SECRETARY RUBIN September 16, 1998 The NewsHour with Jim Lehrer Transcript

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Has the political turmoil in Washington damaged the ability of the U.S. to deal with recent international economic crises? Treasury Secretary Robert Rubin discusses the effect of the scandal on his job and outlines how the U.S. should react to new global economic challenges.

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A RealAudio version of this segment is available. NEWSHOUR LINKS: September 8, 1998: Will the Federal Reserve lower interest rates? August 31, 1998: The Dow Jones Industrial Average falls 512 points. August 26, 1998: Why is the Russian market collapsing? August 11, 1998: One World, One Market: Is globalization good or bad for America? July 24, 1998: Japan's ruling party chooses its next prime minister. May 28, 1998: The Russian government tries to maintain the value of the ruble. April 3, 1998: The U.S. economy soars as Japan continues to fall. March 10, 1998: Sec. Rubin dicusses the Asian economic crisis. February 3, 1998: The rippling effect the Asian economic crisis. Browse the NewsHour's coverage of economic issues and Asia. OUTSIDE LINKS The Treasury Department . New York Stock Exchange Nasdaq

JIM LEHRER: A Newsmaker interview now with Treasury Secretary Robert Rubin. I spoke with him a few minutes ago from the Old Executive Office Building.

JIM LEHRER: Mr. Secretary, welcome.

SECRETARY ROBERT RUBIN: Nice to be with you, Jim.

Does the President have the moral authority to lead?

JIM LEHRER: First, let me ask you the same question President Clinton was asked his news conference earlier this evening. Does he have the moral authority to lead the country right now?

SECRETARY ROBERT RUBIN: Oh, I think he certainly does, Jim. You know, it's interesting. He gave a very thoughtful speech, as you know, this past Monday in New York with respect to the global financial situation and the issues that we're facing. And in the aftermath of that speech, he had calls from something over 20 leaders, countries around the world. I don't actually know how many he spoke to. These were calls that were coming in. But it gives you a sense of how important he is in terms of providing leadership in the world on these really critically important issues, partly I think because people simply – he's President of the United States – but partly that leaders around the world recognize that he understands these issues and is extremely well grounded in thinking about and trying to deal with them.

JIM LEHRER: The Financial Times of London asked a similar question today in its lead editorial. I don't know if you saw that. The headline was "Power Failure at the White House." And it said it was particularly important now "when hopes of stabilizing global economic turmoil hinge on Washington's ability to take the lead." Would you agree with that?

SECRETARY ROBERT RUBIN: I think that the basic notion that the United States has to provide leadership, if, in fact, there's going to be sufficient leadership is correct. We started about a year ago I guess it was when problems developed in Thailand focusing on this issue of possible – what was then possible global crisis. Now it has become a global crisis. And throughout this whole process, Jim, while we've worked very well closely with G-7 and other countries, there was no question that American leadership is indispensable if things are going to actually happen. And it's equally no question that the President has provided that leadership, and the world looks to him for that leadership.

JIM LEHRER: And there's no question in your mind then that the President is right not to resign, another question he was asked today?

SECRETARY ROBERT RUBIN: Oh, I think absolutely that would be terrible, Jim. Look, he made terrible – I've said this before – I'll say it again – he made terrible mistakes. He feels that way more than anybody else could possibly feel. But I've worked with him for close to six years now – I have enormous respect for the job he's done and I have enormous respect for him, and I will tell you -- I said this a moment ago, I'll say it again – he is exceedingly thoughtful and well grounded with respect to the kinds of issues that we're facing now in this global crisis, and that – important not only to the rest of the world but have the potential for so affecting us.

JIM LEHRER: And it's not affecting your job as Secretary of the Treasury at all?

SECRETARY ROBERT RUBIN: I think the answer to that is a little more complicated than a yes or a no, Jim. We are very focused on this. I can tell you, it does not take a minute away from what I'm doing -- I can also tell you the President is enormously focused on these issues. I think it was a week ago this past Monday – it was a week ago this past Monday – Labor Day night – when he called us over to the White House to spend about two hours with him, focusing just on these issues, and he was intensely focused, intensely involved in an extremely substantive participant in the discussion. Obviously, there are people who are focused on this other set of issues, and obviously, he has to spend some time on it. But as far as I can see it, it has not taken anything away from his focus on these critical issues.

The Fed's next move.

JIM LEHRER: You and Federal Reserve Chairman Greenspan testified before Congress today. And many expected Greenspan to kind of hint at a further – further hint that there might be some cuts in interest rates coming to help this global financial situation. There were no such hints, and a lot of people were disappointed. Were you among the disappointed?

SECRETARY ROBERT RUBIN: I was not surprised by his testimony. Let us put it that way. I think he spoke with his usual clarity, and I think it will allow people to decide what they think he said. I also said I think at the testimony that I agreed with Alan Greenspan, whatever it is that he may have said.

