THE WHITE HOUSE
Office of the Press Secretary
PRESS BRIEFING BY NATIONAL ECONOMIC ADVISOR GENE SPERLING AND DEPUTY TREASURY SECRETARY LARRY SUMMERS The Briefing Room
1:14 P.M. EDT
MR. TOIV: Good afternoon, everybody. I know you're eagerly awaiting Mr. Lockhart's debut. But to keep your attention, I know you're all very interested in the events that took place over the weekend leading up to today's working group meeting and tomorrow's meeting of the IMF and World Bank. And here to answer your questions about what the President has been doing and what the administration has been doing are Gene Sperling, the President's National Economic Advisor, and Deputy Treasury Secretary Larry Summers.
MR. SPERLING: We don't want to delay the start of the Lockhart era much. So we're mostly here to take questions. As you know, following a significant amount of analysis and discussion and a decision-making meeting we had with the President on last Wednesday, the President decided to announce several steps on Friday that would address the contagion -- the financial contagion issues -- one of them, as you know, being dealing with a -- developing a mechanism at IMF to deal with short-term, precautionary credit that would address countries with essentially sound policies affected by financial contagion; a second one dealing with having multilateral development banks, taking efforts to try to help encourage -- regain private sector capital back in key countries through loan guarantees, emergency efforts; and then additional efforts by the Ex-Im Bank to help set up short-term efforts in Latin America, similar to what has been done in Asia, as well as new efforts by OPIC to provide many of the same political risk protections for lenders and bond holders that are currently provided to investors.
Larry can talk about the discussions over the weekend, but we were pleased that at both the G-7 finance ministers and interim committee of the IMF that there was a strong interest and willingness to explore the ideas that the President had put forward on Friday.
As you also recall, at the President's Council on Foreign Relations speech on September 14th, he not only mentioned several short-term steps dealing with the immediate crisis, he also called for an acceleration and expansion of the global architecture reform efforts that in many ways he has helped initiate since the Naples G-7 in 1994, and particularly the Halifax G-7 in 1995, that dealt with many reforms in response to Mexico and led to the new arrangement to borrow, a proposal for IMF and the supplemental reserve facility, as well as the special data dissemination standards for transparency and disclosure.
In 1997, at APEC, there was a decision to try to bring together not just G-7 countries, but also some of the emerging markets, and that led to a meeting in April 1998 at the Willard Hotel which brought together, in many ways for the first time, the G-7 finance ministers with their counterparts in key emerging markets.
That led to three working groups: one on transparency and disclosure, a second on strengthening domestic financial systems, and a third on overall crisis response that are having the reports that were released today at the Treasury Department and will be reported to today at the meeting that is taking place.
As you know, at the President's Council on Foreign Relations speech, he talked about the need for a group of G-7 finance and central bank governors, along with their counterparts in emerging markets, to have an expanded and further effort to be chaired by Secretary Rubin and Chairman Greenspan that would look at some of the new challenges that have come forward, particularly the issues related to how to keep a strong financial open system while moderating the excessive volatility and harm that we have seen take place in the last year, as well as dealing with the issues of contagion, which the President has dealt with in some of his immediate proposals.
That meeting takes place today at 5:15 p.m., at the Sheraton Luxury Collection -- formerly known as Prince -- no -- (laughter.) Formerly known as the Ritz Carlton. I'm around, I get it. I'm not like Rubin. (Laughter.)
Q Formerly owned by the Gores.
MR. SPERLING: That joke had also been suggested.
The President will speak for a few minutes on the record with the press at the opening of that. Then he will attend the first closed-door session. This is a working session. He'll have a chance to talk and to hear firsthand on the issues that will be discussed as this effort is being expanded from some of the key finance ministers and central bank governors that will be there.
As you know, the goal of this group is to try to have a report to the heads of state by the beginning of this year. But I should stress that this is part of the long-term structural reforms that are going -- that will be very difficult and complex and that will take significant time to develop. But the feeling is that while we are dealing with the short-term, immediate crisis, that it is not too early to begin trying to learn the lessons from the past year in the ongoing effort to reshape and reform the global architecture.
Tomorrow the President will give the opening address at the beginning of the annual meeting of the World Bank and IMF at 10:00 a.m. The President will seek in this speech to really elevate what might be thought of as the central challenges that are faced, which is how to -- how for those who believe and understand the importance of an open financial and market system in raising prosperity and living standards to also strike the right balance in not allowing the harmful volatility and excesses that we've seen over the last year; and then secondly, the central political challenges of how countries can maintain and create the democratic and social structures that allow their countries to make the changes needed to maintain the support of their people.
