IMF Can Help Fight Terrorism, Instability, O'Neil Says

(But Treasury secretary says institution needs more focus,
credibility) (1450)

Multilateral financial institutions can play an important role in the
fight against terrorist financing and money laundering, U.S. Treasury
Secretary Paul O'Neill says.

In an April 20 statement at the spring meeting in Washington of the
International Monetary Fund (IMF) policymaking body, O'Neill said the
Fund and the World Bank can help to develop, within the limits of
their mandates, a "unified, comprehensive and integrated approach" to
assessing recommendations on fighting financial crimes.

Although the work toward this goal is not finished yet, O'Neill said,
"we are near the finish line."

Citing upbeat news about the economic recovery led by the United
States, O'Neill expressed optimism about the potential for global
expansion in the near future. But he added that more than one engine
of growth is needed, and that "downside risks remain."

The IMF plays a key role in promoting economic growth and protecting
financial stability, O'Neill said, but member-countries need to equip
it better so it does this work effectively. And the IMF itself needs
to gain credibility in these areas to ensure that its advice is
heeded, he added.

O'Neill called for more transparency in the IMF's dealings, because,
he said, even the best policy and advice will have limited impact if
the institution does not inform the public and markets better.

O'Neill welcomed new ideas and approaches to sovereign debt
restructuring proposed by the IMF and others. But he emphasized that
it is important to take practical steps to increase predictability and
provide for more orderly restructuring before these ideas are fully
explored.

O'Neill said that one such step, a broader use of collective action
clauses in new bond and other debt contracts, proposed by the United
States, is in the interest of the international community. But he said
this could complement, rather than replace, work on other proposals.

IMF Deputy Managing Director Ann Krueger has proposed a legal
framework for dealing with sovereign debt that would facilitate an
agreement between a debtor country and its creditors. Such agreements
would be legally binding on all creditors.

Following is the text of O'Neill's statement as prepared for delivery:

(begin text)

The Department of the Treasury
FROM THE OFFICE OF PUBLIC AFFAIRS

STATEMENT OF TREASURY SECRETARY PAUL H. O'NEILL
AT THE INTERNATIONAL MONETARY AND FINANCIAL COMMITTEE MEETING
April 20, 2002

Today we meet amid a global economic climate much improved since our
last meeting in November. We have much to be thankful for, including
our solidarity in combating the scourge of terrorist financing and the
clear recovery now underway in the world economy, led by the United
States.

Combating Terrorist Financing

Our principal focus at our last meeting was to begin a process to
eliminate the flow of funds that finance global terror. The unity with
which the international community has tackled that goal in the
intervening months is heartening. Such efforts have brought
significant progress to date in severing links that terrorists use to
finance their activities. But there is much to be done. Since
September 11, the United States and other countries have taken action
to block the resources of many individuals and organizations aiding
and abetting terror. Yesterday, the G-7 nations for the first time
jointly designated a list of individuals and an entity as financiers
of terrorists, terrorist organizations and those who support them and
will block their assets. This effort will be continued in the future
to increase the joint effectiveness of our actions. The United States
is extremely pleased to work with other concerned nations to help
ensure that enforcement of UN Security Council resolutions is
coordinated effectively. This is an important effort that has been
very helpful in addressing the scourge of terrorists, terrorist
organizations and those who support them around the world.

The IMF and World Bank are not law enforcement agencies, but
protecting the integrity of the international financial system is
among their foremost tasks. Thus, within the confines of their
mandates, they have a crucial role to play in the fight against
terrorist financing and in anti-money laundering work around the
globe. The United States commends the IMF and the World Bank for
developing an enhanced anti-money laundering and combating financing
of terrorism (AML/CFT) assessment methodology.

We believe this is a good step forward toward the essential goal of
developing a unified, comprehensive and integrated approach to
assessing the FATF [Financial Action Task Force of the OECD]
Recommendations on terrorist financing and anti-money laundering.
While there is more to be done before reaching a final agreement, we
are near the finish line -- and I hope we can complete this work
immediately. In addition, the institutions should also enhance their
analytical work on alternative payment and remittance systems,
including hawala and non-regulated financial systems more generally.

Promoting Global Growth

In the United States, positive indicators are piling up, and growth
projections for this year continue to be revised upward. Last
December, the IMF projected that U.S. growth in 2002 would be on the
order of 0.7 percent; the projection now is 2.3 percent. While some
risks remain, consumer spending and reduced inventory liquidation are
on track to keep growth strong in the near term, and other sectors
such as capital investment should provide extra support later in the
year.

North America is leading the global economy into recovery, after what
turned out to be a very mild downturn. But it is up to all of us to
pursue policies -- macroeconomic and structural -- that will speed the
upturn and sustain growth over the long term. More than one engine is
needed for the global economy. We cannot be complacent, since downside
risks remain. In particular, we need to keep a close watch on the oil
market situation.

Toward a More Effective IMF

Increasing economic growth and reducing instability are fundamental
challenges for us all, and the IMF plays a key role in achieving these
goals. Given the importance of these objectives, we simply must do our
best to equip the IMF to
be effective in carrying out its work.

The United States welcomes ongoing efforts to enhance crisis
prevention at the IMF. Greater focus on its areas of expertise and
higher standards for Fund programs are also key to ensuring that IMF
advice is heeded -- and that it builds credibility as a successful
instrument of growth and stability. Yet no matter how good the IMF's
analysis and policy advice are, their impact will be limited if they
do not serve to inform the public and markets. We look forward to
further progress on transparency in coming months.

Many have pointed out that no matter how hard we all work at
preventing crises, we must be prepared to manage crises that may
nonetheless occur. Tremendously important discussions are underway on
enhancing mechanisms for addressing sovereign payment difficulties. We
welcome the efforts by the IMF and many others to lay out new ideas
and approaches. As we explore these proposals, I think it is important
to move ahead with practical steps that can be taken now to improve
predictability and to provide for more orderly restructurings should
the need arise. This is why we have proposed that debtors and
creditors include in their contracts a comprehensive package of new
clauses that would help describe what would happen in the event of a
restructuring.

We believe that moving now to insert such clauses in foreign currency
sovereign debt is in the interests of the international community as a
whole and that incentives encouraging debtors and creditors to do so
should be explored. This could serve to complement, rather than
supersede, any further work on ways to improve the sovereign debt
restructuring process.

The difficulties faced by the poorest countries have been a key focus
of the international community this year, including at the Monterrey
conference. In keeping with the strong U.S. commitment to working with
these countries, President Bush has proposed a substantial increase in
U.S. assistance for countries that rule justly, invest in their
people, and encourage economic freedom. The IMF has an important role
to play in helping countries establish a strong macroeconomic policy
framework that provides the basis for increasing productivity and
achieving sustained, private sector-led growth. The last five months
have been marked by strong cooperation and a coming together of
international efforts on fundamentally important issues. We look
forward to continuing in this spirit as we work together in the IMF in
the months ahead.

(end text)

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Department of State. Web site: http//usinfo.state.gov)