I was pleased to join Chancellor Brown and the G-7 Finance Ministers
at Lancaster House today. I was honored to represent the U.S.
Treasury in place of Secretary Snow, who sent his regards to the group
and is recovering from a bad chest cold.
The U.S. came to this meeting to emphasize first and foremost the need
to strengthen economic growth. This is of paramount importance for
the benefit of our own economies and the world as a whole - and
indeed, ahieving stronger growth was the centerpiece of our discussions.
The world economy is strongly positioned. Although growth has
moderated somewhat, the global economy is expected to sustain a
broad-based expansion going forward.
The United States continues to lead the way. The addition of 2.7
million jobs since May of 2003 and a solid year-over-year growth rate
of 4.4 percent show the strength of our nation's economy. Our
unemployment rate is down to 5.2 percent - lower thanthe average rate
of the 1970s, 1980s and 1990s. After-tax income is up by nearly 12
percent since the end of 2000, and household wealth is at an all-time high. Inflation
and interest rates remain low.
These are significant achievements - for which we can thank, in large
part, sound monetary policy and President Bush's well-timed tax cuts.
Yet the United States faces considerable economic challenges, with
short-term and long-term implications for our economy and beyond. Now
is the time to confront these challenges.
Our budget deficit is unwelcome, although it is understandable, given
what our economy and our country have been through in recent history.
President Bush is committed to dealing with this deficit - both by
controlling spending and by implementing policies that encourage
continued economic growth. We remain on track to cut the deficit in
half by 2009. And we are also focusing on the longer-term fiscal
situation including Social Security and other federal programs.
Confronting the U. S. current account deficit is a shared
responsibility. We are doing our part by tackling the fiscal deficit
and working to raise saving in the United States. But our actions
cannot stand alone. Strong growth in the U.S. economy makes it
imperative that our trading partners, too, adopt
policies that accelerate growth. Although growth in Europe and Japan
has strengthened, it needs to be more vibrant. Among other things,
this means taking concrete steps to implement structural reforms and
supply-side policies to increase flexibility and boost productivity
growth and employment - as laid out in the G-7 Agenda for Growth last
year.
On the subject of growth, I want to note how pleased I was to join the
G-7 Finance Ministers in meeting this morning with our counterparts
from key emerging market countries - Brazil, China, India and South
Africa. These are rapidly emerging countries, which represent an
increasing share of the global economy and will play an ever larger
role over time. Their views enriched our own discussions, and I look forward to continued
consultations going forward.
Addressing global imbalances also means increasing flexibility in
exchange rates. As you know, we met again today with our Chinese
counterparts. The G-7 has indicated for some time, both separately
and collectively, our support for greater flexibility in the Chinese
exchange rate. The Chinese continue to emphasize their commitment to
move to a flexible exchange rate, and we have seen steps that are
consistent with a move in this direction. Sustained, non-inflationary
growth in China is important for maintaining strong global growth, and
a more flexible and market-based renminbi exchange rate would help the
Chinese achieve this goal.
Energy plays an important role in the outlook for the world
economy. Market transparency and data integrity are fundamental to
the smooth operation of markets, and important progress is being made
in improving data provision to oil markets.
A vibrant world economy also depends on free trade. Today, we called
for urgent conclusion of the Doha Development Round. Allowing
international competition in the financial sector is particularly
important for developing countries to be able to respond efficiently
to the new trade opportunities afforded by such an agreement.
Research shows that greater foreign direct
investment in the financial services sector, coupled with strengthened
regulation and supervision, helps spur financial sector development
and efficiency - and helps promote economic growth. We are urging
all countries to submit ambitious offers on financial services by the
deadline for such offers this spring.
