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Papers
Box No. 21
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McCain-Feingold
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�Draft 9/11/98 9pm
PRESIDENT WILLIAM J. CLINTON
ADDRESS ON THE INTERNATIONAL ECONOMY
COUNCIL ON FOREIGN RELATIONS
NEW YORK, NEW YORK
September 14,1998
Acknowledgments: Pete Peterson, chair of CFR; Les Gelb, Pres; admin alumni incl. Dan
Tarullo and Anne Luzzatto;
It is my privilege to speak before you at a time of unsurpassed American economic
strength ~ but a time of real and undeniable turmoil in the world economy. At a moment of
increasing interconnectedness among the nations of the world, the future of our prosperity will
depend upon how we all work to restore confidence and promote robust growth. The challenge
of global growth is the central economic challenge of our time — and it is one we can meet. We
have no choice. Today I want to give you a status report on what we have done, and to tell you
what I believe we must continue to do in the days and years to come.
America's economy remains the strongest it has been in a generation. We still have the
lowest unemployment in 28 years and the lowest inflation in 32 years. We still have the highest
homeownership in history. In two weeks, on October 1, we will have the first balanced budget in
a generation - thanks to the discipline ofthe American people. And after stagnating for decades,
wages are now rising again, advancing at twice the rate of inflation.
The pillars of our prosperity stand strong. But we live in a world of swirling, sometimes
breathtaking change. The global economy we have done so much to create ~ the global
economy that has brought so much benefit to our nation and to the people of the world — is
facing its most significant challenge in years. It began last year with currency fluctuations in
Asia. It has spread like a contagion through emerging markets. In the past month it has hit the
Russian economy. And today it threatens to engulf Latin America.
This crisis first struck nations whose economic systems were built on flimsy foundations.
But now it threatens to undermine those who have sought to act responsibly, yet still find
themselves pulled by economic currents stronger than they are.
Today, one quarter of the world's population ~ one third of the world's economy ~ is in
recession, and some of these nations are facing economic and financial collapse.
More than ever, this rolling financial crisis has brought home to the American people that
what happens around the world can deeply affect what happens here at home. More than ever
before, opportunity for American families is affected by rising opportunities for millions of
unseen people in other lands. It is starkly in the American national interest that we do what we
can to stabilize the world's financial system, and to spur global growth.
Why? Why should Americans care if Asia, or Russia, or South America is on solid
�economic footing? Fundamentally, as Federal Reserve Chairman Alan Greenspan said, we
cannot be an island of prospeirty in a sea of misery. America's prosperity depends upon the
continued prosperity of America's trading partners.
These nations are our customers ~ with fully one third of our economic grwoth coming
from exports, much of it to emerging markets. If their economies flatten, our exports will falter,
and our own growth will slow.
These nations are our competitors — and when they respond tofinancialstress by
devaluing their currencies, the price of their goods falls and we risk a flood of inexpensive
imports, undercutting sales of goods made here at home. Thus far, we have not seen this kind of
import surge, but if economic distress continues, we cannot be sure that will continue.
These nations are our allies - and the United States has a profound stake in the spread of
freedom and democracy around the world. Throughout this century, in two bloody world wars
and a half-century Cold War, we fought to plant freedom's flag around the world. We argued
that economic freedom and political liberty went hand in hand, that the prosperity brought by
free markets would best be achived by stable and democratic democracies of free citizens. To a
degree that would have amazed the "wise men" of this organization a half century ago, the
advance of freedom has been remarkable. Now, countries where economic turmoil has plunged
millions into sudden poverty will face instability and the risk of a return to authoritarianism.
Nowhere is the link between economic freedom and political freedom cleraer than in
Russia, which I visited earlier this month. That country is facing an economic crisis that
threatens the extraordinary progress the Russian people have made in just seven years under
democracy and free markets. The ruble and the stock market there have collapsed, banks are
weak, tax collection has slowed to a trickle, and the govemment no longer pays its debts. Some
Russians have become wealthy, but many more struggle to provide for their families. Amid
political uncertainty, some now talk of abandoning the path of freedom and returning to policies
of the past ~ policies that have already failed. Russia has a new Prime Minister, in office only
four days. We very much hope that under his leaderhsip, Russia will stay on the path of
prosperity and freedom. And will do everything we can to encourage that.
And all nations are now linked in a global financial system, in which over $1 Trillion
rushes across around the world every day ~ in which what happens in Kuala Lumpur matters in
Kansas, what happens on the trading floor matters on the shopfloor.
This is a new kind of crisis. And it has demanded a new type of response, one that has
recognized the unstoppable realities of global economic change. Here is the lesson that has been
hammered home for the United States and our trading partners this past year: No nation, rich or
poor, democratic or authoritarian, can escape the fundamental economic imperatives of the
global market. No nation can escape the discipline of the market. No nation can avoid the
responsibility to do its part.
The new rules of the road are clearly marked.
�In the new global economy, for good or ill, all economies are interdependent. A
disturbance that begins in one country can ripple across the globe, quickly spreading to all
countries. Even a decade ago, fluctuations in the Thai or Korean currencies would not
significantly affect American businesses and families. Today, as the rapid gyrations on Wall
Street attest, what happens on the
In the new global economy, every nation is subject to the exacting discipline of the global
marketplace. As we recognized when we put our fiscal house in order in 1993, no nation can
long build its prosperity on irresponsible fiscal policy, on cronyism or corruption, on banking
practices that are secretive and arbitrary. These things can work for a time. But sooner or later,
investors will insist on open and accountable economic practices. And when they do, the
consequences for an economy can be swift and severe.
In the new global economy, it is pointless to help those who will to help themselves.
These are the new realities. They cannot be blinked away or wished away. And as we
have sought to find ways to address the worldwide financial crisis, we have been guided by these
principles. We have been willing to help those nations and those economies that have been
willing to help themselves. We have worked with other nations and with the international
financial institutions to stabilize markets and stop the spiral. Plainly, the crisis has continued to
spread. But if we had not acted, and acted responsibly, we can only guess where matters would
stand today.
America can and must continue to act ~ to work with other nations to take the urgent
steps needed today to douse the flames of international financial crisis. And then we must make
certain that the institutions and rules of international finance support steady and sustainable
growth into the future.
First and foremost, all the nations of the world must take concerted action to spur global
growth. A generation of Americans grew up seared by the inflation of the 1970s, and saw the
economic devastation that it could bring. Low and stable inflation is critical to our economic
health. But the balance of risks has now shifted. We must also guard against the danger of
deflation ~ the spiral downward of prices and economies that eats away hope within nations and
sows seeds of conflict among them. In 1998, the industrial world's chief priority must be to spur
growth. In the world economy, as in our domestic economy, there is no substitute.
Every nation must do its part.
The United States can rightly say that our strong and growing economy is today the
engine of global growth. This was far from predetermined. As Pete Peterson will surely
confirm, six years ago America's chronic deficits were a ball and chain holding back the world
economy. WTien I attended my first meeting of what was then the G-7 in Tokyo, every other
nation insisted that America put its house in order. They were right. We did. Now we must
continue to maintain our own economic strategy.
�Europe must pursue the policies that will spur growth, so they, too, will be able to
provide growing markets for Asian goods as those nations seek to find their footing.
And Japan, one of the world's economic superpowers, has a particularly critical role.
Japan is by far the largest economy in Asia. More than anything else, renewd growth in Asia
would underpin renewed confidence around the world ~ and Japan holds the key. As they well
recognize, they are facing serious risks - financial crisis, economic decline and diminished
confidence ~ with dramatic consequences for the rest of Asia. To do its part, Japan must take
strong steps to revive its banking system, spur consumer demand, and restore confidence.
The second immediate step we must take is to continue working to achieve the fastest
possible economic recovery in Asia. Where countries have taken strong and responsible steps,
the free-fall has ended and progress is being made. But the human cost of Asia's collapse is
only now fully being felt. As recent press reports have described, an entire generation that
worked its way into the middle class has plummeted into poverty. It is in America's interest our farmers' interest, our workers' interest, our businesses' interest ~ that these nations recover,
their markets grow, and their people once again become our fastest-growing customers.
We have worked with international lenders like the IMF to help these nations to adopt
pro-growth budget, tax and monetary policies. But we can and must do more.
And we can take new steps to help Asia grow and to help its people.
We will work with the World Bank and the Asian Development Bank to greatly expand
their support for the 'social safety net' in ailing Asian economies — working to create jobs and
protect children and the elderly who have suffered most.
We will work to lift the weight of private-sector debt that has frozen Asian economies. I
am asking Secretary Rubin to work with Japan and others to find new and innovative ways to
restructure indebted banks and corporations, so they can once again grow and invest. I believe
that where appropriate, international lending institutions should commit resources to this end.
Third, we must be ready to respond immediately and with financial force if the currency
crisis continues to spread. And by far the most important thing we in Ameirca can do to that end
is to meet our obligations to the International Monetary Fund.
No country can be helped if it will not help itself. But as we are learning every day, even
countries with the right economic policies can fail if the international community fails to help.
The key to all this is the International Monetary Fund.
After a year offinancialfirefighting,the IMF's resources are badly strained. Every day
we do not act, we undermine the confidence the world needs that in time of crisis, the community
of nations is ready to act.
The Congress of the United States simply must step up to its responsibility for leading in
�this new economy. In my State of the Union Address, I said that it is far better to prepare for a
storm now than when the clouds are overhead. Today, eight months later, the clouds are much
closer, and we can hear the thunder. There are only [5] weeks left in the congressional session,
and there is still no action.
Let me put it as plainly as I can: Failure by this Congress to pay our dues to the IMF will
put our prosperity at risk. Failure to act will send a sharp signal that at a time of economic
challenge, lawmakers were unwilling to protect America's workers, businesses and farmers from
the risks of global economic change.
[We will continue to work with the IMF. And at a time of new and unprecedented
pressures, we will seek new ways America can stand by countries that are following the new
rules of the global economy. The world community cannot simply stand by and watch as
struggling nations are swamped by economic forces beyond their control.]
We will take these immediate steps. But a global economy that lurches from boom to
bust, that rides a roller coaster offinancialinstability, is not serving its purpose or the people. A
half century ago, the leaders of that generation took the lessons of depression and war and built a
global trading system that was a platform for decades of unprecedented prosperity. Now, facing
new realities, our generation must leam the lessons of our time, and make sure that the world
financial institutions are as modem and sophisticated as the markets.
Since we first helped Mexico to work its way out of its own financial problems, the
United States has led the way in an effort to find ways to prevent such crises from happening in
the first place, and respond more effectively when they do. The turmoil of the past year should
sound an alarm. Prime Minister Blair and I have discussed this in recent days. And today we are
asking the finance ministers of the leading industrial nations ~ the G-7 — to work with the
finance ministers of the key emerging economies, and jointly report to the world's leaders on
how we can enjoy the benefits of free-flowing capital without running the risk of continued
crises ... how to make the IMF more effective at dealing with crises ... and how we can protect
countries from the crises of the 21st Century.
[conclusion on foreign policy/freedom implications of failure to act]
�Helping other nations to strengthen their economies and build lasting prosperity is not only good
for our economy; it is also vital to our values and our national security. Let me explain.
At the dawn of a new millennium, we see an extraordinary convergence. Increasingly, the same
policies that allow nations to thrive in the new global economy are also those that deepen the
democratic liberties and protections that allow us to thrive as individuals.
In the 21st Century, a nation's economic strength will depend more and more on creativity and
innovation, on the free flow of ideas and information across nations and across borders.
Countries that restrict access to the Internet, that restrict expression and travel, will deny their
citizens the possibilities of the future.
Economic strength will depend on the rule of law. Investors and entrepreneurs have an everwidening range of choices as to where to put their money and their energies. And they are
moving in the direction of openness and fairness and freedom. They will go where legal rules
are predictable and contracts are honored, where the system is even-handed for everyone, from
corporations to consumers, where govemment is honest and there are strong checks on
corruption and abuse of authority, where there is fair and efficient regulation to prevent insider
cheating and market collapses. Systems that are rigged in favor of a privileged few will no
longer work.
And economic strength will depend on equality of opportunity, regardless of a person's
background, because no society will be able to waste its talents. There must be strong schools,
good health care, a resilient safety net. Everyone must have a chance to share in a nation's
bounty.
Without these protections - freedom of expression, the rule of law, efficient regulation, equality
of opportunity - economies will not thrive, and democracies will not thrive. The problem is that
many societies today are in transition - they have taken the difficult initial steps, with elections
and opening of markets, but citizens have tired of waiting for democracy and free markets to
deliver, to bring better lives for all. The right choice is to go forward - to complete the task. But
there is fear and uncertainty, and some are attracted to the idea of sliding backwards to the past.
So there is a real risk today, in some countries, that democracy and free markets, instead of
growing together, will perish together - a risk that some countries will abandon democracy,
human rights and free markets for the type of authoritarian, command systems so prevalent in the
past.
Such countries will not thrive in the global economy of the 21st Century. Such economic
systems are already proven failures. They will not be strong markets for our goods and engines
of jobs and growth for our economy.
�Just as troublesome, countries that restrict freedoms at home will not be reliable and strong
partners for peace and security around the world. Just look at Russia. During the Cold War,
there was constant friction between our nations over human rights violations in the Soviet Union.
There was constant friction over Soviet expansionism and the occupation of other nations. We
still have differences, but under democracy Russia works with the United States and the global
community - for peace in Bosnia and Kosovo, against terrorism and crime and weapons of mass
destruction.
We see it in regions around the world — nations that respect their citizens at home are also
constructive neighbors in their dealings with other countries. The international aggressors, the
supporters and harborers of terrorists and drug lords, are authoritarian nations. That doesn't
mean we cannot find common ground and work for global solutions with nations that restrict
freedom for their citizens. We must try to do so. But the challenges and risks are far greater.
Therefore, all of us will be safer ~ our soldiers and diplomats overseas, our citizens at home — if
nations can complete these difficult transitions and become strong free-market democracies.
�09/11/98
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THE DEPUTY S E C R E T A R Y OF THE T R E A S U R Y
WASHINGTON
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�09/11/98
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SHF, September 11, 1998 (2:29pm)
OUTLINE: AMERICA'S STAKE INA STRONG GLOBAL ECONOMY
we are facing a uniquely challenging time in the global economy. Afinancialcrisis that
began in Asia more than a year has taken hold across the region and spread, now, to
Russia. One quarter ofthe world's people - one third ofthe global economy - are now
suffering a recession and some countries are facing economic andfinancialcollapse.
What was once a problem affecting a group of emerging market countries now threatens
to become a global problem of confidence and liquidity, with consequences for our own
markets.
•
some say that America should stand back from these crises — weather the storm within
the comfort of our own prosperity and hope that the clouds will pass us by. That would
not be the safe course and it would not be the right course. Whether we like it or not, this
crisis will affect us and we have an enormous stake in working with other countries to
restore confidence and make these countries healthy again.
•
already, exports to the economies in crisis are down by nearly one third, year-on-year.
Private forecasts are suggesting that the crisis could add one half, even one percentage
point of GDP to the United States current account deficit this year. Consider the
implications of a sustained crisis for California, where about half of last year's exports
went to Asia. Or Colorado, where exports to Thailand alone grew nearly four-fold between
1993 and 1996.
•
trade has accounted for one third of our growth in this expansion and is the prime engine of
high-wage jobs. More than 30 percent of those exports — and 40 percent of our agricultural
exports — go to Asia. More open and competitive commerce has enriched us as a nation.
It has spurred us to innovate and forced us to compete. It has widened tlie circle of
opportunity within our own country and across the globe — holding out the prospect for
unprecedented expansion in the well-being and opportunities of mankind.
globalization has already brought us immense benefits But we will not truly realize its
potential unless we work together to defeat its dangers. And looking around the world,
the dangers appear very real.
The Global Situation
•
the Thai, Indonesia, Korean and Malaysian economies are all now expected to shrink
substantially this year — by upwards of 12 percent in the case of Indonesia — with
unemployment and inflation rising to unprecedented levels. Japan, the world's second
largest economy, has been mired in recession for seven years and faces banking problems
severaltimeslarger than our own Savings and Loan crisis in the early 1980s;
•
in Russia, [State/Treasury language to come]
•
Latin America: under severe market pressure. Note that Latin America accounts for one
121002
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COLLECTION:
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Speechwriting
Michael Waldman
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Clinton Library Photocopy
�09/11/98
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fifth of our trade and our companies and banks deeply interconnected.
make no mistake. Containing these problems is critically important to America's future ~
not just economic but our future security. (NSC PAHA: Russia possibilities. Troops in
Asia — JOCin Korea alone. North Korea risk.)
without effective solutions to distress and economic panic there is a real risk tliat
countries will tum to any solution - however destructive it might tum out to be in the
long run. Already people in some of these countries are beginning to question the value of
integration and openness. One country has even decided to renege on past promises and
sever many of it links with the global capital market. .
let us not forget that we face the same temptations, temptations that will only grow
stronger if the crisis is not contained, Already, by delaying passing IMF funding, by
failing to pass Fast Track, by not making good on what we owe the United Nations, we
have raised questions about our commitment to afreeand open global system built on
democracies and open markets.
a commitment to openness is like a commitment tofreespeech - it matters most when
it's hardest to maintain. When our export markets are hurting, when there are countries in
crisis whose goods have become much cheaper relative to our own -- that is when the call
for inwardness is strongest and when its costs are greatest. Our deepest interest interests of our workers, fanners, firms — is in rapid recovery in these countries so they
can again be stable allies and growing markets for our goods. If we fail to support them
or act to contain this crisis we run a real risk of reversing the tide offreemarkets and
broadening global opportunity we have done so much to propel -- and from which we
have already gained so much.
•
this not hypothesis - it is a lesson of history. We chose the path of inwardness and
laissez-faire in response tofinancialproblems in the late 1920s and early 1930s. And
reaped a lethal harvest of deflation and depression that laid the ground for devastating
conflict. In the wake of that war a far-sighted generation of leaders laid tlie foundations
for a new era offreedomand prosperity - cemented by economic interdependence whose legacy we enjoy today. (Marshall (Harvard speech):: "without the return of normal
economic health in the world...there can be no political stability and no assured peace.
Our policy is directed not against any country or any doctrine but against hunger, poverty,
desperation and chaos".)
Cannot, must not put that legacy at risk ~ and our future at risk - by turning back from path of
openness and cooperation with countries and support for global markets. Now more than ever
our vision must be global and our goal must be growth: restoring growth where there is crisis and
supporting it where it has faltered.
Calls for action today in 3 areas:
1. Concerted global action to secure growth
0003
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^OPi-
We are experiencing exceptional pressures in world financial markets and a general slowdown
in growth prospects in many countries. In that sense the balance of risks in the global economy
has shifted, and it is now imperative that the major industrial countries, as they continue to work
together on global economic issues, place an even greater emphasis on growth.
