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| THE WORLD MARKET | |
 September 27, 1999 
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Three finance ministers discuss the global economy and last week's annual meeting of the International Monetary Fund and World Bank. |
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MARGARET WARNER: For the past two years, the annual meetings of the International Monetary Fund and World Bank, the world's premier financial lending institutions have been gloomy affairs. In 1997, the Asian currency crisis had just broken out. In 1998, the Asian flu had spread to Russia and Latin America. The IMF has been criticized for mishandling those crises, and the fund predicted a worse year ahead. But this week as the world financial leaders meet again in Washington, the global economy has improved markedly, according to an IMF report.
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| A hopeful outlook | ||||||||||||||||||||
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MARGARET WARNER: Secretary Tsang, the IMF's world economic outlook that's put out every year certainly is a lot more upbeat this year. Is the situation that much better? SIR DONALD TSANG: Yes, quite clearly Asia has turned a corner; all the economies which have been affected by the Asian financial crisis have now posed positive figures of different extent. At the same time there have been some reforms in most the economies affected. The question is now is whether those reforms will continue and whether the recovery will be sustainable over the long term but then you can see Asia as a whole poised for greater competition in the new century. MARGARET WARNER: Commissioner Solbes, how firm do you see this economic recovery? How firm do you think it is, how real?
MARGARET WARNER: Minister Aninat, as look at the world economic situation, why do you think it's so much better than a year ago you all thought it would be? EDUARDO ANINAT: It is a very good question. First I think that the diagnosis of the first Asian flu and its aftermath in Russia and in Latin America and in the Caribbean shows the economics of society still are a very imperfect one and we should have to monitor our models in a better predicted way. But on the whole, I think that the economy worldwide is looking better for at least three reasons. Number one inflation is not to be seen in any continent not significantly. Latin America has achieved enormous progress in the areas of stabilization of prices. Number two we are not seeing more financial turmoil as in the banks, insurance houses and the like as the big ones we saw in '97 and '98. That is better news in terms of the typical financial volatility, and third I think that trade openness and much of the reforms being made is helping boost experts and imports in most continents throughout the world. That is very good news to keep it sustainable in time. MARGARET WARNER: Secretary Tsang your view on why it's so much better than you all thought last year it would be -- do you degree with the minister? SIR DONALD TSANG: Well, the forecast I have as far as Hong Kong is concerned, it is roughly the same as now as it was in March. MARGARET WARNER: I'm talking really the whole world, the global economy.
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| Will the bubble burst? | ||||||||||||||||||||
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MARGARET WARNER: And, so, Commissioner Solbes, what will it take to sustain this? PEDRO SOLBES: Well, I think it will be sustainable because of the important effort that we have carried out in the last few years - mainly as concerned reforms in the different countries and also because of the exception of something which today is rather clear for all of us is that low inflation is very positive and then reduction of public deficit that is necessary to maintain private activity and additional growth. All this connected with the good evolution of the estate and the improving certain emerging market -- market emerging areas I think will guarantee this sustainability in the future. MARGARET WARNER: Minister Aninat, when I looked at this global economic outlook and the communique yesterday both of them talked about the strong U.S. economy and how that was really a boost to the global economy. Yet, here in the states we have a lot of concerns that the strong economy is a bubble, the markets are overvalued. When you look at the U.S. economy what do you see? Do you see a genuinely, very strong economy or do you have concern that some of it might be an artificial bubble that could burst?
MARGARET WARNER: Secretary Tsang, when you look at the U.S., do you see a country or an economy that has been transformed that really has made a fundamental revolution in productivity based I guess you are saying on the information economy? SIR DONALD TSANG: Yes, indeed I do see a major significant advancement in the information technology and the investment it has made this country over the last two decades has begun to bear fruit and is manifested in export level and in terms of corporate structure, but of course there are worrying aspects of it all in that some of the stocks and shares have rather unhealthy, very large P/E ratio which could be, could be risky. MARGARET WARNER: So, Commissioner Solbes how much of the global economic recovery of past year does depend on the strong U.S. economy? PEDRO SOLBES: Well, I think it's a substantial part, because even in Europe the situation was with certain growth, it was not so high like in the states so the estate has acted as a real engine of the global recovery all over the world. And I could say that I agree with Secretary Tsang in the sense of saying that the real situation has been the changes, the part of the productivity in the states, the introduction of new technology because what is really impressive is this rate of growth maintaining at the same time a very low inflation situation, and this not implied that we have no problems in the future. I think that there are some risks of course but in any case I think the situation is rather good in general terms.
EDUARDO ANINAT: Yes, I think it's a crucial point to see how the sequencing will come in in terms of this very fast U.S. growth but with some adjustment to the lower side starting next year, gradually hopefully, then the pick up of most of the European community countries, we need them to pick up in terms of the accelerating growth and Japan. For my own opinion I think the sustainability of the recent recovery at low-level still of Japan is crucial to make the rest of East Asia sustainable in its very positive growth. The sequencing is not a minor factor. MARGARET WARNER: But, Secretary Tsang, is there any danger for the rest of the global economy in this strength of the U.S. economy? That is, if there were a downturn here, would that be catastrophic, would it be just dangerous?
