Transcript: Treasury Secretary O'Neill's Press Conference Following G-7 Palermo Meeting

U.S. Secretary of the Treasury Paul O'Neill, speaking after his first meeting of the Group of Seven (G-7) major industrialized nations' finance ministers, reiterating his support for a strong U.S. dollar and added that the G-7 officials affirmed that major currency exchange rates should reflect economic fundamentals.

"We discussed developments in our exchange and financial markets," O'Neill said February 17 at a press briefing following the meeting of G-7 finance ministers and central bank governors in Palermo. "We will continue to monitor developments closely and to cooperate in exchange markets as appropriate."

Suppprt for a strong dollar policy is a continuation of the policy of Treasury Secretaries Robert Rubin and Lawrence Summers, said O'Neill, who showed irritation that some of his comments were taken to mean that he was moving away from the Rubin/Summers policy.

"If in the future, I should ever decide or the President should ever decide that I should change my stance or our stance about the commitment to a strong dollar, with exactly the same meaning that Secretary Summers and Secretary Rubin attach to the idea of a strong dollar," he said, "then I will hire Yankee Stadium and I will get the most rousing brass bands I can find and I will invite all of you to come and sit in Yankee Stadium and I will announce to you that we have decided to change our policy."

During the G-7 meeting O'Neill said there was agreement that the fundamentals for sustained expansion in the industrialized countries remain in place, but that governments must focus their policies to support growth. "We noted that policies in Europe need to focus on enhancing growth potential, and we shared concern about remaining downside risks in Japan," he said.

The G-7 also reviewed developments in fighting financial abuse, O'Neill said. These include steps to help countries already identified as not taking sufficient steps to combat money laundering make reforms and urging the International Monetary Fund and the World Bank to assist nations in meeting anti-money laundering standards, he said.

In this regard, Russia was urged to move quickly to take action against money laundering, O'Neill said.

The United States also reaffirmed support for the Organization for Economic Cooperation and Development's efforts to address harmful tax practices. Under the new administration, however, "certain aspects of these efforts are under review," O'Neill added.

"It is crucial to clarify that this project is not about dictating to any country what should be the appropriate level of tax rates," he said.

Following is the transcript of O'Neill's press conference:

(begin transcript)

February 17, 2001

Press Conference with Secretary of the Treasury Paul H. O'Neill
Following the Meeting of the G-7 Finance Ministers and Central Bank Governors
Palazzo dei Normanni Palermo, Italy

SECRETARY O'NEILL: Good evening. I presume you've already received the communiqu��from the Italian press conference and I think it speaks for itself. I'll read a short statement from me as well.

BEGIN STATEMENT: I want to begin by noting how much I have enjoyed meeting my colleagues and how much I appreciate the productive and thought-provoking discussions we have had today. Coming together to share ideas and discuss key issues that we all face is indeed an important and useful opportunity. We live in a global economy in which developments in one country affect others, and thus it is important to work closely together -- in the G-7 in particular -- to promote common goals.

Although world growth has slowed somewhat, we agreed that the fundamentals for sustained growth remain in place and that macroeconomic and structural policies need to focus on supporting growth. My colleagues were particularly interested in hearing about the U.S. economy and our policies. We noted that policies in Europe need to focus on enhancing growth potential, and we shared concern about remaining downside risks in Japan.

On exchange rates, let me repeat for you what we said together:

"We discussed developments in our exchange and financial markets. We reiterated our view that exchange rates among major currencies should reflect economic fundamentals. We will continue to monitor developments closely and to cooperate in exchange markets as appropriate."

Finance Minister Kudrin and Central bank Governor Gerashchenko joined us to discuss Russia's economic policy priorities. Together, the G-7 urged the Russian authorities to step up the process of economic reform and meet in full their financial obligations. As they face the task of reform, we underscored the importance of creating the policy, regulatory and legal infrastructure necessary to make market economies work. We also urged Russia to move quickly to take action against money laundering, as outlined by the Financial Action Task Force (FATF) in June 2000.