We've seen over the last year how critical the difference has been between countries that have been able to muster the Democratic support and have the Democratic and social safety net institutions to engage in reform and to maintain the support of their people in doing so.
And so this speech will be an effort to really address these central themes and to recap some of the proposals that he has put forward up to this point.
Deputy Secretary Summers and I are available for any questions you have. Larry, as you know, has been intimately involved not only in the creation of these proposals, but in the G-7 and further discussions, and could maybe provide more background.
Q Twice in recent days the President has called this the severest financial crisis, economic crisis in 50 years. How bad is it?
MR. SPERLING: Well, I think that you do have an unusual moment in American economic times in which the American economy has enormously strong fundamentals in the sense of continued unemployment rates below 5 percent, low interest rates, incomes rising at twice the rate of inflation. And yet there's no question that we are surrounded by many countries, key partners that are facing crisis and the President said as early as the State of the Union that no one, not even the United States, even with the strength we have, would be unaffected by this.
And I think that certainly we've seen this in the rural parts of our country where exports have been affected by the slow demand, the weak demand in some of our trading partners, and certainly there is anecdotal evidence that exists that capital could become -- loans could become more difficult for even some of our small- or medium-sized companies.
Q Well, how bad is it?
MR. SPERLING: Well, let me say we still feel that the fundamentals of our economy are strong and that there is -- and that we still see sound growth for the coming future. Just to give you an example, if you look at the blue chip forecast, which is 50 private sector forecasters, there's not a single one, not a single forecaster who projects a recession for 1999 -- not a single one.
So what you have is another very strong year. By December this will be the longest peacetime expansion in our history. Nonetheless, we have not been shy in saying that the United States, like all other countries, will be affected if there is not success in moderating the problems around the globe. And the reason why the President has stressed so hard the importance of getting the support for the IMF and said that all along is becoming more and more clear; one hears more and more from leaders around the world and from financial experts around the world that a weak IMF, a weakly funded IMF in and of itself has the risk of being a destabilizing factor. And it just could not be more crucial that we get the IMF -- our share of the IMF passed.
So, in sum, I think that there is and should be reason for people to be concerned and to be watching closely and to understand how intimately affected our economy is with the health of the global economy. All that said and done, fundamentals of our economy do remain sound and people should feel confident in the basic fundamentals.
Q Gene, will the President veto any foreign ops bill that doesn't have the quota money in it?
MR. SPERLING: I think that the form of how the appropriations process will end up is unknown at this point, and whether things will be drawing together in one bill or not. I think that you can safely say that we consider getting the IMF absolute highest priority and we will do everything in our power to ensure that the IMF is passed this year. It would be a reckless and risky act to not pass the IMF funding at this serious moment in the global economy.
Q Well, if I could follow up on that. Regardless of the vehicle, Gene, would the President veto any bill that doesn't contain the quota funds?
MR. SPERLING: Well, you wouldn't veto Labor or HHS, because it doesn't have --
Q Gene, whatever vehicle Congress chooses to send the quota money up at -- whether it's the foreign ops bill or some omnibus package, will the President veto over the $4.5 billion in quota money.
MR. SPERLING: I cannot -- I hope that we do not come to that situation. I do not -- I'm not trying to be -- let me, so you understand -- I'm not trying to avoid answering the question. It's just that you're asking -- no, I'm serious. This is a hypothetical situation of which I do not know if I can -- on the spot here -- think of all the different machinations that could happen in the process here. I think that we would take any step possible that we can take to ensure that the IMF is passed.
I do not know all the different formulations that are being negotiated for the IMF. It would not be acceptable for us for Congress to leave without passing the IMF. And we would take all measures possible. That may include vetoing a particular appropriations bill or overall bill. But I just cannot try to predict every formulation that could take place over the next 10 days.
Q There's been a lot of buildup to this weekend and to the IMF meetings. Mr. Clinton has spoken twice about it. And there's an expectation, I think, created that we were going to hear some real answers, that this might be a turning point. The IMF -- new mechanism that the President has proposed will be explored by the G-7. The World Bank funding has no additional money; it's just existing World Bank resources. What can we say has come out of this weekend that can give confidence that the short-term crisis will be stopped?
