Secretary Rubin: I'll start by thanking Oscar Lafontaine and Hans Tietmeyer, they hosted today's meeting, and they were very good and very interesting meetings. Let me make a comment or two on the meetings themselves.

Firstly, and I've said this at many other similar occasions after G-7 meetings, I think these are extremely valuable occurrences because what it does is give us all a chance to get together and think through and talk through common issues and challenges that face us with respect to matters that we deal with on a daily basis. I think this has been particularly true during these last eighteen months when all of us have been focused on this financial crisis.

We focused today on two main topics: first, the outlook for our own economies and then as an extension of that, the outlook for the world economy and the emerging economies and, secondly, global financial architecture. We all agreed on the importance of strengthening the foundations for sustainable growth, particularly in the industrial countries which constitute the predominance of world GDP. As far as the United States is concerned, our view is that the outlook is still most likely solid growth and low inflation, subject to the usual ups and downs, and obviously subject to the risks of the global economy, and recognizing that certain sectors are already being substantially and severely affected by the global financial crisis.

There was also a lot of discussion about the importance of Japan and Europe achieving strong domestic demand-led growth, and by virtue of so doing, achieving more balanced growth amongst our countries, reducing the large external imbalances and supporting recovery in emerging-market countries.

As always, we discussed exchange rates. I would point you to paragraphs five and six of the communique. If there are any questions about that we can, well, let me read very quickly what it amounted to as far as my view.

Paragraph six says we reaffirmed our view on the importance of pursuing policies to help avoid excess volatility and significant misalignments of exchange rates of major currencies. We will continue to monitor developments in exchange markets and cooperate as appropriate. That's paragraph six.

A paraphrase of paragraph five is we also agreed to maintain strong cooperation with respect to the international monetary system and exchange rates.

As far as emerging markets are concerned, we welcome the progress in restoring financial stability and strengthening on the basis of growth of many Asian countries. We focused on the commitment of Brazil to strengthen their economic program and urged that they continue their reform efforts.

Our second major focus, reform of the international financial architecture, took up a good part of our discussions. This is, as you know, an extremely complex issue and it will take a long time to resolve in all of its facets. Our approach has been to press forward with concrete steps in line with the framework set out in the October 30th Leader's Statement, the October 30th Finance Ministers' and Central Bank Governors' Statement. An enormous amount of work was done and I believe that we ought to make further progress in today's meeting. The communique lays out a number of areas of progress.

Let me point to four: we agreed on significant strengthening of disclosure to the IMF's Statistical Data Dissemination Standards (SDDS)to give a full picture of countries' foreign exchange reserves. I believe that once this takes hold and people become used and accustomed to it and use it, this will become a very important change in the financial architecture. It will alert investors and policy makers alike as soon as a country's international position begins to deteriorate.

We welcomed the progress being made on developing an enhanced IMF facility aimed at reducing the risk of contagion by providing a contingent line of credit to countries affected by financial contagion. We all agreed to work at the IMF to bring this on line as soon as possible.

Number three, we agreed to move forward to present President Tietmeyer's proposal on convening a financial stability forum, although there are still some details we need to work through and there will be a meeting, I think, in the not too distant future of our G-7 deputies toward that end.

We want to use this forum to improve the cooperation between national and international authorities and relevant international bodies to promote international financial stability.

Fourth and finally, one of the most critical elements for the new architecture will be steps to further protect the vulnerable in our society and to spread the benefits of globalization broadly within our societies and around the world. With this in mind, we stressed work on principles of good practice, of social policy, and agreed to press forward, particularly working with the World Bank, in putting these into operational use as soon as possible.

Our discussion also highlighted the importance of exploring ways to strengthen the HIPC Debt Initiative. I think we had a good discussion there. It is certainly our hope to reach agreement by the Cologne Summit in June, and I think today's work helped us move toward that agreement.

Finally, we met with our Russian colleagues. In our discussions with our Russian colleagues, we stressed the importance of a concerted policy response to the risks of accelerating inflation and continued economic difficulty. With that, I'd be glad to respond to questions, if any.

Q. You made a point of stressing maintaining cooperation when it comes to exchange rates. That was obviously one of the biggest issues coming here. What is your view of the discussions that actually took place? Is that area now status quo?

