FROM THE OFFICE OF PUBLIC AFFAIRS

Good evening. It is a pleasure to be here inDenver on the eve of the Summit. It is symbolic that this Summitwill be held in Denver, for Denver is an example of how trade andeconomic integration now touch every part of the world. Thisevening, I would like to begin by discussing the current state ofthe US and how that relates to the Summit. In turn, I would liketo discuss some of the key issues that I expect this Summit toaddress. Finally, I would like to discuss why it is so importantthat America play a leadership role in the global economy.

US Leadership in the Global Economy

The United States today is in an extremely strongposition. We are the only military superpower. It is increasinglyclear that we are also the world's only economic superpower. Inan era of globalization, we are the world's most flexible anddynamic economy. And we are uniquely positioned to interact withthe emerging world due to our global reach, the diversity of ourpeople and the flexibility of our institutions. We dominate orlead in virtually every post-industrial industry. Think ofMicrosoft in software, Federal Express in shipping or Nasdaq infinancial services.

We are currently enjoying the strongest USeconomic performance in a generation. Over the last four years,we've cut the budget deficit by two thirds so that today we havethe lowest deficit among summit participants. That's paid off inthe highest level of capital spending in three decades, higherproductivity and over 12 million new jobs which has broughtunemployment to 4.8%, its lowest level in 24 years.

The Danger of Inaction

The strong position we are in benefits theAmerican people. But it also gives us a new authority on theworld stage and an opportunity to shape a world of our making. Inan era of

globalization where national borders no longerdefine the boundaries of economies, we can use our position toencourage the free flow of goods, capital, technology andultimately wealth across the globe. That will improve standardsof living and create new markets for our goods.

At the same time, for the first time in a halfcentury we have no obvious enemy. But, in a deeper sense, thereis still an enemy. And that enemy as the President said in hisState of the Union address is the enemy of inaction.

Peace abroad and prosperity at home provide uswith the luxury of looking forward and taking proactive steps,rather than reacting to immediate concerns. With the end of theCold War and globalization of the world economy, we have ahistoric opportunity to further strengthen the global system.That is not the work of one Summit meeting but what we do throughthe Summit process.

Many issues will be discussed here in Denver atthe Summit, but this evening I would like to focus my comments onthe following general challenges where the stakes for the UnitedStates are the greatest.

• Promoting growth and prosperity

• Reducing risks in global financial markets

• Advancing the process of development in the poorest countries; and

• Integrating Russia into the global economy.

Promoting Economic Growth and Prosperity

Apart from securing our borders, government hasno more important task than creating the conditions for growthand prosperity. Growth reduces crime, moves people from welfareto work, permits greater investments in education, funds advancesin medicine and health care and increases our level of collectivesecurity. Only when people have fulfilled their needseconomically can they begin to reach their full potential ashuman beings.

The Summit leaders come to Denver facing sharedchallenges common to all the major industrial economies.

In every industrialized country, governments aresearching for ways to address the profound economic and socialeffects caused by the aging of our societies. This demographicshift is more acute and comes earlier in some countries inothers, but we will all face major challenges in financing thepensions and health care of our older citizens. The Summit willprovide an opportunity for the leaders to share experiences anddiscuss innovative ways of addressing these challenges.

The Summit leaders also face a common challengein deciding how best to deal with structural changes in theireconomies, such as those caused by technological change andexpanding trade. These are not changes that can be resistedeffectively without imposing huge costs on society in terms ofhigh unemployment and foregone growth. The only sure way toconfront them effectively is to provide the degree of flexibilitynecessary for companies to adapt, for capital to seek out newopportunities, and for workers to be able to obtain the educationand training necessary to work in the industries of the future.

The participants in the summit face thesechallenges from different starting points and different strengthsand weaknesses.

Japan, the world's second largest industrialeconomy, is just starting to emerge from five years of economictrauma associated with the collapse of the asset price bubble ofthe late 1980s. The economic model that proved quite successfulin generating decades of high growth following the war appearsmuch less well suited to the demands of the post-industrial age.

This recognition lies behind a sweeping programof deregulation and reform launched by the Prime Minister. Thetest of this effort will lie in the degree to which it succeedsin removing regulations that stifle innovation, in openingJapan's market to more competition from abroad, in creating afinancial system that will channel capital to new industries, allof which will be important to generate the growth necessary tofinance the aging of Japanese society.

While we are waiting for all this to happen, wehave a strong interest in seeing the Prime Minister achieve hisstated objective of a strong domestic demand led recovery andavoiding an increase in Japanese external surplus on a scale thatcould hurt global growth and fuel protectionism.

