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Treasury Secretary John Snow
Press Briefing - April 21, 2006
St. Regis Hotel, Washington, D. C.
Transcribed by Joan Veon

Comments by Joan Veon: Usually at the end of a G7 press briefing, the room is packed full. This one had more security than reporters. It was very unusual. Furthermore, they did not ask for press names and the person with the microphone did not get close enough to the reporter asking the question so everyone could hear. This is NOT how U.S. Treasury press briefing are and all of the key people were there to set it up. Snow appeared very unsettled and appeared to want to go through the motions and “get it done.” Where was the rest of the press? Good question. The Reform of the IMF is pretty major. Phrases of interest are highlighted.

In January, the Bank for International Settlements chief economist, William White wrote a white paper of his own calling for a return to the gold standard or global or regional currencies to help with global imbalances and for the IMF to have the power of surveillance over a country’s finances even if it means losing part of their national sovereignty.

This IMF/World Bank meeting was extremely historic because it, in essence, gave the IMF more power than ever before in its history. Part of the crescendo in this opera was the fact that everyone was calling for a greater supervisory role for the IMF. The white papers, the discussion, the agenda, the objective of the meeting was simply to use “global imbalances” to take more financial sovereignty that ever before. The chief economist of the IMF said this, “People tend to dismiss these [role of various actors today] as minor frictions, sand in the gears of the globalization juggernaut. History, however, suggests there is a short distance from economic patriotism to unbridled nationalism. This is why the multilateral discussions in meetings like this are so important. They help ensure we continue to benefit from globalization in an atmosphere of mutual responsibility and shared destiny.”

In a speech by Rodrigo de Rato, the IMF Managing Director, he said, “the IMF should pay the role of “umpire” in the international system.” He explained that “neither the players nor the rules of the same are static. The days when G7 finance ministers could sit in a hotel room and make decisions about exchange rates are gone. This is a whole new ballgame.” He went on to say, “As the players and the ground rules in the global economy change, we have the capacity to reflect these changes, and to be the place where policy makers can come together to shape the forces of globalization and make it work for us.” He talked about the issue of surveillance and the problem of global imbalances and how “coordinated action would be both politically easier and economically more effective than governments in systemically important countries acting alone. He proposed that the Fund begin REGIONAL consultations (my words, not his). He described it as “the Fund complement its existing arrangements for consultations with individual countries with multilateral consultations, which would allow the Fund to take up issues comprehensively and collectively with systemically important members and, where relevant with entities formed by groups of members such as the EU and the Gulf Cooperation Council.” The IMF is now calling for regional not individual country participation. The IMF will devise a “more systematic assessment of the consistency of exchange rate policies with national and international stability.”

There was also a great deal of talk about “shared responsibility” and “multi-stakeholder” participation. Multi-stakeholder participation refers to the fact that in the 21st century interdependent world, ALL ACTORS must work together: government, business, NGO’s, labor unions, academia, etc. NO ONE CAN DO IT ALONE! The phrase “interdependent” not only refers to a world without borders, it also refers to the fact that no one country, NGO, business, labor union, etc. can do it alone. There is a new glue that now holds the world together.

Secretary Snow Remarks

The G7 met at a time when global economy performing in a strong, sound way. The U.S. is the strength and stability of the global economy. Growth is strong throughout the globe with Europe picking up some--getting closer to their potential-- but still falling short. With Japan’s growth having picked up nicely and growth in other parts of the world-India/China is string, sub-Sahara /Africa much stronger than it has been. In fact, the global economy is in the best shape than it has been in a long, long time. Strong growth, high productivity, inflation well contained with regard to historical standards and with the net result that per capita income across the globe is rising in ways we have not seen in a long, long time.

