territorial ambitions, according to a copy of his address to the summit.

The crippling budget stand-off in Washington forced Obama to abandon plans to visit Asia where he had hoped to tout his "pivot" towards the region at the back-to-back summits.

Apart from reaching a budget deal to end a government shutdown, Congress must agree by October 17 to raise the US$16.7 trillion US borrowing limit - or risk a default on sovereign debt.

Failure to do so could see the United States default on its obligations for the first time in its history and spark what the White House warns will be dire global economic consequences.

Emerging economies - which have borne the brunt of recent market upheaval over the expected tapering of US monetary stimulus measures - are particularly anxious to see a breakthrough.

"[If] the world's biggest economy turns belly-up, how can you actually protect yourself?" Philippine President Benigno Aquino said. "But I don't think that will happen."

With Obama absent from the Asia summits, China has been free to wield its growing diplomatic and economic clout.

Beijing's softer diplomatic tone appeared to bear fruit yesterday, as Southeast Asian leaders pledged to avoid escalating tensions in the South China Sea as they work toward a code of conduct over the disputed waters rich in oil, gas and fish.

"We remain committed to resolving disputes peacefully in accordance with international law without resorting to the threat or use of force," Asean leaders said after their meeting with China.

The statement did not give a time frame for further talks on a code of conduct for the waters that contain busy shipping lanes. But the comments reflect the softer tone China has adopted after a rise in tensions with countries such as Vietnam and the Philippines, and as China and the US vie to boost ties in the region to seek new sources of growth.

Li said China wanted to resolve disputes through dialogue, while again urging non-claimants such as the US to stay out of discussions. "Countries that are not parties to the disputes should not get involved," Li said in a speech. "Freedom of navigation in the South China Sea has never been an issue and will never be one."

A code of conduct is needed in the longer term, and nations can lower the risk of miscalculation in the meantime, Kerry told leaders at the East Asia summit. "The right to safe and unimpeded commerce, freedom of navigation, and respect for international law must be maintained. The rights of all nations, large and small, must be respected."

Japan is also seeking to bolster its influence in Southeast Asia. Prime Minister Shinzo Abe said stability in the South China Sea was a concern for Japan and he was hoping for quick progress on the South China Sea code of conduct.

"Japan's attitude of emphasis on Asean is not done with any particular country in mind," Abe said in Brunei yesterday.

Meanwhile, Myanmar won a new diplomatic prize for its dramatic political reforms, taking the helm of Asean despite warnings from some critics that the move was premature.

The one-time international pariah was formally awarded the rotating chair for 2014 at the end of the group's summit in Brunei.

President Thein Sein said the theme of Myanmar's chairmanship would be "moving forward in unity in a peaceful and prosperous community".

But Phil Robertson, deputy Asia director, at Human Rights Watch, said: "Sadly, respect for human rights has never been an important qualification for being Asean chair."

Additional reporting by Reuters and Bloomberg