THE WHITE HOUSE
Office of the Press Secretary
PRESS BRIEFING BY DEPUTY NATIONAL SECURITY ADVISOR JIM STEINBERG NATIONAL ECONOMIC ADVISOR GENE SPERLING, DEPUTY TREASURY SECRETARY LARRY SUMMERS
The Briefing Room
11:05 A.M. EST
MR. LOCKHART: Good morning, everybody. Joining us this morning to give you a sense of the President's trip to Japan, Korea, South Korea and Guam are the Deputy National Security Advisor, Jim Steinberg; Larry Summers, the Deputy Treasury Secretary; and Gene Sperling, who is Director of the President's National Economic Council.
Let me just, as promised this morning, give you a readout. The President, at about 10:30 a.m. this morning, spoke with the Vice President from Malaysia. The Vice President briefed the President on the days he's there and the meetings he's had, the progress we've made at the APEC meeting. And the President thanked the Vice President for going over there on short notice and participating on his behalf.
Q Will the Vice President come back here before the President leaves?
MR. LOCKHART: I think he won't be back here as to the -- I was asked yesterday something about whether they would both would be out of the country. I think the way the schedule looks now, if we leave on time -- which, as you all know, is a highly questionable proposition -- there may be a few minutes where the President leaves our air space, the Vice President has yet to arrive. But it's a matter of minutes, and --
Q Did they talk about the controversial speech?
MR. LOCKHART: Let me finish this. But either way, as you all know, the President remains the President no matter where he is and we have excellent communications.
Q Did the President Clinton tell Vice President Gore that he supports everything that Gore said at APEC?
MR. LOCKHART: Absolutely. The Vice President briefed the President on the speech he gave. The President said that he believed the Vice President did an excellent job and commended him for the speech and for his overall effort during the two days over there.
Q Was it the same speech that President Clinton was scheduled to address?
MR. LOCKHART: It certainly was the same speech that the President was planning to use, and it certainly reflects U.S. policy.
Q So the wording he used is what President Clinton would have used, had he been --
MR. LOCKHART: It was certainly the speech that we were planning to give, and it reflects U.S. policy.
Q Joe, you indicated earlier you might have something to say on the cross-examination?
MR. LOCKHART: These guys have a much tighter schedule than me. Let's do this.
Q Are you going to brief afterwards?
MR. LOCKHART: I'll come back after.
MR. STEINBERG: Good morning.
Q How did you feel about the bombing of Iraq?
MR. STEINBERG: Let's talk about the trip.
Q Are you going on the trip?
MR. STEINBERG: Let me give you a brief overview of the schedule and just briefly on the security part. You've all already heard from Ken Lieberthal earlier, so I won't spend a lot of time on the specifics.
I think the President feels it's very important that he is going to have an opportunity to take this part of the trip. It really reflects the very strong commitment that he has to U.S. engagement in Asia, and particularly the importance of these two allies of ours. The cornerstone of our engagement in Asia is built around our engagement with our treaty allies, and none are more important than Japan and Korea.
The President will arrive in Japan. He'll begin with a private visit with the Emperor and the Empress. This is actually a genuinely private visit -- they're going to go to the private residence, which is a very rare honor that they've offered to the President. It very rarely happened in the past.
The President will then tape, for later broadcast that evening, a town hall conversation with the Japanese people. There will be a group of sort of young-ish Japanese, 20 to 40 year olds, in the audience. It will give him a chance to talk directly to the people of Japan about their issues and concerns and to give him a chance to talk about the United States and our perspective on many issues in security and economics that engage us both.
The next day, he'll give a talk to the American Chamber of Commerce, followed by a bilateral meeting with the Japanese Prime Minister. He'll go on that evening to Korea. The events on the first day in Korea will be bilateral meetings with President Kim Dae-jung, followed by a press conference; and following that, a round table on democracy, civil society with a group of Koreans to talk about democracy building in Korea, the impact of the changes and reform on day to day life and on the aspirations of the Korean people.
On Sunday he'll probably attend church and then he'll go to the Korea Training Center where he'll have a chance to talk to both U.S. and Korean troops, share a meal with them and then on to Osan Air Force Base to give a talk to U.S. forces there. And then the following day he'll go to Guam.