JIM LEHRER: Do you think just --

SECRETARY ROBERT RUBIN: No, I was not surprised at his comment.

JIM LEHRER: But as a matter of principle, do you think a cut in interest rates would be good for the situation right now?

SECRETARY ROBERT RUBIN: Jim, I think the G-7 did something very important in their announcement. 1:30 on Monday afternoon it was something that we – we being the Fed – and Treasury together -- worked on all over the weekend, which was to have the G-7 central bank governors and finance ministers, say that there need to be heightened emphasis on growth, given the shift in the risks in the global economy. In terms of – but there are all sorts of policies that that relates to – in terms of the actual question of the Fed lowering interest rates, that is an issue that we never comment on, and I think very rightly, totally respect the independence of the Fed. And I can tell you, when you talk to people around the world, the respect that the President and the administration have had with the independence of the Fed clearly has contributed to the credibility of our system.

JIM LEHRER: But as the Secretary of the Treasury, if you thought that our economy and the rest of the world economy was in jeopardy, in serious jeopardy, and it could be helped by a cut in U.S. interest rates, you would not go to Chairman Greenspan and say, hey, fellow, give us a break here?

SECRETARY ROBERT RUBIN: Well, you're asking a different question now.

JIM LEHRER: All right.

SECRETARY ROBERT RUBIN: The Fed and the Treasury work with each other very, very closely. We discuss all sorts of issues. We express our views, whatever they may be, on all sorts of issues, and as you may imagine, if Secretaries of the Treasury and Chairman of the Federal Reserve get together, exchange rates and all sorts of other matters, possibly even interest rates might come up, but when all is said and done, we totally and completely respect the independence of the Fed with respect to making those decisions.

Wall Street's ups and downs.

JIM LEHRER: Wall Street today – when Greenspan failed to give the hint that they were listening for, the Dow took a dive. Then later – a couple of three hours later – the President says he's not going to resign, and the Dow goes back up. Now you spent all of your pre-government career on Wall Street. Help us understand what that kind of thing means.

SECRETARY ROBERT RUBIN: Jim, I spent 26 years doing this kind of thing in what was basically a very large investment banking and trading firm. Markets react in all kinds of ways to all sorts of influences, and on different days can react in exactly the opposite ways to exactly the same kind of news. My focus has been, and I think rightly, on what we need to do as a nation, and there our focus has been on doing the kinds of things that we think will promote economic growth, and right now imperatively, in my judgment at least, getting full funding from the International Monetary Fund – which is, as Chairman Greenspan said today at the hearing – whatever its faults may be – it is the best vehicle we have in the international community to help deal with these issues, and we must get full funding when Congress adjourns.

JIM LEHRER: Now, Mr. Secretary, as you know, you've been criticized for that. Some have suggested, in fact, that is your only tool, that is the only U.S. policy for helping the global situation, which is say, IMF go out and solve this.

SECRETARY ROBERT RUBIN: People may say that, but it's not true. We have basically – we have done is gone through this just to focus on maintaining the strength in our own economy, which makes enormous contribution to the rest of the world. We have worked with the other industrial nations of the world cooperatively to encourage growth and financial stability in those countries, and particularly we and the rest of the world have had a tense – an intense and almost constant conversation with Japan about Japan doing what it needs to do to get back on track. We have worked with developing in emerging markets around the world, put in place policies to make them less vulnerable, and obviously we've worked with the countries in trouble to try to help them get back out of trouble.

JIM LEHRER: The number 1 criticism you hear of the IMF, speaking of the countries in trouble, is the IMF tends to come in and have one solution for all countries, and that is, do this to your banks, do this, free market economy, et cetera, and that some people are suggesting that that one solution fits all is wrong, and it's triggered a lot of the problems we're having right now.

"The worst global financial situation we've had in the last 50 years."

SECRETARY ROBERT RUBIN: I think the criticism is simply not true. At least in my judgment, what's happened in the world is over the last five or six years you've had vast capital flows into these emerging markets, and some portion of those capital flows have involved far too little focus on an analysis of the risks that were involved. The result – excess capital flows into countries that had all sorts of problems and in most, though not all cases, badly flawed financial systems. And the result turned out to be combustible. The IMF, in response what really are unprecedented and extremely complex situations – and I would argue the worst global financial situation we've had in the last 50 years -- the IMF has very carefully tailored its programs to the specifics of each country, both with respect to the macroeconomic considerations, fiscal policy, monetary policy, and also the structural problems that exist in these countries, particularly the problems around the financial sector.

JIM LEHRER: Well, as you know, a lot of people just identify the IMF with the United States, and they say, well, the IMF's controlled by – that's a U.S. solution – the IMF is implementing U.S. policy. Is that a correct reading of things?

