THE
WHITE HOUSE
Office
of the Press Secretary
________________________________________________________________________
For Immediate Release
October
30, 1998
PRESS
BRIEFING
BY
TREASURY SECRETARY ROBERT RUBIN,
NATIONAL
ECONOMIC ADVISOR GENE SPERLING,
AND DEPUTY
TREASURY SECRETARY LARRY SUMMERS
The
Briefing Room
12:09 P.M. EDT
MR. SPERLING: As the President just announced today
the leaders
-- heads of state of the G-7 nations released a statement dealing with
both short-term and long-term steps to address the financial crisis
affecting much of the world. The act of the leaders themselves, issuing
and agreeing on a leaders' statement outside of the context of the
annual G-7 meeting is itself a virtually unprecedented step, yet
extraordinary times require this type of extraordinary focus by the
leaders themselves.
As you know, and as Secretary Rubin, Deputy Secretary
Summers will
discuss, the President has been focused on both the long-term
architecture issues and the more immediate international economic issues
for several years. As you know, these efforts have intensified as the
situation in the world economy has become more serious. And as you
know, on September 14th the President laid out a variety of steps in his
Council on Foreign Relations speech. On October 2nd he also gave a
departure statement in which he talked about several of the measures
that were adopted today, including a precautionary facility at the IMF
and emergency lending facility at the World Bank as well. Then on
October 6th he spoke to this and other issues at the World Bank/IMF
meeting.
This statement grew out of a series of phone calls between
-- that
started between the President and Prime Minister Blair. They spoke --
have been talking in some form about the appropriate need for leaders'
attention and agreement for a couple of months. They've had at least
five calls that at least in part have addressed this issue, between
October 2nd and October 12th on this. Over the last couple of weeks, as
Treasury Department officials have worked with their G-7 colleagues, the
President has spoken to most of his counterparts, including yesterday
his final conversation from Cape Canaveral, where he spoke actually
twice with Schroeder from Germany.
With that, I will turn it over to Secretary Rubin to go
through a
little more on the contents and background of the statement.
SECRETARY RUBIN: Thank you, Gene. I think of
this as a process
that began several years ago, when the President of Naples called for
the G-7 leaders to focus on what we now call the architecture of the
international financial markets. He very rightly said that we've
entered a new world and we need to adjust the architecture to meet the
needs of this new world. And there was some significant developments
out of that, as you remember, that came to be called the Halifax
Reforms. A lot of it revolved around transparency.
About a year ago the President charged the Chairman of the
Federal
Reserve Board and me with working with our counterparts in industrial
countries and emerging market countries to greatly heighten the focus on
these sorts of issues and work toward an architecture that was as modern
as the markets. And then as Gene said, just before the beginning of the
World Bank meetings/IMF meetings that took place recently in Washington
the President called for a precautionary facility and also called for an
emergency facility at the World Bank to deal with social safety net
needs and financial restructuring needs.
This is an enormous -- particularly over the course of the
past
year -- an enormous heightening of focus on preparing the global
financial markets, or preparing the structure, the regulatory and other
structure dealing with the global financial markets, for what the modern
global financial markets have become.
Let me very briefly touch on a few of the highlights in
these
statements. You've just received them and obviously all of us will be
available all day long to respond to questions as you've had a chance to
take a look at them.
The first is the leaders' statement, and what it begins
with is a
statement of the developments over the last few weeks, and there really
have been some very significant developments. I at least think that in
some part they stem from the heightened shared concern and the
heightened energy around these issues, the financial crisis, that came
out of the President's speech several weeks ago in New York when he
first called for a shifting of the -- a focus on the shifting of the
risks from inflation to growth and stability. The G-7 statement that
came after that, the G-7 finance minister central bank governors'
statement came after that. And then all of the meetings -- the World
Bank, the G-7, and other meetings that took place a few weeks ago in
Washington.
In any event, this statement sets out the significant
developments
of the last few weeks. The congressional approval of the IMF quota,
which provides $90 billion of new resources, the passage of bank reform
legislation in Japan, the greater focus on growth in Europe and the
United States and the corresponding reduction in interest rates, policy
commitments by Brazil, and progress made in a number of countries in
Asia.