The governments of Continental Europe are also inthe midst of a complex economic and political transition, butwith different dimensions from that in Japan. While the headlinesfocus on the plumbing of creating monetary union and achievingthe convergence criteria established by the architects of theMaastricht treaty, the most important debate in Europe is overhow to create an economy that is flexible enough to respond tothe competitive pressures produced by technological change andeconomic integration.

The paradox of monetary union is that creating asingle currency will not by itself address any of these problemsand yet the success of the entire endeavor of monetary union willdepend on whether the governments of Europe can succeed inaddressing these deeper structural problems that lie behind thehighest levels of unemployment in more than a generation.

It is heartening to see that the new Britishgovernment under the leadership of Tony Blair is focused onmeeting the challenges posed by the forces shaping the globaleconomy. Employability--the ability of people to secure theskills they need in the economy of the future--is at the top ofhis agenda. Just as President Clinton has recognized theimportance of investing in people, the new Labor agendaemphasizes education, training and flexible labor markets as thekey to insuring that all citizens are able to share in theprosperity of a dynamic economy. As a measure of how importantthese issues are, the President and the Prime Minister proposedholding a special summit on the subject of employability nextyear.

Reducing Risk in Financial Markets

The second challenge that the Summit leaders mustaddress is that of how to cope with the risks to global financialstability that have accompanied the benefits of financialintegration.

In today's markets, financial crises in onecounty can threaten stability and prosperity in countries halfway around the world. And the failure of a large global financialinstitution could damage many of its counterparts.

The Mexican financial crisis, the collapse ofBarings, the market manipulations of a Sumitomo copper trader andthe collapse of banking systems throughout the developing anddeveloped world have all provided impetus to a broadinternational effort to strengthen financial safeguards in thesystem.

At the Halifax summit two years ago, the Summitleaders endorsed a set of proposals to reduce the risk of futurecrises and to improve our capacity to manage those we fail toprevent. The most significant of these were strong disclosurestandards to make it easier for market participants to assesrisks and the new arrangement to borrow which doubles the IMF'sreserve tank. Last year in Lyon, the Summit leaders launched newinitiatives to strengthen emerging market financial systems andto strengthen the regulatory system in the major financialcenters.

In Denver, you'll see the fruits of this effortin several areas including:

• Steps towards the establishment of a multilateral network of supervision appropriate to today's global markets and global institutions.

• Progress towards a framework of strong supervisory principles for the major globally active financial institutions

• New steps to improve transparency

• Steps to reduce risk in payment and settlement systems; and

• Endorsement of a concerted international strategy to assist emerging economies in strengthening their financial systems, including a new, universally applicable set of core principles for effective banking supervision.

These initiatives will help reduce the risks andcosts of future crises.

The Challenge of Development

The third challenge on the Summit agenda is thechallenge of development.

Today, democracy and free market principles areon the march around the world and, where they have gone,development and prosperity have followed. Increasing openness andintegration are creating new opportunities for increasedprosperity by allowing countries to specialize in those economicactivities which they do best while promoting increasedcompetition and efficiency.

Never before has there been such dynamism in thedeveloping part of the world. Developing Asia today buys more ofour goods than Europe. In Latin America, every country but one isnow a democracy and, after a lost decade, growth has returned tothe region. In the transition economies of Europe, a neworthodoxy of reform is paving the way for growth. The integrationof over 400 million people in Central Europe and the FormerSoviet Union into the world economy is a development with fewparallels in history.

Only one region of the world has been leftbehind: Africa. Approximately 600 million people or one tenth ofthe world's population have yet to fully participate in theglobal economy and reap the benefits of integration. Over thepast six years, Sub-Saharan Africa received on average only 2.2percent of net private capital flows to developing countries.

• However, having just returned from the region I can say that, in many ways, there are stronger grounds for optimism in sub-Saharan Africa today than at any time in a generation.

• Elections in more than 20 countries show that democracy can take root in Sub-Saharan Africa. And as war and conflict have receded, growth has taken hold. Uganda grew by 10 percent in 1995 and Ethiopia by an estimated 12.5% in the last year.

To further this progress, the Summit leaders willendorse a broad international effort to strengthen growth anddevelopment in Africa. Like our own efforts within the USgovernment to forge a new Partnership for Economic Growth andOpportunity with Africa, this strategy will have two importantdimensions:

• First, to further integrate Africa with the global economy, we will endorse efforts to improve access to markets for African exports.

• Second, the International Financial Institutions including the World Bank and the IMF will provide financing in support of reforms that encourage market opening and market principles as well as debt relief to poor countries that undertake bold reforms.

In addition to initiatives directed at Africa,the Summit leaders will endorse a broad strategy to fightcorruption. I am struck by the fact that if you look under mostbanking crises, there's always a degree of fraud and abuse, andthere's often a large amount of criminal activity.