MR. SPERLING: Larry, do you want to --
DEPUTY SECRETARY SUMMERS: I think what's important is policies not pronouncements. And I think you saw out of the G-7 a shared recognition that I expect will be translated into, therefore, policy steps over time, that the balance of risks had changed, and that the priority globally at this point had to be on growth. You've seen a willingness of the international community to explore it. I think those will be active explorations. The proposal to provide contingent finance anchored in the IMF for countries that are potential victims of contagion or the economic difficulties that you have.
You have seen an agreement that is crucial that the World Bank use its resources as effectively as possible in the effort to respond to these problems, in particular emphasizing its core mission of social development and its large role in the financial restructuring.
I think much more important than that is the discussions that take place at meetings like this among the countries that are affected, because ultimately it is the policy choices that the countries that are affected by contagion make that have the largest impact on their ability to attract capital and on confidence.
I've been encouraged by the recognition that I've seen on the part of many of the countries affected of the fact that difficult times require substantial adjustments, and I detect a considerable willingness to make those adjustments. And I think those can provide an important basis for international support going forward.
Q So if you were in the markets, would you be reassured by what's been announced in the last few days?
DEPUTY SECRETARY SUMMERS: I don't give advice to traders. But I think that there's a recognition in the financial community that there has been an accumulation of strains; that it will take time to work through; and that an approach based on global growth led by the industrialized countries, the maintenance of open markets, based on the capacity of emerging-market countries to make appropriate reforms, and a commitment to strong conditioned finance, which is why the passage of the IMF is so important, offers us the best way forward at this juncture. I think that's the general sense of it.
Q You folks yourselves, though, have spoken about the psychology factor involved here. On Friday Secretary Rubin was talking about the herd mentality of going the other way. You have been critical of the Japanese in terms of not reforming their banking system and have pointed to the markets there and the lack of confidence in their reforms as reflected by the markets there. Can't you say the same thing about the markets here, that they're reflecting now a lack of confidence in what's taken place this weekend, that they don't see any solutions coming out of this?
DEPUTY SECRETARY SUMMERS: I don't think that would be right. I think Secretary Rubin has said -- made the point in several of his statements that markets overreact in both directions, and they may well at certain points have reacted on the upward side and they may, in a number of cases at this point, be reacting in a negative direction.
But we cannot and do not make policy based on day-to-day or week-to-week market fluctuations. What is important is the maintenance of sound fundamentals, both here and internationally, because that provides a basis for confidence. And over time that's what will have the most positive influence on markets. In that regard I would just underscore something Gene said: while risks in a variety of respects have increased, I think it's important to understand that nothing has happened that should threaten the basic momentum of economic expansion in the United States.
Q Larry, did the Japanese Central Bank governor tell Secretary Rubin over the weekend that Japanese banks had far lower reserves than even their own statutory requirements, and that they were closer to 4 percent than the 8 percent stipulated?
DEPUTY SECRETARY SUMMERS: There was some discussion of banking issues. And in that discussion Governor Hayami acknowledged what I think has been widely recognized for a long time, that there are important strains on the Japanese banking system with substantial loan losses that have eroded the value of Japanese capital. But he did not say anything that broke new ground or went beyond other things that have been said for a long time, with respect to the Japanese banking system.
Q Did he cite the figures?
DEPUTY SECRETARY SUMMERS: There were some references to tier-one, so-called tier-one capital for which the standard is not 8 percent. So what I would stress is that -- I think I have been a participant in many of these conversations and I did not hear anything that broke new ground, although I certainly heard a good deal that was somber and cause for concern and that underscored our conviction that it was very important that Japan aggressively infuse public money into its banking system, based on appropriate conditions.
Q How do you convince countries to adopt these new lending regulations? And if they don't, how can you enforce them?
DEPUTY SECRETARY SUMMERS: Which lending regulations --
Q The contingent funding or backing up --
DEPUTY SECRETARY SUMMERS: Well, as I say, the contingent finance is something that's being explored. But what is contemplated is the possibility of credit lines that would be available for countries that met an appropriate set of conditions, and where there was a concern that they would be caught up in the contagion and not able to service their debts, the knowledge that there was contingent finance available could make an important contribution to confidence.
Q How would you get countries to come and help with that contingent finance?
