*EPF410 08/19/2004
Transcript: Global Growth Steady Despite High Oil Prices, U.S. Says
(Treasury's Taylor cites low interest rates, absence of major crises) (5960)

The global economy has enough momentum to continue growing despite high oil prices, U.S. Treasury Undersecretary for International Affairs John Taylor says.

In August 19 remarks to reporters at the State Department's Foreign Press Center in New York, Taylor said "it certainly would be better if oil prices were lower," but emphasized that the current global economic expansion "has a lot of sustainability to it" even amid rising energy costs.

Taylor noted the absence of major financial crises in the world, low global inflation and narrowing credit spreads -- the difference between the yields on corporate bonds and government bonds -- in emerging markets.

"Virtually all the economies in the world are growing in a sustainable way," he said during the briefing, which was broadcast simultaneously in Washington via digital video link.

Taylor said that Japan's economy is expanding for the first time in more than a decade and China continues to grow, though at a slower pace than in recent years. In Latin America, he said, Brazil, Chile and Mexico are showing signs of economic strength and Argentina remains in recovery after defaulting on its sovereign debt in December 2001. Russia and much of Europe and the United Kingdom see their outputs growing and "France is beginning to pick up," Taylor said. He said, however, that Germany's economy remains "sluggish."

Overall, he said, "we are now in a situation where we have a greater degree of stability without these crises, and that's a good sign for the future."

With respect to the Middle East, Taylor said that greater economic freedom would help create growth and political stability in the region.

"I wish economic growth in the Middle East was higher," he said.

Finance ministers from Middle Eastern countries have been meeting with U.S. officials and their counterparts from the Group of Eight (G8) industrialized countries to discuss policies that would create more entrepreneurship in the region, Taylor said.

"There is an effort underway ... to find ways to create new jobs and improve education, learn from the success stories in the region and promote more economic freedom," he added.

Following is the Foreign Press Center transcript of the briefing:

(begin transcript)

FOREIGN PRESS CENTER BRIEFING WITH JOHN B. TAYLOR, UNDER SECRETARY FOR INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF TREASURY

TOPIC: REVIEW OF GLOBAL ECONOMIC GROWTH AND DEVELOPMENT ISSUES
THE NEW YORK FOREIGN PRESS CENTER, NEW YORK, NEW YORK
11:00 A.M. EDT, THURSDAY, AUGUST 19, 2004

MS. NISBET: Good morning. I'd like to welcome the Department of Treasury's Under Secretary for International Affairs, John B. Taylor. It's always a pleasure to have him back. He's here to talk on global economic growth and some updates.

After his remarks we'll take questions. We'll start with Washington, and then we'll come back to New York. Thank you. Dr. Taylor.

UNDER SECRETARY TAYLOR: Okay. Thank you very much and thanks for coming. Kim communicated I wanted to touch on some things in the global economy, which I think are important to stretch -- to stress at this point in time. The -- right now, we're in a situation globally where virtually all economies in the world are growing. It's a good sense of growth, too, because it's, it's a sustainable type of growth that we've seen. And if you go around the world and observe this, I think this -- it creates a theme, which is important to understand. First, you look at Asia. You have -- Japan is growing in a sustainable way for the first time in a dozen years. The forecasts for 2004 are still around 3.5 percent for Japan. You have -- of course China continues to grow at a little more -- a slower pace, which many had hoped would occur. And so China's growth is still strong, and much of Asia is the same way.

If you look at Latin America, you have -- growth in Brazil is strong, in Chile, in Mexico. Argentina remains in its recovery from its slump of several years ago. So Latin America as a whole is doing well. You have -- Russia continues to grow. You have much of Europe -- Scandinavia, the UK is growing, and France is beginning to pick up. Germany is still quite sluggish, as you know. But otherwise, the world economy is doing very well. There's a -- right now, a sense in which this growth is, I think, more sustainable than it's been in the past. And one way to think about that greater sustainability is that right now we're in a fortunate situation where there are no major financial crises anywhere, the -- unlike in the 1990s where we had a crisis in Latin America, crisis in Asia, crisis in Russia, we are now in a situation where we have a greater degree of stability without these crises, and that's a good sign for the future.