A generation of Americans has grown up worrying about inflation ~ and rightly. Eats away hardeamed savings, stifles business and distorts markets. We have learned that lesson - and we have
applied it. But we must not forget the lesson ofthe 1930s ~ that competitive devaluations and
deflation are no less corrosive. Eats away at hope and opportunity within nations and lays the
seeds of conflict between them. In Japan today prices are falling and across the industrial
economies today lower than in a generation. We must not repeat past dangers ~ but nor can we
afford new ones that may be lurking in the wings.
In an interdependent world we all have a stake in other countries pursuing sound policies and this
is particularly true today. (Twenty five years ago fluctuations in the Thai baht, or the fortunes of
the Korean stock market would have been little noticed and would have had little effect outside
those countries. Now they appear daily on the front page of newspapers around the world and
have significant economic effects on workers, farmers and businessesfiromBangkok to
Brussels.)
That is why, throughout this crisis, I have been intensely focused on working with the other
major industrial economies to ensure we all play our part in containing the problem and
supporting growth. Now this cooperation is needed more than ever.
The most important thing that the United States can do — for its own economic prospects and for
the world's - is to continue to follow the right policies for strong and sustainable growth. Now
more than ever we are the world's indispensable engine of growth. Every day we continue to
expand we offer greater possibilities for other countries to themselves grow out of trouble and in
tum provide expanding markets for America.
But we cannot carry the burden alone. Europe and Japan also need to be in a position to absorb
the impact of these crises and support global demand. Japan's contribution will be especially
critical. As Japanese recognize, they are facing serious risks deep financial sector crisis,
declining economy, collapsing confidence — with huge repercussions for rest of Asia. Vital that
govemment takes effective steps to revive the economy and fix the banking system.
l.Support for a Rapid Recovery in Asia
Our approach to these crises has rested on two things: strong domestic policies in the countries in
crisis supported by conditioned international support. Where countries have been pursuing
credible programs in Asia there are now important signs of progress. But the profound and
ongoing costs of these crises make the restoration of growth an urgent priorityUnited States is going to work with Japan and the international community as a whole to
reinforce the prospects for a rapid return to growth in these economies and across the region.
Believe that an effective approach has three dimensions:
�09/11/98
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^
growth-oriented macroeconomic policies: where effective policy programs have helped
restore external stabihty the IMF has supported growth-oriented policies in the crisis
countries and there has been a significant easing of both monetary and fiscal policy in the
region. We have consistently worked with the IMF and the other international financial
institutions to ease policy where this is consistent with preserving external stability and
in the present circumstances we will actively explore how policies might be eased further.
•
augmented international supportfor social safety nets Financial crises that begin on the
trading floor do their damage on the factory floor. The human costs of these crises have
already been profound, wi th years of rapid growth and poverty reduction in danger of
being reversed. (Young children being pulled out of school to sort garbage, anecdotal
material from Post articles..?) Announce that US is going to work with the international
financial institutions, primarily the World Bank and ADB, to provide substantially
augmented support for social safety net programs in Asia. These wouldfocus on the core
priorities of creatingjobs and protecting the most vulnerable, particularly the young and
old.
•
new international initiative in support of rapid restructuring: the burden of excess
corporate debt and insolvent banks is today the number one barrier to a recovery in Asia.
Banks and companies are stuck in a debt trap — banks are too indebted to lend and firms
are too indebted to recover without new loans. Similar to our own situation in the 1930s.
As then, need govemment to act to break the cycle and pave the way to growth, by
injecting capital into banking system and providing framework for rapid restructuring and
lifting of debt burdens. To help countries do this, lam asking Secretary Rubin to work
with Japan and others in the region to explore innovative ways of accelerating the
process offinancialand corporate restructuring in these countries. This could be
supported by newfinanceand targeted technical assistance from the multilateral
development banks.
3. Strengthened Support for Major Emerging Markets
Must lead the international community in using every appropriate tool to defend our interest in
stable financial markets and a prosperous global economy.
First, and most important, that means an effective and adequately funded IMF to provide
emergency, conditioned support. We know that no country can be helped that won't help itself.
But without support, even countries with the right policies can be hugely hampered « and the
costs of crisis greatly exacerbated — by the absence of outside support.
Pitch for IMF: past year's crises have taken their toll on IMF's resources and raised real concerns
about its ability to respond in the event of the crises spreading to several more countries. Vital at
this difficult time for Congress to make good on America's commitment to IMF quota increase
and NAB. Welcome Senate vote. Urge House.
Second, we have been and will continue actively considering how we can respond to lhe
unprecedented contagion we now see in world markets — that is greatly complicating countries'
efforts to pursue sound policies and avoid instability. In these circumstances the international
�09/ir/98
FRI 14:30 FAX
community needs to devise new ways of providing finance to help countries deal with the
unprecedented challenge that these market conditions present.
A Stronger Global Architecture
These three sets of policies are addressed to the current crisis. But not enough merely to react to
these challenges — must also work to see they are not repeated. Some talk of creative
destruction. But financial crises of tlie kind we have seen in recent months are not creative of
anything but pain and distress. If the global economy cannot avoid having them every few years
then it needs fixing.
Largely at our initiative, a variety of international groups are now developing recommendations
on how to reduce the risk of futurefinancialcrises, including the G-22 process, the
and the
IMF. [Insert on Halifax 2 as desired — transparency, strengthening domesticfinancialsystems
and responding to crises].
These efforts were on a path to produce some initial recommendations by early next month, but
the recent tum in the crisis calls for expanding the efforts and placing them even more squarely at
the top of the global agenda.
Call for the G7 — working with other key emerging economies — to undertake an expanded
review of ways to strengthen the global financial architecture and report to the heads by the end
of the year. As part of these efforts I am convening a further meeting of the G22 in the coming
weeks. The expanded review wouldd review three issues that have gained particular salience in
light of the events of the past year:
how best to adapt and reform the IMF and its reform programs to dealing with the
challenges of these new kinds offinancialcrisis and tlie social costs tliey bring;
ways to ensure that capital flows across nations are sustainable in an era of dramatically
changing technology and markets. The task is not to deny the benefits of open, truly
global capital markets — but to work out the best set of policies (international and
domestic) for ensuring these are safe and sustainable.
the appropriate role for international emergencyfinancein helping countries address the
challenges they face at times of global financial instability.
Conclude
Recap - need for global cooperation and stronger focus on growth to rebuild confidence and
pave the way for a stronger world system. Choice to make — protect and strengthen the gains of
democracy andfreemarkets by talcing these steps. Or stand back and risk a self-perpetuating
chain of panic and economic distress that would hurt our future and our children's future. Choice
is clear.
�NAJL^ECONOMIC COUNCIL
©007/007
"oflVll/QS
FRI 14!27 PAX
community needs ta devise new ways of providing finance to help countries deal with the
unprecedented challenge that these market conditions present
A Stronger Global Architecture
These iluce sots of policies are addressed to (he current crisis. But not enough merely to react to
these challenges — must also work to see they are not repeated. Some talk of creative
destruction. Butfinancialcrises ofthe kind
have seen in recent months are not crearive of
anything hut pain and distress. If the global economy cannot avoid having them every few years
then it needs fixing.
Largely ax our initiative, a variety of international groups are now developing zecoipmendations
on how to reduce theriskoffixturefinancialarises, including the G-22 process, the G-7, and the
IMF. [Insert on Halifax 2 as desired — transparency, stx^gthening domesticfinancialsystems
and Tesponding to crises].
These efforts wete on & path to produce some initialrecommeudationshy early nest month, but
tbe recent torn in the crisis calls fbr eKpanding the efforts and placing them even more squarely at
the top of the global agenda.
Callfor the G7 — working with other key emerging economies —toundertake an expanded
review ofways to strengthen Ae global financial architecture and report io the heads by the end
of the year. As part of these efforts 1 am convening a further meeting ofthe G22 in the coming
weeks. The expanded review wouldd review three issues Aat have gained particular salience in
light of the events of the past year:
how best to adapt and reform the IMF and its reform programs to dealing with the
challenges of these new kinds offinancialcrisis and fhe social costs thoy bring;
•
ways to ensure that capital flows across nations are sustainable in an era of dramatically
changing technology and markets. Tbe task is not to deny the benefits of open, truly
global capital markets — but to work out the best set of policies (international and
domestic) for ensuring these are safe and sustainable.
•
the appropriate role for international emergencyfinancein helping countries address the
ohallanges tbeyftceat times of globalfinancialinstability.
Conclude
Recap — need fbr global cooperation and stronger focus on growth to rebuild confidence and
pave tlie way for a stronger world system. Choice to make — protect and strengthen the gains of
democracy andfreemarkets by taking these steps. Or stand back andriska self-papetuating
chain of panic and economio distxess that would hurt our future and our children's future. Choice
is clear.
�09/11/98 14:15 FAX
NATL ECONOMIC COUNCIL
1001/007
�«t./ ±/»a
A
"OB/11/98
14:15 FAX
NATL ECONOMIC COUNCIL
ISOO2/007
ID 001
FRI 14;28 FAX
THE DEPUTY SfiCRETARY O F T H E T R E A S U R Y
WASHINGTON
10 : ( j ^ e
1?
eUso
SHSO-IUG-
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fc
�JiAT^ECONOMlC_COUNCIL
B o 0 .3 / ^ 0 7
0.
09/11/88
FRI 14;26 FAX
SHF, September 11,1998 (2:29pm)
OUTLINE: AMERICA'S STAKE INA STRONG GLOBAL ECOMMY
>
we arefeeinga uniquely ohaUanging time in the global economy. Afinancialcrisis that
began in Asia more tban a year has taken hold across the region and spread, now, to
Russia. One quarter of the world's people — one third of the global economy - are now
suffering a recession and some countries arefeeingecanomic andfinancialcollapse.
What was onoe a problem affecting a group of emerging market countries now threatens
to become a global problem of confidence and liquidity, with consequences for our own
mflrioets.
some say that America should stand backfromthese crises — weather the stonn within
the comfort of our own prosperity and hope that the clouds will pass us by. That would
not be the safe course and it would not be lherightcourse. Whether we like it or not, this
crisis will affect u£ and we have an enormous stake in working with other countries to
restore confidence and make these countries healthy again.
•
already, exports to the economies in crisis are down by nearly one third, year-on-year.
Private forecasts are suggesting that the crisis could add one hp^ even one percentage
point of GDP to die United States current account deficit this year. Consider the
implications of a sustained crisis for California, where about half of last year's exports
went to Asia. Or Colorado, whore exports to Thailand alone grew nearly four-fold between
1993 and 1996.
trade has accoumedforone third of our growth in this expansion and is tho prime engine of
high-wage jobs. More than 30 percent of those exports — and 40 percent of our agrictdtural
exports — go to Asia. More open and competitive commerce has enriched us as a nation.
It has spurred us to innovate andforcedna to compete. It has widened the circle of
opportunity within our own country and across the globe — holding out the prospect for
unprecedented expansion in the well-being and opportunities of mankind.
globalization has already brought us immense benefits But we will not truly realize its
potential unless we work together to defeat its dangers. And looking around the world,
the dangers appear very real.
The Global Situation
the Thai, Indonesia, Korean and Malaysian economies are all now expected to shrink
substantially this year - by upwards of 12 percent in the cade of Indonesia - with
unemployment and infiation rising to unprecedented levels. Japan, tbe world's second
largest economy, has been mired in recession for seven years and faces banking problems
severaltimeslarger than our own Savings and Loan crisis in the early 1980s;
•
in Russia, [State/Treasury language to come]
Latin America: under severe maricet pressure. Note that Latin America accountsforout
1
�ECONOMIC COUNCIL
1004/007
01003
09/11/98 FBI 14:28 FAX
fifth of our trade and our companies and banks deeply interconnected.
•
make no mistake. Containing these problems is critically important to America's future —
not just ecanomic but oar fiiture security. (NSC PARA: Russia possibilities. Troops in
Asia —XX in Korea alone. North Korea risk)
>
without effective eolations to distress and economic panic there is a real risk that
countries will tum to any solution — however destructive it might tum out to be in the
long run. Already people in some of these coumries are begtnoing to question the value of
integration and openness. One country has even decided to renege on past promises and
sever many of it links with the global capital market..
«
let us not forget that we face fbe same temptations, temptations that will only grow
stronger if the crisis is not contained. Already, by delaying passing IMF funding, by
failing to pass Fast Track, by not making good on what we owe the United Nations, we
have raised questions about our commitment to afreeand open global system built on
democracies and open markets.
•
a commitment to openness is like a commitment tofreespeech — it matters most when
it's hardesttoT^smiigm. When our export xnazkets are hurting, when there are countries in
crisis whose goods have become much cheaper relative to our own — that is when the call
fbr inwardness is strongest and when its costs are greatest. Our deepest interest —
interests of our workers, farmers,firms— is in rapid recovery in these countries so they
can again be stable alliea and growing marketsforour goods. If we fail to support them
or act to contain this crisis wo run a real risk of reversing the tide of free markets and
broadening global opportunity we have done so much to propel - andfromwhich we
have already gained so much.
tins not hypothesis — it is a lesson of histoiy. We chose fhe path of inwardness and
laissez-faire in response tofinancialproblems in the late 1920s and early 1930B. And
reaped a lethal harvest of deflation and depression that laid the ground for devastating
conflict. In the wake of that war a far-sighted generation of leaders laid (he foundations
fbr a new en offreedomant^ prosperity — cemented by economic interdependence ~
whose legacy we enjoy today. (Marshall (Hamrd speech)::"witliout the return of normal
economic health in the world...there can be no political stability and no assured peace.
Our policy is directed not against any country or any doctrine but against hunger, poverty,
desperation and chaos",)
Cannot, must not put thai legacy at risk and ourfiitureatrisk— by turning backfrompath of
openness and cooperation with countries and support fbr global markets. Now more than ever
our vision must be global and our goal must be growth: restoring growth where there is crisis and
supporting it where it has faltered.
CaUs fbr action today te 3 areas:
1. Concerted global action ta secure growth
�"
NATL^E£QNOMIC COUNCIL
•
*
09/11/98
-.
i l 005/007
Iffl004
"
F R I 14:27 FAX
—
WB are experiencing exceptional pressures in world financial markets and a general slowdown
in growth prospects in many countries. In that sense the balance of risks tn the global economy
has shifted, and it is now imperative that the major industrial countries, as they continue to work
together on global economic issues, place an even greater emphasis on growth.
A generation of Americans has grown up worrying about inflation — andrightly.Eats away hardearned savings, stifles busmess and distorts markets. We have learned that lesson and we have
applied it. But we must not forget the lesson of the 1930s — that competitive devaluations and
deflation axe no less conosive.fEats away at hope and opportunity within nations and lays the
seeds of conflict between themj In Japan today prices are falling and across the industrial
economies today lower Ihan in a generation. We must not repeat past dangers — but nor can we
afibrd new ones that may be lurking in the wings.
In an interdependent world we all have a stake in other countries pursuing sound policies and this
is particularly true today. (Twentyfiveyears agofluctuationain the Thai baht, or the fortunes of
die Korean stock market would have been little noticed and would have had little effect outside
those countries. Now they appear daily on thefrontpage of newspapers around the world snd
have aignificaut economic effects on workers, farmers and businesses from Bangkok to
Brussels.)
That is why, throughout this crisis, I have been intensely focused on working with the other
major industrial economies to ensure we all play our part in containing tho problem and
supporting growth- Now this cooperation is needed more Ihan ever.
The most important thing that the United States can do — for its own economic prospects and for
fhe world's - is to continue tofollowtherightpolicies fbr strong and sustainable growth. Now
more than ever we are the world's indispensable engine of growth. Every day we continue to
expand we offer greater possibilities fbr other countries to themselves grow out of trouble and in
tum provide expanding markets for America.
But we cannot cany the burden alone. Europe and Japan also need to be in a position to absorb
the impact of these crises and support global demand. Japan's contribution wiU be especially
critical. As Japanese recogmze, they are facing seriousrisks- deepfinancialsector crisis,
declining economy, collapaing confidence - with hugereperoussionafbr rest of Asia. Vital that
government takes effective steps to revive the economy and fix the banking Systran.
2.Support fbr a Rapid Racovery ia Asia
Our approach to these crises has rested on two things: strong domestic policies in the countries in
crisis supported by conditioned international support. Whore countries have been pursuing
credible programs m Asia there are now important signs of progress. But tbe profound and
ongoing costs of these crises make the restoration of growth an urgent priority.
United Slates is going to work with Japan and the international community as a whole to
reinforce the prospectsfora rapid retain to growth in these economies and across the region.
Believe that an effective approach has three dimensions:
�.NATL ECONOMIC COUNCIL
0006/007
09/11/88 FRI 14*. 27 FAX
•
growth-oriented macroeconomic policies: whore effective policy programs have helped
restore eoctemal stability ttie IMF lias supported growfh-oxiculed policies in the crisis
countries and there has been a significant easing of both monetary and fiscal policy in the
region. We have consistently worked with the IMF and the other international financial
institutions to ease policy where this is consistent with preserving external stability and
in the present circumstances we will actively explore haw policies might be easedfurther.
•
augmented international support for social safety nets Financial crises that begin on the
trading floor do their damage on the factory floor. The human costs of these crises have
already been profound, with years of rapid growth end poverty reduction in danger of
being reversed. (Young children being pulled out of school to sort garbage, anecdotal
material from Post articles..?) Announce that US is going to work with the international
financial institutions, primarily the World Bank and ADB, to provide substantially
augmented supportfor social safety net programs in Asia. These wouldfocus on the core
priorities cf creatingjobs and protecting the moat vulnerable, particularly the young and
old.
•
new international initiative in support of rapid restructuring: tbe burden of excess
coiporate debt and insolvent banks is today tbe number one barrier to a recovery in Asia.
Banks and companies axe stuck in a debt trap — banks are too indebted to lend and firms
are too indebted to recover witikout new loans. Similartoour own situation in the 1930s.
As then, need govemment to act to break the cycle and pave the way to growth, by
injecting capital into banking system and providingframeworkforrapid restructuring and
lifting of debt burdens. To help countries do this, I am asking Secretary Rubin to work
with Japan and others in the region to explore innovative ways of accelerating the
process offinancialand corporate restructuring In these countries. This could be
supported by newfinance and targeted technical assistance from the multilateral
development banks.
3. Strengthened Support for Major Emerging Markets
Must lead the international community in using every appropriate tool to defend our Interest in
stablefinancialmarkets and a pioBperous global economy.
First, and most important, that means an effective and adequatelyfimdedIMF to provide
emergency, conditioned support We know that no country can be helped that won't help itself.
But without support, even countries with lhe right potidea ean be hugely hampered — and the
costs of crisis greatly exacerbated — by the absence of outside support.
PitchforIMF: past year's crises have taken their toll on IMF's resources and raised real concerns
about its ability to respond in the event of the crises spreading to several more countries. Vital at
this difficulttimeforCongress to make good on America's commitment to IMF quota increase
and NAB. Welcome Senate vote. Urge House.