There is then in the leaders' statement an agreement on the
broad
outlines -- this is now looking forward -- the broad outlines of the
precautionary line of credit, or precautionary facility, the President
called for just before the beginning of the IMF/World Bank meetings; and
also an agreement on the emergency facility at the World Bank which he
called for again just before the World Bank and IMF meetings; and also
agreement on the increased use of financing tools at the World Bank to
catalyze private sector flows, that is to say, credit enhancement
facilities. And I believe there has now been one such transaction done.
It's a very important area that's gotten no focus.
Then you go on to the leaders' statement and it talks about
agreement on various measures that come out of the work that has gone on
between the industrial -- the G-7 industrial countries, others of the
industrial countries, and various emerging market countries over the
course of the past year, which has resulted to some extent in proposals
that are ready to be implemented and to some extent an identification of
areas for further work.
And the leaders' statement then goes on in its next section
to
talk about extending the reach, which is the phrase the President used
as you may remember in his remarks before the -- I believe it was either
at the IMF/World Bank meetings or in the statement he made before then
-- extending the reach with respect to architecture -- no, actually, it
was the Council on Foreign Relations I think is where he used that
phrase -- extending the reach -- that was his speech in New York several
weeks ago -- extending the reach with respect to architecture. And it
goes into the areas that need focus going forward.
And, again, just to highlight a few: strengthening
prudential
regulation in order to promote safe and sustainable capital flows;
strengthening financial systems in emerging markets; this whole very
complicated question of exchange rate regimes; new or better ways to
prevent and respond to crisis, including new forms of official finance
and an appropriate role for the private sector. And that goes on.
If you put it all together I think what you have -- and
I'll use a
phrase that Gene used -- you have, at least in recent times,
unprecedented coming together of the G-7 countries reflected in the G-7
statement and in this finance ministers central bank governors'
statement, which provides a lot more detail on all of this, to focus on
this very central issue for the world economy, which is not only the
immediate crisis that obviously is extremely important, but also an
architecture for the future.
And finally we have an agreement by the executive directors
at the
International Monetary Fund to promote reform at the International
Monetary Fund. And what this agreement does -- and it's a memo from the
various executive directors to the managing director -- is to agree to
promote the reforms that we had worked out with Congress in getting
passage of the IMF legislation. And once again, it is the G-7 coming
together, coalescing around a forward-looking program with respect to
reform, in this case at the IMF.
And with that, all of us would be delighted to respond to
comments
or questions.
Q Could you say how this precautionary line of credit is
going to
work? Are you going to preapprove a group of countries? Is it a
case-by-case basis? And is it likely to be used for Brazil?
DEPUTY SECRETARY SUMMERS: The full modalities, of
course, will be
worked out by the IMF board. Certainly it would be on a case-by-case
basis and certainly it would be dependent on a country pursuing policies
that -- committing to policies that could be approved by the IMF.
Some of the ideas involved with contingency finance could
possibly
find application in Brazil, although that, of course, will depend upon
how the situation in Brazil progresses. And whether this framework
would find application would depend upon the timing of various decisions
and so forth. But I think the key idea is that there is the prospect of
finding finance in the form of a credit line that is contingent so as to
provide a reinforcement to confidence and the kind of backstop that
could support the normal flow of private sector capital.
Q Can you explain how this is different from what currently
is
being done? And does this involve any additional money beyond the $90
billion approved in the quota?
DEPUTY SECRETARY SUMMERS: There is no commitment of
finance to
the IMF beyond what's contained in the quota. I think the statement
does reference the possibility that in particular cases IMF financing
could be supplemented by bilateral financing used in this way.
What this does is -- what this proposal does is build on
the
innovation, the very important innovation of last year, the SRF, which
provided for large quantities of finance relative to a country's quota
to be provided on a conditioned basis at higher than normal interest
rates on shorter than normal terms, in order to be a backstop to provide
confidence.
