FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you. I am glad to have this opportunity to discuss recent developments in Asia and the United States response to those events.

There is little need to remind this audience that Asia matters. There is little need to remind you that resolving the financial crises in the region is about protecting core American interests -- protecting American wages, American savings and American security. No one can be certain what the precise impact of these events will be. But one thing is clear: American farmers and ranchers will be among the first to feel the effects. And they will be among the first to suffer from a failure to restore financial stability as soon as possible.

I'd like to discuss three topics this evening:

• the crises in Asia and risks they pose to the United States -- the agricultural sector, in particular;
• the United States response to these crises and key role of the International Monetary Fund;
• the urgent need to offer continued support for the IMF in the context of these efforts.

I. The Crises in Asia and the Risks to American Agriculture

These crises come at a special time for the United States -- a time of rapid, sustained growth, a time of low inflation, a time of historic increases in employment. We have a responsibility to do all we can to protect this strong performance. In an interconnected world, that means protecting our growing stake in a stable and prosperous global economy.

Our exporters, with agriculture, as always, at the forefront, have played a major role in our recent economic success. Financial instability, economic distress, and depreciating currencies all have direct effects on these highly integrated sectors: on the pace of our exports, the competitiveness of our companies, the growth or our economy and the well-being of our workers:

• in the past four years, nearly one-third of our economic growth has been due to exports -- exports which now support more than 11 million jobs, and pay, on average, 15 percent more than jobs in non-trade-related sectors. And some 45 percent of the recent growth in our exports has been in Asia.
• Asia is the largest market for agricultural exports, and has been growing at the second fastest rate. Fully 45 percent -- $28 billion -- of United States farm exports go to the region. The South-East Asian economies and Korea, the countries worst affected by the crises to date, account for 12 percent of all American agricultural exports.

As early as last December USDA was estimating that the crises in Asia would cut United States exports by $500 million this year. Without the multilateral assistance package assembled by the IMF, USDA now believes the crises might have reduced United States exports worldwide by 3 to 6 percent over the next two years relative to what would have been. For this fiscal year, the loss in exports would have been $2 billion, with sales in Southeast Asia and Korea alone falling $1.25 billion.

None of these, very imprecise estimates take account of the further knock-on effects if the crises were further prolonged, or spread to emerging markets in other regions -- leading to a cycle of costly devaluations and impeding open trade.

And, of course, it would not only be trade that was affected. A long drawn-out crisis:

• could also affect our financial markets, and with it everything from investment in tools and equipment for workers to mortgages for new homes;
• it could raise serious concerns for national security, given the proven potential for financial crises to trigger broader conflicts. We have 100,000 troops in Asia, 37,000 on the Korean peninsula alone, where North and South Korea have only just begun negotiating a possible end to their conflict.

To repeat, any forecast of the impact of these crises -- like the situation in Asia -- is highly uncertain. A great deal will depend on the success of United States-led efforts to restore stability and growth in the region and to limit the impact on our economy.

II. The United States Response

We have taken direct action through USDA's Commodity Credit Corporation to lessen the effects of the crises on US farmers and ranchers by making available $2.1 billion in export credit guarantees to Korea and other Asian countries. GSM is working. American exporters have already sold over $362 million worth of beef, cattle hides and skins, cotton, pork, soybean meal, and wheat since the package was announced in early January.

A similar effort is underway to support our capital goods exports. Last Friday, in London, Ex-Im Bank organized a multilateral export credit agency (ECA) initiative to keep trade finance flowing to Asian countries undertaking reform programs. In conjunction with the pursuit of policies that maintain creditworthiness, Ex-Im Bank announced that it is prepared to provide short-term trade insurance of up to $1 billion each to Indonesia, Korea and Thailand -- a major increase from Ex-Im Bank's pre-crisis level of $62 million.

Providing this support is truly a win-win proposition for the United States: it gives immediate protection to American exports and jobs, while at the same time speeding the long-term recovery of these important markets.

In the midst of the crises, all of these efforts will help to keep trade flowing and markets open. But there is a limit to what they can achieve while the fires of financial instability are still burning. The overriding imperative must be to restore stability and growth so that these countries will once again be strong markets for American goods, and will enjoy the economic conditions conducive to political and social stability. To support that objective we have:

• given strong United States support to tough IMF-led reform programs in Thailand, Indonesia and Korea to restore market confidence and lay a surer foundation for growth;
• where these reforms are to be carried out, supported the provision of temporary, conditioned, international assistance, centered around the IMF, to give countries the financial breathing space to put their economies back on track;
• encouraged strong action by other economies in the region -- especially Japan and China -- to promote their collective interest in long-term financial stability and growth;
• stepped-up US-led efforts to strengthen the international financial system to safeguard against these kinds of crises and respond to them effectively when they do take place.

