US government in partial funding shutdown

WASHINGTON - The United States government began a partial funding shutdown on Oct 1, the first since the Clinton era 17 years ago, idling up to 800,000 federal employees, closing national parks and halting some services after Congress failed to break a partisan deadlock by a midnight deadline.

Walter Braunohler, spokesman for the US embassy in Bangkok, said on Tuesday that Washington's relationship with Thailand would not be affected.

The US embassy in Bangkok and the US consulate general in Chiang Mai would remain open for all services.

"As always, our priorities remain providing safety, security and service to US citizens,"  Mr Braunohler said.

Projects under the United States Agency International Development (USAID) would also not be affected by the partial shutdown because many projects in Thailand had already been approved, he said.

The SET Index surged 1.8% on Tuesday, the first increase in four days, after the government cut its 2013 inflation estimate.

Southeast Asia's second-largest economy recorded a US$1.3 billion excess in the broadest measure of trade in August, more than the median forecast in a Bloomberg survey for a $653 million surplus, central bank data showed on Monday. Gains may be limited because of the potential shutdown of the US government, according to Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc.

"The fact that the current-account balance was turning to surplus and the excess was bigger than expected was supportive for the baht and encourages some fund inflows," the Tokyo-based Nishihama said. "The US debt issue should weigh on risk sentiment."

Thailand's baht rose for a second day after the country posted its first monthly current-account surplus since March. (Story continues after the infographic)

In the US, congressional leaders have scheduled no further negotiations on spending legislation, raising concerns among some lawmakers that the shutdown could bleed into the more consequential fight over how to raise the US debt limit to avoid a first-ever default after Oct 17.

Chances of a last-minute deal -- seen so often in past fiscal fights -- evaporated shortly before midnight as the House stood firm on its call to delay major parts of President Barack Obama's health-care law for a year. Senate Democrats were equally firm in refusing to concede and planned a morning vote to reject the House’s call for formal talks.

"It is embarrassing that these people who were elected to represent the country are representing the Tea Party," Senate Majority Leader Harry Reid, a Nevada Democrat, said after midnight. "This is an unnecessary blow to America."

House Speaker John Boehner, speaking after 1am in Washington, called on Senate Democrats to come to the negotiating table.

"Let's resolve our differences," Boehner, an Ohio Republican told reporters. "The House has voted to keep the government open, but we also want basic fairness for all Americans under Obamacare."

Lost Output

A partial federal government shutdown would cost the US at least $300 million a day in lost economic output at the start, according to IHS Inc. That is a fraction of the country's $15.7 trillion economy, and the effects probably will grow over time as skittish consumers and businesses stay on the sidelines.

"You don't get to extract a ransom for doing your job, for doing what you're supposed to be doing anyway or just because there's a law there you don't like," Obama said at the White House on Monday. "Time’s running out."

US stocks have fallen on concern that the political showdown over government spending will hurt economic growth, with the Standard & Poor's 500 Index (SPX) slipping 1.7% during the past six trading sessions.

Futures on the S&P 500 rose 0.2% as of 3.09pm in Tokyo, signaling that US equities may reverse a two-day slide. The MSCI Asia Pacific Index of stocks gained 0.3% as confidence among Japanese manufacturers reached an almost six-year high, adding to a 6.2% rally last quarter.

Essential Operations

Treasury 10-year yields rose three basis points to 2.64%, as the US government shutdown became official. The S&P GSCI Index of commodities fell 0.3% for a third day of losses, with crude losing 0.3% to near a three-month low of $102.03 a barrel.

During the partial government shutdown, many essential government operations will cease. Internal Revenue Service call centers will close and more than 90% of Environmental Protection Agency workers will stay home. National parks and museums will be shuttered.

Other services will continue uninterrupted. Social Security and Medicare benefits will be paid. U.S. troops will remain at their posts around the world and will be paid under a bill Obama signed yesterday. Air-traffic controllers and airport security screeners will keep working.