We also have a situation where the Emerging Market Spreads are down considerably, and that's despite the fact that interest rates have begun to rise in the United States and other countries, at least for the short end of the Yield Curve. So I think it's important when you're looking at the world economy -- looking at the factors such as the oil price increases -- to put that in the context of a very stable, continuing, sustainable kind of expansion. And from the United States' perspective, of course, the United States' economy is continuing to grow. It's in a sustainable expansion: ten quarters of growth in this expansion already. Jobs are being created. We'd like more jobs to be created in the United States, but the President's policies with respect to the United States are part of this very important world expansion. But so are the good policies in other countries: in Latin America, Turkey, and Asia. Japan, in particular, has changed the policies to bring this important recovery about. So, that's one thing I wanted to emphasize in my opening remarks. I also wanted to touch on two other issues, which I think are worthy of note right now. One is the developments in the financial and monetary sector in Iraq. This Monday, this -- Monday of this week, for the very first time, the Central Bank of Iraq's Board of Governors met, basically the meeting of the Board of Governors to determine monetary policy. The Governor of the Central Bank, Governor Shabibi, of course, chaired this meeting. It's a significant event because here you have a Central Bank established with a new central banking law, which is now actively conducting monetary policy. At the same time, Iraq is moving ahead with an IMF [International Monetary Fund] program. Negotiations are underway, and we're very hopeful that that program can be completed in the month of September.

And so, in terms of the financial sides of things that we have been working on with Iraq, there are some important events to be stressing. And we continue to work very closely with the new government under the leadership of Prime Minister Allawi on these financial issues.

The third thing I wanted to mention is the active progress in the area of economic developments that's taking place. The Millennium Challenge Account is up and running. There's -- 16 countries were chosen to get financial assistance: 8 in Africa, but in Asia and Latin America, as well. The teams are -- of the Millennium Challenge Account staff -- are out in the field looking, beginning to assess projects, and making decisions about how the $1 billion of funds will be used. And so, things are underway there in a very important way. That's a major part of President Bush's foreign assistance strategy, as you know. But in addition to that, the World Bank is beginning to scale up its effort to make grants for the first time in its history -- substantial amounts of grants, rather than loans, to Africa and poor countries in Latin America and in Asia. We've been monitoring that closely, and it's very successful. And we would like, in the negotiations, in the future with the World Bank to have even more of the assistance in the form of grants, because it's been very well received by the recipient countries. It's really making a difference, and of course, it's dealing with these debt issues that continues to be a problem for many, for many poor countries. So the foreign assistance part of the President's foreign policy strategy is moving along very well, whether it's with respect to Africa, Latin America, or Asia. So let me end with that and then take your questions. Thank you.

Q: Kaori Iida, NHK, Japan Broadcasting Corporation. I have a question on the upcoming G-7 [Group of Seven] meetings. I was wondering if China will participate in the Mexico meeting. If so, will they have full participation, or will they be an observer? Thank you.

UNDER SECRETARY TAYLOR: Well, there's ongoing discussions with China and their participation in the G-7 meetings. It -- the event is not fully planned out at this point in time, but things are coming together. And China's participation would be, if it occurs, would be as part of the broader meeting, and to focus on the global economic issues. The -- of course, China, being a large player in the world economy, and its growth is a significant part of any discussion of the world economic outlook.

So plans are coming into place on that. I think you'll have to stay tuned for exactly what the participation will be and when it will be, but we're engaging in the United States quite extensively with China on their economic issues, pressing the issues such as the Flexible Exchange Rate, because the United States would like China to move the Flexible Exchange Rate for the good of China and the good of the world economy. And so we're continuing to stress that it's very important and -- but there's a lot of engagements with China. That's one of them, one of the engagements, which is still under discussion.

Q: Laura Bonilla of AFP.

I wanted to ask you what you think (inaudible) if Argentina (inaudible) with the IMF.

UNDER SECRETARY TAYLOR: Well, I think that it's important for Argentina to stay in close contact with the IMF so the -- while the formal negotiations on the third review will be postponed until later in the year, a continued engagement is important. I also think it's very important as Argentina moves ahead is the focus on the debt restructuring and to get that -- get a settlement behind them and their creditors because that will enable Argentina to grow in a more sustained way. I'm very pleased that Argentina is making progress on the macroeconomic side, the monetary policy on the fiscal side. But as they have taken this opportunity to move the third review of the IMF into the future, I'd very much hope it gives them the opportunity to negotiate with their creditors and come to a good solution, get it behind them, and that's in the interest of Argentina, and the global economy, for that matter, so Argentina can continue to grow.

MS. NISBET: Okay. We'll now take questions from New York. Please state your name and affiliation and wait for the mike. Sir.

