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Melbourne, AUSTRALIA - Deputy Secretary of the U.S. Treasury Robert Kimmitt issued the following statement during the G-20 meeting of Finance Ministers and Central Bank Governors in Melbourne, Australia:
I would like to congratulate and thank Australian Treasurer Peter Costello for his leadership as chair of the G-20 for 2006. We also look forward to working side-by-side with South Africa as it takes over the G-20 chair in 2007.
I worked in the government 20 years ago, when international economic discussions were limited to small gatherings mainly with our European and Japanese colleagues. Now, responsibility for the management of the international financial system has become widely dispersed and the G-20, with representatives from both emerging markets and industrial countries, better reflects the reality of the world economy today. I was pleased to have the opportunity to meet bilaterally with many colleagues, including those from China, India, South Africa, and Indonesia.
The G-20 members were keenly interested in the performance of the U.S. economy and were pleased to hear that our economy remains strong and healthy. While growth is moderating, consumer spending remains firm, the economy continues to create jobs, and the fiscal deficit has been substantially reduced. I was struck in the group's economic discussion about how demographic change affects all G-20 countries. We discussed how well-functioning financial markets can help smooth the effect of demographic change by efficiently channeling saving domestically and across national borders.
A major focus of this weekend has been reform of the International Monetary Fund. The G-20 is uniquely situated to constructively address this issue; its member countries make up 85 percent of global GDP.
The IMF's governing structure has not kept pace with the changing realities of the global economic landscape, notably the swift growth of many emerging markets, which can now play a central role in exercising leadership in the international financial system. At the Singapore Annual Meetings of the IMF and the World Bank, Governors agreed on a historic package of reforms to overhaul the IMF's governance structure. Already, Step One - providing increased weight for China, South Korea, Mexico, and Turkey – is being implemented. The next stage of reforms will be highly challenging. We must all put aside narrow self-interest and work together to ensure that the IMF remains a credible and effective institution that serves the collective interests of the international community
In particular, we must work together to craft a new quota formula that gives a predominant role to GDP and thoroughly examines the logic and conceptual rationale underlying other variables, especially openness. We must also increase basic votes to protect the voice of poor countries in the IMF, and we must determine how large a quota increase will be needed to effect realignment. To facilitate an increased role for fast-growing emerging markets in the IMF, the United States has already agreed to forego any increase in its voting share in Stage Two and urges other similarly situated countries to do likewise.
We discussed the need for the IMF to improve its surveillance, particularly over exchange rates and the spillover effects of one country's policies on another. Exercising firm surveillance over members' exchange rate policies is one of the most fundamental rationales for the IMF, yet often this has not happened adequately. Further, the IMF's policies on this front were set out thirty years ago before the advent of global capital markets and in the immediate aftermath of the end of the Bretton Woods System of fixed exchange rate regimes. It is critical that this thirty-year-old decision be revised and modernized and that exchange rate surveillance is strengthened.
We had a good discussion of energy issues, looking at resource consumption, production, investment, and trade. Strong economic growth is the primary driver behind recent increases in energy and commodity prices. At the same time, in the wake of higher oil prices, oil producing countries need to avoid supply disruptions and adopt investments codes that reflect best practices around the world.
Leaders in the G-20 have a responsibility to keep the global financial system not only safe and sound, but also secure from the threat of terrorist financiers, narcotics traffickers, and weapons proliferators. Countries like North Korea and Iran use deceptive tactics to abuse the global financial system in support of their illicit agendas, and we must do all we can to protect the financial system against this illicit conduct.
Of note is United Nations Security Council Resolution 1695, which requires all member states to take action to prevent the transfer of funds in support of North Korea's proliferation program. We strongly encourage countries to fulfill their UN-mandated obligations to protect against the dangerous conduct emanating from North Korea.
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