That contemplated a case in which it was necessary -- the
SRF
contemplated a substantial flow of funds to a country, as was done, for
example, in Korea. Here what is contemplated is the possibility of
doing that on a contingent basis, where funds would be made available,
but would only be drawn if the need arose. And so where there is
evolution is in the provision of contingent finance at premium interest
rates. It's really building on the SRF idea.
Q There's a reference as far as the precautionary line of
credit
goes to the notion of "appropriate private sector involvement." What
does that mean? What might it mean?
SECRETARY RUBIN: It means private sector involvement
that's
appropriate. (Laughter.) Maybe I went too far and was too specific in
responding, but that's the -- that will be decided on a -- one of the
two statements, either the ministers' statement or the leaders'
statement -- I think it's the ministers' statement -- says that's on a
case-by-case basis.
Oh, the private sector piece? I'm sorry, I was
thinking of the
bilateral piece.
On the private sector piece, one of the issues that will
have to
be dealt with in any one of these situations is what role should the
private sector play. And the reason it said, appropriate private sector
participation is that it's a complex issue and will depend on the facts
of the individual situation.
Q One other aspect, too, again, on the precautionary line
of
credit. There's also the notion here if the countries involve adopt
strong IMF-approved policies, if you will, as a condition for our help
here, what about ongoing problems that may surface, for instance, in
Russia, where there are still questions about them living up to the
existing terms?
SECRETARY RUBIN: Russia is a totally different
situation, as
Larry Summers very well said. This is being put in place -- of course a
new facility is being put in place -- well, are you now talking about
the precautionary facility?
Q Yes.
SECRETARY RUBIN: Yes. It's being put in place
for a situation
where while there may be problems in an individual country, for example,
a country may have fiscal problems or other problems, the predominant
problem is contagion, the predominant problem is outside. I don't think
you could characterize the Russian situation as that.
Q Mr. Secretary, on the precautionary line of credit, how
soon is
it envisioned that this plan is going to be implemented? Do you expect
it by the end of the year?
SECRETARY RUBIN: Well, it has to go to the board and
I'm not sure
when that is likely to be. Do you know, Larry?
DEPUTY SECRETARY SUMMERS: I'd say in the near future.
Q Is it pretty likely that Brazil is going to be the first
case,
the first application?
SECRETARY RUBIN: Well, without going beyond where we
are in
Brazil, without commenting what will happen with respect to Brazil,
Brazil is a situation in which there has been a strong reform program.
There obviously are issues that still need to be dealt with, and that's
what President Cardoso and Finance Minister Malan spoke to the other
day. And Brazil obviously is being affected by contagion in the rest of
the world.
Q Do you have any concerns that Brazil's reform program may
be
over-ambitious, or do you think they can accomplish what they have set
out this week to accomplish?
SECRETARY RUBIN: Well, they have committed themselves
to
accomplish what they think they need to do in order to deal with the
problem, the fiscal problem that they have. And obviously it's very
important that they do this effectively and do it with reasonable
dispatch.
Q Mr. Secretary, are you at all concerned that this type of
financing will represent some kind of loosening, in some sense, of IMF
conditionality, in the sense that when a country gets this type of line
of credit there's really no way you can kind of hold a gun to their head
to follow through on the commitments they've made. So how does that
work?
SECRETARY RUBIN: It's a good question. Let me
ask Dr. Summers
to respond.
DEPUTY SECRETARY SUMMERS: That's obviously a crucial
issue, and
while all the procedures have not been worked out, they will be worked
out by the IMF board in the near future. Certainly we would anticipate
that any drawing from this facility or mechanism would require the
approval of the IMF board on the basis of review by the IMF staff of the
appropriateness of policy that was being pursued. So there is no money
here that is committed without regard to the policies that a country is
pursuing for exactly the reason you stressed in your question, which is
the importance always of making sure that financial support is well
utilized, which depends upon the policy framework.
