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                  Office of the Press Secretary
                         (Naples, Italy) 

For Immediate Release July 7, 1994
                      BACKGROUND BRIEFING

July 7, 1994

Aboard Press Plane En Route to Naples

7:15 P.M. (L)

MS. MYERS: We're going to do this on BACKGROUND. The following briefing will be on BACKGROUND. Just to briefly give you guys what's going to happen, what the President is going to be doing between now and tomorrow night.

He will arrive tonight; he has no scheduled events, he will make no statements. He's effectively down for the evening.

Tomorrow morning he begins with a 10:00 a.m. bilateral with President Berlusconi, followed by a 10:30 a.m. bilateral with Prime Minister Murayama. Following that meeting, the President and the Prime Minister will make very brief statements -- more like talking points than formal statements -- and take a couple of questions. At some point in the day, we will -- and we'll give you guys the schedules on readouts as soon as we can -- we will do a readout on those morning meetings.

The President then has some down time in the afternoon. At 5:30 p.m. he will have a press conference. He will open up with a statement and talk a little bit about why the G-7 matters to people back home, how will it facilitate economic growth and job creation in the United States, and then open up to questions.

After that, he will have a little bit more down time, and then at 10:00 p.m. the heads-only dinner which is scheduled from 8:00 p.m. to midnight. If need be, we will probably provide some kind of information about that dinner following.

That's it now. I'm going to turn it over to my colleague who's going to talk about themes of the G-7 and what we hope to accomplish on that level.

SENIOR ADMINISTRATION OFFICIAL: I guess the first point that I'd like to emphasize is that the nature of the macroeconomic situation that all of the countries face coming into this -- which is that unlike last year, six of the seven of the economies are doing quite well, and the Japanese economy is beginning to show signs of recovery. So there's a fairly strong view on the part of all of the leaders and all of the people who have been organizing this that the macroeconomic program of last year did work.

It's been a period in which the U.S. economy has been the engine for the world. Three-quarters of the growth was U.S. growth; 100 percent of the net jobs were U.S. jobs. It's obviously our strong feeling and hope that if we can continue with close macroeconomic coordination, that with Europe coming on, and perhaps Japan a little bit later, that the sort of world recovery can last longer and can last for quite a while.

There are four themes that will be emphasized by the

President in the course of the summit. The first will be a focus - -- and his topic of discussion in the evening of Friday and then Saturday morning -- on jobs and growth. And the intent of that will be try to emphasize the changed nature of the policy mix that the world now faces, which is to say that we can no longer focus simply on macroeconomics country by country. But we have to focus on macroeconomics, trade, and on investment in the work force, the creation of an adaptable work force as a kind of new mix for macroeconomic policy. And that will be the thrust of his comments on Friday night and Saturday morning.

The second big issue will be on the creation of the infrastructure of the global economy. I know that sounds a little conceptual, but the real point is that we haven't created, and we've yet to build both the institutions and to emphasize sufficiently the economic sector that is going to be the focus of the economy of the next couple of decades.

So we will be asking as initiatives that the three major global institutions, the new WTO -- the World Trade Organization -- the World Bank and the International Monetary Fund to examine and come back to the Halifax G-7 meeting on what their priorities are for the next decade and how they intend to work together. We will also, -- and the Journal carried a piece on this -- be asking, be calling for a conference of the world's telecommunications ministers to examine for the G-7, which has about 85 percent of the world's GNP, the development of the telecommunications sector. One piece of that will be a specific initiative in which we ask that the major national libraries of the world be connected.

The third topic we'll be considering will be the transition, the economies in transition, the former Soviet economies. And our basic focus this time around will be, with respect to Russia, moving from a situation of focusing on ad hoc problems to a system in which we or a circumstance in which we focus over the long pole on the transition of Russia's economy to a market economy. With respect to the Ukraine, we'll be bringing together then what we hope is the first of a series of packages that will focus on a similar transition for the Ukraine.

The final theme that we'll focus on is sustainable growth and the environment. There what we'll do will be to underline the importance of the Cairo conference on population that is coming up to look at the post-2000 commitments the countries made coming out of the Rio conference. And, finally, we hope to put together a package that will close Chernobyl as part of an overall energy package to the Ukraine. Those are the four principle themes of the summit in terms of the economic part.

The one thing I'd underline, which I know may again seem too conceptual, but the real point of the summit, as the President has said, is to focus on what is the biggest set of economic changes that has occurred in this century and to try to get the G-7 to begin to focus on a long-term agenda that deals with that set of economic changes.

I'll turn it over to my colleague now.

