FROM THE OFFICE OF PUBLIC AFFAIRS

- - -

The Cash Room
Second Floor
Main Treasury Building
1500 Pennsylvania Ave., N.W.
Washington, D.C.
Saturday, September 25, 1999

P R O C E E D I N G S
(6:51 p.m.)

SECRETARY SUMMERS: Let me begin today by saying a few words about today's meeting and then I will be happy to respond to your questions. Our discussion focused on five central topics:

First, balanced and sustainable growth in the global economy. In our discussions of the global economy, we recognized that it is important not to take recent improvements in the global outlook for granted and that there remain serious challenges ahead.

Japan was a key focus of our discussions. There's a paragraph in the communique on Japan that you may want to read carefully. It includes the statement that: "The Japanese authorities reiterated their intention to implement stimulus measures until domestic demand-led growth is solidly in place and, in the context of their zero interest rate policy, to provide ample liquidity until deflationary concerns are dispelled."

On exchange rates, let me also repeat what we said in the communique: "We shared Japan's concern about the potential impact of the yen's appreciation for the Japanese economy and the world economy. We welcomed indications by the Japanese authorities that policies would be conducted appropriately in view of this potential impact. We will continue to monitor developments in exchange markets and cooperate as appropriate."

Second, recovery in emerging market economies. We welcomed the return of more stable conditions in many countries, while stressing the importance of continued commitment to economic and structural reform

Third, debt reduction and poverty reduction. We've reached important conclusions which we hope will make agreement possible this weekend on the financing of the Cologne initiative for the Highly Indebted Poor Countries, relying primarily on the resources of the international financial institutions themselves.

Just as importantly, we all agreed that central to this initiative will be a coordinated approach by the World Bank and IMF to the poorest countries. We called for a new strategy to boost growth and reduce poverty, with greater transparency and broader public participation to improve ownership of national policies and programs. These should provide for clear, measurable improvements in the quality of life in the poorest countries.

I look forward in this regard to the first ever joint meeting of the Interim and Development Committees tomorrow to take up the vital issues around debt relief for the poorest countries, and am particularly glad that the Enhanced Structural Adjustment Facility, the ESAF, 1 will end after the announcement tomorrow by the Managing Director of the IMF of a new poverty reduction and growth facility which will facilitate the IMF's work with the World Bank and, most importantly, with the countries that are involved to achieve what are the central objectives of this initiative, poverty reduction and economic growth.

The fourth major subject on our agenda was reform of the global financial architecture. We have now launched the new G-20 mechanism, under the chairmanship of Canadian Finance Minister Paul Martin, for dialogue among key industrial and emerging market economies, with the first meeting expected this December.

We discussed critical priorities in the area of financial architecture. Much has already been done to build a stronger global financial system, particularly

based on more robust national policies to avoid crisis as well as a better international capacity to respond when crisis occurs. But we shared, I think collectively, the sense of impatience to do all that we can in the coming year to implement further steps.

Crucial areas of our discussion and crucial areas for action include: Reducing national vulnerability to crisis with better management of external balance sheets to avoid buildups of unstable debt and, most critically, to promote sustainable exchange rate regimes in emerging market economies.

Further and better coordination between the IMF and the World Bank on the crucial areas relating to financial stability and successful Development -- with shared work and emphasis and procedures to facilitate maximum effectiveness on questions relating to the critical infrastructure of countries' financial systems, ranging from banking supervision, corporate governance, and bankruptcy regimes to the social agenda.

On the issue of crisis resolution, we reaffirmed the framework of principles and tools that we endorsed in our Report to Heads in June, noting the need to maintain flexibility to address diverse cases effectively. Going forward, we stressed the importance of supporting a stable flow of capital to emerging markets that reflected market judgments of countries' economic and financial prospects.

Fifth, corruption. We've learned again recently crucial importance of rooting out corruption that can undermine countries' economic health and wellbeing and of addressing financial crime, including critically -- and this was something we took up at our meeting -- measures to address the risks posed by offshore centers in a number of areas, including money laundering.

We called on the IMF and the World Bank to perform authoritative reviews of ways to strength safeguards in the use of funds. We welcomed the recent work by the Financial Action Task Force and the OECD to address concerns about illicit international financial transactions, including money laundering and broad-scale tax evasion.