Q Mr. Secretary, two questions. One, just following
up on that
point. Once this contingency line of credit has been established for a
country, how do you ever withdraw it if they start to behave badly
without sinking that country's financial condition? Second is, you
mentioned the possibility of bilateral aid. Everybody wonders, is there
going to be bilateral aid for Brazil? Will the United States
participate? And how much?
SECRETARY RUBIN: Well, let me just answer the second
question
first. What we have said on Brazil -- and I've said it many times
before, so I'm just repeating myself -- is that Brazil has done a good
job with respect to reform, though clearly there are issues that need to
be addressed, and that was precisely the point of the President and
Finance Minister's speeches the other day, that the international
community has a very large stake in Brazil being successful. And as a
consequence, it wants to be helpful with respect to Brazil. And that
beyond that it is probably not appropriate to venture comment until
there is something to venture comment about.
On the first part of your question, the answer is that
you're
basically talking about countries that have had good reform regimes, as
Larry Summers said. There will have to be IMF approval before each
tranche is taken down, and clearly it's expected the countries involved
in this regime will continue to stay on a strong reform program. If
they don't, then you create a whole different set of circumstances.
Q How do you deal with that? In other words, if they
start to
backslide --
SECRETARY RUBIN: Let me give you my response and let
Larry either
supplement it or say it seems about right. It seems to me the right
answer --
DEPUTY SECRETARY SUMMERS: A rather narrow range of
choices you
gave me. (Laughter.)
SECRETARY RUBIN: Let Larry say that it's right.
(Laughter.) No,
look, I think the answer is like any situation like this. If a country
doesn't continue -- if a country is not on an appropriate reform track,
then the IMF has to deal with what is a very difficult situation, and we
know they've had some situations like that to deal with.
DEPUTY SECRETARY SUMMERS: The Secretary's answer is
absolutely
correct -- (laughter) -- in my view. In any IMF program or indeed in
any financial support effort -- the support program that the United
States and IMF were involved in providing for Mexico would be another
example -- there is the possible provision of finance and the finance is
not guaranteed. The finance will not be provided if the conditions are
met. And that situation is the same whether it is a commitment of a
future flow of finance, as in a standard IMF tranche, or the
availability of a contingent flow as in the case of this new facility.
And obviously it's important to the maintenance of confidence that
negotiations take place and that countries pursue strong policies.
Q Are we sending $1 billion in food aid to
Russia?
SECRETARY RUBIN: Before we answer, let me make one
comment on
something else just because it strikes me nobody has made it yet.
Although these comments very rightly -- the questions have been
predominantly focused on this precautionary facility and other rather
immediate matters, I do believe this is a very, very significant set of
statements.
I think what you see is a framework, and it's a framework
within
which the international community is going to be working for a long time
to come in trying to set in place the architecture, if you will -- the
architecture for these global financial markets. And I do think that it
is really a very -- I would say an immensely important event to have the
G-7 leaders coming together around this framework. And it represents a
tremendous amount of work.
I might add, in that respect, that Gordon Brown, the
Chancellor
Exchequer in Great Britain deserves great credit for having
quarterbacked -- Great Britain, as you know, is head of the G-7 this
year -- for having quarterbacked this effort that all of us worked so
hard on over this now past few weeks to bring together this statement
that reflects the work of the past year.
The Russia question I'll ask Larry Summers to respond to.
Q Can you describe for us what's involved in $1 billion
credits to
Russia?
DEPUTY SECRETARY SUMMERS: Only that my understanding
is that
Agriculture Secretary Dan Glickman is pursuing that issue and the
opportunities that it represents for American agriculture and the very
serious issues that are involved in supporting Russian agriculture. But
I don't have any other details for you.
Q Deputy Secretary Summers, if I could, I'm still a little
confused on how this might differ from the SRF. If the IMF board still
has to approve the funds once there's a request for them, is it -- in
working practice does it seem to be more of a situation with how quickly
you can respond or --
DEPUTY SECRETARY SUMMERS: The differences may go to
the speed of
response, the precise procedures for board approval, and the nature of
the tranching arrangements, which on standard IMF programs tranches are
provided on fixed schedules, whereas the availability of a credit line
would involve approval required for disbursement, but somewhat more
discretion about the timing than is associated with the normal IMF
program approach.
