May 19, 2007
HP-1302

Statement by Deputy Secretary Robert M. Kimmitt following Meeting of G-8 Finance Ministers

Werder (Havel), Germany--The G-8 Finance Ministers met today to help prepare for the Leaders' Summit in Heiligendamm. We covered a wide range of important topics for the international monetary system, led by the German Presidency and our very able chair, Minister Steinbrück. I also had the opportunity to meet with many of colleagues, including from Africa, on a bilateral basis.

As always, the global economic outlook and prospects for the U.S. economy were in the foreground. The global economy continues its strong performance –indeed, the strongest in three decades. I informed my colleagues that our fiscal deficit continues to decline and the U.S. economy is making the transition to a sustainable growth path. While the economy grew modestly in the first quarter, we are confident it will return toward trend over the year. We see evidence that housing is stabilizing and that rising delinquencies in the sub prime mortgage market have not spread more generally. Inflation remains contained and the job market is strong.

One of the issues I was keen to raise with the G-8 was the ongoing need for open trade and investment climates in our countries. The United States continues to push for an ambitious outcome to the Doha Round. The United States also has a longstanding commitment to economic openness to empower individuals and to generate economic opportunities and prosperity for all. In statements last week by President Bush and Secretary Paulson, the United States has strongly reaffirmed that commitment.

Foreign firms in the U.S. alone employ more than 5 million workers and account for almost 6 percent of our GDP. At the same time, rising protectionist sentiment – both at home and abroad – in the fields of trade and investment is worrisome. With the accumulation of large financial resources in many governmental coffers around the world, some of which are in turn being recycled into FDI abroad, protectionist pressures could become more acute. The G-8, individually and collectively, must seek policies that demonstrate the benefits from open trade and investment, while avoiding the lost jobs and opportunities that would result from increased protectionism.

We discussed our common objective to promote a thriving and competitive hedge fund industry as part of a growing global financial system while maintaining investor protection and promoting financial stability. We were briefed today by the Financial Stability Forum, and I commend the Forum's approach to hedge funds in the global markets. Private pools of capital, including hedge funds, have contributed significantly to the efficiency of capital markets. Recognizing the important role of these private pools of capital, the President's Working Group on FinancialMarkets issued principles and guidelines to further enhance vigilance and market discipline. Price discovery, liquidity, and risk dispersion are vital components in this effort, as are maintaining investor protection and promoting financial stability.

As we learned during the emerging market crises of the 1990s, many developing countries faced large national balance sheet vulnerabilities because they lacked domestic capital markets and could not borrow in their own currencies. The G-8 this year placed on its agenda the issue of developing local currency bond markets in emerging market economies. This is a good issue for the G-8 because there is a wealth of experience in our countries that can be deployed, in conjunction with the good work of the International Monetary Fund and World Bank, to help emerging markets develop more robust financial markets and achieve more durable growth and financial stability. I am pleased to announce that today we endorsed an action plan for developing local bond markets in emerging market economies and developing countries. The action plan maps out concrete measures to be taken in six areas: market infrastructure, derivatives and swap markets, institutional investor base, technical assistance, information availability, regional initiatives and less developed countries.

I was pleased to be able to join in the discussion of good financial governance in Africa at last night's outreach dinner with our colleagues from Cameroon, Ghana, Mozambique, Nigeria, and South Africa. Good governance is absolutely critical for economic development. I would like to highlight just one of these issues, which is maintaining sustainable debt levels in the poorest countries. Official lending activities throughout the world, particularly in Africa, threaten the hard-won gains from recent debt relief initiatives. It is critical that both borrowers and creditors agree on an approach to debt sustainability that prevents the reemergence of debt distress.

We discussed our commitments to improve energy efficiency and security, and to address climate change issues through actions that accelerate the development of clean energy technologies without undermining the economic growth that will be necessary to deploy those technologies. I highlighted the United States' commitment to improving energy efficiency and security through such efforts as President Bush's Twenty in Ten initiative.

Finally, we remain engaged in strengthening the international framework against illicit finance, and developing our national authorities and capabilities to take effective economic and financial action against the global threats of WMD proliferation and terrorism. We maintain strong support for the Financial Action Task Force's efforts to guide implementation of the financial provisions of,WMD-related UN Security Council resolutions (UNSCRs), and to consider the threat of WMD proliferation finance more broadly. We agreed on the need to invest the resources required to identify and economically sanction the individuals and entities within WMD proliferation and terrorism support networks, in accordance with various UNSCRs.

Thank you.