Let me say a little about the content of the reform programs we have supported in Asia and the implications for United States trade.

While each program is tailored to address the specific causes of that country's crisis, the focus throughout has been on making the economy more market-oriented and better able to allocate capital and to allow market forces to operate. Important, long overdue changes will need to occur in the structure of these economies -- changes which have been welcomed, in many cases by officials in the countries themselves.

The upshot is that these programs will serve a dual purpose for United States exporters and farmers. Not only will they help stabilize the situation in the short-term and support our existing markets in Asia; they will also help open up many new markets and opportunities for United States companies and United States farmers. Specifically:

• Indonesia's stabilization package commits the government to eliminating a range of officially-sanctioned import and export monopolies, removing export taxes on resource products, reforming the government procurement process, and accelerating the pace of privatization. Tariffs on food imports have been cut to a maximum of 5 percent, effective immediately.
• and in Korea, the government will streamline its cumbersome import clearance procedures on products such as corn grits, soyflakes, and peanuts; it will eliminate trade-related subsidies, reducing high price supports for rice and beef and reducing the number of agricultural products subject to tariff rate quotas and noneconomic directed lending to industry will come to an end.

In some ways the IMF has done more in these past few months to liberalize these economies and open their markets to United States goods and services than has been achieved in rounds of trade negotiations in the region. And it has done so in a way that serves our critical, short and longer term interest in the restoration of confidence and growth in this vital part of our world.

III. The Need to Support the IMF

Everyone here understands the critical role for short-term international support at times of financial crises -- support that can put a floor to a plummeting exchange rate, a declining economy, and a shrinking capacity to buy imports.

The international community will not help countries who are not committed to helping themselves. But without short-term outside support, even those countries that are pledged to the right reform policies might face default -- either at a government level or by the financial system as a whole -- which could have devastating effects on their own economies and significantly raise the risks of contagion in other markets.

This is not just an hypothesis. The world has had ample experience with international financial problems that do not meet with a cooperative response. A recent Washington Post column talked about what was for 50 years called America's Great Depression: the events that began in the 1870s, which hit our farmers worst of all. And of course, an even clearer example of what happened when the United States was not prepared to lead with respect to international financial problems was provided by events in Europe in the early 1930s, when devaluation -- competitive devaluation -- deflation, contraction, and widespread depression laid the ground for what was as great a conflict as human history has seen.

The United States has an immense interest in helping stop these vicious chain-reactions in their tracks. And in the IMF we have the most effective way for us to provide that help. That is why the United States needs urgently to follow through on its commitment to support the increase in IMF quotas that was agreed last year, and contribute to an important new emergency facility, the New Arrangements to Borrow, to supplement the IMF's resources in these types if situations.

Fifty years of bipartisan support for the IMF has not cost the American taxpayer one cent, because it has not had a major default, and because its lending is backed by very substantial gold reserves. The IMF presently has $65 billion in loans outstanding -- and $40 billion in reserves.

It operates much like an international credit union. We and other countries provide a line of credit, and when the IMF draws on our commitments, we receive a liquid, interest bearing offsetting claim on the IMF. That is why there are no direct budget costs. That is why our contribution does not increase the deficit, or impact other spending priorities.

The United States has been an active proponent of changes at the IMF to make it more effective in support of US interests. In the last three years we have worked to:

• adapt the IMF to a world that is much more dominated by capital accounts than any we've had before, and to one in which greater transparency of international financial and economic data is a critical bulwark against instability
• ensure the IMF is keenly focused on its primary goal of promoting growth and prosperity for all in its member countries. By paying closer attention to the needs of the poor in designing adjustment programs and encouraging governments to cut unproductive expenditures, such as military spending
• bring the same values that the IMF stresses to its clients -- of transparency and accountability -- to the IMF itself, with much wider publication of IMF internal data, and greater use of external evaluations.

These are a few examples of where progress is under way. There are other, larger questions that we will have to face in the months ahead as we learn and distill the lessons from the Asian crisis.

If we are to keep up with the dramatic pace of change in this new global economy, we can and must update and improve the IMF, just as we must work to improve the entire international financial architecture of which the IMF is a part. But we must do this in a way that supports rather than undermines the long-term international financial stability in which American workers, American farmers, and American companies have such an enormous stake.

Not to support the IMF at this critical time would be a little like canceling one's life insurance when one has already gotten sick. This is simply not a risk we should take. And it is not a risk the American taxpayer would want us to take -- when we can invest in the protection of the IMF at zero cost to our budget.

At this critical time we have a responsibility to do all we can to protect America's core economic and security interest in an open and prosperous Asia. And that means protecting the IMF's capacity to respond, not just to today's challenges, but to the challenging new century to come.