Second, we have been andyvtll continue actively considering how we can respond to the
unprecedented contagion we now see in world markets — that is greatly complicating countries'
efforts to pursue sound policies and avoid instability. In these circumstances the international
�PRELIMINAR Y DRAFT
SHF, September 10, 1998
Stage-setting — :
uniquely challenging time in the global economy. Afinancialcrisis that began in Asia
more than a year has taken hold across the region and spread, now, to Russia. One
quarter of the world's people - one third of the global economy ~ are already in
recession and some are facing economic and financial collapse. The upshot is that what
was once a problem affecting a group of emerging market countries now threatens to
become a global problem of confidence and liquidity, with consequences for our own
markets.
•
in the face of these financial crises we are hearing some the same voices we have heard in
previous times when the world looked to America a times of global uncertainty. They say
that America should stand back from these crises ~ weather the storm within the comfort
of our own prosperity and hope that the clouds will pass us by.
•
this would not be the safe course and it would not be the right course. Whether we like it
or not, this crisis will affect us and we have an enormous stake in working with other
countries to restore confidence and make these countries healthy again.
•
already, exports to the economies in crisis are down by nearly one third, year-on-year.
Private forecasts are suggesting that the crisis could add one half, even one percentage
point of GDP to the United States current account deficit this year. Consider the
implications of a sustained crisis for California, where about half of last year's exports
went to Asia. Or Colorado, where exports to Thailand alone grew nearly four-fold
between 1993 and 1996.
trade has accounted for one third of our growth in this expansion and is the prime engine
of high-wage jobs. More than 30 percent of those exports - and 40 percent of our
agricultural exports ~ go to Asia. More open and competitive commerce has enriched us
as a nation. It has spurred us to innovate and forced us to compete. It has widened the
circle of opportunity within our own country and across the globe — holding out the
prospect for unprecedented expansion in the well-being and opportunities of mankind.
we have already felt enormous benefits of globalization. But we will not truly realize
these historic opportunities unles we work together to defeat its dangers. If we stand back
from these crises we risk reversing the tide offreemarkets and broadening global
opportunity we have done so much to propel ~ and from which we have already gained
so much.
•
America made the wrong choice in response to domestic and global financial problems in
the late 1920s and early 1930s. And reaped a lethal harvest of deflation and depression
that laid the ground for devastating conflict. In the wake of that war a far-sighted
generation of leaders laid the foundations for a new era of freedom and prosperity ~
cemented by economic interdependence ~ whose legacy we enjoy today. (Marshall
�(Harvard speech):: "without the return of normal economic health in the world...there
can be no political stability and no assured peace. Our policy is directed not against any
country or any doctrine but against hunger, poverty, desperation and chaos ".)
•
what is needed today is a global growth strategy — to revive confidence and build a
stronger system for the future.
Concerted global action to secure growth
A generation of Americans has grown up worrying about inflation ~ and rightly. Eats away hardearned savings, stifles business and distorts markets. We have learned that lesson ~ and we have
applied it. But we must not forget the lesson of the 1930s - that competitive devaluations and
deflation are no less corrosive. Eats away at hope and opportunity within nations and lays the
seeds of conflict between them. In Japan today prices are falling and across the industrial
economies today lower than in a generation. We must not repeat past dangers — but nor can we
afford new ones that may be lurking in the wings.
In United States - we need to continue to pursue policies consistent with strong and sustainable
growth. Now and for the foreseeable future we are the world's indispensable engine of growth.
Every day we continue to expand we offer greater possibilities for other countries to themselves
grow out of trouble and in tum provide expanding markets for America. (Note jobs from exports
and role in 1990s growth).
But we cannot carry the burden alone ~ the largest industrial economies all have a stake in
ensuring they are pursuing policies that will safeguard global confidence. Critical part of this
effort will be Japan's contribution. As Japanese recognize, they are facing serious risks ~ deep
financial sector crisis, declining economy, collapsing confidence ~ with huge repercussions for
rest of Asia. Absolutely critical that govemment takes effective steps to revive the economy and
fix the banking system.
Support for a Rapid Recovery in Asia
Costs of this crises go well beyond company balance sheets. In Indonesia, in Thailand, Korea —
years of rapid growth and poverty reduction in danger of being reversed. Ordinary men and
women in Thailand, Korea, Russia and elsewhere are losing their jobs and their livelihoods.
Pensioners' savings are being eroded by inflation. Young children are being pulled out of school
to sort garbage. (Anecdotal material from Post articles?)
Critical to work to restore earliest possible revival of growth. Three core areas for action and
support:
•
effective macroeconomic policy: the international community ~ with American
leadership - must work to ensure that the macroeconomic approach being followed in
Asian crisis countries remain consistent with this goal. IMF has worked with countries to
loosen monetary and fiscal policy and make way for growth. Need on an ongoing basis to
�explore whether room to go further.
•
support for stronger social safety nets Financial crises that begin on the trading floor do
their damage on the factory floor. In recent years US have led the pressure on IMF,
World Bank and other international institutions to ensure that the costs of crises and the
difficult adjustment they bring do not fall disproportionately on the poorest. But we need
to do more. [Call on World Bank and ADB to launch an augmented social safety net
program for Asia — increasing their social safety net lending to crisis countries by *
percent over the next three years and strengthening and updating existing programs to
focus on today's priorities: children, the elderly and the unemployed. ]
•
private/public partnerships to address debt problems more quickly and decisively : the
burden of excess corporate debt and insolvent banks is today the number one barrier to a
recovery in Asia. Banks and companies are stuck in a debt trap ~ banks won't lend to
bankrupt firms and firms can't get restructured and recover because they cannot get loans.
Similar to our own situation in the 1930s. As then, need govemment to act to break the
cycle and pave the way to growth, by injecting capital into banking system and providing
framework for rapid restructuring and lifting of debt burdens. [To help countries do this,
launching an international initiative — centered around the IMF and World Bank. This
would devise more effective models for carrying out financial and corporate
restructuring in these economies, backed up by targeted technical assistance and new
finance to help them put the model into place.]
Strengthened Support for Major Emerging Markets
Must lead the international community in using every appropriate tool to defend our interest in
stable prosperous global economy - means supporting economies that are now vulnerable to
crisis or very important to the stability of the system as a whole.
Time and again experience has taught hat no country can be helped that is not willing to help
itself. But we have also learnt that, without support, even countries with the right policies can be
hugely hampered, and the costs of crisis can be greatly exacerbated ~ by the absence of outside
support.
/
^
J
(
•
need aggressive use of IFIs —past year's crises have taken their toll on IMF's resources \
and raised real concerns about ability to respond in future which are costing confidence. _y
The organization is prudent in judging its usable funds - but today is that rainy day.
Many countries are in crisis and many others are straining under the pressure of contagion
and declining market confidence. [Need IMF it to signal preparedness to use its reserves,
to support countries in trouble and tackle contagion. Most of all, need Congress to make\
good on America's commitment to IMF quota increase and NAB.]
J
•
also prepared actively to explore ways of mobilizing private capital -- harnessing the selfinterest of markets in there being ways to restore confidence quickly and support
continued flow of capital across borders.
,.
^\
m*
�We have been actively exploring ways of increasing flow of liquidity to these countries. possibly in ways that would not seem sound in more normal circumstances. (Include contingency/swap-line arrangements or global allocation of SDRs.) Bottom line is we will
continue to look for every prudent and effective means, in the face of such crises, to defend our
interest in stable and prosperous markets in our own hemisphere and beyond — and use the full
resources of the international institutions to secure that end.
Building a Safer System: A New Paradigm of Prevention
.
.
Finally, we need to look at global system to reduce theriskot thegerciises recurring and ensure
we have effective mechanisms for managing and containing them when they take place. Some
talk of creative destruction. But financial crises of the kind we have seen in recent months are not
creative of anything but pain and distress. If the global economy cannot avoid having them every
few years then it needs fixing.
Largely at our initiative, a variety of international groups are now developing recommendations
on how to reduce the risk of futurefinancialcrises, including the G-22 process, the G-7, and the
IMF. These efforts were on a path to produce some initial recommendations by early next
month. The recent tum in the crisis calls for expanding these efforts and placing them squarely at
the top of the global agenda.
Two urgent tasks ~ make sure we are doing all we can to respond effectively to these crises and,
over the longer term, applying the lessons of these experiences to build a stronger, more
sustainable world system going forward.
To this end, have been conferring closely with Tony Blair - head of G7. We are jointly calling
on G7financeministers (G8 plus 8 largest emerging market economies?) to prepare report for
the Heads by the end ofthe year. This would:
•
review the steps they are taking through the IFIs to address the current crisis and the
approaches in place to strengthen the global financial architecture to better prevent these
crises in future.
•
and examine ways the IMF could be adapted and its reform programs better designed to
dealing with the challenges of these new kinds of financial crisis and the social costs they
bring;
Yet we also need to think creatively about some of the broader questions about the structure of
the global system that have been raised by these crises. For example:
•
how do we ensure that capital flows across nations are sustainable in an era of
dramatically changing technology and markets? Money can flow more quickly, to more
places than ever before. That creates jobs and opportunities for advancement here and
around the world. But we have seen that it can create seriousriskswhere countries do not
�have the right policies in place to ensure that money is well-used. The task is not to deny
the benefits of open, truly global capital markets - but to work out the best set of policies
(international and domestic) for ensuring these are safe and sustainable.
•
what are the most appropriate kinds of exchange rate regimes and how should countries
seek to maintain them safely in a globally interconnected world?
•
the structure of lender of last resort financing going forward;
Conclude
Recap - need for aggressive growth strategy to rebuild confidence and pave the way for a
stronger world system.. Choice to make,-- protect and strengthen the gains of democracy and
free markets by taking these five steps. Or stand back and risk a self-perpetuating chain of panic
and economic distress that would hurt our future and our children's future. Choice is clear.
�THE WORLD ECONOMY
On the edge
The risks o f a deep global recession are increasing. But it can be avoided so
long as policymakers heed some lessons f r o m history
i i T A 7E ARE today in the middle ofthe
V Vgreatest economic catastrophe of
the modem world... the view is held in
Moscow that this is the last, the culminating crisis of capitalism and that the existing
order of society will not survive it." Thus
spoke John Maynard Keynes in 1931, as
world output was tumbling and unemployment everywhere inexorably rising.
But plenty of economists might express
similar views today. The world economy
has become far more dangerously poised even during the past
month, ; let alone over the past
year. At the annual meeting ofthe
Federal Reserve Bank of Kansas
City in Jackson Hole, Wyoming,
over the weekend, some central
bankers were privately admitting
that these are the worst global
economic conditions they have
seen in their lifetime.
The economic casualty-list
makes depressing reading. Japan
and most of the rest of East Asia is
in deep recession, GDP is expected to fall by as much as 15% in
Indonesia this year, and by 6-7%
in South Korea and Thailand.
Russia's govemment has, in effect, defaulted on its debt; its economic predicament worsens by
the day. China may yet respond
to the sharp slowdown in its economy by devaluing its exchange
rate, and the Hong Kong dollar is
under severe pressure. Latin
America still teeters on the brink.
Even some developed economies, such as Britain's and Canada's, are slowing. And Wall Street has fallen
sharply from its peak (see page 65). Indeed,
tumbling share prices have wiped almost
$4 trillion off the world's financial wealth
over the past two months—the equivalent
of Japan's GDP.
Economies that account for two-fifths
of world output, measured at purchasingpower parity, are already in recession or
stuttering. World output grew at an average
of 4% in 1996 and 1997, but J.P. Morgan, an
int
K C O N O M I W i t P I t M B h K 5111 l ^ y H
American bank, now forecasts growth of a
mere 1.5% this year and 1.7% next (see chart 1
on next page). Admittedly, these are at the
gloomier end of the present range of predictions. But if they turn out correct, this
would be the same growth over the two
years as in 1981-82, the world economy's
worst "recession" since the 1930s. And even
then, the bank is assuming that America
and Europe will continue to grow next year
(albeit at sluggish rates, of 1.3% and 2.1% re-
spectively); it also expects a return to modest growth in both Japan and emerging
Asia. If instead—as some pessimists expect—Asia fails to recover and America
dips into recession, global output could decline next year for the first time in 60 years.
Russia's implosion has triggered a new
phase in the emerging-market crisis. Its
economy accounts for a mere 2% of world
output, so its direct impact on world trade
and output is uny. Hut the indirect effects-
through commodity markets, investors'
confidence, the cost of capital—are proving
far bigger. Coming on top of other financial
troubles, Russia's plight could be the straw
that breaks the camel's back.
The sickness has spread far and wide: to
Eastern Europe, South Africa and Latin
America. Venezuela may soon be forced to
devalue its currency. Brazil's economy is
not in such bad shape as Russia's, but there
are some nasty similarities, not least a big
budget deficit (7% of GDP). Brazil has suffered a heavy capital outflow in recent
• weeks. The government may be able to resist a devaluation for a while, but the cost it
pays through higher interest rates will be
painful. J.P. Morgan now expects Brazil's
GDP to contract by 2% next year, reducing
growth in Latin America to just 0.8%.
There are two main routes for contagion from Asia and Russia to spread to
other economies. The first is commodity
prices. East Asian countries are
big importers of raw materials, so
the slump in the region has savaged the price of oil and other
commodites. Fears that Russia
might try to boost export revenues by dumping commodities
on world markets have exacerbated the decline. The Economist
all-items commodity-price index
has fallen by 30% since mid-1997,
to its lowest in real terms for over
25 years. The prices of industrial
commodities are now at their
lowest in real terms since the
1930s (see chart 2 on next page).
This has severely hun commodity producers, not just in Latin
America and Africa, but also in
Australia and Canada.
A second channel through
which emerging-market troubles
have spread is investor confidence. Bruised by big losses in
Asia and Russia, investors everywhere are fleeing from risky assets into safe havens such as
American Treasury bonds. The
best measure of this increased
perception of risk is that the average yield
on emerging-market government bonds
has risen to 15 percentage points above the
yield on American Treasuries, compared
with a mere three points last autumn.
Higher costs of borrowing dampen growth
throughout the emerging world; they also
inflate government debt-servicing costs in
countries such as Brazil.
Emerging economies with large current-account deficits, such as Brazil and Po19
�THE WORLD ECONOMY
More dominoes may fall in the emerging world, but the fate of the global economy stands on the shoulders of the American and West European economies, which
account for about two-fifths of world output. Both have been enjoying growth of
around 3 this year. But for how long can
%
their economies remain immune to the
presentfinancialturmoil?
More than two-fifths of America's exports go to developing countries, so it will
suffer some fall in demand thanks to their
slump. But the biggest risk to the American
economy is not a slowdown in exports, but
a further big fall in its stockmarket. Wall
Street's rise in recent years has proved a
powerful engine of growth for America's
economy. It has come to be taken for
granted—which is dangerous.
Thanks to the bull market, the mea- ity by more than a rise in prices boosts it,
sured wealth of American households has because of the greater adverse impact on
doubled over the past three years. This has confidence. On this basis, a 40% drop in
made consumers feel richer, and as a result share prices could trim consumer spendthey have saved less and consumed more. ing by 4-5% over two years.
In the second quarter of this year America's
Already there have been loud calls for
personal savi ngs rate fell to a historic low of America to cut interest rates to prevent a
0.6%, with consumer spending jumping at global slump. Indeed, forward markets are
land, may have a particularly tough time as an annual rate of 6%. Rising share prices discounting a cut in short-term interest
externalfinancedries up. They may there- also made it cheaper forfirmsto raise eq- rates. But a decision by the Federal Reserve
fore have to curb domestic demand. J.P. uityfinance,so fuelling a surge in invest- to make a quarter-point cut, say, would do
Morgan forecasts that total net capital ment. The risk now is that this could all go little to help Russia, Brazil orThailand. And
flows to emerging markets will slump to into reverse, as plunging share prices dent anything bigger could risk sparking American inflation.
$119 billion in 1999, down from an ex- consumer and business confidence.
pected $186 billion this year and $247 bilIf the Dow Jones stays close to its curAmerican interest rates are already
lion in 1997 (see chart 3).
rent level of nearly 8,000, then the impact lower than they otherwise might be. Had
Against this litany of woes, however, it on consumer spending may be small, as there been no worldfinancialturmoil the
is worth noting one small glimmer of hope. that still leaves the market 25% higher than Fed would surely have raised rates by now
In East Asia, export volumes are starting to in December 1996. But by such measures as to cool the excessive pace of growth. Many
pick up. Countries such as South Korea and price/earnings ratios or the yield gap, Wall officials at the Fed had been fretting about
Thailand may this year run current-ac- Street is still significantly overvalued—the the growth of afinancialbubble in Amercount surpluses of more than 10% of GDP. more so since profit growth this year seems ica, and the risk that it might have exploded
into future inflation. But if the bubble has
As a result, exchange rates have stabilised to haveflattenedout.
and interest rates have dropped—South KoWhat if the market plunged? A tradi- now burst, interest rates no longer need to
rea's, for instance, have fallen to 10% from tional rule of thumb used by economists is rise to prick it.
25% in December. The latestfiguresshow that a $1 gain in wealth eventually raises
Even so, it would be a mistake for the
that the East Asian economies experienced consumer spending by 3-4 cents. But al- Fed to cut interest rates just yet. For that, it
big declines in output in the second quar- most twice as many households now own , needs clearer evidence of a slowdown in
ter. But if these trends continue, their econ- shares as in the mid-1980s; so the wealth ef- demand, or the prospect that a further
omies may stop shri nki ng by the end of th is fect is likely now to be larger. Moreover, the' plunge in the stockmarket might threaten
year.
wealth effect may be asymmetric: a fall in to choke future spending. There is little sign
share prices could reduce economic activ- of either. America's GDP growth slowed to
The bubble bursts
an annual rate of 1 % in the second quarter
.
6
of this year, but that was largely due to the
Perhaps the scariest fallout from the latest
strike at GM, a big run-down in inventories
turmoil in Russia has been the fall in Wall
and a fall in exports. Domestic demand
Street and other developed markets. Decontinued to expand at an annual rate of
spite a midweek rally, the Dow Jones Indusalmost 7%. America's labour market retrial Average is still down by 1 %fromits
7
mains tight and money-supply growth has
peak, wiping out all of this year's gains.
been worryingly rapid.
Many WalF Street analysts complain that
the stockmarket has overreacted to the trouFed officials say that, if global economic
bles in Russia, which will have little impact
turmoil looks likely to endanger America's
on America's economy and corporate profeconomy, they are ready to cut interest
its. But this misses the point: American
rates. But for the moment the Fed is more
- share prices had previously risen to ext raorlikely to keep rates on hold. It has not fordinarily high levels by all historical valuagotten the mistake it made in 1987 when,
tion measures—and Russia was simply the
despite rapid money-supply growth, it cut
reason that investors, already nervous, had
interest rates in an overzealous response to
needed to start selling.
the crash on Wall Street. It was forced to in:
20
f l I . C O N O M 1 S I • Si: l ' i L M I I L k 5 I I
�THE WORLD ECONOMY
sion. Rather than allowing taxes to fall
automatically as incomes declined, the
Americans raised taxes in 1932 to balance
the budget. Not only do governments have
a better understanding of macroeconomics
today, but now that public spending takes a
much bigger share of GDP, their ability to
stabilise demand is greater.