Let me add in this context that the United States will be pursuing money laundering at both the domestic and international level with the implementation of our first comprehensive national money laundering strategy, which we announced earlier this week.

Finally, we met with our Russian colleagues. We had a good discussion of the current economic situation in Russia and the current challenges facing the Russian authorities, and spoke about the recent reports with respect to Russia and money laundering.

We urged the Russian authorities to step up economic reforms and combat the critical problems of corruption and money laundering, in which a key step will be the earliest possible passage of a strong money laundering law. We welcome their commitment to this.

In this context, we also agreed that IMF financing for Russia should depend upon compliance with the strong safeguards on the use of fiscal resources and improved internal controls.

I'd be happy to respond to your questions.

QUESTION: Mr. Secretary.

SECRETARY SUMMERS: Yes.

QUESTION: On debt relief, have there been any further changes to the debt -- have there been any further changes to the debt relief criteria, any agreement as well about giving countries interim relief between their decision and the finishing points, and can you tell me if any actual figures were given from the countries?

SUMMERS: Well, I think the details on debt relief will be provided in the context of whatever agreements are reached tomorrow by the Interim and Development Committees. But certainly the provision of interim debt relief seems to me to be a critical priority and it's something that we have worked to achieve, to achieve for some time now.

I think a crucial priority generally and something that the United States will be very much focused on is getting this debt relief going as rapidly as possible, and that means both with respect to interim relief and it also means reaching completion points.

QUESTION: Mr. Secretary.

SECRETARY SUMMERS: Yes.

QUESTION: Thank you, Mr. Secretary. By carefully reading the paragraph you quoted in your opening remarks about Japan, did you mean leave the impression that Japan is going to do anything new, anything more aggressive, in terms of both fiscal and monetary policies? When you say "We shared Japan's concern about the potential impact of the yen's appreciation for the Japanese economy and the world economy," are you ready to take any action to help ease this impact?

SUMMERS: As you can appreciate, a good deal of thought and care goes into the words we choose in the communique certainly with respect to these issues. I would not want to try to interpret the words further for you. I think they speak for themselves.

Yes, in back.

QUESTION: Sir, in regards to Russia, there is some new conditionality in the statement of the G-7 that we've been given. My question to you is can you share with us your opinion as to how much time it would require today for Russia to comply with these requirements? The Russians, I understand, are expecting a new tranche in October and you're saying that this is prior action, before the tranche. Can it be done within the month of October in your opinion?

SECRETARY SUMMERS: Let me just say that the conditionality that is reflected in the G-7 communique is conditionality that the IMF has been in discussions, has discussed with the Russian authorities, that covers, spells out the conditions relating to various aspects of financial integrity. But this is the conditionality that has been in place in the context of the IMF program.

I don't know when it can be -- it can be

completed. I think that is something that's very much up to the Russian authorities, and their actions will determine when, when it would be possible to release subsequent tranches.

I might say in that regard that I welcomed Minister Kasyanov's assurances to the G-7 of the Russian government's commitment to submit to the Duma money laundering legislation of a kind that was suitable and could be signed into law as rapidly as possible.

Yes.

QUESTION: Mr. Secretary, you again referred to the G-20, whereas the main communique is more tentative as to the numbers of countries that would belong. Why is that? Also, what will the G-20 do which the G-22 or the G-33 could not do?

SECRETARY SUMMERS: I'll leave it to the chairman of the new group, Paul Martin, to discuss its precise, to discuss its precise composition, its precise composition and how it's to be labeled, how it is to be labeled and so forth.

With respect to what it can do, the G-22 and G-1 33 were I think very, very useful groupings, but functioned in an ad hoc and explicitly temporary way, and I think their effectiveness in driving forward the process with respect to transparency, with respect to the work on banking systems and the stability of banking systems and their work in other areas really was what gave impetus to what I think was a very widespread feeling, both among G-7 countries and other countries, that a permanently institutionalized group would be very valuable.

This is really what the G-22 and the G-33 have evolved into, and the fact that there is now agreement on making permanent and institutional such a group is really a reflection of the success that the G-22 and G-33 had in giving impetus to work on financial architecture.

QUESTION: Mr. Secretary.

SECRETARY SUMMERS: Yes.