Just briefly on political and security agenda -- as I said, this will be an opportunity for him to reaffirm the centrality of the alliances that we have with these two countries. I think very prominent on the agenda will be discussions about the situation in North Korea and the variety of our concerns about the North Korean nuclear program and their missile program. And very importantly, a chance to talk in both countries to the people directly about our stakes and our commitment to being involved in Asia and our relationships with them -- with a particular emphasis on the efforts to sustain economic growth and democracy during these challenging times.
Q You won't go to the DMZ?
MR. STEINBERG: He's not going to the DMZ, but he has two separate events on security at the Korea Training Center and Osan. So he's got really one whole day focused on our security engagement with Korea.
Q Will he reinforce --
MR. STEINBERG: Why don't we let Gene go ahead?
MR. SPERLING: The President has clearly made clear on many occasions over the last year how critical the resurgence of growth in Japan is to the economic revitalization of the region, and he will continue to stress those points, the very important need for demand-led growth and for positive growth in Japan, the need for prompt, corrective action in the banking reform and the importance of further market opening and deregulation -- altogether the three being essential components to resurgence of growth that has never been more important to world growth than it is right now with Japan supplying 70 percent of the economic power of the region.
The President will go on to Korea, certainly South Korea. Kim Dae-jung has made significant economic reforms and has much to be complimented on. There is obviously further work to do in ensuring that everyone, including the large conglomerates -- are doing their part.
I will let -- Deputy Secretary Summers will go into more detail on these financial areas. Let me say something in the trade area. Charlene Barshefsky, our USTR, is in Malaysia as we speak.
But on this third component, this certainly is a critical time in the world economy for market opening, it is critical to the growth in the region. While U.S. imports from Southeast Asia have been up $5 billion, they've been down $15 billion in Japan. And so the combination of market opening and demand-led growth is an integral part to helping the region.
It's also critical for us to show that even in these difficult times there's a commitment to further market opening. And we count on Japan joining us in a leadership role in further tariff reductions in the WTO, in the nine sectors discussed in APEC, in which 16 countries did make commitments in the hope of leveraging those for an international agreement in the same way that the information technology agreement started at APEC and then went to the World Trade Organization.
The President will also stress the importance of making progress on the agreements that we already have in areas from insurance to flat glass, where there's not been satisfactory progress. One of the positive efforts that we've been able to make over the last few years has been in the deregulation initiative, where at Birmingham we had concrete steps that were announced in housing, pharmaceuticals, telecommunications and financial services, we hope to be able to work on something that could be announced next time the two leaders met on those areas in energy as well, making further progress.
And, finally, the President will stress the importance at this time of ensuring that we are operating under a rule based trading system. There certainly is concern at the surge in steel, the increase by over 500 percent of hot rolled steel imported into the United States from Japan. And the President will stress the importance of each country at this time ensuring that they are operating by a rule based trading measures to help further the confidence in our rule based open market trading system that has served the global economy so well over the last couple of decades.
With that, let me turn to Deputy Secretary Summers and then we will be available for questions.
DEPUTY SECRETARY SUMMERS: The President goes to Japan to continue our financial and economic dialogue with Japan at a significant moment. Following the G-7's recognition that the balance of risks have changes, U.S. passage of the IMF legislation, Japanese passage of banking legislation, agreements to cooperate on the development of the future international financial architecture -- there has been some improvement in the behavior of markets and some signs of a return of confidence in recent weeks.
At the same time, large problems remain. After a period of prolonged recession Japan is not expecting, quoting from many forecasters, on the basis of all the actions that have been taken to date, to enjoy meaningful growth next year with most forecasts negative. Deflationary risk factors in Japan have been sufficiently large that negative interest rates have been observed in recent weeks.
At a time when continued demand is crucial to the global economy -- and in particular to the Asian economy -- Japan's current account surplus has substantially increased and is expected to exceed three percent of GDP in 1998 and 1999. Japanese imports from eight major Asian economies have actually fallen in the past year by more than 13 percent, while U.S. imports from these countries have risen.
