U.S. and Hong Kong (1998)

TREASURY DEPUTY SUMMERS TOKYO PRESS CONFERENCE

Following is the transcript of the press conference:

(begin transcript)

Deputy Treasury Secretary Lawrence Summers
Press Conference at the Akasaka Prince Hotel
Tokyo, Japan
June 19, 1998

DEPUTY SECRETARY SUMMERS: Thank you very much. Mr. Sakakibara, as chairman of the meeting, has described the meeting, I'm sure, in detail, and has presented the agreed statement. I'd just like to say that, from our perspective, these were very useful meetings in the context of recent events in Asia. They very usefully brought together the deputies from the Manila Framework countries, the G-7 deputies, along with representatives of the international financial institutions. While there were a number of subjects discussed, from our perspective, I would ascribe particular significance to the discussion of the current Japanese situation, the discussion of economic and financial policy in China, and the discussion of ongoing reform efforts in the countries that have been most heavily impacted by the crisis.

In our discussion of the Japanese situation, the statements that the Prime Minister and Finance Minister had issued were welcomed, and there was general agreement on the great importance of addressing the problems in the Japanese banking system, and also on the importance of achieving domestic demand-led growth in Japan.

The Chinese commitment to maintain the stability of the renminbi was welcomed, and we certainly joined in that.

In the context of the ongoing reform efforts in the most heavily affected countries, we welcomed Indonesia's renewed commitment to economic reform, its ongoing discussions with the IMF and other international financial institutions, and discussed the very substantial progress that Korea and Thailand have made in recent months, along with welcoming the adjustments that have been made by the international financial institutions to their programs in light of events in a number of countries. Of particular importance in that regard, was the provision for increased social safety net spending, both through the expansion of budget targets and through the direct provision of support from the multilateral development banks.

I think it was a good and productive set of meetings at an important time, and [it] reflects the commitment globally to cooperation with respect to financial challenges in this region.

I'd be happy to answer any questions.

QUESTION: [inaudible]...in the context of paragraph six -- sorry, did you get the first question? Second question, in the context of paragraph six, relating to cooperation as necessary in exchange rates, is that new language? And was there any discussion of Asian countries specifically using their reserves to help stabilize the dollar rate?

DEPUTY SECRETARY SUMMERS: The first question was about the genesis of the meeting, and I think it came out of a collective feeling of a number of countries in the region -- certainly including but not limited to Japan and the United States -- on the importance of consulting, given the issues that we face. On paragraph six, as we always say, the language speaks for itself.

QUESTION: The U.S. government aggressively intervened in the currency market. You've flown here for important meetings both with Japanese ministers and with this group today. What's different today than Wednesday?

DEPUTY SECRETARY SUMMERS: We've had very good discussions. Yesterday President McDonough of the New York Federal Reserve], Ambassador Wendy Sherman, and I discussed issues relating to the financial and economic challenges that Japan faces with a number of Japanese officials, both in the economic and financial and in the political area. Today we had an opportunity to participate in discussions in which representatives of a number of countries discussed the challenges that Japan faces. Japanese Prime Minister Hashimoto and the Finance Minister have made statements describing Japanese intentions with respect to the financial system, with respect to the tax system, with respect to deregulation, and clearly what is very important in this window of opportunity that's been created in recent days is the concrete policy steps they take, going further on issues that, as the statement today recognized, are of the highest urgency.

QUESTION: Cameron Barr from the Christian Science Monitor. Doesn't the Japanese commitment just amount to words, words, and more words? I mean, how can you be convinced that they will go ahead? And also, you've called the meetings good, useful, and productive, but please say a few words about atmosphere. I mean is the world of one mind on this? Was it all friendly collegiality, do you think the Japanese are really with the program?

DEPUTY SECRETARY SUMMERS: What is going to be most important going forward is the steps that Japan takes to take advantage of this window of opportunity and the credibility that is established by their actions. I would say the meetings today were serious, as befits the serious nature of the issues that were being discussed, but I think there was a very strong consensus on what I think is the central point, which is the importance of the main actions that were outlined in the statement. Japan's taking strong actions with respect to its financial system and with respect to growing the economy, the maintenance of exchange stability in China, and continued strong reform efforts supported by adequate social safety nets in the main countries that are affected.

QUESTION: Michael Lev of the Chicago Tribune. I'm going to ask the exact same question a different way. Does Japan --

DEPUTY SECRETARY SUMMERS: I may give you the exact same answer in a different way.

