Briefing Following the Meeting of the Group of 7 Finance Ministers and Central Bank Governors
4:45 P.M. EDT VideoSECRETARY GEITHNER:
How are you all? Nice to see you. Thanks for coming. The financial authorities of the world convene in Washington this weekend. I just finished a very useful, productive meeting with my G-7 colleagues, the finance ministers and central bank governors of the Group of 7. Later today, we meet with the G-20. And, of course, tomorrow are meetings of the IMFC and Sunday the Development Committee.
I want to make a few remarks on where we are on our broader agenda and our objectives going forward. We meet in the context of a severe downturn in the global economy. Now, without underestimating the very considerable challenges still ahead, there are signs that the pace of deterioration in economic activity and in trade flows has eased. Some measures of spending, some measures of output activity in the United States and other economies may have begun to stabilize. Financial conditions in some markets have shown modest improvement.
And these are encouraging signs, but it is too early to say that risks have receded and it’s too early to conclude that we’re beginning to emerge from this remarkably challenging set of pressures still working their way through the financial system and the global economy.
The origins of this crisis were in a long period of increased borrowing and leverage, and in the breakdown in many financial markets and financial institutions around the world. Crises that follow credit booms and originate in the collapse of financial systems tend to be more powerful and long-lasting, and it’s for this reason that the leaders of the G-20 countries came together in London and committed to an unprecedented program of coordinated policy actions to bring about recovery and to reform the international financial system.
And as you know, that program of commitments have four key elements. The first was to lay the foundation for recovery with strong efforts to support demand growth. The second was to encourage further repair of our financial systems to get credit flowing again. Third was to provide very, very substantial support for the IMF and for the World Bank and the regional development banks so that they can provide resources quickly targeted to those countries most affected by the sharp contraction in financial flows to emerging markets and the very sharp fall-off in external demand for those countries. Finally, the fourth element was to lay a foundation for broad reform to the international financial architecture, both for the standards that applied over the financial system, but also the arrangements that govern the IMF and the other international financial institutions.
Let me just describe a few areas where we’ve seen important progress already. First, since the London meeting, several countries, principally Japan, have augmented or put in place new substantial fiscal stimulus programs. On the eve of the London meeting, Mexico announced that it would apply for the IMF’s new facility, the flexible credit line facility. And following the meeting, Poland and Colombia followed in Mexico’s wake. The managing director of the IMF has reported that he is within striking distance of securing $250 billion in temporary financial resources for the IMF from a number of countries, and he also reports that those countries have indicated a willingness not only to provide that very important source of temporary financing, but to roll those contributions into our proposed new arrangements to borrow, which, as you know, is a very – is a proposed substantial expansion of the resources the IMF could draw on in crisis, called the new arrangements to borrow, to which we, the United States, intend to contribute up to $100 billion.
Bob Zoellick, the president of the World Bank, and his colleagues have forcefully stepped up their response to the crisis with the establishment of an infrastructure recovery and assets platform to support infrastructure development and a global trade liquidity program to reinvigorate trade finance as well as a new capitalization fund organized by the IFC to help support financial recapitalization in their member countries.
And since the London meeting, on another agenda, which is the effort to address the challenges posed by offshore tax havens, offshore financial centers, four countries that in early April were identified by the OECD as not committed to international standards on tax information exchange have now committed to adopt such standards.
Those are just some areas of progress, but our major challenges are still ahead of us. And I just want to review what I think are the most principal – the principal challenges still ahead. It is very important that the governments of the G-20 and governments around the world continue to provide the level of support for demand and commitment to support the restoration of credit flows that is necessary to help us end the recession and lay a foundation for recovery. The IMF has a very important role in monitoring these efforts, and we hope they’re going to provide the kind of independent analysis on a quarterly basis that they were designed to provide. And that will help provide an ongoing assessment of whether we’re all doing enough.
Second, it is very important that we deliver on these commitments to mobilize additional resources for the IMF and the World Bank and the regional development banks, and important for them to deploy those resources in ways that are directly relevant to and particularly helpful to address the challenges in emerging and developing countries. Recovery in the United States depends significantly on establishing recovery in those large and previously rapidly growing markets.
