THE
WHITE HOUSE
Office
of the Press Secretary
________________________________________________________________________
For Immediate Release
November
13, 1998
PRESS BRIEFING BY TREASURY SECRETARY BOB RUBIN AND DEPUTY TREASURY SECRETARY LARRY SUMMERS
on International Aid to Brazil, 13 November 1998
The
Briefing Room
1:45 P.M. EST
SECRETARY RUBIN: As we have discussed many other
times, a stable
and growing Brazil is very much in the economic interest of the United
States. It is our 11th largest trading partner, the 9th largest economy
in the world. Obviously, Brazil in and of itself, and a stable and
growing Brazil in and of itself, is very important. Moreover, it is
vitally important for Latin America, the rest of the world, and the
United States that the international community take all steps sensible
to limit the contagion that has come from the Asian financial crisis,
and helping Brazil is very important in that respect also.
In pursuit of that, a program was announced this morning of
nearly
$42 million -- $42 billion, rather -- with respect to Brazil. The major
elements of that programs are $18.3 billion from the IMF, $4.5 billion
from the World Bank, $4.5 billion from the Inter-American Development
Banks, and $19.5 billion from 20 bilateral donors, of which the United
States will be providing $5 billion -- what, Larry?
DEPUTY SECRETARY SUMMERS: $14.5 billion.
SECRETARY RUBIN: I'm sorry, $14.5 billion from 20
bilateral
donors, of which the United States will be providing $5 billion.
Q $14.5 billion is the total from the
bilateral?
SECRETARY RUBIN: That is correct. And of that
$14.5 billion,
Sam, $5 billion is the United States and the other comes from 20
different countries. So it is truly an international undertaking.
What is most important, though, in this instance, as in all
instances of this kind, is effective implementation of the strong
economic program that Brazil has announced. Brazil's economic program,
fully implemented and with international support, provides a solid basis
for restored confidence and renewed growth. While there are no
certainties, we believe that this is the right program both for the
people of Brazil and the economic well-being of the American people.
President Clinton, as you know, outlined a plan in
September to
address the challenge of working with countries that are being adversely
affected by contagion. The program announced today is consistent with
the concept that the President at that time set forth. Most of the IMF
money and the bilateral support will be provided on a short-term basis
at higher than regular interest rates in order to encourage Brazil to
access international capital markets as rapidly as possible. And the
innovative use of what we have come to call a "floating tranche" will
allow Brazil to draw resources more quickly than previous fund programs.
Once again, this is all in line with the concept the
President
discussed in September with respect to helping countries that are
predominantly being affected by contagion rather than problems specific
to themselves.
In addition, we have asked the World Bank and the National
Development Bank, to design a program that would cushion the effect of
the economic adjustment on Brazil's poor.
With that, Deputy Secretary Summers and I would be
delighted to
respond to any questions you might have.
Q Just for starters, where does the $5 billion come from?
SECRETARY RUBIN: The $5 billion is actually part of a
bilateral
program to guarantee loans will be extended by the Bank for National
Settlements -- BIS. So the cash itself will come from the BIS, but
those loans will be guaranteed by the bilateral participants. And the
guarantee will come from the Exchange Stabilization Fund.
Q Are you convinced that this amount will do it, or is
there a
problem as we saw in Russia, where the IMF and others started helping
out and discovered it was a rathole?
SECRETARY RUBIN: Well, leaving aside the question of
how one
might characterize Russia, Russia's a different situation, Sam. You
didn't ask for me to determine Russia -- and I think very rightly so,
was that the international community had enormous stakes in Russia being
successful. And the IMF designed a program -- and there was some
additional money over and above the IMF's commitment.
But the key in Russia, as in all of these situations, is
that the
country that's having difficulty take ownership of the reform or not.
And in the case of Russia, as you know, the Russian government never was
able to enact the kinds of programs that they had -- at least not all of
the programs that they had agreed to at the IMF. So the problem didn't
lie in -- at least in my judgment -- we will never know whether the
program itself would have been successful -- I think it was a very
well-designed program, because Russia itself was not able to accomplish
what needed to be to put the reform program in place.