So economic policy in Japan and what the United States and Japan can do together for the Asian economies and the global economy will be very much on the agenda when President Clinton meets with Prime Minister Obuchi.
The initiative announced in Kuala Lumpur to cooperate for Asian growth and recovery through the provision of finance for trade and for private sector restructuring will, I'm sure, be a subject of discussion. And crucial economic policy priorities in Japan, making sure that fiscal stimulus is well and vigorously applied -- and we have seen some signs after lagging implementation with evidence of public construction increasing by 30 percent in September. That will be very much a subject on the agenda.
And so, too, will be banking policy which, since the time that President Clinton and Prime Minister Obuchi last met, the Diet has passed substantial legislation making substantial funds available for the Japanese banking system. But if that legislation is to have the desired effects it is crucial that transparency be increased, that funds be used as bad assets are disposed of and liquidated into the market, as was done with the RTC here; and it is crucial, also, that the orientation of the financial system be tilted towards lending to productive uses and away from continued lending for unproductive low return projects.
So with the situation in Japan, there will be a great deal to talk about regarding the Japanese situation and also the situation in Asia more generally.
In Korea, where interest rates have come down to single digits, where exchange rate stability has been observed for some time, and where the sense of rapid decline in output has abated, an important priority will be private sector financial restructuring. And there the actions that the United States is going to take in the trade finance area, and that working with the Japanese and the multilateral banks we intend to take to support bank recapitalization and private sector restructuring, will be important areas for discussion.
Q Gene, you talk about areas of economic concern and lack of progress in Japan. How far off the tracks is this relationship? How critical is the United States? Can you just give us a summary? What will the President say about the state of the U.S.-Japanese economic relationship?
MR. SPERLING: I think, first of all, the obvious answer -- and I'll let the President speak for himself there -- but I think that the President and I think our policy has been to speak frankly about what was positive and what we see lacking. There certainly was a positive cooperation on the corporate debt restructuring initiative that was announced yesterday, that was announced simultaneously in statements by Prime Minister Obuchi and President Clinton. That was, I think, a very clear example of how our two governments work together cooperatively.
In the banking reform area, I think that the President, Secretary Rubin, Deputy Secretary Summers have been positive in praising the sums of resources that have been put forward to deal with this, but have also been, as Secretary Summers was, candid in acknowledging that the implementation of that, whether it is done in a decisive and prompt way, will be critical to the success.
Clearly, there is no question that we were hoping for more cooperation in the early -- the EVSL, or the trade agreement, trade effort in APEC. And our USTR, Charlene Barshefsky, did a terrific job of moving that forward, that process forward and getting an agreement that that be worked on in the World Trade Organization. But, again, there's no secret that we were disappointed by their lack of willingness to take some tough steps there.
But, again, to the extent that we now have an agreement to work together to try to get those tariff reductions as part of the WTO, that's a positive step we can focus on. So I think that this is unquestionably a positive and warm relationship between the two top economic powers and two of the top democracies in the world. But there has unquestionably been some very real differences of opinion on areas that we think are critical to regaining economic strength in the region and we'll speak candidly and frankly to those individual matters as we have for some time.
Q To follow up, what kind of overall grade would you give them?
MR. SPERLING: Professor Summers? I haven't really graded since Wharton.
DEPUTY SECRETARY SUMMERS: The course isn't over for any of us, and so we're in no position to give grades.
I think what's important to stress is that this is a positive sum agenda. The United States and Japan have a common objective. Japan is not satisfied with negative growth in Japan. Japan has the same stake we do in the resumption of growth and confidence in Asia. So we will acknowledge together that there are real problems remaining, but very much it is a cooperative agenda of working together to solve those problems. And I know that the President enjoys a strong relationship with Prime Minister Obuchi and certainly Secretary Rubin very much values his relationship with Prime Minister Miyazawa and that goes right down the line across our governments.
Q What's your thinking on the latest stimulus package? They keep adding more money, but it never seems to be enough.
DEPUTY SECRETARY SUMMERS: We'll have to evaluate it fully and evaluate which part -- which components of it are incremental; and obviously what will be crucial will be the speed of implementation. I think it is desirable that they are recognizing the importance of domestic demand and they are taking further steps to spur it. But we continue to be concerned that with forecasts of growth for 1999 that are negative and that have deteriorated in recent months despite all that has been done, that it will be important for Japan to focus going forward on doing enough to create momentum, to get their economy going after what has been the longest recession that they have experienced in the post-war period.
