FROM THE OFFICE OF PUBLIC AFFAIRS

Over the past year our attention has been focused on adapting our economies and the international institutions to meet the opportunities and challenges of the global marketplace. We have made considerable progress. Our task today must be to continue to move forward in three areas: first, broadening and deepening the current economic expansion; second, meeting new challenges in the supervision and regulation of global financial markets; third, ensuring that the poorest nations become fully integrated in the world economy so that they too can join in the global expansion.

As we examine the current state of the world economy and look to the future, it is clear that significant progress has been made. Economic growth has strengthened in both industrialized and developing economies since our last meeting. Of special note are the achievements of some countries in Africa and Eastern Europe, which are now experiencing improved economic growth led by the private sector. Growth is rebounding in Mexico and other countries that have adopted credible fiscal and monetary policies. The United States is currently enjoying an extraordinary period of balanced, non-inflationary growth.

Substantial progress has also been made in the fight against inflation. We must not become complacent, however, as sufficient progress has not been made in some transition and developing nations. In the United States, I can assure you we will be on guard against a resurgence in inflation.

Important strides have been made across the globe to reduce government budget deficits. The Clinton administration remains committed to achieving a balanced budget in the United States as we embark on the next millennium. We also welcome the progress made by many countries in Europe in reducing their deficits, fully recognizing the difficult choices that this entails.

While the outlook for sustained economic growth across the globe has improved, we still face many macroeconomic challenges. In the industrialized countries, we must ensure that the economic expansion solidifies and strengthens. High rates of unemployment continue to trouble many nations in Europe, highlighting the importance of structural reforms that will enhance job creation and labor market flexibility.

Some developing nations face more acute macroeconomic problems, and it is the special responsibility of this institution to aid them in the formulation of an appropriate set of policies. Continuing structural reforms are also needed in many emerging market and transition economies to encourage sustained, private sector- led economic growth. Apart from these challenges, there are two broad areas that require increased attention from ourselves and this institution.

First, a major emphasis must be placed on reducing the vulnerability of financial systems. The increasingly integrated nature of global capital markets presents both challenges and opportunities for our economies. More than $200 billion of capital will flow to the developing world this year, highlighting the need for strong financial systems to channel this capital to its most productive uses. International institutions, including the Fund, must give priority to efforts to help emerging markets to strengthen their financial systems.

Second, we are concerned that many of the poorest countries of the world, particularly in Africa, are not sufficiently integrated in the world economy and have therefore not joined in the current global expansion. We welcome the HIPC initiative as one step in addressing the needs of these nations. Two basic lessons can be learned from successes in Africa and elsewhere in the developing world: financial stabilization is essential but will only be sustained in the context of a reform program that will yield growth within a reasonable period of time; a pro-growth strategy needs to entail opening these countries to trade and investment and achieving integration with the world economy.

The IFIs should be encouraged to cast a more skeptical eye on those countries that receive large amounts of assistance year after year without making genuine progress toward external viability and self-sustaining market-led growth.

By working together we can successfully address these challenges. This Administration is firmly committed to meeting our obligations and to working with all others to provide the resources needed by the international financial institutions. On the other hand, in a world of integrated global capital markets, the international institutions will increasingly be judged based on the quality of their advice rather than on the amount of resources they are able to mobilize.

Let me now elaborate in more detail on some of the specific issues on the agenda for our meeting today.

Debt Initiative and ESAF

The report of the President of the World Bank and the Managing Director of the IMF indicates that they are ready to activate their very important program of action for the poorest countries to ensure that adjustment and reform efforts are not put at risk by continued high debt and debt service burdens -- including obligations to the World Bank and the IMF themselves. We believe that the multilateral debt initiative will be as important for the poorest nations of the world as the Brady Plan was for middle income debtor countries.

This multilateral debt initiative complements the efforts of bilateral official creditors and commercial lenders already underway to address forthrightly and effectively the problem of unsustainable foreign debts that impede economic progress and market-based integration in the world economy for many countries.

ESAF is an important part of the equation. ESAF is the IMF’s principal tool for promoting reform and sustainable economic growth in the poorer countries and will play a central role to the new debt strategy. We thus favor its continuation and welcome the progress made by the Executive Board in solving the issue of financing ESAF when its current resources are exhausted some time around 2000, together with the problem of how to finance the HIPC initiative.

We will have an opportunity in the Development Committee to discuss the HIPC initiative in detail. However, I would like to focus briefly on the task still ahead to translate our financing understandings into concrete decisions.

The decision to finance IMF participation in the multilateral debt facility initially from existing ESAF reserves is an interim step. We will need to replenish the ESAF reserve and complete the financing package for the debt initiative and for continuing the ESAF.