Here I think you've got a very different situation.
President
Cardoso, under his leadership, there has been very significant reform in
Brazil over the last several years. The Brazilian inflation rate, as
you may remember, was gargantuan at one time. Inflation now is
approximately zero under the Real plan. So what you have is a President
who has proven a commitment -- both a commitment to reform and an
ability to get reform done, and who was committed to carry forward the
reform program.
Q So the answer is yes, you believe this will
do it?
SECRETARY RUBIN: Yes, I believe this should do it;
and yes, I
believe it is -- I would say totally distinct -- "totally" is a strong
word -- but in all relevant respects, a totally different situation than
the situation in Russia. I don't think Russia is an analogy that you
can use in trying to evaluate this.
Q Mr. Secretary, could you clarify the interest rates
charged on
the bilateral or on the U.S. part of the loan, and what collateral has
the United States --
SECRETARY RUBIN: Well, as I said, the loans
themselves will be
coming from the Bank of International Settlements, the BIS. What we
will be doing -- we and the other bilaterals -- will be guaranteeing
those loans.
What is the interest rate, Larry, do you know?
DEPUTY SECRETARY SUMMERS: The interest rate will be
approximately
400 basis points in excess of Treasury borrowing rates. And, of course,
the premium that's imbedded will come to us as compensation for the
guarantees that we are providing. There will also be a premium interest
rate that varies with how long the loan is outstanding. On the
short-term component of the IMF's procedures, in line with the new
procedures at the IMF that we've worked over the last year to establish.
Q Translate that into today. Today if you had to fix
it, what's
400 basis points, et cetera, et cetera? A percentage that Americans
would understand.
DEPUTY SECRETARY SUMMERS: About 9 percent.
Q When you say "short-term," what exactly is the
term of that
portion of the IMF credit?
DEPUTY SECRETARY SUMMERS: The substantial portion of
the IMF
credit will be using the so-called SRF, Supplemental Reserve Facility,
at the IMF, which provides for loans where repayment begins after one
year and can be extended up to two and a half years. The BIS financing
will be for six months subject to renewal.
Q Can you tell us how much of the bilateral aid is going to
be
provided by the European Union -- $5 billion from the United States. As
a group, do you have a number?
DEPUTY SECRETARY SUMMERS: Each country should
probably make its
own statement of the contribution. But there's a contribution from
Japan and Canada, but most of the remaining $9.5 billion is coming from
Europe.
Q In the Mexican Stabilization Plan in 1995, you put an
enormous
amount of energy in working out basically a collateral system that came
through the oil facility. What is the equivalent to that in this case?
SECRETARY RUBIN: David, there won't be an equivalent
here. But
what you have is a country, in this case -- unlike the situation in
Mexico, which where your recollection is correct -- you have a country
with $40 billion of reserves at the time that this credit is being
extended. What you'll have is the full faith in credit sovereign
obligation of Brazil. And as I say, you start with a country that has
$40 billion in reserves, roughly.
Q To what extent is the private sector going to be
participating
in this deal, and why aren't they part of this -- a big part of the
package?
SECRETARY RUBIN: There will be discussions with the
private
sector, that is to say between the Brazilian authorities and the private
sector. They're going to begin next Monday with a road show, that is to
say presentations to the private sector. And as there is more to
announce on that, that will come from the Brazilian authorities or from
the private sector participants they've discussed
this with.
Q Why aren't they in this part of the package?
SECRETARY RUBIN: Because what had to be done first
was for the
package to be put together and announced and then once public, then that
enabled Brazil to meet with their private sector creditors. And as I
say, they'll begin that process on Monday.
Q Do you have assurances of support from Congress on the
U.S.
bilateral portion of the deal?
SECRETARY RUBIN: We have over the last couple of days
placed
calls to the appropriate members of Congress. Because people are out of
town, we have not gotten through to all of them, though we've gotten
through to some. Where we haven't gotten through to the member, him or
herself, we've spoken to their staffs.