QUESTION: Then we'll all deal with it then. Does Japan have a plan? Have you seen it? Is it in a book? Is it on the back of an envelope? Is nobody talking about it?

DEPUTY SECRETARY SUMMERS: You know it is obviously for the government in Japan to announce and describe its plans. I thought we had -- along with President McDonough, who is the chairman of the Basel supervisory group, who is a real expert on questions relating to problem banks, and Ambassador Sherman, -- good discussions on their implementation of the intentions that were described in the Prime Minister's statement and in the Finance Minister's statement. I think there is a clear recognition of the need to move rapidly on what are crucial aspects of working through these problems, questions of transparency, questions of the disposition of bad assets, questions with respect to troubled institutions and so forth. But what will be very important is actions going forward.

QUESTION: Jake Schlesinger of the Wall Street Journal. What -- how long is this window of opportunity? Are we talking next week? Are you going to give them up until after the elections?

DEPUTY SECRETARY SUMMERS: Jake, this isn't a question of what I or any other individual or group of individuals or country will give them. The question, in those terms, is about how markets will respond and that's not something we ever try to predict. And so the question really is, following the events of the last few days in markets, we have a very important window -- as I've said several times -- window of opportunity, and it seems to me that it is very much desirable that, as they have recognized, the Japanese take advantage of this window of opportunity as rapidly as possible.

QUESTION: Sonni Efron of the Los Angeles Times. Since the Asian financial crisis began, the Japanese have consistently misjudged those windows of opportunities, misjudged the reaction of the market, particularly the negative reaction of the market, to almost every single step they've made so far. In your discussions did you get the sense that they've learned from their mistakes and that they now really have a grip on how to deal with the markets?

DEPUTY SECRETARY SUMMERS: I think the Prime Minister's statement and the Finance Minister's statement reflect the importance that Japan attaches to these issues, particularly the financial sector problems, at this juncture, and certainly the meeting that we have had today and the substantial coming together on rather short notice of representatives from all over the world speaks, I think, to the importance the international community ascribes to Japanese economic policy at this juncture, because of the importance of what happens in the Japanese economy for itself, for Asia, for capital markets globally.

QUESTION: Benjamin Fulford from the South China Morning Post. I've been told that the United States has long recommended to Japan that they come up with something like the Resolution Trust Corporation, and shut down lots of banks, and I've heard the Japanese are arguing that this is a systemic risk -- we can't just shut down banks because we'd have to shut down everybody. Is there a difference of opinion still on this issue?

DEPUTY SECRETARY SUMMERS: In any country, the way in which financial problems are best addressed is a judgement for that country to make, based on its circumstances, and so it is certainly not the intent of the United States to try to dictate how that's done in any country. What is, I think, important for Japan, for Asia, and for the global economy, is that the financial strains in Japan be addressed in a decisive way. There are common elements in decisive solutions around the world. Those include an emphasis on transparency. Those include measures, which permit impaired assets to be removed from bank balance sheets. Those include appropriate conditioning of capital infusions. And the Japanese authorities in the statements have recognized the need to move forward in an aggressive way, and we very much support and approve of that recognition.

QUESTION: Peter Landers, Far Eastern Economic Review. If Japan adopts your solution to its bad banking -- the problem of its banking system -- I think it's considered likely that many banks and many borrowers from those banks will go bankrupt and that the unemployment rate in Japan will go up very rapidly. Is that -- do you expect that to happen? And is that part of your -- are you willing to propose this plan to Japan, even recognizing that that will be the result?

DEPUTY SECRETARY SUMMERS: Respectfully, I would disagree with a number of premises of your question. We don't have a specific plan, and it is certainly not our place to propose a specific plan. What I think the countries here, collectively felt, and what I think is collectively recognized in the statement -- including strongly by the Japanese authorities -- is the need to address financial sector problems and the need to address strains in the banking system, just as we had a need to address the problems associated with our S & Ls some years ago, and just as a number of other countries have had to work through banking problems. It has, I think, been the general experience that, when those problems are firmly addressed and worked through effectively, the flow of credit on an adequate basis is enhanced rather than impaired, and that the prospects for growth are increased, and that it is best to address these problems rather than to simply allow them to fester, which slows and impairs the credit allocation mechanism. That's certainly a view that is very clear from the statements that the Japanese authorities have made, and I think it's supported by the international experience. So the set of steps that the Japanese have suggested that they are moving toward are steps which, if carried out effectively, would, over time, be growth-promoting for the economy, rather than growth-retarding.

