September 21, 2005
JS-2935

Statement of Under Secretary for International Affairs
Tim Adams Pre-G7 Press Conference

Secretary Snow looks forward to hosting G-7 Finance Ministers and Central Bank Governors here on Friday, September 23 - and to a productive weekend of meetings at the IMF and World Bank.

The meeting comes at a time when the United States is working intensively to meet challenges within its own economy - namely to deal with the impact and aftermath of Hurricane Katrina and to put the Gulf Coast on the road to recovery. We deeply appreciate the support offered by so many countries around the world.

I expect that Secretary Snow will update his colleagues on our work in the Gulf Coast region when they meet on Friday. He will report that recovery and reconstruction are already underway. And he will underscore that the impact on overall economic growth will be noticeable but short-lived.

Indeed, the U.S. economy is well positioned to deal with the shock of Hurricane Katrina. Growth in the first half of this year was a solid 3.5 percent. Forecasters anticipate a slowdown in the immediate term as a result of Katrina, but rebuilding activities will likely to boost growth in early 2006.

The global economy has also been growing strongly, with the outlook positive going forward. Nonetheless, risks remain.

Energy supply disruptions that raise prices put a damper on growth. I expect Ministers and Governors will discuss steps taken to address supply and efficiency issues, as well as technical measures such as the improvement of data availability. Higher oil prices are also causing problems for some emerging markets, particularly those that control domestic prices at low levels.

The challenge of addressing global imbalances will also be a focus of discussions on Friday. Secretary Snow will reiterate the United States' commitment to reduce the federal budget deficit. We remain on track to cut the deficit in half by FY 2009.

Even in light of increased emergency costs, we are delivering on our commitment. But I expect that Secretary Snow will underscore the need for action also in the rest of the world to address imbalances. This means more labor and product market reform in Europe and Japan, more financial sector and corporate reform in Asia, and greater exchange rate flexibility. We need significantly more domestic demand-led growth from other parts of the world; at this time it is hard to see growth in major industrial countries rising much above 2 percent, perhaps not even 1 ¾ percent. The global economy needs more stimulus than that. And emerging markets have developed export-dependent growth models that skew growth away from domestic demand and depend inordinately on U.S. absorption. This is in no one's interest. The U.S. has no current account target and will not set one. Nor will we slow growth simply to correct external imbalances. What is needed is not less growth in the U.S., but more engines of growth from more countries and new reforms to appreciably boost potential growth rates.

Increasing the free flow of trade in goods and services is a vital part of promoting global growth. The Secretary will underscore President Bush's strong message last week about the value of free trade, the importance of a successful conclusion to the Doha Round, and the United States' willingness to move decisively. President Bush's challenge to all nations is unambiguous and far-reaching: the complete elimination of all tariffs, subsidies and other barriers to the free flow of goods and services as other nations do the same. As the President said, "this is key to overcoming poverty in the world's poorest nations." One of our priorities in the G7 is to create the conditions that will allow each and every nation to reach its potential, and this must now also include greater progress in trade liberalization. In this regard, Secretary Snow will focus in particular on financial services - given the key contribution that an efficient, well-regulated financial sector can make to economic growth and stability in developing countries.

This new challenge on trade follows historic accomplishments on our agenda to assist developing countries. In addition to our significant increases in development assistance, and the shift to grants instead of loans, this weekend we hope to see adoption of the proposal for 100 percent debt cancellation of Heavily Indebted Poor Countries' (HIPCs) debt obligations to IDA, AfDF, and the IMF. We insisted on 100 percent debt cancellation because it will help to foster long-term debt sustainability, conclusively end the lend-and-forgive approach to development assistance and provide additional resources for countries' efforts to reach the goals of the Millennium Declaration (MDGs). We are calling upon all shareholders of the World Bank, African Development Bank, and IMF to support this important initiative.

The strategic direction of the International Financial Institutions is a key item on the agenda for Ministers and Governors. The Secretary will stress the need for ongoing reform to make the institutions as effective as they can be. This includes modernizing the governance structure to keep the IMF relevant for its members. We hope to build support for our proposals in this area over the weekend.

Finally, as President Bush again emphasized before the UN last week, we must work tirelessly to identify and disrupt the networks providing financial and materiel support to terrorist organizations worldwide and the G7 must continue to lead this global effort. We have a collective duty to do all we can to make the world a safer place by targeting and disrupting terrorist networks. The United States is committed to combating the scourge of terrorist financing and we call on our partners around the globe to stand with us in this charge. Secretary Snow and Under Secretary Levey will continue to press this issue in both multilateral and bilateral meetings over the course of this weekend. Stemming the flow of terrorist financing is among our highest priorities.

Thank you for your attention, and I look forward to your questions.