Transcript: Treasury Secretary Summers' Post-G-7 Meeting Press Conference in Prague

U.S. Secretary of the Treasury Lawrence Summers says high oil prices "are perhaps the largest cloud in the relatively blue sky of the global economy" and that the Group of Seven (G-7) major industrialized countries would like to see prices decline to a "a more historically normal range."

Speaking at a press conference in Prague September 23, following the G-7 finance ministers and central bank governors meeting, Summers added that cooperation between consuming and producing countries is important for dealing with the problem.

Summer said he expected that there would be "quite a number of contacts between consumer and producer countries" in coming days as world financial officials gather for the annual International Monetary Fund/World Bank meetings, which are in Prague this year. The meetings conclude September 28.

The idea of calling an explicit forum between officials of the G-7 and the Organization of Petroleum Exporting Countries (OPEC ), however, was not the focus of the finance ministers discussions during their meeting, he said.

The G-7 finance ministers and central bank governors' statement, issued after the meeting, noted that the prospects for continued global economic expansion "have further improved in recent months as underlying fundamentals have strengthened."

"Seeing oil prices fall would certainly maximize the prospects for continued global growth," Summers said.

The G-7 statement also addressed the G-7's coordinated intervention in foreign exchange markets to bolster the euro. Summers declined to comment further on what appeared in the statement. The statement said the intervention was prompted by "shared concerns" about the "potential implications of recent movements in the euro for the world economy." It also stated that the G-7 will act "to continue to monitor developments closely and to cooperate in exchange markets as appropriate."

The September 23 G-7 finance ministers and central bank governors meeting was the last regular meeting of this group that Summers will attend as a member of President Clinton's cabinet. Asked about his previous eight years as a Treasury Department official, Summers commented that during that time the international financial architecture had changed in some very fundamental ways.

"Obviously the position of the United States in the global economy has changed quite dramatically as the American economy has strengthened and performed well," Summer said. However, the importance of emerging markets in the international system "is much greater than it was," he said. He also noted that now private flows are the primary source of capital for developing countries, a change that has required adjustment in the international financial institutions.

"We have made important progress in adapting the international institutions to the reality of private sector capital flows as the largest source of finance to developing countries," he said.

In addition, the G-7 finance ministers take a much greater interest than before "in the development challenge for the poorest countries that really are dependent on concessional assistance and international assistance. So, I think I'm very comfortable with the directions that the system has been moving in."

Summers expressed some concerns over the imbalances in the growth levels among the three main industrial country regions -- the United States, Japan and Europe. The United States continues to be -- by an important measure -- the faster growing economy, while Japan is the slowest and Europe is just beginning to resume expansion.

"I think that one only wishes that you had more rapid and balanced growth in the industrialized world even as we are looking at a period of very good global growth by historical standards," he said.

Following is the transcript of Summer's press conference, which was held at the U.S. ambassador's residence:

(begin transcript)

Our meeting opened today with a review of developments in the world economy, with global conditions better than they have been for some time. We all agreed that prospects for continued expansion in industrialized countries generally have improved since our last meetings with a more balanced pattern of global growth now emerging.

Important challenges remain. In Europe, while we are encouraged by recent moves toward reform there is widespread recognition of the need for governments to press ahead with structural reforms, to increased potential and raise incentives for job creating investment. In Japan, support of macro economic and structural policies particularly with regard to reform of the financial and corporate sectors will be crucial to ensuring a durable recovery.

With respect to exchange rates, let me simply repeat the statement that was released.

"We discussed developments in our exchange of financial markets. We have a shared interest in a strong and stable international monetary system. At the initiative of the European Central Bank, the monetary authorities of the United States, Japan, United Kingdom and Canada joined with European Central Bank on Friday, September 22, in concerted intervention in exchange markets. Because of the shared concern of finance ministers and central bank governors about the potential implications of recent movements in the Euro for the world economy. In light of recent developments, we will continue to monitor developments closely and to cooperate in exchange markets as appropriate."

We also shared concern about the adverse affects on the world economy of the recent sharp increase of the price of oil. It is important that world oil prices return to levels consistent with lasting global economic prosperity and stability in the interest of oil producing and consuming countries and in particular some of the poorest developing countries.

