WASHINGTON – A retirement fund for civil servants will move temporarily to a non-interest bearing account so the government can avoid a default on the national debt, the Bush administration announced Tuesday.
Congress did not take action to raise the government's borrowing limit before it went to Easter recess. Now, Treasury Secretary Paul O'Neill must quickly move some funds around in order to avoid hitting the congressional-mandated debt ceiling.
The shift will begin on Thursday and last about two weeks, freeing up tens of billions of dollars for borrowing. The retirement account -- with the lost interest -- will then be returned to an interest-bearing account on April 18.
The government is expected to hit its $5.95 trillion borrowing ceiling Thursday.
The Government Securities Investment Fund, known as the G-Fund, "will receive complete restoration of all funds temporarily affected by this necessary action, including full and automatic restoration of any interest that would have been credited to the fund," O'Neill told lawmakers in a letter Tuesday. "Beneficiaries will be the same as if this temporary action had never taken place."
O'Neill has repeatedly asked Congress to boost the ceiling by $750 billion, but Democrats and many conservative Republicans on Capitol Hill oppose the move, fearing it would lead to out-of-control borrowing.
Democrats also want to use the debt as an election issue. They say last year's $1.35 trillion, 10-year tax cut last year was too generous and pushed the country back into deficit spending. Republicans say the tax cut was nothing but good for the country, and an economic downturn and war against terrorism is to blame for government deficits.
"Together we must continue working to enact an increase in the statutory debt limit as quickly as possible to avoid any negative repercussions at home or abroad," O'Neill said in the letter.
Since the government began raising money to fight World War I in 1917, Congress has let the Treasury borrow the money it wants, as long as it stays within limits.
This is the second time the Treasury has shifted some retirement accounts into a non-interest bearing account. In 1995, then-President Clinton's treasury secretary Robert Rubin used the technique to avoid default during a budget fight with the Republican-controlled Congress.
The Associated Press contributed to this report.