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By Pedro Nicolaci da Costa
July 24, 2011 8:07 PM EDT
Debt default. A ratings downgrade. Political deadlock. Such terms, once associated primarily with the developing world, now abound in the mighty United States.
As the U.S. Congress flirts with the once-unthinkable prospect of not paying the country's bills, the heated battle over a usually routine vote to lift the country's debt ceiling is dealing another blow to America's image.
The global financial crisis, which was rooted in poor regulation of the U.S. housing and banking sectors, already tarnished perceptions of the United States overseas.
For political economy experts who have spent their careers focused on the emerging world, Washington's protracted debt stand-off is all too reminiscent of the divisions more typical of developing-country politics.
"We attend a lot of meetings with Latin Americans and we used to complain to them about the problems they had, and now they like to say to us: 'That sounds just like the U.S.'," said Peter Hakim, head of the Inter-American Dialogue, a policy group in Washington.
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"What's really shocking is the inability to reach agreement. All of a sudden the U.S. is a democracy that is unable to find a compromise. We're polarized."
That sort of polarization is common in the developing world. The United States was often a critic of institutional disarray in places such as Brazil, where a multitude of parties makes it difficult to enact legislation, or Mexico, where the opposite problem -- long-standing one-party rule -- stifled political choice.
Yet the stalemate now facing the U.S. two-party system demonstrates the challenges of the divided government Americans voted for last November.
Given that the United States is home to not only the world's largest economy but also its most liquid and safe debt market, the repercussions of a U.S. financial meltdown are potentially much larger than a more contained emerging-markets crisis.
British Business Secretary Vince Cable told BBC television on Sunday that "right-wing nutters" in the U.S. Congress were holding up a deal to prevent a catastrophic default, posing a greater threat to the global financial system than the euro zone, which has been grappling with a debt crisis of its own.
Argentina's President Cristina Fernandez, whose own country defaulted on about $100 billion in debt a decade ago, asked last week: "When did the American dream become a nightmare?"
When advising the United States on how to deal with the budget crisis, ratings agency Moody's last week suggested the country eliminate the debt ceiling to prevent repeats of the kind of uncertainty now gripping financial markets.
Instead it suggested following the example of Chile, where increases in debt are constrained but not technically limited.
Fast-growing countries in Latin America, including Chile and Brazil, achieved a more sustained growth path in part due to reforms aimed at reducing their debt loads and reining in budget deficits.
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