FROM THE OFFICE OF PUBLIC AFFAIRS

(6:07 p.m.)

SECRETARY RUBIN: Good evening. Welcome to the Treasury Department. Let me comment briefly on the G-7 Finance Ministers and Central Bank Governors which we just completed, and then I'd be delighted to respond to whatever you'd like.

This was, I think, a particularly important time to have such a meeting. There are a goodly number of issues around that are very important with respect to the global economy right now and also for the long term. We had, I think, most interesting and most useful discussions which, number one, gave us an opportunity to share and exchange views, and number two, provided a basis for moving forward and for the G-7 providing leadership in the global community with respect to these issues.

As always, we began with Michel Camdessus of the IMF, who presented his or the IMF's views with respect to the global economy and key countries in the world economy. The focus was predominantly, in the subsequent discussions, discussions subsequent to the Managing Director's comments, the focus was predominantly on Japan. I don't think there's any question but there was a shared sense of the critical importance, obviously to Japan, but also very much to Asia and to the world economy, that Japan re-establish strong domestic demand-led growth and that Japan quickly implement a strong program consisting of appropriate fiscal measures and structural reforms, including in the case of structural reforms strengthening the banking system and also opening the Japanese economy. The objective would be, as I said a moment ago, to provide enduring long-run, strong, domestic demand-led growth in Japan.

We also, as Finance Ministers always and Central Bank Governors always do, discussed exchange rates. You have the communique, so that you have a summary of our discussions. Let me just read the language as a way of expressing what we did:

"We reaffirmed our view that exchange rates should reflect economic fundamentals and that excess volatility and significant deviations from fundamentals are undesirable. We emphasized that it is important to avoid excessive depreciation where this could exacerbate large external imbalances. In light of this, we support appropriate steps by Japan aimed at stimulating domestic demand-led growth and reducing external imbalances, thus also correcting the excessive depreciation of the yen. We will continue to monitor developments in exchange markets and to cooperate as appropriate."

I raised the question of the Year 2000 computer compliance issue as an important, extremely important with respect to the functioning of the world economy, but I was focused more specifically on the functioning of the global financial markets and the financial services sectors around the world. We had a very good discussion of the importance of all nations, both in the public sector and private sector, having robust programs in place and robust programs in place quickly, because there is a long lead time on getting these kinds of issues resolved.

We discussed the situation in Asia. We welcomed progress toward restoration of financial stability. However, we also agree this is a complicated time and that there are many, many challenges ahead. In particular, it is essential that countries follow through on and continue to implement on a sustained basis the macroeconomic and structural reform programs that they have worked out and then agreed to with the IMF.

The IMF, as you know, is absolutely central or has been central to this reform program in Asia, and it is, we all agreed, essential that in all of our countries approval be obtained as quickly as possible and very quickly for full funding of the IMF. In this case, we have repeatedly called for Congress to act on the IMF and act now.

Finally, we discussed how to move forward on the enormously important, but also enormously complex, question of financial architecture. It was a very energetic and well-informed discussion. It was obvious that the Finance Ministers and Central Bank Governors had given a lot of thought to this subject.

I think it would be fair to say that the discussion broke down into three areas: better disclosure and transparency, with the objective of improving the effectiveness of the market in providing discipline -- in that connection, I might add there was a focus, too, on the question of how well or effectively creditors and investors use the information that's available and how rigorous are they with respect to evaluating, analyzing, and weighting risk, and how requisite that is if markets are going to perform effectively in performing their disciplining function.

Secondly, strengthening the national financial systems; and thirdly, having a system in which the private sector more fully and appropriately bears the consequences of its decisions.

The communique has a brief summary of our discussion, but the discussion went way beyond that which is in the communique. The reason for that was we have another G-7 Finance Ministers meeting coming up early May in London. A good bit of that meeting will be devoted to this subject, and that communique will then present the fullness of thought developed both at this meeting and in the interim period and then at that meeting.

And with that, I'd be delighted to entertain questions.

QUESTION: Mr. Secretary, I know your sensitivity to talking about U.S. monetary policy and your respect for the independence of the Federal Reserve, but recently there have been some indications from various Federal Reserve officials that some tightening of monetary policy might be necessary before too long if the economy doesn't slow down. And if this happens, presumably there would be some further increase in the value of the dollar, although long run there's been some speculation that if the trade deficit widens the dollar might reverse.