QUESTION: Mr. Secretary, as far as the year ahead, what sort of chance is there that the world economy will be in better balance? Because it looks as though we don't have much of a recovery in Japan, it looks like accelerating growth in Europe. How long can U.S. growth be maintained to such a level that the balance of economic growth globally will be more in sync?

SECRETARY SUMMERS: Let me just say, we had in the context of the meeting a good discussion of the U.S. economy and I think that most share our feeling that the U.S. economy is in good shape; that the basic momentum of expansion should be retained, though there will be fluctuations from quarter to quarter; that a combination of the investment-led character of this expansion, which reflects our success in moving to budget surpluses and causes the expansion to be capacity-expanding, and what I think most would now agree are a quite remarkable set of technological improvements in the economy are very encouraging indicators for the U.S. economy.

But I think it is always important for us not to become complacent and to maintain an awareness that it is typically after periods of expansion have gone on for some time that errors of excessive borrowing or excessive lending or unrealistic spending plans or misvaluation are made. So I think that we need to keep our focus on the fundamentals and that keeping our focus on the fundamentals and not becoming under any circumstances complacent is the best way to maintain this expansion for quite some time.

Yes.

QUESTION: As you mentioned and as it says in the communique, "the Japanese authorities reiterated their intention to . . . provide ample liquidity until deflationary concerns are dispelled." Did you leave the meeting optimistic that these steps would be taken and that they would be enough to provide ample liquidity?

SECRETARY SUMMERS: I think we had good and useful discussions, both bilaterally with our Japanese colleagues and I think that most of the participants I'm sure felt that the discussions we had in the G-7 format were helpful and useful discussions as well. But as to where we are after those discussions, I think it's useful for me not to go beyond the words of the communique.

Of course, with respect to Japanese policy I would encourage you to follow closely the statements of the Japanese authorities.

Yes.

QUESTION: It's unusual for a G-7 communique to mention a specific currency. Even in 1995 when the G-7 took actions on the dollar, it spoke only of misalignments in currencies. Why did the G-7 feel it necessary to single out this specific currency to do what appears to be a change in policy? And why did you feel it important to particularly point this out, knowing as you do that everybody will be looking at the particular statements?

SECRETARY SUMMERS: Well, with respect to the second question, Mike, I thought that in summarizing the communique I would take the liberty of making a judgment about which paragraphs might be of particular interest to some of you and highlighting, highlighting those paragraphs.

With respect to the first part of your question, the G-7 always makes its judgments in the context of the economic situation it faces, and the statements that were made with respect to our assessment of the situation and with respect to our economic policies in the future were the statements that we regarded as appropriate to the current circumstances.

Mike.

QUESTION: In the last couple days you recommended certain policies with regard to enhanced surveillance of IMF loans, regular reviews, I think, and regular audits of certain banks, for example. I may have missed it in the statement, but it looks like those elements are not expressed by you. What happened?

SECRETARY SUMMERS: Mike, what I think I was careful to say in my speech and in the press conference was that the G-7 would be calling and the IMF would be undertaking a review before the end of the next -- before the end of the year of its procedures for handling funds and assuring that there were not diversions of funds. I indicated that -- I indicated what the United States would like to see come out of that review, and that the time frame that was set was by the end of the year.

Where we would like and, frankly, expect that review to come out would be a conclusion that as a matter of regular practice if you have an IMF program your central bank is central to external audit. That was never a goal that we were setting for this meeting, but it was a goal that we were setting for achievement in the review that is now commencing.

QUESTION: Did the other G-7 members endorse those ideas?

SECRETARY SUMMERS: We didn't discuss -- we have not discussed these questions at sufficient length that I'd want to characterize their position, but the reports, I've received of conversations that my colleagues have had with colleagues in the G-7 would suggest that there is a recognition that these are useful and important steps, though there are a whole set of detailed issues as to just how one would carry on the audit, the frequencies, the timing, and so forth.

But I think that I do not detect any opposition to these proposals.

Rich.

QUESTION: I think it was last year when we were worried about the yen being too weak, and then Secretary Rubin came out and said he shared Japan's concerned about the weakness of the yen. But it wasn't until the U.S. and Japan carried out joint intervention that the currency markets actually turned around. Is there any reason to think that this time is going to be any different from that time?