DEPUTY SECRETARY SUMMERS: Well, the contingent finance would be anchored in the IMF. And with the passage of the IMF quota, the IMF should have significant resources.
Q Mr. Summers, Brazil, Latin America has become a place everybody is watching with great concern. The elections in Brazil yesterday -- how do you interpret them and will they bring some confidence to the international banking communities? I'm not trying to draw you into political, I'm trying to draw on investor confidence.
DEPUTY SECRETARY SUMMERS: I think President Cardoso has had -- and the Real plan have had very substantial achievements in recent years in strengthening and improving the Brazilian economy. I think it's clear from his statements that President Cardoso and his economic team are very much committed to doing what's necessary to maintain that Real plan and what it entails and to build confidence in what has become a more difficult adverse international environment.
And as Secretary Rubin has said on a number of occasions, the international community respects what has taken place in Brazil and is certainly prepared to be supportive of Brazil at this important juncture.
Q Do you have a sense of the timing of that support from Brazil? Is it possible that we might see an international financial package for Brazil before they take their own fiscal measures, or is that a prerequisite?
DEPUTY SECRETARY SUMMERS: I would think that the general principle that I described, that a country's own policy commitments are what is most crucial and that international efforts can supplement and build on a country's own efforts, I think is a good guideline anywhere. And so I would think that any actions that the international community would take would have to be in the context of Brazilian commitments.
Q Mr. Secretary, what's going to happen to the G-22 at this point? Will it continue to meet? And Gene mentioned that there will be recommendations to heads of states. Will that be made to the G-22 leaders next year? And what recommendations are those, based on the three working groups?
DEPUTY SECRETARY SUMMERS: Well, I think you have already seen or will see the report of the three working groups. And those will be issues that we discussed at the G-22. And I think that one of the things that may be touched on is how best this work will go forward. I think there is a clear consensus on the importance of the G-7 taking a leadership role with respect to these issues, and also of the need for the G-7, as it addresses these issues, to collaborate closely both with other industrial countries and other emerging market countries. And I think that's the kind of collaboration that you'll see going forward.
The heads of state of the G-7 requested a report in Birmingham on this set of issues. And clearly, in light of the events that have taken place, that request takes on increased urgency.
Q In light of the actions -- policies versus pronouncements, what do you expect -- and must you hear something new -- in Kuala Lumpur and in Tokyo from Japan and the other Asian nations, something specific and concrete.
DEPUTY SECRETARY SUMMERS: Well, I think it's very important to start with, for Japan, that they take strong steps to stimulate their economy, to bring fiscal stimulus on line rapidly, and to work to strengthen their banking system. And that's obviously a continuing subject of discussion in our dialogue with them.
Q Gene, you said that you would do everything possible to get the IMF money. Does that include the President compromising on the issue of aid to international family planning agencies, which Republicans have said is necessary before they will release the funds?
MR. SPERLING: Clearly, our position on that has not changed. There is -- you cannot allow important international issues of this magnitude to be held hostage to other issues, no matter how sincerely other people may feel about them. There are differences of opinion on the family planning issue. We have differences in some international family planning issues. We obviously have strong differences with many members of Congress on that issue.
But it's clear that that issue has to be dealt with separately and that the IMF needs to be dealt with on its own terms. And I think that we are hopeful that in light of what is going on in the world that there will be support -- as you will recall that the Senate passed this by an overwhelming amount, by over 80 votes. We're very hopeful that by the end of the next week or so, when Congress goes out that we'll get that same type of bipartisan support for the IMF. And clearly, anyone who tacks on a poison pill or a controversial issue as a hostage will be working against an effort to have the kind of bipartisanship that led to it to pass in the Senate. So we're hopeful.
Q Gene, just to follow up, if the IMF money is so critical for world economic health, why won't the President relent on an issue that after all involves aid to foreign organizations that perform abortions?
MR. SPERLING: It's really the wrong -- you're phrasing the question that wrong way. If one took that approach, any time there is any important issue at all, you would be saying that any group in Congress, on the right or left or center, could pass anything by simply attaching to an extremely important bill. You could have important military measures for this country, and I think that if people attach whatever other controversial social issues on top of that, clearly it would be those people who were delaying the passage of that bill.
So it's just as a matter of good government, one cannot allow important measures like this to be held hostage. It would set a terrible precedent for the future. And I think everybody understands that. And I think everybody in the business community understands that. I think that the bipartisan majority that voted for it in the Senate understand that, and I just hope we'll be able to work our way through this.
