The discussions concerning the US debt limit run from serious to humorous, but most Americans (63 percent, according to a Wall Street Journal poll) believe it to be “a real and serious problem.”.And that is a good thing, because when the US allows its credit worthiness to become suspect, it affects both short and long term interest rates. This makes it more difficult for businesses – particularly small businesses – to secure loans, and it also increases loan costs for consumers. However, there are international ramifications, as well.
If, as expected, politicians continue to use the debt limit to achieve political objectives, then interest rates will rise and the value of dollar will increase. Both of these reactions will hurt the global economy. The International Monetary Fund has already reduced its estimates for global economic growth to 2.9 percent this year and 3.6 percent next year, down from earlier predictions of 3.1 percent for 2013 and 3.8 percent for 2014. Importing US good will become more expensive, the value of exported goods to the US will drop, and cost to countries to secure loans will rise. All of these factors will result in less money for infrastructure development, which will have the greatest effect on the poorest countries.
The International Telecommunication Union (ITU) recently warned of an Internet divide where the poorest nations lag wealthier developed nations in broadband access. It identified the 49 least countries as lagging, because the penetration of fixed and mobile Internet is currently 10 percent or less. In the recently released State of Broadband Report, the ITU identifies 70 countries with populations enjoying over 50 percent broadband penetration. In order for the poorest countries to improve their broadband and mobile Internet infrastructures, they need loans or grants. If borrowing costs go up, then the size and number of loans will drop. If richer countries see slower economic growth, then the availability of grants will also be reduced. In either case, the international web divide will not be decreased, but may actually grow.
It is often said that the whole world is connected and functioning as a global marketplace. In one sense, that is true, as when debt limit debates in the US are considered as threatening to the world’s developed and developing nation’s economies. The ITU estimates that there are 2.75 billion connected Internet users in 2013. However, with a world population of 7,185,074,272 (and growing), that leaves nearly two-thirds, or 62 percent, of the world’s population not connected.So tonight, as you listen to US politicians continue to understate the importance of these debt limit discussions and the potential for default, know that nearly every country has an interest in the outcome.