FROM THE OFFICE OF PUBLIC AFFAIRS
February 5, 2005
JS-2230
Statement by John B. Taylor, Under Secretary for International Affairs, after the Meeting of G7 Finance Ministers and Central Bank Governors, London, UK
I was pleased to join Chancellor Brown and the G-7 Finance Ministers at Lancaster House today. I was honored to represent the U.S. Treasury in place of Secretary Snow, who sent his regards to the group and is recovering from a bad chest cold.The U.S. came to this meeting to emphasize first and foremost the need to strengthen economic growth. This is of paramount importance for the benefit of our own economies and the world as a whole - and indeed,
achieving stronger growth was the centerpiece of our discussions.
The world economy is strongly positioned. Although growth has moderated somewhat, the global economy is expected to sustain a broad-based expansion going forward.
The United States continues to lead the way. The addition of 2.7 million jobs since May of 2003 and a solid year-over-year growth rate of 4.4 percent show the strength of our nation's economy. Our unemployment rate is down to 5.2 percent - lower thanthe average rate of the 1970s, 1980s and 1990s. After-tax income is up by nearly 12 percent since the
end of 2000, and household wealth is at an all-time high. Inflation and interest rates remain low.
These are significant achievements - for which we can thank, in large part, sound monetary policy and President Bush's well-timed tax cuts. Yet the United States faces considerable economic challenges, with short-term and long-term implications for our economy and beyond. Now is the time to confront these challenges.
Our budget deficit is unwelcome, although it is understandable, given what our economy and our country have been through in recent history. President Bush is committed to dealing with this deficit - both by
controlling spending and by implementing policies that encourage continued economic growth. We remain on track to cut the deficit in half by 2009. And we are also focusing on the longer-term fiscal situation including Social Security and other federal programs.
Confronting the U. S. current account deficit is a shared responsibility. We are doing our part by tackling the fiscal deficit and working to raise saving in the United States. But our actions cannot stand alone. Strong growth in the U.S. economy makes it imperative that our trading partners, too, adopt
policies that accelerate growth. Although growth in Europe and Japan has strengthened, it needs to be more vibrant. Among other things, this means taking concrete steps to implement structural reforms and supply-side policies to increase flexibility and boost productivity growth and employment - as laid out in the G-7 Agenda for Growth last year.
On the subject of growth, I want to note how pleased I was to join the G-7 Finance Ministers in meeting this morning with our counterparts from key emerging market countries - Brazil, China, India and South Africa. These are rapidly emerging countries, which represent an increasing share of the global economy and will play an ever larger role over time. Their views
enriched our own discussions, and I look forward to continued consultations going forward.
Addressing global imbalances also means increasing flexibility in exchange rates. As you know, we met again today with our Chinese counterparts. The G-7 has indicated for some time, both separately and collectively, our support for greater flexibility in the Chinese exchange rate. The Chinese continue to emphasize their commitment to move to a flexible exchange rate, and we have seen steps that are consistent with a move in this direction. Sustained, non-inflationary growth in China is important for maintaining strong global growth, and a more flexible and market-based renminbi exchange rate would help the Chinese achieve this goal.
Energy plays an important role in the outlook for the world economy. Market transparency and data integrity are fundamental to the smooth operation of markets, and important progress is being made in
improving data provision to oil markets.
A vibrant world economy also depends on free trade. Today, we called for urgent conclusion of the Doha Development Round. Allowing international competition in the financial sector is particularly important for developing countries to be able to respond efficiently to the new trade opportunities afforded by such an agreement. Research shows that greater foreign direct
investment in the financial services sector, coupled with strengthened regulation and supervision, helps spur financial sector development and efficiency - and helps promote economic growth. We are urging all
countries to submit ambitious offers on financial services by the deadline for such offers this spring.