SENIOR ADMINISTRATION OFFICIAL: Let me just say a word on the political dimension of this summit because we have an opportunity to say more since the political discussions will focus on Sunday. But I think it's important to understand that what's significant about this, obviously, is that Russian President Yeltsin will be a participant in the Sunday discussions, and that these discussions really should be seen in the context of the President's entire trip and the leadership that he's been showing in trying to build new structures for Europe, undivided Europe, beginning with his talks in meetings in Riga and then in Warsaw and, then, finally finishing up in Bonn

and Berlin. And this is an opportunity to sort of work these

structures, to build the kinds of new institutions and new relationships that are going to be needed in dealing with the post-Cold War situation.

There are a number of bilateral meetings, as my colleague sketched out. Obviously, he will be meeting with Prime Minister Murayama, and it's an opportunity for them both to reiterate the importance of the continued political and security relationship between the two countries.

Q How much does the lame duck nature of these leaders, the problem in Japan, undercut your ability to accomplish anything?

SENIOR ADMINISTRATION OFFICIAL: I think the answer is that what we're doing is building a long-term process, and it's a process that's going to take a number of years. So there will be changes in the individuals and personalities. But the challenges are really long-standing and are going to take place over a number of different leaders. And, so, if the point -- the long-term relationships that go beyond individuals.

Q What specifically about the Japanese meeting though? How can you really hope for anything to be accomplished given their situation or build anything long-term given their short-term nature of their leaders?

SENIOR ADMINISTRATION OFFICIAL: I think we're obviously not going to try to anticipate how long this current Japanese government will be in place. But I think that one of the things that we've heard very strongly from them immediately after the government was formed was the importance that they placed on continuity and that there are a number of figures that have been involved in government before and the assurances that they've given us that the basic, sound basis for continued security relationship is there. They're not looking for any changes, and we think it's quite important to keep that in place and to reiterate to them.

Q What do you hope to get out of tomorrow's meeting though from the Japanese, anything beyond that general?

SENIOR ADMINISTRATION OFFICIAL: I think for tomorrow's meeting the point is simply for both sides to really stress to each other and put their importance that they place on this continuity and, not only from a bilateral relationship, but also in terms of regional affairs. Obviously, people are going to be interested in whether this is something where there are changes -- the entire Northeast Asian region is interested because our involvement in Asia, our foreign presence, our relationship with Japan is one of the cornerstones of the security and stability.

Q Is there anything specific --

Q Is the President going to stress the framework initiative?

SENIOR ADMINISTRATION OFFICIAL: First of all, there's absolutely no truth to the rumor that we've insisted on a separate Prime Minister for every summit meeting. (Laughter.) And I think it's as you would expect, that the first thing the President is going to want to know or going to want to hear from Murayama is where does he stand with respect to a whole set of issues that are central to the American-Japan relationship going back to the basic security relationship. We believe that that has been confirmed completely, but this is a get-acquainted meeting and the President is going to want -- is quite interested in what Prime Minister Murayama has to say.

In terms of the framework agreement that we have -- it has been stressed to all of us that the Prime Minister is committed to it and intends to work and negotiate within it and with it as a context. The President will underline, first of all, the degree of urgency that he attaches to coming to agreements in the first three of the priority areas. We'll also underline the importance, particularly now in light of the macroeconomic environment for the rest of the world, of Japan coming quickly to a concrete macroeconomic policy.

Q In that context, where does the value of currencies in general and the dollar in particular fit into your statement that you're going to do macroeconomic coordination?

SENIOR ADMINISTRATION OFFICIAL: Well, I could do two things. The fact is, first of all, that there's one person in this administration that speaks to the dollar. The second is, that we have never felt that a lowering in the value of the dollar was an issue of policy. We do not want to lower the value of the dollar for temporary trade competitive purposes.

And, finally, if you believe, as we do, that what you're seeing is a market reaction to fundamental differences between the two economies at this point, that kind of coordination probably isn't on. We do not expect any kind of major dollar yen or dollar anything else monetary coordination at the summit.

Q You talked about the institutions. You're suggesting that the World Bank --

SENIOR ADMINISTRATION OFFICIAL: I'm sorry -- major or minor.

Q You're suggesting that the IMF and the World Bank are not working. How are you going to with a report change two institutions which many people feel have become completely --

SENIOR ADMINISTRATION OFFICIAL: The question that was asked was that behind our suggestion that the international financial institutions look at themselves over the course of the next year, was a view that they weren't working and how would we then -- how did we expect by a report to make them work.

I don't happen to hold that. I've worked for a very long time with two of them -- well, the two that exist, the IMF and the World Bank. I think that there's a different set of circumstances occurring and it's the following: that the change in the global economy is so substantial that an institution that might have had and did have, in my view -- I wrote some of them - -- that had perfectly legitimate strategies and missions even two or three years ago have to rethink them in view of what's happened, for example, in world capital markets.