QUESTION: Sheryl WuDunn with the New York Times. There was some discussion just after the intervention, during the intervention, at the time of that, that there were some new economic measures that the Japanese were going to release. Could you tell us what, from your point of view, you felt was new that gave you enough confidence that this time it's going to be different? Because you know, obviously, talking to people in the market, they are still skeptical.

DEPUTY SECRETARY SUMMERS: Well, I don't want to go beyond Secretary Rubin's statement, Sheryl, that indicated their intervention took place -- and now I'm quoting -- A...in the context of Japan's plans to strengthen its economy. I think the Prime Minister's and the Finance Minister's statements laid out the direction of economic and financial policy, and certainly the discussions at this meeting today, and the discussions that my colleagues and I had yesterday pointed to the recognition in Japan of the need for rapid action, again, particularly with respect to the problems in the financial sector. I think we, and the international community, will be looking to see how Japan takes advantage of this window of opportunity.

QUESTION: Sandy Sugawara from the Washington Post. How optimistic are you that this rapid action will come? I mean, you stress the need for it, but do you think that it will come rapidly -- meaning in the next few weeks? Or --

DEPUTY SECRETARY SUMMERS: I think the statement today, Sandy, in which the Japanese indicate that their announcements reflect the highest urgency, is encouraging in suggesting a recognition of the importance of these issues and a recognition that the window of opportunity is here now and may well not always be here. But I don't try to predict what policy steps our government, let alone other governments, will take in the future. Certainly I was very much encouraged by the sense of seriousness of purpose and by the recognition of the importance of these issues that has been expressed in the discussions that we've had here.

Let me take two more.

QUESTION: Julie McCarthy with National Public Radio. Did you receive any clarification today from the Japanese on what they intend to do? How they intend to go about cleaning up the bad load problem? Number one. And number two, there's been a great deal of talk about China's role in actually driving this meeting, and pushing it, and pushing the whole question of the yen to the top of the agenda, particularly in light of President Clinton's trip. Can you tell us -- in a sense, the feeling is that China actually is driving this debate at this point. Could you comment on that and tell us the Chinese attitude today? How vocal were they in these meetings?

DEPUTY SECRETARY SUMMERS: I think it is fair to say that the international community broadly has concerns about the economic and financial situation in Japan. That's why this was a rather large meeting, including both the Manila Group, which includes China and Hong Kong, as well as the G-7 members who are not normally part of the Manila Group, from Europe, who came here. And I think that reflects the fact that the entire international community recognizes that this is an important -- a very important -- juncture and wants to encourage Japan to carry through on its policy intentions in a decisive and rapid way. The decision to intervene was, as Secretary Rubin suggested, something that took place in the context of Japan's plans to strengthen its economy. In the discussions here, certainly the importance of developments in China and the importance of China maintaining its exchange rate was something that was given quite considerable emphasis. I'm sorry, I forgot your first -- you had a first question, which I think was another version of the question we've had a few times. But maybe not.

QUESTION: [repeated]

DEPUTY SECRETARY SUMMERS: The Japanese Prime Minister and Finance Minister's statements, and certainly in a more textured way than a single statement can reflect, our conversations yesterday, point to their recognition of the seriousness of that issue and their determination to address it. But the precise means and modalities are certainly not for us to make comments or predictions about.

One more. Mike.

QUESTION: Mike McKee with Bloomberg News. In his news conference shortly before your appearance here, Minister Sakakibara said he thought that the ministers believed the Japanese when they said they would take swift action, and he urged us to ask the ministers if they did. And so I'm asking you at Mr. Sakakibara's behest, do you believe that the Japanese will take action on a timely enough basis to avoid future problems?

DEPUTY SECRETARY SUMMERS: [The] Japanese have made clear their intentions. I think it's very important that, as they've recognized, it is very important that they act effectively and strongly on those intentions to take advantage of this window of opportunity. Do you recognize some of this? The markets, certainly, I think, will be watching developments in Japan closely. I think there is a very important opportunity now with what has happened in the last several days with these discussions of the international community. I think there is a very important opportunity. I think an opportunity that is widely recognized in economic and political circles in Japan, to take advantage of this moment.

Thank you.

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