FROM THE OFFICE OF PUBLIC AFFAIRS

I want to begin by sharing my perspective on today's meetings, and then I will be happy to answer questions. In addition to our traditional review of developments in the world economy, we focused on four broad issues as part of the preparations for the Summit meeting of Leaders on July 21-23 - actions against abuse of the global financial system, international financial architecture, poverty reduction and economic development and information technology.

First, there was considerable optimism among us about the prospects for global economic growth - even in comparison to our discussions in April. This is striking compared to the concern about slow global demand and weak job growth at the time of the last Summit in Japan in 1993. At the same time, we all recognize that achieving and sustaining strong growth over the medium term requires continued pursuit of sound macroeconomic and structural policies - in our own countries and throughout other regions of the world.

We also met with our Russian colleagues and heard about their new program to deepen macro-economic stabilization and advance structural reform. We urged them to come to an agreement with the IMF on a strong economic program focused on structural reforms.

Second, actions against abuse of the global financial system. Clearly, the world economy benefits enormously from the free flow of capital. But there is also a dark side to international capital mobility, in that it can create new openings for the corrupting influence of money laundering. The G-7 has recognized this reality and we have made it our priority to strengthen our cooperation to tackle abuses of the international financial system.

In the past two months, we have taken three concrete steps toward this end. The FSF published a list of offshore financial centers that follow lax regulatory and supervisory practices. The OECD listed jurisdictions that promote harmful tax competition. And the FATF just named 15 non-cooperating countries and territories that have failed to take adequate measures to combat international money laundering.

Today, following on the heels of the FATF report, the U.S. joined our G-7 partners in announcing the issuance of coordinated bank advisories to our domestic financial institutions and called on these institutions to apply enhanced scrutiny to transactions involving the 15 jurisdictions that have not been cooperative in the international fight against money laundering.

Taken together, these actions demonstrate multilateral resolve to ensure that the global mobility of capital remains a strong positive force for economic growth and prosperity around the world. In addition, Ministers discussed the role of the international financial institutions in the effort against money laundering and urged them to incorporate anti-money laundering initiatives and assessments into their programs and to assist with members where money laundering has been identified as a particular vulnerability. We also agreed to consider, in due course, additional countermeasures with regard to jurisdictions that fail to join fully the international fight against money laundering - including the possibility of conditioning or restricting financial transactions with those jurisdictions and the support they receive from the international financial institutions.

Third, international financial architecture. In the aftermath of the Asia crisis, we made it a priority at the Cologne Summit to intensify our efforts to strengthen the international financial architecture. Significant progress has been made - with countries moving away from "soft pegs" to more resilient exchange rate policies, reducing short-term external debt burdens, building up reserves and strengthening financial systems, in part by adopting internationally relevant standards and codes.

Today, we agreed on a range of proposals that will build further on work already begun at the IMF this spring. Most important, the G-7 agreed to a restructuring of IMF facilities to provide for a more focused and selective financing role for the institution. Interest rates for non-concessional lending would rise with the length of time loans are outstanding and with the amount of resources made available above a certain threshold. The IMF's Contingent Credit Line facility should be made far more attractive by reducing its interest rate and making access to it in times of need more readily available. Medium-term lending through the Extended Facility would be confined to well-defined cases in which medium-term structural reform is of central importance. The Fund would also strengthen its post-program monitoring and encourage countries to repay quickly once they are back on a sustainable path.

We also intensified our discussions of MDB priorities and agreed on a framework for concrete change going forward. Most important, poverty reduction must be the core role of the MDBs. The focus of these institutions, particularly in the poorest countries, must be on high-return investments - such as education, health and sanitation projects. The pricing of the MDBs' hard lending windows needs review for reasons of incentives, reserve adequacy and concessional resource mobilization. And the MDBs, particularly the World Bank, must step forward with increased resources targeted to the battle against HIV/AIDs and other infectious diseases, as well as in the provision of other global public goods. We believe the Bank should increase its income and devote a larger share to this important priority. We also discussed President Clinton's AIDS and Millennium vaccines initiative, with the other ministers expressing considerable interest in our tax credit proposal to spur vaccine development.

Fourth, on the related issue of poverty reduction and economic development. Reducing poverty and advancing global development is the greatest challenge we face. Experience has shown that growth is the key ingredient for poverty reduction and in turn requires the pursuit of sound policies. Debt relief can also play a key reinforcing role as part of the process of establishing a virtuous circle of poverty reduction and development. We reaffirmed our commitment to implementing the enhanced HIPC initiative. We want countries to benefit from timely and deep debt relief. But it is also crucial to strike the right balance in providing debt relief and ensuring that high-quality programs of poverty reduction and reform are fully implemented. We have prepared an update for our Heads on the status of the debt initiative.

Fifth, information technology. We all agreed that IT holds great promise - among other things for productivity growth, increased demand, and employment. The key issue we face is the extent to which we are able to narrow the existing gaps among us in our ability to take advantage of these technological changes and see them translated into higher potential growth rates, as they have been in the United States. In this context, what is really important are regulatory incentives the facilitate innovation, labor market flexibility and human capital investment that facilitates the adoption of new technology, and financial markets that effectively mobilize finance for innovation. The broader opportunities and challenges posed by information technology will also be a key focus of our Leaders' discussions in two weeks.