Q: Arturo Zampaglione with La Repubblica Italy. I was surprised by what you said about oil. Aren't you underestimating the impact of the oil price on this sustainable recovery, sustainable growth that you were talking about? Do you think that it's possible to continue growing with $50 a barrel, the price of oil?

UNDER SECRETARY TAYLOR: Well, certainly, it would be better if oil prices were lower for the global expansion. But what I am emphasizing here is that the global expansion has a lot of sustainability to it, it is global, and the -- it will continue. It has the momentum to do that even with higher oil prices, as we are seeing now. But it is important to try to find ways to bring those prices down. I think, ultimately, if we could focus on the supply side, additional resources for oil and other forms of energy, we would be able to prevent these kinds of episodes where oil prices become high. And that, of course, does have impacts on the economies. But what we have found over the years is that the United States' economy; other economies are more resilient to higher prices of any kind. Inflation rates are low. They're remaining low. That's a greater degree of -- that creates a greater degree of sustainability in the world economy. And what I'm emphasizing here in terms of the global sustainability, if you like, is that there are a lot of positive things about the world economy that are occurring as we're seeing these oil prices and assessing the impact of oil has to be in that context of the good things. Just -- if I could just remind you what they are.

You've had virtually all economies in the world growing at not at an excessive rate, but a sustainable rate. You don't have a major financial crisis at this point in time, which is fortunate. We need to be vigilant, but it's there. You have Emerging Market Spreads which are down considerably, so that makes interest rates much lower than they've been for a while, a long time, in emerging markets. And you have this inflation environment, which is very benign. And all those things have to be put in place when you consider the impact of higher oil prices; of course, it would be better if oil prices were lower. Yeah, you're fine here.

QUESTION: Hi, Terry Wade from Reuters.

Now that Argentina's suspending this review of the IMF, will the United States Government be putting more pressure on them to settle with debt holders?

UNDER SECRETARY TAYLOR: Well, the United States has made a point of stressing the advantages to Argentina to get the settlement with the creditors done. We have also made a point of not getting in the middle of the negotiation. This is something for Argentina to work out with their creditors. The IMF program provided a framework for this. It provided a framework with respect to what the support would be from the IMF, with respect to what the range for the primary surplus should be and with respect to how the negotiations should be done in good faith.

So that's the framework, which I think is a good framework, and Argentina is best to abide by that framework, but it's important for the United States to point out the advantages of settling this for the people of Argentina, for the people in the region, but not get into the middle of which -- which side should be giving what. And we'll try to continue to be in that mode, and wish Argentina well in settling this soon, and encourage them to work with the creditors in a way which is transparent and open and clear to people, and we're very much expecting and hoping that that will happen. Yes.

Q: Choongo Moonga, Incisive Media, United Kingdom. Are there any special requirements to be met, when looking to fight money laundering and terrorist financing for the beneficiaries of the Millennium Challenge Account?

UNDER SECRETARY LARSON: The criteria for the Millennium Challenge Account are laid out in the Millennium Challenge Account literature and on the website. It's the -- one of the most transparent methods of providing foreign aid I know of. And it includes measures such as what the inflation rate is, what's the monetary policy, what fiscal -- is it a good fiscal policy, good monetary policy? Is it a policy that encourages international trade? Is it a policy that encourages economic freedom generally? And there's a whole other set of categories that are put in place to encourage education, encourage good health care, have a good attitude with respect to those, and then, finally, the things that are related to political freedom and civil liberties. And the indicators we have for those are publicly available. Actually, they're done by independent groups outside of the U.S. Government, and that's what we look at to determine about the foreign assistance.

Now, on terrorist financing, terrorist financing is a very high priority to stop for the United States. We have an extensive set of international agreements and put some policies in place to combat terrorist financing. And as a result of those policies, we've been able to freeze over $140 million of funds, and actually disrupt a lot of the terrorist financing capabilities and networks. We need -- we got a lot of cooperation on that. Actually, I think the cooperation in that area is one of the best examples of international cooperation and financial diplomacy working that we've had for a long time, for many decades, actually. Countries came together, first the G-7 and G-20, and now many, many countries around the world are participating.

