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JS-4193
Good afternoon. As you know, the next several days will be very busy with meetings, and Secretary Snow and I look forward to the opportunity to sit down with our colleagues from around the world. Although we address important matters at these meetings every time they are held, this set of meetings will entail especially significant items for our attention.
Secretary Snow and I will be happy to report to our colleagues that the U.S. economy remains on a sustained upward growth track, with real GDP having risen by an average annual rate of 3.2 percent over the last four years. The labor market is showing particular strength, with the addition of 5.2 million new jobs since the employment trough of August 2003.
We also are enjoying truly exceptional global growth. Global economic growth will be above 4 percent this year for the fourth consecutive year. This performance is all the more impressive given the serious disturbances in recent years and the sharp increase in energy prices. Yet inflation is well contained and the financial environment is supportive of continued growth and job creation.
But even in this strong economic climate, we remain vigilant. Disparities in global growth performance are large. Japan continues its welcome recovery, and China and emerging Asia are imparting dynamism to global growth. But continental European growth, even if trending toward potential, remains modest. Oil prices remain high and buffeted by geopolitical developments.
At this year's meetings, there will be a thorough discussion of global imbalances, kicked off by IMF Managing Director De Rato's conference. Addressing global imbalances is a shared responsibility and we will emphasize that the best approach to adjustment is one that continues to support strong global demand. The United States remains committed to cutting our fiscal deficit and meeting the President's goal of cutting the deficit in half by 2009 when it is projected to be about 1.4 percent of GDP. Even though the Euro-area's external position is in near balance, it is part of the global current account equation and it is part of the solution. The U.S. is doing its part and the other major economies must do theirs as well. Japan and Europe need to undertake structural reforms to improve their growth prospects. Emerging economies with current account surpluses need to play a more active role in managing global imbalances by adopting policies that allow for greater exchange rate flexibility, promote sustained increases in domestic consumption, and accelerate the pace of financial sector reform. This is particularly true of China, which is moving far too cautiously in making its currency regime more flexible. Its reserve buildup remains excessive, and Chinese currency practices are constraining other emerging Asian countries from pursuing greater flexibility.
Further, with countries beyond the G-7 playing an increasingly key global economic role, we are continuing our outreach efforts. Secretary Snow has invited representatives from Russia, China, Saudi Arabia, and the U.A.E. to join the G-7 at an informal dinner. We also invited an Australian representative to brief the G-7 on the recent G-20 Deputies' meeting this is a first.
We have an opportunity this week to make significant progress on reforming the IFIs. There has been much discussion lately about strengthening IMF surveillance. Mervyn King and David Dodge have advanced some useful ideas, as has Managing Director De Rato. Treasury especially has been seeking to strengthen the IMF's exchange rate surveillance. The most basic purpose of the IMF is to monitor the international system of exchange rates. We have been very heartened to see Managing Director de Rato and many other colleagues support a stronger emphasis on exchange rate surveillance.
We will also seek to advance fundamental reform of IMF governance. Modernization at the IMF needs to reflect rapid growth in many emerging markets and other key changes, such as the euro's advent. The IMF is a shareholder institution; members' roles should reflect their relative global economic weight. There is growing consensus on a two-step process. The first step would involve a small ad hoc increase for the most underweight emerging market countries around the time of the Singapore Annual Meetings. But this must be credibly linked to near-term completion of broad second step reforms. Such reforms should include revamping of IMF's quota formulas to make GDP the key variable, or developing an alternative metric to this end; achieving a further increase in emerging market countries' weights; and examining concrete actions to rationalize Executive Board representation. Fundamental reform also needs to bear in mind the voice of poor countries. We are confident that all countries with a collective interest in an IMF that is strong, legitimate, and relevant will help to provide leadership and find a consensus.
At the World Bank, the United States strongly supports President Wolfowitz's leadership on the anti-corruption agenda. We need to improve governance and fight corruption so that development assistance can be effective in promoting real growth in poor countries. The recent agreement by the heads of all the Multilateral Development Banks to collaborate on this agenda is encouraging. We will urge them to be systematic in their approach, with clear and strict criteria consistent with a zero-tolerance philosophy. We welcome the decision by the World Bank and African Development Bank to implement 100 percent debt cancellation for qualifying countries, and going forward we will emphasize the importance of preventing free-riding by other creditors and ensuring that recipient countries incur new debt in a prudent and sustainable manner. Specifically, we will be working with other shareholders on ways to constrain both the level and pace of new lending going forward, which will help to prevent a rapid re-accumulation of unsustainable debt. In addition, we will continue our discussions on a pilot Advance Market Commitment for vaccines, though there are significant scientific and implementation issues that still must be worked out.
Finally, we are ever mindful of the urgency and importance of implementing our commitments to fight terrorist and illicit finance. We will continue to urge our colleagues to facilitate the development of financial information relevant to counter-terrorism investigations and to develop and apply targeted financial sanctions against terrorist organizations and their support networks. The IMF and the World Bank's anti-money laundering and terrorist finance work is a priority in this fight, and we will call for closer collaboration with the Financial Action Task Force in these efforts.