Q So the country would just write a check when it needed
the
money?
DEPUTY SECRETARY SUMMERS: No, there would be a set of
-- I mean,
we're trying to describe a quite complicated set of scheduling that
would be designed in each particular case with regards to that
circumstance. But there would be -- with the requirement that all
drawings had to be approved by the board, there would be more
flexibility -- that's what you mean by saying it's a credit line --
there would be more flexibility as to the timing of drawings than is the
case in a standard IMF program which prescribes specific timing
following specific reviews.
Can I take advantage of the fact that I'm here to just
highlight
one other thing that I think that the Secretary mentioned, but I think
bears emphasis. And that's the statement of the G-7 executive
directors, which embodies and states as G-7 approach to pursue in the
IMF a number of important architectural improvements that are things
that we've worked very hard on and that we've worked very hard on in
conjunction with members of Congress in both political parties in the
course of the discussions of the IMF funding.
And those really go to a number of areas, perhaps most
crucially
to transparency and accountability of the IMF, where the G-7 will be
taking the position that there needs to be a presumption of release of
information unless there's a compelling reason to the contrary and to
external evaluation; and where also there is an agreement that IMF loans
need to, in their conditionality, address a range of critical issues for
creating a market economy, including restrictions on trade and, in
particular, government-directed lending and other subsidies; and third,
a recognition that in cases where large amounts of finance are provided,
it is appropriate that that be -- this was the idea behind the SRF --
that it be on a short-term basis and at premium interest rates.
And that reflects a lot of ideas that came to the fore in
the
course of our working on the IMF this year with political leaders in
both parties.
Q Mr. Secretary, there seems to be a lull in the crisis at
the
moment. Do you believe that the crisis has been stemmed? Have we
turned the corner? And, if so, what role would you credit the G-7 in
such an action?
SECRETARY RUBIN: I don't have a crystal ball and
neither does
anybody else, whatever claims they might make. I do think that these
are problems -- and I've said this before -- that have developed over a
long period of time. I think it's going to take time for the world to
work its way through these problems. I think there are many challenges
ahead. I think there will be ups and downs.
I do believe that through a very tumultuous period, that in
large
measure the international community has been on the right track. The
key has been for each of the participants, each of the countries, each
of the international financial institutions, to do what they need to do.
And in the last few weeks you've seen some of that come together a
little better in some respects than it had in the past, though in other
respects it's come together pretty well right along.
For example, in Korea, I think the international community
functioned very effectively for its part, and the Korean government, in
terms of implementing reform, functioned very well for its part. In
other cases, such as Indonesia and Russia, you had sovereign political
systems that didn't take hold overtake ownership of reform.
I think that the last few weeks, as I said at the beginning
of my
remarks, there have been some significant developments, and I think that
is very important on the one hand; on the other hand, I do believe it is
going to take time for the world to work its way through this. I think
there are many issues and many challenges going to be met going down the
road. And I think the key is for each of us to continue doing what
needs to be done for the world to work its way through this set of
problems.
Q Do you think the contagion itself has been stopped?
Do you it's
been stopped --
SECRETARY RUBIN: I would give you same answer that I
just gave
you: I don't think anybody has a crystal ball. I think what you can say
-- at least I feel we can say with some strength --is that there has
been broad-based and I think a strong program in place in the
international community since this thing first erupted in Thailand. And
there is a lot of work left to do. And the key is that each of us to
our part. And if we do that, I believe the world will work its way
through this and we'll return to stability and growth in the areas that
have been affected and the contagion will diminish and then eventually
go away.
But I can't tell you how long it's going to take to get to
that
point, and I can't tell you what the ups and downs will be between now
and then. I think the key is for each of us to do our part and to work
toward the day when this is over.
Q Mr. Secretary, given that the funding that was just
approved --
SECRETARY RUBIN: But there is a lot of hard work
ahead, and I
don't think any of us should lose sight of that.
