WASHINGTON (MMNI) – The following is the statement of U.S. Treasury
Secretary Tim Geithner Saturday to the International Monetary and
Financial Committee:

Twenty-Fourth Meeting of the International Monetary
and Financial Committee

The world economy is facing new challenges to growth. It is in the
midst of the second slowdown of this recovery from the financial crisis
of 2008 and 2009, with shocks from the crisis in Europe, Japan’s
disaster, and oil prices all contributing to increased uncertainty and
insecurity in global financial markets.

In order to spur economic growth in the short term, President Obama
recently proposed a $447 billion package of public investments, tax
incentives, and targeted jobs measures. The President’s proposal
includes: payroll tax cuts for both workers and small businesses;
targeted hiring incentives; immediate investments in infrastructure and
schools and the creation of a National Infrastructure Bank; and
extension and reform of unemployment insurance to help facilitate
workforce re-entry for the unemployed. Without additional near-term
support, fiscal policy in the U.S. will be overly contractionary and the
U.S. economy will likely grow below its potential in 2012. Private
economists estimate that these proposed measures could increase real
economic growth next year by around one and a half percentage points and
create more than one million jobs at a critical moment in the recovery.

Alongside near term support for the economic recovery, we remain
committed to credible steps to restore fiscal sustainability in the
medium term. This week, the President put forward a plan to reduce
deficits by more than $3 trillion over the next 10 years, more than
offsetting the cost of any additional near-term accommodation. This
deficit reduction would be on top of the $1 trillion in spending cuts
enacted this summer. The President’s proposal for $4 trillion in
deficit reduction would bring the U.S. into primary surplus by the
middle of the decade, resulting in a decrease in the debt-to-GDP ratio
from 2015 to 2021. In order to meet these fiscal targets, the President
proposed specific reforms to spending programs and called for
comprehensive reform of the tax code, including reducing spending
through the tax code.

Together, pro-growth policies in the near term and meaningful
deficit-reduction in the medium term will strengthen the U.S. economy
and preserve sufficient fiscal space for the U.S. to respond to future
external shocks.

Sovereign and banking stresses in Europe are the most serious risk
now confronting the world economy. The commitments that euro area
members have made to one another in the last 18 months have been
impressive. But further action to expand the effective capacity of
these commitments is still necessary to create a firewall against
further contagion. While it is crucial that countries in the periphery
undertake real reforms and demonstrate fiscal discipline, these efforts
will take time. Meanwhile, European governments should work alongside
the European Central Bank to demonstrate an unequivocal commitment to
ensure sovereigns with sound fiscal policies have affordable financing,
and to ensure that European banks have recourse to adequate capital and
funding to win the full confidence of their depositors and creditors.
The threat of cascading default, bank runs, and catastrophic risk must
be taken off the table, as otherwise it will undermine all other
efforts, both within Europe and globally. Decisions as to how to
conclusively address the region’s problems cannot wait until the crisis
gets more severe.

While demand remains weak in the advanced economies, it is
essential that emerging markets make concrete progress in shifting to
domestic demand to support global growth. China and other emerging
market surplus economies have considerable room to boost consumption and
strengthen domestic demand, by allowing their exchange rates to adjust
to market forces while diminishing inflationary pressures. This
asymmetry in emerging market exchange rate policies magnifies upward
pressure on those emerging market exchange rates which are allowed to
move and where capital accounts are much more open, for example in Latin
America.

The imperative remains to strengthen economic growth through
continued global cooperation. Now we must all address key imbalances
that threaten strong, sustainable, and balanced growth. Fiscal policy
everywhere has to be guided by the imperatives of growth. Where
deficits and interest rates are too high, governments have no choice but
to consolidate. Where fiscal positions are stronger and interest rates
low, some countries have room to take more action to support growth, and
others can at least slow the pace of consolidation. Where more fiscal
reforms are necessary to achieve long-run sustainability, the emphasis
should be on policy changes that take effect over the medium term. As
for monetary policy, inflation risks are on average, though not
everywhere, less acute. This means some central banks will continue to
ease policy, while some will keep rates lower longer and slow the pace
of expected tightening.

We have made significant progress in strengthening the functioning
of the International Monetary Fund (IMF). We have agreed to enhance the
legitimacy of the IMF though essential reforms to the Fund’s governance
structure in order to better reflect the realities of today’s global
economy. The IMF’s increased lending in the wake of the crisis and
since then has been crucial to the global recovery. We have also
bolstered available IMF resources, including through the New
Arrangements to Borrow (NAB), and expanded the global financial safety
net with the introduction of new precautionary lending facilities. The
Fund is closely collaborating with the G-20 in its Mutual Assessment
Process and analyzing necessary adjustments to tackle large and
persistent external imbalances. But the Fund still falls short in
assessing exchange rate policies. The Fund’s surveillance would benefit
from the publication of an External Stability Report that provides a
frank assessment of exchange rate misalignment and excessive reserves
accumulation and progress being made in reducing global imbalances. We
call on the IMF to set forth a strong and comprehensive set of proposals
to address these deficiencies.

We have acted decisively to give the Fund the resources and
facilities to respond to crises. Now is the time for the Fund to take a
leadership role and focus on what counts in strengthening the
international monetary system.

** Market News International Washington Bureau: 202-371-2121 **

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