What would be your feeling if the Fed does feel forced to raise interest rates, both in terms of its domestic and international implications?

SECRETARY RUBIN: I think I'll stick with what you said my sensitivity is. No, I've spent almost five and a half years not commenting on the Fed and articulating our respect for the independence of the Fed, and I'll stick with that.

QUESTION: Mr. Secretary, you, Mr. Camdessus and others have said you've been waiting for an opportunity to ask the Japanese the details of their taxing, their spending, and their restructuring, deregulation. Were you able to?

SECRETARY RUBIN: The Japanese officials laid out the framework, which they've also laid out in public on various occasions, and in response to that discussion of a framework, heard in response to that discussion of a framework the importance that other members of the G-7 attached to Japan having a program that was in fact effective in restoring enduring, long-lasting domestic growth.

I think it would be fair to say that the details have not yet been released on the fiscal package that we discussed earlier, and we look forward to seeing those details. But you know, when those details come out, and I gather just from what I've seen in the press that that's expected to happen some time in the next few weeks, the markets and the private sector financial institutions around the world will provide an evaluation and there will be a judgment made, which I presume will reflect itself in various ways, as to whether that program is sufficient to be effective in getting Japan back on an enduring domestic demand-led growth track or not.

Mike?

QUESTION: You were firm in the statement on exchange rates that Japan take appropriate steps to stimulate its economy. Did what you heard today meet that test?

SECRETARY RUBIN: We said when the Prime Minister announced his framework, as you may remember, his fiscal framework, that we welcome the announcement, we welcome the statement of intention with respect to roughly 10 trillion of fiscal stimulus, and the key now was to come forth with the details, but, more importantly, the key was to have a program, whether that's the right size program or not, that would accomplish the objective. And the world still hasn't seen the details, and when the details are seen then the world will evaluate it and make whatever judgments it does.

But the final proof is going to be in what effect it has on the economy and in how these enormous numbers of private sector analysts who do country sector kind of work evaluate this.

QUESTION: Are you saying in this statement essentially that Japan's currency problems are Japan's problems, that it's not external, that the way to deal with the value of the yen is for Japan on its own to take action?

SECRETARY RUBIN: Well, what we said in some combination of the communique and my -- well, I guess the communique because I stuck with the communique language, was that there is shared concern about the weakness of the yen. Beyond that, I think I'll just stick with what I've said, because I think it kind of speaks for itself.

QUESTION: Mr. Secretary, can you say whether there was any specific discussion of joint intervention?

SECRETARY RUBIN: There was not.

QUESTION: Mr. Secretary, why this time did Russia not participate in the meeting of the G-7?

SECRETARY RUBIN: Well, the Russian officials, I understand it, will be at the meeting tomorrow night on financial architecture, and we would have been delighted to have them here for a discussion of circumstances in Russia, because I think it's been a very useful process. But you'd have to ask them why they weren't here, but they certainly were invited and would have been enormously welcome. I think that's been a very good part of our process.

But they will be here, I understand, tomorrow night for the financial architecture discussions, and we very much look forward to seeing them.

QUESTION: Mr. Secretary, do you think a 4 trillion yen temporary income tax will not be enough to stimulate domestic demand in Japan to support reducing the consumption tax back to 3 percent?

SECRETARY RUBIN: I don't think I want to get into specifics -- in fact, I know I don't want to get into the specifics of the Japanese tax program. I think those are the judgments the Japanese government needs to make, and I think I'll stick with what I've said, which is that the IMF, the OECD, the G-7 Finance Ministers here, all expressed the view that it was very important for all -- Asia, Japan, the rest of the world -- that Japan get back on this long-lasting, enduring path of domestic demand-led growth.

The specifics, the program that it takes to get there, it seems to me is really an issue I don't want to get into.

QUESTION: Mr. Secretary, if you want comment on the contents of the package, perhaps you'd say something on the timing.

SECRETARY RUBIN: Well, when I said I didn't comment on the contents, we don't have the details yet. That's what I was saying. Then I was asked hypothetically, if there was one set of the contents, what would I think. And so I said I wasn't going to comment on the hypothetical contents.

QUESTION: But in terms of timing on implementation, the communique says "to implement quickly a strong program."

SECRETARY RUBIN: Right.

QUESTION: Does that mean before the G-7 Summit in Birmingham or some time this year?