The third difference between today and
the 1930s is that there were no global organisations such as the G? or the IMF to oversee the world economy. The 1 M F was set up
in 1944 at the instigation ofthe Americans
to head off any future global economic collapse. Its mission was to foster global economic co-operation and provide temporary financial assistance to countries with
balancc-of-payments problems.
The IMF is currently under fire from
economists and politicians for its handling
of the crises in Asia and Russia. They argue
that its remedies—tight macroeconomic
policies and far-reaching corporate and financial restructuring—have made things
worse not better. The most extreme critics
crease rates sharply a year later when inflation began to rise.
On the other side ofthe Atlantic, there
are already fears that Britain may have a
mild recession next year. On current
trends, however, the continental European
countries that will in January join the
planned single currency promise to be
among the world's fastest-growing in 1999.
European households hold less of their
wealth in shares, so a stockmarket crash
will have little effect on spending. For instance, in France and Germany, household
shareholdings are equivalent to less than
20% of their annual disposable income,
compared with 100% in America and 65%
in Britain.
Indeed, the real fear is that the new European Central Bank, anxious to establish
its credentials as guardian of the world's
second currency, the euro, will be inclined
to be too tough. Peripheral economies such
as Ireland's and Spain's have been showing
signs of incipient inflation. And the ECB is
eager to inherit the fearsome reputation of
the German Bundesbank. Should the euro
economies falter, there must be a risk that
the ECB will be too slow to respond by easing monetary policy.
In any case, if America itself trips up
badly it would probably drag Europe down
with it. That makes it more worrying that
continental European banks are more
heavily exposed to both Asia and Russia
than are their American counterparts.
Whereas American banks seem to have
learnt something from their painful mistakes of the early igSosrthe Europeans have
taken more risks in order to increase their
share ofthe market. In short, Europe, for all
its apparent health, cannot escape unscathed from the world's current turmoil.
The lessons of history
The odds are, however, that total world output will fall next year only if America itself
goes into recession. This cannot be ruled
out. But so long as policymakers in America
and Europe keep their heads—if need be,
cutting interest rates and allowing budget
deficits to widen—it is unlikely to turn into
anything like a i930s-style depression,
when America's GDP fell by 30% over three
years. There are many similarities between
now and the late 1920s, such as falling commodity prices and an overvalued stockmarket. But as Russell Jones, an economist
at Lehman Brothers, points out, there are
also some big differences.
First, until the early 1930s countries
were on the gold standard—under which
their currencies were tied to gold. This restricted their ability to ease monetary policy as economies went into recession after
the Wall Street crash of 1929.
Second, governments compounded
their tight-money mistake with tight fiscal
policies, even in the depth of the depresTHE ECONOMIST S F. PT T M H T R 5TH 1998
i
1930, Herbert Hoover signed the Smoo't-;.'^
Hawley tariff, which swiftly prompted^
other countries to retaliate. Today, the pro^ \
tectionists have so far remained quiet. But..
they will surely become more vocal ifAm erica tips into recession—or if its current-acr ~
.
count deficit, as is likely, continues to balloon ever upwards.
;
Capitalism in retreat?
A related and more worrying backlash
against free markets is the increasing interest on the part of politicians and economists in market intervention or capital
controls as a solution to the crisis. In a radical departure from its free-market tradition. Hong Kong's government has been intervening heavily to prop up share prices. It
says that its aim is to punish speculators
that have been selling shares short and betting against the currency in the hope that
higher interest rates will push down share
prices. On September 1st Malaysia imposed strict controls on capital movements. And respected American economists arc also now arguing the virtues of
capital controls.
Paul Krugman, an economist at MIT,
has argued, in a recent article in Fortune,
that Asian economies should introduce
capital controls. This, he suggests, would
break the link between domestic interest
rates and exchange rates and so allow governments to cut interest rates to get their
economies growing again.
Desperate situations may indeed call
for desperate remedies, but this seems
nonetheless an odd time to be advocating
strong controls on capital. After all, as it
were, the horse has already bolted. Introducing severe controls now could well accelerate rather than slow the flight from
emerging markets, by making investors
think the Fund should be abolished. Mcan- even less willing to invest new money.Such
whilcAmerica'sCongrcss is blocking an ur- controls, if they are not too leaky, inevitably
create economic distortions, as well as degent increase in its funds.
The IMP'S solutions may indeed have terring the long-term foreign direct investbeen wanting. In hindsight its policies in ment that is essential for growth in develAsia were too contractionary (and are now oping countries.
being eased), and its requirements for strucMost serious of all, governments that
tural reform may have demanded too hide behind strict capital controls have less
much in an environment of panic. But the ' incentive to pursue other essential ecoway to resolve these mistakes is to improve nomic reforms. Market discipline has
the IMF; it is not, as the critics advocate, to forced both South Korea and Thailand to
implement significant reforms—certainly
withhold much-needed funds.
If the emerging-market crisis deepens much more than Malaysia. And they have
and the IMF runs out of money; if Japan been rewarded: both have already cut their
continues to delay its plans to rescue i ts sick interest rates sharply this year without
banking system; if Wall Street crashes, but weakening their currencies.
Indeed the biggest risk now to the world
the Fed refuses to cut interest rates; if the
European Central Bank pushes up interest economy may lie not so much in a deep derates purely to establish its anti-inflation- pression, which could be averted. It is that
ary credentials; if all of the above, then there may be a wholesale retreat from free
things would indeed look bad forthcworld markets. Any such retreat would damage
economy. But one hopes that not all policy- longer-term growth prospects, which in
many emerging economies have been
makers could be that incompetent.
One huge policy error i n the 1930s was a steadily improving, for decades to come.
retreat towards protectionism. In June
21
�Tlie
Economist
SEPTEMBER 5TH 1998
Heading for meltdown?
T
A particularly dangerous, though by no
means unexpected, form of bad judgment is
abroad just now. It is the kind that says: "See,
that's what free-market capitalism does for
you." Using more or less those words, Malaysia's leader, Mahathir Mohamad, announced
on September ist a bold initiative to put the
country on the path to recovery: an array of
severe controls on cross-border flows of capital. Malaysia must insulate itself from the
global market, he said; it will no longer place
its fate in the hands of currency speculators.
Is this the answer? In the past few weeks,
the pundit consensus, such as it is, has swung
behind the idea that "capital controls" make
sense. Unfortunately, as it stands, this is hardly more illuminating than it would be to say "monetary policy makes
sense". As with many things, it depends what you mean. At
one extreme, governments might try merely to regulate their
banks' exposure to currency risk: whether that is "capital controls" or "prudential supervision" is a question of semantics
over which there is no need to shed ideological blood. At the
Luck and judgment
other extreme is a conscientious attempt to create a kind of
For thefirsttime since the early 1980s, global slump is a think- financial autarky, a space in which the govemment can steal
and squander its citizens' wealth without the inconvenience
able, even plausible, outcome (see pages 19-21). Indeed in
some ways the danger now is greater than it was then. Much of allowing them any alternative. When the range of possibilities runs so widely, from the defensible to the insane, it is
of the world is already deep in recession; the chances are that
the worst is not yet over for many big emerging-market econo- well to make some careful distinctions.
mies (as we will continue to call them for now), not to menMalaysia's plan appears to be somewhat towards the
tion for a handful of rich-country commodity producers,
crazy end of the spectrum. By trying so hard to discourage
whose export revenues have crashed. What mainly stands be- capital outflows, the government could end up, net, increastween the world and an economic setback worse than anying them. Draconian capital controls do not stop capital
thing since the Great Depression ofthe 1930s is the present
flight (Latin America in the 1980s, passim); what they may
momentum of growth in America (above all) and Europe.
well stop is private capital inflows—and not just the volatile,
Can that momentum be relied upon? Mid-week, Wall short-term sort. An abrupt and exaggerated slowing of inStreet stood some 15% lower than at its peak in July. Yet at
flows brought Malaysia and the other ex-tigers to their present
these prices American equities are still dear. If the market
state. The best way back includes a resumption of those inwere to fall another 20%, say, the shock to American consum- flows. Mr Mahathir seems to be ruling this out. . ;• .
ers might be enough to bring the country's long expansion to
Unquestionably, a lot of hard thinking heeds to be done
an end. With it would go any hope that the United States
about the international financial system—and, even more
coiild pull the world out of its troubles.
important, about the domesticfinancialsystems of emerging
With luck that will not happen. With luck Wall Street will
economies that wish to avail themselves ofthe global capital
take its losses and stabilise. And if share prices do fall further, market. Although the econom ic pa in that is being inflicted on
or if demand in America slows abruptly for some other reaRussia and the ex-tigers is out of all proportion to the policy
son, effective remedial action is still possible: the Fed could errors of their governments, the fact remains that the vulneracut interest rates (as it did, too much so as it turned out, after bility tofinancialcrisis was created not by international specthe stockmarket crash of 1987) or Congress could cut taxes. In ulators and other bogeymen but by woefully inadequate
other words, to get from here to recession in America, and
oversight of domesticfinance,private, public and quasi-pubthence to global slump, is likely to require not just bad forlic. But the governments concerned were not the only ones
tune but also bad judgment. Perhaps that thought is not as
who failed to realise that. They had many willing helpers in
consoling as it should be: when things get tough, judgment all screwing things up. There is plenty of blame to go around.
too often seems to go out of the window.
As for the sentiment that it is not merely the international
HE global economic crisis continues to
deepen. The latest horror, Russia's collapse, may be insignificant judged by that
economy's puny weight in the world, but it
was nonethelessa turning-point: thesickness
that started in Asia is spreading still, claiming
victims far beyond its source. Investors cannot find time to count their mounting losses,
so busy are they trying to guess where the
plague will strike next. The recent extraordinary (and mainly downward) gyrations in
stockmarkets bear witness to the new surge of
fright and confusion—and to mounting concern that the turmoil in emerging markets
will end in worldwide depression.
It is a time when anyone would be grateful for reassurance. Yet the best the world's leaders could do was a tragicomic meeting of Boris Yeltsin and Bill Clinton, the first destroyed by political enemies and forces beyond his control,
the other crippled by his own weakness of character. Was ever
a "summit" so likely to be prologue to disaster?
;
TUT. ECONOMIST SEPTEMBER 5TH 199^
1
3
�LEADERS
; .. capital market but the basic principles of capitalist economVi^fies that need to be questioned, one can only despair that the
f/fi thought has even surfaced. Yes, China and India, which for
years have been far less connected to the global capitalist system than South Korea and the others; have fared much better
in this crisis. There are doubtless lessons to be learned from
this. But can it seriously be contended that they chose the right
path? Even if the tigers' troubles get much, much worse before
they get better, China and India after their years of relative
isolation will still be far, far poorer at the end of it all.
In any event, the task now is to ensure that things do not
in fact get much worse. The heaviest burden of responsibility
lies with Japan, whose government could do a great deal to
make the world a safer place if at long last it took steps to
repair its broken banks, and began to act as a stabiliser for
Asia (as the United States was for Mexico after the peso crisis
of 1995). Beyond that, unless demand slows enough in America to justify action by the Fed (which hasn't happened yet), it
is a question of avoiding mistakes.
That should not be too difficult. Yet Malaysia has already
made one big error. And quite soon America's Congress
threatens to make another—by failing, out of a mixture of exhaustion and disapproval, to replenish the IMP'S depleted resources. Two varieties of economic isolationism, of hoping
that the world and its troubles will go away. Come to think of
it, there was a lot of that in the 1930s.
Russia takes the plunge
And there is not a lot the West can do to help
D
OES Russia matter any more? It is tempting to say no.
Once a superpower with a mighty military machine
and a driving belief in its destiny as the only great nation
straddling Europe and Asia, its economy is now on a par—in
size if not quality—with Spain's and only two-thirds as big, by
some measures, as Indonesia's. Good riddance, then, to the
pretensions of a once-proud nation? And good riddance to its
once-heroic but last-crumbling leader, Boris Yeltsin?
Not quite yet. Russia still matters hugely by virtue of its
sheer geographical size, lumbering across 11 time zones, with
a large and well-educated population of 147m, and endowed
with the richest natural resources in the world. That its human and material potential remains so vast only makes its
latest plunge to ruin all the more regrettable. And it still
boasts an array of nuclear weapons, some of which, though
unlikely to be used, could yet be lost as internal chaos spreads.
Meanwhile, its capacity for political mischief is immense.
As for Mr Yeltsin, his era is drawing to an early close,
whether or not he formally bows out (see pages 45-47). His
second term of office has been little short of disastrous. But,
given the grisly list offlawedcandidates who might replace
him, he may be able to perform one last service—by hanging
on as a last-gasp president to give a breathing space for a new
order, one with parliament and a coalition government making the running, that might halt the slide into total anarchy.
Otherwise, something nastily authoritarian, perhaps even a
thoroughgoing tyranny, could ensue.
The West's ability to help shape a better Russia—whether
economically or politically— is limited, as President Bill Clinton no doubt ascertained during his visit to Moscow this
week. Yet there is one area where America and its European
friends can continue to make a difference: security. American
efforts to cajole Russia into signing the START-2 nuclear armscutting treaty, held up by a recalcitrant Duma, need to go on.
In its own interests, the West should go on buying up surplus
nuclear material and ensuring, by bribery if need be, that underpaid Russian scientists do not sell their skills to rogue
countries trying to build nuclear bombs.
On a more conventional plane, as the delicate business of
NATO'S enlargement proceeds, the alliance needs to offer ev14
ery sort of inducement to Russia to maintain and extend the
sort of co-operative partnership that is already under way. At
the same time, it must be made plain, to whomever rules in
the Kremlin, that any Russian bullying of small neighbours
such as the Baits or bigger ones like Ukraine will not be tolerated. As Russia wobbles, the West must try harder to bolster
the countries on Russia's fringes. For all these reasons, even if
Russia turns sulkily inwards, it must be kept as strategically
engaged with the West as possible.
In economics, the kind of engagement of recent years
must, perforce, cease. For the time being at least, Russia has
forfeited hopes for help. The West took a big but reasonable
gamble by lending money to Russia when it was led by a team
of reformers trying to do roughly the right thing. But the Russians have now flouted just about every condition for getting
help from outside. When, in its own good time, Russia has
made real reforms and something of a civic order, built a tax
base and solid institutions, and learned that honesty in business pays, then the West should come back in. Not now. And
things may well have to get a lot worse before then.
Nobody left to hug
It is even less wise for the West to play politics: picking Russian winners is a fool's lottery.The real reformers—the likes of
Boris Nemtsov, who sadly failed to achieve much in Russia's
recent string of down-the-rabbit-hole governments—are simply not going to be elected. Their sponsorship by the West
could make them even more disliked. Indeed, if elections to
parliament and the presidency were held tomorrow, none of
the possible winners—Communists in league with nationalists, crony-capitalists, ex-military strongmen—would be able
to save Russia from further ruin. And the drift during the
three months that would have to elapse before people got to
the polls could harm Russia further.
Better, perhaps, if a government of national unity could
be cobbled together, including the Communists, so that an
all-but-neutered Mr Yeltsin and it is to be hoped a more responsible parliament could stagger on. Russians, however,
may think otherwise; and one could hardly blame them.
] n 1: ECONOMISI S K H T L W bt:K 51 n i y y S
�I. Introduction: The U.S. Economy Is Strong
•
•
•
Building Blocks/Growth Still Sound
As the President stated in his SOTU - no one immune
Greenspan quote on oasis
The need to understand the rules of dynamic international economy and what the U.S.'s
role is.
•
•
•
II.
Issues often seem technical, complex, even academic
Principles, however, are basic and fundamental
Rules have an everyday life resemblance to them:
- Interdependence (Community)
~ Responsibility
-- Merit
-- Trust
Interdependence: One Community
In recent weeks and months Americans have seen and felt in a tangible and vivid way the degree
that weakness in economies in one part of the world 1000s of miles away can have an impact on
our families and communities here at home.
A.
Weakness in Competitors' Economic Infrastructure Hurts Not Helps Our
National Well-Being
As I said in the State of the Union, other countries are our competitors, our
customers, and our security partners. In the past, we may have looked at nations
like Russia, Japan, and South Korea as competitors whose strength could hurt
America's industries and job growth, and whose weakness would allow our
companies and our workers to triumph.
Yet, in an interdependent world economy ~ weakness in our partners hurts not
helps us. Strong competitors competing with each other and buying each other's
products strengthens both countries at the same time. Weakness in one nation,
and competition in another country leads currency to drop ~ making one country
poorer and unable to buy our products which makes products too cheap and
threatens the stability of our security partners.
B.
Economic Weakness Can Be Contagious and Weaken the World
The key reason why weakness in competitors affects our interest is the role that
weak demand in one nation play ~ it can weaken demand, exports and confidence
in other nations and cause currencies to fall and this lead investors world-wide to
pull-out all investments punishing countries who have failed and been virtuous
�alike in strengthening their economies.
So the main objective of the U.S., G-7, International community, IMF, and the
World Bank is, as part of a precautionary measure, to not only help other nations
pull their troubled economies together, but to prevent as much as is possible steps
that could eventually lead to a negative cycle.
Today, there is certainly a nervousness and reduced appetite for risk that could
affect any market including our own. I still feel that markets will reward those
with economies with strong fundamentals in the long-run. This is why each
country must put their fiscal house in order and those that do should be supported
by the rest of the international community. This differentiation is important.
III.
Responsibility
In the world economy, the value of responsibility and the rules of global markets are in sync.
The basic value that others can only help someone who helps themselves applies to countries as
well as people. Basic economic relations (realities) of world markets make that value every bit
as applicable in international economic policy as it is in domestic policy.
A.
Emerging Market Nations
When a nation's local citizens, as well as its international investors, lose
confidence that the economic rules of a nation will not be applied fairly and
uniformly; when they become convinced that a nation will handle fiscal
imbalances or a debt repayment problem by printing money instead of fiscal
discipline, or by saddling banks with a combination of short-term debt and longterm bad loans, both its citizens and outside investors will retreat-- pulling out
money, investment, and job-employment production.
Providing additional funds to a nation that is failing to build confidence by
reforming itself would be like giving funds to a drug addict to rebuild his life
before he has committed to kick his habit. All the money in the world will not do
any good until the decision over individual responsibility is made. A core
philosophy of EMF approach is to assist only conditionally: only when a nation
has taken responsibility to determine its own place and its own commitment to
restore confidence. Our inter-dependence and sense of community calls for us to
work through the international community and IMF to help those trying to do the
right thing to help themselves and keep global economic stability Yet, ???? us to
realize that it is careless to offer assistance to a nation unwilling to take
responsibility - knowing that is will only fund people seeking to move money
out.
Examples or description that defend the IMF approach.
�B.
IV.