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| Humanitarian or political or foreign policy aims? | ||||||||||||||||||||
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MARGARET WARNER: Mr. Secretary, staying with you, one final topic I want to ask you about, several weeks ago or a few weeks ago, we had an example of the World Bank and IMF threatening to withhold further financial assistance from Indonesia to get the Indonesian government to invite foreign troops into East Timor. Do you think that is a good idea to use the IMF or World Bank essentially for foreign policy or political ends? Secretary Tsang? SIR DONALD TSANG: Well, for me East Timor is a very explosive issue. For one, I am the finance minister. I look at it most of it on the financial angles, and it is difficult for me to say whether it is the right decision or wrong decision but I would wish to continue on, that the IMF continue to operate on a professional basis and not excessively influenced by politics.
SIR DONALD TSANG: Well, I think it's for, up to me, as I said I would wish the IMF to continue to operate on a professional basis based entirely as far as allocation and funding assistance concern on their own judgment about the balance of payment situation of the individual economies. MARGARET WARNER: Commission Solbes, your view on this, you don't even have to speak just about East Timor, but should the IMF and World Bank essentially use its policies not just for economics but also for certain humanitarian or political or foreign policy aims? PEDRO SOLBES: Well, our experience in Europe is that it's really difficult
to present a public opinion that we are criticizing some governments
because they are not respecting human rights and at the same time we
are cooperating with them. MARGARET WARNER: Do you see it that way, Mr. Minister? EDUARDO ANINAT: The East Timor situation is really a sort of extreme case and consideration given the violence and the nonrespectfulness of self-determination of what is going on there but more generally and seeing our conflict areas in the world, and the role of the World Bank and the IMF, I think one has to set a destinction. On a technical basis the charter of both sister institutions coming from the Breton Woods Accord have to proceed according to their professional, technical, economic outlook, balance of payments, inflation situations, development need sector of performance but we cannot forget that both are institutions belonging to the United Nations and as members of the United Nations, citizens' rights, human rights are a crucial thing. So in that sense, these institutions also to remain sensitive to the owners, the 182 countries belonging to the United Nations. MARGARET WARNER: All right. Well thank you all three gentlemen very much. Thanks for joining us. |
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With
us are three senior economic policy makers from three parts of the globe:
Sir Donald Tsang, the Financial Secretary of Hong Kong; Eduardo Aninat,
the Minister of Finance from Chile; and Pedro Solbes, the European Union's
commissioner for economic and financial affairs. He is a former finance
minister of Spain. Welcome, gentlemen. 
PEDRO
SOLBES: Well, I think it's also Europe is growing rather well. We began
the year with a forecast of growth of 2.1 for this year. We'll finish
probably a little bit higher and for the next year it will be closer
to 3 percent, and I think that the global conditions are very good because
this rate of growth is counted out with a very good inflation rate and
at the same sometime also with a rather sane -- public deficit situation.
And I think even if we still have to carry out some structural reforms
the situation is rather similar in some other countries. So I think
the situation is rather good and it will be like that in the future.
SIR
DONALD TSANG: I'm not surprised by the speed of recovery. If you look
back to the recovery of Europe after the bout they had in 1991 and also
in 1994 after the Mexican crisis, the recovery was in each and every
occasion quite speedy and on this occasion too and I can see that there
general recovery of about the same speed but I agree with Eduardo that
those are the elements which have underpinned the recovery on this occasion.
EDUARDO
ANINAT: Well, I see two simultaneous things, number one as a professional
economist I am puzzled about the long time span that this very good
cycle is, this sort of very aggressive boom time cycle has taken along
in the U.S. It is unprecedented, we're not used to have such long periods
of continuous economic growth. At the same time, number two, I see an
enormous productivity change in the services sector, in the financial
area, in agriculture, mining, manufactures in the U.S., in the transportation
system. And I think it is the productivity change that has allowed this
country to make an enormous revolution, perhaps a silent revolution;
so being from a developing country myself, I only wish it continues
to be so in the coming years. 
MARGARET
WARNER: Mr. Minister, you were trying to get in. Yes.
SIR
DONALD TSANG: Catastrophic perhaps is too strong a word but as long
as we realize there is risk involved and we believe in the cyclical
nature of markets, then we have to accept at some point that there will
be adjustment and the United States market is one of the, is the largest
market. In the globalized nature we have seen today and quite clearly
an adjustment in U.S. markets will impact on all other markets, whether
they were in Asia, Scandinavia, Latin America, or South Africa. I think
we have face that fact but as long as we individually continue the reform
process which is equally important so that when an adjustment comes,
we are better equipped to deal with the adjustment.
MARGARET
WARNER: It sounds as if you think perhaps it was. 
So
in our politics, human rights and human protection is a more and more
important issue to be considered. It is true that sometimes in spite
of these difficulties, we have to continue to cooperate not to create
additional problems to national populations but it is true that we cannot
give exactly the same treatment to governments who are not expect respecting
human rights than to governments that are trying to do their best as
concerns this specific point.