TRANSCRIPT: BACKGROUND BRIEFING BY SENIOR U.S. OFFICIALS
(APEC continues to move forward in face of crisis)Kuala Lumpur -- Although Vice President Gore's calls for a deeper shared commitment to political freedom and reform in Malaysia generated some controversy, they should not overshadow the accomplishments of the Asia-Pacific Economic Cooperation (APEC) forum in 1998, according to a senior administration official.
During a background briefing November 18, the official said: "This is a year in which, in the face of an unprecedented crisis in Asia, we have continued to move forward towards the Bogor goal of free and open trade and investment, in which we have worked together to focus on issues of financial architecture and economic governance.
"We are creating new visions of cooperation with the private sectors on issues like the natural gas infrastructure, and development of electronic commerce.
"There are a host of ideas -- about how one can develop, do human resource development, Secretary Albright's proposal for APEC to focus on a social framework for growth -- something that is designed to address the plight of the most vulnerable people in this crisis and something in which we are now going to work very actively in the coming months with multilateral institutions like the Asian Development Bank and the World Bank.
"All of these things are very positive steps, and this is in the face of crisis," the official said.
Despite being written off by the press earlier in the week, Early Voluntary Sectoral Liberalization (EVSL) is alive and well and getting ready to move on to the World Trade Organization (WTO), the official added. Sixteen economies have signed on, the official continued. "The trade agenda is moving forward. You can try to say it's dead, but it's going to Geneva, and it's going to be there in 1999."
Following is a transcript of the briefing:
(begin transcript)
BACKGROUND BRIEFING BY TWO U.S. SENIOR ADMINISTRATION OFFICIALS
New World Hotel
Kuala Lumpur, Malaysia
November 18, 1998FIRST SENIOR ADMINISTRATION OFFICIAL: I'm just going to say a few general remarks, then my colleague will speak, and then we'll take your questions.
Okay, what's significant about this event? The centerpiece of this meeting was the agreement on, a consensus on a strong credible strategy for recovery in the region, a strategy that has four pieces.
The first is a commitment to macroeconomic policies that promote growth while maintaining stability. In this context there was a useful focus on the challenges confronting Japan because of the key importance Japan plays in the region. You'll see in the statement a nice sort of highlighting of the broad orientation of policies in the countries most affected by the crisis, where interest rates have come down quite substantially and where fiscal policies now are very supportive of growth.
The second piece of the strategy for recovery is a series of innovative ways to try to revitalize the private sector by strengthening financial systems, restructuring corporate sectors, restoring trade finance, and facilitating access to private capital flows. The initiatives outlined by President Clinton and the Prime Minister of Japan, I think, were quite well received by the countries in the region and will receive a nice strong endorsement in the communique.
The third piece of this strategy is focused on the critical importance of providing adequate finance in support of programs to strengthen social safety nets for the long run, but also to address the immediate damage that the crisis on the most vulnerable groups and societies.
And finally, there was a quite a strong endorsement of the broad consensus in favor of continued momentum towards openness, further liberalization. I think it's notable that despite the pressures of this crisis, the momentum for the liberalization in this region is very much intact. It may look as if it's slowed in some sense, but what's significant is that it's still moving forward. And it's true that in the financial sectors of many of these countries there's even been more openness than would have been expected at a faster pace.
So those four pieces are the centerpiece of the financial part, economic part of the communique and they deserve a bit of -- I think they're significant for what they say about the strength of the consensus around the region.
Let me just mention a few other things that are there so you can decipher the code when it's revealed. APEC has been significant because it's been a catalyst for liberalization through the ITA and these new EVSL agreements, which have helped push liberalization on a global scale. It's been a catalyst for forceful international action in response to the crisis, and it's been a catalyst for reform of the international financial system. These countries have genuinely been ahead of the curve in trying to lead the system to think more creatively out of the box about how to create a stronger system and how to put in place the infrastructure and the institutions that allow market-oriented, open economic policies to work.
The communique also highlights and provides a lot of support for a series of the initiatives President Clinton announced two months ago -- a new contingent, pre-emptive, precautionary financial capacity in the IMF; more innovative use of guarantees and other instruments by the World Bank and the other MDBs to catalyze private capital flows to emerging market economies; and it contains a very strong endorsement of the work undertaken that the U.S. actually initiated and led that came out of Vancouver -- the work undertaken to try to build a consensus on how to reform the international financial system. The centerpiece of that effort is how to create a better balance of risks, a better balance between the risks and benefits of open capital markets and how to make, how to equip countries -- particularly emerging economies -- with the tools and the systems they need to deal with the risks that come with this system.