At the same time with the arrival of the WTO on the scene, the three of them now have to, I think, think through in a way that hasn't occurred for 50 years how trade development and monetary policy fits together. So it's not a judgment that they don't work.

Q On this jobs and growth issue, can you give us some very specific examples of what your goals are to try and get other countries to participate in some of this?

SENIOR ADMINISTRATION OFFICIAL: What Rita asked was could I give very specific examples of the goals with respect to jobs and growth, particularly, I think, focused on the labor market kind of focus.

It's a little hard. Let me make the general point and then try to be a bit more specific. The general point is the following: that with the almost complete opening of world markets that we've seen and the even more complete opening of world capital markets, there is a fear -- I happen to think not founded, we think not founded -- but that the competition of new entrance into the world markets poses a threat to the labor forces of the developed world.

Well, as the President has emphasized many times, the way we make that not the case is to make those markets more adaptable and better able to function in the midst of change. It is the fact that our markets are like that which has meant that we've created essentially in the range of 75 to 80 percent of all of the world's, the developed world's new jobs over the last decade or so.

So the question is, how do we keep our labor force adaptable, and how does all of the developed world begin to move in that direction. And the answers are three or four kinds. One, which is a requirement of ours, is more investment in education and training. Two, which is a requirement of theirs, is more focus on the whole process of deregulation so that jobs can be created, jobs can end, work forces can move. And the third is a focus on the nature of unemployment institutions.

The whole reason we are reorganizing our whole employment service to a reemployment service is so that we can focus on job change. Europe doesn't do very well on job change. So, it's those three areas that are specific.

Q Is that what you're going to say to Germany -- we think you should provide training, new training for so many of your workers? I mean, how are you going to translate that?

SENIOR ADMINISTRATION OFFICIAL: I think it would be - -- we can't do that. It would presumptuous. It would be arrogant. What we --

Q And it would be wrong.

SENIOR ADMINISTRATION OFFICIAL: And it would be wrong. (Laughter.) It also would get thrown out.


Q Are you on background?

SENIOR ADMINISTRATION OFFICIAL: I'm on background. (Laughter.)

What we can do is say that we, as the developed world, will only succeed in maintaining the opening to what is the greatest economic change that has occurred in this century if our labor force is sufficiently secure that it can live through those changes to help us maintain them, and that, therefore, we have an obligation as a Group of Seven to do that. How we do it in particular countries is going to vary because the economic and social institutions of those countries vary. But we can argue the principle and we can keep it permanently on the agenda.

Exactly the same thing happened in terms of the way the U.S. began to focus on macroeconomics starting 20 years ago. Because, if you'll remember, the first summit was not about macroeconomics, it was about energy. And it was the growth of the concern about macroeconomics that began to characterize the G-7.

Q What you said about the dollar suggests that you consider its fall to be only a temporary phenomenon. You said that we are not interested in lowering the value of the dollar for temporary trade competitive purposes. And I just wonder if I read that, understood you correctly. And the second question is, do you think that -- don't you think the markets will be upset or concerned if you don't address the dollar's fall in any way?

SENIOR ADMINISTRATION OFFICIAL: The question was, first of all, did in the saying that our policy was not to lower the value of the dollar for temporary trade purposes was I saying the lowering of the value was temporary. The second point was our saying that the -- were we concerned that the market would be worried or more concerned if we didn't do something about the dollar.

The answer to the first question is that I had a different temporary in mind. Remember that in one of the changes that's occurred in the economy, in the global economy, is that trade follows investment. So, from our perspective, a drop in the value of the dollar makes it harder for American business to invest abroad, which means that in a relatively temporary period of time it makes it harder to create exports and, therefore, jobs at home.

I was making no comment about the duration of the value of the dollar. Secretary Bentsen and Larry Summers make comments about that.

The second point was that if what you believe, as we do, is that markets work, you believe that the world currency markets are going to be more settled down by a statement of, by the United States and the United States Treasury making that point than by anything else.

Q seems much less positive than you about the macroeconomic situation, and particularly,the United States' situation. Do you feel that you have done enough to address the savings deficit that he says is the cause of the dollar's fall?

SENIOR ADMINISTRATION OFFICIAL: He was making --the point was that the Minister of Finance of Germany was somewhat less sanguine than we are about the nature of the current macroeconomic situation and did we agree with him about the savings point.

There are two separate points about that. The nature of the current macroeconomic situation is not in doubt. The U.S. is in the middle of what looks to be a relatively long period of sustainable growth. Europe is coming out of it, and there are finally signs that Japan is. But I don't think that any of his comments can be read to reflect any doubt about that.