Where ever you look across the globe you see growth, you see stability-no crises anywhere, no recessions. Fundamentals appear strong and we need to take steps to ensure that we stay on it. That is one of the subjects that the G7 finance ministers and central bank governors addressed. I confirmed for our G7 colleagues the fact that the U.S. is on a good path. The fundamentals of our economy are good. We are growing at a good clip. We are creating jobs and real wages are rising, productivity is high and inflation remains well uh- contained. Uh we started this morning with an IMF sponsored conference on “Global Balances”- uh sometimes the phrase is “Imbalances” but it is really balances because the other side of the current account deficit is capital account surplus-it is just the math of the global economy. You will see appended to the Communiqué an Appendix because it reviews the matters which were discussed at the IMF meeting this morning.

I commend Rodrigo de Rato for calling the conference and clearly putting the IMF in the middle of bi-lateral and multi-lateral surveillance. The G7 Finance Ministers and Central Bank governors gave the IMF a strong remit today to proceed with surveillance and to make surveillance a critical priority of the IMF, following very much the lead that Rodrigo de Rato gave us in his recent white paper. The focal point of the conference, I was pleased to see, at the conference on Global balances was the fact that there was shared responsibility. All of us in the global economy have a part to play. We have a role to play and that no one of us on our own can individually address the issue effectively. On the part of the U.S. we know that we need to raise savings rates and deal with our deficit. We are dealing with the deficit, of course, the deficit is on a good downward path and the president is committed to cutting it in half before he leaves office. That is the path we are on. We are going to achieve that objective and bring the deficit; by the time he leaves office, to a level that is low by historical standards. I was pleased to be able to review that picture and outlook with my colleagues.

We also talked about the role of other participants in the global economies. The need for the EU and Japan to continue to take strides to remove impediments that stand in the way of their coming closer to their full potential. To get at the things that hold back the dynamism of their economies. We also talked about the need for countries that have rigid exchange rates-don’t’ have flexible exchange rates-to move to greater flexibility because it helps that adjustment process. We also talked about strategies to deal with sizeable current account surpluses that we find in the oil exporting countries-the so called “petrodollars”. I found that discussion very, very useful. Confirming basically the approach the G7 has already taken to deal with the global balances. I was pleased to see our colleagues share our view that fundamental reform of the IMF is the order of the day, both going to the issue of their mission-their fundamental mission--which has to be focused on surveillance and the balances and global flows, both bilateral and multilateral, and the governance issues of the agents of the IMF which were also addressed and you will see they are covered in the communiqué. We also, the G7 talked about the financial war on terror and I was able to lay out some of the initiatives we in the U.S. are taking. We have to be continuously vigilant on that subject and the U.S. in the forefront on the Financial War on Terror-the forefront of using the authority that we have to go after terrorist funding and terrorist networks and to use those tools to follow terrorist monies to the terrorist themselves. The money flows don’t lie and we can effectively use money flows to identify terrorists and terrorist cells. We have had a chance to do that. I hope you have had a chance to see the Communiqué and annex and will respond to your questions.

First question about Russia and some meeting. Could not clearly hear it.

Snow: We had a good meeting. I feel we are making progress but I feel we are making good progress and a continuation that Minister Kudron and I had when we were in Moscow on the WTO. This was a follow-on to those discussions and I think there is progress being made and I remain optimistic that we can work out the WTO agreement.

Question: Could not hear.

Snow: Yes, pause - the issue of trade was much on our minds. Both the positive side and encouraging trade liberalization through the Doha Round which is very much on the minds of the finance ministers and central bank governors and something we are trying to lend support to and our weight to. The other side of the issue is to make sure that countries don’t take up protectionist policies. I think the evidence is overwhelming that the global economy has benefited and the countries that comprise the global economy have benefited enormously from trade liberalization, from the ability on a scale we have never known before, to allow the principles of comparative advantage to operate and we see it lifting up the people’s of the world and there is nothing that can be do that this more beneficial to the developing world to making progress on trade liberalization. The World Bank Studies indicate disproportionate share of the Doha Round liberalizations will go to developing countries and will have sizeable impact over a period of time on standards of living. But we need to be and that is the point of the Communiqué--we need to be on guard against barriers that would restrict the flow of goods and services and stand in the way of letting the benefits of trade be shared on the globe.