I think the most important message that comes from the events of the last eighteen months in this region -- it's sort of there throughout the communique -- is that it's the quality of policies, it's the credibility of leadership, and it's the confidence those two factors engender that determines how countries fare in the world, how quickly they emerge from crisis, and how quickly they will recover. Those are the things that matter most, and those are the things which will distinguish countries in this region as the whole region moves from the initial challenges of stabilization to recovery.
The communique is -- it has a sort of balanced tone between acknowledging a fair amount of progress that's been achieved in the region, but pointing out that there's a really formidable set of challenges still ahead for these countries. So I'm not sure I would describe it as optimistic. It's sort of sober and balanced, acknowledging how much progress has been achieved, but acknowledging also the depth of the challenges each of these countries face, even those who are performing relatively -- look like they're performing relatively well now.
I want to highlight just one other thing. I think at the end of the communique there's a reference to the importance of a task force to examine and develop practical proposals for improving transparency in financial institutions, for examining a series of prudential issues involved in financial institutions' risk management, etc., and to look at the implications of highly-leveraged institutions. I think there was a broad a consensus about the importance of focus work in that area as we go forward in the context of this broad review of the international financial system. And the U.S. has agreed that we'd plan an active role in trying to lead and bring that effort together.
Why don't I let this other senior administration official tell you about the rest of the substance.
SECOND SENIOR ADMINISTRATION OFFICIAL: As a way of getting into it, I think one of the things that this year points out is that the first senior administrative official and I have exactly the same things to say. And one of the points that you all may hear during the course of discussions by others is that somehow there's a need to pull together the work that finance ministers do and that the rest that APEC does. But the fact of the matter is that when you look at this declaration and if you look at accomplishments that are there, it reflects a kind of a total package. And the fact of the matter is that an APEC meeting -- a meeting of APEC economic leaders -- is really more than just a meeting of APEC and the culmination of the work that is done in our working groups and among the various constituent parts of APEC, because Leaders meet as Leaders. And they capture the progress or they instruct us to work in a variety of ways, both within APEC, in other multilateral fora, and bilaterally. This declaration will do that in a variety of ways, and I'll try to touch on a couple of those. So, we are encouraged.
Second point I would make is that there has been a lot of ruminating about how APEC would fare this year given the crescendoing crisis and the chair. And in fact, we see a declaration which looked -- (Lights start to go out) Ooh, I guess maybe I'll stay away from that point. I was going to actually say something good. But this is actually, as you heard first, this is a sober, realistic look at where we are. But there isn't a lot of quivering in the face of the forces around us. It is the Leaders expressing their confidence that this region has the ability to restore economic growth and put it on a sustainable basis by taking a series of actions that are related to the kind of strategies for growth that we and others have been talking about. So I think that's an important point and an important accomplishment.
An important fact of this -- that in fact APEC is moving forward on all of those various aspects.
This declaration is a declaration that has quite a number of specifics -- specifics that go beyond the normal APEC internal working machinations. I think that's also significant, because it shows the effect that this constituency of economies has in propelling forward activities in a variety of international settings. On early voluntary sectoral liberalization, for instance, it's APEC pushing the global community, as it did two years ago on the Information Technology Agreement, and as it did in 1993 when we propelled the countries that were negotiating the Uruguay Round to complete the work by the end of that year.
To talk just about a few other things that are there, on Early Voluntary Sectoral Liberalization, we believe that what APEC has done is a step forward. It is propelling, it is pushing the global international system to adopt a broad package of significant liberalization. And we believe that it is important that every APEC economy that is participating in the package -- that is, the sixteen economies that joined in at Vancouver, and we will hope now the new members as well -- but it is important that the economies, including Japan, remain committed to a successful conclusion of this package.
