FROM THE OFFICE OF PUBLIC AFFAIRS

Today, I will travel to Montreal, Canada for the second meeting of G-20 Finance Ministers and Central Bank Governors.

The meeting will take place in the context of a favorable global economic outlook. But as always when times are good, we must guard against complacency.

In the United States, this continues to be a period of remarkable economic performance. What is crucial is that we not take our good fortune for granted, especially in the choices that we make with respect to the nation's budget. This moment of prosperity would not have been possible without the responsible policy of fiscal discipline that we have pursued over the last seven-and-a-half years, and the broader increase in confidence and market credibility that such discipline has helped to promote.

We recognize that just as such credibility can be won, so too can it be lost. That is why it is so important to plan prudently, by continuing to pay down the debt, by avoiding large-scale and excessive tax cuts, and by preparing our government and our nation for the aging of our population.

More broadly as one looks around the global economy, there are indeed signs of stronger growth and greater stability. Emerging market economies have seen recovery take hold and have taken important steps to reduce their vulnerabilities. But further progress is needed, including on financial sector restructuring and other reforms.

The G-20 meeting tomorrow marks just the second occasion that Ministers and Governors of this important new group will come together. The group is truly global - including representatives from all regions, from emerging market economies as well as industrialized countries. It thus offers a unique opportunity to discuss informally key, cross-cutting issues affecting the global economy.

In Montreal, we will take the opportunity to address issues of global economic integration and ways to reduce vulnerability to financial crisis.

I. Globalization.

Every member of the G20 recognize that economic integration - in the opportunities that it creates, and the closer ties between nations that it promotes - holds out enormous potential for improving the lives of the world's people through increased access to goods, services, and ideas.

But we equally recognize that globalization needs to proceed in a constructive way, and that there need to be institutions and policies that guard against its risks. These include:

• International financial institutions that are transparent, accountable, and effective in a world where cross-border capital flows are overwhelmingly private;
• Increased provision of global public goods in areas such as the environment and infectious disease;
• Easing integration of heavily indebted poor countries into the global economy by offering debt relief under the enhanced HIPC Initiative to countries serious about undertaking economic reform;
• And strengthened efforts to combat financial abuse, including money laundering and corruption.

II. Reducing Vulnerability to Crisis.

We will also discuss key steps that individual countries can take to reduce their own vulnerability to crisis.

In the wake of the financial crises in Asia and elsewhere, countries are already moving to implement safer policies, with demonstrable results. The ratio of external debt to foreign reserves has more than halved since 1996 in countries that have experienced liquidity crises. Short-term debt as a share of total external debt, among the same group of countries, has fallen from 34 percent in 1996 to 18 percent in 1999. And some fourteen countries have moved away from unstable pegged exchange rate systems.

In Montreal, we hope to deepen the consensus on policies that can reduce vulnerability, and the commitment to pursue them. This includes prudent liability management by both the public and the private sectors, and the implementation of international standards and codes in the development of stronger national financial systems. We expect that a particular focus will also be the choice of sustainable and sound exchange rate regimes in the emerging market economies.

Countries' choices of exchange rate regimes are centrally important to their own stability, as well as that of the system as a whole. And some approaches, such as a fixed but adjustable regime, have now shown themselves to be particularly susceptible to speculative attack - and thus to raise significantly a country's vulnerability to financial crisis. Nonetheless, this remains a controversial issue, and it will likely be debated for some time to come.

We also expect to address the issue of involving the private sector in resolving financial crises, which Under Secretary Geithner addressed at greater length in New York yesterday. As he noted, we believe that it remains important to preserve flexibility to respond to different circumstances but think that there are sensible ways to provide creditors, investors and debtors with greater predictability.