Q The funding for the IMF that was just approved by
Congress was
initially requested over a year ago when the world economy was a very
different place. Is there any discussion within the administration
about the possible need to request even more money for the IMF from
Congress next year?
SECRETARY RUBIN: The answer to that is no.
Q Why not? I mean, why would that amount have been
needed a year
and a half ago and it's no longer necessary to supplement that, when
obviously IMF --
SECRETARY RUBIN: When we first discussed the quota
negotiations,
if you will, amongst the members of the IMF, we were looking to put in
place funds that were sufficient to deal with what we thought then would
be a relatively long period of time ahead. I think with the resources
we have now, the IMF -- and the new arrangements to borrow, so you put
the two together -- are well positioned, in terms of resources, to do
what they need to do. But clearly, as I said a moment ago, there is a
lot of work to be done.
Secondly, I think that we now have a somewhat broader view
as to
how these kinds of crisis situations can best be dealt with, and most
particularly I'm thinking of the potential role for private sector
involvement, although that's a very complicated issue, and as I said a
few moments ago, will have to be dealt with on a case-by-case basis.
But I think the IMF is now in a strong position to deal with what lies
in front of it.
Q Mr. Secretary, it seems to be that everybody recognizes
Brazil
is doing the right thing, so what does it need to do to be the first
country to benefit from the new mechanism and the new architecture? And
will the financial package -- international package, supposed to be
announced next week, be a part of this new architecture?
SECRETARY RUBIN: Well, I think I'll stick with what
we've already
said. I think what President Cardoso and Finance Minister Malan had to
announce this week is very important. And now the key is to get that
implemented and implemented with relative speed. And the international
community, as I said a bit ago, is very much of the view that Brazil is
very important and has had a good foreign program over time. I think
further discussions probably would be premature at this point.
Q Could you explain why Brazil might be a candidate for
this type
of financing? I mean, when this was first announced by the President,
the idea was that countries that were not yet affected by the crisis
would get this to sort of insulate themselves.
SECRETARY RUBIN: No, I think I'd actually put it a
touch
differently, if I may. I think the basic concept was that there are
countries where the fundamental problems -- where the fundamental issue
is the problems in the country itself, although the contagion is also a
factor. Then there are other situations where there have been good
reform programs and the predominant problem is the contagion.
I think it would be fair to say that Brazil is a situation
that
has accomplished a great deal over the last few years. Just look at the
inflation rate five years ago and look at it today, though clearly there
are still issues to deal with, as we discussed a few moments ago. And
Brazil was doing quite well until this contagion -- until the problems
developed elsewhere and then you had the contagion effect that we've all
talked so much about. And so Brazil is a situation where, in our
judgment at least, the predominant problem is contagion.
Q Mr. Secretary, on capital flow controls, can -- I'm a bit
fuzzy
on that.
SECRETARY RUBIN: On which? I'm sorry.
Q The flow controls provisions of this. There was
some mention of
that. Does that represent -- just given the evolution of that issue
over the last few months with the IMF meetings and so on, does this
represent a G-7 consensus on controls or a consensus to seek a
consensus?
SECRETARY RUBIN: No, there's no -- let me say my own
view, and
it's our view -- I think capital controls are not the right answer to
dealing with financial instability. I think there are other kinds of
issues having to deal with capital flows. For example, one of the
ramifications of having -- an issue that's being examined by the
financial markets working group now, which consist of the Chairman of
the Federal Reserve Board, the head of the SEC -- the head of the CFTC
chaired by the Secretary of Treasury -- is how does one think about
these large private partnerships with respect to leverage and
transparency.
And there are a lot of issues around capital flows that
need
examination. But we are not in favor of capital controls.
Q Can you characterize how that issue fits into what you've
announced today in terms of the G-7 breakdown on that? Because I know
that France and Germany were pushing for capital flow controls and
Washington and London were against them. Where does that stand now,
basically, given what's happened today?
SECRETARY RUBIN: I think all of us agree that we need
to figure
out how to try to reduce what you might want to call the excesses in
flows of capital. But that doesn't lead you to capital control. I'll
give you an example of what I mean and I think it is quite accurately
reflected in these statements.