The savings issue is a longer run problem, and it's a real problem. The President has said himself that U.S. savings rates are just too low. And, yes, in the long run we are quite concerned about the low rate of U.S. personnel savings, both from the point of view of the macroeconomic situation of investment, but also in terms of retirement income. But that's a different issue that what affects the dollar today or the macroeconomic recovery.

Q If you're concerned about the low rate of savings, why aren't you doing something about it?

SENIOR ADMINISTRATION OFFICIAL: The question was if we're concerned about the low rate of savings, why aren't we doing something about it. Well, one of the more direct reasons is that -- I can make two points: first, we did. I mean, we raised by two-and-a-half percentage points the national rate of savings to the President's deficit program. I mean, what we've done over the period is cut in half the deficit as a percentage of GDP, and therefore raise by two-and-a-half points the national savings rate.

Longer run, there is a decided difference of opinion among economists who are smarter than I am about what, in fact, increases the savings rate. But the major macroeconomic structural reason why we dealt with the deficit was precisely that.

Q Do the comments by the German Finance Minister make it more likely that you're going to have trouble getting consensus on an agreed policy at G-7? Does this make this sort of a confrontational relationship at this point?

SENIOR ADMINISTRATION OFFICIAL: I didn't read it that way. I read his comments -- and that's all I've done, is read his comments -- I thought he made an accurate statement about one of a structural problem that the U.S. economy faces. I don't think it affects the degree of consensus at all. I mean, we know that the German government has felt that way for some time.

The position of a number of the European governments - -- and the G-6, if you'll remember, for years has been that the U.S. deficit was too high and the savings rate was too low. What we've now done is move to relatively the second lowest deficit among the G-7 and have, we think, moved very strongly in the direction of a structurally, much more sound economy. And if you ask me or if you ask us, anybody at a senior level on the economic side of the government, whether U.S. savings rate were too low, we'd all say, yeah.

Q Didn't he also say he didn't want to intervene - -- Germany doesn't want to intervene in currency markets to try and adjust the value of the dollar?

SENIOR ADMINISTRATION OFFICIAL: I think that I just said that we don't think -- we do not see that as an initiative coming out of the G-7. And I don't think it will.

Q On the political front, are there any political initiatives that the U.S. is planning to put on the table regarding Korea, the Middle East; any other issues that we --

SENIOR ADMINISTRATION OFFICIAL: I think the United States is going to go through a range of issues here. The President has been showing leadership in the United States and taking the lead. The President, I'm sure, will review the progress that's been made on Middle East peace, both in terms of the implementation of the DOP and the other discussions that are going forward with Jordan and with others.

I think he will have an opportunity to share with his colleagues where we're going in the discussions with North Korea. He'll have an opportunity to talk about what he's done during the earlier part of his trip in terms of building these integrated structures for Europe, and how he sees these going forward. And so I think on the whole range of the political agenda --

Q What about Bosnia?

SENIOR ADMINISTRATION OFFICIAL: I think -- the question is what about Bosnia. On Bosnia the real responsibility for the situation in Bosnia in trying to develop a proposal was accomplished by the ministers at Geneva.

As you know, the parties now have the proposal. They're looking at it, they're discussing it. The Minister has asked them to take no more than two weeks to come back with their answer. And so I think that that's where the principal activity is now with respect to Bosnia?

Q What do you think that Yeltsin is coming looking for? What does he want for the G-7 or from the United States?

SENIOR ADMINISTRATION OFFICIAL: I think that what is important is just continuing a building of a relationship. And what we're seeing is a deepening over time of the contacts of the areas of interest in which we can work together. This will be the fourth meeting between President Clinton and President Yeltsin. It's clearly a step forward in terms of the contact between President Yeltsin and the other G-7 leaders.

And I think, in addition to the number of specific areas where they share common concerns, there really is this process of bringing an integrated Russia into the Western world, into contact with his colleagues. And I think that this is, really, the most significant part of what is going to happen.

Q He's not coming looking for anything in particular -- aid or anything like that.

SENIOR ADMINISTRATION OFFICIAL: In all of the discussions and the phone calls that they've had, and the discussions that we've had and the Secretary of State have had with Minister Kozyrev, it really is the opportunity to work on a number of issues where they have things in common.

Q What do you think of the criticism in the Wall Street Journal that Russia doesn't belong there because he is an IMF debtor, not an IMF contributor.

SENIOR ADMINISTRATION OFFICIAL: I'll leave to my colleague the question on the economic side about how Russia should participate. But what is significant is you don't hear is the Russians participation in this meeting is participation on Sunday in the political session, and Russia is not a full participant on the economic issues. And that's the step that we've taken.

At the last G-7 meeting Russia was, in effect, an invited guest to talk about political issues. Now there is a deepening of that relationship, but the focus is on the economic side and there is a real difference.

THE PRESS: Thank you.

END7:55 P.M. (L)