We took note of recent progress under the HIPC [Highly Indebted Poor Countries] debt initiative and indicated the importance of a broader approach to poverty reduction -- an issue that we will focus our attention on as we prepare for the Genoa Summit. We also recognized progress and looked forward to further steps to strengthen the international financial architecture, including the need to do a better job in anticipating and preventing crises. In particular, we discussed the key priorities for reform of the multilateral development banks -- greater selectivity, sharper focus on the needs of the poorest countries, more effective and transparent internal governance and enhanced development impact. This issue will be a key focus when we next meet in Washington in April.

Finally, we reviewed developments in our shared effort to fight financial abuse. We look forward to continued steps by identified jurisdictions to undertake needed reforms and urged the IMF [International Monetary Fund] and World Bank to help countries implement relevant anti-money laundering standards. At the same time, we reiterated our commitment to implement coordinated countermeasures in cases of ongoing non-cooperation, based on recommendations by the FATF. We also reaffirmed our support for efforts to address harmful tax practices. While I indicated to my colleagues that certain aspects of these efforts are under review by the new Administration, I support the priority placed on transparency and cooperation to facilitate effective tax information exchange. At the same time, it is critical to clarify that this project is not about dictating to any country what should be the appropriate level of tax rates.

Again, I found today's discussion very useful, and I look forward to working closely with all my G-7 colleagues.

END STATEMENT.

I'd be happy to take just a few questions.

Q: In terms of currency situations there seems to be all sorts of opinions around about what you really mean when you say you favor a strong dollar. The newspaper interview interpreting some comments some ways, and yourself being led to sort of deny.

SECRETARY O'NEILL: I'm really surprised you have this question.

Q: I guess because the journalists ...

SECRETARY O'NEILL: I guess what I would like to say to you is this. That when I went for my Senate confirmation hearing I began by saying that I believe in a strong dollar and I'm not ever going to change. And I thought maybe that would end the subject but obviously it hasn't. I would like to have an understanding with all of you of this kind. That if, in the future, I should ever decide or the President should ever decide that I should change my stance or our stance about the commitment to a strong dollar, with exactly the same meaning that Secretary Summers and Secretary Rubin attach to the idea of a strong dollar, then I will hire Yankee Stadium and I will get the most rousing brass bands I can find and I will invite all of you to come and sit in Yankee Stadium and I will announce to you that we have decided to change our policy. If, in the meantime, anything that I might say to you that you find you can interpret to suggest, in the most subtle way, that I have decided to change policy, please be assured that I have not any intent of changing policy unless we have the event in Yankee Stadium. Is that clear? Is there anyone here who doesn't understand what I've just said?

Q: But going over it carefully ....

SECRETARY O'NEILL: That's all I have to say on the subject.

Q: Can I really ... I need to press you on what you have said before, because in some of the interviews that you've given recently you said that you don't favor a dollar policy.

SECRETARY O'NEILL: That is not ... I have never, ever said that. Not ever. I tell you the mistake that I made. I made a mistake of assuming that it was OK to talk about the intellectual fabric around that subject and it's apparent it's not possible to do that, so I'm not going to try anymore. I thought honestly that perhaps there was some interest in the world media to talk beyond simplistic things, but it's obvious that that's not the case. And so I'm not going to entertain how one should think about these subjects. I'll leave it to the graduate schools of the world to do that job. Because it's obvious there's no upside to any more conversation about this. So, let me say one more time. If you think that I've changed policy or that I'm even thinking about thinking about changing the policy because of something I've said, then unless you can hear the brass bands playing behind me in Yankee Stadium I haven't even thought about it. That's all about the dollar.

Q: According to the G-7 statement the United States' economy is all right but you have showed concern about the Japanese economy. And since Japanese business leaders see the risk of a depression spiral because prices continue to fall in Japan. So how do you view the risk of depression spiral in Japan and how do you think is the best way to avoid that and how was it discussed today?