I'll just speak for myself and let Larry speak for himself
-- the
people I discussed it with at least have, I think -- all of us have been
very focused on the financial crisis for the last, roughly, year and a
half, and I think that people have had a chance to think through the
interdependence, the global economy, the stakes for our economic
well-being, of dealing with contagion and one thing or another. And I
think all of that has informed the way people are reacting to this.
Larry?
DEPUTY SECRETARY SUMMERS: Certainly that's been
consistent with
my conversations. And just to be clear, the 1933 statute setting up the
exchange stabilization fund authorizes its use to provide a guarantee in
this way on the authority of the Secretary of the Treasury acting with
the President's support.
Q Could you say who you have spoken with on
that?
SECRETARY RUBIN: I think at this point I'd probably
rather not.
If there are individual members who choose to speak to it, they will.
But I think it's probably better to say we've spoken to a fair number of
members of Congress and we, as I say, spoke to the people who are most
directly involved in these kinds of issues.
Q -- recognize that the Asian crisis has prompted this kind
of
situation in Brazil and on this side of the world. What impact do you
see for that on U.S. growth over the next 12 months?
SECRETARY RUBIN: The Asian crisis? I'll give
you my answer, and
then we'll ask the true economist to give you his answer. I think very
often you get the best sense of what's going on economically from
talking to people who are involved in industries that tend to be lead
indicators, to some extent. That's what I used to do in the private
sector; that's what I still try to do. And my sense of it is we're
still very much on a track of solid growth and low inflation with
whatever the normal ups and downs might be.
Clearly, this financial instability, the financial crisis
has
affected some sectors -- agriculture is an obvious example -- rather
substantially, and clearly -- and this is what we said so often in
discussing IMF funding -- clearly, there is a risk with respect to our
economic performance that comes from what's happening in the rest of the
world. And that's why it is so much in the interest of the economic
well-being of the American people that we continue to exercise a sort of
role, leadership, that we have in trying to deal with this.
DEPUTY SECRETARY SUMMERS: I know something about
Washington as
well as economics -- I agree whole-heartedly with the Secretary's
forecast for the economy. (Laughter.) I think the basic momentum of
expansion should be maintained, albeit with certain sectoral changes, as
long as this financial crisis continues to remain contained in its
impact, but clearly responding effectively to the financial crisis is
essential to maintaining the momentum of growth in our country.
Q As a follow-up, looking ahead to APEC, can you give us a
few
details perhaps of the U.S. plan to help restructure debt in Asia that
will be presented over at APEC?
DEPUTY SECRETARY SUMMERS: I don't want to preview a
plan that
will be discussed at APEC in any detail, but I think there has been the
recognition for sometime on our part, on the part of a number of the
countries that have been affected, on the part of the Japanese, that it
is important to address the financial problems of the Asian private
sector in a number of ways -- by working to strengthen the banking
systems, by working to assure the availability of trade finance, by
encourage the working-through of corporate situations involving
indebtedness levels that are no longer sustainable, involving infusing
equity capital into situations with a great deal of leverage.
And I think those issues will be very much under
discussion, and I
think there will be recognition at APEC of the central importance of
growth, both in order to work through these financial problems and
working through these financial problems in order to promote growth.
And that will be something that will be very much discussed.
Q You say that there are vast differences between Russia
and
Brazil. But in Russia you also had a government that was committed to
reform and that had achieved a fair amount over President Yeltsin's
tenure. And the problem was you had a legislature that refused to go
along with it. Now you've got a pretty balky legislature in Brazil as
well.
Let me just put the question in the form of two parts.
You can
just react to that and then -- what will you do if it appears that the
Brazilian Congress is not following -- is not implementing the program
that President Cardoso has laid out? Will the loans be somehow cut off
or will the Brazilians be unable to draw on them?
SECRETARY RUBIN: I think a very good test of -- this
is my view
at least -- a very good test of President Cardoso's ability to get this
done occurred last week, when on the social security reform, which was
always viewed by those who commented on this as a difficult reform, the
vote in the Congress was well above the 60 percent that was required.
