THE WHITE HOUSE
Office of the Press Secretary
PRESS BRIEFING BY SECRETARY OF THE TREASURY ROBERT RUBIN, ASSISTANT TO THE PRESIDENT FOR INTERNATIONAL AND ECONOMIC POLICY DANIEL K. TARULLO AND DEPUTY SECRETARY OF THE TREASURY LAWRENCE SUMMERS
The Briefing Room
11:47 A.M. EST
MR. JOHNSON: Good morning, ladies and gentlemen and welcome to the White House briefing room. We'd like to provide a briefing now on the announcement the President just made about the conclusion of our arrangements with Mexico.
You're going to have three briefers this morning. Your first will be Assistant to the President for International and Economic Policy, Daniel K. Tarullo. Secretary of the Treasury Rubin will follow. And then Deputy Secretary of the Treasury Summers will be available to answer questions, as well.
MR. TARULLO: Thanks, David.
As most of you probably know by now, a little while ago the President had a phone conversation with President Zedillo of Mexico, during which President Zedillo indicated Mexico's intention to repay three years ahead of schedule the balance remaining on the emergency assistance package that the United States made available in 1995.
As you recall, that was in the wake of a serious liquidity crisis which Mexico faced, beginning in December of 1994. As you probably also recall, the U.S. decision to provide this assistance was very controversial at that time. The President from the outset recognized the seriousness of the problem, the threat to U.S. economic interests, the threat it posed to Mexico, our neighbor to the south, and to the international financial system.
Notwithstanding the controversy that ensued, the President decided to go forward, asked Secretary Rubin and Deputy Secretary Summers to prepare a package, which they did, and follow it up with a package with the International Monetary Fund.
In the intervening period, Mack McLarty helped to maintain our ongoing initiatives and policies with Mexico, even though they obviously had substantial attention given to their own economic problems.
In the phone call itself, President Zedillo expressed his deep appreciation to the President and to the American people for United States support two years ago. He indicated, as I said, his intention to repay the balance of the financial support because of the fact that Mexico's economic situation has now been consolidated and the government felt it was in the position to do so. He further indicated he looked forward to the President's visiting Mexico in the near future.
The President responded that he thought that it vindicated the decision that had made two years ago, that it was a step that was in our interest and Mexico's interest and the interest of the international system generally. He also indicated, as he said upstairs, that he looked forward to going to Mexico soon.
[Name deleted] now will give you more background on the repayment and on the Mexican economy. And then, as David said, Larry Summers -- Deputy Secretary Summers will also be available to answer questions.
SENIOR OFFICIAL: Thank you, Dan.
This is really a very momentous day for Larry and for me, and obviously for the President, for all those who were involved in this. And it was an enormous effort at Treasury and very many people in Treasury staff were involved and I think did an absolutely terrific job. Let me also say the IMF, the International Monetary Fund, was absolutely critical to this and stepped in at a time when the world really did face the possibility at least of a systemic problem and acted courageously and effectively.
I remember the Monday night that I went to see the President in the Oval Office and said to him that I'd seen a poll recently that said 80 percent of the American people were not supportive of a support program for Mexico, but then also said to the President that it was our view that if we didn't step in there was a high probability of default within a few days with enormous -- the potential at least for enormous untoward consequence to the United States. And he looked at me and he said I understand what you say about the poll, but it's the right thing to do; it's the right thing for Mexico, but also very much -- very importantly, it's the right thing for the United States, and this is what we're going to do. And that's what we did do.
President Zedillo and his team, in our judgment, has had enormous political courage in putting in effect the program they put in effect in Mexico. And as you know, we now reached today where the short-term financial problems that created the crisis have been solved. An enormous amount has been accomplished in Mexico with respect to their economy, though most certainly an enormous amount lies ahead to do. Tremendous challenges have been met, and there are tremendous challenges ahead.
As the President said, exports -- U.S. exports to Mexico are now at record levels. We received this money -- this last payment roughly three years ahead of when it was scheduled. We had a profit of about $580 million on the entire transaction. And most importantly, we helped Mexico through a very difficult period, which, as I said, was in their interest, but was very much in our interest as well.
And with that, Larry Summers and I would be delighted to respond to any questions that you might have.