SECRETARY O'NEILL: Having just come off of our meetings, I don't have anything to add to the statement that we provided for you.

Q: Did any of your counterparts in the G-7 express any concern about U.S. willingness to stick to a balanced budget? Do they worry that the tax cut is going to bust the budget?

SECRETARY O'NEILL: No, no one expressed any concern at all about that subject.

Q: Did anyone express concern about the current account deficit?

SECRETARY O'NEILL: No. I would not characterize the conversation that way. There was a question about what do you think about it and again I said what I thought about it and if you need a reference point go back and look at my Senate confirmation testimony again. You know, you all are teaching me that it's not a worthwhile thing to try and be educational and so I'm not going to try to be educational unless I can do it with you off the record because it appears to me the room for misinterpretation and mischief is so huge that I'm just not going to do it. Even though I'd much prefer to deal with you in an intellectual way, you've taught me that there's no upside in doing it and I'm not going to do it anymore.

Q: From your extraordinarily wide experience of business in Europe, do you think that there's any chance that Europe could enjoy the same sort of investment-led productivity improvement that the United States has had?

SECRETARY O'NEILL: Indeed I do. In a broader sense, and I said this the other day in Washington, I think the world has only experienced the very early part of the potential Golden Age of Economics with the introduction and application of great ideas and great technology and a great new connectivity of the world. And so I do believe not only in Europe but also in the world at large, including in the United States, that the potential and probability of the world having a Golden Age of Economics is right in front of us.

Q: Did you discuss the impact of the U.S. economic slowdown on European growth in particular? This constant issue of whether Europe or the United States will have greater growth this year seems to amuse European politicians more than anyone else.

SECRETARY O'NEILL: Yes, we did discuss it.

Q: What's your view of the impact? Will it be marginal? Will it be substantial?

SECRETARY O'NEILL: I don't want to add to the fact that we did discuss it.

Q: A follow up. Did you have the reports on Reuters that Mr. Kerner (phonetic) said that the IMF's projections for the US growth this year were about 1.7 percent? Can you confirm that?

SECRETARY O'NEILL: Why don't you ask him if he said that?

Q: The debt accumulation of the Japanese government is about 6 trillion [6,000,000 million] dollars. Which amounts to more than 100 percent of the GDP [gross domestic product]. Are you concerned that long-term interest rates will increase in the near future which may affect the whole world's economy? And also chief economic adviser Lawrence Lindsay criticized the Clinton Administration's pressuring of Japan to increase the government's spending instead of encouraging Japan to cut back on existing public spending. Do you agree with his view?

SECRETARY O'NEILL: What I would say to you is that I had an opportunity to meet with Miyazawa-san and Hayami in a private bilateral session and I enjoyed that opportunity very much because we had an honest conversation. As I had said before I came asking the question, how can the rest of us in the world be helpful as you in Japan think about greater realization of your true economic potential, both for the sake of your own people, and also for the sake of creating more capital for investment to help the rest of the world as well. I found it completely a good and clear conversation. And you know one of the things that I did in the conversation was to say to them how much I admire the very leading companies in Japan, because many of the ideas that I spoke about earlier are the subject of how the world can have a wonderful Golden Era of growth and opportunity. Many of those ideas have come from Japan. But I think there's an opportunity for a broader application of those ideas in the most leading companies in Japan and so we had a conversation about that but not in a way of haranguing, just observing the wonderful job that has been done inside Japan and some aspects of the economy. And then wondering, is there anything the rest of us in the world could do to see or to help you see that these ideas are applied more broadly in everything that's done in Japan? So it was that kind of conversation.

Q: Among your peers I believe you're the only business executive who has been in this position. How would you see bringing your experience to bear within the G-7 as a way of perhaps persuading your counterparts that it's the private sector that could be the more dynamic force than reliance on the state sector in driving global economic growth?

