April 21, 2006
JS-4200

Statement by Treasury Secretary John W. Snow
Following the Meeting of G-7 Finance Ministers and
Central Bank Governors

As you know, I just finished hosting the G-7 Finance Ministers and Central Bank Governors meeting. Today's agenda was quite substantive and weighty.

We opened with a good discussion of the global economy. I was pleased to discuss the U.S. economy with my colleagues. It remains on a sustained upward growth track, with real GDP having risen by an average annual rate of 3.2 percent over the last four years. The labor market is notably stronger with the addition of 5.2 million new jobs since the employment trough of August 2003. I stressed that the U.S. is open for business. Foreign direct investment flows into the U.S. grew more than 20 percent last year and almost 60 percent in 2004. FDI generates a significant number of jobs in the United States - more than 5 million in 2004, according to latest estimates.

Global economic growth will likely be above 4 percent this year for the fourth consecutive year. It has been more than 30 years since this last occurred. This performance is all the more impressive given the bursting of the tech bubble, 9/11, and the serious corporate governance scandals of only a few years ago, and then the sharp increase in energy prices. Yet inflation is well contained and the financial environment is supportive of continued robust growth. Still, the global economy faces risks. Even in this strong economic climate, disparities in global growth performance are large. Asia has been a growing and welcome engine of global growth, while continental European growth remains modest. Oil prices remain high and buffeted by geopolitical developments. Protectionist pressures are acute.

We also discussed global imbalances, following on the heels of Managing Director De Rato's conference this morning on this topic. The counterpart to the large U.S. current account deficit is large imbalances elsewhere throughout the world. Thus, reducing global imbalances is a shared responsibility requiring complementary actions by a large number of economies. I emphasized that the best strategy is one that promotes orderly adjustment in the context of maximum sustained global growth. To this end, market distortions and impediments to adjustment must be removed. Greater economic flexibility will help resolve global imbalances, and it will help economies maintain strong growth as new economic patterns develop when imbalances shrink. I urged my counterparts to think more intensively about how they can contribute to the maintenance of strong global demand at a time when demand shifts will be needed to reduce deficits and surpluses. The United States remains committed to cutting its fiscal deficit and meeting the President's goal of cutting the deficit in half by 2009 when it is projected to be about 1.4 percent of GDP.

Emerging economies, especially China, and oil exporters are increasingly relevant to this discussion as well. Those with large current account surpluses need to play a far more active role in managing global imbalances by adopting policies that allow for greater exchange rate flexibility, promote sustained increases in domestic consumption, and accelerate the pace of financial sector reform. Oil exporters should enhance absorptive capacity for pro-growth investment and, for some, exchange rate flexibility.

These expanding global linkages and shifting economic weights necessitate continued outreach efforts by the G-7. Later tonight, representatives from China, Russia, and Saudi Arabia and the UAE will join the G-7 at an informal dinner. Also, during the IMF reform discussion, an Australian colleague joined the G-7 for the first time, in Australia's capacity as this year's chair of the G20.

We dealt substantially with reforming the IFIs, building on the good work of Rodrigo De Rato in his medium term IMF reform strategy. Recently Treasury has been seeking to strengthen the IMF's exchange rate surveillance, and I am pleased to have heard solid support on this from the other Ministers and Governors, as well as from Managing Director de Rato. The IMF has no responsibility more fundamental to its central mandate.

On IMF quotas and governance, we agreed on the necessity of fundamental reform of the IMF. The IMF's structure simply does not reflect the realities of today's world economy. As a shareholder institution, the IMF needs to reflect the rapid growth in many emerging markets and other key changes, such as the euro's advent. The United States strongly supports the Managing Director's approach -- a two-step process of reform is essential. The first step should address the most underweight emerging market countries around the time of the Singapore Annual Meetings. We believe that this must be credibly linked to a broad second step of near-term reforms, putting fundamental issues on the table such as broadening the countries benefiting from share increases, overhauling the IMF's outdated quota formulas to reflect the predominance of GDP in gauging countries' weights, and addressing the IMF Board's size and composition. I encouraged the G-7 Ministers to set aside national interests and commit to create an IMF that is strong, legitimate and relevant to all its members.

I expressed my strong support for World Bank President Wolfowitz's leadership on the anti-corruption agenda, and I found similar support among my colleagues. Improving governance and fighting corruption is necessary for development assistance to be effective in promoting real growth in poor countries. We agreed that all the Multilateral Development Banks should establish clear and strict criteria consistent with a zero-tolerance philosophy. We welcomed the decision by the World Bank and African Development Bank to implement 100 percent debt cancellation for qualifying countries, but committed to vigilance against free-riding by other creditors and determination that recipient countries incur new debt in a prudent and sustainable manner. In addition, we continued our discussions on a pilot Advance Market Commitment for vaccines, and worked on the significant scientific and implementation issues remaining.

We also focused on bolstering our collaborative work to safeguard the global financial system from terrorist and WMD proliferation financing and other illicit activities. Finance ministries play a central role in this effort, as our expertise brings insight into financial transactions, connections with the private sector, and tools to apply pressure on a great range of targets.

My G-7 colleagues and I have a sustained duty to work with our allies around the world - public and private sector alike - to collect, share, and analyze all available information to track and disrupt the activities of terrorists. As financial intelligence is among our most valuable sources of data, finance ministries must continue to develop and utilize powerful financial tools to thwart the flow of support to terrorists, as well as weapons proliferators and other illicit criminals

We call for a stronger commitment from the IMF and the World Bank to fight terrorist finance and money laundering and cooperate more closely with the Financial Action Task Force. Additionally, countries worldwide must implement the obligations that we have agreed to under the auspices of the UN, the FATF, and other international and regional organizations. The evils of terrorism are real, and as finance ministries we must do everything we can to counter these profound threats to national and economic security.