DEPUTY TREASURY SECRETARY LAWRENCE SUMMERS July 1, 1998 The NewsHour with Jim Lehrer Transcript

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The troubled Asian economies continue to falter, especially Japan's. Is a turnaround in sight, and what can the U.S. do to speed a recovery? U.S. Deputy Treasury Secretary Lawrence Summers addresses these issues.

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A RealAudio version of this segment is available. NEWSHOUR LINKS: June 17, 1998: A discussion of the prospects for the revival of the Japanese yen. June 15, 1998: China's Ambassador to the U.S. discusses the role of of China in stabilizing the troubled Asian economies. February 3, 1998: Exploring the impact of Asia's economic crisis on the U.S. January 19, 1998: Asia's economic crisis brings into question IMF policies. January 16, 1998: Sec. Rubin discusses the Asia's economic woes. January 12, 1998: Experts discuss Asia's ability to correct the crisis. Browse the NewsHour's coverage of the economy and Asia. OUTSIDE LINKS: U.S. Department of the Treasury. International Monetary Fund.

JIM LEHRER: And now the U.S. Government view of all of this. It comes from Deputy Treasury Secretary Lawrence Summers. Mr. Secretary, welcome.

LAWRENCE SUMMERS, Deputy Treasury Secretary: Good to be with you, Jim.

Why hasn't China succumb to the Asian contagion?

JIM LEHRER: Why hasn't China been sucked into the overall Asian crisis thus far?

LAWRENCE SUMMERS: I think the Chinese have been moving ahead with economic reform. They've got real challenges in their state enterprise sector, in the banking sector. They've been working those challenges. They're at an earlier stage of development towards the market than many of the other Asian countries. And that makes the difference as well, but-

JIM LEHRER: But you agree the controls that they still have have helped them avoid these problems?

LAWRENCE SUMMERS: Well, I think the fact that they're at an earlier stage of development in terms of market institutions has meant that they hadn't received the same kinds of capital flows and the same kinds of forms that other countries had. But I think the really important thing in China is to avoid these problems in the future is that it continue the momentum of economic reform, that it work through the problems in the state enterprise sector at large industries that employ a lot of people, that it works on its banking system, because we've seen around the world that when banking systems get into trouble, their economies very soon follow and certainly focus on the Chinese banking system will be important.

JIM LEHRER: Has China been helpful in aiding in the rest of Asia and the crisis elsewhere?

LAWRENCE SUMMERS: We've had very good cooperation with the Chinese on these issues. Of course, China's maintaining exchange rate stability has been helpful, China's participation in the dialogue in the Manila group that has structured some of these programs has played a good role. I think they've been very good partners in responding to these problems in Asia, most importantly because they've been working on their own economy and maintaining stability there.

JIM LEHRER: Now they have a connection directly, do they not, to the Japanese economy?

LAWRENCE SUMMERS: Well, China and Japan have significant trading relationships. They are the two largest economies in Asia and clearly when you think about Asia, there are three crucial economies. There is ours and we're doing well, and we're doing our part by bringing down our budget deficit. There's China, which is working on reform, and it maintained its exchange rate stability, and there's Japan, which as we've seen in recent weeks is really central for the whole region, and that's why the dialogue with Japan and the question of Japanese economic policy has been so central for us.

JIM LEHRER: Because Chinese officials said, look, if the yen falls any more we may have to devalue, which seemed to show a very, very strong connection here.

LAWRENCE SUMMERS: Well, I think, Jim, the Chinese situation is clearly stressed by what's happened in Japan and any time you have a number of different currencies when one of them falls, it puts pressure on the other. I think if you look at those Chinese statements carefully, they've indicated their commitment is to maintain stability of their currency come what may. They've emphasized that it's important that others focus on doing what's necessary to strengthen their economies, to strengthen their currency, and that, of course, was the objective of the meeting that we had in Tokyo that brought together the G-7 countries with the Chinese and nine other Asian economies to discuss with Japan these crucial economic issues 10 day ago.

Why did the U.S. prop up the yen?

JIM LEHRER: Now you were very much involved in the decision of the U.S. to intervene in the currency markets and buy yen. Any second thoughts?

