June 29, 2005
Treasury’s Snow: Europe, Japan must boost growth
NEW YORK (Reuters) - U.S. Treasury Secretary John Snow saidon Tuesday the government was doing what it needed to do tocorrect global trade imbalances, but Europe and Japan needed todo their part as well.
"Our actions alone will not be sufficient to unwind globalimbalances," Snow said in prepared remarks for delivery to theCouncil on Foreign Relations. "Simply put, large imbalanceswill continue if growth in our major trading partners continuesto lag."The U.S. Treasury chief said the United States "is doingits part" by tackling the budget deficit but said since thecombined European and Japanese economies outweigh America's,the onus for action is on them.
"These economies must continue to adopt and implementvigorous and necessary structural reforms to establish robustrates of growth -- both for the good of their own citizens andto contribute to reductions in the imbalances in the globaleconomy," Snow added.
He intimated that the latest budget deficit data due out ina few weeks will show the Bush administration is making headwayin its campaign promise to halve the fiscal shortfall by theend of Bush's presidency.
"I don't want to foreshadow what those numbers will beexcept I will say they are going to be a lot lower. And theywill show that we are well in advance of the President's targetof cutting the deficit in half by the end of his term," saidSnow.
He added that even his office was surprised at the rise intax receipts, which are now running 15 percent higher thaninitially forecasted at the beginning of the year.
Last fiscal year, the U.S. budget deficit widened to arecord $412 billion. The latest prediction from the nonpartisanCongressional Budget Office for the budget deficit for the yearending Sept. 30 is around $350 billion.
THEY'RE COMING ALONG
Turning to China, Snow said increased foreign exchangeflexibility on China's part was "a necessary component of theglobal adjustment process." The United States has been leadinga drive to persuade China to loosen the peg that it maintainsbetween its yuan currency and the dollar.
The yuan has been held at about 8.28 to the dollar for thepast decade, a practice that U.S. manufacturers complain meansChinese imports are undervalued by as much as 40 percent,leaving American producers at a competitive disadvantage.
For the past several weeks, U.S. officials have said thatChina is ready to move to a more flexible exchange rate regimeand that reforming its currency policy is in China's interestas well as the global economy's.
However, in reply to a question from the audience onChina's corporate governance controls, Snow cataloged a numberof deficiencies in the country's domestic economy, includinglack of control over interest rates to allocate capital, nowell functioning stock exchanges and no deep and liquid capitalmarkets for fixed income products.
"The fact is China is still a developing country, with alot of work to do on the fundamentals of a well functioningmarket economy," he said.
Snow recently toured five European countries and attendedthe Group of Eight finance ministers' meeting in London on June10-11. He said he discussed with the Europeans measures toboost their growth, including through integrating their capitalmarkets to make it easier to invest there.
The Group of Eight comprises the United States, Britain,Canada, France, Germany, Italy, Japan and Russia. Snow notedits political leaders, who meet in Scotland on July 6-8, willtake up the issue of directing more aid to Africa.
In London, the finance ministers agreed on a pact to wipeout more than $40 billion of debt for impoverished Africannations and the political leaders will consider how to take ita step further by boosting aid.
Snow said it was vital not to focus on the dollar amountsof aid alone, but instead to try to see that assistance wasdistributed in the most effective way.
"Money alone is not the answer," Snow said. "By workingthrough the G8 we are also trying to focus more attention onother factors in growth-enhancing development -- especiallythrough a greater focus on private sector development." (Additional reporting by Glenn Somerville)