Washington, Aug 16: Growing fiscal problems in US states are becoming more difficult to resolve quickly, and California’s crisis might require painful remedies, the International Monetary Fund’s top economist said on Thursday. In an interview, Kenneth Rogoff said California’s massive $38bn deficit was going to prove especially hard to turn around without tough budget cuts. If California were a country, the size of its primary deficit, not counting interest payments, would rank in the top five in the world, he said. The largest US state and home to many major corporations, California’s economic crisis has created a major political firestorm with a recall election, the first in the state’s history, facing Democratic Gov Gray Davis.

Lifting California from the current economic quagmire will be tough, Rogoff said.
“It is going to be very hard to turn this around quickly,’’ Rogoff said. “Looking at the California situation it’s hard to recall any region that’s terminated a deficit of that size without a lot of pain and growth steroids.’’
The fiscal crisis of US states, the worst since World War II, will see combined deficits in ’04 of about $84bn. The crisis has been blamed on falling stock markets, which compounded the overall decline in tax collections, wiping out revenues from capital gains that had once poured into state coffers during the ’90’s boom years. Bureau Report