I don't think there is -- I'll give you, again, just my
view -- I
don't think there is any serious or significant comparability between
this and the Russian situation. You've had a reasonably long period
here of real reform. You've had not only a President who has been
committed to reform, but you've had a Congress, as I said just a moment
ago, approve social security reform -- a very difficult vote and one
that was thought of as probably something he was going to have some
difficulty with if he was going to have difficulty altogether.
But clearly he has got his work cut out for him and
Congress has
their work cut out for them. But I think on the basis of what happened
with Social Security, plus the history of the last few years, I think it
is a totally non-comparable situation to Russia.
Q What will happen if they fall off the wagon, so to speak?
SECRETARY RUBIN: Well, they're not supposed to.
(Laughter.) I
don't think that's the right way to focus on this. I think the right
way to focus on this is they put out a strong plan. President Cardoso
is committed to doing it. He has a record of success as a reformer.
They approved Social Security last week by a substantial vote. And
we're all working with the international community on the assumption
this will happen, and happen as it's supposed to happen.
DEPUTY SECRETARY SUMMERS: If I could just underscore
the
Secretary's distinctions between the Russian situation and the Brazilian
situation. The new Brazilian government has a strong electoral mandate.
President Cardoso in the closing days of his campaign emphasized the
importance of fiscal consolidation as a key task for Brazil in the next
several years.
The Brazilian government has a demonstrated capacity to
enforce
laws and to collect taxes that is different from that of many other
countries in the developing world. And the Brazilian banking system,
while obviously there have been some uncertainties at this time, the
underlying health of the Brazilian banking system is profoundly
different than the underlining health of the Russian banking system was
coming into this.
And finally, the Brazilian level of reserves is very
different
than the Russian level of reserves. I think it's very important as a
general proposition that in looking at these things, one recognizes that
each country's situation is different. That's why the kinds of economic
measures that are most important differ from country to country. And
the kinds of ways in which our support is designed and in which the IMF
and other support is paced with the efforts at reform differ from case
to case as well.
Q I'd like to ask you two questions. The first one
has to do with
Japan. Do you think -- I know Japan has been taking steps in the last
few months -- do you feel those steps are adequate, or do they still
have a way to go? And then, I'd like a follow-up.
SECRETARY RUBIN: Well, let me put it this way, if I
may. If you
take a look at private sector forecast with respect to Japan, I think
what you'll find is they're in the neighborhood of no growth next year.
That, obviously, is not only very much against the interest of the
Japanese people, it's very much against the interest of Japan's
neighbors in Asia and really against the interests of the efforts to be
made to reestablish financial stability in the world.
It is our view, what Japan needs to do and what the world
needs
Japan to do is to take fiscal measures that are sufficient, along with
effective implementation of the recent banking legislation, to get back
on track and back on track quickly. I think I'd rather not stand in
judgment of the recently announced measures, but simply say that there
certainly has been skepticism in the markets. And the critical thing is
to have a program that is efficient to get them where they need to get
and get there quickly.
Q When President Clinton stood here and announced that the
IMF
should help those countries that have implemented good programs and are
being -- the contagion problem. Do you feel that this agreement with
Brazil will serve as a great help to put Latin America back on a
positive track? Because you have Mexico, you have Argentina and other
countries -- would have been affected very strongly --
SECRETARY RUBIN: Well, I think one of the very
important
considerations here, as I said in my brief opening remarks, was that not
only is Brazil, in and of itself, very important, but adverse
circumstances or adverse developments in Brazil could affect other parts
of Latin America and it could continue the contagion that has been so
much a focus of our attention over the last year and a half. So, yes, I
think it's very important to help Brazil, both for Brazil's own sake and
because of the effect that what happens in Brazil has on the economic
well-being of the United States -- and also, to try to limit the
contagion -- or I shouldn't say to try -- to limit the contagion.