In light of the continuing high prices and low level of stocks, it is crucial for the world economy that OPEC and other producing countries take action to contribute to a reduction in oil prices and greater stability in oil markets. Improved efficiency in the use of energy all economies would contribute to this objective. Ministers and governors also welcome the United States action to release a limited quantity of oil reserves in the form of a series of swap transactions. We agreed to remain in close contact and to continue our discussions with oil producing and consuming countries as we evaluate measures appropriate to the evolving situation in crude oil and product markets.

We also welcome the continuing recovery and strengthening fundamentals in emerging market economies while stressing the need to avoid complacency and for further progress in economic reform. In particular, to improve underlying fiscal positions and debt structures and strengthen the financial sector.

In addition to our review of the global economy, we focused on three ongoing issues: reform of the international financial institutions, improving implementation of the enhanced highly indebted poor country initiatives, and actions against abuse of the global financial system.

IMF Managing Director Koehler joined us in our discussion on reform of the international financial architecture and the IMF. In general, I was struck by the consensus that the international financial institutions need to adapt to the framing reality that private capital flows are now the dominate source of global finance for many developing countries.

With respect to the IMF, we welcome the recent agreement on a more focused and selective financing role for the fund including shorter effective maturities for its lending under its core facilities and through higher charges where appropriate. We urged the fund to speed up its work in strengthening the surveillance role of the IMF including by increasing the emphasis on national balance sheet and liability management enhancing its ability to identify sources of vulnerability. We emphasized the importance of the ongoing review of IMF conditionality and noted the principle that conditionality needs to be focused to be effective. In cases of financial crises in particular, address issues central to the recovery of confidence and return of capital market access. We also welcomed the establishment of the evaluation office with independent transparency committed to external consultation.

With respect to the multilateral development banks, we outlined in our statement several important priorities for reform including an emphasis on the provision of global public goods, initiation of comprehensive pricing policy review and establishment of performance based frameworks for the allocation of resources to borrowers. These measures are very much in line with issues we have been discussing for some time.

With respect to the highly indebted poor country initiatives we reaffirmed our determination to move forward as quickly as possible with the provision of debt relief to poor countries while ensuring the resources are freed up by debt relief are targeted to core social investments such as health, education and other human development priorities. We reaffirmed our commitments to relieving 100 percent of both official development assistance to highly indebted poor countries and eligible commercial claims. We emphasized the importance of the institutions moving as rapidly as possible consistent with appropriate safeguards to assure that as many countries as possible received debt relief this year. At the same time we must all remember that the true measure of success in this initiative will not be whether or not a country has a received relief, but how well relief resources are used and whether the reforms associated with debt relief achieve enduring poverty reduction and growth.

Finally, we reaffirmed our commitment to the fight against financial abuse including money laundering and corruption. In this context, we called on the IMF and the World Bank and the regional development banks to integrate fully the fight against financial abuse into their surveillance exercises and program. We specifically urged the IMF and World Bank to compare paper and discuss with their boards what they can contribute to what is a very important global effort.

Happy to respond to some questions, Mike.

QUESTION: .... It almost looks like you are trying to tell people in currency markets that your move yesterday was a one off event. Can you tell us what message you are trying to send with this because in the past the G-7 has said with regularity that things like currency should reflect economic fundamentals, points that you stressed after the G-7 and others intervened on behalf of the dollar and intervened on behalf of the yen?

SUMMERS: I think the statement speaks for itself and I don't want to add to what it says. I'm not sure that careful readers of the statement would accept your characterization of it.

QUESTION: What is a level of oil prices that is consistent with lasting global economic prosperity. If you can't give a figure, a range perhaps. And, can you elaborate on the phrase "potential implications of recent movements in the Euro for the world economy"?

SUMMERS: On the second the language, I think, speaks for itself. I don't have anything to add to it. On the first question, I don't want to give a numerical range, but I think its clear from statements that have been made by many governments that this is a reference to the idea that prices should return to a more historically normal range. Of course, that is an objective that has been set by OPEC as they provided a range in the announcements that they have made.

QUESTION: .... In terms of oil again, is there any thought of a new approach looking at coordination between a body like G-7 and OPEC given that what we are now seeing is something that has actually happened, not with great regularity, but with some occasionally in the past. Is there any way you can get G-7 working together with OPEC in a better way to prevent in the future this sort of near crisis situation?

SUMMERS: I certainly think that cooperation between consuming countries and producing countries is an important issues and I expect that over the course of this meeting there will be quite a number of contacts between consumer and producer countries. There have been quite a number of contacts among energy officials in consumer and producer countries, but the idea of an explicit forum between G-7 and OPEC was not the focus of the finance ministers discussion this afternoon.