Secretary Rubin: Well, life is never status quo. I think we had a very good discussion, actually. And this is why I think this G-7 process is so useful. I think we had a very good discussion about different points of view with respect to exchange rate relationships amongst the major currencies, and we then drafted paragraphs five and six of this communique. That reflects the continuation of current practice.

Q. If you adopted a continuation of current practice, can you tell us something about the discussion and whether or not it will lead to changes in the future? Whether or not any kind of presentations were made that cause you to believe that something needs to be done, perhaps closer to what the Germans have suggested?

Secretary Rubin: My personal view remains unchanged. I think currency stability among the three major currencies is a very useful objective and I think the way to achieve stability is through sound fundamental economic policy and through strong domestic demand-led economic growth. I think that when you go beyond that, you get into all the kinds of problems that I've discussed before. The practical problems, I would say at the very least, the extreme practical problems, in trying to judge what constitute equilibrium rates, the need for pro-cyclical policies in order to maintain rates that are other than those that the market has brought to bear. But let me just add that those are just my views, the communique reflects the conclusions of the meeting. These are very broad, very important, analytic questions and that's why I said nothing is ever a status quo in a sense. I am sure these discussions will continue in the future and they should. I think what the international community should be doing is conducting a vibrant intellectual and analytic process about all questions relating to the global financial architecture.

Q: On the issue of macro economic growth in the G-7 countires, was there specific discussion in detail about ways that Japan, in particular, could start to stimulate growth and also was there discussion about progress toward cleaning up its banking system?

Secretary Rubin: I think it would be fair to say, as you know there are limits about what one is supposed to say about what went on in the meetings and I wasn't always very careful about adhering to those principles, but I think it would be fair to say that there was discussion about the activities of Japanese authorities with respect to the banking system, and I think a general sense that very important steps have been taken and real progress has been made.

Obviously there is a lot of work left to do and over time there is a great implementation challenge ahead. I think that unlike some of the past meetings we've had, there was also a sense that the Japanese authorities have taken important steps, albeit with the recognition that there is a great deal more to do.

I was addressing your comment on banking.

Q: What about macro economics in terms of monetary stimulus, was that raised?

Secretary Rubin: There was some discussion about, although not a great deal, about other aspects of Japanese policy.

Q: Did you refer to the long-term interest rates of Japan today?

Secretary Rubin: I would say there was some, but limited, discussion about other aspects of Japanese policy. I would say that Japan was not a focus of the meeting, but where Japan was discussed, I think there was more of the discussion directed to the banking issue than anything else. I think I've characterized the discussion and I think with the rest of the discussion, I would rather limit my comments to saying that there was discussion about other aspects of Japanese policy and the enormous importance to the world community of Japan getting back on track and getting back into a mode of strong domestic demand-led growth.

Q: You said you wanted to move forward with President Tietmeyer's proposals. Can you confirm there was unanimous backing for the proposals as outlined by President Tietmeyer and can you confirm that such a forum will convene for the first time in the spring of 1999?

Secretary Rubin: I can confirm that the communique says that we agreed to proceed with Hans Tietmeyer's proposal and then as I said in my remarks at the beginning, there are some specifics there that still need to be worked out. As a general proposition the agreement was to move forward. I think everybody was very enthusiastic about it, but there are a few specific matters that still need to be worked out.

Q: On the timetable is that (inaudible)

Secretary Rubin: Let me restrict myself to saying that the general view was we should move ahead at a pretty reasonable pace. But there still is some work to do on a couple of the details.

Q: Was there any detailed discussion of the conditions here in Europe and did you get any sort of specific assurance that Europe might be doing some of the things that you've been asking for? Secondly, connected to that, did you get the impression that the Europeans were speaking with one voice at this meeting or was there a sense of discord maybe?

Secretary Rubin: No, I wouldn't say that. I would say that we did discuss European growth and the importance of Europe having strong domestic demand-led growth, obviously for the sake of Europe but also for the sake of the rest of the world, particularly since the United States, although we certainly expect to have solid growth, could well have growth that is not as robust as last year. I'm not projecting that, I'm just saying that it is obviously a possibility.

I would say that the discussions about European growth were again very analytic and people discussed their various perspectives with respect to how growth might be achieved and where the emphasis needed to be. I think there was a broad-based, I think it's fair, to say, a broad-based recognition in the room that Europe needs to move forward to promote a higher rate of domestic demand-led growth.

Q: (inaudible) how...?

Secretary Rubin: I think on the question of "how" we had a lot of discussion.