SECRETARY O'NEILL: You know, I guess I don't quite take your point. I found in the discussions today that there was a very good exchange and I didn't feel there was business on the one side and public sector people on the other side. I think there was a commonality and certainly there was a commonality in the views that were expressed about the importance of this process and the international financial institutions. Not for them in their own right but in the sense of the prospect that they hold out that a much broader part of the world's population can live at a much higher living standard and the dedication to using these instrumentalities to achieve that purpose. And there was not a single dissent from ... these are the important ideas that we should be pursuing together and looking, I guess on a continuing basis, in addition to what's already been done to see how we can be more effective as we use these institutions in accomplishing an agreed important social purpose.

Q: Mr. Secretary, what is your current thinking, sir, on the likely speed of the inventory adjustment, if that's all we're going through right now? I know it's very difficult to predict, but what's your current thinking? You've been there, as a captain of industry and you know about inventory adjustment.

SECRETARY O'NEILL: It's interesting to see the data. I would say we need a little bit more data to find that. Maybe another 2 or 3 months worth of data to ... and hopefully then we'd be able to draw a conclusion. How I'm going to get it as quickly as possible is to call Alan Greenspan and say, "Alan, what do you think?" But of course I'm interested in looking at the data myself. I was comforted by the rebound in a final demand for automobiles and light trucks in January compared to November and December, but the reason I say you have to have more data before you can begin to draw conclusions is because one month doesn't make a trend, especially when you've got to factor in weather considerations and discount programs and hard pushes on sales and the rest of that. But it's the kind of data that you look and again you need to be able to see that the pullback in production is beginning to have an effect on inventories that are in the pipeline. So you need to be able to see a combination of data in order to be able to make an economic judgment about whether the retrenchment that happened in our economy is creating the basis for the next consumer-led surge. And so it takes a month's worth of data to be able to see that.

Q: On Thursday you expressed what seemed to be a fair amount of skepticism about the benefits of coming all the way here and discussing the economic situations in each of your countries when you could find that out by looking at screens. Could you talk a little bit about how you find the quality of the conversation at this meeting?

SECRETARY O'NEILL: Yes, indeed, again I was pleased to see we did not spend a great deal of time. We did spend some time talking about the economic situation but it was at the right level of detail so that I think there was learning from the conversation. It was not what you could read in the newspapers. But the other thing I found really very beneficial about these conversations is that we talked about what I consider to be the really important subject of how we go forward to answer these questions of accountability and responsibility and indicators of success and the rest and so I found it a very fulfilling conversation in that sense.

Michelle is telling me I've done my penance for the night, so maybe one more for the night and then we'll quit and let you all go file and have a nice Italian dinner. The pasta is wonderful if you didn't do that last night. One more down at the end.

Q: I would like to ask again a question about the Japanese economy. What impression did you have about Japanese economic policy, fiscal policy and monetary policy when you talked with Mr. Miyazawa and Mr. Hayami in today's bilateral meeting and G-7 meeting? A general question about the Japanese economy. I'd like to get your comment on the economic policy.

SECRETARY O'NEILL: You know, it's not up to me, but I think I share a wish and a hope and I think a policy determination on the part of the leaders in Japan that they grow at a rate that's closer to their real potential. Both for the benefit of the Japanese people, but also for the purpose of generating capital that makes Japan a significant force in the world economic growth as well and I think it's not my ideas but I think it's a share(d) view of the world and I also think there's a shared view that the traditional tools have been tried, fiscal policy has been tried, that is to say public spending. Monetary policy has been tried. Both almost to the limits of what one could imagine. And then again this is my experience in doing other things in the last 23 years. When you try all the tools in your toolbox and they don't work, then you invent a new tool. And I don't know exactly what it is but I think there's a great sympathy with the idea of what the objective is and it's just a matter of finding the right tool and I believe the right tool is in the minds of the Japanese people, it doesn't exist someplace else. Thank you all very much. It's nice to be with you.

(end transcript)