Q Gene, just to follow on that budget question. So far Congress has stiffed you -- not just on the IMF funding but on large sections of the child care and education agenda that you folks laid out when the President announced his budget this year. A couple of questions: why does the President not have more clout? And so far can you point to any of the major initiatives that represent successes in the President's budget this year?
MR. SPERLING: Well, first of all, we are going to press very hard for our education agenda. And if we do not have an education budget coming up that meets -- in the appropriations bill that meets the President's goals, he will veto that bill. And there is no question about that. I expect that you will see the President do quite well on his education agenda. We have so far -- clearly, there has not been enough done by the Congress so far.
We have passed the Work Force Investment Act, the training bill. And I don't, you know, have a list. And there are clearly many important issues that we've been working on where we've had significant influence on the direction of the bills from the H-1B visas to bankruptcy legislation, other things that are going forward. I do not know whether those bills will come to completion.
But if you look at the issues that we'll be putting forward on education technology, on after-school care, on our basic issues on Head Start, et cetera, I think that you will see that we will do well. And if we don't, the President will veto that bill and I think the country will join in support of the President as they always have for his education agenda.
Q I'm not sure I understand, though. Are you talking -- is there a specific figure that you're laying down, if it's not in there you'll veto it? Or are you talking in general terms?
MR. SPERLING: I think that our key budget -- our key education priorities are well known. And they are well known by the Congress. And if there is not a satisfactory support for the key issues the American people support in terms of after-school care, education technology, funding for disadvantaged schools, Head Start, mentoring, child literacy efforts, that the President will not sign that bill. He will veto it. And I predict that the American people would rally around him. And I think when the end of the day comes, we'll be in here showing how, in fact, the President did quite well on the education agenda that he laid out in the State of the Union.
Q Gene, another snag to the IMF funding is reform of the agency itself.
MR. SPERLING: I was going to say -- the other thing obviously that has passed is the Higher Education Act, which did quite well in our initiatives in terms of the student interest rate was the exact amount that we set. The teacher recruitment initiative that we put forward in the State of the Union was passed, as was his High Hopes initiative. It has a different name, but the initiative -- colleges and college students essentially adopt, tutor young kids from sixth, seventh grade up to the time they go to college.
Q Are you going to be able to accept any reforms of the IMF itself? And do those reforms -- can those reforms come before the money is made available to the IMF?
MR. SPERLING: Well, I'll let Larry answer. But our general posture has been that there are reasonable differences reasonable people can have on the IMF. We are, overall, supportive of the approach they have taken in the past, that funding based on strong conditionality and strong domestic performance. But the general feeling one has to have is that you don't not put out existing fires while you're negotiating on how to reform the fire department. And I think that analogy becomes more and more apt. But, Larry, do you want to add more?
DEPUTY SECRETARY SUMMERS: I think if the IMF didn't exist, the international community would have to invent it, because it's crucial for the international community to have a capacity to provide conditioned finance in response to nations that are experiencing substantial financial difficulties.
But to say that the IMF is indispensable is not to say that any of us at the IMF or its major shareholders can be satisfied with the IMF that we now have. It's crucial to pursue reforms in a number of areas and we are certainly committed to pursuing reforms in a number of areas -- including the IMF's transparency; including the IMF's accountability and availability to external scrutiny; including the IMF's surveillance practices to make those as effective as they can be in detecting problems before they arise; including careful examination of the content of IMF programs to ensure that they are as responsive as possible to particular situations of particular countries; and a focus on the questions that are raised by a global economy in which capital flows on a larger scale than ever before.
All of these elements and others -- questions of corruption, questions of the holistic aspects of economic reform -- are all issues that I think are very important. And certainly we are committed to using U.S. influence to bring about change, and I think that's something we certainly are prepared to discuss with Congress as this legislation moves forward.
But let me underscore something Gene said. Our capacity to respond to the current crisis, our capacity to maintain confidence -- which is crucial in the current crisis -- and our capacity to exercise influence on the IMF and the monetary system of the future depend upon obtaining funding.
Thank you. Let me get out of the way and turn to the one and only -- we are graced by your presence, Mr. Lockhart. (Laughter.)
MR. LOCKHART: Thank you, thank you.
MR. SPERLING: Joe, I just want to say on behalf of the White House, you're a superstar to us.
END 1:50 P.M. EDT