WASHINGTON - Steadily rising piles of government debt that keep interest rates high are restricting growth in the United States and other industrial nations.

This conclusion is tucked away in the International Monetary Fund's world economic outlook, a semiannual staff report issued by the IMF ahead of last week's meeting by Treasury Secretary Robert Rubin with his counterparts in Canada, France, Germany, Italy, Japan, and the United Kingdom.

Going into the meeting, Mr. Rubin sought to soft-pedal differences between the United States and the other Group of Seven nations over the falling dollar. He told reporters that the United States, with the help of the Clinton administration's 1993 tax bill, is pursuing sound economic policies that are gradually reducing the federal budget deficit.

Mr. Rubin said that as a share of total economic output, or gross domestic product, the state, local, and federal debt load of the United States is the lowest or "tied" for the lowest among the G-7 nations.

This argument is like a 400-pound bar drunk telling fellow drunks that he consumes less alcohol per pound than anyone else, even though his bar tab is by far the largest. In fact, when it comes to debt, the United States gets the Super Bowl ring year after year.

Mr. Rubin's comments came after the Treasury Department reported that the budget deficit for March alone totaled nearly $50 billion.

While Mr. Rubin was getting set to hobnob with the foreign finance ministers during the week, the Treasury was preparing to auction $17.75 billion in two-year notes, $11.5 billion in five-year notes, and $17.75 billion in one-year bills. That's a total of $47 billion in public offerings to pay off maturing debt and raise new cash.

The IMF report said that though the Clinton administration has made "substantial progress" in reducing the deficit, the federal debt load as a share of GDP will soon begin rising. Even assuming measures to contain health costs and other entitlement programs, the budget outlook over the next few years is not promising.

Other industrial nations have bigger government deficits as a share of GDP. In Canada and many European governments, generous pension, unemployment, and health care programs are pumping up deficits to dangerous levels. These deficits are going to make it harder for governments to carry out countercyclical spending programs when the next recession rolls around.

IMF economists calculated that if the G-7 nations managed to bring their budgets into balance, interest rates could be chopped by two percentage points. That would mean 30-year mortgage rates in the United States would be reduced from the current 8.35% to 6.35%.

Lower rates would also reduce borrowing costs for business, spurring investment in plant and equipment. That in turn could help raise U.S. productivity and living standards. Consumer loan rates would also ease, permitting additional spending.

But the way things stand now, the fight to reduce government bloat in the United States and elsewhere is only getting started.

Munifacts News Wire is an American Banker affiliate.

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