QUESTION: I promise not to ask a question drawn from the communiqu��language on the exchange rates, but I do want to ask about the Euro.

SUMMERS: You may find yourself back towards the communiqu��language.

QUESTION: Well, its about U.S. policy rather than about the communiqu�� it's about the United States. After the intervention yesterday, you repeated the time honored formula that U.S. policy had not changed and was in favor of a strong dollar. That appeared to contradict the U.S. Government action yesterday in selling dollars to weaken the dollar and strengthen the yen as part of the context of intervention. How do you reconcile a statement that U.S. policy still reflects desire for a strong dollar with the U.S. Government action aimed at weakening the dollar and strengthening the yen, which is true, and how do you reconcile them?

SUMMERS: As you ask the question you made several references to the yen which I suspect as you said yen, you either misspoke or I was . . .

QUESTION: Sorry, I was talking about the Euro, did I say Yen?

SUMMERS: Yes

QUESTION: Oh, Euro, sorry -- no yen references -- all about the Euro.

SUMMERS: Alan, I don't think there is any contradiction for reasons that I suspect are reasonably well understood by people in this room, but I don't want to go beyond the statement I made yesterday in the language of the communiqu��in addressing that issue. Mike?

QUESTION: This is your last G-7 meeting as a member of the Clinton cabinet. Without speculating what might happen to you in January, what do you wish you had achieved in the international economic diplomacy field that you haven't been able to do?

SUMMERS: You know, Mike, I think that as you look at both the situation of the global economy and you look at the international financial architecture now and compare it with where it was in 1993 I think it has changed in some very fundamental ways. Obviously the position of the United States in the global economy has changed quite dramatically as the American economy has strengthened and performed well. I think the salience of emerging markets and the role of emerging markets in the international system is much greater than it was. I think we have made important progress in adapting the international institutions to the reality of private sector capital flows as the largest source of finance to developing countries. I think over this period the finance ministers have come to take a much greater interest than they had in the past in the development challenge for the poorest countries that re ally are dependent on concessional assistance and the international assistance. So, I think I'm very comfortable with the directions that the system has been moving in. As always, one only wishes that the movements could have been more rapid and could be more rapid towards a more balanced pattern of global growth towards an international architecture that recognizes the special salience of financial markets issues and focuses on reducing vulnerability to panic type crises as a central objective towards moving with greater rapidity to be able to do more in ways that actually work for the poorest countries. I think that one only wishes that you had more rapid and balanced growth in the industrialized world even as we are looking a period of very good global growth by historical standards. That one had a framework that could sustain larger flows of capital and therefore more growth to the emerging markets. We are all in a position to be doing more for the poorest countries, in particular for the poorest countries where AIDS is so salient a threat. Yes?

QUESTION: Secretary, a two part question please. A finance official this morning told us that he thought the Group of 20 (G-20) was the future not the G-7. What are your own thought on that? And second, who is to blame for the slowness of HIPC? Is it simply the Fund and the bank, the countries themselves, or could it be some of the governments that have insisted on these poverty reduction framework papers being so specific?

SUMMERS: With respect to the G-7 and the G-20, I expect for quite some time to come those two groups will have complimentary roles in the international system. As a group of major creditor nations and nations that are together major sources of finance for the international institutions, I think the G-7 will have a continuing role in thinking about their policy, and as the major economies and the major currencies in the world, I think they will obviously an important role in carrying on mutual surveillance of each others economies and cooperating with respect to the issue of global growth. At the same time, if you look at what has happened over the last eight years with the formation of the G-20 with the establishment of, the strengthening of the International Monetary and Financial Committee, with the establishment of groups like the APEC Finance Ministers and the Hemispheric Finance Ministers, with a much more active roll the finance ministers have come to take with respect to transition economies, the international financial issues have become truly global over the last eight years and I think the G-20 is an important reflection of that so having a group like that is of enormous importance. I don't think it is a question of one or the other.

With respect to debt reduction, I think the greatest priority in terms of moving debt reduction forward is assuring that as many countries as possible are able to carry through on establishing the necessary conditions to assure the resources will be used well. It has to be encouraging countries to take the necessary steps that is the greatest priority in accelerating the initiative. The institutions need to be constantly vigilant to assure that they are not delaying the process in any way. There have been a variety of steps taken to streamline their participation such as development of a new more integrative facility at the World Bank as a parallel to PRGF. While the procedures and details can always be refined, I think the emphasis that Jim Wolfensohn has put and that Michel Camdessus put on assuring that civil society participated in the debt relief initiative by calling for the development of strategy papers that brought together different elements of society is very, very welcome and constructive. Steve?