Investors
Investors who take responsibility for bad or unfounded investments. Moral
hazard. Why people really have taken serious hits ~ equity investors and
everyone in Russia. (Or could fit in Market Discipline)
Merit and Market Discipline
The market works to allocate credit in a way that rewards good ideas - ideas that
are tested by the wants and needs of million of average consumers who vote by
their purchases in market place.
At times countries may create incentives for crucial social purposes. Yet, when
decisions are made simply on personal relationships, political connections, and
private fortunes a cycle of inefficiency is created; money is allocated to people
based on non-market reason who then are freed from market-discipline, but
continue the cycle of poor loans or investments. Eventually, this cycle turns and
the "chickens come to roost."
The international "rules of the road" may allow for infusion of capital temporarily
when investors ignore or fail to recognize non-market decision criteria and delay
market discipline. It is clear that as you go forward, you must have a set of
criteria in place that ensures that the cycle of inefficiency will not be created.
This new reform must be anti-croynism, market-based, and ?. Furthermore,
investors should not be immune or fully protected from funding such ???
Important to prevent moral hazard . Examples of how most have taken big hit,
Russia example. All must bear responsibility for contributing to such cycles.
V.
Trust and Openness
In order for international markets to work, people must be able to trust financial
information. Systems of hiding information, failing to give good information can work
until you get burned for the first time.
•
Transparency point
•
Budget and Banking
�EMBARGOED FOR RELEASE AT 9:30 AM CDT
Remarks as Prepared for Delivery
August 4, 1998
"THE GLOBAL ECONOMIC SITUATION AND WHAT IT MEANS
FOR THE UNITED STATES"
DEPUTY TREASURY SECRETARY LAWRENCE H. SUMMERS
REMARKS TO THE NATIONAL GOVERNORS ASSOCATION
MILWAUKEE, WISCONSIN
Thank you. It is an honor to be here. Let me say, first, that I am particularly glad to be following
Daniel Yergin here today. Because it is against the backdrop ofthe events described in his book - the global embrace of the market and all that that implies -- that today's turbulent economic
times should be considered.
I would like to spend most of my time today discussing the global economic situation, the United
States response to it, and the vital role of the IMF in that response. But let me begin with a few
words about conditions here at home.
The American economy today is the strongest it has been in a generation: 16 million new jobs in
the past five and a half years, stable prices, real wages increasing at their fastest pace in 25 years,
and lest we forget, the budget deficit is no more. At the start ofthe first Clinton Administration
the deficit for 1998 was projected to be $357 billion. Today, as you know, we expect a
significant surplus.
These successes have come because our policies have been prudent, and in a deeper sense,
because America is superbly placed to take advantage of the kinds of trends that Daniel Yergin
has described.
Emerging markets are paving the way for the world's first truly global economy. Countries
where three billion people live have moved toward the market, with vast populations seeing a
doubling, sometimes trebling of incomes in a single generation. And if you think about emerging
markets, about Latin America, about Central and Eastern Europe, about Asia — America is
uniquely linked to all of these regions and uniquely placed to prosper from their emergence.
Information technology and modem competitivefinanceare fast moving us toward a post-
�industrial age. And if you think about what this new economy means - whether it is AIG in
insurance, McDonald's in fast-food, Walmart in retailing, Microsoft in software, Harvard
University in education — the leading enterprises are American.
And yet, as a wise former Secretary of State once said, "history knows no resting places and no
plateaus". As strong as our economy is ~ as well-equipped as we are to compete ~ our capacity
to continue this success in an ever-more interconnected world will depend in no small part on
events beyond our shores. And looking around the world, there are today enormous reasons for
concern.
I. A Critical Time For The Global Economy
What has been labeled the Asian financial crisis is today having a very substantial impact not
merely in these countries but globally.
The Thai, Indonesia, Korean and Malaysian economies are all now expected to shrink
substantially this year - by upwards of 12 percent in the case of Indonesia - with
unemployment and inflation rising to unprecedented levels.
Japan, the world's second largest economy, has been mired in recession for seven years
and faces banking problems several times larger than our own Savings and Loan crisis in
the early 1980s.
In South Africa, where the US exports more than to all of the states of the former Soviet
Union, we have seen the rand depreciate by over 20% in the last 3 months.
And in Russia, continuing structural problems have been exacerbated by contagion
effects from Asia and have raised serious questions about the future. Russia's trouble, in
tum, has the potential to become Central Europe's - and the world's.
Make no mistake. Containing these problems is critically important to America's future. It is
about safeguarding American jobs, American savings and American national security.
Trade has accounted for one third of our growth in this expansion and is the prime engine of
high-wage jobs. More than 30 percent of those exports ~ and 40 percent of our agricultural
exports — go to Asia. Already, exports to the economies in crisis are down by nearly one third,
year-on-year. Private forecasts are suggesting that the crisis could add one half, even one
percentage point of GDP to the United States current account deficit this year.
•
Consider the implications of a sustained crisis for California, where about half of last
year's exports went to Asia.
Or Colorado, where exports to Thailand alone grew nearly four-fold between 1993 and
1996.
�American markets have been remarkably strong in recent years, including through the last year,
and American savings are ever more dependent on our markets. But history teaches us that the
performance of our markets continues to become more closely linked to the performance of
global markets, because our companies' profitability depends increasingly on these markets and
because ever more capital flows across international borders.
The Cold War is over but the world is still a fragile place. In too many ways - nationalist forces,
economic frustration, incipient ethnic conflicts, a shortage of institutions knitting nations
together - Asia bears resemblance to Europe at certain points early in this century. Seen in that
light, a strong response to the crisis that prevents it from festering is forward defense of
America's core interests.
I am convinced that few issues we confront will be as important to the way the 21st century
begins as our management of these crises. Our goal is clear: to work to restore stability and
growth in Asia and Russia and prevent further contagion in other markets. Let me now say a
little about the means.
II. An Effective Response
Our response in addressing these situations has been based on three principles.
First, a strong domestic response is the absolute prerequisite for restoring stability
because any amount of financial support that goes into an economy will flow right back
out if policies are unsound and governments are not credible. That means sound monetary
and fiscal policies; that means policies to strengthen the financial system; and that means
structural reforms to open the economy, raise transparency and let market forces operate.
Second, in many ways, sovereign financial crises have elements of a self-fulfilling
prophecy - like bank runs, everyone expects failure or everyone expects everyone else to
expect failure which leads to a rush to be the first one out and thus causes failure.
Temporary, conditioned international financial support provides countries a bridge to
overcome this self-fulfilling prophecy.
Third, there must be strong policies to support growth in the major economies of the
region. Because no country will emerge safely from crises in an environment of regionwide deflation and declining demand.
The United States must continue to do its part in maintaining sound economic and
financial policies that provide the basis for sustainable economic growth that we
are experiencing today.
•
The Chinese have recognized that their continued commitment to addressing their
financial sector problems and to maintaining a stable currency will be critical to
the stability of Asia.
Japan, the largest Asian economy, has an even more crucial role to play. The new
govemment has reaffirmed the importance offiscalaction to stimulate domestic
�demand and tackling decisively the problems in the financial sector. But as
confidence has declined so too has the scope for further delay
The crisis is still very much an unfolding story, and very large challenges lie ahead. There is no
question that there is enormous economic distress being felt in the countries worst affected. This
is inevitable given the massive withdrawals of private capital that have occurred. But it is
encouraging that in those countries that were first hit and where policy has been most determined
there has been evidence of containment:
•
In Korea and Thailand the run on the currency has stopped and production shows signs of
stabilizing. The Korean won has risen more than 35 percent since January, retracing
almost four-fifths of its decline, and import volumes have actually been rising in recent
months.
•
And in Latin America, a quick response to market pressure in Brazil last fall has helped
to maintain stability in a region not so long ago considered highly vulnerable.
The case of Mexico is instructive. In early 1995 Mexico was mired in crisis and a matter of days
away from default. The economy shrank by 6 percent that year. But with strong policies and
conditioned support from the United States and the IMF, it grew over 5 percent the year after and
has sustained that pace ever since. Unemployment has fallen and investment and real wages are
on the rise.
To be sure, the implementation of the principles I have been speaking about involves questions
of balance.
•
National sovereignty should be respected, politics should be understood, and the
provision of support should not engender a backlash against the providers. These criteria
must be balanced against credible policies that will contain the crisis, reduce the risk of
future crisis, and have the potential to increase confidence. In Asia, the problems related
to "crony capitalism" are at the heart of this crisis and that is why structural reforms must
be a major part ofthe IMF's solution.
•
Economic growth ~ not austerity — is a crucial objective of support programs, but a
resumption of market confidence is essential to restore growth, with this balance being
particularly difficult to strike when banks are failing and currencies collapsing. It does
bear emphasis that interest rates in Korea and Thailand are near pre-crisis levels and, in
real terms, are well below pre-crisis levels. And in Thailand, the govemment has chosen
not to make full use of the fiscal expansion provided for in the IMF program.
•
A balance must be found between the imperative of maintaining confidence and avoiding
bailouts of investors who should have known better. As Secretary Rubin has often said,
he would not give one dime to help any creditor or investor, but the imperative to create
confidence and to avoid disaster can in some circumstances compel actions that do
benefit some creditors. To be sure, investors in non-Japan Asia have lost, by some
estimates, as much as three quarters of a trillion dollars, in part because ofthe programs
for resolution of private-sector debt entered into by Korea and Indonesia along with the
�IMF.
The final area of balance is in the application of conditional support. In each crisis
country, the international community's interest is to reinforce market confidence while
national policy makers are motivated to act in an expeditious yet prudent manner. This is
one reason why the IMF has, at U.S. behest, begun charging penalty interest rates on
extraordinary loans.
III. The Way Forward
The United States has enormous stakes in containing financial problems around the world. What
will be most crucial going forward is the steps other countries take, particularly in Japan and in
Russia.
•
Japan's actions to fix its problems and to get its economy growing are crucial to the
future of the world economy.
The success of the Russian government in carrying forward on its reform program is of
the utmost importance economically and politically.
And, as the world's largest and strongest economy, we too have a critical role. Most
important is keeping our economy strong, maintaining the strength of our example, and
encouraging others to take necessary policy steps.
What is also essential is providing the IMF with the support that it needs. The IMF has been
critical to our containment of the Asianfinancialcrisis to date.
Let me be clear. Without the IMF there would have been no effective international response to
events in Asia and we would, without question, be facing a situation far more serious and
damaging to American interests than we face today. There would have been no conditioned
reforms; there would have been larger devaluations and greater reductions in these countries'
capacity to purchase our goods; and I am confident that there would now be much more pressure
on the United States ~ at events such as this one — to respond unilaterally with taxpayer
resources.
The crises have taken their toll on the IMF's resources, and as of today, the IMF has less than
$10 billion that it could prudently use to respond to an intensification ofthe present crisis.
Moreover, its lack of resources could well become a constraint to action in case further problems
arise, and by reducing confidence, its lack of resources make future problems more likely. And
the IMF's ability to get new resources awaits approval by the United States.
Making good on our commitments has not cost American taxpayers one cent. Appropriations for
the IMF are scored as a zero net cost to the budget. That is because the IMF acts like an
international credit union. We and other countries are providing a line of credit, and when the
IMF draws on our commitments, we receive a liquid, interest bearing offsetting claim on the
IMF.
�To say that the IMF has been indispensable is not to say we must be satisfied with the institution
we have now. The IMF needs to be more transparent and accountable to the public, allow for
increased external evaluation, and work at ways of making more information available to the
markets. With pressure from the United States, the IMF has come some distance in these areas
but it is not past the finishing line. It seems clear to me that the way forward is for the U.S. to
continue to shape the IMF's approach to economic policy around the world.
But maybe the way forward is to look backward when, as in the 1 QSO's, there was no effective
international response to financial crises. The result was competitive devaluations, deflation,
contraction, and widespread depression that laid the ground for what was as great a conflict as
human history has seen.
The speaker who follows me this moming has written eloquently of American diplomatic history
as "oscillating between isolation and commitment". In the 1920s and early 1930s we oscillated in
one direction - with disastrous consequences for America, and the world. With the leadership of
Franklin D Roosevelt and our post-war leaders we swung decisively — and triumphantly — in the
other.
When we consider our failure to pay our dues to the United Nations and prospective loss of our
seat in the general assembly; when we consider our failure to ensure adequate funding for the
IMF; the conclusion can only be that we are fighting another swing ofthe pendulum into perilous
isolation. America's success and economic strength is not now in question. What is today very
much in question is our ability to invest that success wisely. Quite simply, not to invest in an
effective IMF at such a time would be like canceling your life insurance when you have just
gotten sick. It is simply not a risk we should take. And with your help, it is not risk we will take.
Thank you.
-30-
�1) E V A K T M i : N 1
O I
TREASURY
T I1 i;
1 K li A S U R Y
NEWS
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
EMBARGOED FOR 7:15 P.M. EST
February 23,1998
"American Farmers: Their Stake in Asia, Their Stake in the IMF"
Remarks By Lawrence H. Summers
Deputy Secretary of the Treasury,
Department of Agriculture
Washington, DC
Thank you. 1 am glad to have this opportunity to discuss recent developments in Asia and the
United States response to those events.
There is little need to remind this audience that Asia matters. There is little need to remind you
that resolving the financial crises in the region is about protecting core American interests protecting American wages, American savings and American security. No one can be certain
what the precise impact of these events will be. But one thing is clear: American farmers and
ranchers will be among the first to feel the effects. And they will be among the first to suffer
from a failure to restorefinancialstability as soon as possible.
I'd like to discuss three topics this evening:
the crises in Asia and risks they pose to the United States -- the agricultural sector, in
particular;
the United States response to these crises and key role of the International Monetary
Fund;
the urgent need to offer continued support for the IMF in the context of these efforts.
I. The Crises in Asia and the Risks to American Agriculture
These crises come at a special time for the United States -- a time of rapid, sustained growth, a
time of low inflation, a time of historic increases in employment. We have a responsibility to do
all we can to protect this strong performance. In an interconnected world, that means protecting
our growing stake in a stable and prosperous global economy.
Our exporters, with agriculture, as always, at the forefront, have played a major role in our recent
RR-2241
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®
�economic success. Financial instability, economic distress, and depreciating currencies all have
direct effects on these highly integrated sectors: on the pace of our exports, the competitiveness
of our companies, the growth or our economy and the well-being of our workers:
•
in the past four years, nearly one-third of our economic growth has been due to exports ~
exports which now support more than 11 million jobs, and pay, on average, 15 percent
more than jobs in non-trade-related sectors. And some 45 percent of the recent growth in
our exports has been in Asia.
•
Asia is the largest market for agricultural exports, and has been growing at the second
fastest rate. Fully 45 percent - $28 billion ~ of United States farm exports go to the
region. The South-East Asian economies and Korea, the countries worst affected by the
crises to date, account for 12 percent of all American agricultural exports.
As early as last December USDA was estimating that the crises in Asia would cut United States
exports by $500 million this year. Without the multilateral assistance package assembled by the
IMF, USDA now believes the crises might have reduced United States exports worldwide by 3 to
6 percent over the next two years relative to what would have been. For this fiscal year, the loss
in exports would have been $2 billion, with sales in Southeast Asia and Korea alone falling $1.25
billion.
None of these, very imprecise estimates take account of the further knock-on effects if the crises
were further prolonged, or spread to emerging markets in other regions ~ leading to a cycle of
costly devaluations and impeding open trade.
And, of course, it would not only be trade that was affected. A long drawn-out crisis:
•
could also affect our financial markets, and with it everything from investment in tools
and equipment for workers to mortgages for new homes;
•
it could raise serious concerns for national security, given the proven potential for
financial crises to trigger broader conflicts. We have 100,000 troops in Asia, 37,000 on
the Korean peninsula alone, where North and South Korea have only just begun
negotiating a possible end to their conflict.
To repeat, any forecast of the impact of these crises ~ like the situation in Asia - is highly
uncertain. A great deal will depend on the success of United States-led efforts to restore stability
and growth in the region and to limit the impact on our economy.
II. The United States Response
We have taken direct action through USDA's Commodity Credit Corporation to lessen the
effects of the crises on US farmers and ranchers by making available $2.1 billion in export credit
guarantees to Korea and other Asian countries. GSM is working. American exporters have
already sold over $362 million worth of beef, cattle hides and skins, cotton, pork, soybean meal,
and wheat since the package was announced in early January.
�A similar effort is underway to support our capital goods exports. Last Friday, in London, Ex-Im
Bank organized a multilateral export credit agency (ECA) initiative to keep trade finance flowing
to Asian countries undertaking reform programs. In conjunction with the pursuit of policies that
maintain creditworthiness, Ex-Im Bank announced that it is prepared to provide short-term trade
insurance of up to $1 billion each to Indonesia, Korea and Thailand ~ a major increase from ExIm Bank's pre-crisis level of $62 million.
Providing this support is truly a win-win proposition for the United States: it gives immediate
protection to American exports and jobs, while at the same time speeding the long-term recovery
of these important markets.
In the midst of the crises, ajl of these efforts will help to keep trade flowing and markets open.
But there is a limit to what they can achieve while thefiresof financial instability are still
burning. The overriding imperative must be to restore stability and growth so that these countries
will once again be strong markets for American goods, and will enjoy the economic conditions
conducive to political and social stability. To support that objective we have:
•
given strong United States support to tough IMF-led reform programs in Thailand,
Indonesia and Korea to restore market confidence and lay a surer foundation for growth;
•
where these reforms are to be carried out, supported the provision of temporary,
conditioned, international assistance, centered around the IMF, to give countries the
financial breathing space to put their economies back on track;
•
encouraged strong action by other economies in the region - especially Japan and China
~ to promote their collective interest in long-term financial stability and growth;
•
stepped-up US-led efforts to strengthen the international financial system to safeguard
against these kinds of crises and respond to them effectively when they do take place.
Let me say a little about the content of the reform programs we have supported in Asia and the
implications for United States trade.
While each program is tailored to address the specific causes of that country's crisis, the focus
throughout has been on making the economy more market-oriented and better able to allocate
capital and to allow market forces to operate. Important, long overdue changes will need to
occur in the structure of these economies — changes which have been welcomed, in many cases
by officials in the countries themselves.
The upshot is that these programs will serve a dual purpose for United States exporters and
farmers. Not only will they help stabilize the situation in the short-term and support our existing
markets in Asia; they will also help open up many new markets and opportunities for United
States companies and United States farmers. Specifically:
•
Indonesia's stabilization package commits the govemment to eliminating a range of
officially-sanctioned import and export monopolies, removing export taxes on resource
products, reforming the govemment procurement process, and accelerating the pace of
�privatization. Tariffs on food imports have been cut to a maximum of 5 percent, effective
immediately.
•
and in Korea, the govemment will streamline its cumbersome import clearance
procedures on products such as com grits, soyflakes, and peanuts; it will eliminate traderelated subsidies, reducing high price supports for rice and beef and reducing the number
of agricultural products subject to tariff rate quotas and noneconomic directed lending to
industry will come to an end.