Our view, my view, is that -- and I've said this before --
is that
banks and investors in the industrial countries, as time went on, as
good times persisted, became less and less focused on the risks that
were involved in the credits they were extending and the investments
they were making. And the consequence is that you had substantial
excesses with respect to the flows into these developing countries, and
those substantial excesses are an important part of why all this
erupted.
One question is, are there ways to better stimulate
appropriate
focus on and weighting of risk in the industrial country banks and by
industrial country investors during good times so the excesses of
capital flows are reduced. That's the kind of thing that we at least
had in mind when talking about sustainable capital flows.
Q So, finally, has the U.S. ruled out considering capital
flow
controls, basically, as an option?
SECRETARY RUBIN: We do not believe that capital
controls --
particularly the kinds of comprehensive capital controls that, for
example, Malaysia has put in place -- are a sensible approach or an
approach that's consistent with the long-term economic -- promoting
long-term economic growth in the global economy.
Q Would a country get any money up front when they agreed
to this
credit line? Would there be an initial cash injection?
DEPUTY SECRETARY SUMMERS: It would be dependent on
the specific
case, whether this credit line stood alone, whether this credit line
came in conjunction with IMF support through other modalities. And so I
don't think it's possible to give a general answer to that question.
Q Can I ask one more -- a question on one of the sections
about
future efforts that the finance ministers are now working on that talks
about considering the elements necessary for maintenance of sustainable
exchange rate regimes in emerging markets, including macro-policy, to
promote stability to individual countries. What are you getting at
there? Is there some question on the wisdom of these fixed exchange
rate regimes?
SECRETARY RUBIN: I think it speaks for itself.
(Laughter.)
DEPUTY SECRETARY SUMMERS: Well, I think that many
analysts who
have looked at and examined recent events have seen exchange rate issues
as very much related to those events -- some because of exchange rates
that they've seen as being excessively rigid; some because of exchange
rates that they've seen as being excessively flexible. And I think
clearly, given the importance of these issues and given what we've seen
can be the consequences of very serious problems in emerging markets, I
think it's appropriate for the international community to think through
what kinds of exchange rate regimes in what kinds of circumstances are
most appropriate.
I doubt there will be a general, cookie-cutter solution
that
applies to all countries. But I think it's certainly a question that
requires analysis and discussion. And in the past we've said that the
-- we've noted often the trilemma, if you like, of reconciling
independent macroeconomic policies, exchange rate objectives, and
capital mobility. And how those need to be dealt with in particular
cases will be the subject of discussion.
Q I wanted to ask a question about collective action
clauses,
because that's something that was embodied in the work of the G-22 and
it's here again. Why collective action clauses? And there has been
some talk in the markets from people who have looked at the G-22 reports
on the financial architecture, that that could actually exacerbate
liquidity squeezes, make them worse, because investors would feel they
couldn't depend on a bond contract and that they could be, instead of
having everybody -- you could be outbid by a majority.
DEPUTY SECRETARY SUMMERS: The question of those
clauses is
something that obviously is going to need to be examined very carefully
going forward.
In general, I think everyone who I've talked to in both the
public
and the private sector agrees on the importance in responding to these
crises the desirability of cooperation between the private and the
public sectors, particularly in situations where the problem becomes
dominantly one of confidence. And no one regards it as satisfactory for
public sector money to go in in order to enable private sector money to
go out.
And what's necessary is to find the best approaches to
cooperation. And often, that can involve something that many, many
private sector participants see a very strong need for, which is ways of
addressing free rider problems of the kind that unanimity clauses make
it easy to generate. And so this is in the spirit of facilitating a
well-functioning capital market by exploring types of clauses that are
quite common in various kinds of commercial bond contracts.
But I think it is very important to emphasize that
recognition
that crises will come from time to time and need a response in no way
detracts from the idea that a well-functioning international capital
market has to be built on a foundation of debtors recognizing their
obligation to meet their contractual debt obligations.
Q Thanks very much.
END
12:48
P.M. EST