Health-Law Enrollment

The shutdown comes on the first day of enrollment in the exchanges mandated under Obama's Affordable Care Act, itself at the heart of the fight. Enrollment will continue today despite the shutdown, because it’s paid for out of mandatory funding not affected by the lapse, US officials said.

In the end, the final hours before the shutdown were marked by a combination of legislative procedure and partisan vitriol. House Republicans said they would appoint members to a committee meant to negotiate a compromise between the Republican and Democratic positions -- something several rounds of votes didn’t accomplish.

"I'd be surprised if it went for weeks," said Senator Bob Casey, a Pennsylvania Democrat. "But I don’t think it’s just going to resolve itself in a day or two."

Before midnight, the US Office of Management and Budget issued guidance to agencies, telling them how to go forward when money ran out at midnight in Washington.

Boehner, who said he did not want a shutdown, kept bringing bills backed by hard-liners in his party to the floor for votes. Twice yesterday, the House voted to send a bill delaying Obamacare to the Senate. Twice, the Senate rejected the House plans.

Confrontational Strategy

Republicans remained divided between a group that says the party's confrontational strategy is doomed and a faction railing against Obama's refusal to negotiate.

"I would like see some road in which Barack Obama is actually participating in the process," said Representative Tim Huelskamp, a Kansas Republican.

Congress and Obama have been at loggerheads on fiscal policy since Republicans won control of the House. They took several disputes to the brink, including a potential government shutdown in April 2011, the debt ceiling in August 2011 and the expiration of tax cuts in December 2012.

In each case, lawmakers reached an agreement to prevent the worst possible outcome. Most recently, the House passed a tax bill Jan. 1, hours after income tax rate increases took effect.

Cruz Uprising

Boehner and House Majority Leader Eric Cantor, a Virginia Republican, tried to avoid this fight, offering a first proposal last month that would have let the Senate send a spending bill without conditions right to Obama.

They faced an uprising from Republicans, urged on by Senator Ted Cruz of Texas, who insisted on language that would defund Obamacare.

The House scaled back its demands twice, each time running into a party-line objections from Senate Democrats and Obama, who increasingly saw the spending bill as a prelude to the debt-ceiling negotiations.

"These Tea Party people are insatiable when it comes to confrontation and shutting down the government," said Senator Richard Durbin of Illinois, the chamber’s second-ranking Democrat. "This has got to come to an end. We can’t continue to lurch from one crisis to another."

The House's final volley, passed last night, would have delayed for one year the mandate that individuals purchase health insurance and would end government contributions to the health insurance of lawmakers, congressional staff members and political appointees.

Fighting Corners

Democrats see a path out of this crisis. They want Boehner to allow the House to vote on the Senate’s version of the spending measure, which would extend government funding through Nov 15 and exclude any Obamacare conditions.

Republicans said they want to force Obama to accept some concessions on his signature health-care law.

Some strategists expect the shutdown to drive both parties deeper into their respective fighting corners as they assess the economic and political fallout, hardening positions at least temporarily before a resolution can be reached.

"It's clear that there are rising concerns within the House Republican caucus about how all of this is being handled, but I believe that for right now, the insurgents have the upper hand and they're not going to go away without a fight," said Democratic communications consultant Jim Manley of Washington-based Quinn Gillespie & Associates LLC, a former top aide to Reid.

Deal Prerequisite

Nor do Democrats have any interest in compromising with Republicans until their internal fighting about what strategy to pursue subsides.

At the same time, many Republicans have come to believe that shutting the government for a brief time is a prerequisite for any deal.

"It would be better for Republicans if there were no shutdown, but in many ways it can be a useful way to lance the boil," before the fight over raising the debt ceiling, said Republican strategist John Feehery, also of Quinn Gillespie. He was a top aide to former House Speaker Dennis Hastert of Illinois.

"The debt limit is much more important, and hopefully the shutdown can release some of the pressure and helps them get to a broader agreement," Feehery said. "That remains to be seen."

About the author

Writer: Achara Ashayagachat
Position: Senior Reporter