Sunday, February 14, 2010

Deputy Treasury Secretary Neal S. Wolin Remarks before the Jeddah Economic Forum

As prepared for delivery. We are provided with a bit of insight into how gloabalist think. Also, notice the peculiar anti-Keynesian stance of pro-savings anti-consumption, which is a direct contradiction to the stimuls program of getting consumers to buy, e.g. the cash for clunkers program. Internal consistency has never been the hallmark of rulers bent on micro-managing. RW

JEDDAH, SAUDI ARABIA – Good morning. Thank you to His Royal Highness Prince Khalid bin Faisal Al Saud. And thank you to the Jeddah Chamber of Commerce and Industry and the Gulf Research Center for hosting this Forum.

I appreciate the opportunity to be here with you, in this city where, for centuries, travelers, traders, pilgrims from all over the word have exchanged ideas. And I appreciate the opportunity to make some opening remarks on the subject of this morning’s first panel.

This Forum convenes at a significant moment for the global financial system. The architecture of global economic governance has shifted. The narrow, exclusive structure that defined global economic governance for much of the twentieth century has given way to a diverse, inclusive architecture.

For much of the last half century, the center of global economic cooperation rested with the United States, Europe and Japan. While the U.S. and Saudi Arabia had a long tradition of close cooperation, the G-5 and then the G-7 were the venues where the most consequential economic decisions were made.

By the 1990s, that system was antiquated. A changing global economy called for a change in global economic governance. Recognizing a changed and changing world, the United States undertook to build a broader framework; to create the G-20, and to bring the major emerging market economies – China, South Africa, India, Brazil and of course, Saudi Arabia – into the tent.

Today, that process is complete. The G-20 is now, unmistakably, the premier forum for economic coordination. Today, the importance – and the power – of broad, coordinated international action is clearer than ever before.

When the G-20 Leaders met in London last April, they faced the most severe threat to global economic stability in generations. They responded quickly and with unprecedented coordination – with a set of extraordinary measures to stabilize the financial system, restore the flow of credit, mobilize resources for emerging market economies, and keep our markets open for investment and trade.

As His Excellency, SAMA Governor Muhammad Al Jasser said to me yesterday – and I believe he is absolutely correct – the April meeting represented a watershed in modern economic history. Less than a year later, the results of that historic collaboration are clear.

Less than a year after the worst financial crisis since the Great Depression, we see growth in many parts of the world. In the U.S., the fourth quarter GDP growth was a 5.7 percent annual rate. We expect to see continued growth in 2010. In Saudi Arabia, the IMF projects growth of 4 percent in 2010.

To be sure, we still face considerable challenges. The market turbulence in recent weeks is a reminder that the recovery remains fragile. Not every nation and not every region has shared in the nascent recovery. And in many countries – including my own – the GDP numbers have yet to translate into the job growth that really matters to people hit so hard by the economic downturn.

Nonetheless, we have made important progress. And our progress is a testament to the deep sense of common purpose with which the nations of the world – developed and developing – faced the challenges of the past year.

Today, as we look beyond the crisis – and as we shift our focus from rescue to recovery and, indeed, beyond recovery to enduring stability and sustainable growth – our challenge is this: to ensure that our partnership does not diminish in the months and years ahead. Because even as the crisis recedes, our work is just beginning.

In the lead-up to this crisis, some of the world’s largest economies depended almost entirely on American consumers to drive their growth. And we made it easy. For too long, Americans bought too much and saved too little. This is no longer an option. U.S. consumers are already saving more and spending less. Our current account deficit has fallen. And our government is committed, in the years ahead, to putting our public finances on a sustainable track. The world economy can no longer rely on a single engine of demand.

Recognizing these changes, the G-20 leaders committed in Pittsburgh to a new Framework for Strong, Sustainable, and Balanced Growth. Subsequently in St. Andrews, G-20 Finance Ministers and Central Bank Governors set out a detailed process and timeline for achieving this goal. They asked the International Monetary Fund to assist in a mutual assessment process to evaluate whether policies pursued by G-20 countries are consistent with a sustainable, balanced trajectory for the overall global economy – and, if necessary, to recommend how policies should be adjusted to improve the global outlook.

The fact that all of the G-20 countries committed to such a process demonstrates a clear recognition of the need for change. But to have meaning, the words and intentions of the G-20's Framework must be matched by actions. The IMF assessments must be taken seriously. And we all must make the tough decisions to break with the patterns of the past.

Here in Saudi Arabia, you have already taken important and admirable steps. The Saudi government is working to diversify the economy beyond oil. You are creating high-skilled jobs for Saudis and modernizing the judicial and educational systems to support and nourish a modern economy, including the establishment of the King Abdullah University of Science and Technology.

Those are precisely the kind of steps that will enable Saudi Arabia to build a future of continued prosperity in the years to come. Other Gulf nations are taking similar steps. Clearly, the actions that are necessary and appropriate will vary from country to country, economy to economy. But around the world, every nation must do its part to help build a diverse and balanced world economy. The alternative is unsustainable.

At the same time as we work to build a more balanced global economy, we have to work together to build a stronger, safer, more stable financial system.