Q Do you have any concerns about either the peso, Mexican monetary policy, or the banking system in Mexico? I know that's a broad range of subjects.
SENIOR OFFICIAL: Yes, I have concerns about everything in life, but to narrow it to the three things that you've mentioned --
Q Is the monetary policy too tight? Is the banking system too weak?
SENIOR OFFICIAL: These are all issues that the Mexican government has been focusing on over the two years that we've been involved with them, and I'll apply my general comment to your question and ask Larry Summers to respond. I think in all of these areas they have made great progress; in all of these areas they have substantial challenges lying ahead.
DEPUTY SECRETARY SUMMERS: Mexico has really made huge progress in addressing the various financial issues. The shock of the drastic reduction in the value of the peso and the extraordinarily high interest rates in the early part of 1995 had enormous consequences for Mexico's banking system and forced large-scale public interventions in that system to maintain stability. At this point the system still faces strains, but those strains are being worked through and Mexico's financial health is improving.
Mexico, as any country, faces important challenges in the monetary policy in the years ahead of maintaining low inflation and at the same time creating an environment that is conducive to economic growth. And the right way to do that is by concentrating on the fundamentals, and that has been the approach that the Mexican authorities have taken.
We will continue, through the North American Financial Group, which involves periodic meetings of the NAFTA countries, to be involved in processes of discussion and mutual surveillance with respect to our NAFTA partners and to follow economic developments in Mexico, which is very important to the United States as one of our very largest trading partners, very closely in the years ahead.
Q It's true that U.S. exports to Mexico have exceeded the pre-crisis levels, but the U.S. trade deficit with Mexico continues to widen. When will the United States see the surpluses and the benefits that it was supposed to see from NAFTA?
SENIOR OFFICIAL: Oh, I think NAFTA has been more important to us, given the difficult conditions in Mexico, than would have been otherwise. This is actually an observation that Larry Summers first made to me about a year or two ago and it struck me at the time, and still does, as a very interesting and I think correct perception, because had you not had NAFTA you could have easily have wound up back in the conditions and circumstances Mexico was in the early '80s when they faced similar circumstances. And the response at that time, as you may know, was to have increased tariffs roughly a hundred percent and basically was to go into a status mode. It took, if I remember correctly, something like seven years before Mexico was able to come back into the global financial markets after that. In this case, they were back in after something like seven months.
So I think what NAFTA did was to institutionalize reforms, institutionalize the openness of the economy. American exports to Mexico would have been much lower without NAFTA than they were with NAFTA under these circumstances.
Q But, [name deleted], when will the trade deficit be reduced and when will the United States get -- see the benefits of NAFTA in the form of a surplus?
SENIOR OFFICIAL: I think -- well, I think the answer to that question is we are seeing enormous benefits from NAFTA now in the sense that conditions without NAFTA would have been far worse than they are. The question of the trade deficit I think is a much more complicated question because it may well be that what's happening is we are importing from Mexico things we would have imported from elsewhere. And I think you have to analyze that in the context of the larger trade deficit of the nation, rather than to focus on the specifics with respect to Mexico.
Q What do you say to those who politically opposed you, like Ross Perot and Pat Buchanan and Pat Choate? What do you say to them now, if you had a chance to see them?
SENIOR OFFICIAL: On Mexico? (Laughter.) I would say that -- I'm sure they are pleased as we are pleased that Mexico is doing well and they were able to repay us. We should all be pleased that the concerns that they expressed turned out, with respect to the support program, not to have been controlling. And I would also say that Mexico, though it certainly has very great challenges ahead, has met a lot of challenges and is becoming once again the very substantial trading partner with the United States that it has been and has the potential for ever more being in the future. And I would welcome their rejoicing in this with us.
DEPUTY SECRETARY SUMMERS: If I could just add to that. I think the fact that our exports to Mexico are up 11 percent from pre-crisis levels despite all the problems makes very clear the enormous stake the United States has in a growing global economy, in emerging markets emerging, and speaks to the importance to us of continuing to maintain the kind of posture of international leadership that we have in the past.