Corruption threatens growth and stability in manyother ways as well: by discouraging business, undermining legalnotions of property rights and perpetuating vested interests.

The Summit of Eight is urging nations by year'send to participate in an international convention to criminalizebribery. The Summit leaders have also called on the InstitutionalFinancial Institutions to help countries reduce incentives andopportunities for corruption.

Russia and Nato Enlargement

Finally, Denver marks a watershed in Russia'sgrowing participation in the Summit Process.

This deepening of Russia’s engagement in theSummit process reflects Russia’s increased stature on theworld stage and its heightened commitment to work in closepartnership with the Seven. Russia has made significant progressin reshaping its economy. Having achieved macroeconomicstabilization, its task now is to create the conditions forsustainable growth. While it has far to go, 1997 has witnessed arenewed commitment to reform.

At the Helsinki Summit Presidents Clinton andYeltsin committed to a joint initiative to stimulate investmentand growth in Russia, deepen U.S. - Russian economic ties andaccelerate Russia’s integration into the internationaleconomic system.

President Yeltsin committed to work towardcomprehensive tax reform, promotion of foreign investment,particularly in the energy sector, anti-crime laws, andratification of the U.S.-Russia Bilateral Investment Treaty.

For our part, we are eager to see Russia take onthe responsibilities of membership in internationalorganizations. At Helsinki, the President pledged our bestefforts to see Russia join the Paris Club in 1997, the WorldTrade Organization in 1998 and the Organization for EconomicCooperation and Development at an appropriate point in thefuture.

In its short existence the new economic team hasmoved swiftly, submitting both the new Tax Code and a revised1997 spending plan to the Duma and issuing decrees on keystructural reforms such as monopolies, housing, alcoholproduction and sales, and anti-crime measures. Early signs ofsuccess are that the stock market continues to hit new highswhile interest rates on T-bills have sunk to under 2% per month.In addition, the Central Bank’s international reservescontinue to surge. In April and May alone, they have risen bymore than $3 billion and now stand at about $19 billion.

In addition, last month, Russia and Nato took thehistoric step of establishing relations with one another. AndNato is currently considering applications by countries inEastern Europe for admission. The enlargement of Nato offers thepromise, not only of political but of economic security, and willcreate the conditions for further integration across thecontinent.

NATO enlargement will entail some costs whichwill be borne mainly by the new members and our European allies.But it will bring major economic benefits for these states, forEurope, and for American business. An enlarged NATO willstrengthen the security environment in Central Europe, therebyensuring that the region’s robust economic growth cancontinue. Already, some $40 billion in foreign direct investmenthas flowed into Central Europe--one-quarter of it from theUS--and we expect another $40 billion to be invested by the endof the decade.

NATO enlargement will also increase Russia’slevel of security and strengthen its integration with the globaleconomy. With Russia's participation in the Summit and theenlargement of NATO, we are leaving the era of the Cold War evenfurther behind and taking two important steps into a new era ofever-widening and deepening global integration.

Conclusion

In conclusion, this Summit, more than anythingelse, will be about promoting integration and prosperity aroundthe world. That has been the guiding principle of the economicpolicy of this Administration and it is the guiding principle ofthe Summit process. But I would further suggest that it is USleadership that has been uniquely critical to moving this processforward.

The United States is the world's indispensablepower. History has shown that whenever US leadership has ebbed,the momentum to move forward on integration has slowed. But whenUS leadership has been strong, the result has been cooperation,growth and prosperity. Our challenge is to be the world's firstnon-imperialist, outward looking, continental power.

One area where leadership is particularlyimportant is within the International Financial Institutions.Surveys show that Americans believe that foreign aid should beheld to under 10% of our budget. This reflects the mistakenbelief that it is much higher. In fact, foreign assistance costsabout 1% of our budget. The International Financial Institutionscost only one tenth of that but yield far more in greatersecurity and increased trade. By virtue of our leadership role inthese organizations, they are leveraged ways to advance ourinterests and the principles of market-oriented reforms.Accordingly, it is vitally important that the US meet itsobligations to these organizations. It is wrong for thewealthiest country in the world to be nearly $1 billion inarrears to these institutions.

The great challenge we face today is to maintainbroad support for US international leadership. It is much harderthan during the Cold War because there is no longer a Communistthreat to motivate us and because there is a more populistapproach to international economic policy than there once was; Iam confident that no one ever focus-grouped the Marshall plan.

Nevertheless, we are making significant progress.And with this Summit here in Denver, I am confident that we willtake the next step toward strengthening our global economy.

I believe that if America can continue to lead,if we can remain a shining example to the rest of the world andif we can continue to drive this process forward, then it willtruly be said when the history of this period is written, thatthe world's indispensable nation did what it had to do tomaintain the prosperity and keep the peace.