U.S. Department of the Treasury

(Archived Content)

FROM THE OFFICE OF PUBLIC AFFAIRS

These spring meetings of the G7, IMF, World Bank take place at a time when global economic conditions are better than they have been for some time, but also-perhaps paradoxically-when there is heightened opposition to the principles of globalization and integration.

I expect our discussions to focus on two broad areas: first, achieving a more balanced and therefore durable global expansion; and second, as their shareholders, how we should set the direction for policy and reform of the International Financial Institutions (IFIs) in the future.

It is critical that all of the G7 take the steps needed to promote global recovery and to reduce external imbalances, which have been exacerbated by our very different patterns of growth over the course of the recent financial crises.

The performance in the United States economy since we last met has been highly encouraging. But we should never be satisfied or complacent. Rapid growth here relative to the rest of the global economy, our relative attractiveness as a destination for investment and our relatively low rate of national savings have contributed to a rise in global external imbalances that must now be a matter of concern. A healthy adjustment in these imbalances over time will require us to continue on the path of fiscal discipline to raise public savings, and to work to raise private savings.

However, we believe the global expansion needs to be balanced up, not balanced down. The necessary counterpart of such US adjustments will therefore need to be adjustments on the part of the other major economies, to raise domestic investment and support a faster rate of sustainable growth. Both in Europe and in Japan, where recovery is much less certain, policymakers recognize that further reforms are urgently needed to sustain the strong domestic demand led growth, based on investment and more rapid private job creation, that their citizens need and a more balanced global expansion will require.

The recovery in emerging market economies has been stronger and swifter than many predicted, particularly when countries have implemented reform programs with vigor and conviction. The challenge now is to use the window of opportunity afforded by improved market conditions to deepen reform and reduce key vulnerabilities, whether these are excessive public borrowing or unfinished financial and corporate sector reforms.

I also expect Russia to be a major focus of our discussions in the wake of the recent Presidential elections. In our meetings with the Russians, I expect we will focus on the importance of crucial reforms to strengthen the rule of law, as well as a comprehensive economic and structural reforms to spur competition and investment and maintain growth.

Much work has been done to strengthen the international financial architecture in recent years. Our primary focus at these meetings will be building consensus on a new agenda for reforms at the IMF and World Bank, at a time when integration is proceeding apace and the private sector is the overwhelming source of capital for growth.

Already, the IMF has made important progress toward the vision of the institution that we have supported. Notably:

• To enhance transparency, a new quarterly publication is planned to highlight country progress in providing markets with key information, and the IMF itself will shortly begin to publish its operational budget, or Financial Transactions Plan.

• To strengthen safeguards on the use of IMF resources, the IMF has agreed on substantial new procedures to guard against the misuse of funds and discourage misreporting, including the publication of external audits of central bank financial statements in all borrowing countries.

• Perhaps most important, we are moving towards consensus that IMF facilities need to be streamlined, with a pricing and maturity structure that provides better incentives for efficient use of IMF money, and a more effective CCL.

With respect to the World Bank, we will be working to build consensus around three core directions for future reform:

First, more effective policies in the poorest countries, building on the implementation and further refinement of the new framework for the provision of concessional support that has been established as part of the enhanced debt initiative for Heavily Indebted Poor Countries. HIPC is a one-off attempt to clear away the mistakes of the past. It is essential that we make it work so that countries do not find themselves in this situation again.

Second, more focused MDB lending in emerging market economies. MDB lending in these countries should be confined to when they can increase the country's overall capacity to access external resources, and add value that the private markets cannot.

Third, an enhanced focus on the provision of global public goods. In this context we hope to establish broad agreement at these meetings on the importance of steps to promote the creation and dissemination of effective treatments and vaccines for infectious diseases such as HIV/AIDS, tuberculosis, and malaria, which are now responsible for almost half of deaths of people under 45 worldwide.

Another issue that I expect to come up concerns the leadership of these institutions. I believe that it is important to move toward a procedure for selecting the heads of these institutions that reflects the principles of transparency and accountability that are increasingly important to the IMF and other IFIs. A reformed selection process should aim to ensure consideration of the highest quality candidates; take fully into account the views and interests of all counties, including emerging market economies and the developing world, and contribute to the credibility and effectiveness of the institutions.

To accomplish these aims, we propose that each institution, when it anticipates a change in leadership, establish an outside advisory committee to review a panel of candidates. The committee should be representative of the institution's membership. The broad criteria for assessing candidates - including leadership and experience - should be disclosed, as should the advisory committees. We look forward to discussing these proposals with other members of the international financial institutions

With regard to HIPC, we have now made real progress. Five countries have now qualified for enhanced relief, worth a total of $13-14 billion. All at these meetings share a desire to ensure that countries see the benefits of faster, deeper and broader relief as quickly as possible. At the same time, it will be crucial to strike the right balance between the imperative to provide debt relief rapidly and the imperative to ensure this relief is well spent, within a framework of policies that will result in rapid and enduring growth and poverty reduction. Within the G7, we must also work to ensure that the enhanced HIPC program is fully financed. For its part the US is actively working to secure Congressional appropriations that will let us play our full part in this effort, and authorization for the IMF to make full use of the earnings on the profits from off-market gold sales.

Finally, let me say a word about the demonstrations that are expected to accompany these meetings. All of those who will be in the nation's capital this weekend, whether inside or outside the official meeting halls, are united by a desire to improve the situation of the world's poor, and a desire to ensure that a more global economy works for people. The differences are about the best means of achieving this.

Precisely because it is so morally important to lift people out of poverty, it is incumbent on all of us to think carefully and rigorously about the right strategies for economic development. No country has lifted itself out of poverty in the post-war period without integrating itself with the rest of the global economy and without putting in place the right policies and institutions. That is why support for successful economic integration is central to US policy and central to the approach of the International Financial Institutions.

We must also recognize that none of the developing countries are likely to improve their situation without access to additional international resources. Essentially, they can gain such resources in only two ways: by exporting their products to the rest of the world, and by attracting, and retaining, private and official finance. From that perspective, there could be no strategy so certain to keep these countries impoverished as a strategy of seeking to deny them both routes to successful development. We must not let global integration happen without the strong institutions needed to make integration work for people. We must, however, let it happen.