SECRETARY ROBERT RUBIN: No. I think it is fair to say that we are very deeply involved with the IMF, as are quite a number of the other members. I think it is also fair to say that we believe very deeply in a market-based economy, and in doing the kinds of -- and taking the kinds of measures that are consistent with that belief, but the IMF is an independent institution that makes its own judgments. We have been very closely involved in consulting with the IMF and in trying to be helpful as they've worked their way through the decisions that they've had to make.

JIM LEHRER: Now speaking of the market economy --

SECRETARY ROBERT RUBIN: We also work bilaterally with a lot of these countries in providing advice and our views as to the issues they face.

JIM LEHRER: In terms of the market economy internationally, Malaysia, for instance, has recently said forget it for a while, we're going to put some exchange controls in place, meaning this free flow of capital you were talking about. Russia may be about to do the same thing. Other countries are beginning to think about it as well, because the problems are so severe. Does that concern you?

SECRETARY ROBERT RUBIN: It concerns me very deeply, Jim. I think that is the wrong way to go for the global economy. I think the global economy has benefited enormously from both trade liberalization and the flows of capital that have taken place over the last ten or fifteen years. I think we, the United States, have certainly benefited enormously, and look at our economy today. I think however there is a real risk of a backlash and for that reason I think the president is absolutely right on what he said on Monday. One, we have to do everything sensible to deal with this crisis so that we can work our way -- help the world work its way through this with as little difficulty as possible, though I think we're going to have a sustained period of difficulty, and this is not going to be an easy situation. But secondly and very very importantly, we have to do exactly what the President said, which is continue the focus that we've had now for quite some time on long-term reforms of the architecture of the global financial system, so that we have better preventive measures and, therefore, have these kinds of occurrences less frequently and with less severity and then better ways of dealing with these kinds of developments when they occur.

How to help the Russians...

JIM LEHRER: But then what would you say to somebody in Russia who is confronted now with a cold winter? People haven't been paid for months and months. The ruble has gone down. They don't have any – no hope – financial hope, at least a lot of people do not. And for -- to say, hey, well, we got a short-term solution, which would be to stop flow, you would say, forget it, look at the long-term, look at the architectural thing?

SECRETARY ROBERT RUBIN: No. I would say something a Russian citizen, were such a citizen to ask me, that they have an extremely complex and serious set of issues, I think that we, the United States, have an enormous stake in their being successful, for obvious – for economic reasons but even more in many ways for national security reasons. And I would say that the basic problem in Russia is a political system that instead of implementing reform, as many of the other Eastern European countries did, the former parts of what has, in effect, the Soviet sphere of influence, as many of the other countries did, who are now doing quite well, the Russian political system simply did not take ownership of reform, and that is, in my judgment, where the problem lay in Russia, and why Russia's facing such serious issues and such serious problems today.

JIM LEHRER: But in the mean—till they solve those problems, what can be done to keep people from going hungry right now?

SECRETARY ROBERT RUBIN: I think what we're going to have to do in the international community, Jim, is to think through how we can help on a humanitarian basis, help the Russian people, and at the same time try to work with the Russian government so that the Russian government gets back on a track of putting in place the kinds of measures that can lead to a stable and successful economy in Russia. But there is a very immediate issue, the issue that you raised, conditions as they – Russia now goes into its winter – and that is there's got to be and I can tell you is a focus of very serious concern in the West. We're going to have to simply – we, the nations – industrial nations have to decide how best to deal with that.

JIM LEHRER: Mr. Secretary, go back to the general from the specific, a lot of doomsayers are now saying that the whole world – 60 percent of the world could be faced with a recession in the immediate, if something – the immediate future – if something is not done. When you look to the immediate future, what do you see?

SECRETARY ROBERT RUBIN: Well, when you say if something's not done, Jim, starting with Thailand about a year ago – and I would argue actually starting with Mexico about three years ago – there was an enormous amount that's been done by the international community. I think we need to carry that further in various ways. And the President referred to some of those ways in his speech on Monday, and then the G-7 community did the same thing. My best guess as you look forward is that the powerful forces that produced the global crisis that exist today are going to have to work their way through the global system, and that we are going to go through a difficult period. On the other hand, by continuing do the kinds of things that make sense I think what we can do is try to minimize that difficulty and help the world – all of us working together – help the world get through this as quickly as possible and with as little economic difficulty as possible. That is also enormously for our own economic self-interest. I think, as I said a moment ago, the most immediate thing we can do is give the International Monetary Fund the resources to equip it to deal effectively with the sorts of problems we face, and that means giving full funding before Congress adjourns.

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

SECRETARY ROBERT RUBIN: Thank you, Jim. It's nice to be with you.

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