I was delighted to host G-7 Finance Ministers and Central Bank Governors
over the last two days; we've had a very successful meeting.
We are pleased to see the global economy continuing its expansion. The
outlook continues to be favorable for 2005, despite the unwelcome news of
oil prices, and we all agreed that improving growth must be our top
priority.
The United States remains a leading contributor to the global expansion.
Real GDP rose 4.4 percent in 2004 on an average annual basis, the largest in
five years. Evidence so far on the first quarter points to continued
strength. Job growth has been revitalized, with the economy creating 3.1
million new jobs since the employment trough of May 2003. Inflation remains
moderate. These achievements reflect well-timed execution of
carefully-designed monetary and fiscal policies.
The U.S. is strongly committed to reducing the budget deficit. We recognize
that this is vital for continued robust growth for the U.S. economy as well
as for the international financial system. We are also committed to
reducing the longer term deficit which reflects our unsustainable, unfunded
obligations such as Social Security.
The Administration expects a deficit of $427 billion this fiscal year. At
3.5 percent of GDP, this is substantially lower than the 4.5 - 6 percent
experienced at times in the 1980s and 1990s, but still too large. Deficits
matter, they are unwelcome, and must come down. And with tight controls on
discretionary spending and increased revenue stemming from the expanding
economy, we expect to cut the deficit in half to well under 2% of GDP by
2009.
Colleagues have asked me about the President's effort to reform our
retirement system. The President's initiative to reform the Social
Security system is an important part of the United States' economic future.
We must plan for the future and that means dealing with looming financial
threats when we see them. In the case of Social Security, there is no
denying the demographic reality that will lead to insolvency of the system.
The President has initiated a national dialogue that we hope will encourage
the Congress to enact swift and meaningful reform to preserve, protect and
strengthen Social Security for all generations of American workers.
The Bush Administration is also pursuing reform of the U.S. tax code, which
has grown too long, complicated and cumbersome - a poor match for our
flexible, free-market economy. The President has appointed an advisory panel
to study the problems of the current code and propose potential solutions,
keeping in mind that any new system of taxation must achieve increased
fairness, simplicity and ease of understanding, as well as promote economic
growth and job creation.
We each face our own challenges and responsibilities, like Social Security
and tax code reform, but global adjustment is a shared responsibility. The
United States is doing its part to reduce the fiscal deficit. Growth in
parts of Europe and in Japan remain modest, leaving the global recovery less
balanced than it had been. Europe and Japan must step up to the challenges
of structural reform in order to build up the foundation for growth. The G7
Ministers agree on the need for greater growth in the world economy
particularly among the large industrialized economies. We are committed to
reducing the barriers to growth which we find in each of our economies as
reflected in our Agenda for Growth. This is an action-oriented program for
reforms to which we are all committed.
I want to comment specifically on China in this context. China's strong
economic growth has made a tremendous contribution to the global economy.
China has taken numerous steps over the last few years, including preparing
for greater flexibility in their exchange rate, introducing foreign exchange
market financial products and strengthening banks and bank supervision.
With this groundwork in place, China is ready now to adopt a more flexible
exchange rate.
Energy issues were a subject of intense discussion during our meetings. High
energy prices act as a drag on the global expansion. In the United States,
President Bush is concerned about the impact of high gas prices on American
families and our economy. We feel strongly that the U.S. Congress must act
to pass comprehensive energy legislation. President Bush put forth a
national energy policy four years ago that addresses both supply and demand,
and America has waited long enough for Congress to act. It is time to put
partisanship aside and enact energy legislation.
Extending the benefits of growth to all the world's citizens remains a key
priority for the United States and for the G-7. The U.S. commitment is
clear - for instance, we have nearly doubled our development assistance
since 2000 to help boost growth and reduce poverty in developing countries
and tripled aid to sub-Saharan Africa. The next step, in our view, is to
extend 100 percent reduction of HIPC countries' IDA and African Fund debt.
We believe that the tide is shifting in favor of such a cancellation
approach.
For its part, the IMF needs to substantially improve its engagement in
low-income countries. A major step forward in this regard is the agreement
among the G-7 this weekend to support a new policy monitoring arrangement in
the IMF. This type of facility would allow low income countries to engage
intensively with the Fund, even when they do not face balance of payments
financing needs and without increasing their debt. I urge the IMFC to move
forward on this important step later today. We also called for the IMF to
make its low income lending more responsive to short-term adjustment needs.
More broadly with respect to the Bretton Woods institutions, we had the
opportunity to assess progress under the Strategic Review that was initiated
in the G-7 and that is now being carried through in the institutions
themselves. Fundamental for both institutions is the need to clarify the
underlying missions, to set priorities in line with their missions so that
they can deliver results while avoiding budget creep. In the IMF,
surveillance can and must be further improved, and we all agreed to work
together to accomplish this in particular by pushing for the IMF to provide
debt sustainability assessments separately from proposed lending programs.
In the World Bank, key concerns are enhancing transparency and
accountability, particularly with respect to internal controls, and
implementing improvements in results measurement.
We are grateful to Jim Wolfensohn for the extraordinary leadership he has
provided for the World Bank. I was pleased by the welcome my colleagues
extended to Paul Wolfowitz as the new President. Paul is an outstanding
leader whose proven management skills, vision and commitment to development
I believe can and will take the Bank and the international effort to promote
development to a new level. We laid out some shared priorities today that we
believe provide an ambitious agenda for the Bank.
Another key item on our agenda was fighting the financing of terrorism. We
agreed on the importance of strengthening the process of multilateral asset
freezing, in line with UN resolutions, improving information sharing, and
exploring the possibility of broadening the application of new financial
tools to disrupt all illicit activity.
Before closing, I want to note that I look forward to meeting later today
with G-7 Ministers and our counterparts from Russia and the Broader Middle
East and North Africa. This is an important initiative that has generated
promising energy. I expect that we will continue our constructive dialogue
on how the G8/BMENA partnership can promote job creation, private
investment, and economic prosperity.
Thank you.