In some ways the IMF has done more in these past few months to liberalize these economies and
open their markets to United States goods and services than has been achieved in rounds of trade
negotiations in the region. And it has done so in a way that serves our critical, short and longer
term interest in the restoration of confidence and growth in this vital part of our world.
III. The Need to Support the IMF
Everyone here understands the critical role for short-term international support at times of
financial crises ~ support that can put a floor to a plummeting exchange rate, a declining
economy, and a shrinking capacity to buy imports.
The international community will not help countries who are not committed to helping
themselves. But without short-term outside support, even those countries that are pledged to the
right reform policies might face default ~ either at a govemment level or by the financial system
as a whole -- which could have devastating effects on their own economies and significantly raise
therisksof contagion in other markets.
This is not just an hypothesis. The world has had ample experience with international financial
problems that do not meet with a cooperative response. A recent Washington Post column talked
about what was for 50 years called America's Great Depression: the events that began in the
1870s, which hit our farmers worst of all. And of course, an even clearer example of what
happened when the United States was not prepared to lead with respect to international financial
problems was provided by events in Europe in the early 1930s, when devaluation - competitive
devaluation ~ deflation, contraction, and widespread depression laid the ground for what was as
great a conflict as human history has seen.
The United States has an immense interest in helping stop these vicious chain-reactions in their
tracks. And in the IMF we have the most effective way for us to provide that help. That is why
the United States needs urgently to follow through on its commitment to support the increase in
IMF quotas that was agreed last year, and contribute to an important new emergency facility, the
New Arrangements to Borrow, to supplement the IMF's resources in these types if situations.
Fifty years of bipartisan support for the IMF has not cost the American taxpayer one cent,
because it has not had a major default, and because its lending is backed by very substantial gold
reserves. The IMF presently has $65 billion in loans outstanding ~ and $40 billion in reserves.
It operates much like an international credit union. We and other countries provide a line of
credit, and when the IMF draws on our commitments, we receive a liquid, interest bearing
�offsetting claim on the IMF. That is why there are no direct budget costs. That is why our
contribution does not increase the deficit, or impact other spending priorities.
The United States has been an active proponent of changes at the IMF to make it more effective
in support of US interests. In the last three years we have worked to:
•
adapt the IMF to a world that is much more dominated by capital accounts than any we've
had before, and to one in which greater transparency of international financial and
economic data is a critical bulwark against instability
•
ensure the IMF is keenly focused on its primary goal of promoting growth and prosperity
for all in its member countries. By paying closer attention to the needs of the poor in
designing adjustment programs and encouraging governments to cut unproductive
expenditures, such as military spending
•
bring the same values that the IMF stresses to its clients ~ of transparency and
accountability « t o the IMF itself, with much wider publication of IMF internal data, and
greater use of external evaluations.
These are a few examples of where progress is under way. There are other, larger questions that
we will have to face in the months ahead as we leam and distill the lessons from the Asian crisis.
If we are to keep up with the dramatic pace of change in this new global economy, we can and
must update and improve the IMF, just as we must work to improve the entire international
financial architecture of which the IMF is a part. But we must do this in a way that supports
rather than undermines the long-term international financial stability in which American workers,
American farmers, and American companies have such an enormous stake.
Not to support the IMF at this critical time would be a little like canceling one's life insurance
when one has already gotten sick. This is simply not a risk we should take. And it is not a risk the
American taxpayer would want us to take ~ when we can invest in the protection of the IMF at
zero cost to our budget.
At this critical time we have a responsibility to do all we can to protect America's core economic
and security interest in an open and prosperous Asia. And that means protecting the IMF's
capacity to respond, not just to today's challenges, but to the challenging new century to come.
Thank you.
�"24-7: America's Role in Supporting the Global Economy"
Remarks by Lawrence H. Summers,
Deputy Secretary of the Treasury
Economic Policy Institute
Washington, DC
May 6,1998
Thank you. It is an honor to be here to discuss America's role in the new global economy with so
many of those who will shape it.
These are remarkable times for the United States. In the last 300 years there has not been a
protracted period when the country with the world's greatest GNP has had as high a ratio to the
country with the world's second greatest GNP. There has not been a time in the last 300 years
when the country with the strongest military forces had as large a ratio to the country with the
second largest military forces. And there has not been a time in the last several hundred years when
a country has been so powerful as an example around the world, from the English language, to
Coca-Cola, to the Internet, as the United States is today.
Our success is not in question. What is today in question is our ability to invest it well. Trade
has accounted for one third of the growth of our economy since 1992, yet the United States lacks
fast track authority to open new markets and new opportunities overseas. The International
Monetary Fund is working to uphold America's stake in stability and growth to Asia, yet we
have failed to approve funding to ensure it is well prepared for the crises of tomorrow. The
United Nations is today helping to keep the peace and promote our core interests and values
around the world, yet we have not paid it what we owe and face the prospect of even losing our
vote in the General Assembly.
I'd like to spend my time today talking about America's preeminent position in the global
economy and the responsibilities which come with that position - both in our international
policies and in the policies we pursue at home.
I. A Remarkable Moment
The world looks very different than it did at the beginning of this decade, a time when America
was said to be in decline. The right things — employment, real wages, national savings and
investment - are all up. And inflation, crime, the welfare rolls and the budget deficit are all down,
indeed, lower than they have been in a generation. It is now clear that America will grow faster in
this decade than Japan and Europe. Their four-decade-long story of convergence has ended and
America is pulling further ahead.
In short, we are reaping the rewards for sound macroeconomic policies and for working to promote
a more open and stable global economy. But as the President has often said, we cannot allow the
hum of our growing prosperity to lull us into complacency.
We should not forget that there has been another time in our nation's history when our companies
�were enjoying unprecedented success at home and abroad; when our elected leaders vowed to
shrink govemment; and when, for all of economy's success, workers were fearful for their security
and blamed their insecurity on immigrants and foreign competition. That time was 1927.
There followed a series of catastrophic economic and foreign policy errors that sent the world
shuttling toward what were perhaps the darkest years in human history. History does not repeat
itself. Any historical analogy between the world today and the world of the 1920s is surely
imperfect. But the experience ofthe late 1920s offers important lessons about the importance of
outward-looking international policies at a time of enormous change in global affairs.
Investing today's success in a safe and prosperous tomorrow will require leadership on many
fronts. Today let me focus on the aspect that is most central to what we do at Treasury and has
acquired such prominence in light of events in Asia ~ the promotion of a safe and effective
global financial market.
II. The Challenge of Stable World Finance
I am convinced that when historians write the history of the last quarter of the twentieth century,
200 years from now, the end of the Soviet Union and the Cold War will be the second story. The
first story will be the rise of market institutions across those countries and across Asia. This has
created a situation that is unprecedented in human history: where countries where more than 2
billion people live are growing at rates where standards of living doubled in less than a decade,
something never seen in the economic history of the United States or any country in Europe.
There are many reasons for this remarkable progress but I would suggest to you that a very
important part has been played by the annual one quarter of one trillion dollars in global capital
that has flowed to the developing world — capital that has been a source of growth in emerging
economies as it has been a source of innovation and diversification in the industrialized world.
Our efforts at the international level must begin with this fundamental linkage between strong
growth and strong capital flows around the world. Our goal must be to make the global capital
market work more effectively as a source of opportunity — and reduce its capacity to be a source of
instability.
Let me say something that will not surprise you. I believe that Congress needs to support the IMF
because a well-funded IMF is critical to promoting the interests of American workers and savers
and every American's interest in the spread of market-based democracies around the world. I
also believe that meeting our commitments to the IMF maximizes our ability to reform both the
IMF and the international monetary system to be more effective at promoting growth and
stability. Now let me explain why.
Economists and historians will debate the causes ofthe Asian financial crisis for a long time.
What is clear is that the approach the IMF has taken on behalf of the international community ~
conditioning financial support on strong domestic policy measures to restore confidence — is the
right one. If we can today talk more positively about most of the region than we would have
�thought likely even 1 month ago it is in no small part due to the success of this approach.
To be sure, important policy challenges remain: particularly in light ofthe uncertain policy
environment in Indonesia. But without the support the IMF provides in these situations we
would now in all likelihood be dealing with a great deal worse: possible debt moratoria in a
number of countries, a generalized withdrawal of capital from the developing world and
potentially large consequences for our export industries and our financial markets.
Insurance against the spread of the Asian financial crisis would be reason enough for the United
States to support the IMF. But there are others:
•
the IMF and sister World Bank programs, not just in Asia but worldwide have achieved
more trade liberalization than our bilateral or multilateral negotiation have ever achieved.
•
IMF finance and conditions have been the primary external mode of support for the
dramatic changes in Russia's economy over the last 5 years, changes that have seen it
move from a state dominated hyperinflating economy to an economy with stable money
and a predominant of Europe;
•
the IMF has further promoted US interests by supporting stabilization in Poland and
Central Europe, preventing the spread of the Mexican financial crisis through strong
support for Argentina and supporting economic reform in the Former Soviet Union.
Every dollar the United States puts into the IMF leverages four of five dollars from the rest of the
world. Yet it is does not cost the taxpayer one cent. And it does not add to the federal deficit.
The IMF is indispensable and cheap at the price. That does not mean we should be entirely
satisfied with the IMF as it is. But the IMF will not change, and it most certainly will not change
in a way that best promotes our core interests and values, if the United States loses its credibility
and voice within the institution by failing to make good on its commitments.
The IMF should be more transparent and accountable and more open in its reaching of
agreements with countries. It should allow for external evaluation of its procedures and results.
And it should work at ways of sharing the information it has with those in the markets.
The IMF should improve its surveillance techniques to focus more on capital flows and the
health of key financial institutions. There is a need for better banking system regulation around
the world and more effective attempts to intensify the dialogue with countries that - like Mexico
in 1994 or Thailand in 1997 - are heading for serious difficulty. Without a strong IMF or
something very much like it, it is hard to see how we could go about getting that need fulfilled.
Finally, we need to find mechanisms to bail in investors not bail them out — so we can ensure that
policy makers do not confront the choice between uncontrolled chaos and confusion on the one hand
and large bailouts on the other ~ which is too often the choice they confront today. Again, we do
not have all the answers, but it is very difficult to see how such procedures could operate without an
�international institution with striking resemblance to the IMF.
The content of IMF programs will be a matter of continuing debate and evolution. But if the
United States does not contribute to the IMF, we risk losing the opportunity to help shape its
approach to economic policy around the world. In short, not to support the IMF today would be
a little like canceling one's life insurance when one is already sick. Like any such decision, it
might work out just fine. But at a time when markets in many countries are fragile and looking
for confidence to the world's only superpower, it is a gamble we should not take.
II. The Broader Challenges of Integration
There is a lesson in these arguments for the other symbols of our international engagement that I
mentioned at the beginning of these remarks.
Consider Fast Track. We have an immense amount to gain from the tide of global integration
that has been unleashed in these latter years of the 20th century. But, you might say, we have to
be in it to win it. If we want other nations to open their markets - we must open our own. If we
want sensitive regions to stabilize, we must allow them to enter the world trading system. That is
why we have helped to complete 240 new trade agreements lowering barriers to American goods
since 1993. And that is why we are working to achieve closer integration across the Pacific by
reinvigorating APEC, and in our own hemisphere through a Free Trade Area for the Americas.
Without fast track these negotiations can proceed much as the early, critical stages of the
negotiations for the Uruguay Round of the GATT proceeded. But there are limits to how long
this can continue — and there are costs.
Every year without "fast-track" we put at risk what might be called the Clinton Corollary to the
Monroe Doctrine - the idea that the United States should be the major trading partner of Latin
America. Every year we are without it we raise serious questions about our commitment to
leading global efforts to bring trade barriers down and nations together. And make no mistake:
every year we are without it we reduce the prospect that the international trading regime would
increasingly reflect the importance of labor rights and environmental values.
Or consider the UN. As National Security Advisor Berger said last week, what we achieve
economically through the IMF and other IFIs we have been able to achieve on so many other
fronts with the UN: everything from preventing the diversion of nuclear materials and the spread
of disease to agreeing international standards to make the skies safer and protect our
environment.
The world needs the UN. And the UN needs reform. By common agreement, we have achieved
more substantial change at the UN these past five years than in the entire preceding 45 years.
And in the bipartisan agreement negotiated last year we have a three-year plan to continue this
reform and build a UN fit for the next century. When we put that agreement at risk — as occurred
last week - we endanger not just the UN's future. We endanger our capacity to shape it in a way
that will continue to promote our core interests and serve our deepest values.
�I have concentrated here on our international strategy ~ on the critical need for the United States
to work actively to shape the arrangements and institutions that will, in tum shape the future 21st
century global economy. But these efforts are not separable from what we do here at home.
Global capitalism is coming. No govemment is powerful enough to halt the flow of information
and ideas on the Internet, the movement of millions of dollars across markets at the flick of a
switch, or travel of millions of the world's people across borders each day.
The question is what kind of global capitalism we want to build. We do not want a global
capitalism that puts capital before every other interest and engages every country in a race to the
bottom: a bottom in which governments cannot support labor rights and fair taxes and cannot
protect the environment.
For it to be the right kind of capitalism we build and the right kind of global economy we see
emerging at the dawn of a new century, we need to work internationally to ensure that capital is
not the only factor of production that gets a hearing.
That is why we are working with other countries to promote global cooperation against corporate
and legal tax havens. That is why we are working actively in the OECD on the issue of tax
competition. It is why we have worked, within the IMF and the other IFIs, and within the UN, to
ensure that labor and environmental concerns are given due weight in devising reform programs and
sustainable development strategies. And it is why fair labor and environmental standards have
played a core role in our bilateral and multilateral trade initiatives.
But we will also have to ensure that this global economy works well for those at home. Just as
the GI Bill of Rights was an integral part of the strategy behind the Marshall Plan, just as our
interstate highway system was partly the result of an effort to marshal our Cold War defenses —
we must work to make both real and apparent the connection between our pursuit of stability and
prosperity abroad and our pursuit of stability and prosperity for every American.
History teaches that internationalism cannot be a goal pursued by elites for its own sake. We
must invest in a network of institutions that can realize the opportunities of this new global era and
defeat its threats. And we must invest in policies that will give every American the possibility to
prosper from the world thus created. Thank you.
�REMARKS BY U.S. TREASURY SECRETARY ROBERT RUBIN
TO STUDENTS AND FACULTY OF GEORGETOWN UNIVERSITY
SPONSORED BY THE SCHOOL OF FOREIGN SERVICE
SUBJECT: ASIAN ECONOMIES GEORGETOWN UNIVERSITY WASHINGTON, D.C.
2:23 P.M. EST WEDNESDAY, JANUARY 21,1998
SEC. RUBIN: (Applause.) Thank you, and it's very nice to be
with you. Let me thank Father O'Donovan, who is a friend of mine and
a friend of my wife's. And, Leo, I do have a Georgetown tie. I am a
very ardent St. John's basketball fan! (Laughter.) So that's the
beginning of a relationship -- (laughter) ~ however you might think
it's defined!
In any event, it is very nice to be with you all and to be with
Father O'Donovan, whose leadership has done so much for Georgetown and
has played a major role in Georgetown being a world-class university.
I would also like to thank Bob Gallucci, who has spent much of his
life working to improve relationships between the United States and
Asia, and who is highly respected by all who are involved in these
endeavors. Let me also thank the School of Foreign Service for
hosting this event.
Today, as Father O'Donovan said, I would like to discuss the
financial crisis in Asia and why the United States must protect its
vital economic and national security interests by working to help
restore financial stability and economic well-being in that troubled
region and why acting promptly and effectively protects the economic
interests of every American.
To begin, I think it is important to place the recent events in
Asia in the context of the emergence of the global financial system.
Over the last several years, we have entered a new era for global
financial markets and the global economy, an era of interdependence,
complexity and opportunity. Expanding economic ties, through greatly
increased trade and vastly increased capital flows, has brought
tremendous benefits to the American people; through greater exports,
higher standards of living, higher-paying jobs and a lower rate of
inflation than one would otherwise have expected with the rate of
growth that we have experienced.
And countries in the developing and emerging markets have also
benefitted greatly from an environment in which previously
unimaginable flows of private-sector capital have flowed to finance
investment and growth.
�Yet just as this era brings great opportunities for the United
States and the rest of the world, so too does it present new risks.
In recent months these risks have been brought home, as financial
instability in Asia has shaken the region and affected markets and
economies around the world. Just a few years ago it would have been
unimaginable for fluctuations of the Thai Baht or the South Korea
stock exchange to impact U.S. markets or to be printed on the front
pages of American newspapers.
In the face of this challenge, our first job is clear: to help
stabilize the immediate crisis. Yet to make the most of the
opportunities and to limit the risks of the new global financial
markets, and to have a viable situation for the years ahead, we must
also modernize the architecture of the international capital markets,
an architecture that we helped create and has served us so well for
the past 50 years.
This will be a long and complex process -- which we actually
began several years ago ~ involving both great intellectual effort
and extensive international coordination. Yet it is absolutely
imperative for the strength of economy and the prosperity of our
citizens as we enter a new century.
The United States has enormously important economic and national
security interests in promoting the restoration of stability in Asia.
When we act to resolve the Asian crisis, we act to protect and benefit
the American people.
The countries in Asia are our customers, our competitors, and our
security partners. Financial instability, economic distress, and
depreciating currencies all have direct effects on the pace of our
exports, the competitiveness of our companies, the growth of our
economy, and ultimately on the prosperity and well-being of American
workers.
Thirty percent of American exports go to Asia; 20 percent of
American exports go to developing countries in Asia, supporting
millions of American jobs. And we export more to Asia than to Europe.
In states like California, Oregon and Washington, over 50 percent of
the exports in each go to Asia.
Thus far, the effects on our economy, though real, are relatively
moderate. And in my view, the most likely economic scenario for the
next year is one of continued solid growth and low inflation.
However, the risks in this crisis are not just confined to the Asian
�countries now most directly involved. Roughly 40 percent of our
exports have been going to emerging markets around the globe. If the
crisis were to spread more broadly in Asia, and more broadly to other
emerging markets around the world, then the impact on American workers
and businesses could be much greater. Simply put, we cannot afford to
stand back and gamble that the crisis will resolve itself.
The United States also has critical national security interests
in seeing a restoration of stability in the region. We have 100,000
troops based in Asia, 37,000 on the Korean peninsula alone, where we
have spent 45 years keeping the peace, and where North and South Korea
have only just begun negotiations toward a possible end to their
conflict.
History has shown that economic duress and financial instability
can threaten political stability and social stability and, therefore,
our national security. A stable and prosperous Asia is more likely to
be a peaceful Asia. Action on a global scale is very difficult, but
the United States cannot tum its back on this crisis in the hope that
we will remain insulated from its effects and that markets alone will
cure the problem.
It's neither desirable nor possible to save countries from the
consequences of structural deficiencies and bad policies. But we can
work to support an international effort to help countries that help
themselves. And that is overwhelmingly in the interest of the
American people.