You've heard a lot about the financial issues. One additional issue which one might not have anticipated earlier in the year has been the surprising degree of consensus that there is on the need to improve economic and corporate governance. This is not only a feature of the finance ministers' process, but during the foreign and trade ministers' meeting and during the meetings of senior officials there has been increasing recognition of the importance of this. As the Vice President and our cabinet officials at the Ministerial earlier in the week indicated, predictable, credible, and democratic legal structures and government systems are just essential for sustainable growth and development. There is a notice in the declaration that we need to accelerate our work on economic governance. And so that work will go forward.
In APEC we have -- and I suspect later in the day people will talk, too -- there has been a tension between those who believe that APEC is too focused on liberalization -- in "APEC speak" you will hear the word "tilt," trade and investment liberalization and facilitation, but liberalization -- and on the other side, those mostly developing economies, who talk about, in "APEC speak," "ecotech," economic and technical cooperation. And they talk about those two concepts as somehow either mutually contradictory or quite different. In fact, and I think -- as the declaration and the things that we have agreed to this year make clear -- these concepts are mutually reinforcing. It is necessary to build the marketplace even as one moves forward on opening the marketplace. They go together hand in hand, and the Declaration recognizes that they need to advance together.
The other thing that we have been working hard to do -- and we see some signs of success this year -- the thing we have been trying to do is to get APEC to be more focused, to be more outcome-oriented. And there are a series of very specific actions that we are tasked to do -- in the finance area, in the liberalization area, and in the area of economic and technical cooperation. Among those things that one could describe as "focused outcomes," one of the things that we will talk about is the Leaders' welcoming of a natural gas infrastructure for Asia, an Asian gas infrastructure concept. And we think this is very important. It's not about the grand design where we have already approved the routes where pipes and whatnot will be laid. But it is the vision of converging projects based on real economics -- real projects converging early in the next century as a way to gather together the gas that's in Southeast Asia and Northeast Asia, and distribute it along the right of way, thereby stimulating economic growth both within APEC economies and across borders into other APEC economies. We think this is important for economic security, it's important environmentally because it provides a clean fuel source, and it stimulates economic activity far beyond power plants.
Finally -- two finallys -- there has been a lot of work on electronic commerce this year in APEC -- the idea that this new technology will provide a kind of dynamic new way to stimulate growth, the idea that this is a threshold technology for all of us and that there really aren't developed and developing economies. This year we have worked very hard to de-mystify that concept in Asia because Asia has been behind, and we are trying encourage a process of getting Asia to catch up. We've also spent a lot of time, and the Leaders will have discussed today, the importance of the Y2K issue, the Year 2000 issue. This is a problem, and there are a number of Asian economies that are not nearly ready for what will happen in the Year 2000. So we will work to deal with that.
And, finally, we have continued APEC's emphasis, and we will be seeking to generate more activity because frankly we haven't done enough on sustainable development and the initiatives that were approved by Leaders at Subic Bay on clean production, clean oceans, and sustainable cities. We will also be looking next year -- though the declaration does not say it -- we also will be looking next year at how APEC can contribute to progress on the global discussions that are taking place on climate change.
So, this is been quite a productive year. I think it's fair to say that the chair all through the year set a vision that they wanted to spend time working on the issues that come from the financial crisis, on advancing market opening, on capacity building, and human resource development. They started early in the year. They have remained organized. They have played a positive role as the chair. They have pressed their own ideas, but they have been willing to accept the views of others. The declaration is a composite of views, and we think it has been a very productive year. So with that, if official number one -- If you want to ask me questions, I'll filibuster until the guy you really want to talk to gets off the phone. But about APEC or anything else.
Q: Since you represent the U.S. at APEC, what impact do you think Vice President Gore's comments and the criticism they engendered yesterday will have in the coming months or beyond on APEC and the U.S. role within APEC?
SECOND OFFICIAL: The United States plays a leadership role in APEC. We're proud of the role we play. We will represent the views of the United States in all of the fora. The Vice President has already talked about this, and I'm not going to go beyond that.
We see no sign that people are telling us to go off and mind our own business. I think that there is a welcome, a clear welcoming of the role that the United States plays -- all year long and last night as well when we were talking to people. There is a clear desire for the United States to provide the kind of leadership that in APEC and maybe elsewhere only the United States of America can play. And we're determined to play that role.
Q: This is a temporary situation?
SECOND OFFICIAL: I don't even see it as temporary. We help to provide leadership, but we don't believe that we're unique in APEC. APEC is about building consensus, and we have worked on that very hard. That remains the way we will operate in APEC.