Now looking past the immediate challenge of recovery, it’s very important that we also continue this effort to build consensus on broad reforms of the international financial system. In the United States, we’ve already laid out some initial proposals for reform. You’re going to see new proposals for us in the coming weeks not just on the consumer and investment protection front, but on broad reforms of the entire oversight and regulatory framework. It is very important that as we move in the United States, we build consensus globally on a set of stronger international standards that can help prevent future crises and make our systems, as a whole, less prone to future booms and busts.
Also important, that we set in motion now a process for reform of the government structure of the international institutions. We are committed not just to changing the shape of the table – voting shares, seats around the table to better reflect the balance of economic activity in the world economy today – but also bringing further changes in the effectiveness and responses – responsiveness of these institutions to a dramatically changing world.
This is a ambitious agenda for reform. It reflects a basic recognition that as we address recovery and the challenges of recession, we need to lay a foundation for a stronger, more balanced global recovery – again, a recovery that is less prone in future to booms and busts and more sustainable, more balanced. And it’s propelled by domestic demand growth in all major economies.
As you heard us say in London, I think this agenda reflects an unprecedented scale of cooperative effort globally. I think there’s a remarkable degree of consensus around the world on what’s required to – not just to address the recession, but to lay a foundation for more sustainable and balanced growth in the future. And I’m encouraged by the signs of progress we’ve seen already. I think some of the confidence you’ve seen in markets recently and some of the tentative signs of improvement in underlying economic conditions, in part, reflect a recognition that there’s a very strong framework of policy agreements now in place, gaining traction in the pipeline, being enacted not just in the United States, but around the world.
Thank you. I’d be happy to take your questions. Steve.QUESTION:
Hi, Mr. Secretary. How much did you disclose to your colleagues about the preliminary results of the stress test on the 19 bank holding companies, and what kind of reception did you get from the G-7 on that process?SECRETARY GEITHNER:
Did not discuss the preliminary results. All we did was take stock of our efforts in the United States and in other countries to help make sure there is enough capital in our financial systems to support the credit that recovery will depend on. You know, again, our central objective is to make sure that we’re – we have a financial system that’s working for recovery, not against recovery. And as you’ve seen in the United States, but it’s also true in the other major economies, that requires not just efforts to make sure there’s capital coming into the financial system – we’re at an early stage – but that we’re taking actions to help get the securities markets going again, make sure there’s broad financing available for the credit markets.
And again, as I said, we’re seeing some encouraging signs. Where there has been action and programs initiated, you’ve seen risk premiums start to recede, credit spreads start to come down, and some improvement in issuance in those markets. And that’s very encouraging. We need to reinforce that progress.
Thank you, sir. Thank you, sir. Andrei Sitov from TASS, and thank you for coming to talk to us. I’m sure we all wish you and your colleagues every success in fighting the crisis. My question is about the sign on the lectern saying “G-7 ministerial meeting.” My minister, when he comes to these meetings, talks about G-8. When will we have a full-fledged G-8, financial G-8? And is this more of a political decision or a technical decision you made?
Also, the managing director of the IMF yesterday suggested that the U.S. should give up its virtual veto power at the IMF. What is your response? Thank you, sir.SECRETARY GEITHNER:
We did have a meeting of the G-8 today as well. Thank you for reminding me. Our colleagues from Russia came and joined the discussion on the broader reforms to the international financial architecture, and we’re committed to continuing that process. It’s important to us, and we think it’s an effective part of the overall cooperative agenda, important role alongside the G-20 and other fora.
On the broader reform of governing structure of the IMF, we believe substantial changes are necessary. There’s been a lot of change in the world, less change in the structure of those organizations. And we are going to be laying out ambitious proposals for change, again, not just in voting shares and in seats at the table, but in how those institutions use their resources in ways that are more responsive to the needs of their country – of the member countries as a whole.
So again, the immediate imperative we face is to make sure that they have the resources they need and are using those resources now, quickly, in ways that are very responsive, to alleviate the pressures of the recession. But alongside that, we want to begin the process of building consensus on substantial changes to how they are governed and managed.QUESTION:
That’s not my view, but as I said, there’s a range of changes that we want to look at. And our broad objective is, again, to make sure that they’re catching up to the changes in the world economy and are going to be as adaptive and responsive as they need to be going forward to the changes we may – challenges we may see in the future.
