FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you. You have come to Washington this week to discuss the Middle East and the broader prospects for peace. There was a time when the Treasury Secretary would have had little to contribute to such an event. Today, we all recognize how tightly interwoven issues of foreign policy and economic policy have become.

Now more than ever, the world is much less likely to be drawn into conflict if the regions and nations of the world are strong, and are forging ever closer connections, than if they are financially unstable and disconnected. Throughout history there has been a strong correlation between financial crisis and political disorder, and between disorder and war. Failing states, with crisis-prone economies, tend to lose their political legitimacy. This breeds instability, and with it a strong chance of internal or external aggression, possibly both.

These links between economic and political stability are exemplified by Israel's own history. Its remarkable economic performance over the past 50 years has been a source of its strength and stability in a region where neither of these things is in large supply. It is a little remarked fact that Israel's exports since 1950 have grown faster than Japan's.

The New York Times recently heralded the new Israeli economy as "the land of milk and money". This may be something of an overstatement. But after a difficult period for the economy during the 1990s, the $1.3 billion that were invested in new high-tech businesses in Israel last year, and the one in ten Israeli households that are now surfing the web, are surely welcome developments for Israel and for the region. The crucial imperative is to work now to lay the basis for faster and more inclusive growth in Israel that can be sustained over the longer term.

As the Israeli authorities recognize, achieving this economic goal will depend importantly on strong macro-economic policies and, especially, moving forward with structural reforms that can free up the economy - to let more of those trapped in the "old" economy realize the benefits that the new economy affords. And as the government also recognizes, the success that not only Israel but also its neighbors achieve with their economies in the years to come will also be crucial to achieving lasting peace.

These are crucial issues that must be a central focus of all our attention in the weeks and months to come. But they are not the subjects of my remarks today. Rather, I wanted briefly to step back to consider the broader question of the stake that Americans have, and the stake that those concerned with the Middle East have, in maintaining America's capacity to lead on the global stage.

There can be little question that US involvement in Israel and in the Middle East, with the strong support of this group, has made an enormous contribution to Israel's security and to our own. And the work of the US in support of the peace process has served our own deepest national interests. What I want to emphasize today is that our efforts to support Israel and the Middle East peace process have been an integral part of a broader US strategy of providing global leadership that we have had since the end of the Second World War.

With our peaceful victory in the Cold War and the spread of market-based economic development to an historic number of the world's peoples, that strategy has proved successful beyond any imagination. But it is also a strategy and judgment that is increasingly under threat.

At a time of unprecedented US prosperity and global ascendance, the fundamental choice for this country - to be a force for the right kind of global integration - is being questioned in a way that it has not been in 50 years.

On a range of fronts involving a wide range of concerns and interests, we are today facing the very real risk of what one might call the malign neglect of our global standing: that little by little, in countless different ways for countless different reasons, we will wear away at our capacity to lead the world in a direction that will support our deepest long-term national interests and values.

This is tragic. Because the case for proactive and determined US engagement with the rest of the global economy is probably stronger today than it has been at any time in our history.

That case rests on two pillars.

First, because support for global economic integration and development is an investment in our national security and the spread of our core values.

As I have already emphasized, trade and integration promote prosperity, and by promoting prosperity, promotes peace. This takes on even greater importance today, when the world faces the historic challenge of integrating the five billion people of the developing world into a more truly global economy.

There may never have been so radical a change in the balance of global economic power as there has been in the emerging markets of the world, particular in Asia, in the past 25 years. The fact that it has taken place without major conflict is in no small part a tribute to increased integration of the world's economies and support for cooperative institutions to cement that integration.

By supporting liberalization in these countries, we invest in our future security and we advance our core values. Examples such as Korea, Taiwan and Argentina illustrate that economic development and openness bring democratization in its wake, and there is no better way to spur this process than by integrating these economies into the global marketplace. It is central to our support for China's entry into the World Trade Organization that membership of a rules-based global trading system will provide a catalyst for broader changes in China that will promote core American interests and values. As competition and integration proceed, China will need to become more market-based; more protective of personal and commercial freedoms, and more open to the free flow of information and ideas.

Even if there were no strategic or broader national security case for open markets, there would be a compelling economic case for integration, rooted in our standard of living. The strength of the US economy today is a tribute to the benefits of openness: openness that has created millions of new jobs, and provided competition that has spurred innovation domestically and helped put downward pressure on inflation.

At a time when only 4 percent of the world's population lives in the United States, achieving lasting and rapid growth in American living standards has to mean supporting development and higher living standards abroad - in the Middle East and globally. As Israel's new economy attests, the Middle East is a region with enormous economic potential that an improved security environment and the right kind of US support could help to unlock. Approximately 4 percent of US exports go to the Middle East and North Africa. In volume terms those exports have grown by more than 40 percent since 1992. But they could be much, much greater.

We stand at the hub of a world trading system. And the bigger that world trading system is, the more open it is, the more we will benefit from our position at its hub.

As compelling as the case is for US international leadership, it is, as I suggested earlier, a case that is today under siege - with attacks on both US support for international trade agreements and for the International Financial Institutions (IFIs), as well as on US efforts to stand against atrocities around the world.

We are a complex society of people from many different backgrounds, with many different concerns. Inevitably, there will be pressures for balance in our international engagement, and a reluctance to engage internationally will, over time, affect all of our international engagement. That is why I so welcome AIPAC's leadership in the Campaign to Preserve US Global Leadership, which Secretary Albright and I spoke to last week.

The centerpiece of what this coalition is fighting for is robust US spending on forward defense of US interests through our foreign assistance programs. Our defense budget last year was more than $100 billion lower, in real terms, than it was in 1989. Reasonable people can debate how much of this dividend should be invested in our future security and prosperity through support for the IFIs and other foreign operations. But it would be hard to make the case that we should be spending significantly less on these things than we did before. And yet, the Foreign Operations bill that was passed in last year's budget agreement for FY 2000 appropriated $15.2 billion for such investments. That is 20 percent less, in real terms, than was spent on average under Presidents Reagan and Bush.

• For American global leadership to continue in this new century it will be crucial for to maintain support for strong and effective IFIs.
• It will be crucial for the US to be a supporter of new trade agreements: such as the Africa Growth and Opportunity Act, and the enhanced Caribbean Basin Initiative that the President was finally able to sign into law last week; and the crucial step to grant Permanent Normal Trading Relations status (PNTR) to China.
• And it will be crucial for us to be prepared to respond to new global challenges. Notably: by playing our part in funding the expanded initiative for reducing the debts of the poorest countries; and by supporting global efforts to promote the development and dissemination of vaccines to eradicate infectious diseases such as AIDS, malaria and tuberculosis. In the era of Viagra, it cannot be right that of the 1233 new medicines patented between 1975 and 1997, only 13, or 1 percent, were for tropical diseases that afflict 90 percent of the world's population - and that of those 13 new products, only 4 came from research efforts that were aimed at curing humans.

In the end, America's strength, like Israel's, derives from its people's determination and its economic strength. This is a rare moment in history, when the opportunities for advancing our core interests and values and the quality of life of the entire world's people may be greater than they have ever been. Let us make sure that we use it wisely. Thank you.