SECRETARY RUBIN: Oh, "quickly" I think means, if you think of "soon" as a range, "quickly" is on the early end of the range.

(Laughter.)

SECRETARY RUBIN: We were trying to provide precision with that, so that was why we said it that way.

QUESTION: Mr. Secretary --

SECRETARY RUBIN: Was that useful?

Yes?

QUESTION: Mr. Secretary, understanding your reluctance to specify what Japan should do on tax cuts, but as a general economic matter if you want to stimulate domestic demand what's the best way to do that, permanent tax cuts or temporary tax cuts?

SECRETARY RUBIN: Very good, Ed.

(Laughter.)

SECRETARY RUBIN: The best way to do that is with tax cuts that accomplish the purpose.

(Laughter.)

SECRETARY RUBIN: I really don't -- look. I think we need to see the details. I think the world needs to see the details, and I don't want to get ahead of the announcement. I just don't think that's the right thing to do.

But I think -- and I know I'm just repeating myself in what I'm about to say -- the key is to have a program that is effective in accomplishing the purpose.

Bob?

QUESTION: Mr. Secretary, in the exchange rate portion of the communique it says, in this light "we support appropriate steps aimed at stimulating domestic demand-led growth, thus also correcting excessive depreciation." Are you saying there specifically that if they have this sort of appropriate package that you would expect the yen to strengthen?

SECRETARY RUBIN: No, this was not intended to be a -- this was not intended to be a prediction with respect to exchange rates. It was simply meant to be a statement of support for steps that were designed to stimulate domestic demand-led growth. It says "In light of this," and I guess that does suggest that people feel there is a relationship between the health of the Japanese economy and their exchange rates.

QUESTION: Mr. Secretary --

SECRETARY RUBIN: I think that would be a fair inference.

QUESTION: Mr. Secretary, did the Japanese officials give you any indication whether they were planning to link any of those fiscal steps perhaps with, for instance, market intervention as they go forward?

SECRETARY RUBIN: With market intervention on their part?

QUESTION: Yes.

SECRETARY RUBIN: They didn't discuss it. I do not know.

QUESTION: Mr. Secretary, you welcomed their actions when they were in the currency markets. Do you believe that intervention on its own will be enough to correct excessive depreciation?

SECRETARY RUBIN: You used it in the plural. They intervened; we welcomed that intervention.

QUESTION: Right.

SECRETARY RUBIN: Correct. But in all of our statements what we have said is the key is to get domestic demand-led growth on a long-run basis, an enduring basis, back up to a level where you have a strong and healthy domestic economy in Japan.

SECRETARY RUBIN: Mr. Secretary, there have been some reports that you were looking for the Japanese to come, you and others were looking for the Japanese to come, to this meeting armed with more details, more specifics about their plan. Is that a mischaracterization?

SECRETARY RUBIN: I can speak for myself. I wasn't. I was hoping we could have a conversation, which we did have, about the importance of -- the sort of thing we've just been talking about, the importance of Japan getting back on track, and that's exactly the conversation we had.

QUESTION: Would you have preferred to see more details at this point?

SECRETARY RUBIN: Well, I think they've said that they expect to have details -- my recollection is that they've said they expect to have details in the next few weeks. I did not expect to see details. I'll speak for myself: I did not expect to see details at this meeting, if that's your question.

QUESTION: Mr. Secretary, in your Brookings speech is the first time I recall you explicitly referring to Chilean controls on inflows and prudential regulations to limit access to foreign currency borrowings, and you also I believe mentioned the possibility of lending into arrears. Does this mean -- are you being polite and putting this on the table in advance of the G-22 meeting or are you saying that Treasury now endorses those two concepts?

SECRETARY RUBIN: Well, on the Chilean capital controls, you might remember what I said was that that is an idea that some people are advocating, and then I said -- I don't remember the exact language, but something to the effect that, whatever its merits may be or its drawbacks, that the key was not the short-term capital controls, but rather having sound underlying policy.

No, I do not think that should be read as an endorsement of Chilean capital controls. I was just saying that this is something -- in the interest of completeness, I just wanted to raise the issue, say it was there. I'm sure it'll be debated. But however that debate may come out -- and I took the trouble in the speech to point out that there are significant drawbacks in that program. But however that debate comes out, because reasonable people can have different views on that, that the key was not that program; the key was the sound underlying program. That should not be read as an endorsement.