Kahn at the IMF and also the Canadian finance minister have expressed concern in the last few days that the bank rescue is going too slowly. So I was wondering, how do you react to that? And did you feel any pressure in your meeting today regarding the fact that the United States and yourself could be too slow on that?SECRETARY GEITHNER:
I do believe that the managing director is right to underscore the importance of urgency. I think the lesson of the financial crisis is that countries often wait too late to act, they underestimate the basic cost of the crisis, they’re too slow and tentative initially, and that produces and has produced over time longer, deeper recessions that were necessary. So I think the shared sense of commitment and urgency that you see underscored and the actions were taken in the United States and you see echoed in countries around the world – is very important and recognizes that basic lesson of history. And we are absolutely committed in the United States to make sure that we are doing what is necessary to make sure this financial system is providing the credit that recovery requires. And we have laid out in a very short period of time a very powerful comprehensive set of changes designed to do that. And as I said, we’re – we are acting – we are acting – you’re seeing some encouraging signs of improvement in one of the most important measures of success.
But I think he is right, you’re right to remind us of the broad sense of urgency and particularly underscore the fact that even though we’ve seen these encouraging signs of some stability, some slowing in the pace of deterioration, that we face substantial risks and challenges ahead, and as governments, we need to keep at it.
Thank you, Mr. Secretary. Did your colleagues express any concerns about the stress test methodology, and also did they express any concerns about the international reach of the companies in the Targeted Investment Program? SECRETARY GEITHNER:
No discussion of the latter at this meeting, although we’ve had some discussion in the past. And on the first, no, no concerns were expressed about that. There is – you know, again, most countries around the world are facing very similar challenges. You know, this – the conditions that caused this crisis to be severe were the result of very substantial increases in leverage in banking systems around the world. So this is a very common set of challenges. So most countries now are going through this process of trying to assess how to make sure there’s enough capacity to generate credit in their banking system, which is substantially a question of capital, and people are approaching that through slightly different ways. And so we had a little exchange of views about how different governments reflecting the different challenges, different structures of their financial system are meeting those challenges. QUESTION:
(Inaudible) U.S. financial system to these other countries? SECRETARY GEITHNER:
Well, again, I think that – I think we all recognize that recovery in the world depends on recovery in the United States. Recovery in the United States depends on recovery in the financial system, but our recovery, in part, will depend on the strength of what we see happen around the world, and we’re all – all are going to be more effective if they are done in parallel with awareness of the specific approaches other countries are taking.
But again, I think I don’t – you know, I’ve been part of these process for a long period of time. I’ve never seen this level of common commitment and this degree of support for a coordinated policy. And this level of integration between what central banks have to do, what governments have to do with fiscal policy, and what the financial authorities have to do to get financial systems working, snd there’s a lot of – if you just watch the pattern of action, you see a lot of policies initiated in one country replicated in other countries, and there’s still a bit of that going on. We’re all learning from the approaches other have adopted.
Like my colleague here from Russia, I have a question about the makeup of the groups. zss you know, it’s an important thing. I understand that Spain has not been invited to the G-20, whereas it participated in the London meeting. So I wonder if you could tell us why the United States has not invited Spain. Thank you. SECRETARY GEITHNER:
Let me say it this way. Look, there’s a lot of groups, and there’s going to be some evolution in these groups over time, again, as we try to reassess what the most effective framework of cooperation is.
But I will say for the United States, we are committed to working very closely with countries around the world and we will continue to listen for suggestions, to lay out our ideas with as much care as we can, to try to build consensus on as broad a basis as possible. And we’ll do that in every fora that is helpful and effective.
And we’re completely committed and – because we believe that the interests of our country depend on our capacity to help build broader consensus with the major economies around the world. And you have seen us in a very short period of time spend a lot of care and attention and effort on that basic challenge. And you should view that as a – as an evidence – evidence of our commitment that – to that cooperative imperative.
Yes. What kind of ground are you going to be covering with the G-20 today? Is it going to be very similar to what we saw with the G-7? And is it also fair to say that the G-7 was the main event today? SECRETARY GEITHNER:
I would just say that in every meeting over the next couple days and in every meeting that’s going to happen, going forward over the next several months, it will be the same agenda. And the agenda will be: What are we doing? Are we doing enough to help attenuate the risk in this recession, lay the foundation for earlier recovery, lay the foundation for a more balanced, more sustainable recovery, a set of reforms to leave the system stronger in the future?
That will happen every time we meet, every time we talk. And it’ll – you’ll find it familiar, because we’re going to keep at it in each of these fora. The agendas are going to be the same across all these meetings.