Q: You talked about how there was a clear welcoming of what the United States has done all year long up to and including Monday night. Could you tell us who was saying this to you and how they were delivering this message to you? Because what we're seeing and hearing is something quite different -- that there is a broad criticism. American business --
SECOND OFFICIAL: I didn't say Monday night. I said Tuesday night, actually. And all year long people have urged the United States to provide leadership. People I talked to last night at the Prime Minister's dinner for leaders continue to encourage us to play a positive role in Asia.
Q: But specifically on the question of Mr. Gore's comments on reformasi and on the (inaudible) movement here. It seems that the only comments that we've seen made by members of APEC -- delegates, prime ministers -- are critical of the fact that Gore raised these political issues at an economic forum. Except Estrada.
SECOND OFFICIAL: I think the Vice President answered that yesterday. We continue to see a linkage between the economic issues and the importance of having governments and institutions that represent and have the confidence of people.
(Crosstalk)
Q: Do you think the statement went too far in making that point?
Q: A little more broadly, the EVSL deal basically fell apart. The U.S. and Japan are sniping at each other. The U.S. trade ambassador today said that what the Japanese did was unconscionable. The U.S.-Japan $10 billion deal has been described as basically vague, admittedly vague at this point, and, in any event, its announcement was completely overshadowed by the Vice President's political message. The President was not able to come. Eveything that we're hearing so far sounds like -- I'm not hearing any concrete proposals coming out in today's communique.
SECOND OFFICIAL: I think the only thing you're hearing is what you guys are writing, then, because that's not the story of the year. That's not the story of the communique. This is a year in which, in the face of an unprecedented crisis in Asia, we have continued to move forward towards the Bogor goal of free and open trade and investment, in which we have worked together to focus on issues of financial architecture and economic governance. We are creating new visions of cooperation with the private sectors on issues like the natural gas infrastructure, and development of electronic commerce. There are a host of ideas -- about how one can develop, do human resource development, Secretary Albright's proposal for APEC to focus on a social framework for growth -- something that is designed to address the plight of the most vulnerable people in this crisis and something in which we are now going to work very actively in the coming months with multilateral institutions like the Asian Development Bank and the World Bank. All of these things are very positive steps, and this is in the face of crisis.
On Early Voluntary Sectoral Liberalization, on Saturday every one of you said this collapsed and was dead. That's your words. In the dust, gone, in the trash can, destroyed. This idea is alive and well and getting its passport in shape to go to Geneva, where it has to go to build the kind of global critical mass that makes it a successful proposal. And we have sixteen economies that have booked to travel with it. So let's get real. The trade agenda is moving forward. You can try to say it's dead, but it's going to Geneva, and it's going to be there in 1999. Get a life.
FIRST OFFICIAL: I meant to tell you just two other things. I wanted to give you numbers on the social safety net spending stuff, just because you guys sometimes seem to kind of focus on numbers. The three year anticipated totals for the World Bank and the ADB in the social sector -- three year meaning '97, '98, '99. Some have fiscal years, some have calendar years. It's $3.1 billion for the Asian Development Bank, $2.5 billion for the World Bank. They's got substantial additional pipeline for 2000, which is not quantified here. And those levels represent, for the World Bank, three times, three-whatever multiple increase, and for the ADB a two times increase. And that follows, as you know, a big push the President led in September.
Can I answer the question this guy asked?
Q: (Inaudible) three years?
FIRST OFFICIAL: No, that's the total over three years.
SECOND OFFICIAL: Can I add one point to that one before --
In our bilateral aid program -- which we have increased this year with appropriated funds, and we anticipate seeking substantial additional funds from Congress in the coming couple of years to deal with these issues -- but in the $35 million that we are allocating, there is a substantial chunk of technical assistance which will do several things. One thing is that, in terms of the social safety net spending, we will be targeting technical assistance to work -- at the request of the World Bank and ADB -- to work with Asian economies in order to do the data collection to identify vulnerable groups so that those increased commitments can actually disburse much faster. So we're trying to unlock significant sums of money with targeted technical assistance. We will also be providing technical assistance to help in the process of strengthening financial systems -- something we've done a bit of so far, but we will expand on that program. Finally, we will be starting some pilot projects, probably in Thailand, to accelerate -- to do micro-enterprise development, the kind of job creation that gets people back to work. It's an important part of the social safety net issue.