We continue to believe that the necessary financing should come primarily from resources held by the IMF. Although bilateral contributions should be sought, it is extremely unlikely that sufficient resources will be forthcoming from budget-constrained donors, even using refunds of precautionary balances held by the IMF. Consequently, the IMF will have to optimize its reserve management to complete the financing. The investment of the proceeds from the sale of a modest amount of gold, while retaining the profits for the Fund, would generate income for ESAF and is a reasonable and prudent step toward resolving the problem of unsustainable IMF claims on some of its poorest members. We, therefore, welcome the indication by the Managing Director that there is the necessary majority for a decision, as the need arises, to sell up to 5 million ounces of gold for this purpose.

The United States is fully committed to secure the financing for a continued ESAF and IMF participation in HIPC. However, at a time when most governments are making deep cuts in domestic expenditures as part of fiscal consolidation efforts, it is unrealistic and counterproductive for the IMF to be the only participant in the HIPC initiative to rely on bilateral contributions to finance its participation, particularly as the Fund is sitting on nearly $40 billion worth of gold that is illiquid and non-income producing. Therefore, the United States would be prepared to enter into consultations with the Congress about the possibility of using some portion of its refund of excess resources in the IMF’s precautionary balances as a bilateral contribution only when the membership of the IMF has committed to a comprehensive ESAF/HIPC financing package that includes early gold sales of at least 5 million ounces.

Adapting the IMF to New Global Markets

In the last two years, we have taken important steps to adapt the IMF to the global integration of financial markets. This new architecture rests on three pillars: greater transparency and disclosure to help markets function better; enhanced IMF capacity to respond prudently and quickly to deal with crises before they spread; and contributing to the strengthening of financial markets.

Transparency/disclosure

The launch of the new IMF data standards and establishment of the electronic data bulletin board is a milestone which will improve financial market surveillance as a complement to the Fund’s own efforts. The standards are set at a high level which will require virtually all countries, including the United States, to adapt their practices. The initial subscription by 34 industrial countries and emerging market economies signals a recognition that markets function best when they have comprehensive, timely and accurate information. We urge other countries which are, or aspire to become, important financial centers and those that wish to access international markets to subscribe to the standards at an early date. We should also use the two-year transition period to consider additional steps that could make the standards even more effective.

Improved transparency and disclosure must also extend to countries that do not yet have full access to financial markets. We urge the IMF to complete the general data standards as a means of enhancing IMF surveillance capabilities and strengthening policy formulation and implementation in all member countries.

We also continue to believe that the IMF should publish more of its country analyses and assessments, including the annual Article IV reports. The United States is prepared to set an example by requesting that all future reports on Article IV consultations with the U.S. be published.

Responding to Financial Crises

The past year has witnessed substantial progress in enhancing the IMF’s ability to respond to financial crises. We welcome the broad agreement that has been reached on New Arrangements to Borrow which double the supplementary resources available to the IMF to resolve financial emergencies with systematic implications. Equally important, the new arrangements initiate the participation of a wider range of countries able and willing to contribute to preserving the stability of a system from which they benefit and have a responsibility to protect. We hope that the remaining details can be resolved quickly and look forward to working closely with the new participants on issues of common interest.

Crisis resolution is not a task solely of official bilateral and multilateral lenders but must also include private creditors which have a shared responsibility for preserving the stability of the system. The G-10 report on Resolution of Sovereign Liquidity Crises issued earlier this year made a number of pragmatic, evolutionary recommendations which reflect the changed international financial environment. These included a recommendation that the IMF extend the scope of its support for countries facing accumulating arrears to private sector creditors. We would urge the IMF to consider the report and that recommendation in particular at an early date.

Strengthening Financial Systems

Finally, the IMF now focuses increasing attention on financial systems and markets in its Article IV surveillance activities and day-to-day monitoring of developments. Looking forward, it is crucial that we take all appropriate measures to ensure that domestic and international financial markets are robust and sound and operating under effective prudential oversight. We believe it is particularly important to develop additional arrangements for enhancing cooperation in the supervision of diversified, internationally-active financial institutions, to increase the transparency of markets through improvements in reporting and disclosure requirements, and to strengthen financial systems in emerging markets. We urge the relevant international bodies, including the IMF and the World Bank, to give priority to these issues and work toward a consensus on what substantive measures are appropriate to strengthen these markets.

IMF Resource Issues

The expansion of GAB/NAB back up resources is not a substitute for quota resources, which are necessary for the Fund’s regular activities in support of members’ stabilization and reform efforts. The IMF remains a quota-based institution and the U.S. will participate cooperatively and constructively in the continuing 11th general review of quotas with the goal of achieving a successful conclusion.

We also hope to correct the situation in which a quarter of the IMF’s membership is unable to participate in the SDR system. We welcome the emerging consensus on an amendment of the IMF Articles of Agreement to provide for a special one-time allocation of SDRs to deal with this problem. A number of critical issues remain, not least the size of the special allocation. We must not lose sight of our objective which is to take care of a group of new members that have not participated in earlier SDR allocations. While the United States is prepared to be pragmatic, we must be careful to avoid excessive allocations that deviate from this purpose and could be seen as a back door effort to circumvent the rules regarding general allocations.