December 3, 2005
js-3034

Statement by U.S. Treasury Secretary John W. Snow following the Meeting of the G7 Finance Ministers and Central Bank Governors

Statement by U.S. Treasury Secretary John W. Snow following the Meeting of the G7 Finance Ministers and Central Bank Governors

London, United Kingdom
3 December 2005

I was pleased to join the G-7 Finance Ministers and Central Bank Governors here in London this weekend. This meeting was notable as our last with Chairman Greenspan, who has played an integral and immensely valuable role in guiding G-7 meetings for most of the past two decades.

This meeting comes at a good time for the global economy.  Growth is strong, even though tempered by high and volatile energy prices.  Many countries are making significant progress in implementing economic reforms, and there are no emerging market economies in financial crisis.  This is an opportune time to make further progress on trade liberalization, and this was an important topic of our discussions this weekend.  In my view, the potential rise of protectionism is the most significant risk to the global economy.

On the subject of growth, I was pleased that the G-7 Finance Ministers met
with our counterparts from Brazil, China, India, and Russia.  These emerging
countries represent an increasing share of the global economy.  Their views
enriched our discussions.  I look forward to continued consultations going
forward as they are an increasing and necessary part of any discussion of
the global economy.

I was able to report that the U.S. economy continues to be a major driver of
global economic growth.  The U.S. economy is performing very well, which
economic reports in recent weeks have confirmed.  Even in the face of severe
weather disruptions, the U.S. economic growth estimate for the third quarter
was revised up to 4.3% -- the tenth consecutive quarter of above-trend
growth.  We also received news that job growth in the United States was very
strong, with a 215,000 increase in November, and nearly 4.5 million new
payroll jobs created since the employment trough of May 2003. This has given
us an unemployment rate of 5.0 percent - lower than the average rate of the
1970s, '80s, and '90s.  Clearly, good economic policies that reward
flexibility and openness are paying off in the U.S. economy.

The U.S. commitment to reducing the budget deficit also remains strong.  We
recognize its importance for the economic health of the country and for the
international financial system. Our efforts reduced the budget deficit by
$94 billion this past fiscal year to $318 billion.  This equals 2.6 percent
of GDP - lower than almost two-thirds of the past 25 annual budget deficits.
  We recognize, however, that we need to do more.  While Federal outlays for
hurricane relief will affect the budget in FY2006, the Administration is
working to prevent the additional budget costs of storm-related repair from
undermining efforts at medium- to long-term deficit reduction.

While the U.S. is working to address its fiscal imbalance, the shared burden
of addressing global imbalances requires a broader international effort. 
Moreover, the effort must maximize sustained global growth.

Unfortunately, the rates of growth of domestic demand in Japan and Europe
remain below what is needed, underlining the need for them to put in place
reforms to allow productivity growth and labor participation to reach their
full potential.  Global imbalances also very much involve China and emerging
Asian economies.  I welcome China's commitment - reaffirmed many times by
Chinese officials - that market forces will play an increasing role in the
setting of China's exchange rate and past statements of placing greater
emphasis on domestic sources of growth.  However, even with the change of
July 21, China's new exchange rate system has operated with too much
rigidity. This rigidity constrains exchange rate flexibility in the region
and thus poses risks to China's economy and the global economy.  The G7
noted that further flexible implementation of China's currency system would
improve the functioning and stability of the global economy and the
international monetary system.

High oil prices were another risk to the global economy on the meeting
agenda. The rather quick retreat of oil prices since the shock of the U.S.
hurricanes is notable, but repairs to various facilities are far from
completed and winter is approaching. In the long-term, encouraging
investment in energy is essential for assuring adequate supplies in the
future.

The single most important item we discussed is achieving an ambitious
outcome from the Doha Round by the end of 2006.  Trade liberalization is
essential to enhancing global growth and poverty reduction, and we cannot
allow it to fail.  The Hong Kong Ministerial next week will be a critical
next step toward that goal. I urged the EU and Japan to make significant
moves forward on agriculture market access proposals. Just as important is
that developing countries reduce their trade barriers and provide real
market access in goods and services to both developed and developing
countries. In fact, a developing country can experience higher levels growth
and development by opening its financial services sector to foreign direct
investment.

In this context I particularly welcomed the sentiments expressed by Brazil
and India this weekend in support for progress toward successful completion
of the Doha Round.  This type of leadership will help to ensure that the
benefits of trade are more broadly shared among all countries.

As part of our efforts to encourage a successful Doha Round, we have agreed
on a unified approach to help low-income countries reap the development
benefits from trade liberalization.  This approach is guided by the
principles that trade assistance is offered as a core component of
multilateral and bilateral development programs; reinforces developing
country responsibility to prioritize trade-related projects; and supports
the private sector's role in capacity building.  Through this approach, we
have agreed to increase bilateral and multilateral trade-related assistance
toward a goal of up to $4 billion by 2010.

On the IMF, we encouraged Managing Director Rato to substantially elevate
the attention given to exchange rate issues in the Fund's surveillance
activities. This is the IMF's most fundamental responsibility, yet IMF
exchange rate policy advice has often been too sparing or too muted. 
Exchange rate flexibility is clearly in the interests of large emerging
markets increasingly integrated with international capital markets.  But
from a broader perspective, the international financial system would benefit
from a multilateral approach to greater exchange rate flexibility.

We also stressed the need to enhance the Fund's governance and
representation structures, which need to evolve rapidly to reflect the
current realities of the global economy such as the growing weight of
emerging markets - particularly emerging Asia - and monetary union in
Europe. The G-7 have a collective interest in an IMF that is strong and
relevant to all its members, and the IMF's legitimacy and effectiveness risk
being undermined if current disparities on quota shares and Board seats
continue.  The U.S. is seeking a better balance - we are not seeking to
increase our quota share; nor would we be prepared to see it decline.

We had good discussions on a range of developing country issues. We were all
pleased with the progress on the G-8 debt agreement, particularly at the IMF
- some work remains to move ahead with implementation at the World Bank and
we encourage quick action. We also welcomed Minister Tremonti's report on
Advance Market Commitments (AMCs) for vaccines as an interesting idea that
may contribute to the development, manufacture, and distribution of vaccines
for neglected diseases.

Ministers and governors also discussed efforts underway to prevent the
further spread of Avian influenza.  The spread of this virus has potentially
severe human and economic impacts, and we agreed that all nations must take
all necessary steps to prevent a pandemic from occurring.

Continued terrorist attacks remind us of the urgency and importance of
implementing our commitments to fight terrorist financing and illicit
finance.  We have reaffirmed our commitment to halt the flow of financing
with specific measures outlined in the Annex to our Statement.  I further
urge our G7 partners and other allies to work with us to take decisive
multilateral action against individuals and entities engaged in illicit
financing including WMD proliferation networks and supporters.

Finally, in addition to our normal meeting, I am pleased the G-7 had the
opportunity to meet together with Ministers Fayyad and Olmert and the
Quartet's Special Envoy, James Wolfensohn. Our support of economic
development of the West Bank and Gaza will be a crucial element of lasting
peace in the region.

Thank you.