FROM THE OFFICE OF PUBLIC AFFAIRS

I welcome this opportunity to address the Committee. This is a time of remarkable opportunities but alsonew challenges for the global economy.

We can all be encouraged by the improvement inthe outlook for growth in many parts of the world.

Among advancedeconomies, the United States and the United Kingdom havecontinued to enjoy robust growth. I am particularly pleased thatthe U.S. expansion has been led by very strong increases inbusiness fixed investment, which bodes well for our ability tomaintain strong growth rates without encountering capacityconstraints. In many emerging market countries conditions for asustainable expansion appear to be in place. The transitioneconomies as a group are growing, and the momentum for reform andintegration continues.

The advanced economies have sustained very lowinflation rates for several years, and there appears now to belittle risk of a resurgence of inflation. Important progress isbeing made in bothdeveloped and the developing countries in reducing fiscaldeficits.

Financial marketshave responded favorably to the healthy macroeconomic performanceand significant structural reforms of the past year or so in manycountries. Yet, many challenges remain.

In the industrialcountries, reducing high levels of unemployment requires a moreaggressive approach to structural reform as well as supportivemacroeconomic policies. Where there is a risk of rising externalsurpluses, it is appropriate that policies be directed atachieving domestic demand-led growth, as well as measures to openmarkets.

In the emergingmarkets, we should all view with caution the risks posed by largecurrent account deficits, high concentrations of short-term debt,weak financial systems, and inflexible exchange rate regimes.While these conditions may have been sustainable in therelatively benign global interest rate and financial environmentof the past year or two, they may not be sustainable in differentcircumstances.

Pressing themomentum of trade liberalization should also be high on ouragenda, and in this context, I should note that President Clintonhas called for fast track authority to negotiate new tradeagreements.

More generally, we have to continue to look forways to encourage growth and reform in the poorest developingcountries and their integration into the global economy.

The IMF has an important role to play inresponding to these challenges.

First, we need to make the IMF a more effective engine for market-oriented reform, trade liberalization and growth. Markets should be opened to foreign goods and investment to encourage the efficient allocation of scarce resources and to supplement domestic savings. More emphasis could be given to ensuring that scarce resources are channeled away from unproductive uses, including excessive military spending, and toward the investment in human and physical capital and social safety nets essential for growth.

Second, the IMF needs the ability to continue to adapt to new realities in the global capital market. Increased attention to surveillance of domestic banking systems, particularly in emerging market economies, is important to avert costly financial crises. The liberalization of financial markets has contributed to a dramatic expansion in international capital flows, bringing enormous benefits to the world economy. We welcome the emerging consensus in favor of an extension of the IMF’s jurisdiction through an amendment of the Articles of Agreement, and we urge the Executive Board to continue its efforts to develop a capital account amendment with a view to presenting specific recommendations to the IMF Board of Governors before the annual meetings in Hong Kong.

Third, IMF surveillance should be strengthened through increased transparency and promotion of good governance. The recent decisions to undertake independent evaluations and to issue a public information notice at the conclusion of Article IV consultations is an important step forward in making IMF surveillance more open. Managing Director Camdessus and President Wolfensohn have highlighted the need for the Fund and Bank to work cooperatively to help build public institutions necessary for good governance and to fight corruption, and we urge development by the Executive Board of guidelines for use by staff in encouraging sound public practices through Fund surveillance and programs -- and their active implementation.

These reforms are important to the future of theFund. They should be complemented by steps to ensure the IMF hasadequate resources and ensure that it utilizes those resourcesefficiently and effectively. The recent decision to establish theNew Arrangements to Borrow (NAB) will effectively double thecontingent lines of credit available to the IMF to supplementquota resources if necessary to deal with a threat to thestability of the system.

The United States recognizes that the NAB cannotsubstitute for ensuring that the IMF’s permanent quotaresources are adequate to enable the Fund to fulfill itsresponsibilities. We are therefore prepared to participateconstructively in the current review of quotas.

We continue to support an amendment of the IMFArticles of Agreement to provide for a one-time specialallocation of SDRs to permit new members of the IMF toparticipate effectively in the SDR arrangement.

Before closing, I would like to say a few wordsabout the economic situation in Africa and the role of the IMF inaddressing the problems of this continent. A growing number ofAfrican countries are trying to break with the past and haveadopted bold reform programs. The international community needsto develop new ways to support these reformers.

The Clinton Administration is working with theCongress to support the boldest reforming countries throughvarious measures, including increased access to our markets,enhanced debt relief for the poorest, more imaginative use of ourtrade and investment promotion programs, and more regular,high-level policy dialogue. They will also need support from theInternational Financial Institutions. In this regard, I applaudthe high priority being accorded by Managing Director Camdessusand President Wolfensohn to developing a forward lookingstrategy.

We welcome the recent decision on Uganda as thefirst country to be eligible for the HIPC initiative. Ugandashould take pride in the international community’srecognition of its strong reform record. We continue to feelstrongly that countries benefitting from this initiative inconjunction with accelerating reform deserve an adequate cushionof relief that assures sustainable debt levels, which argues forratios for the present value of debt to exports generally at ornear 200 percent. Interim financial support from the multilateralinstitutions is also crucial to demonstrate early relief insupport of reform efforts and social programs.

I am also heartened by the commitment to enhancedESAF financing for the countries doing the most to liberalizetrade and to integrate their economies with the global economy.This will help to support the comprehensive and bold reformsneeded to provide higher growth on a sustainable basis and toreduce poverty.