September 16, 2006
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Statement by U.S. Treasury Secretary Henry M. Paulson following the Meeting of the G7 Finance Ministers and Central Bank Governors Singapore

I was very pleased to attend my first meeting of G7 Finance Ministers and Central Bank Governors here in Singapore. I greatly appreciate the work of our G7 host, especially Japanese Minister Tanigaki, and the country of Singapore.

Fortunately, we are meeting this weekend in the midst of one of the strongest global expansions in memory, and the international institutions are predicting continued strong growth through next year. It is gratifying to see signs of moderate recovery this year in the major economies, particularly Europe and Japan.

We were able to report that U.S. economic growth is settling into ranges more in line with our long term potential. We continue to see solid productivity growth and job growth, and we continue to make progress in bringing down our fiscal deficit. The residential housing market is cooling from record unsustainable growth rates, but growth in the U.S. economy is being supported by other components, including wage growth, strong corporate balance sheets, and increased business capital investment.

In my bilateral discussions and in the G7 meetings, I stressed four areas of importance: global trade liberalization; our cooperative efforts to ensure the safety, soundness and security of the international financial system; IMF reform; and our shared responsibility to address imbalances in the global economy.

As I emphasized the importance of trade liberalization, I noted that global protectionist pressures remain a serious threat. It is crucial that we as finance ministers, with responsibility and interest in strong global growth, work with our governments to breathe new life into trade discussions. As someone who has worked extensively in the international economy, it is clear to me that economies that are open to trade and competition benefit greatly, and economies that restrict open trade and competition impose heavy costs on themselves and the overall economy. I strongly support a renewed commitment to Doha and encouraged my G7 colleagues to work together to achieve an ambitious outcome in the Doha round of negotiations. A successful Doha outcome is particularly important to developing countries since they will reap the vast majority of the benefits.

We discussed our efforts to address global imbalances. These imbalances reflect a wide array of macroeconomic and microeconomic forces and the G7 views their resolution as a shared responsibility, involving participation by economies throughout the world in a manner that maximizes sustained global growth. The United States remains committed to cutting its fiscal deficit and, as I explained, is vigorously doing its part. Europe and Japan need to implement greater structural reform and further raise domestic demand-led growth. China needs greater currency flexibility and stronger domestic consumption as well as financial sector reform. Oil exporters should enhance absorptive capacity for pro-growth investment and, for some, permit greater exchange rate flexibility. Globally, greater economic flexibility and market mechanisms will help reduce global imbalances, smooth economic adjustments, promote sustained strong growth and take advantage of new economic opportunities that develop as patterns of economic activity change.

We also had a substantial discussion of reform of the International Monetary Fund. The IMF needs nothing less than fundamental reform of its quota and governance structure to reflect changes in the global economy. Reform is long overdue, and this plan is the best available route to achieve our goals. In our statement today, the G7 voiced its strong support for the two-step package of reforms put forward by the Managing Director. We must now work together to quickly put in place by this time next year the "second step" reforms such as a revised quota formulas with a predominant weight for GDP, another quota increase to reflect changing economic weights, and an increase in basic votes to ensure that the voice of poor countries is not diminished. I continue to encourage other underweight industrial countries to follow our lead and forgo an increase in their own share in the second stage.

It is equally essential that the IMF strengthen and modernize its surveillance over members' exchange rates. The IMF was founded to keep exchange rate disputes from becoming trade disputes and damaging the global economy. The G7 agreed that the IMF must quickly revise, update, and rigorously implement its 30-year-old guidelines on exchange rate surveillance.

As it is crucial that we improve upon the safety, soundness and security of the international financial system, we should intensify our efforts against terrorist financing, money laundering and illicit finance - including the financial networks supporting WMD proliferation. These efforts should include tackling global financial vulnerabilities, especially in those countries that have failed to recognize international standards. We discussed the need to take action to disrupt terrorist and illicit finance related to specific threats from North Korea and Iran. And we discussed the critical importance of the work of the IMF and the World Bank to foster implementation of the international AML/CFT standards, and we encourage continued deepening of cooperation with the FATF.

I appreciated the deep and thoughtful discussions I had with my colleagues. We have significant challenges ahead of us and I leave these meetings with confidence that we can work together to find creative, effective solutions.

Thank you.

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