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G7 Urges China to Quicken Pace to Exchange Rate Flexibility

The United States and other members of the Group of Seven (G7) major industrialized nations want China to move more quickly to adopt a flexible currency exchange rate and a market economy, says U.S. Treasury Secretary John Snow.

Speaking to reporters October 1 in Washington after a meeting of finance ministers and central bankers from Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, Snow said China is making important strides in modernizing its economic infrastructure and deal with inflationary pressures, but that "we're not satisfied with the pace of progress."

However, he said, "I'm not going to put a clock" on exactly when currency restrictions should be loosened.

The informal meeting was the first at which Chinese economic officials participated in a gathering of the G7.

The Treasury chief also said the G7 is urging countries with oil reserves to do what they can to ensure "adequate" supplies are available on world markets.  World oil prices "are causing an economic headwind," he said.

Snow added that current high oil prices are "a short-term phenomenon," noting that stock market estimates for future oil prices are lower than current prices.

The G7 ministers also agreed that emerging economies should take advantage of current favorable global economic conditions to strengthen their policies and reduce their vulnerabilities to potential future shocks.

The finance officials renewed their commitment to their "Agenda for Growth" adopted in 2003, and said countries are taking actions to move toward long-term growth through improvements to financial systems, tax reforms, labor market reforms, reduced regulatory burdens and reform of health and pension systems, according to a G7 statement.

The finance group reiterated the importance of governments' supporting small business and entrepreneurial growth, Snow said.

The G7 is working with the World Bank, International Monetary Fund (IMF) and other donors to achieve agreement on how best to solve poor countries' debt problems, the secretary said.

He said the G7 finance group was pleased to see that Iraq had put in place a finance program with the International Monetary Funds (IMF), calling it "an important step toward resolving Iraq's debt before the end of 2004.

Following is the text of Snow's prepared statement:

Department of the Treasury

October 1, 2004

Statement by U.S. Treasury Secretary John Snow
Following the Meeting of Group of 7 Finance Ministers and Central Bank Governors

Good evening. I was pleased to host the Finance Ministers in the United States Treasury building today.

We met at a time when the global economy is growing -- at the fastest rate in 30 years -- and are all committed to sustaining that growth.

Economic growth and prosperity are good for each of our nations individually, and it is good for each other to have growth among trading partners. Growth in the U.S., for example, is terrific for our trading partners... and their growth is essential for our success. As a global economy, we have become more and more symbiotic, and this is broadly understood today.

That's why the wonderful consensus and collaboration among the countries of the G-7 is so important. We agree on having open economies, free trade, a free flow of capital. Last September, we agreed on the key objective of making lasting changes to our economies that will help deliver stronger global growth that is broad-based and sustainable well into the future. We committed, together, to implement structural changes in our economies under what we call the Agenda for Growth. This initiative focuses on reforms -- such as marginal tax rate reduction, labor market reform and regulatory changes -- that will boost productivity and employment and raise economic performance over the long term.

This September, we are carrying forward with a renewed commitment to the Agenda for Growth. We released a new report on the initiative today that lays out our agreement to make pro-growth structural reforms a regular part of our work to create more jobs and increase productivity. Each G-7 country has taken concrete actions to advance the Agenda, and I am proud to put the United States' reform agenda alongside others' efforts.

The U.S. has, indeed, led the way for global growth. The pro-growth policies of President Bush, combined with sound monetary policy from the Federal Reserve Board, have led to strong recovery and growth here at home. GDP growth is the strongest in 20 years, and job creation is steady, with 1.7 million new jobs created over the past year. The unemployment rate is down in 47 states from one year ago, and at 5.4 percent the national rate is lower than the average of the 1970s, 80s and 90s.

As we talked about economic successes in the U.S. and other countries, we came back again and again to the importance of small businesses and entrepreneurs to any nation's economic health. It is clear that small business has helped all of the G-7 nations, and we believe support for small and medium enterprise is critical in developing countries as well. Small businesses are a key to creating the jobs necessary to raise standards of living and lift people out of poverty.

In our discussions, we agreed that emerging markets have a great opportunity today to prepare for future challenges. We called on them to take advantage of the current favorable economic conditions to strengthen their policies and reduce vulnerabilities to potential future shocks. For Argentina, for example, it is vital to achieve high creditor participation in debt restructuring and to build a sound fiscal framework.

Also, we were all pleased to see Iraq put in place an IMF program. This is an important step toward resolving Iraq's debt before the end of this year -- a goal to which we are committed. Working together, Iraq and the IMF have created a sound and credible economic program. We congratulate them. Iraq's creditors are also to be commended for providing the financial assurances that made this possible.

While good news about the world economy and ambitious plans for solidifying growth dominated our meeting, the cost of energy was also discussed. Right now, oil prices are causing an economic headwind. The geopolitics of oil, and current uncertainties, are causing a short-term phenomenon. The Finance Ministers and I are committed to promoting policy reforms in each of our countries to speed the return of more reasonable costs.

The U.S. Congress -- specifically the Senate -- needs to pass the President's energy plan to get things started here at home. The President's plan will make us less dependent on foreign oil, and will also create lots of good jobs for Americans.

I also hosted an exciting meeting today -- full of energy and purpose -- on another important challenge for the international community: supporting economic reform in the broader Middle East and North Africa. The finance ministers of the G8 and 18 countries in the region all came together with this common goal. I was struck by how the region's economic policymakers are determined to advance market-oriented reform in the region, to meet the aspirations of their people for jobs and better lives.

I believe the key to progress is greater political and economic freedom to give individuals the power to improve their own lives. The G8 is seeking to be supportive of the ongoing market-oriented reform agenda developed by the economic leaders of the region.  It includes working to develop proposals to stimulate the growth of small- and medium-sized enterprises, make the international financial institutions and development assistance more effective in dealing with the development challenges in the region, establish a greater reliance on markets, strengthen financial institutions, and increase trade.

This year is the 60th anniversary of the Bretton Woods Institutions, and the Finance Ministers spent some time discussing the progress of reform -- and the need for further reforms -- among those institutions.

We believe the Bretton Woods Institutions have a responsibility to continue their own reforms, for example the need for them to provide quantifiable indicators and results for all projects. They also need to do more to reinforce debt sustainability in poor countries.

The G-7 Finance Ministers are working together with other donors, with the institutions themselves, and with recipient countries to achieve a consensus on the best way to solve the debt sustainability problem and ensure that our reforms only result in greater, not fewer, resources to poor countries. We agreed that financial support for developing countries will be most effective when it is grounded in the principles of strong country policies, sustainable debt burdens, and accountability for results.

New directions for the international financial institutions will help ensure that they are equipped for modern markets and will be effective in promoting growth and stability well into the future.

As you know, we took the historic step this evening of meeting with our Chinese counterparts. We discussed China's current economic situation and outlook, which are of major importance to the broader global picture. The G-7 has indicated separately and collectively over time our support for greater flexibility in the Chinese exchange rate. Sustained, non-inflationary growth in China is important for maintaining strong global growth, and a more flexible and market-based renminbi exchange rate is an important part of achieving this goal. I have been encouraged by some of the advances that have occurred. Tonight, I underscored that I would like to see China move more quickly. As always, the G-7 Finance Ministers had a productive meeting. I am proud to have hosted the Group and look forward to working with the next Chair of the G-7, my good friend Chancellor Gordon Brown, when the UK hosts our next G-7 meeting in early 2005.