By reestablishing financial stability and economic well-being,
these countries will once again be strong markets for our goods, they
will have stronger currencies that will help the competitiveness of
our goods in world markets, and will have economic conditions
conducive to political and social stability.
There are no guarantees for success in these very difficult
matters, and even with success, these countries'financialand
economic difficulties will persist for some time while reforms take
hold and confidence is renewed. But we must do everything sensible to
address this crisis, because the alternative of doing nothing will
lead to far deeper and far longer financial instability and economic
duress.
Before I discuss the United States' efforts to confront this
crisis and the steps we have taken, let me offer a few thoughts on
what has happened in Asia.
�While each of these countries enjoyed decades of strong growth
and rising standards of living for their people, they also had deepseated common and individual problems. At the core, for all of these
countries, close links between governments, banks, and corporations
led to fundamentally unsound investment by corporations, funded by
unsound lending by banks. Their financial systems lacked
transparency, which masked the extent of the problems. They had
inadequate financial regulation and supervision. In short, the
essential underpinnings to a modem financial system were weak or did
not exist.
Additionally, several countries had large current account
deficits, fixed exchange rates, and inadequate monetary policies ~ an
unsustainable combination.
Foreign investors, for their part, injected an extraordinary
amount of capital into these flawed systems, without due weighting of
the risks. From 1990 to 1997, foreign capital inflows quadrupled in
the region.
Anyone who has spent substantial time enmeshed in markets, as I
have my whole adult life, appreciates that markets tend to go to
extremes, including the market for bank credit extension. And when
markets that go into extremes reverse, they sometimes do so with great
force.
In Asia massive amounts of capital flowed into banks, which then
extended unsound loans, including a fundamental mismatch between
short-term bank funding in foreign currency and lending against longterm projects of questionable merit.
Having said that, no single factor that I have described would
likely have produced a financial crisis.
Typically, economies adjust in a relatively orderly fashion to the
swings of markets. In this case, a combination of factors proved
combustible. When these crises began, foreign investors started to
withdraw capital, local companies sought to hedge hard currency
exposures, exporters stopped bringing their export earnings home, and
citizens moved their savings abroad. I think it has now become
accepted, and it's certainly our view, that most of the pressure on
these currencies came from local sources and not foreign investors.
This process brought stock prices and land values down sharply across
the region, imposed severe strains on Asian businesses and companies,
and led to (acute depreciations ?) of exchange rates and greatly
�reduced or negative economic growth.
The international community had been involved in a major effort
to focus developing countries on these underlying problems and to
assist them in addressing these problems. These issues have been a
central focus ofthe International Monetary Fund in all of its many
interactions with these countries and of the World Bank, the Asia
Development Bank, and the other sister banks of the World Bank. The
United States, too, has addressed these issues with developing
countries in bilateral and multilateral forums.
However, before a crisis occurs, the international community has
the capacity to analyze and to advocate but not the capacity to force
sovereign nations to take actions. From the very beginning of this
crisis, we at Treasury, in close cooperation with Chairman Greenspan
and the Federal Reserve Board, have been deeply involved in crafting
an international response involving the countries in the region, the
G-7, the World Bank, and the Asian Development Bank, all working, most
importantly, with the International Monetary Fund. The president's
national security team, including Secretary Albright, Secretary Cohen,
National Security Adviser Berger, have been integrally and critically
involved throughout.
The program we have supported has focused on four key elements:
supporting reform programs in individual nations, providing temporary
financial assistance when needed, encouraging strong action by Japan
and the other major economic powers to promote global economic growth,
and fostering policies in other developing and emerging economies to
reduce the risk of contagion.
Let me briefly describe each of these elements.
First, and most importantly, our approach requires that these
countries take the concrete steps necessary to reform their economies.
These programs, which are designed with the IMF, address the specific
causes of each nation's crisis and can be adapted as the situation
develops.
The fundamental objectives of these reforms are to restore
financial stability and confidence, promote stronger and more stable
exchange rates, attract new flows of capital, and restore economic
growth. These reform programs in the troubled nations in Asia have at
their core strengthening financial systems; improving transparency and
supervision; eliminating the interrelationships between banks, the
govemment, and commercial entities; opening capital markets; and
�appropriate monetary and fiscal policies.
If countries do not take these steps, no financial assistance is
made available. These are not austerity programs; these are primarily
programs of structural and financial reform.
However, in financial crises like these, where confidence is
absolutely key, some fiscal and monetary tightening is necessary to
stabilize the currency and restore confidence. It is, however, the
crisis and the ensuing loss of confidence, not the reform programs,
that lead to economic hardships for the population. The reform
programs are the best and probably the only viable way for these
countries to limit the degree and duration of economic distress, and
reestablish confidence, stability, and growth.
The second element of our approach is to support these programs
of reform with temporary financial assistance, if necessary. When a
nation's financial stability is at risk, this money provides the
breathing room to establish the conditions to restore confidence,
attract private capital, and resume growth.
These programs of financial assistance allow the external debt to be
refinanced over a longer period of time. Without this, the countries
face the possibility of default either by the sovereign or
systemically in the financial sector which could readily result in
deep and prolonged distress in these countries, possible contagion
effects for merging and developing countries around the world, and
potentially serious impacts on the industrial nations of the world,
including the United States.
The central provider of this financial assistance is the
International Monetary Fund with additional support from the World
Bank and the Asian Development Bank. In addition, the United States
has joined other industrial nations in indicating a willingness to
provide supplementary resources in some situations if a country fully
adheres to the reform program and additional resources are necessary.
Up to this point we have not disbursed any funds. And those
disbursals to the extent they occur will be in the form of short-term
loans whose payment is guaranteed by the borrowing govemment.
While the temporary financial assistance is an important part of
an effective response to these problems, let me stress once again, no
amount of official money can solve these problems. And official money
�is not the key. Only when sound policies are pursued will confidence
return and stable flows of capital also return.
Private financial institutions have an important role to play in
solving these problems. In the case of Korea, for example, we have
stated that the United States would provide funds only in the context
of the international banks' addressing Korea's immediate financing
needs. This linkage has helped produce a short-run roll-over by bank
creditors in Europe, Japan and the United States which has helped calm
South Korean markets more recently. What is important now is that the
privatefinancialinstitutions involved in Korea move forward on a
voluntary basis to negotiate with Korea a longer-termfinancingplan
to help reestablish financial stability.
Moreover, the approach of involving the private sector financial
institutions can become an important part of dealing with similar
crises in the future.
The third element of our approach is to encourage the major
industrial countries to act to strengthen their own economies and take
the steps necessary to promote the strong economic and financial
environment globally that can contribute to resolving the crisis in
Asia.
The policies pursued by the United States over the past five
years, which have produced lower budget deficits, lower interest
rates, low inflation and strong growth have made a major contribution
to supporting growth around the world. But we cannot play this role
alone. In Europe, whose economies, when combined, are larger than the
United States' and where growth is starting to rebound, it is very
important to undertake structural reforms and other policies necessary
to strengthen this recovery so that Europe, too, can become an engine
of growth for the global economy.
Japan, the second largest economy in the world, has an especially
crucial role to play. It is absolutely critical that Japan take the
steps necessary to deal with the issues in its financial system, to
generate solid growth and domestic demand, and to open its markets. A
weak Japan is a source of weakness for the region. A strong Japan
would be a source of strength for the region. Strong actions by Japan
are vitally in the interest of Japan, the Asian region, and the global
economy.
China also plays a critical role in Asia's economic stability. I
very much want to welcome recent statements by Chinese officials
�reconfirming their commitment to exchange rate stability and to
dealing effectively with the economic challenges they face.
Fourth, and finally, we have worked closely with the
International Monetary Fund to encourage other developing countries to
make policy adjustments to reduce their vulnerability to financial
instability and contagion from the countries that are now in crisis.
From the APECfinanceministers meeting in April, to the meeting of
globalfinanceministers and central bank governors in Hong Kong this
past September, to the meeting of Latin Americanfinanceministers in
Santiago this past December, we have worked closely to promote
structural,financial,andmacroeconomic policies that are critical to
We have also worked closely with Russia, Eastern Europe and other
transitional economies to help reduce the risks of contagion to
Central Europe.
At the beginning of this Asian crisis, there was widespread
concern that it might spread rapidly throughout the developing world
to countries around the globe. But thus far, strong efforts to
reestablish financial stability in Asia, and the measure that many of
these developing countries elsewhere have taken, have succeeded in
limiting the contagion after that initial impact.
The IMF is the right instituon to be at the center of these
support programs. This institution, which was established at the
initiative of the United States over 50 years ago, has long benefitted
Americans. The core mission of the IMF has always remained the same:
to promote financial stability, trade and economic growth.
The United States has worked forcefully to help the IMF change to
meet the new challenges of the modem financial system, and there is
simply no other institution capable of performing its mission. With
tremendous expertise and technical resources, the IMF has the ability
to shape effective reform programs. As a multi-national organization,
it is able to require an economically distressed country to adopt
conditions that no contributing nation on a bilateral basis could
require. Finally, and critically, the IMF internationalizes the
burden during a globalfinancialcrisis by using its pool of capital,
rather than the United States having to bear this burden alone.
The American people also should know this: Our contributions to
the International Monetary Fund have not cost the American taxpayer
one dime over the past 50 years. When the IMF draws on our
commitments, we receive a liquid, interest-bearing, off-setting claim
�on the IMF. There are no budget outlays. Our contribution does not
increase the deficit or divert resources from domestic and other
priorities.
Support for our periodic pledge to the IMF, and support for a new
emergency fund called the New Arrangements to Borrow, which
supplements the IMF and is designed to deal with crises of the kind
that we are now facing, is absolutely critical to enable the IMF to
respond effectively if this crisis were to spread, which we obviously
all hope to avoid, and to deal with future crises that could similarly
affect the interests of the American people.
Moreover, failure to provide funding and to meet our
international obligations could reduce our leverage in the IMF and
could shake confidence in American leadership in the global economy at
a time when confidence is so critically important to reestablishing
stability in Asia.
There is no question that the approaches to crisis prevention and
to dealing with crises when they occur must advance and change to meet
the new challenges of the international financial system, and we have
been working energetically toward that objective. But we cannot
afford to wait for these extremely complicated issues to be resolved
in order to deal with IMF funding. The United States needs an IMF
that is financially equipped to protect American interests now. If we
close the door on the IMF, as some have advocated, we hurt ourselves.
The financial instability in Asia involves enormously complicated
problems and presents challenges that the global financial system has
never before faced. While there are specific dimensions in each of
these programs that could be debated, I am confident that overall,
these are strong, well-crafted programs and the best way, and in fact
probably the only viable way, to help these countries reestablish
stability and competence.
Moreover, these problems are going to take time to resolve, and
we must proceed energetically but also with patience and
determination.
A number of concerns have been raised with respect to these
programs. Let me try to respond to them.
First, some have said that it is not in our interest to help
countries that are seen as our competitors, especially when falling
currencies make their products cheaper. The exact opposite is the
�case. Without support, it is highly likely that these countries will
have much deeper recessions and much weaker currencies, creating a far
greater adverse impact on American goods and services around the
world, with far greater damage to American businesses and workers.
With support, these countries have the best chance to restore growth,
restore the capacity to buy more of our goods, and restore currencies'
values.
A second criticism has been that — these programs do not require
nations to take specific steps to promote the environment, protect
core labor standards, and ensure human rights. Let me be clear.
These issues are critically important to the United States, and we are
pursuing them actively through other initiatives and in other fora.
And there is no question that financial stability, growth and
prosperity provide an environment most conducive to advancing these
objectives, while instability and economic duress are "inimicable" to
these objectives.
Moreover, designing and obtaining sustained adherence (to a
foreign ?) programs to establish, or reestablish, financial stability
is an extremely difficult undertaking. To add these three objectives,
as important as we believe these objectives to be, would vastly
complicate this effort and greatly reduce its chance of success.
Also, if these objectives are added, others would seek to add yet
additional objectives, and the task would become utterly impossible.
Third, some have said that providing financial assistance to
these countries shields investors and countries from the consequences
of bad decisions and sows the seeds of future crisis. This problem,
often called the problem of moral hazard, has two dimensions, the
impact on the behavior of countries and the impact on the behavior of
investors and lenders. I should think there would be no question that
the countries — it is obvious that they are not now shielded from the
effects of their bad decisions. They may receive temporary financial
assistance, but they also inevitably go through a very difficult
economic period until recovery takes hold, stability and growth are
reestablished. No country would want to go through what Mexico went
through a few years ago and the affected Asian nations are going
through today.
As to investors and lenders, the problem is far more complicated.
Let me just say that we would not give one nickel to help any creditor
or investor. And in fact, vast numbers of investors and creditors
have taken large losses in Asia. Foreign banks and other creditors ~
�the corporate and other borrowers throughout the region, now have many
troubled or bad loans. Real-estate investors have almost universally
sustained large asset depreciations, and investors in the stock market
have suffered the consequences of stock markets that are down over 50
percent from recent highs.
Just today three major American banks - J.P. Morgan, Chase, and
Citibank - have reported that developments in Asia have had a
substantial negative impact on their profits. The crisis in Asia has
clearly taken its toll on American investors and creditors.
To those who argue that we must ensure that all creditors take a
loss, my answer is this: The reality of the situation is much more
complex. On the one hand, investors should suffer the consequences of
their actions. On the other hand ~ and as I've just observed, in
very large numbers of cases they have done exactly that ~ on the
other hand, any action to force investors and creditors involuntarily
to take losses, however appropriate that might seem, would risk
serious adverse consequences. It could cause banks to pull money out
of the countries involved. It could reduce the ability of these
countries to access new sources of private capital. And perhaps most
tellingly, it could cause banks to pull back from other emerging
markets.
Having said that, it is critically important that we work toward
changing the global financial architecture so that creditors and
investors bear the full consequences of their decisions to the
greatest extent possible, while at the same time minimizing the kinds
of adverse consequences I've just described.
But devising such architectural changes is difficult and complex,
and we cannot wait until that work is complete to take the steps that
are necessary now to deal with the crisis at hand that so powerfully
affects our interests.
Fourth, some would say that doing nothing would be best, because
markets would ultimately solve the problem on their own. Let me say,
as someone who has spent 26 years on Wall Street and who has an
enormous belief in the importance of markets in our economic system,
that there are problems that markets alone simply cannot solve. And
this country recognized that long ago, with measures such as the
Federal Reserve System, Securities and Exchange Commission, and
deposit insurance. Laws and institutions support healthy free-market
activity by dealing with issues that are beyond the ability of markets
to handle.
�There is simply too much risk that markets alone will not resolve
these problems of financial instability and, therefore, given our
stakes, we must act to try to help these countries get back on track.
The global economy needs an architecture as modem as the
markets. That is why even as we have tried to confront the immediate
crisis in the Asian region, we have also begun an intensive effort to
improve the global financial system to both better prevent crises from
occurring and better deal with them if they do occur.
President Clinton began this effort four years ago at a G-7
meeting in Naples. At the summit that followed in Halifax in 1995, we
launched a broad international effort to strengthen safeguards in the
global financial system. Two important parts of that initiative are
international programs to strengthen disclosure, and the development
of core supervisory principles for banking systems in emerging and
developing countries.
To build on these efforts, we have begun an intensive internal
effort with the Federal Reserve Board and others, to identify and
analyze possible mechanisms for dealing with the new challenges of the
international financial system.
As I said a few moments ago, this is an extraordinarily complex
undertaking and it will take time. And while there have been some
suggestions that may look attractive on their face, there are no easy
answers. We also will be working with our G-7 partners and others on
this issue, and at President Clinton's initiative, we will convene a
meeting later this spring with finance ministers from around the world
to share our views on this subject and carry this work one step
further.
This initiative will focus on four objectives: Improving
transparency and disclosure; stgthening the role of international
financial institutions and helping to continue deal - to deal - with
the challenges of today's global markets; developing the role of the
private sector in bearing an appropriate share of the burden in times
of crisis; and strengthening the regulation of financial institutions
in emerging economies.
This is a period of considerable uncertainty and challenge for
the global financial system and for the countries most directly
involved in the crisis. As I said a few moments ago, even under the
best of circumstances, these crises take time to resolve.
�The process is bound to be a difficult one for the people of these
countries, but the approach I have described today is the best and
most likely and, in our judgment, probably only viable way to succeed.
While nobody can say for certain what will happen, the countries in
Asia have great underlying strengths — such as high savings rates,
firm commitments to education, and strong work ethics. And with a
sustained commitment to the necessary reforms, they are well
positioned to reestablish strong economic growth and sound currency
going forward.
The United States has enormous economic and national security
interests in a strong and vibrant Asia. Financial instability in Asia
is a threat not only to the region but to economies all over the
world, very much including ourselves. We cannot ignore these risks.
We must act to protect and to promote our interests.
As I said at the beginning, we are at the frontier of a new era.
When our country has entered new eras in the past, it has done so with
vigor and determination. American leadership is absolutely critical
to guiding the global economy into the 21 st century and to protecting
the interests of the American people. This is not a time when we can
tum our back. We must confront the crisis today, and we must build
for tomorrow. The actions we take now are critical to our economic
well-being today and for the future.
Thank you very much. (Extended applause.)
�QUESTIONS AND ANSWERS
ROBERT GALLUCCI (Dean, Georgetown University School of
International Studies): Ladies and gentlemen, Secretary Rubin has
agreed to stand for some questions. I ask that those who wish to ask
questions lo line up behind that microphone. And I only ask about
your questions that they indeed be questions and that they be as short
and to the point as possible.
SEC. RUBIN: Yes, sir?
Q My name is Bill Jones. I'm with the Schiller Institute.
I'd just like to ask, Mr. Secretary, is there not a danger that
present attempts to create a bailout of thefinancialsystem, which,
as it develops, seems to become greater and greater -- the cost of
this bailout ~ that there is a danger that this could lead to a
hyperinflationary explosion, especially if the crisis in Asia is
combined with the outbreak of crisis in Brazil, in Russia, or other
places?
And secondly, in the light of this crisis, there have been
proposals from a wide variety of different places about returning to a
Bretton Woods-like style of system, with fixed exchange rates backed
up by gold. How do you deem the feasibility of doing something like
that as an alternative to the present situation?
SEC. RUBIN: Was your first question hyperinflation or
hyperdeflation?
Q
Hyperinflationary - printing money ~
SEC. RUBIN: Oh. Okay. Everybody else is afraid of deflation,
so you get together with them, and then you sort of average out.
(Laughs.)
(Laughter.)
Q The idea being that the greater the costs, the more money
you have to ~
SEC. RUBIN: Yeah. No, no, I understand the problem.
Look, you've raised a very serious question, which we have been
extraordinarily ~ which we've been very strongly focused on. That is
the question if you create a lot --1 assume this is what you're
�driving at -- if you create a lot of additional money in the system
and you don't, so to speak, sterilize it, isn't there a risk of
creating inflation? I must say there is an acute sensitivity to that
problem, and I don't think that there is a risk -- any risk, for that
matter - of these programs being operated in that fashion, if for no
other reason because there is such focus on the issue.
