WASHINGTON, Oct 30 - Following is the full text of Treasury Secretary John Snow's testimony on "The Treasury Department's Report to Congress on International Economic and Exchange Rate Policy" before the Senate Banking Committee on Thursday:
"Chairman Shelby, Ranking Member Sarbanes, members of the Banking Committee, thank you for the opportunity to appear before you this morning to discuss Treasury's Report on International Economic and Exchange Rate Policies as well as related economic issues. The Report reviews developments in the United States and examines exchange rate policies in major countries across five regions -- the Americas, Europe and Eurasia, Africa, the Middle East and South Asia, and East Asia. The Report documents the wide variety of exchange rate policies that are used around the world. A notable trend has been the move by many countries to adopt flexible exchange rates. The Report concludes that no major trading partners of the United States meet the technical requirements set forth in the Omnibus Trade and Competitiveness Act of 1988. But let me be clear, the Bush Administration believes that the international trading system works best with free trade, the free flow of capital and with market-based exchange rates. An efficient system of trade and finance, with fair and enforced rules, is essential for the United States and all nations to maximize the benefits of trade and generate the highest levels of economic growth.
The Report finds that a number of countries continue to use pegged exchange rates and/or intervene in the foreign exchange market. It should be noted that a currency peg or intervention does not in and of itself satisfy the statutory test. Treasury has consulted with the IMF management and staff as required by the statute, and they concur with the findings of the Report. The Bush Administration is aggressively encouraging our major trading partners to adopt policies that promote flexible market-based exchange rates combined with a clear price stability goal and a transparent system for adjusting the policy instruments. In my testimony today, I would like to discuss this work with you and the progress we are achieving.
Policies to Raise Economic Growth in the United States and the World The Administration's international economic strategy aims for higher economic growth throughout the world. A stronger world economy is vital to sustaining U.S. economic growth and job creation. This is a reality of our increasingly interdependent world. At the core of this strategy are the good economic policies we are implementing in the United States. But also at the core is our diplomatic work to encourage pro-growth and pro-stability policies in other countries. Good economic policies in other countries benefit the United States and the whole world. It is widely recognized throughout the world that free markets and market-determined prices are best able to allocate scarce resources to their most productive use. This is as true for domestic markets as it is for international markets. We strongly believe that the goals of raising growth and increasing stability can best be accomplished in an international financial system that relies on the principles of free trade, free capital flows, and market-based exchange rates among the major economies.
Free trade, in particular, improves the standard of living across countries. Thus, the Administration will continue to promote free trade through bilateral, regional, and global trade agreements. In this respect, the outcome at Cancun was a missed opportunity. The United States stands ready to work with others who seek liberalization. Our free trade initiatives, including the U.S. proposal to cut tariffs to zero for manufactures, will continue. Implementing this broad international strategy is an ambitious endeavor, but it is an agenda that the Bush Administration is determined to pursue. Convincing others to contribute to further improvement in global growth prospects is a top priority for the President. In furtherance of this agenda I traveled to Europe, China and Japan this summer to deliver this very message. Growth was also the key focus of my discussions with Asian financial leaders in Thailand. Change has already begun among several major economies. For example, Germany is pursuing critical labor market, tax and pension reforms under its Agenda 2010, and France is also moving forward through its Agenda 2006.
With President Bush's leadership, the Administration has made reform and economic growth a priority goal throughout the world. In addition to my own travel, Commerce Secretary Don Evans, United States Trade Representative Robert Zoellick and other senior Administration officials all continue to press nations to put in place pro-growth policies that will result in higher rates of productivity and growth both here and abroad The Administration has urged Japan to implement comprehensive reforms to bring about lasting recovery. These reforms involve ending deflation, strengthening the banking system, and undertaking structural reforms that promote flexibility. Indeed, the Bank of Japan has aggressively increased the money supply to counter deflation, and the Koizumi government has made important headway on improving the health of the banking system. Treasury is actively engaged with the Japanese on monetary, fiscal and exchange rate policies both bilaterally and through meetings of the G7 finance ministers and central bank governors. At the recent G7 meeting in Dubai, we made progress, gaining agreement on a new G7 Agenda for Growth. Under this milestone agreement, G7 countries have committed to concrete structural reform actions to increase productivity, spur growth, and create jobs. And for the first time they have agreed to a process for benchmarking and reporting on their performance.
Each country will identify its own policy plan under the Agenda. For example, the United States will work to lower health care costs, reduce frivolous lawsuits and streamline regulations and needless paperwork through the President's Six Point Plan to promote economic growth. Other G7 countries will implement policies appropriate to their situations. Countries in the European Union will be looking at further ways to revitalize investment and create jobs. Japan has reiterated its commitment to reform. The Agenda for Growth must be about action and results, not just plans and platitudes. When we met in Dubai, my G7 colleagues agreed to be ambitious in embarking on reforms and pursuing growth. In coming months, we will be working to evaluate proposals and assess the results of our efforts. As the United States assumes chairmanship of the G7 in 2004 that focus will be maintained. The Administration is also engaging in other initiatives, both bilateral and multilateral, to advance growth and stability in emerging markets and developing countries. For example, Treasury is working with Brazil through a new " Group for Growth to identify steps to expand economic potential; the Millennium Challenge Account targets assistance to countries that perform on pro-growth policies and delivering results for people; and in the international financial institutions, Treasury is advocating a sharper focus on measurable results, economic policy performance, and promoting private sector development.
Recent Economic Developments The world economy has strengthened during the course of this year, and the United States is leading the way. Thanks to timely fiscal and monetary policy responses, economic growth in the United States is picking up now after the severe shocks of the terrorist attacks, corporate accounting scandals, and stock market decline of 2000. Growth accelerated to 3.3 percent in the second quarter, with fixed investment as well as personal consumption posting large gains. The President's Jobs and Growth plan, along with low interest rates, put the U.S. economy in an excellent position to achieve sustained, robust growth. The President's six-point plan to enhance growth and job creation will further boost our performance. We will not be satisfied until we see strong and sustained job growth. Looking beyond the United States, global growth is also improving. There are signs of stronger growth in Japan, as well as in the United Kingdom, Canada and several emerging market countries. Much of Europe, however, is still falling short of a strong economic recovery. While we can be pleased with the progress made, growth in the major economies around the world, as a whole, has been too slow for too long.
The U.S. International Accounts From my discussions with my counterparts in other countries, there is a great appreciation worldwide that the U.S. is a force for strong growth. This strong performance is also reflected in the pattern of our external trade and current account balances. Developments in the current account are best understood in terms of developments in investment and saving. As a matter of accounting, the current account deficit is equal to the gap between national investment and national saving. Thus, when investment in the United States is higher than domestic saving, foreign investors make up the difference, and the United States has a current account deficit. //