So we want to continue to stress that, whether it's a country with Millennium Challenge Account or not. And again, a large part of our activities in this area at the United States Treasury, at the Department of State, are to forge the alliances and to provide a better capability for countries to deal with the terrorist financing. One of the things we need to do is, countries that don't have the technical capabilities or the financial expertise, is to provide technical assistance, and there, the IMF and World Bank are working to provide a framework for the technical assistance, and of course, the United States is providing technical assistance to many countries to establish financial intelligence units or to find ways to effectively freeze terrorist assets quickly, moving towards a world when a terrorist financier is identified, that person's assets can be frozen globally so there's just no way to get the -- to move the funds in the financial system that can be escaped from. But there's still more work that needs to be done: courier services, informal cash transfers, and -- but it's a very, very high priority for President Bush, one in which there's a lot of successes already in freezing the assets, but one in which we need to keep working at. Yes.

Q: Gwang Chul Go, Korea Economic Daily newspaper. Would you explain about your policy on foreign -- free trade agreement with Asian countries? What kind of countries are you negotiating with, and are you going to negotiate? Or are you interested in a Korea free trade agreement?

UNDER SECRETARY TAYLOR: I'll have to defer a lot of that question to my colleagues in United States Trade Representative office, but of course, you know we have a successful free trade agreement with Singapore, which is already enacted into law. There's a free trade agreement with Australia that is -- is signed. There's a discussion of a free trade agreement with Thailand. And with respect to -- and of course, there's a free trade agreement with Chile, a free trade agreement with Morocco, and the United States is very actively providing a lot of efforts to negotiate free trade agreements of this kind. With respect to which countries in Asia, it's something that -- you would be better off asking that question right now to get the current state of play from USTR [United States Trade Representative].

I would add something, though, that is important, and that is the progress that was made just a few weeks ago with respect to the Doha Development Round, and we now broke forward in a way that there's a framework under Ambassador Zoellick's leadership, President Bush's leadership, to have a real serious Doha Development Round. They've got the framework agreed to, and now the technicians are going to be working on the details of the numerical magnitudes of the reductions and subsidies to agriculture and other areas. So I think it's very good news on the trade front, and again, I think, another example of the successful financial diplomatic efforts understand President Bush's leadership.

Yes.

Q: Greg Brosnan from Reuters.

What are the financial challenges that we will se in Venezuela when oil prices start falling?

UNDER SECRETARY TAYLOR: Well, the financial challenges in Venezuela are there whether or not oil prices fall, and that is to move back to a more market-oriented, less interventionist approach. Unfortunately, although Venezuela is recovering now, with oil prices what they are, the growth in Venezuela has been very disappointing in the last three or four years, and I'd certainly compare it to other countries in Latin America. And I think that can be traced to the policies, which are more interventionist and more government oriented, rather than market-based encouraging entrepreneurs, encouraging the private sector. So no matter what happens, pretty much just like any other country, we would encourage the Venezuelan economic authorities to follow the policies that work and are working in the region. Yes.

Q: Safie Deyab, Egyptian TV My question regarding, you know, the economic growth in Egypt and Middle East area. What do you think about it now?

UNDER SECRETARY TAYLOR: I wish it were higher. I wish economic growth throughout the Middle East was higher. The real promise, I think, that's occurring in the diplomatic area is to move to policies in the Middle East which are going to encourage faster economic growth, and there is an effort now underway that -- it's called the "Forum for the Future," which entails the finance ministers from the Broader Middle East countries, from Morocco, all the way through the Gulf, and to Afghanistan, Pakistan and up to Turkey. There have been meetings of them with the G-8 countries. They met in Washington last spring; that group is going to meet again in Washington in September. There is also a effort underway to have the Forum for the Future, which combines the foreign ministers and the financial ministers, the finance ministers, and that is all focused on trying to find ways to create jobs for people, improve education, learn from the success stories in the region and promote more economic freedom. So I think those are all good things and it will lead to higher growth. And we see from the region a lot of interest of this on the economic side, all over the economic officials I deal with are very interested in trying to put in some reforms that they want to do, which I view are all positive for economic growth. And that's basically encouraging more entrepreneurship, improving education, things that create more jobs and jobs at higher wages. And that is important for economic stability but also for political stability in the region. So we're working with that, encouraging it, providing whatever ideas and assistance we can. And, hopefully, that will lead to faster growth.

Yes.

Q: Outi Toivanen-vista with Talentum Media, Finland What kind of affect has European Union enlargement has had to U.S. economy so far?

UNDER SECRETARY TAYLOR: I think the enlargement is so recent that the impact on the U.S. economy is small at this point in time. I think the impact on Europe is good. The policies of the countries that have joined the European Union -- Poland, Czech Republic, Bulgaria -- are very market-oriented. They have, I think, a good influence on what many Europeans want to do anyway, which is move towards more flexibility, towards more emphasis on markets, and I think that is -- that enlargement of the European Union is beneficial, at least in that respect.

