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Good evening.
Developed economies and emerging economies alike have lived through some interesting times of late. I feel confident that the worst is over for the U.S. economy, and that we are back on the path to growth. We have largely swallowed and digested the shocks of the stock market bubble, the recession that began in 2000, the September 11 th terrorist attacks, and various corporate accounting scandals. Now we are moving forward once again. Key to our recovery has been timely policy decisions, such as President Bush’s tax relief, and interest rate reductions from the Federal Reserve. Just as important have been the flexibility and resilience of American consumers and the depth and liquidity of our capital markets.
A number of emerging economies have fallen on hard times in recent years, plunging into unsustainable debt situations. In these cases, a disorganized, unpredictable sovereign debt restructuring process – or rather, the absence of any process beyond chaos and finger-pointing -- has exacerbated situations in which national leaders have mismanaged their economies and failed their people. The system, if you can call it that, does not work.
We must find a way to create an effective system for resolving financial crises that does work. The confusion and human suffering that attends these crises today is unnecessary and shameful. It is unworthy of the international community and it harms workers and investors alike.
I know we can find a better way, and we need constructive efforts from everyone here to find it and put it into action. I have no doubt that we are capable of creating something better. It’s our responsibility, as leaders in the world, to create a better way, and relieve the depth and duration of the pain citizens endure when their leaders fail to manage the nation’s economy. We’ve committed to pursuing a four-part plan, and we need your constructive input to improve these ideas or even to add more ideas to the list. Your expertise and experience add valuable knowledge to this process, and will improve the outcome we produce. Every one of you in this room must engage in this effort – we owe that to the people who have suffered from the chaos of the current system.
We’ve been moving forward on a four-part plan to create a system that will do a better job of preventing crises and, when they occur, of resolving them quickly and predictably. These four are: adding collective action clauses in sovereign debt contracts, developing a sovereign debt restructuring mechanism, setting hard limits on IMF lending, and improving IMF surveillance and crisis prevention systems.
We know that a country’s own policies determine its economic destiny. Countries with sound fiscal and monetary policies, that rule justly, encourage economic freedom, and invest in their people will inspire confidence, attract domestic and international investment and create a foundation for growth and prosperity. At the same time, they will protect themselves against vulnerability to financial crisis.
This truth points the way for the IMF and the rest of the official community. We must focus on how to prevent crises from happening in the first place. The IMF in particular must work to detect potential crises early, and act quickly to address those vulnerabilities revealed.
In my view, the IMF will perform this duty best when it concentrates on the areas most central to its expertise. The United States strongly supports the Fund’s work to enhance transparency, promote the use of codes and standards, bolster its financial sector work, and hone its economic surveillance methods. We also support ongoing efforts to better analyze debt sustainability, better understand national balance sheets, and improve the accuracy of economic projections. These are all critical to crisis prevention.
While our goal is to eliminate crises, we need a clear and predictable process for countries that cannot sustain and service their debts. The purpose is not to reduce the cost nor to increase the likelihood of default, but rather, when a country restructures its debt but if a restructuring must occur, it should proceed in the most orderly and predictable way possible. The U.S. has supported two approaches to provide for a more orderly restructuring process: a contractual approach and a statutory approach.
Many have asked whether we have a preference between these two approaches. Simply put, our goal is to change the way that debt is restructured, not to tie ourselves to one approach or another. If there were a third approach to consider, we would welcome that opportunity as well. Don’t throw stones at our best efforts to fix this system – throw ideas. The competition of ideas will ensure that we develop the most sensible system to bring predictability to sovereign debt restructuring. We will explore every option, every means to our goal, assess its flaws and strengths, and modify it accordingly.
We are pleased with the progress made to date toward implementing a market-oriented, contractual approach to sovereign debt restructuring. Last Thursday a meeting between the G-7, the private sector, and emerging market officials advanced the consensus on key aspects of the contractual approach. I am committed to seeing concrete results on this approach and I’m looking forward to working with those here tonight, others in the private sector and emerging market borrowers to make it a reality.
We are also committed to continuing our work with the IMF toward a statutory approach for debt restructuring. In the past several months, the Fund has made progress detailing this approach and how it would work. Nonetheless, questions remain. In IMFC discussions this weekend there was considerable interest in finding answers to these questions in time for the spring IMF/World Bank meetings.
If we can better define the sovereign debt restructuring process, we could better avoid large official support packages that add to a nation’s debt burden. We could hold more firmly to limits on IMF emergency interventions. Historically, and logically, the prospect of unlimited official financing to help countries out of trouble undermines the incentives for tough but necessary choices that will maintain stability and accelerate growth. Exceptional levels of IMF financing should be just that: exceptional.
The uncertainty of the sovereign debt restructuring process today has discouraged private capital flows into emerging markets. These nations – the people of these nations -- desperately need investment on the best possible terms to create jobs and prosperity. We owe it to our developing world partners to set clear rules for sovereign debt restructuring, so that private enterprise in their nations can flourish, and their citizens can enjoy the fruits of the market economy.
Thank you.