Q Two hundred billion dollars in stimulus package doesn't get that done, Larry?
DEPUTY SECRETARY SUMMERS: Let me take this and then this.
Q Do you see anything different in this stimulus package that would lead you to believe that it will make a difference as compared to the numerous stimulus packages that have contained apparently similar types of things before?
DEPUTY SECRETARY SUMMERS: I'm glad you asked that question, which I think is related to the question that Scott was asking.
I think it is very important that in looking at Japanese fiscal policy, we focus not on particular spending that is identified as a stimulus package, but instead focus on what the overall budget posture was; because often, the stimulus package comes on top of a baseline which is very contractionary. For example, the level of fiscal stimulus in 1998 is still, according to IMF figures, significantly below that that was in place two years ago in 1996. And it is important to recognize that the year of most rapid growth, 1996, corresponded to the year when fiscal stimulus was most vigorously applied in Japan.
So our reading of the evidence is that on those occasions when fiscal stimulus has been vigorously applied according to the internationally accepted measures, when you take the overall budget put together that, in fact, it has resulted in significant growth -- and that on some occasions, the stimulus packages have not been large enough, even though they've been called stimulus packages, to offset what otherwise would have been a contractionary baseline.
So what will be crucial going forward will be that the overall posture of fiscal policy going into 1999 be expansionary, and in that case, we believe that fiscal policy certainly can make a difference in an economy like Japan's where there is substantial unused capacity, as represented by significant unemployment and very low interest rates, and so the crowding out concerns that arise in other contexts are not likely to be large.
Q If you're looking at contraction into 1999, what is the effect of that alone on the American economy?
DEPUTY SECRETARY SUMMERS: Clearly, we have an important stake in growth in Japan, both because of its impact on export demand for U.S. products and because our capital markets are very tightly linked. But I believe that if the Japanese situation and the global situation more generally remains contained, that the basic momentum of expansion in the United States should continue.
We have a very healthy expansion because it is based, unlike our previous long expansions, not on consumption and government spending, but instead on investment and on exports. That gives a basis for it to continue as a healthy expansion.
MR. SPERLING: Just one fact, though, directly is that our exports to Japan are down 12 percent this year, so in its most direct effect, the lack of satisfactory market opening and demand certainly does have effect on our exports to the degree that it's critical to the economic health of the region. In that impact, it is a broader impact. That does not mean we're not positive about the projection for sustained growth in the future, but just to say that from the start we have always has this need to be monitored because in this situation, everything -- no country is completely immune, including the United States.
QQ My sense from Larry, though, Gene, is that it's a minor drag on the economy.
DEPUTY SECRETARY SUMMERS: Clearly the global situation has important sectoral impacts and, depending on how it plays out, could pose real risks. There are risks that no one should want to run and there are sectoral dislocations that are quite important. So it is very much in the economic interests of the United States -- I don't want to minimize that in any way -- it is very much in the economic interest of the United States that the Japanese economy get back on track as rapidly as possible.
But at the same time, I think the basic momentum of expansion should continue.
MR. SPERLING: I just think it's important to understand there's the direct impact in terms of our trade exports and then there is the indirect impact to the degree that Japan's resurgence is critical to resurgence of growth in the region and how that affects the global economy.
So our concerns throughout have always been not on just the impacts of a particular country, but of the health of the global economy and giving stability there; because if that were to become unmanageable, that would start to have more of a significant impact on the U.S. economy.
Q Larry, you mentioned the Japanese steel exports to the United States. Do we believe that Japan is dumping steel in the U.S.? And whether you technically call it dumping or not, are we seeing an impact on our domestic steel industry?
MR. SPERLING: I don't think there's any question that there has been a surge of steel imports that have been having a negative impact on our steel industry and on our steel workers. There is currently an anti-dumping case that has been filed against Japan, Russia and Brazil; as that is a quasi-judicial measure, I don't think it would probably be appropriate for us to pass judgment on that.
