FROM THE OFFICE OF PUBLIC AFFAIRS

(6:40 p.m.)

SECRETARY RUBIN: Good evening.

Let me say a few words about the meeting today, and then we can discuss, as always, anything that you would like. Let me start by saying that it was, as I think all of these G-7 finance ministers, central bank governors meetings have been, at least in my time here, I thought it was a very useful meeting. We had good exchanges of views. It's a very informal atmosphere. And it gave us a real opportunity to get a sense of what we each respectively thought about the various issues that were on the agenda.

It's really the only meeting of its kind that we participate in, in the sense of its informality and the opportunity -- there is no staff present -- the opportunity to really participate in a real give-and-take on an informal basis on these various issues. We focused on three issues, three main topics: the outlook for growth in our own economies, and the world economy more generally; second, the very important question of global architecture, which I spoke on the other day; and, third, somewhat briefly on the situation in Kosovo, the ramifications for neighboring countries, and then we discussed Russia.

On the first, we all agreed that there has been real progress in recent months. And particularly in some of the Asian nations that have taken ownership of reform and have had, accompanying that, IMF programs. On the other hand, we also agreed that most areas of the global economy are generally thought by private sector forecasters to be likely to have either slow growth or negative growth, and that there were very substantial challenges ahead.

The most important contribution that the G-7 nations could make was to promote sustainable, domestic demand-led growth at home -- that is to say, in their own economies, all of which should be made easier by the fact that all of them are experiencing relatively favorable price stability.

As far as our country is concerned, we reported that we thought the most likely prospect was the continuation of solid growth and low inflation, but we also emphasized that it is very important that both Europe and Japan get back on track with respect to domestic demand-led growth.

As always, we discussed exchange rates. And the communique reflects -- well, I must say, it was a very brief discussion, not an extensive discussion -- and the communique reflects our views, in what I guess are items six and seven.

With respect to the emerging market countries, as I mentioned a moment ago, we welcome the return -- we welcome the progress and the early signs of recovery in a number of the countries, particularly in Asia, where great difficulty had existed, and at the same time noted that even in these countries, there were substantial challenges ahead, and of course, in other countries where such progress has not yet been made.

We discussed at length -- and it was the longest topic of our meeting -- international architecture. As I indicated in my speech the other day on this topic, in our judgment, reform will not involve some sort of dramatic announcement, but rather it will take place over time and be put in place in pieces over time. And I must say, it seemed to me that that was a view that all central bank governors and finance ministers of the G-7 shared.

We had a good discussion on a number of the areas that I discussed in my speech the other day, particularly the role of the private sector, exchange rate regimes, and capital flows. In each of these areas, there has been practical progress made and at the same time there is a great deal of work going on. We agreed to submit all of this material back to our deputies so that they can continue on this work leading up to Cologne.

On Kosovo, we agreed that the international community must help affected neighboring countries to address the damage that has been done to their economies by this enormous human tragedy, and also to sustain economic reform efforts which are necessary for the long-term economic well-being of these countries. We emphasized particularly the important role the international financial institutions have to play in this process, and the importance that evaluations in the development of programs be done in a serious analytic manner.

We also reiterated the importance of strengthening HIPC debt initiatives. We reviewed the proposals that have been made by a number of the G-7 countries in this respect, and directed our deputies to bring these together, in an effort to reach consensus by Cologne. We briefly discussed the Y2K issue. We agreed that each G-7 country, in Cologne, should provide a short status report with respect to Y2K conditions in their particular country, in each of the respective countries in critical areas.

Finally, we met with our Russian colleagues and heard discussion of their economy, and then urged that they take all steps necessary to reach agreement with the IMF on a credible economic program.

With that, I would be delighted to respond to any questions you all may have. Mike.

QUESTION: There is a lot of talk -- with the communique, you mentioned about progress being made and particularly -- (off microphone) -- I know you don't want to declare the crisis over, but are we getting to a point where the G-7 countries are now dealing with what are cyclical economic problems rather than rescue of a world in crisis?