The financial crisis demonstrated that no nation today is “de-coupled” from the rest. We are inextricably intertwined. The globalized financial system brings tremendous benefits. It serves to mobilize and facilitate the flow capital to those that can put it to use – including, importantly, in emerging economies. But in addition to common benefits, financial interdependence brings common risks. To help protect all of our nations from the destabilizing effects of financial crises, we must work to strengthen our financial systems.

Over the past year, G-20 Leaders have made substantial progress in building broad international consensus around a core set of reforms. They have supported a comprehensive plan, including the implementation of higher capital and liquidity standards and a simple leverage ratio to constrain excessive risk; strong supervision, particularly of the largest, most interconnected firms; reforms in compensation practices; comprehensive regulation of the OTC derivatives markets and key payment and settlement systems; and resolution authorities that will put an end to what is known in America as the problem of “too big to fail.”

In Pittsburgh, the G-20 Leaders agreed on a timeline for action. They called on finance ministers and central bank governors to reach agreement on the basic standards at the core of reforms by the end of this year, with the aim of national implementation by the end of 2012.

In the United States, recognizing the inadequacy of our own regulatory approach, the Obama Administration has proposed to Congress the most sweeping set of regulatory reforms since the 1930s. We are working aggressively with Congress to enact those reforms. Legislation has passed the House of Representatives. And in the next few weeks we anticipate that our Senate Banking Committee will produce draft legislation of its own.

I am hopeful that we will pass financial reform this year. I am also hopeful that, together, internationally, we will keep the partnership of the last year alive and press forward with the work of creating a strong regulatory framework for the global financial system of the twenty-first century. For no nation, acting alone, can make the financial system safe for the next generation.

All of us that have a stake in the stability of the financial system have a role to play in pushing for meaningful reform. That is why Secretary Geithner was a leading proponent in expanding the Financial Stability Board to include Saudi Arabia and all the G-20 countries. We look forward to working with Saudi Arabia in the G-20, in the FSB and beyond, to achieve meaningful, comprehensive reform.

A third key challenge is to forge multilateral solutions to today’s global threats, from food security to climate change to stabilizing the world’s most troubled regions.

We cannot forget that, for millions of people in the world, the worst crisis of the past few years was not the financial crisis – but the food crisis. In 2008, global food prices soared, pushing millions further into poverty and leaving millions hungry. The Obama Administration has made reducing global food insecurity a key policy priority, committing to provide at least $3.5 billion over three years, including an initial $475 million to a new World Bank trust fund to support country-led agricultural development programs. We welcome the support of our partners.

We also cannot forget that the challenge of food security is closely linked to another challenge – climate change. The G-20 Leaders took an important step by committing to phase out inefficient fossil fuel subsidies over the medium term. We can and must do more – acting through the multilateral development banks, working together to make the recent Copenhagen Accord operational, and supporting the ongoing international climate negotiations. We should work together to achieve a global climate agreement that includes meaningful and transparent actions by all major emitters, as well as financial resources to support the most vulnerable.

Finally, we must recognize that, just as instability in one part of the financial system can destabilize the whole, political instability in one part of the world leaves us all less secure. Before arriving here, I traveled to Afghanistan and Pakistan – countries as critical to global stability as they are challenging. In those places – as well as in places closer to Jeddah; places like Yemen and Somalia – we must work together to promote development, to combat corruption, to build institutions, to combat terrorism, and to disrupt the flow of funds on which terrorists depend.

In tackling each of these problems there is a central role for the institutions that collectively make up our system of global economic governance. To achieve their potential, those institutions require our financial support, our commitment, and our engagement. They also require institutional change.

The governance structure of the IMF and World Bank must evolve to reflect the relative weights and changing dynamics of the world economy. More generally, international financial institutions must make greater progress in strengthening financial management; improving transparency, accountability, and governance; and combating corruption. They must increase their capacity to innovate and demonstrate results. They must dedicate a greater share of resources to the poorest. And they must seek better coordination and division of labor among institutions.

Of course, it is we – the United States, Saudi Arabia, our partners in the G-20 – that have the ultimate responsibility for driving this change.

Achieving the broad agenda I’ve discussed this morning will not be easy. It will require us to work together to find common ground, to explore new ideas and new approaches, and to remain committed to the partnerships we have forged. But our success in facing the financial turmoil of the past year gives me great hope.

When President Obama traveled to Cairo last June, he said, “Our problems must be dealt with through partnership; our progress must be shared.”

As we begin this new decade, we must build on the achievements of the last.

With a sense of common purpose, we must build a foundation for sustainable growth.

With a sense of collective urgency, we must enact financial reform before the memory of this crisis recedes.

And more broadly, together we must create a global economy that is stronger and safer for generations – of Americans, of Saudis, of global citizens - to come. This moment of both historic opportunity and obligation demands nothing less.


  1. Neal's talk fits surprisingly well with the last World Economic Forum session, held in Dubai before it's financial implosion.

    I wonder why Neal didn't mention Dubai World's giving creditors 60 cents on the dollar?

  2. "The G-20 is now, unmistakably, the premier forum for economic coordination." ... I do read correctly? Coordinate what? China's bankruptcy? US bankruptcy?