Q Do you believe that this track of solid growth and low
inflation
you talked about for this country would in any way be adversely affected
if interest rates were even lower here in the United States?
SECRETARY RUBIN: Would be adversely affected if
market interest
rates were lower? I think lower market interest rates, all other things
being equal, will be growth stimulating.
Q To --
SECRETARY RUBIN: Market interest rates -- that are a
function of
market forces, all other things being equal, tend to promote growth.
But I'm not commenting in any way on the Fed or what they should do, or
anything else.
Q A lot of people say -- economists who are smarter than I
am --
that you get into a position where inflation then begins if interest
rates become too low.
SECRETARY RUBIN: That inflation what?
Q Will begin, because --
SECRETARY RUBIN: Well, Sam, let's leave aside
anything to do with
the FOMC, the Fed, or anything else, just stipulate it. There certainly
is very little sign of inflation in our economy right now. On the other
hand, one always needs to be watchful with respect to inflation. As the
President announced in his speech a couple of months ago in New York on
this global financial crisis, it was very important to switch the
emphasis from inflation to growth and stability. And that's what the
international community has been doing, and there's been some important
developments, although there certainly are many, many problems ahead.
Q Back on Japan, Japanese officials would say that they've
contributed a great deal to halting contagion from the Asia crisis by,
for example, participating in this Brazil package today, by announcing
the $30 billion Miyazawa plan, which you now seem to say might support a
corporate debt restructuring program for Asia which will be discussed at
APEC next week, as well as an additional stimulus package announced this
week. How would you respond to that?
SECRETARY RUBIN: I would say that everything that you
have said
has been constructive, and I think they all are real contributions.
Having said that, I think by multiples, the most important thing Japan
can do with respect to halting the contagion and turning around the
situation with respect to financial instability is to get back on a
track of strong growth itself. And while everything else is important,
by many multiples that's the most important thing Japan could do.
Q How will you know if the Brazil package is working?
What are
you going to be looking at in terms of interest rates, in terms of
reserve levels?
SECRETARY RUBIN: As Larry said before, you sort of
watch these
things country by country, and the circumstance is different in each
country. But take a look, for example, at Korea, where short-term
interest rates were roughly 25 percent at the time the IMF program was
first announced. Those same short-term rates are I think 8.5 percent,
something like that. The Korean won has appreciated substantially from
its lows. The reserve is somewhere around $40 billion, I believe.
Now, GDP is still declining in Korea, but there have been
real
signs of progress in the respects I've just mentioned. And that's what
you do -- you watch and you see things happen, and then if it takes
hold, you begin to see growth begin again, and one thing and another.
In Brazil, I think you'll be taking a look at the same
kinds of
considerations and you'll be monitoring it and seeing how things go.
Q Do you have benchmarks in Brazil?
SECRETARY RUBIN: I wouldn't say you have specific
benchmarks, but
I do think the kind of framework I've just discussed with respect to
Korea, although Korea was a very different situation because here in
Brazil we're getting in pre-crisis; Korea was post-crisis. So it's in
many respects a very, very different situation. But it's that kind of a
framework that you would bring to thinking about a country and how it's
doing.
Q The $14.5 billion -- is it correct to assume, first of
all, that
the U.S. $5 billion contribution is the largest single contribution?
SECRETARY RUBIN: Yes.
Q And secondly, who is the second largest and how much are
they
contributing?
SECRETARY RUBIN: I think we'll leave it this way -- I
think Larry
had it right -- countries can choose themselves whether they want to
discuss their contributions and participation, and I don't think it
really should be for us to discuss.
Do you agree with that? Yes. Are we finished?
We are going to
turn the podium back over to Joe, who will be happy to discuss the
technical details of this and anything else you would like to discuss.
(Laughter.)
MR. LOCKHART: I'll tell you the other countries.
(Laughter.)
Q Thank you, Mr. Secretary and Mr. Secretary-in-waiting.
(Laughter.)
MR. LOCKHART: Sam, you never miss an opportunity.
END
2:13
P.M. EST