But I think it is appropriate, however, for us to make clear to any country that it's important that they, in a sense, have their own house in order and ensure that they are operating by rule-based measures. Certainly, in hot rolled steel, you've seen an increase so far of 200,000 to 1.3 million metric tons; that's a 550 percent increase. That certainly is significant -- and a 114 percent increase in steel overall. So there's no question that there has been a surge and that that is certainly causing pain, real pain in some steel communities in this country.
I think what the President will do when he speaks in Korea and in Japan is to stress the importance of a rule-based fair trading system and that the importance of that for maintaining confidence in open global markets. And those will be points he will make; those certainly are points the Vice President made today in his bilateral of Kim Dae-jung yesterday.
Q Larry, what do you make of the market's unenthusiastic reception of the Brazil rescue plan? What does that say about the whole model for early intervention sort of structure the President has called for?
DEPUTY SECRETARY SUMMERS: I think we'll have to see how things play out in Brazil. I was encouraged by the statement of Mr. Rhodes after chairing a lunch of major United States banks in New York, that it was their intention to maintain key commitments to Brazil and have been encouraged by the pattern of reserve flows in Brazil, which has been different in November and much more favorable to Brazil than it had been earlier. And certainly Brazil's stock market has moved quite substantially in the last six weeks.
But what will be crucial is not -- obviously the support that is provided is very important. But what is most important for the prospects of maintaining stability and laying a foundation for resumption of growth in Brazil would be the actions that Brazil takes. That's why the discussion of fiscal policy in Brazil between President Cardozo and the Brazilian legislature will be so very important going forward and certainly we will be watching those, as we expect investors will, very carefully going forward.
Q Can you answer a question about in consumer terms, that the average Joe American can understand? What do you hope to get out of this trip that's going to impact Americans' lives? What is your best hope for this trip that will actually have an impact where people live?
DEPUTY SECRETARY SUMMERS: A healthier Asian economy, which will mean higher wages for workers because there will be more demand for U.S. exports, and better returns for American savers because our markets will perform better and more stability in the world, which is ultimately important for the security interests that affect all of us as Americans.
Q Would you grade this one? Today is the fifth anniversary of NAFTA, one of the major initiatives of President Clinton. Would you give it a grade?
DEPUTY SECRETARY SUMMERS: I left the classroom some time ago, so no --
Q Okay, don't give us a grade, give us an overall of what do you think --
DEPUTY SECRETARY SUMMERS: So no grades. But I would say this: I think that through a period when there has been a great deal of change and uncertainty, I think the presence of NAFTA has had a very important and beneficial interest on -- beneficial impact on U.S. interests. Without NAFTA, the United States would have substantially fewer exports to Mexico. Without NAFTA, our capacity to cooperate with Mexico on issues ranging from immigration to drugs would be substantially diminished, and I believe that NAFTA has had an important impact on maintaining stability in Mexico through a very difficult time.
Q Secretary Summers, when you said that the overall fiscal stance of Japan in 1998 is less than that of 1996, were you taking into account the latest stimulus package and are you, therefore, labeling it insufficient? And also, do you subscribe to the OECD's forecasts today that forecast .6 percent growth in Japan as late as the year 2000?
DEPUTY SECRETARY SUMMERS: I haven't had a chance to review the OECD's forecasts and their assumption. The figures I was citing on the cyclically adjusted deficit for Japan were IMF figures some time ago referring to 1998. But the actions taken today would have their primary impact in 1999, and so I don't think they would lead to a significant change in the 1998 figures that I was citing for Japanese fiscal policy.
Q Is this stimulus getting more expensive for them as they delay it? Would $200 billion have worked last year and it is going to cost them more if they wait longer?
DEPUTY SECRETARY SUMMERS: I think as in any financial and economic problem, as we saw with the S&L crisis in this country, it is easier to address problems sooner rather than later, and that's why we have been consistently encouraging stronger policy action. So, certainly, the pace with which actions come, as well as the quantity of those actions, is very important.
MR. LOCKHART: The President requests all of your presence upstairs.
Q Saved by the bell.
Q Gene, are you on the trip?
MR. SPERLING: Yes.