You talked about regulatory reform, but the bill that embodies the series of principles you all sent up to the Hill seems to have stalled. There are some differences between the House and the Senate. What are you doing to try to move that forward? And what do you think the time horizon is there? SECRETARY GEITHNER:
Well, I’m not concerned about that. I think there is really very broad support in the United States to try to move as quickly as possible. And you need to have a – you need to have a comprehensive set of changes. And ultimately, they’re all going to have to move together. And there may be things we can move separately in a later stage. But our basic imperative is to get it right and make sure we have a comprehensive set of reforms people can look at together that can become the law – the law of the land. And we’re working very, very closely and very cooperatively with the chairmen of development committees, and I think we’re making a lot of good progress. QUESTION:
And you're not concerned that Barney Frank has slowed it down? SECRETARY GEITHNER:
No, not at all, not at all. We’re working very closely together and I think there is very broad support for moving quickly, not just on the areas we’ve already laid out some suggestions, but in the areas you’re going to see from us in the coming weeks on the consumer, for example.
Yes, thank you, Tim. You talked about the importance of laying the foundation for more balanced global growth. But if you look at the communiqué and other international commitments, there’s nothing there that sets out a very extensive or concrete roadmap as to how to get to a more balanced global economy or more balanced global growth. You compared, for instance, with the quite extensive roadmap, you set out financial regulatory reform. So where is the – where are the concrete steps? Where are the commitments to make this rebalancing happen?SECRETARY GEITHNER:
I think you should – you know, you should watch what evolves in the coming months in that area. You’re going to watch what people set out as objectives to guide reforms at the national level, and you’ll see what countries actually do in support of that agenda.
I said earlier this week there were three areas that underscore – that you have to look at in this area. One is, of course, is to look at the composition and quality of growth both within our country and across countries. So in the United States, for example, that means that we want to have a recovery built on – not on a new hope of increased leverage and unsustainable levels of spending, but a more balanced kind of recovery in the United States. And that’s why you see so early in this Administration the President laying out investments and reforms that will help make our economy more productive over the longer term.
Internationally is a complement to that – just give me one second – internationally as a complement to that we want to see, of course, more balanced pattern of growth internationally; thus, the reference to domestic (inaudible) growth. And I think, again, if you look at the actions taken by a number of major economies, you’ll see the embrace of that basic objective.
Two other areas, though – I’m sorry – just important to underscore. The financial reform effort is critical to this. Because you know, the financial system plays this central role in allocating resources efficiently to their most productive use. But we need to do a better job everywhere in laying the foundation for more stable financial systems, less prone to these kinds of cycles, better able to absorb shocks with less damage to the real economy.
And finally, again as I said earlier this week, it’s very important that as we do these exceptional things to stimulate demand and to bring credit flows backs, that we also design those programs in ways that allow them to be unwound and walked back and bring us back to a sustainable fiscal position over the medium term. That’s a critical part of our strategy. It’ll be critical to the sustainability of the recovery. If we don’t do that, we’re going to face risks that recovery is attenuated earlier because of concerns about higher- risk premium, higher borrowing cost by governments. So I would say look to those three areas for evidence of commitment to this. And I – again, I would say broad sense of support for this basic imperative across the major economy, because people know that the seeds of this crisis were laid in the pattern of growth and expansion of the past five to seven years.
Mr. Secretary, sorry, this is about Chrysler and Fiat. Today the banks agreed to improve a bit the conditions, but not quite as much as the Treasury expected. So what is your reaction to that? Is the idea of putting Chrysler into bankruptcy and is there a possibility of moving forward the deadline of April 30th
I don’t have any specific comments on what’s ahead in that (inaudible). I just want to underscore that what we’re trying to do is bring about the kind of broad restructuring of our automobile industry that will leave it in a stronger position, more viable position, going forward without government assistance in an ongoing basis. And we’re making a fair amount of progress on both fronts and we’re encouraged by what we’ve seen so far, but we’ve got some work to do. But we’re going to do as much as we can to help facilitate that broad outcome.
Thank you very much. Nice to see you.QUESTION:
I don’t have anything more to say about the specifics of that approach. You know, we just had a bunch of – you know, we’re looking at a range of options and – but nothing more about the specifics of about the Chrysler situation more generally.
Nice to see you all. Thank you.