"PROTECTING THE SYSTEM"
November 26, 1997
President Clinton and the leaders of 17 other members of the Asia-Pacific Economic Cooperation left their summit in Vancouver having signed an agreement aimed at assisting those Asian nations with flagging economies. Deputy Treasury Secretary Lawrence Summers discusses the summit and the bailout plan with Jim Lehrer.
JIM LEHRER: Here to tell us about it is Deputy Treasury Secretary Lawrence Summers. Mr. Secretary, welcome.
A RealAudio version of this segment is available.
November 25, 1997:
Asia's leaders search for answers at the APEC meeting in Vancouver.
November 24, 1997:
The APEC shows a grim economic forecast for Asia.
November 21, 1997:
An analyst and the president of the Philippines discuss Asia's economic state.
October 28, 1997:
The instability of Asian stocks causes worldwide fluctuations.
October 23, 1997:
The Hong Kong stock market drops 10 percent.
November 25, 1996:
APEC agrees to eliminate tariffs on computers and telecommunications equipment.
November 21, 1996
A panel of experts discuss President Clinton's Asia-Pacific Tour.
Browse the NewsHour's coverage of economy, Asia and business.
APEC, the Web site of the Asia-Pacific Economic Cooperation.
The 1997 APEC Conference.
LAWRENCE SUMMERS, Deputy Treasury Secretary: Good to be with you.
A solution to the crisis?
JIM LEHRER: Did the leaders of APEC find a solution to Asia's economic crisis?
LAWRENCE SUMMERS: I think they made a very good start addressing these difficult problems. They recognize that what's most important is the countries pursue the right policies; that they reform their financial systems; that they be more transparent; that they control the kind of excesses of spending that have gotten some of the countries into these difficulties. And they've also recognized that it's important for them to receive support when there is a crisis, that that support be centered in the IMF, that these are truly global problems, but that the countries of this region also be prepared to provide regional support for each other. Those are the three pillars: countries' own policies, the IMF, back-stop support from the region.
JIM LEHRER: Is there a general cause of all of this, or do you have to go through each country as to what happened in Thailand, what happened in the Philippines, what happened in South Korea, and now in Japan?
LAWRENCE SUMMERS: I think there are common elements, and the most important common element is difficulties in the banking system, loans that didn't work out, excessive assumption that growth would continue forever, that then led to a kind of burst of the bubble, which then led to some overreaction in the other direction. I think that's the common element in the emerging markets cases. Japan's a very different case. It's a huge economy, the second largest in the world, with $200 billion in reserves. Its problems are very much problems it has solved internally, though its finding a solution to them is very important for the rest of Asia and for the whole global economy.
"A silver lining in the difficulties in Japan and other countries."
JIM LEHRER: It was suggested on this program the other night that Japan might even be better off when all of this was said and done, when the dust finally settles, because of adjustments it's going to be forced to make. Do you agree with that?
LAWRENCE SUMMERS: I think if there is a silver lining in the difficulties in Japan and other countries, it is this is a kind of 21st century crisis because it's happening so quickly, and it'll help these countries create 2lst century economies, to work to make the flow of capital go more easily, to its highest use, to get industries restructured and ready to compete internationally. I think there's an opportunity in this for Japan to have some of the same kinds of changes that we had in the United States in the 1980's that helped make our firms much more competitive. But they face important short-term challenges, and the most important of those are that they act decisively to strengthen their financial system by addressing the problems of institutions that are having trouble, and that they take action to stimulate and grow their economy and grow it not from anyplace but from within based on strong domestic demand in Japan.
JIM LEHRER: But more banks, more brokerage houses, more companies may have to go broke in the process?
LAWRENCE SUMMERS: What's important is that they work through these problems and protect the system and protect the depositors in the banks, as they have, that they protect customers of the brokerage firms as they have. Where institutions have been mismanaged, the sooner the system moves on, the better it will be. But what's absolutely crucial and what Japanese authorities certainly recognize is the need to protect the system of protecting depositors.
"I don't think we have anything to apologize for."
JIM LEHRER: The deputy prime minister of Thailand was on this program last night, and he suggested that the United States was slow to understand a crisis that was coming, beginning in his country, beginning in Thailand, and in the way that started with that. Was he right about that?