FIRST OFFICIAL: What was this guy's question, his question was has it been overshadowed by --
SECOND OFFICIAL: Why are we dying in the ditch?
Q: It's an honest question. It really is. It's not a hostile question.
FIRST OFFICIAL: What was your question?
Q: My question is, convince us that APEC was not, this meeting was not a failure.
FIRST OFFICIAL: Look, meetings don't solve problems. You know what solves is work and policy and continuity of determination and the credibility governments bring to solving the problems. That's what solves crises.
There's nothing that we can do about the basic fact that this meeting took place in the context of a political crisis in Malaysia and a rather formidable financial crisis that has now spread from Asia to a more global scale. The stuff that is reflected here is important because it combines a kind of sensible consensus on what to do and what the priorities are. And it reflects a series of specific initiatives that are going to matter in meaningful terms for these countries over time.
Now, the only test of whether that stuff is real will come over time. You will never know, based on what people say, how much of it is reality. But I think if you look at what we have done on the financial side, not just over the past year but over the past two months, you'll see that we've delivered when we said we were going to do something. And we've delivered in quite concrete terms, with a fair amount of speed and with a fair amount of financial force.
Q: This is a question about the communique and whether it in fact includes a reference to reviewing the work of -- the practices of the rating agencies and also how does it deal with the issue of monitoring short-term capital flows or controls thereon?
FIRST OFFICIAL: There is a sentence about the rating agencies which is designed to -- which in some ways reflects the frustration which many countries in the region have experienced and many investors have frankly experienced with that set of institutions in the past year. But all it does is suggest that it would be nice if they were more effective -- had better foresight and were more accurate in their assessments, which is a sensible ambition.
On the capital flow thing, I don't think you're going to find a lot of novelty on the consensus on capital controls or about the importance of more disclosure and transparency, better analytical work, and better risk management around with that whole set of questions. You'll find sort of the sensible -- not orthodoxy -- but the sensible consensus that exists on those things.
Q: About the issue of ratings, one specific initiative that is being put forward from the business is to go ahead with these CBOs -- collateralized bond obligations. Could you speak to how likely that there is going to be anything concrete coming in the next couple weeks, and will the U.S. take a lead role in this given that the main sponsors cannot do it themselves?
FIRST OFFICIAL: Main sponsors can't do it themselves, meaning the -- ?
Q: Taiwanese.
FIRST OFFICIAL: Look, one of the key elements in the initiative that Clinton and Obuchi outlined was a proposal to pool bilateral money and money from the multilateral development banks to support guarantees and other innovative risk sharing instruments that can help countries access the private capital markets, to raise money in support of financial sector restructuring, etc. There's, like, a million ideas in the investment banking community about how best to structure guarantees, how to use them, and how to structure them in a way that gets you the most leverage. There's lots of different ways to do them. The CBO idea is just one idea in that context. We are pragmatic and will look at, as will the countries involved, will look what types of instruments will get you the most leverage. There's been a lot of work done already on what we think's the best instruments. But that's a just a judgement we'll make case by case, depending on the resources available.
Q: The CBO's specifically, though?
FIRST OFFICIAL: You shouldn't get too excited about that particular instrument or any other particular instrument. What you should get excited about is the concept, because the concept of the sort of judicious use of official money in support of guarantees to help leverage private capital in an environment where a bunch of emerging markets that are doing relatively well can't borrow from the private capital markets is quite significant and quite important.
Q: So CBO is not a guarantee?
FIRST OFFICIAL: No, but the CBO is another way to use official money in a way that shares risks a little bit. But you shouldn't get too excited about the specifics of that proposal.
Q: Did Mahathir and Gore exchange any words at all about Anwar's (inaudible)?
FIRST OFFICIAL: Let me do her first, then I'll --.
Q: I'd like to hear more about capital controls. There's been a lot of reporting in the local press in the last couple of days. The headlines yesterday, as you know, were not about Gore. They were about how there will be some determination, there will be some discussion about currency flows. The Chairman, CEO, of Goldman Sachs over the weekend, as you know, also made some comments that were pretty surprising about regulating hedge funds. Can you give us some more about -- We know Mahathir was pushing for that. You're saying that there's going to be no statement other than just the sort of old thing that we've had in the past.