QUESTION: In your opinion, obviously not a fact question, but in your opinion, do you think that oil prices at this level threaten recession in the industrialized countries in any timeframe, say in the next two years?

SUMMERS: I think oil prices are perhaps the largest cloud in the relatively blue sky of the global economy. But I believe that the fundamentals for continued expansion in the global economy remain quite good. Seeing oil prices fall would certainly maximize the prospects for continued global growth. Yes?

QUESTION: I'm with the Australian Financial Review. I would like to as you a question about other currencies and the Euro. The Australian Dollar has plunged with the Euro. At first there was no link, but with the Australian Dollar in recent weeks sort of tracking the Euro, the markets have seemingly decided that there is a link, and in fact it is called the Pacific Euro at the moment, my question to you, if I may, is that when you made your decision to join with the other banks on this joint intervention on Friday did this sort of knock on affect on currencies like the Australian Dollar around the world, obviously representing much more economies, but did that at all play any part in your thinking in deciding now to get involved.

SUMMERS: Obviously the entire global situation enters into judgments of this kind. As the statement indicated we joined at the initiative of the ECB which was concerned about the currency that it was managing and we did it because we very much share their concerns and those concerns were, as the statement recognized, shaped by the implications of what was happening for the entire global economy. Yes?

QUESTION: Would you describe yesterday's intervention as successful given that the Euro fell back again? And how likely is it there will be further intervention soon?

SUMMERS: Second question, you won't be surprised at all on my unwillingness to comment. We never get into to talking about our intentions. With respect to the first, I don't think it's helpful to characterize the results of the intervention. I think one can look at what happened in the market and people will draw their own conclusions.

QUESTION: You mentioned the G-7 welcomed U.S. move to release some of its oil reserves. In your opinion, what other steps can the G-7 as a group take to rectify the situation in the oil market and did you get any sort of commitments from other G-7 members to that affect?

SUMMERS: We were not engaged in an attempt to seek commitments from one another. As the statement indicates each country would, and we would certainly keep in touch, consider the policy options that would be most constructive around the various kinds of issues that have been discussed in the United States in terms of providing compensation and in terms of making available reserves, in terms of encouraging increased supplies, in terms of promoting energy efficiency, in terms of taking steps to alleviate bottlenecks, and I think there was a feeling that each of our national actions taken collectively could make a useful contribution and we would want very much to stay in touch as the situation evolved. Steve?

QUESTION: You were reported as having been opposed to the release of stocks from the strategic petroleum reserve. What's happened in the intervening period to make you change your mind on that subject?

SUMMERS: I'm not going to get into commenting on advice that I've given. I will say with respect to the action that was taken as the G-7 countries recognized I think it was certainly a constructive step reflecting a careful attempt to respond to pressures in the oil sector that have gathered over the last time period. There have been manifest not just in price but also in concerns about absolute scarcities and indications of anticipatory purchasing and other types of hoarding behavior that represent a source of instability. In light of those concerns, as a precautionary step the limited use of reserves on a swap basis was the action that was taken.

QUESTION: ... Was there some sort of understanding between you and the European members of G-7 as for what exchange rate between dollar and Euro will be ideal?

SUMMERS: I don't have anything to add on exchange rates to what is in the communiqu�� Yes?

QUESTION: ... Mr. Secretary, you spoke in your statement about a more balanced pattern of global growth now emerging. Where do you see that balance emerging in relation to the last time the G-7 met because a number of private economists are forecasting the U.S. to continue growing at a faster pace than Japan and Europe for some time to come. And secondly, you also talked about wide spread recognition in Europe of the need to press ahead with structural reforms. Do you see any cause for optimism that recognition will translate into action, and if so, where?

SUMMERS: With respect to the pattern of growth, if you look at developments in Europe and Japan I think its fair to say that there are indications that the pattern of growth will be more balanced in the future than it has been in the past, a more balanced pattern of growth. With respect to structural reform in Europe, it is a country by country situation, but if you look at a number of developments in capital markets and a number of fiscal developments there are clearly steps that are under way, but as our European friends very much recognize there is a great deal that is desirable to do.

Thank you.

(end transcript)