Q: Demand-led growth will come from monetary stimulus or come from reducing structural impediments?

Secretary Rubin: Both comments are correct. You can quote yourself on that, if that is your question.

Q: But the question is, speaking as a representative of the United States, what is your preference? What are you suggesting?

Secretary Rubin: I don't have a preference. I think it is very important for the world that Europe get back on the track. I think it is very interesting, this is a public document so you can all get a copy of it. The IMF, I assume the IMF report is public? It's not public? Oh well, you can't get a copy of it.

But if you look at the data, what you will find is that over the years 1996-1998, the current account surplus in the crisis-affected countries of Asia and Japan went up very substantially as you might expect. The deficit of the United States went up substantially because we were growing, our markets are open and as President Clinton has said, he feels, and I think rightly, that part of our responsibility is to help these countries by absorbing exports. You will find that in various other parts of the world, their deficits also went up, absorbing exports from these troubled parts of Asia, except for Europe. Europe actually had a slight increase in its surplus. So it seems to us that Europe needs to play a much larger role through faster growth and more open markets in this process of absorbing the exports that Asia will need if it is to grow out of its problems.

I don't have a preference. I do think there is a widespread view that there is a lot of structural reform that could be constructive with respect to promoting growth in Europe, but that isn't an expressed view on my part as to what their policies should be, either with respect to structural growth or monetary policy.

Q: In regard to your fourth point, could you explain further what sort of steps you are talking about to protect the vulnerable in society in the relationship between developing countries and industrialized nations?

Secretary Rubin: We didn't have an extensive discussion, but the focus was on two separate areas. One is that when there are IMF programs in international assistance there should be a focus on protecting social safety nets in those programs and, secondly, we should work particularly through the World Bank and the other multi-lateral development banks in a longer-run sense to develop the underpinnings for successful economies and the inclusion of all of those who work in the benefits of global growth.

I will give you a personal view: I think both economically and politically, if we are going to have a market-based economic system, which we believe you should have, it is only going to happen if the benefits of global growth are very broadly shared, both within nations and amongst nations. The discussion today, although it was not lengthy, really looked forward to the June leaders meetings in Cologne, and there was reference to working with and through the World Bank in the two areas I just mentioned.

Q: What do you think of the German proposal in regard to exchange rate mechanisms to regulate or make this sort of flexible control mechanism for developing countries?

Secretary Rubin: Well, we didn't discuss that at this meeting. If you are asking me what I think, I think that with the industrial countries, as I said before, the key to stability is fundamentals. I think in the developing countries, there are real questions about what kinds of exchange rate regimes are going to work best in developing countries, because they are much smaller and much more susceptible to the vicissitudes of the world.

It still seems to me the key in the developing countries, once again, is sound policy. It is kind of interesting if you look around the world at the countries that have come through this either well or rather well, or relatively well, it isn't the function so much of the exchange rate regimes, it is really a function of what policies they had. But having said that, I think all of these things being equal, it probably is so that flexible exchange rate policies are going to be more effective and work better and in a very real sense, be safer if you will, in developing countries. But we really didn't have much discussion, in fact, I don't think we had any discussion of it.

Q: I just wanted to ask you about the stability forum. Could you detail which other countries outside of the G-7 you envisage actually being involved, would it include other major financial centers such as Hong Kong?

Secretary Rubin: That subject was not discussed and obviously it is going to have to be dealt with at some point. But it was not discussed here.

Q: Can I ask first whether you are prepared to see a further shortening in the time period of policy track record required for countries qualifying for debt relief under the HIPC program as the Germans and the British have suggested? And secondly, could I ask again on the Tietmeyer Committee, I totaled this up and I think this works about 35 people. Is this not rather large and unwieldy to be of practical use?

Secretary Rubin: No, I don't think so. I think that probably is about the right number. Having participated in groups about that size myself, I think if something is reasonably well-organized and reasonably-well led, that it could work very effectively.

We have had a series of ideas ourselves on the HIPC area. They are really quite similar to the ones that Chancellor Schroeder has put out. I think on the question of the shorter period, it is a little bit a question of what kind of history of reform countries have had. As you know, we had advocated that there be interim relief subject to reaching the final date anyway, so I think we have to work through some of those issues, but in principal, the kinds of thoughts we had and the kinds of thoughts Chancellor Schroeder had were actually quite similar, subject to working out some of the specifics.

Thank you. ####