FROM THE OFFICE OF PUBLIC AFFAIRS

September 30, 2004
JS-1970

The Honorable John W. Snow
Prepared Remarks:
Bretton Woods Committee 20th Anniversary Meeting
September 30, 2004

Good morning. I'm delighted to be here with you today to discuss the state of both our national and global economies, and the role that the Bretton Woods Institutions play in the promotion of economic growth and opportunity for people all over the globe.

First, let me say congratulations on the 20^th anniversary of the Committee. Your purpose is as relevant today as it was 20 years ago, as the world of finance and economies continues to change and develop. It is critical that the largest and most influential financial institutions stay flexible and keep up with the changing times. Your oversight is valued, your counsel welcomed.

We meet at a time of terrific growth and great promise. The global economy is recording the fastest growth in 30 years. No major economy is in recession or facing high inflation. Talk of "bubbles," "overshooting" or "hard landings" is rarely heard these days.

We can – and should – celebrate the fact that, this year, there is no major financial crisis to talk about. Remember that in the 1990s we were preoccupied with such crises.

I believe that the Bretton Woods Institutions deserve great credit for getting us to this point of economic health, and I am optimistic that the positive track we are on will continue; but this is not the time to be complacent. Wrong policies can derail good times.

More than ever it is important that we all focus on setting goals and striving toward milestones; the current condition of sustained economic growth and relative stability of the global financial system actually presents us with a unique opportunity to do so.

Let's take advantage of the solid foundation we stand on today, and our excellent track record of international cooperation, to come to consensus

If our policies encourage growth through free market flows, with an emphasis on use of private capital, we can not only grow emerging economies, we can make financial markets all over the globe more resilient, more able to recover from future crises.

A terrific recent example of the implementation of a good policy has been the advent of collective action clauses as the market standard in sovereign external bond issues, which have begun to reduce uncertainty and attract investors to the emerging market asset class.

President Bush has led a re-thinking that focuses on results and milestones, on giving incentives and rewards for the kind of economic policies that will benefit generations to come in any country. He emphasized these points when he spoke to the World Bank in the summer of 2001.

I believe that his vision for global economic success is best articulated through his creation of the Millennium Challenge Corporation, which encourages all nations to embrace political and economic reform. Through that program, the United States has pledged to increase its core development assistance by half, adding $5 billion annually by 2006. To be eligible for this new money, nations must root out corruption, respect human rights, and adhere to the rule of law. They must invest in their people by improving their health care systems and their schools. They must unleash the energy and creativity necessary for economic growth by opening up their markets, removing barriers to entrepreneurship, and reducing excessive bureaucracy and regulation.

I believe this is the most progressive economic development idea of our times to deal with poverty in developing countries.

And I believe it is the idea that points the way for the Bretton Woods Institutions.

We must make aid available to countries that need it; but those countries must take responsibility as well. For governments that are not responsible and accountable to their own people, financial aid is a band-aid, and a tragedy in that it is not a solution for the people of those nations, people who seek and need a better life.

A better life is found through both political and economic freedom, period.

Economic opportunity is freedom's greatest catalyst as well as its most essential safeguard. Because business growth, free trade and financial reforms do lead to a better life for the citizens of any country. And with that better life comes an increased esteem for fairness, liberty and equality.

For example, it is for this reason that the renewed momentum of trade liberalization, including progress with the Doha Development Agenda, is so important.

I hate to over-simplify, but it is important to remember that economic growth creates jobs. And having a job means the same thing anywhere in the world, in any language – it means you can provide for yourself and your loved ones. It means that your work ensures your survival and progress, without dependence on anyone else.

It is a cornerstone of individual liberty.

There is a reason why the United States has an economy that is the envy of the world. There is a reason why my counterparts in other countries ask me: "How did you do it? How did you recover so quickly and surely from September 11^th, from the corporate scandals, from the bursting of the stock market bubble?"

In this country, we have always honored market movement over command and control. We have embraced free trade and the opportunities it brings – both to our country and to those we do business with. Above all else, we have a unique appreciation of small enterprise. We encourage entrepreneurship like no one else.

The most powerful elements of the U.S. economy are our small-business owners and entrepreneurs, our outstanding workforce and the simple fact that we operate as a free market. As a result, we are fortunate to have an economy that is more open, flexible, adaptive and resilient than any other in the world.

Do will still hit rough spots? Of course we do. Every economy does. But we've also learned how to best right our economy at those times.

The President's tax cuts, combined with sound monetary policy from the Federal Reserve Board, created the stimulus that brought us out of our recent recession. Today we are experiencing strong GDP growth and steady job creation.

We're also working toward deficit reduction – the President's plan will cut the deficit in half over five years. Because of the ongoing effects of the President's pro-growth economic policies, the deficit outlook continues to improve. To stay on this path, we need a continuation of the President's policies on spending discipline and economic growth.

Thanks to the President's leadership, we got our financial house in order… and we expect other countries to do the same. Again, we expect responsibility.

Having that expectation leads to positive reforms. For example, it was the impetus for the recent introduction of a new system for measuring results at the World Bank, designed to make sure that critical indicators, such as immunization rates and school completion rates actually rise in poor countries.

We expect other countries to shape up, and move toward a future of economic freedom, opportunity and stability for their people.

Economic growth and prosperity are good for each of our nations, and they are good for each other. Growth in the U.S. is terrific for our trading partners… and their growth is essential for our success. As a global economy, we have become more and more symbiotic, and this is broadly understood today.