LAWRENCE SUMMERS: I think all of us have been very much affected by the speed with which this crisis has spread, but certainly the United States was at the forefront of the countries working to create a large IMF program for Thailand, one of the largest programs in the IMF's history for a giving sized economy. Certainly, we've worked with others to support the reform of the Thai financial system and have acted more generally to respond to the Indonesian situation by providing backstop finance and by helping to create the framework that was agreed first in Manila by finance officials and then blessed by the leaders, and then blessed by the leaders, a frame work which will make it possible for us to respond to these kinds of emergencies in the future based on strong policies, based on an enhanced capacity of the international system through the IMF to respond, and based on countries' regional efforts to back-stop one another. And I think with those measures in place we've had a vigorous kind of response to this very important challenge.
JIM LEHRER: So you don't think the U.S. has anything to apologize for?
LAWRENCE SUMMERS: No. I don't think we have anything to apologize for. Indeed, one of the things that I was struck by--a finance meeting in Manila and at the APEC meeting was the extent to which other countries are looking to the United States to help them respond because of the strength of our economy, because of the experience that we've gained, because of a recognition--some of the things we've worked for in the international system, increased transparency, soundness of financial institutions are things that they particularly have to move to adopt. And so I've sensed a real desire for an American presence and an American involvement in addressing that situation. And that's certainly something that the President has very much committed the United States to do because of our recognition of how important this kind of situation is for the United States to our commercial interests as an exporter, to our financial interests, given that markets are linked, and most profoundly to our national security interests, which depend very much on a prospering and integrating Asia.
How does this all affect America?
JIM LEHRER: So the average American that says, hey, wait a minute, what business is it of the United States that this financial crisis in Asia be solved, what would you say?
LAWRENCE SUMMERS: In today's world it's every American's business. It's every American's business because 30 percent of our exports and millions of jobs depend on exports to Asia. It's every American's interest because financially the markets of the world are increasingly linked, and that affects people's pensions and their savings. And it's every American's interest because in the last 50 years the United States has fought three major wars in Asia, and our national security is much sounder if these countries are prospering, integrating, moving to democracies, and if they encounter great economic difficulties, become insecure, and have the possibility of lashing out.
It's been a centerpiece of everything we've done in this country since the Cold War began, that by promoting economic integration, by promoting prosperity in the world from the Marshall Plan on, we make for a more peaceful and more stable world. And that's the centerpiece of what the President was doing in APEC, and that's going to be the centerpiece of our efforts going forward.
JIM LEHRER: Some people have suggested, Mr. Secretary, as I'm sure you're aware, that, hey, this isn't so bad for the United States in the short run because all of that money that was being invested in Asia, they're all running to the United States and investing it in the U.S. markets and in U.S. this and U.S. that, and that means the dollar goes up, everything is terrific. No?
LAWRENCE SUMMERS: I think we're all sufficiently linked, that while I don't worry about the fundamental health of the U.S. financial system, I think that all of us who are involved in financial work will be able to rest easier when there's a greater sense of stability in all of these markets, and I think we'll have a sounder economy when we're able to export into rapidly growing markets in Asia again, which I think is possible that these economies take the steps that they need to. They've got enormously good fundamentals--high savings rates, hard work, entrepreneurship, orientation to international trade, a capacity to work with technologies. I think if these economies take the steps that they have to to get back on track, that there's no reason why they can't resume very rapid growth. And I think that's what we've got to be working to try to achieve.
The Mexico experience.
JIM LEHRER: Finally, is it your reading of the situation that the worst is over, or the worst still has yet to come?
LAWRENCE SUMMERS: We've seen some real problems, but I think that with the right policies and with the right international response, this can be worked through in the best way possible. Jim, that's an evasive answer, but we don't try to predict what's going to happen in markets. What we do try to do, both in our own policies and in encouraging the policies of others is to work on strengthening the fundamentals, because ultimately if the fundamentals of national economies are right, they'll reap the results over time.
JIM LEHRER: But there is a psychology involved in this too, is there not?
LAWRENCE SUMMERS: Sure, there's a psychology. And what's important is confidence. You know, in the APEC meeting President Zedillo discussed his experiences with--
JIM LEHRER: The president of Mexico.
LAWRENCE SUMMERS: --his experiences with Mexico's financial crisis a couple of years ago. And that's a situation that's worked out very well. Mexico grew at 8 percent in the last year. He emphasized three things: tell the truth, be transparent; second, pursue strong policies, markets will sometimes overreact, and so policy may have to overreact as well, and third, seek international support. You know, our support program in New Mexico worked out very well. We got paid back early. The taxpayers actually turned a $500 million profit. We're not looking for more of that kind of work, but I think President Zedillo's examples really had an important effect on the other leaders in saying that you can rebuild confidence and you can get that psychology back on your side best with strong policies.
JIM LEHRER: All right, Mr. Secretary, thank you very much.