QUESTION: But if there is that sound underlying program, then controls in that sense would make sense? They have merit?

SECRETARY RUBIN: No, that's not what I was saying. That's what you're saying?

QUESTION: I thought that's what you were saying.

SECRETARY RUBIN: What?

QUESTION: I thought that's what you were saying.

SECRETARY RUBIN: No, no, that's not what I was saying. No, no. I was saying that undoubtedly there will be a debate on these things, that we think there are real drawbacks, but this is a debate on the merits. But independently of that debate on the merits, the key was not these capital controls; the key was a sound underlying policy.

On lending into arrears, yes, we do think lending into arrears is an idea that is worthy of very serious consideration in the effort to bring the private sector into an appropriate place with respect to burden-sharing.

QUESTION: Mr. Secretary, did you hear any accusations toward Japan's slow motion?

SECRETARY RUBIN: Toward what?

QUESTION: Toward Japan's slow motion.

SECRETARY RUBIN: No. I think what I've said has given you as good a sense of the discussion, a pretty complete sense of the discussion with respect to Japan.

QUESTION: Mr. Secretary, on that, on the issue of excessive depreciation of the yen, were the implications as far as Asia were concerned discussed and what was said?

SECRETARY RUBIN: There wasn't a great deal of discussion about the implications for Asia of the excessive depreciation of the yen. There may have been some. I don't recollect there being very much. What there was was -- and I think it gets in a sense to the same point -- there was a discussion or there was discussion about the importance of a strong Japan to the rest of Asia, and particularly to the Asian countries that are in trouble, and I think that would include -- although it did not get discussed at length, but I think it would be fair to say that that, at least my impression is, that included this whole range of issues around the benefits of a strong Japan.

QUESTION: How much concern is there about a strong U.S. stock market and what impact that might have, an overly strong stock market, and what impact that might have if there was a correction? There are actually concerns about a correction on Wall Street.

SECRETARY RUBIN: We didn't discuss that in quite the way you've just said, Bill. There was some discussion, not just of the United States, but in a broader sense, about the effect, the impact of wealth effects of a stronger market on consumption, and therefore on economic activity. And there was some discussion about issues relating to this sort of broad category of assets and asset valuation and things of that sort. But it didn't hone down quite the way you just discussed it.

QUESTION: Was there any overarching conclusions drawn about the state of the world asset market, particularly in the West?

SECRETARY RUBIN: No, I don't think so. I think it was more an exchange of sort of analytic thinking, rather than expressions of conclusions.

QUESTION: Mr. Secretary --

SECRETARY RUBIN: Let me -- yes, sir.

QUESTION: I know you said you were going to leave the discussion of financial architecture to the early May Finance Ministers meeting in London, but this morning Canadian Finance Minister Paul Martin tabled for the press a proposal, a blueprint that he had, for a mechanism for a watchdog on financial supervision --

SECRETARY RUBIN: Yes, he brought that up at the meeting.

QUESTION: He brought that up? You mentioned it without a specific blueprint yesterday in your speech. And the British, Gordon Brown, also had a proposal he was going to table today. Did Gordon Brown table that? What was that discussion like, and where are you on that issue?

SECRETARY RUBIN: Well, Paul Martin did discuss the possibility of some sort of a coordinating mechanism, with the details to be fleshed out. And Gordon Brown did a very thoughtful job of framing the whole discussion of architecture, also discussed the importance of effective coordination.

What we're going to do on all of this, and the reason we didn't put much in the communique is, between now and the meeting in London we're going to have our staffs work on Paul Martin's suggestion particularly, or at least some variant thereof. And Gordon Brown, Paul Martin, and ourselves each asked one person to get in touch with each other and try to spearhead that a little bit.

QUESTION: So you're going to work on the specific idea of a joint IMF-World Bank committee?

SECRETARY RUBIN: Well, that's only one possibility. I think it's a little too early in the game to know -- in fact, I know it's a little bit too early in the thinking process to know where this might come out. But one possibility would be, not necessarily quite the way you've said it, would be some kind of a coordinating mechanism that might involve the BIS as well and others.

But I think you're being more specific than anybody here would have been prepared to be at this point.

QUESTION: I was just quoting Mr. Martin.

SECRETARY RUBIN: What?

QUESTION: I was just quoting Mr. Martin in his speech.