That's why the wonderful consensus and collaboration among the countries of the G-7 is so important. We agree on having open economies, free trade, a free flow of capital. Last September, the G-7 all agreed on the key objective of making lasting changes to our economies that will help deliver stronger global growth that is broad-based and sustainable well into the future. We committed, together, to implement structural changes in our economies under what we have called the Agenda for Growth. This initiative focuses on reforms – such as marginal tax rate reduction, labor market reform and regulatory changes – that will boost productivity and employment and raise economic performance over the long term.

Each G-7 country has taken concrete actions to advance the Agenda for Growth, and I am proud to put the United States' reform agenda alongside others' efforts.

This commitment to the Agenda for Growth is historic; I know that the Bretton Woods Institutions understand and appreciate that fact. To have agreement on policies for growth is very different from the past. It was not long ago that we had centrally planned economies that did not bring a better life to the people who lived in them. Those days are part of the past, and we should all take great pride in this progress.

The G-7 has also achieved consensus on the necessity of flexible currencies, and on the importance of small and medium-sized businesses, and of investing in them.

I strongly encourage the Bretton Woods Institutions to give more aid to the private sector, particularly for capitalizing small business.

While I'm speaking of international cooperation, I would like to take a moment to mention the progress we have made in our fight against terrorism in the financial sector.

In partnership, the government and the private financial sectors have dedicated ourselves to tracking and cutting off the flow of blood money to the killers. Because while hatred fuels the terrorist agenda, money makes it possible.

The public and private financial communities have accomplished a lot together on this front over the past three years. The United States has designated 387 entities as terrorists or supporters of terrorists and frozen nearly $142 million in terrorist-related assets. More than $37 million has been frozen in the United States.

The U.S. has also identified and frozen over $4.5 million in al Qaida-related funds. In addition, almost $72 million has been frozen by other governments worldwide.

Almost 1,500 terrorist-related accounts and transactions have been blocked around the world, including 151 in the United States.

The Bretton Woods Institutions are part of this fight, and I appreciate their partnership. Our efforts are making a difference.

I am also gratified by the remarkable successes in fund raising for economic reconstruction in Afghanistan, Iraq and Haiti. I still recall our meeting in Madrid where the IMF and World Bank pledged up to $9.25 billion for reconstruction in Iraq. I congratulate the IMF and the Iraqis for the IMF program approved this week, and was very pleased to learn that the first project from the World Bank's trust fund for Iraq – to finance new text books -- is moving forward, and more than 12 million books will have been delivered by the time school begins next week.

The global financial community is achieving great things together. One risk of this improved global economic environment, however, is complacency – something we absolutely must resist.

I believe the Bretton Woods Institutions have a responsibility to continue their own reforms, for example doing more to reinforce debt sustainability in poor countries. That requires private investment, but also a commitment to not making loans when it is highly probable that they will be forgiven. Grants and debt relief must be significantly increased – we are considering more options to do so, including those that would provide up to 100 percent debt relief and grants from the international financial institutions. Employing both grants and debt relief together would give the poorest countries a chance to reach their international development goals of the Millennium Declaration without adding to debt burdens.  I am working with my colleagues in the G7 and other donors, with the institutions, and with recipient countries to achieve a consensus on the best way to solve the debt sustainability problem and ensure that our reforms only result in greater, not fewer, resources to poor countries.

I am pleased to see that the introduction of grant assistance at the World Bank, the African Development Bank and the Asian Development Bank is already proving to be successful and popular in recipient countries.

I also feel strongly that a new, non-borrowing facility ought to be established at the IMF, aimed at promoting strong country ownership and leadership in economic program design. This Policy Monitoring Arrangement would allow the IMF to signal its approval of countries' own economic policies in the absence of a funded program, and provide donors and markets with a regular assessment of policies. This would strengthen the IMF as an institution of international economic cooperation where each country assumes its responsibility for growth and stability. I welcomed the IMF Board's discussion on this issue last week, and I hope the IMFC can reach agreement this weekend to urge the IMF to move quickly to put this mechanism in place.

I am delighted by the level of attention that the G-7 Strategic Review has garnered around the world. I welcome in particular the personal interest that Rodrigo Rato has shown in the evolution of the strategic review since taking over as Managing Director of the IMF.

In closing, I want to repeat: The current condition of sustained economic growth and relative stability of the global financial system gives us a unique opportunity to build a consensus on reform, and more importantly, to move rapidly toward implementation.

There is too much at stake to be caught unaware by the next major threat to our financial system. The size and complexity of financial markets, for all their benefits, make us all vulnerable to disruption. And the magnitude of need and despair among the poorest countries is simply too great to quantify.

I urge us all to commit to work intensively together over the coming months, so that when we meet again next year, it will be to showcase the progress that has been made in a short time.

Tomorrow I will chair a meeting of the G-7, my last meeting as chairman before turning the position over to my good friend and colleague Chancellor Gordon Brown. I know he too wants to help the Bretton Woods institutions better reach their goals in a changing world. Indeed, just as the British and American Treasuries worked together 60 years ago to establish the Bretton Woods institutions, we have been working together to implement many of the reforms I discussed today. I wish Gordon well and I look forward to continuing to work with him on these important issues.

Thank you again for having me here today, and thank you for your work and commitment to global economic growth and financial stability.