LAWRENCE SUMMERS: No. I think we did the right thing in the context of the Japanese plans,but as Secretary Rubin said, what's ultimately important is less intervention than policies. What will really matter were Japan for the yen, for the Asian economies is the steps that Japan is able to take to work through the problems at the banking system, to stimulate its economy so that it can have growth that comes within, domestic demand-led growth, as we put it, so that it can open its market, so we can be a source of strength, rather than a source of weakness for the other economies in the region. It's ultimately those fundamentals that are the most important thing with respect to Japan.

JIM LEHRER: So what the U.S. did was very much a temporary kind of Band-Aid sort of thing?

LAWRENCE SUMMERS: I think what we-I think the step we took in the context of Japan's plans and the context of encouraging those plans was useful. As we said, it created a kind of window of opportunity. But what's going to be important is the steps that Japan takes, because one thing we've learned in this crisis is that it's country's own policies and the strength of those policies that ultimately affects fundamentals and ultimately affects how their economies perform. And that's much more important than anything that comes from the outside.

JIM LEHRER: There has been no sign of improvement thus far, has there, in the economy of Japan?

LAWRENCE SUMMERS: Well, there's been some movement in the currency relative to where-

JIM LEHRER: But that's the temporary.

LAWRENCE SUMMERS: Relative to where it was, and the Japanese are in very active discussions with respect to their policies, particularly in the banking area, where we expect to see policy announcements in the very-in the very near future. Just what the content of those announcements will be, just what the effectiveness of implementation is, those are obviously crucial issues, but really what we're looking for at this stage is the policies, particularly in the banking area, particularly in stimulating domestic demand, and then ultimately that's what will affect the economy and can bring about some change in the economy, but these problems were a long time in the making, and they're going to take time to address.

Was the U.S. the only one who could stop the yen's slide?

JIM LEHRER: Explain to us why the United States -- and only the United States -- could intervene, buy the yen, and come to Japan's rescue.

LAWRENCE SUMMERS: Well, it wasn't a question of coming to Japan's rescue. It was a question of reflecting what had been a shared concern that we and the Japanese had been expressing for some time about the weakness of the yen and creating a window of opportunity. These are actions that took place in the context of G-7's interactions on this, and the concern about Japanese policy is one that is very widely, very widely shared. And ultimately, that's why we all came together in Tokyo to discuss these issues with the Japanese. It's why I think there's a greater recognition in Japan of the importance of strong-of strong policy in these areas.

JIM LEHRER: But why only the U.S.? I mean, is it-could only the United States have done what Japan felt it needed done at that moment?

LAWRENCE SUMMERS: No. I think it was question of traditionally there's the yen currency is measured against the dollar, and so the natural counterpart and natural partner for a yen intervention was the United States, and that's why it was a United States/Japan intervention. When there have been currency interventions involving the yen in the past, going back 20 years, they've always been America/Japan interventions.

JIM LEHRER: Is it an oversimplified thing to say the reason that Japan is so important is that it is 70 percent of the Asian economy? Is it just that simple?

LAWRENCE SUMMERS: It's large; it's large; and therefore it's important, important for our trade, important, therefore, for our jobs, important-

JIM LEHRER: For our jobs-U.S. jobs-

LAWRENCE SUMMERS: For our jobs. It's important for our market, because it is such a large capital market itself, and it's important for stability in the region, because, as you say, it's 70 percent of the Asian economy, a currency value, and, therefore, it's a major source of strength, potential major source of strength with the other economies when it imports the goods that they produce.

Is recovery around the corner?

JIM LEHRER: But Japan and the other ones, Indonesia, Thailand, Malaysia, you go through the whole list, when are things going to start getting better?

LAWRENCE SUMMERS: Jim, that's going to differ from country to country. In Korea, in Thailand, you have seen a period of stability after a period of instability. And while they face large challenges, you're starting to see some resumption of confidence. You're starting to see some capital flow in. In Japan, what's going to depend critically is how they implement policy going forward. And I'm hopeful that the stimulus package, very large, 2 percent of GNP, what would be the equivalent of $160 billion, if it were implemented here, is something that can start to add some strength to the economy. In Indonesia, what's going to be really crucial is the government's commitment to the right kind of transition in which all Indonesians are included, and that'll be a basis for starting to restore economic strength.

JIM LEHRER: Many question marks and much time still to go?

LAWRENCE SUMMERS: This is-these are very large forces that are operating and these things do take substantial time to work through, but I think with a sound approach based on strong policies and based on external support in support of those policies, I think we can make a difference.

JIM LEHRER: All right. Mr. Secretary, thank you.

LAWRENCE SUMMERS: Thank you.

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