The greater ~ I shouldn't say "the greater risk" ~ but the
problem that many people are now focusing on is: Will this create a
deflation? And my instinct is that that is a very, very lowprobability event.
On the question of Bretton Woods, with fixed exchange rates —
look, fixed exchange rates are a very complicated and very important
subject. The problem with fixed exchange rate regimes, as you know,
is that if you're going to make them work, you then have to have to
have monetary and fiscal regimes that will support them. And while
this is a debate we could all have, I don't think ~ we could all
have, it seems to me, at least, in the context of a stable and healthy
economy ~ my own view, for whatever it's worth, is that we're better
off with a fluctuating exchange rate than a fixed exchange rate,
because when you start to have a weak economy, what you don't want to
have to do is to raise interest rates to keep your currency up.
But leaving that debate aside, if you try to establish a fixed
exchange rate in a context of a crisis which is ~ such as we have
now, I think what you almost surely would have to do, particularly if
you're talking about trying to fix the exchange rate substantially
above where it is today, is to raise interest rates to levels that
these weak financial systems couldn't sustain.
Q I'm Stephen Cana (sp) with the U.S. Council for
International Business, and I'm a 28-year veteran of the Treasury
Department prior to my present position. I'd like to ask you a twopart question -SEC. RUBIN: Where'd you work at Treasury?
Q
(OAsia ?).
SEC. RUBIN: (OAsia ?)? It's a real ~ that's our international
section.
Q
It's a hotbed.
�SEC. RUBIN: Well, you probably know more than I do. Go ahead.
(Laughter.)
Q I know you've had short nights.
I have a two-part question. When you spoke about a new
architecture for international capital markets and the need that this
is going to take time, does this mean to imply or to hint that the
idea of a (Tobin tax ?) is on the table for active consideration? And
the second question I had goes to a statement that Mr. Sweeney made,
perhaps within the last day or two, with regard to these countries
exporting their ways out of their problems at our expense. And I
didn't catch all of what he had to say, but it certainly didn't sound
good in terms of the U.S. lending its support to get the money we need
out of the Congress for the IMF effort. Could you comment on these
two, please?
SEC. RUBIN: Yeah, let me comment briefly on both.
In terms of the so called (Tobin tax ?), an idea that's been
around for a long time, I remember not liking it when I was in the
private sector. (Laughs.) I don't think it's much better now. But
in any event, let me say that we are very open to all ideas, and we
will be analyzing and looking very carefully at whatever thoughts come
along.
I think an awful lot of ideas that sound kind of interesting ~ I
think I said this in my remarks, actually ~ that sound kind of
interesting when you first look at them, when you subject them to the
kind of very rigorous analysis you need to determine whether they can
actually work in this extremely complex global financial system we
have today, I think you develop far greater reservations. Actually, I
was being a little bit flippant about the (Tobin tax ?).
The (Tobin tax ?) has an interesting underlying intellectual
rationale which some people seem to find convincing. But I doubt if
that's the direction in which we'd be heading, although we'll be
certainly looking at everything.
In terms of John Sweeney, head of AFL-CIO's comments, I didn't
see the comments, but I've spoken to John Sweeney, and we've had, I
must say, a very thoughtful and very constructive discussion. I think
that he is very focused on the adverse impact that these currency
depreciations in the face of financial instability can have on
American workers as we are focused and also focused on the potential
for reversing that situation in terms of the interests of American
�workers by strengthening these economies and having currencies
recover.
Q
Thank you.
Q Good afternoon. My name is Gregor Alpers (sp). I'm a
second year in the master of science in Foreign Service program. And
my question concerns the banks. You just mentioned Citibank, J.P.
Morgan and Chase. Are you talking about real life losses from
proprietary trading or loans, or are you talking about book losses
which might be offset by extra gain from those methods or steps taken
right now? And so maybe we'll see better results and the shareholders
of those companies will be very happy down the road.
SEC. RUBIN: I think those are probably questions you should
address to the shareholder ~ in all seriousness ~ the shareholder
relations departments of the banks. But based on what I read about
it, and all I did was read the newspapers today, which you'll see the
~ but it sounded to me like - I'm just now reporting what was in the
papers - that there were substantial swap positions and that, in the
context of those swap positions, there were losses as well in
derivatives trading.
Let me add in saying to the gentleman who asked the prior
question, we would very much agree with John Sweeney. It is not in
anybody's interest, including our interest, for these countries to
have to, on a sustained basis, export their way out of the
difficulties they're in, though clearly our trade imbalances are going
to deteriorate for a while, and clearly it is very important that
these countries have healthy export sectors. But the key to avoiding
that, the key to avoiding that is to restore economic health in these
countries so they once again become good markets for our goods and so
their currencies strengthen, which then becomes less of a threat, or
has less of an adverse impact on our goods and services worldwide.
Yes, sir?
Q Good afternoon. My name is Shinski (ph) Hashimoto, a
student of the School of Foreign Service. My question is, what
impact will the possible devaluation of the Chinese won have on the
Asian currency crisis and the export industries in Asia? And how will
the U.S. govemment deal with that potential threat?
SEC. RUBIN: Of China devaluing its currency?
�Q
Yes.
SEC. RUBIN: Well, our deputy secretary, Larry Summers, was in
China sometime I guess it was last week, and he met with Deputy Prime
Minister Zhu Rongji. Aside from the fact they had a very good hour
and a half conversation about the economic policies in China, either
out of that meeting or just — I've forgotten now exactly when it was,
but either out of that meeting or just before or just after that
meeting, the deputy prime minister stated once again his commitment to
not depreciating the currency. And I think that's a very constructive
position for China to be in in the context of the problems in Asia.
Q Sir, I'm Ben Barber with the Washington Times. What would
this new architecture look like?
SEC. RUBIN: That's a good question, to which I do not the answer
know.
(Laughter.) The only thing I can tell you is that we have spent a lot
of time, Chairman Greenspan and Larry Summers, our extremely capable
undersecretary David Lipton, our extremely capable assistant secretary
Tim Gidner (sp), and Ted Truman (sp) from the Fed, at a dinner about,
oh, maybe three weeks ago or something. I've forgotten exactly ~
four weeks ago. And we spent the whole dinner pretty much talking
about these kinds of things, and we meet with Chairman Greenspan every
week to discuss various matters. And obviously, these days these are
the kinds of matters we spend most of our time on. Our undersecretary
David Lipton spent two hours the other day ~ well, he spent more than
that, but two hours of a meeting in London with his counterparts of
the G-7 were spent discussing these issues. I can't tell you what the
ultimate resolutions may be. And it may even be an idea that people
haven't yet broached for analysis. The only thing I can say is what
I've said in my remarks. These are enormously intellectually complex
issues. And I think the objectives are clear which I've stated. The
mechanisms that we can develop and devise and then get an
international agreement on, which is yet another aspect of this, are,
I think, still a matter for the future to tell. And how close we can
get to meeting our objectives.
Q Could I just follow up with one ~ isn't there a
fundamental problem with the sovereignty of individual countries in
establishing this sort of architecture?
SEC. RUBIN: That's a little - well. (Laughs.) There's not a
lot we can do about that.
�The sovereignty of ~ interesting the way you put the question.
The sovereignty of individual countries obvious creates a substantial
issue or challenge with respect to creating mechanisms that you could
create in a single jurisdiction. Now, there may be ways to deal with
that through treaties. But on the other hand ~ and this gives you
some sense of how complex all that could get. You'd have to get
treaties amongst all the relevant countries, and the treaties would
have to relate in some sense of a way to the internal legal structures
and systems of those countries. And it is a very ~ yes, I think one
of the great complexities of dealing with this is the fact that you,
as you correctly say, you have very large numbers of sovereign nations
with different legal systems. And somehow or other, for many, though
not all, or at least for some but not all of the possible approaches
you have to find a way of transcending that.
I don't think ~ my - incidentally, for whatever it's worth, my
guess is, my hope is that after an extended period of analysis and
work we can come up with some significant advances with respect to the
international architecture. But there's not going to be some solution
in that sense.
We are in a new era. Those of you who are students, I suspect the
world is going to be enormously different 10 years from now than it is
today, just as it is very different today than it was 10 years ago in
terms of global financial markets. And I think what you're seeing is
a process the president started in Naples four years ago. We now need
to take another major step forward. And I think for many, many, many
years to come, there will be focus on how do we continue to move this
process forward.
Q Mr. Secretary, my name is Diana Senkovic (sp). I'm a
student in the School of Foreign Service. My question is regarding
the fact that this crisis has turned investors' and other observers'
attentions into becoming more strict critics, more scrutinizing
observers of political events in these regions. Given this, the focus
of my question is the country of Indonesia.
Suharto has confirmed that he will stand for reelection, that he
will seek anotherfive-yearterm. And, given examples such as
Indonesia, what kind of initiatives has the United States taken in
addressing the more strict criticism or more harsh scrutiny of
political events in this region?
SEC. RUBIN: Well, I think the question breaks into several
�pieces. Let me say with respect to Indonesia, as you know, the
president entered into a new agreement with the IMF a few weeks ago.
The absolute key in Indonesia, as in all these countries, but I think
it's particularly critical at the present moment in Indonesia, though
it's equally true in all these countries, is continued and sustained
adherence to the program and doing the kinds of things ~ actually
implementing, taking steps, implementing the reforms that will, number
one, help prepare the system, and number two, create the confidence
that's necessary if you're going to have stable flows of capital.
Clearly, the willingness to do that is in a sense a political
event, not an economic event. I think one of the things that ~ well,
I think - one of the things I used to say about Mexico when we were
talking about Mexico is the remarkable political commitment of
President Zedillo and Minist Ortiz and the others to taking
extremely difficult steps and to sustaining those, to sustaining that
program through a very difficult initial period before the reforms
started to take hold, the confidence started returning, and capital
started to flow.
And that's the challenge that lies ahead for Indonesia. And it's a
very tough challenge. But that's the challenge, at least in my
judgment, that they must meet if they're going to persuade the
international financial markets to restore confidence and therefore
stable flows of capital.
MR. GALLUCCI: I think we have time for two more questions.
Q My name is Tuchad Evalo Surgia (ph), MBA student here at
Georgetown. My question is during the crisis there was an effort to
create an Asian Monetary Fund which put up interests of all of Japan
in dealing with the crisis. This would have obviously also reduced
the influence of the IMF and the U.S. in terms of conditionality and
advice in terms of their appropriate economic policies. In your
opinion, what would have been the consequences if such an initiative
had been successful? Thanks.
SEC. RUBIN: As you correctly say, there was a proposal - I
don't know if it was actually a proposal, but there was at least a
thought, and I guess it did take the form of a proposal — to set up
an Asian Monetary Fund. It was a matter that Chairman Greenspan and I
discussed with the finance ministers and central bank governors who
went to Hong Kong.
�I think the problem and the thing that so troubled us about that
idea was that if you had a separate fund, even if it worked closely
with the IMF, which this was intended to do, even if it worked closely
with the IMF there was the concern on our part that if you had a
separate fund it almost provided an opportunity for reform shopping.
And that, we felt, would make it more difficult for the IMF to work
through the rigorous kinds of reform programs that we think are
absolutely indispensable to reestablish stability. So it was our view
that probably was not the right way to go.
The Japanese govemment actually in time decided not to pursue
that, in any event. And it led instead to the Manila agreement, which
as you know is an agreement amongst the United States and a whole
group of Asian and other countries to provide so-called second line of
defense money, which is the contingent agreement that we have now to
provide funds for these - for certain of these countries in certain
situations, if needed.
MR. GALLUCCI: Yes, sir?
Q
Good afternoon, Mr. Secretary.
SEC. RUBIN: Good afternoon.
Q My name is Ricky Weaver (sp). I am a master's candidate in
the School of Foreign Service. And my question for you today is,
given the high levels of external debt that these Asian countries
have, for some of us the debt crisis of the 1980s may come to mind in Latin America. Could you foresee closer coordination between the
Treasury Department, the Federal Reserve and, yes, Wall Street banks
on Wall Street to restmcture these loans that are outstanding? This
seems to have worked ~ or be working very well in South Korea, and I
was wondering if you could see closer coordination between the three
parties. Thank you.
SEC. RUBIN: You're very often better off stopping before the
last question! (Laughter.) It's a lesson I've learned in the now
five years that I've been in this rather unusual town — (laughter) ~
where I guess most of you all live, for whatever reason! (More
laughter.)
Let me say that you've asked a very complicated question. The
Latin American debt crisis of the '80s was, I think, a very different
kind of situation. In very brief, the Latin American countries at
�that time had vastly greater external debt as a percentage of their
economies than these East Asian countries have. And as you know, the
sad result of that was a debt structuring process that sort of worked
its way through the 'SOs. And those countries basically had almost 10
years of terrible economic duress. It's called "the lost decade" now
in Latin America. That's precisely what we want to avoid here.
These countries, fortunately, have lower percentages of external
debt to their economies. Their problem is they have a lot of shortterm debt, and they also have the weaknesses and problems that I
described before. And what we're trying to do is work through a
refinancing mechanism so they can spread that debt out, try to deal
with their problems and get back on a growth path again.
In Korea, we worked with the banks on three continents and
discussed with them the extreme importance of everybody working
together. They voluntarily decided to do that, and they're now
negotiating with the Korean govemment. In fact, they're meeting
today with a representative of the Korean govemment to try to
negotiate out a refinancing arrangement. I think that kind of model,
as I think I may have mentioned in my remarks, may very well be
something that will be employed. I don't know if we employed it in
this crisis, that I cannot tell you. But I suspect that it could very
well be part of the future architecture for the global financial
markets.
Thank you all very much, and it's very nice being with you.
Thank you. (Applause.)
####
END
�Q
Good afternoon. (Cross talk, laughter.)
MR. RUBIN: (Off mike) - (I'd be happy to ?) Q (You coughed ?) -- "There is nothing more I know" ~
(inaudible due to laughter.)
(Cross talk, laughter.)
Q
Mr. Secretary, Taiwan?
(Cross talk, laughter.)
MR. RUBIN: You all have heard everything I know, plus some.
Q
Mr. Secretary ~
MR. RUBIN: Why don't we take a couple of questions. I am
actually going up to the Hill. I don't have (too much ?) time.
Q
Taiwan ~
Q You mentioned in your speech that you thought the effects,
so far, have been relatively moderate MR. RUBIN: Correct.
Q ~ in view of the situation. How confident are you that
they'll remain relatively moderate, given the lag that often affects,
you know, exports and imports?
MR. RUBIN: I think if you take into effect the lags that do
affect exports and imports; if the situation remains roughly as it is
today, I think the effects will be ~ it'll be real but relatively
moderate, and I think we'll have solid - most likely solid growth and
low inflation.
The key ~ the key is for all of us in the international
community to act effectively so we can prevent the situation from
becoming worse, which could result in - and as I said in my remarks
- deeper and more prolonged economic duress, which then could have a
greater effect on us. And that's precisely what we're trying to
prevent happening.
Q
You said you wanted strong actions from ~
�(Cross talk.)
MR. RUBIN: I said what?
Q ~ you said you wanted strong actions from Japan, for both
that country and for the region. What sort of actions are you looking
for?
MR. RUBIN: Well, Prime Minister Hashimoto, at the beginning of
last year some time, as you know, stated that his (objective is ?)
strong domestic-demand-led growth. And it seems to me that's what is
obviously needed in Japan but that that is enormously in the interest
of the rest of Asia because that would ~ and, in order to accomplish
that, Japan has determined what steps are needed. Obviously, they
have focused, with their most recent steps, on theirfinancialsystem
and on fiscal policies. Whatever they deem to be necessary to
accomplish that purpose, it seems to me that purpose is vitally
important to them but also to Asia; because if you had a strong Japan,
then Japan could absorb imports from the region as the region sought
to recover; Japanese banks could extend credit to the region. And I
think probably - most importantly of all, I think that confidence in
Japan would have a spreading effect on the rest of the region.
(Cross talk.)
Q Do you see any need to change the (word inaudible) policy
that you have reached with - (off mike)?
MR. RUBIN: No. I think you have to distinguish between two
different things, though.
I think you have to distinguish between the depreciating
currencies of the countries in crisis in Asia, and that's a problem
that we are very focused on. Those depreciating currencies are not in
our interest because they can adversely affect American business
services around the world.
The best answer to that problem is to support the programs that
these things (have ?) ~ that are designed to restore financial
stability in the countries in crisis, as I said in my remarks, because
that will result in growth and in stronger currencies, which in tum
is very much in our economic interest. That's one question.
The other question is our dollar and our dollar policy. And I
think our dollar policy has contributed very substantially to our
�economic well-being over the past five years, and I think it's helped contribute to keeping inflation low and interest rates low.
(Cross talk.)
STAFF (?): One more.
Q Mr. Secretary, when will the (six, seven ?), eight billion
dollars be released? And do you see that happening soon? Is it tied
to the role of a Korean ~
MR. RUBIN: Yeah. What we have said, from the very beginning, is
that the release, or disbursement if you will, of the second round of
$(10.8 ?) billion dollars, is this $1.7 billion ~ must take place and
will only take place in the context of the refinancing of the
intermediate- or longer-term debt of the short-term bank credits in
Korea. And as you know, the Korean negotiating team is meeting these
banks today, and that process is moving forward constructively,
although there are certainly no guarantees.
STAFF: Thank you all very much.
Q
Mr. Secretary?
MR. RUBIN: I've got to go because I've got to go to the Hill.
Q
Thank you.
####
END
�PHOTOCOPV
PRESERVATION
�
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Michael Waldman
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<p>Michael Waldman was Assistant to the President and Director of Speechwriting from 1995-1999. His responsibilities were writing and editing nearly 2,000 speeches, which included four State of the Union speeches and two Inaugural Addresses. From 1993 -1995 he served as Special Assistant to the President for Policy Coordination.</p>
<p>The collection generally consists of copies of speeches and speech drafts, talking points, memoranda, background material, correspondence, reports, handwritten notes, articles, clippings, and presidential schedules. A large volume of this collection was for the State of the Union speeches. Many of the speech drafts are heavily annotated with additions or deletions. There are a lot of articles and clippings in this collection.</p>
<p>Due to the size of this collection it has been divided into two segments. Use links below for access to the individual segments:<br /><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0469-F+Segment+1">Segment One</a><br /><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0469-F+Segment+2">Segment Two</a></p>
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Michael Waldman
Office of Speechwriting
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1993-1999
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2006-0469-F
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Segment One contains 1071 folders in 72 boxes.
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Clinton Presidential Records: White House Staff and Office Files
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Council on For [Foreign] Rels. [Relations] [1]
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Office of Speechwriting
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Medium
The material or physical carrier of the resource.
Preservation-Reproduction-Reference
Date Created
Date of creation of the resource.
6/3/2015
Source
A related resource from which the described resource is derived
7763296
42-t-7763296-20060469F-Seg2-036-004-2015