Of course, it's beneficial to have a reduction in trade barriers that enlargement implies because a reduction in trade barriers means there's more trade within Europe and, ultimately, will make Europe a faster growing economy. The economies that are joining Europe are growing more rapidly than the economies that are already in the European Union, on average. That's a positive thing for the countries that are in Europe.

So I think it's a positive thing. The impact on the U.S. economy will be something that will be felt more over the years. It is, I think, another example, though, of the kind of things you look for to have a more sustainable world economic recovery, if you like, so some of the policies and the higher growth rates in the new countries in the EU spill over to the existing countries.

Yes.

Q: Itsuro Umemoto, Jiji Press, Japan

What should the future state of the China in G-7 be?

UNDER SECRETARY TAYLOR: Well, as Secretary Snow has emphasized, in a question like that, as China grows and becomes more and more significant in the world economy, there needs to be more engagement with China and the other large economies in the world, and so that engagement can naturally occur through the G-7 in various ways.

By the way, there already is a tremendous amount of exchange with China and the United States, and I know with China and the other members of the G-7, and so now we need to think of ways for China to participate more in those discussions. The exact way that's going to occur, it will be clear when the IMF-World Bank meetings occur. So I would say, you know, stay tuned, as we get closer to those meetings to find out the details.

But there is definitely a great interest in further engagement with China so they can understand some of the issues we're raising. The G-7 has indicated that it's important for countries that do not have flexible exchange rates, but who are very large, to move towards flexible exchange rates. That's the language from the communiqués of the G-7 for the last year. So that's the kind of message that it's important for China to understand, as it engages with the world economy, as it becomes a major, more and more, a major player. So, and then there is the monetary policy and fiscal policy issues which -- for which the policymakers themselves can benefit by discussing with other policymakers, so very much looking for more participation and discussion with China in all kinds of international fora. One last thing on this question: China is already a member of what the finance ministers and Central Bank Governors call the G-20 [Group of Twenty], and that includes the G-7s, and it also includes India and Brazil, and Mexico and China, and Turkey and Saudi Arabia.

There's a -- G-20 countries was established in 1999, I believe, and that's a very good forum for engaging with China. But that's not going to be the only engagement. Start right here.

Q: Maria Cometto, Coriere Della Sera, Italy. You said that one of the positive things in the current global economic situation is the fact that no major financial crises are anywhere. But many analysts are afraid of the impact of hedge funds on the financial markets and some of them say, also, that the hedge funds are having a big role in speculating on oil prices. What do you think of this? Is it an over-evaluation of their strengths? And what do you think about the proposals of regulate them more?

UNDER SECRETARY TAYLOR: I think there is -- of course, there is many, many more hedge funds than there used to be. There is more competition amongst the hedge fund. I don't see them particularly a driving force behind any speculative movements. I think the flow of funds into emerging markets has picked up since the low points a few years ago, and then Emerging Market Spreads have come down, as I mentioned. So whether it's hedge funds or other typed of investors there is more flows going into those markets, and that's one of the reasons why the rates have come down. So I can't really -- I wouldn't focus on any one group or type of investors, with respect to speculation or hedging in that respect. And I think with respect to the regulatory issues, I'd just, I won't comment on that one.

MS. NISBET: I think we have time for about one or two more questions.

UNDER SECRETARY TAYLOR: Yes, please.

Q: Isabel Lafont, Expansion daily paper, Spain.

There are still economies that are pointing to the fact that in absence of any tax cuts (inaudible) and in absence of an expansive monetary policy that American economy may have run out of growth hedging, do you share that view and in that case where would that growth come from?

UNDER SECRETARY TAYLOR: Well, it's very important not to reverse the tax cuts that have taken place. It's very important to follow President Bush's proposals to make the tax cuts permanent, so and as those tax cuts remain permanent, they have put in place the lower marginal tax rates that will encourage a longer term sustainable growth. So you are now, as the economy recovers and move towards its steadier, sustainable level, then those tax cuts, if they're in place, they do create the longer term growth that you need. It's really where it's encouraged most small businesses to create jobs, encourages productivity growth, which is the way that our economy will grow in the future. So that's the first thing with respect to that. I think the other thing with respect to monetary policy -- there is a sense right now in which monetary policy still has a stimulative force in the economy and of the United States, of Europe, of Japan. And so that's a positive force for growth at this point in time. And the reason why it's a positive -- it's still a positive force for growth, and I think will continue to be, is because inflation is so low at this point in time. And that's -- that is no -- as the Bank of Japan has indicated, that it has no intention of raising interest rates until the deflation is clearly conquered, and that makes the monetary policies positive, a positive force in most of the world right now for a continued recovery.