SECRETARY SUMMERS: Well, I think that the statement really says everything that we want to say with respect to cooperation and cooperation on those questions, Rich.

Allen.

QUESTION: Mr. Secretary, could you explain what the substance, what the concrete elements are behind the name change of the Interim Committee?

SECRETARY SUMMERS: Behind the Interim -- on the Interim Committee?

QUESTION: In the communique you talk about the Interim Committee being transformed into the "International Monetary and Financial Committee."

SECRETARY SUMMERS: I'm sorry, which paragraph? Which paragraph?

(Laughter.)

QUESTION: Paragraph? I'm sorry, Allen?

VOICE: Paragraph 18.

QUESTION: Is there any substance behind that name change?

SECRETARY SUMMERS: Allen, I think there are two issues that are really referenced in that paragraph, and I

think they are actually of some significance. The first is that the Interim Committee meetings have traditionally been prepared only by papers that are submitted by the IMF Board, without the opportunity of the major countries through their capitals to have input and to help set the agenda for the Interim Committee.

So in a way one is increasing the autonomy and potential effectiveness of the committee by providing for Deputies meetings that prepare.

I think with respect to the renaming, you're simply cleaning something up that in a way has been a vestige from the fact that this committee has met for 25 years as an Interim Committee. So it's appropriate for a committee that's going to meet for so long to have an official name.

Yes.

QUESTION: 25 percent of the verbiage of this communique is concerned with money laundering, financial crimes, tax evasion, and corruption. Did you spend 25 percent of the day on these issues, and why?

SECRETARY SUMMERS: We spent less than -- we did not spend 25 percent of the time on those questions. But these are things that -- these are issues that have been obviously pointed up by the recent concerns with respect to developments in Russia, but have actually been a matter of ongoing concern for some time.

A number of the European countries in particular have stressed the concern about tax competition and the erosion of their tax bases through tax competition. The Financial Stability Forum constituted last spring had established as one of its three working groups a group that was directed at looking at offshore -- looking for - - looking at offshore center questions.

I think in light of the magnitude of illegal financial flows -- there are estimates that put money laundering globally as high as $500 billion -- that it really is a financially significant phenomenon. I think that if there is more in the communique on those questions than has perhaps been the case historically, that's a reflection of what I think was a shared sense on the part of the ministers that this was an issue on which we need to be more active in the future than we have been in the past.

VOICE: Maybe two more questions.

SECRETARY SUMMERS: Steve.

QUESTION: You appear -- I've decided not to ask you a question about the yen, but one on debt relief: whether the statement that the debt relief, the funds needed for debt relief at the World Bank, are going to be taken from its own funds, compromises either of the two core principles that were outlined in the Cologne debt initiative: first, that they should not -- that debt relief wouldn't compromise funds for new lending; and secondly, the integrity, the financial integrity, of the international commercial and financial institutions?

SECRETARY SUMMERS: Steve, the details, the details are still being finalized. But I think that the realistic recognition that bad debts are bad and their proper handling by an international financial institution constitutes an important step forward towards financial integrity.

I think that the discussions under way with respect to financial for IDA, with respect to use of the Bank's income, will bring us to a situation where I think most, if not all, will agree that the development effort is fortified and that this represents an addition to the global development effort rather than simply a transformation of its form.

QUESTION: Mr. Secretary.

SECRETARY SUMMERS: Yes.

VOICE: Last question.

SECRETARY SUMMERS: Yes.

QUESTION: In your discussion on Ecuador, taking into consideration the vulnerability of emerging markets, the question is about are we supporting a possible breakthrough on the problem there?

SECRETARY SUMMERS: The question was with respect to Ecuador, and I think that until the Ecuadorian authorities have clarified what their intentions are that it's not helpful for me to make any specific comments. I think we've made it clear in the past that it is very important to us that Ecuador meet the conditions and carry out the economic policy changes that would enable it to enter into an agreement with the IMF, and that we would hope and expect that Ecuador would, in its very serious economic difficulties, work in a way -- work in a cooperative way with its creditors to address the substantial financing problems that it's going to face going forward.

VOICE: Thank you.

SECRETARY SUMMERS: Thank you.

VOICE: 7:30, 7:30 embargo.

(Whereupon, at 7:21 p.m., the press conference was adjourned.)