We all have great sympathy for the people affected by the tsunami disaster. For our part, the President has committed an initial $350 million in U.S. government assistance for relief and reconstruction, excluding the significant support provided by the U.S. military in the region, and U.S. private donations are estimated to exceed $725 million. The United States has also agreed with the G-7 that, for affected countries that request it, we would exceptionally defer debt payments up to the end 2005 (consistent
with national laws), without payment of interest during this period, and to promote this in the Paris Club. We have been consulting with potentially
interested countries to make sure they understand that funds for debt relief could reduce funds available for reconstruction. We will work with each of the affected countries to determine the mix of direct assistance (both financial and technical) and debt forbearance that best responds to that country's needs and priorities
Turning more broadly to development, Gordon Brown has rightly highlighted the importance of tackling the challenges of global poverty. This was a key focus of our discussions today. The United States is deeply committed to helping the poorest countries. And we have acted accordingly - for instance, increasing our development assistance by 90 percent between 2000 and 2004, well beyond the commitment we made in Monterrey.
Assistance has doubled to thirty-two sub-Saharan African countries since 2000. More importantly, we are being more selective in deploying our assistance funds, through initiatives like the Millennium Challenge Account, and we are leveraging our official assistance by catalyzing other financial flows, reducing trade barriers, and encouraging debt relief.
For some time now, the United States has strongly stated our belief that more must be done to prevent the build-up of unsustainable debts in poor countries. Increased reliance on grants, as we have achieved in several MDB replenishments, is a crucial component of any long-term solution. But we can do more to put these countries on a path to the future.
There are a number of proposals about how to proceed on debt. The United States favors action to provide up to 100 percent relief of MDB soft loans to the poorest debt-vulnerable countries. Also, we believe that all bilateral creditors should follow the United States in providing 100 percent debt relief under the Enhanced HIPC Initiative. This action, coupled with
grants going forward, will put these poor countries on a sustainable path. On the IMF side, it will be important to think carefully about how to ensure that the IMF engages productively in poor countries. This is an area that requires further consideration. We look forward to working together to achieve consensus on an approach that resolves ongoing debt sustainability concerns and puts an end to the lend-and-forgive approach to financing development.
On a related note, significant progress has been achieved in the G-7's work on remittances. Each ofthe G-7 economies has launched bilateral work with one or more key remittance partners. And significant multilateral efforts, together with major sender and recipient economies and multilateral organizations, are underway as well. These are important steps toward our shared goal of improving the environment for private sector provision of remittance services - and enhancing the development impact of remittance
flows.
Modern, transparent and effective international financial institutions are vital to achieving our development goals and promoting growth and stability
in the world economy as a whole. Reform of these institutions remains a key priority.
In the IMF, we are very supportive of the Managing Director's efforts to prioritize the IMF's work within the context of zero real growth in the budget. The United States continues to believe that a non-borrowing program in the IMF would be a valuable tool - creating an option for members that do not need an IMF loan to get the benefits of close coordination with the IMF. We hope to see progress in implementing
such a "Policy Monitoring Arrangement" soon.
Due to strong U.S. leadership, the multilateral development banks (MDBs) will significantly expand the depth and breadth of information provided on the results they achieve. We continue to press our fellow MDB shareholders to support additional transparency and accountability measures that reflect best practices in corporate governance. In the EBRD, I also believe that it is time to start thinking about when to step aside and allow the private sector to take over. The new EU member states have made
remarkable progress over the past 15 years in becoming vibrant market economies and pluralistic, multiparty democracies. The EBRD was vital in assisting this transition and, in doing so, has successfully fulfilled its mandate in these countries. By ceasing new operations in the new EU member states within two to three years, the EBRD would strengthen its focus on the poorest countries in the region - where much work remains.
Since 9/11, we have made great strides in combating the financing of terrorism and anti-money laundering. Working with the international financial institutions, FATF and other international organizations, we have
been pushing for strong AML/CFT standards and global compliance with those standards, vital pillars in this fight. We now need to continue to tighten the noose further. This means, first, that we want to promote further global compliance and implementation with the FATF Recommendations and second, that we should be looking to improve the effectiveness of our financial sanctions regimes and to apply such financial sanctions broadly to the financial underpinnings of all crime. Under the UK's leadership this year, we are determined to pursue these and other issues through collaborative action going forward.
Thank you.