FIRST OFFICIAL: No. Let me say three things.
First of all, this meeting does not try to outline a set of broad principles on what's okay and what's not okay or what's good or what's bad about capital controls. It doesn't really do that. It says a few things that are sort of relevant to that that are sensible. My impression is that the hosts were very interesting in explaining to the world what they'd actually done and why they'd done it -- making sure people understood accurately what they'd done. But they, because they exist in this region and they sort of understand where everybody else is on this question -- and everybody else is in a somewhat different place.
There is a broader set of questions that are really quite significant about how markets work, how to make sure they work better, and how to make capital flows more stable and sustainable. Part of that question involves how you deal with highly leverage institutions. There is a broad support from the United States and from a whole range of other countries to look at those questions and to think about ways that are sensible to address the risks and problems that they can bring. There's no presumption on how to do that in this communique. All there is is acknowledgement of the importance of trying to do it sensibly.
The thing that I mentioned at the end of my remarks, which is this reference to a task force, to look at these questions, is designed to give people a forum that includes both the major industrial countries and emerging markets trying to figure a better way to think through these problems. That's sort of the way the thing came out.
Q: Is there a plan for having some sort of a commission? I think Malaysia wanted a commission to specifically talk about regulating hedge funds. Has it not come up? They're not even going to have a special task force for that?
FIRST OFFICIAL: It is sort of a popular focus of attention, but the set of questions involved -- how to think about ways to make the markets, not necessarily work better, but to try to have institutions and policies that make capital flows more sustainable and stable -- is a much bigger question than the specific question of hedge funds. And it's much more consequential than the specific question about hedge funds. That is a view that, I think, that most people have. And so --
Q: (Inaudible) to capital controls? There's not a specific --
FIRST OFFICIAL: Not to capital controls. It's not really about that either. It's just more about the more complex set of questions around supervision and regulation and about disclosure and transparency and about policies. And that's all going to get intense focus going forward in a quite meaningful way.
Q: They did not set up a task force on it?
FIRST OFFICIAL: There's not going to be an APEC-specific task force because, just sort of think about it -- APEC does include some of the key industrial economies, and it does include some of the key emerging market economies, but these are questions for the system as a whole.
What APEC does very well and what this meeting does very well is help focus the attention of the international community on specific problems and help drive them to act on specific solutions. This is another example where APEC will do that. What it has done very usefully is draw the attention of the G-7, draw the attention of the IMF, and draw the attention of the international community as a whole to a serious set of problems in the system so that there's more pressure for a solution.
Q. Just two questions. Did Mahathir actually ask the group to consider regulating capital flows, and, if so, was that discussed at all? And the second question is, did Mahathir and Gore exchange any words at all about Gore's speech the other night or his feelings about Anwar?
FIRST OFFICIAL: I don't know the answer to the second question, but you can ask that later this afternoon when the leaders do their event.
On the first question, I think that's also something you should direct to Mahathir, the Chairman, so that he can characterize the specific discussion, if he's going to want to, at the press conference this afternoon. I'm sorry to do that to do you. Although I sort of heard a review of the discussion this morning, I wasn't in the room. It's a little unfair for me to try to characterize the details of that discussion.
Q: Could you clarify that the task force that was looked at is among the many issues with regard to capital flows (inaudible) mentioned in the communique?
FIRST OFFICIAL: We'll have to let some mystery prevail until you actually see the paragraph in there.
Q: When you say that capital flows are questions for the international system as a whole, do you mean the G-7, or the G-22, or both of them, or something else?
FIRST OFFICIAL: There is a lot of support in this group and a lot of support in the communique for the work the G-22 undertook. And there's a lot of support going forward for some forum that's going to involve key industrial economies, key emerging economies -- including those in Asia -- to look at these questions, because they affect a broad set of actors in the system and because the solutions, if there are going to be solutions to these problems, have to come at the global level.
But we want to look for informal ways to develop consensus and to identify proposals and not get too wrapped up in some sort of new institutional mechanism, a bureaucratic process to do so. So we're going to be a little flexible about how we design the best process going forward.
Q: Are there any instructions to the finance ministers for next year's meeting?