MS. NISBET: Thanks. Right here.

UNDER SECRETARY TAYLOR: Yeah. Thank you.

Q: When you talked about China, you immediately followed with the G-7 statement about floating currencies. Is that -- is the U.S. position that China must do that before you support their entry into the G-7? Is that a test for them?

UNDER SECRETARY TAYLOR: No, it's not a way to think about it. The entry into the G-7 meetings or discussion with the G-7 ministers and governors, with the Central Bank Governor and Minister of China, those are things that can benefit the world economy in China, benefits the United States by having a better engagement. It's actually a -- the kind of forum where you can express these views candidly, the ministers can express the views candidly with their counterparts.

So it's -- whether it occurs before or after is -- doesn't matter. I think that engagement, we're going to go towards that kind of engagement, as I was saying before, sooner rather than later. I can't say exactly when, at this point, but it's certainly not something that would be contingent on it. But I would say that we continue to feel, and the G-7 continues to feel, as it demonstrated in those communiqués, that it would be advisable for China to move to a Flexible Exchange Rate. We continue to press that, very serious point for us to stress. And speaking from an economic point of view, we believe it's very important for China to do that for China's own benefit.

MS. NISBET: We might have time for one more question, as long as it's something that may be about the topic of what's formally being discussed.

Q: Thank you. You took my Emerging Market Spread, so I wondered, with U.S. interest rates on their way up, how much further do you think they can narrow? And as they do, will the countries that have the lowest spreads, Mexico and Chile, for example, will they start finding it more difficult to get people to buy their bonds and issue them?

UNDER SECRETARY TAYLOR: I think we've already seen some evidence that is consistent with the view that you won't see as a big an increase in spread as many had forecast or worried about when interest rates began to creep up in the industrial countries. There was, in the spring of this year, a lot of talk about spreads widening, and they did a little bit for a while, but some of them have come back down again. And I think that's already indication that the communication the central banks are providing about their intentions, the fact that the spreads came down, largely because of the policies in the countries, you know, take Brazil, for example, Lula administration, Minister Palocci took on policies that were sound on the fiscal side, and of course on the monetary side. And when the markets saw that, the spreads came down. That had little to do, if anything to do, with interest rates in the rest of the world.

So if the -- if countries, like Brazil, other emerging market countries continue with those good policies, I think there's every reason to expect that spreads will stay low, maybe not as low as they are now, but certainly not at levels that would be a drag on what they're trying to do or the kind of things that would cause significant tensions in the world economy. And there's also other factors that I think will cause spreads to go down and stay down in countries that are following good policies, and that is that investors have tended to be more differentiating in their views, looking at the policies in one country, compared to another, and that had reduced the amount of contagion that has occurred. In the Russian financial crisis in '98, there was a tremendous amount of contagion. You had the Tequila Crisis and contagion. In the Argentina default in December of 2001, there was virtually no contagion. And I think that's a very good thing with respect to markets, and if you have very little contagion, that automatically reduces the number of crises you're going to get because the crises don't spread. And I think that if we continue to be vigilant in the policies, and the emerging market countries continue to move in the good direction, we work on the flexible exchange rates, continue with that, that there's every reason to expect the contagion will remain low. But it's like everything in financial markets. You have to keep watching it.

Q: (Inaudible.)

UNDER SECRETARY TAYLOR: Their spreads are due to the policies they're taking. I think one lesson -- that's one lesson you can learn from Chile and Mexico is how other countries in the world, if they follow these same kinds of policies, they can also get lower interest rates. And those lower interest rates, whether it's in Africa or other parts of Latin America, will be greatly beneficial for growth in those countries. It's terrible to have, you know, interest rates of 20 percent or even higher in poor countries, which is, obviously, it's a significant tax on the poor people in these poor countries. So if the countries can follow these policies that lead to lower spreads, it's a great benefit to the people in the countries.

Thank you very much.

MS. NISBET: Thank you, Dr. Taylor. The transcript should be up on the website, probably in an hour to four hours, depending on how busy they are in transcripts. Thanks.

(end transcript)

(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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