I was pleased to host the G7 Finance Ministers and Central Bank Governors today here at the Treasury.
We had a very full agenda, with several extremely important issues to address.
Let me remark first on current conditions in the U.S. This is a time of concern for those in the path of Hurricane Rita, and those still dealing with the aftermath of Hurricane Katrina. Our thoughts and prayers are with all of you. I briefed my colleagues on our work to get recovery underway on the Gulf Coast, and the President's commitment to help restore and enhance the region. The support I heard today from my colleagues, and that we as a country have received from around the world, is tremendous and deeply appreciated.
As I explained in our meetings, while there never is a good time for such occurrences, with good fiscal and monetary policies contributing to strong and sustainable growth rates and growing revenues, the U.S. economy was well positioned to deal with a shock of this kind. Indeed, while forecasters anticipated a slowdown in the immediate term as a result of Katrina, rebuilding activities are likely to boost growth in early 2006.
Even in light of the short term costs associated with Katrina, and now Rita, let me be very clearthe United States remains firmly committed to a path to cut the deficit in half by fiscal year 2009. We are committed to a recovery effort that is not only compassionate but also fiscally responsible.
More broadly, the global economy continues its expansion, with forecasts indicating that solid growth should continue next year. While strong global performance is encouraging, risks remain. Addressing these risks is a shared global challenge. In this regard, I was particularly pleased to have Brazil, China, India, Russia and South Africa join us to discuss global economic trends. While strong global performance is encouraging, risks remain. Addressing these risks is a key priority for the G7.
With the United States maintaining solid growth and delivering on our commitment to reduce the fiscal deficit, it is vital that others also act to address global imbalances. In Europe and Japan, further labor and product market reform is essential to increasing the potential for growth. I underscored this message to my colleagues. We also discussed the importance of more financial sector and corporate reform in Asia, and greater exchange rate flexibility for large economies.
Higher energy prices pose a risk for the U.S. economy, since supply disruptions that raise prices put a damper on growth. Hurricane Katrina contributed to those disruptions, and now roughly a quarter of U.S. refinery capacity lies in the path of Hurricane Rita. Today, we welcomed actions being taken by G7 countries to address supply and efficiency issues and agreed on the importance of further steps, including measures to improve data and to create a favorable investment climate for energy resources in producing countries.
To maintain sustainable growth - and advance the goal of reducing poverty around the worldwe simply must see more domestic demand-led growth from other parts of the world. Rather than slowing U.S. growth to match that elsewhere, I emphasized the need for more growth from more countries and new reforms to boost potential growth rates appreciably.
Echoing President Bush's strong message last week in New York, I emphasized the value of free trade, based on clear and enforceable rules, as others do the same. Clearly, the United States is willing to move decisively. Together, Ministers and Governors today called for an ambitious outcome from the Doha Round by the end of 2006. We focused in particular on financial services. Significant progress in liberalizing financial services and promoting efficient, well-regulated financial services can make a key contribution in achieving growth and stability especially in developing countries.
Our focus on trade is closely linked to the President's initiative four years ago to provide 100 percent debt cancellation for the world's poorest countries, and shift development assistance for the poorest countries to grants. When we last met in June, we reached what I said at the time was a historic agreement to propose 100 percent cancellation of debt owed to the World Bank (IDA), African Development Bank (AFDF), and the International Monetary Fund (IMF) by countries eligible for HIPC.
Since June, the institutions and our governments have done a great deal of work to follow through on this proposal and set the stage for its implementation. Today, we called on the institutions and their shareholders to move expeditiously to support this initiative. We reiterated our commitment to finance debt relief fully, ensuring that the financing capacity of the international financial institutions is not reduced. We look forward to quick action to make this historic debt cancellation deal a reality.
We also welcomed the strategic review underway in the IMF, which should aim to keep the IMF's work focused and effective. Ministers and Governors also emphasized the need to reform the IMF's governance structure to reflect developments in the world economy, including the rapid growth in many large emerging markets as well as the advent of the euro and deepening European integration. I hope that we can see progress soon on this priority.
In the World Bank, we agreed on the need to strengthen the focus on poverty reduction through economic growth, as well as expanding the focus on results and continuing to fight corruption.
We all expressed our sympathy and outrage about the tragic events in London in July. It is in this light that we continue our fight against terrorist and illicit financing and urged the IMF and World Bank to continue their long-term commitment to work in this area.
Finally, I took note of the encouraging statement this afternoon by IMF Managing Director de Rato regarding progress toward a Stand-By Arrangement with Iraq. Yesterday my staff and I had the opportunity to meet here again with my colleagues from the Iraqi Ministry of Finance and Central Bank. I am pleased to see that negotiations toward a Stand-By Arrangement will soon begin. This would be an important step forward.
Thank you for your attention, and I look forward to your questions.
Source: U.S. Treasury