SECRETARY RUBIN: I wouldn't agree with the statement the way you put it, Mike. I will express it my own way. I mean it's a fine way to think about it, but I will tell you how I think about it. I think what you have had is a crisis that developed over a long period of time. And some of you have heard me say it first erupted in Thailand, and created enormous hardships over the last couple of years. I think the effects of that crisis are still being strongly felt in a goodly number of countries around the world. And I think that we are going to be a long time working our way through the effects of that crisis.

In addition to the effects of the crisis itself, for various other reasons, I would say more structural actually than cyclical, the great preponderance of the rest of the industrial world outside the United States is expected this year to have slow growth or, in the case of Japan, negative growth. So I think that while there has been progress, or, as the communique says, improvements in some areas, I also think, as the communique says, serious challenges remain and will take time to resolve.

And I will give you my feeling, at least. Mine is one of feeling good about that something very important has been accomplished in terms of the progress that has been made and the reduction in or the avoidance of the risk that I think we faced over the last couple of years, of very severe worldwide impacts. But I also think that, in a global economy in which the only major area that is doing well is the United States, there are enormous challenges that lie ahead and uncertainties. And we all have to continue to focus on them. David.

QUESTION: Mr. Secretary, in the statement, in the communique, about Japan --

SECRETARY RUBIN: What number are you on, David? Oh, I see it, on the second page.

QUESTION: Yes, on the second page. It says it is therefore essential that Japan implement stimulus measures until growth is restored. We are now waiting to see what the results are. And I am interested to know if there is a divergence in those two statements.

Also, on Russia, if you would simply tell us if the Russians told you anything that made you think that they are taking steps that are more significant than they did when the first crisis hit.

SECRETARY RUBIN: If I could go back to your first statement. If I understood what you said correctly, it sounds like there is a slight difference in emphasis. All I can tell you is our view. And our view is that Japan has taken some important measures in the fiscal area and in the banking area. But at the same time, in the fiscal area you just focused on, it is very important that sufficient fiscal stimulus remain in effect until solid domestic demand-led growth is restored. And that is our view.

Is that responsive to that question?

QUESTION: Do the Japanese agree with that?

SECRETARY RUBIN: David, I cannot remember what they said. I can tell you what our view is. I don't remember how they expressed their view. You would have to ask them.

On the question of the Russian budget, I think it is a little hard to compare. You are talking about the budget back, last July-August? Is that what you are referring to?

QUESTION: Yes.

SECRETARY RUBIN: I think it is hard to compare -- I have not tried to do that analysis actually -- but I think it is sort of hard to compare those two budgets. As you know, what the IMF is looking for is a primary surplus I guess a touch above 2 percent. And that will require actions of various kinds.

Assuming that the actions, or the actions agreed to, are real and assuming they happen, then I think that will be a substantial fiscal accomplishment on Russia's part. Assuming both the agreement to them and then the actual implementation. You know, agreement is one thing, the implementation is another.

And I don't know, David, to what extent there will be prior action conditions and matters of that sort in the agreement. I think we just have to wait and see if an agreement is reached, and then, when it is reached, what it has in it. Paul.

QUESTION: Mr. Secretary --

SECRETARY RUBIN: You know, I don't think it is useful to try to use that budget as a baseline for trying to think about this. I think one has to look at this in today's conditions and just see what you think, what one thinks, if this is movement towards a sound macroeconomic condition. Paul.

QUESTION: In both of these, Europe and Japan, there is a general statement about pursuing policies. Did you come away with any increased -- (off microphone) -- on these two entities, the Europeans, the central bankers -- (off microphone)? Did you come away with any sense, either with respect to Japan or Europe, that they are doing anything beyond what they are doing now to get their economies back on track?

SECRETARY RUBIN: Let me answer it this way, Paul. I did come away with a feeling in both cases -- as a consequence of both the bilaterals with the various countries, and then the overall G-7 meeting -- that there was a real focus, both in Japan and a number of the European countries, on the softness, if you will, of projected growth and the need to take action to move forward.