We all have great sympathy for the people affected by the tsunami
disaster. For our part, the President has committed an initial $350
million in U.S. government assistance for relief and reconstruction,
excluding the significant support provided by the U.S. military in the
region, and U.S. private donations are estimated to exceed $725
million. The United States has also agreed with the G-7 that, for
affected countries that request it, we would exceptionally defer debt
payments up to the end 2005 (consistent
with national laws), without payment of interest during this period,
and to promote this in the Paris Club. We have been consulting with
potentially interested countries to make sure they understand that funds for debt
relief could reduce funds available for reconstruction. We will work
with each of the affected countries to determine the mix of direct
assistance (both financial and technical) and debt forbearance that
best responds to that country's needs and priorities
Turning more broadly to development, Gordon Brown has rightly
highlighted the importance of tackling the challenges of global
poverty. This was a key focus of our discussions today. The United
States is deeply committed to helping the poorest countries. And we
have acted accordingly - for instance, increasing our development
assistance by 90 percent between 2000 and 2004, well beyond the
commitment we made in Monterrey. Assistance has doubled to thirty-two sub-Saharan African countries
since 2000. More importantly, we are being more selective in
deploying our assistance funds, through initiatives like the
Millennium Challenge Account, and we are leveraging our official
assistance by catalyzing other financial flows, reducing trade
barriers, and encouraging debt relief.
For some time now, the United States has strongly stated our belief
that more must be done to prevent the build-up of unsustainable debts
in poor countries. Increased reliance on grants, as we have achieved
in several MDB replenishments, is a crucial component of any long-term
solution. But we can do more to put these countries on a path to the
future.
There are a number of proposals about how to proceed on debt. The
United States favors action to provide up to 100 percent relief of MDB
soft loans to the poorest debt-vulnerable countries. Also, we believe
that all bilateral creditors should follow the United States in
providing 100 percent debt relief under the Enhanced HIPC Initiative.
This action, coupled with grants going forward, will put these poor countries on a sustainable
path. On the IMF side, it will be important to think carefully about
how to ensure that the IMF engages productively in poor countries.
This is an area that requires further consideration. We look forward
to working together to achieve consensus on an approach that resolves
ongoing debt sustainability concerns and puts an end to the
lend-and-forgive approach to financing development.
On a related note, significant progress has been achieved in the G-7's
work on remittances. Each ofthe G-7 economies has launched bilateral
work with one or more key remittance partners. And significant
multilateral efforts, together with major sender and recipient
economies and multilateral organizations, are underway as well. These
are important steps toward our shared goal of improving the
environment for private sector provision of remittance services - and
enhancing the development impact of remittance
flows.
Modern, transparent and effective international financial institutions
are vital to achieving our development goals and promoting growth and
stability in the world economy as a whole. Reform of these institutions remains
a key priority.
In the IMF, we are very supportive of the Managing Director's efforts
to prioritize the IMF's work within the context of zero real growth in
the budget. The United States continues to believe that a
non-borrowing program in the IMF would be a valuable tool - creating
an option for members that do not need an IMF loan to get the benefits
of close coordination with the IMF. We hope to see progress in
implementing such a "Policy Monitoring Arrangement" soon.
Due to strong U.S. leadership, the multilateral development banks
(MDBs) will significantly expand the depth and breadth of information
provided on the results they achieve. We continue to press our
fellow MDB shareholders to support additional transparency and
accountability measures that reflect best practices in corporate
governance. In the EBRD, I also believe that it is time to start
thinking about when to step aside and allow the private sector to take
over. The new EU member states have made remarkable progress over the past 15 years in becoming vibrant market
economies and pluralistic, multiparty democracies. The EBRD was vital
in assisting this transition and, in doing so, has successfully
fulfilled its mandate in these countries. By ceasing new operations
in the new EU member states within two to three years, the EBRD would
strengthen its focus on the poorest countries in the region - where
much work remains.
Since 9/11, we have made great strides in combating the financing of
terrorism and anti-money laundering. Working with the international
financial institutions, FATF and other international organizations, we
have been pushing for strong AML/CFT standards and global compliance with
those standards, vital pillars in this fight. We now need to continue
to tighten the noose further. This means, first, that we want to
promote further global compliance and implementation with the FATF
Recommendations and second, that we should be looking to improve the
effectiveness of our financial sanctions regimes and to apply such
financial sanctions broadly to the financial underpinnings of all
crime. Under the UK's leadership this year, we are determined to
pursue these and other issues through collaborative action going
forward.