FIRST OFFICIAL: What the Leaders generally do quite well is to say to finance ministers, get your act together and fix these problems. And there are a series of references in the communique that have that sort of color. Some are sort of specific initiatives, mostly the ones identified in the opening. It's kind of a long document, so what we tried to do is to highlight in a somewhat neutral way the specific stuff, but you'll see there's a lot in there.
Q: Was there specific mention -- in last year's communique (inaudible) finance ministers have to come up with something more specific (inaudible) ....
FIRST OFFICIAL: There usually is a general imperative to be concrete by the time we next meet, and I think you'll see a few references like that.
Q: Is it fair to say that the financial crisis is over, the fire has been put out, it's time to start rebuilding?
FIRST OFFICIAL: No.
Q: Why not?
FIRST OFFICIAL: Secretary Rubin has a useful formulation on this which I think applies. These problems took a long time to develop, and they're going to take a long time to work through. There's just no way around that basic problem. So it doesn't matter how encouraging this period of relative stability in exchange rates -- we've seen some appreciation, the significant decline in interest rates, the stabilization output declines, the adjustment in current account balances. All that stuff is critically important. The initial steps to strengthen financial systems is all critically important. But this is going to be very tough and very difficult for these governments going forward, even in the most benign external environment. And the reality is that Japan's weakness and this broader pullback from emerging markets generally complicates the reform challenge of these countries.
Q: What do you think would be unique about APEC's contribution to the debate on the financial system reform if you've got the G-7 and you've got the G-22, and you've got the Manila Framework? What has been added to it by the APEC discussions?
FIRST OFFICIAL: I'm not sure what the best examples are, but let me just give you two. What we did with Asia was to get a consensus in the international community that made it possible for the IMF to deploy really formidable amounts of financial assistance very, very quickly, on a scale that is unprecedented in support of reform programs that were uniquely designed to deal with a new kind of financial crisis. And that was really significant. As I think the Vice President said in his speech, the international financial institutions put together $65 billion for these countries in the region and have disbursed, I think, $44 billion -- I need to check my numbers -- which is really extraordinary.
Q: It's not APEC --
FIRST OFFICIAL: But that came out of the stuff that the APEC finance ministers pushed, that the Manila deputies endorsed, and that the Vancouver -- and that the APEC Leaders endorsed at the summit.
I'll give you another specific example, this new facility in the IMF called the supplemental reserve facility -- which makes it possible when the IMF does large programs to lend at a penalty rate to lend on different maturities to deal with the moral hazard issues that are inherent to these kind of interventions -- was something that came out of an Asian initiative, and it was endorsed by Asia. And that initiative led to the broader --
Q: By APEC?
FIRST OFFICIAL: By APEC. It was endorsed by APEC at Vancouver and then subsequently adopted by the IMF board. There are a whole series of things way in the weeds about how to equip national financial systems to deal with risk and volatility to strengthen the infrastructural financial markets that are quite significant and meaningful over time. You're going to find them kind of in the weeds, but sort of they're useful. And there's stuff that has broad relevance for the system as a whole, for other emerging economies.
SECOND OFFICIAL: One other significant one is that at their meeting at Kananaskis in Canada, the APEC finance ministers pushed very hard on the World Bank and ADB to expand the attention that they were paying to social safety net -- social programs that had an impact on the social situation. And that has been happening. And as my colleague mentioned, there are a number of instances. The lending levels, the commitment levels are going up. That was an APEC finance ministers' initiative.
FIRST OFFICIAL: You don't need to strain to point to initiatives that came out of Asia and APEC that are now sort of reality in the system. I don't want to overdo it, but it is sort of true. It's just sort of a useful fact. And it's sort of useful to remember that as you look through the fog of rhetoric that comes around these meetings.
Q: Would your characterization of this meeting be that you're entirely satisfied with what's come out, or are there areas that you would have liked to have seen in the final agreement that have not been addressed?
FIRST OFFICIAL: I think it's a pretty good outcome for the region. It doesn't really matter how good an outcome it is for us. What matters is whether it provides a context for -- giving people a common framework for how to think through these problems and address them, and I think it does do that. And I think it's sort of good in the more practical way, in the sense that it helps provide like an action forcing event and a catalyst to think about ways to push the institutions and mobilize resources in support of financial sector restructuring, etc. In that sense I think it's quite useful.