There was no commitment to specific action, if that is your question, but I did come away with a sense that there was a great deal of focus on the need to reestablish solid growth. And I got that sense both in the -- with respect both to Europe and Japan.

QUESTION: Mr. Secretary, the language on the United States and Canada, where it says that efforts there should be directed towards sustaining growth over the long run, does that imply a need for deceleration in U.S. economic growth? And if so, do you think the economy will slow on its own or will it need some help?

SECRETARY RUBIN: Well, I think I would rather just stick with my usual formulation, which I've used for I guess the whole time I've been in the administration, because it's not a bad way of thinking about it. I think it's very hard -- I always felt this -- it's very hard to project quarter to quarter what numbers are going to look like. So I think what you have got to figure out is you think you're on a basically sound policy path and one that is going to produce fundamentally good results. I think we are.

And it was on that basis that we had this language -- whatever the language was -- about our outlook being solid growth, low inflation. I think in terms of my own view, for whatever it's worth, in terms of what we need to do, what I think we need to do is to take advantage of the surpluses we have, to institutionalize, if you will, fiscal responsibility about paying down the publicly held debt of the Federal Government, and in other ways to promote national savings. And I think what we should not do is consume a great deal of this surplus in a broad-based income tax cut, which will not contribute to national savings but, on the contrary, will undermine the effort to promote national savings and undermine the effort to promote fiscal discipline.

QUESTION: (Off microphone) -- you say that Japan needs to use available tools -- (off microphone) --

SECRETARY RUBIN: Well, let me say that I don't want to get into discussing monetary policy, and therefore I am not commenting on their monetary policy. But I do think that in the macroeconomic area -- no, I actually don't agree with the statement as you just stated it. I think in the macroeconomic area, what needs to be in place are programs that will continue an effective fiscal stimulus until strong enough growth is in place.

I think on the banking side, clearly important steps have been taken, important progress has been made. There are still enormous challenges ahead, including the question of disposing of or liquidating and putting into the market, if you will, the bad loans with the Japanese banks, restructuring corporate and bank areas so as to increase productivity and competitiveness, opening markets also will increase productivity and competitiveness -- are all areas where I think there is a lot of opportunity to contribute to restoring Japanese growth.

QUESTION: (Off microphone) --

SECRETARY RUBIN: Everything I just said is room for a great deal of activity going forward in meeting this challenge. And I am not commenting on the question of monetary policy.

QUESTION: You talk about some of the differences -- (off microphone) --

SECRETARY RUBIN: Now, what did you ask?

QUESTION: (Off microphone) -- I was wondering if you could sort of walk us through some of the discussions about growth.

SECRETARY RUBIN: Growth in Japan? Well, we didn't have a discussion about projected growth for 1999, if that is your question. But what we did have a discussion of was economic policy in Japan and the kinds of measures I was just talking to this gentleman about, and the importance of reestablishing growth. But the framework for that discussion was the IMF projection.

QUESTION: Mr. Secretary, in the communique, we see in the discussion there is a little bit of talk and a focus a little bit on the private sector burdensharing, so to speak, expanding a bit. When there is a mention of collective action causes in bond contracts, I am wondering whether there was a discussion, and if so, if you could characterize it, on what official creditors, bilateral creditors to countries should play in relation to countries' bond contracts, countries seeking to potentially reschedule official debt, specifically what the Paris Club has essentially used their talks as leverage, how might that be going forward?

SECRETARY RUBIN: Well, you asked what the general conversation was with respect to bilateral creditors or --

QUESTION: Regarding the role of bilateral creditors.

SECRETARY RUBIN: You are talking about Paris Club comparability with respect to Eurobonds?

QUESTION: Yes. Should the Paris Club use their leverage?

SECRETARY RUBIN: And you asked the question of comparability. There was some discussion -- there was discussion, actually a fair bit of discussion, of the private sector involvement. And my recollection at least is that for the most part there was a recognition of the complexities of the tradeoffs. And I think for the most part, though not totally, an orientation toward the view that we have that this is a very complex issue and it has got to be done case by case. And certainly we moved a lot -- I don't mean we, the United States, but the international community -- in the last year and a half, as the private sector has become involved in a number of these support programs.