Veon: Mr. Secretary in your Statement you say that “greater flexibility will help resolve global imbalances”. Paul Volcker and other economies are advocating a basket of currencies or some kind of global currency in the future-can you comment on that?

Snow: What we think it involves are things that are reflected in the Communiqué-the Annex to the Communiqué. It think this framework that we have laid out with the other G7 finance ministers, now largely embraced by the IMF, so that same framework repeated yesterday in the statement of IMF Chief Economist. It’s seems to us that this is the fright framework. It is a framework that calls on countries to do things that are in their own interests. Its in the interest of Europe to grow faster, it is in the interest of the peoples of Europe to grow faster and create more investment opportunities. Thus, use the labor force of Europe more effectively and deal with double-digit unemployment rates that can’t be acceptable to the people of Europe to have double-digit unemployment. The answer to that is to have a more dynamic economy that is growing and absorbing the labor force more effectively. By the same token in parts of the world where currencies are not allowed to reflect underlying realities that is crating a barrier to the improved performance on these imbalances but it is also penalizing the citizens of those countries because it gets in the way of those currencies reflecting the real value and if the real value would have the currency be higher than that means the country is giving up purchasing power. Thus, ipso factor, by its very nature, reducing the standard of its citizens and also getting in the way of the monetary authorities ability to deal with inflation-ah, ah--so in sending the wrong signals to the economy so that investments are not occurring in the places where they create the greatest value for the economy-that is the proper balance between tradable and non-tradable sectors. In the United States, it is very much in our interest to deal with this deficit, to bring it down and increase our own household savings rates. One of the main points that came out of our discussion of the Global Balances though is the importance of addressing the question in a way that sustains growth. It would be easy to reduce the U.S. current account deficit; nobody wants to see it happen that way. The Europeans don’ts, the citizens of South America don’t want it to happen that way and neither do the people of Asia. So central to getting the whole equation right is that the U.S. continues to have good growth rates. If we are going to have good rates, then we have to resist calls to raise taxes because higher taxes aren’t consistent with sustaining our high growth rates.

Question: Flexibility in Asian countries…the dollar might go down…do you have comment. Do you think it is a good thing for the IMF since you are encouraging surveillance ….

Snow: What you are referring to because that certainly wasn’t the conversation during my participation in this morning’s conference. The conference as indicated in the Annex, concentrated on the question of global savings and investments and what is the current account deficit and capital account surplus - but the difference really between a country’s savings and its investments. If it a country like the U.S. that you are looking at then what we see is strong growth creating lots of investment opportunities-- greater than our own savings so we are attracting savings from the world and by the same token, countries that are in the surplus position, are generating more savings than investments. That is the definition of the capital account surplus and the current account deficit and that was the subject. One of the issues that was discussed was how the rest of the world will adjust as the United States returns in the future to more normal growth rates. We have been growing above trend. We had a recession, the stock market crash, overinvestment in the 90’s. We paid the price with a recession and we are coming out of a recession and when you come out of recession, because of good policies from the Fed and from the Bush administration, we have been able to grow at a high rate-substantially. We are coming out of this recession better that how we came out of the last one. In the last 3 years, we have been growing at 3.8%. The basic growth potential of a fully employed economy is closer to 3.1% or 3.2%. So if the U.S. is going to be heading back to trend over time-can’t exceed trend forever right. Trend is as a result of workforce participation rates and productivity and those give you the increase in GDP output. At some point, you have drawn into the workforce the unemployed and underemployed in capital resources. At that point, you get closer to trend. One of the discussions was that as we get back to trend, how does the rest of the world adjust? Who picks up the slack? That is a serious subject because it goes to higher growth rates in other parts of the world and we can’t grow above trend indefinitely, if the global economy is going to continue to have strong growth that it needs, were is it going to come from? Our slowing of growth means some slowdown in growth rates of our imports, right? That creates a natural savings process.