SECRETARY RUBIN: Yes. I think this was the idea he brought, and it seemed to me at least there was broad-based agreement that some kind of a coordinating mechanism is a very good idea to consider -- whether we should do it or not is another issue, but to consider. But now we have to see what it looks like, what form or forms that might take that we could take a look at, and how it would work and things of that sort.

QUESTION: Mr. Secretary, you still support a strong dollar, don't you?

SECRETARY RUBIN: Yes.

(Laughter.)

QUESTION: Do you now support a strong yen, too?

SECRETARY RUBIN: I certainly support a strong dollar. I think, with respect to the yen, I'd put our, my views at least, a slight bit differently if I may, which is that -- and you've heard me say this before -- the Japanese government has on many occasions, or Japanese officials have on many occasions, expressed their concern about an excessive weakness in the yen, and it's that concern which we have shared.

QUESTION: Mr. Secretary, the communique talks about growth in Europe picking up a bit this year and it seems to hint that there are concerns that it might not be balanced growth, but perhaps exports are leading domestic demand. Did you have any kind of discussion about that and can you sort of tell us what that --

SECRETARY RUBIN: Blair, the answer is we didn't. It was on the agenda, but we spent a good deal more time on Japan than we had expected to, and so we had to rush through some parts of the agenda. Michel Camdessus, if I remember correctly, seemed to feel pretty good about the --

(Loud microphone noise.)

SECRETARY RUBIN: That was a mating of our two microphones. In any event, he seemed to express, as I recollect it at least, relatively positive views about domestic demand growth in Europe, and we did not have a specific discussion of it.

QUESTION: Mr. Secretary, what proportion of the meeting did you spend on Japan?

SECRETARY RUBIN: A limited portion, but we had divided it up into -- no, we divided it up into segments, and the European, the Europe part, was going to be in the same segment as the Japan part. But since the Japan part ran a little longer than we thought, we didn't really spend any appreciable time on Europe.

QUESTION: How would you characterize the discussion on Japan? Was it heated?

SECRETARY RUBIN: This is Finance Ministers and Central Bank Governors.

(Laughter.)

SECRETARY RUBIN: Our idea of heated is somebody has an extra glass of water or something.

No, I would not describe it as heated. But I would describe it as interested. That is to say, I think that the Japanese government officials very much wanted to express their views with respect to these issues, and I think other G-7 Ministers and Central Bank Governors wanted to express their concerns and their focus on the enormous importance of the objectives being achieved.

So I'd say it was very business-like atmosphere.

QUESTION: So nobody had a drink of real water, then?

SECRETARY RUBIN: What?

QUESTION: No one had a drink of real water, then?

SECRETARY RUBIN: Well, we were looking forward to the real water.

I'd say it was very business-like.

Why don't we take one more and then I think we'll call it a day. We'll take two more, then we call it a day.

QUESTION: Mr. Secretary, can you talk a little bit about how long you think it's going to take for Japan to become strong again? You seemed to yesterday make some kind of equation with what was going on with the U.S. with our fiscal issues and how that took a period of time.

SECRETARY RUBIN: No, no. All I said was that I can understand how it can take a country time to come to grips with the very difficult decisions that need to be made sometimes. We had terrible fiscal deficits for a long time and it took us a long time, until 1993 with the deficit reduction program that President Clinton put in place, before we turned that around.

And I think the critical time has come now for Japan, and Prime Minister Hashimoto took very important steps, what was it, a couple of weeks ago, whenever it was, and we welcome those. How long it will take for Japan, assuming that a good program is put in place, to get back to a high rate of growth is not a question I have an answer to. I think the important thing is to take the right steps and then, hopefully, in the fullness of time the right things will happen.

One more question. Mike?

QUESTION: The language discussing inflation and growth in Europe and the United States in the communique is milder than the last communique. Is there a feeling that progress, more progress, has been made on inflation and that the ministers are much more sanguine about the relationship between growth and inflation at this point?

SECRETARY RUBIN: I guess I don't know how they feel about the relationship between inflation and growth, but since inflation was not -- in the discussions -- and the discussions were pretty jam-packed. We had a very full agenda. In the discussions there was no -- nobody raised concerns about inflation. I guess that suggests, Mike, that people feel that inflation conditions are in pretty good shape.

Thank you all very much. Have a good night.

(Whereupon, at 6:32 p.m., the press conference was adjourned.)