You know, these meetings are important to build consensus and important to be a catalyst for action. You could have whatever degree of uncertainty you want about how much this is going to matter in the short-term or over time, and there's nothing that I'd want to do to talk you out of that. You can have that if you want. But you should just measure our words by the actions that follow.
SECOND OFFICIAL: I've got to go now. If there's any one last question that I --
Q: I wonder if either of you has a response. There's apparently a demonstration by a group called UMNO Youth, which is a pro-Mahathir group, in front of the U.S. Embassy in two minutes or so. Any reaction?
SECOND OFFICIAL: I really think that that's a question that you can address to Ambassador Malott. It sounds like a bilateral, non-APEC issue.
Q: (Inaudible) whether or not you think Vice President Gore's comments were productive?
SECOND OFFICIAL: We are delighted that Vice President Gore was here. The United States plays an important leadership role in APEC. We've played that role all year. We're going to continue to play it. The Vice President represented the President because he wasn't here. The Secretary of State, the Secretary of Agriculture, and the U.S. Trade Representative were all here, as well as the Deputy Secretary of Commerce and the Assistant Secretary of the Treasury. We put a whole lot of effort into this, and we're delighted to have the Vice President leading our delegation.
Q: I'd like some sort of future speculation, sort of wrap up of the APEC. Last year in Vancouver, APEC failed to realize the severity of the crisis in Asia. What might be the mistakes of APEC in KL? Would it be that APEC did not realize the severity of the banking crisis in Asia? There's all sort of optimism again at this meeting.
FIRST OFFICIAL: From whom?
Q: From everybody.
FIRST OFFICIAL: I said at the beginning that you're not going to find this an optimistic framing of the consensus. You'll find it a quite sober acknowledgement of both the progress that's been achieved and the challenges ahead. I don't think you're going to find premature exuberance here. These guys are serious people, and they understand what they face.
And I don't agree with your characterization of Vancouver. Vancouver took place against a background of what had already been a wrenching decline in currencies and the beginning of a serious decline in output and the beginnings of a really unprecedented coalition of international financial force. And it led to the whole creation of this G-22, this incredibly intensive nine-month effort to look at reforms of the international financial system.
APEC, despite itself, exceeds expectations in practical ways each year, despite the sort of broader atmospherics that often surround it. I think that (inaudible)
Q: Any discussion about fleshing out the details of the precautionary fund that was announced as part of the G-7 late last month?
FIRST OFFICIAL: I don't know whether the Leaders discussed that. You can ask them. I can say at the finance/central bank deputies' discussion where a lot of the preparatory work went on last week, there was some discussion of that. But mostly there was just, I think, broad support. People think it's basically a good idea that makes sense, and that's why it's getting broad support. And that's why it's going to happen.
Q: (Inaudible) indication as to what conditions countries will get approval and when do we lose approval?
FIRST OFFICIAL: No, I don't think you'd find that in this kind of forum.
Q: I'd like to raise a question about Japan's economy. Could you tell me the basic strategy of the Treasury Department to deal with the trade deficit with Japan? Is it the macroeconomic way or the sectoral way?
FIRST OFFICIAL: That's sort of an interesting question, but since you asked about the Treasury, it's not particularly germane to this event, this forum.
I would say that there are two numbers that are useful to think about in thinking about the challenges this crisis presents. One is that, if you look at the decline in Japanese imports from the region to date annualized for this year, Japan is importing $15 billion less in products from the region this year than it did last year -- which is a quite significant decline. U.S. imports from the region increased $5 billion over the same period of time. And I think that's a nice way to highlight why this group as a whole puts such importance on Japan acting forcefully and effectively to strengthen its economy and its financial system.
Will you guys let me escape now?
Q: Just one. To clarify, you're saying that in the discussions that you had finishing up the communique with the other delegations, there was no impact, no pulling back by other nations in what they were willing to do because of Vice President Gore's remarks, the unhappiness among some countries about those remarks?
FIRST OFFICIAL: I don't think you're going to see any evidence of that. I'm pretty sure that's the case. But that's also a question -- I've seen the Leaders' declaration and know it quite well, and you should address that to the other people that participated once the Leaders have concluded. It's just a little hard for me to say something about it. I doubt it very much.
Thank you very much.
(end transcript)
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