FROM THE OFFICE OF PUBLIC AFFAIRS August 4, 1998RR-2626 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 of the 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 of the 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 modern competitive finance are 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.
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.
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.
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:
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.
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.
What is also essential is providing the IMF with the support that it needs. The IMF has been critical to our containment of the Asian financial crisis 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 of the 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 1930'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 morning 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 of the 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.
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