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Statement by U.S. Treasury Secretary John W. Snow following the Meeting of the G7 Finance Ministers and Central Bank Governors
London, United Kingdom3 December 2005
I was pleased to join the G-7 Finance Ministers and Central Bank Governors here in London this weekend. This meeting was notable as our last with Chairman Greenspan, who has played an integral and immensely valuable role in guiding G-7 meetings for most of the past two decades.
This meeting comes at a good time for the global economy. Growth is strong, even though tempered by high and volatile energy prices. Many countries are making significant progress in implementing economic reforms, and there are no emerging market economies in financial crisis. This is an opportune time to make further progress on trade liberalization, and this was an important topic of our discussions this weekend. In my view, the potential rise of protectionism is the most significant risk to the global economy.
On the subject of growth, I was pleased that the G-7 Finance Ministers metwith our counterparts from Brazil, China, India, and Russia. These emergingcountries represent an increasing share of the global economy. Their viewsenriched our discussions. I look forward to continued consultations goingforward as they are an increasing and necessary part of any discussion of the global economy.
I was able to report that the U.S. economy continues to be a major driver ofglobal economic growth. The U.S. economy is performing very well, whicheconomic reports in recent weeks have confirmed. Even in the face of severeweather disruptions, the U.S. economic growth estimate for the third quarterwas revised up to 4.3% – the tenth consecutive quarter of above-trendgrowth. We also received news that job growth in the United States was verystrong, with a 215,000 increase in November, and nearly 4.5 million newpayroll jobs created since the employment trough of May 2003. This has givenus an unemployment rate of 5.0 percent - lower than the average rate of the1970s, ’80s, and ’90s. Clearly, good economic policies that rewardflexibility and openness are paying off in the U.S. economy.
The U.S. commitment to reducing the budget deficit also remains strong. Werecognize its importance for the economic health of the country and for theinternational financial system. Our efforts reduced the budget deficit by$94 billion this past fiscal year to $318 billion. This equals 2.6 percentof GDP - lower than almost two-thirds of the past 25 annual budget deficits.We recognize, however, that we need to do more. While Federal outlays forhurricane relief will affect the budget in FY2006, the Administration isworking to prevent the additional budget costs of storm-related repair fromundermining efforts at medium- to long-term deficit reduction.
While the U.S. is working to address its fiscal imbalance, the shared burdenof addressing global imbalances requires a broader international effort.Moreover, the effort must maximize sustained global growth.
Unfortunately, the rates of growth of domestic demand in Japan and Europeremain below what is needed, underlining the need for them to put in placereforms to allow productivity growth and labor participation to reach theirfull potential. Global imbalances also very much involve China and emergingAsian economies. I welcome China’s commitment - reaffirmed many times byChinese officials - that market forces will play an increasing role in thesetting of China’s exchange rate and past statements of placing greateremphasis on domestic sources of growth. However, even with the change ofJuly 21, China’s new exchange rate system has operated with too muchrigidity. This rigidity constrains exchange rate flexibility in the regionand thus poses risks to China’s economy and the global economy. The G7noted that further flexible implementation of China’s currency system wouldimprove the functioning and stability of the global economy and theinternational monetary system.
High oil prices were another risk to the global economy on the meetingagenda. The rather quick retreat of oil prices since the shock of the U.S.hurricanes is notable, but repairs to various facilities are far fromcompleted and winter is approaching. In the long-term, encouraginginvestment in energy is essential for assuring adequate supplies in thefuture.
The single most important item we discussed is achieving an ambitiousoutcome from the Doha Round by the end of 2006. Trade liberalization isessential to enhancing global growth and poverty reduction, and we cannotallow it to fail. The Hong Kong Ministerial next week will be a criticalnext step toward that goal. I urged the EU and Japan to make significantmoves forward on agriculture market access proposals. Just as important isthat developing countries reduce their trade barriers and provide realmarket access in goods and services to both developed and developingcountries. In fact, a developing country can experience higher levels growthand development by opening its financial services sector to foreign directinvestment.
In this context I particularly welcomed the sentiments expressed by Braziland India this weekend in support for progress toward successful completionof the Doha Round. This type of leadership will help to ensure that thebenefits of trade are more broadly shared among all countries.
As part of our efforts to encourage a successful Doha Round, we have agreedon a unified approach to help low-income countries reap the developmentbenefits from trade liberalization. This approach is guided by theprinciples that trade assistance is offered as a core component ofmultilateral and bilateral development programs; reinforces developingcountry responsibility to prioritize trade-related projects; and supportsthe private sector’s role in capacity building. Through this approach, wehave agreed to increase bilateral and multilateral trade-related assistancetoward a goal of up to $4 billion by 2010.
On the IMF, we encouraged Managing Director Rato to substantially elevatethe attention given to exchange rate issues in the Fund’s surveillanceactivities. This is the IMF’s most fundamental responsibility, yet IMFexchange rate policy advice has often been too sparing or too muted.Exchange rate flexibility is clearly in the interests of large emergingmarkets increasingly integrated with international capital markets. Butfrom a broader perspective, the international financial system would benefitfrom a multilateral approach to greater exchange rate flexibility.
We also stressed the need to enhance the Fund’s governance andrepresentation structures, which need to evolve rapidly to reflect thecurrent realities of the global economy such as the growing weight ofemerging markets - particularly emerging Asia - and monetary union inEurope. The G-7 have a collective interest in an IMF that is strong andrelevant to all its members, and the IMF’s legitimacy and effectiveness riskbeing undermined if current disparities on quota shares and Board seatscontinue. The U.S. is seeking a better balance - we are not seeking toincrease our quota share; nor would we be prepared to see it decline.
We had good discussions on a range of developing country issues. We were allpleased with the progress on the G-8 debt agreement, particularly at the IMF- some work remains to move ahead with implementation at the World Bank andwe encourage quick action. We also welcomed Minister Tremonti’s report onAdvance Market Commitments (AMCs) for vaccines as an interesting idea thatmay contribute to the development, manufacture, and distribution of vaccinesfor neglected diseases.
Ministers and governors also discussed efforts underway to prevent thefurther spread of Avian influenza. The spread of this virus has potentiallysevere human and economic impacts, and we agreed that all nations must takeall necessary steps to prevent a pandemic from occurring.
Continued terrorist attacks remind us of the urgency and importance ofimplementing our commitments to fight terrorist financing and illicitfinance. We have reaffirmed our commitment to halt the flow of financingwith specific measures outlined in the Annex to our Statement. I furtherurge our G7 partners and other allies to work with us to take decisivemultilateral action against individuals and entities engaged in illicitfinancing including WMD proliferation networks and supporters.
Finally, in addition to our normal meeting, I am pleased the G-7 had theopportunity to meet together with Ministers Fayyad and Olmert and theQuartet’s Special Envoy, James Wolfensohn. Our support of economicdevelopment of the West Bank and Gaza will be a crucial element of lastingpeace in the region.
Thank you.