On the question of the Eurobonds and Paris Club comparability, which is I guess where this was leading, as you may remember in my speech, I said we didn't see any reason why one type of private creditor should be considered senior to others unless obviously it is contractually provided for. And my recollection is that in the discussion in the G-7, while this was not a subject that too many people commented on, there was some comment on the subject. To the extent there was comment, I think it was an agreement with that statement.

QUESTION: I know you said you didn't talk about exchange rates very long, but recently Japan has been worried about the possibility of flexibility in their exchange rate. Did they bring this up and how we might stabilize it? And is the United States concerned about this?

SECRETARY RUBIN: They did not ask our assistance in anything they might or might not be thinking of doing. And they didn't indicate any intentions of any kind on their part one way or the other in either direction.

QUESTION: Do you share their concern?

SECRETARY RUBIN: About the volatility and the direction of their currency? We didn't really discuss that with them.

QUESTION: (Off microphone) --

SECRETARY RUBIN: I would have to say that is not something we spent too much time thinking about.

QUESTION: On the issue of tax havens assistance, is this the first time the G-7 has addressed this issue?

SECRETARY RUBIN: Are you talking about U.S. tax havens or tax havens from good practices and appropriate standards?

QUESTION: It says it is trying to identify tax havens.

SECRETARY RUBIN: I did not realize that was in here, frankly. But we are very worried about offshore havens in two respects. One is that, if you will, the architecture or the framework of the global financial markets are improved, then I believe that over time, in aggregate, you will have powerful improvement. It can be adverse to the purposes that are being sought to be achieved if there are trading centers that offer, in effect, relief from the general architecture that exists in the major market centers.

And so one of our focal points and one of our foci, if you will, has been to determine ways that the international community can create pressure so that offshore centers don't become havens for lax regulation. That is number one.

And, number two, I think exactly the same thing applies with respect to taxes and tax evasion. And it seems to me that it is very much in the interest of all concerns that these offshore -- well, it may not be all concerned -- but it is very much in the interest of sound international tax policy that there not be offshore havens that people can use to evade taxes.

We will take two more. Yes, sir.

QUESTION: Mr. Secretary, in the past week, at least twice you have said that you do not want to comment on monetary policy in Japan. You have talked about fiscal policy ad nauseam for the past couple of years.

SECRETARY RUBIN: In an appropriate degree.

(Laughter.)

QUESTION: Sometimes you have even talked about specific components and structural aspects of Japanese policy and other aspects of Japanese macroeconomics. Why do you not want to comment on monetary policy?

SECRETARY RUBIN: Because we have a view, and I think rightly so, that the independence of monetary authorities is a very important force for sound macroeconomic policy, and particularly in inflationary times, which we don't have at the moment, but particularly in inflationary times that that independence provides a real force for weighing against where their political pressures might otherwise take monetary policy. And in deference to that respect for the independence of monetary policy, it was our view, my view, that we would not comment. Not only should we not comment on the Fed, but we really shouldn't comment on monetary policy as a general matter.

I said we would take one more question. Yes, sir.

QUESTION: (Off microphone) --

SECRETARY RUBIN: The opposite of domestic demand-led growth is growth that's -- well, maybe I am saying the same thing -- but growth that is spurred by exports. And what we have consistently said is that it is not healthy for the world economy to be dependent on one very large source of domestic demand-led growth, where everybody else is basically exporting to that. And that our increasing trade imbalances, although certainly sustainable for a substantial period of time -- certainly economically at least sustainable for a substantial period of time -- nevertheless, that is not an indefinitely sustainable situation economically. In addition, it creates various political problems.

So what we have said, and I think rightly, is that a healthy world economy depends on strong domestic demand-led growth in all of the major economic areas of the global economy.

Okay. Thank you all very much.

(Whereupon, at 7:07 p.m., the press conference concluded.)