Events yesterday and events today in the Middle East and in Mexico bear out the President's many times statement that the United States is the world's indispensable nation. And I think it is fortunate that we did not do the experiment of seeing what would have happened to the global economy and to this trend towards market capitalism if a Mexican default had been allowed to take place, which it surely would have, if our support program had not been made available.
Q Was there any timing -- the timing of this Mexican decision, why did it happen now? And I guess the sub-question is, anything to do with the inauguration?
SENIOR OFFICIAL: Absolutely not, Wolf. This was really driven by their financial management considerations. It had nothing to do with us.
Q Are they doing as well in repaying the other parts of the international package?
SENIOR OFFICIAL: They're going to be repaying -- they're going to be making repayment to the IMF as well. Have they announced that, Larry? Yes, of $1.5 billion.
Q What will the administration policy be if confronted with future Mexicos? Will America have to take the lead? There's been a lot of work in the last --
SENIOR OFFICIAL: I'm glad you asked that question. (Laughter.) We should have thought of responding to it in our statement before, in case somebody didn't ask it.
The answer is, as Larry said, that the United States is the indispensable nation. On the other hand, we are in a global -- we do have global financial markets, we're in a global economy. And there is always -- with all the benefits that come with the global economy and global financial markets, there are risks. And what this administration did was take the lead in the G-7 to devise a set of programs so that the next time we do not have to step in along with the IMF.
The new agreements to borrow, which is really a -- it's a structure that's been created to augment the IMF, but will operate under the aegis of the IMF -- was designed to put together a body of international money, resources that can be used if there is another Mexico, and that has not yet -- international negotiations to put together this new agreement to borrow have been completed, but now we need to go to the various countries and get authority to fund it.
Q But can those mechanisms act quickly enough so that, for instance, as in the case that you were confronted with with the President, you won't in the future have to go have the kind of conversation you mentioned with the President?
SENIOR OFFICIAL: Let me ask -- the answer to that question is yes, but maybe Larry would like to expand on that.
DEPUTY SECRETARY SUMMERS: The first line of approach is to prevent this type of crisis from happening ever again in the future, and we're working to do that in several ways. We've reached agreement in the IMF that it will set standards for countries to publish their international financial information so that it can be monitored by the market and so that investors have an opportunity to react to it, and so countries can't think that they will slip or slide by.
You know, if you think about the history of American corporate finance, there's probably no more important innovation than generally agreed accounting principles. And that's the kind of thing we're moving to in the global capital market.
Second, as a consequence of this, the efforts at surveillance from the IMF have been substantially enhanced and been made more frequent and been more focused on flows of capital. Third, the President launched an initiative at last year's Lyon summit, on which we've all been all working toward this year's Denver summit, that is directed at a focus on the health of banking systems in less developed countries, because many of the crises have their roots in problems in the banking systems, which then distort monetary policies in different countries.
That was the case in Mexico during 1994. And so we are working toward internationally agreed standards and approaches to maintaining the health of financial systems in developing countries, all of which will prevent a crisis. If a crisis comes, as the Secretary explained, we'll be able to respond in a multilateral way, with full burden sharing through the IMF and the new arrangement --
Q [Named deleted], are you satisfied with the pace of political reform in Mexico?
SENIOR OFFICIAL: David, I think that's really an issue for Mexico itself. They obviously are going through a period of political change, and I think I'd really like -- just live with my comment to say that that's an internal matter of Mexico itself.
MR. JOHNSON: Let's have one final question here.
Q Mexico announced that it will be repaying, or intends to repay, this last amount of money. When, in fact --
SENIOR OFFICIAL: Well, the instructions are issued today, and it's a wire transfer to the New York Fed, and the wire transfer will take place tomorrow morning. But the instructions are actually issued today.
Q Getting back to the first question, is there a concern within the administration that the peso, Mexican peso, is now overvalued?
SENIOR OFFICIAL: Well, we never comment on the level of any currencies. I don't know why we -- I think I'd probably continue with that policy with respect to Mexico, other than to say over time, currencies tend to follow, at least in my view, follow fundamentals. And I think the key in Mexico is to continue to focus, as Larry Summers said, to focus on the fundamentals. And that's what they've been doing.
Thank you very much.
THE PRESS: Thank you.
END 12:03 P.M. EST