Veon Interview with high level treasury official Group of Eight
By Joan Veon
Veon: This is my 63rd global meeting-given the reality that we live in an interconnected world which has been created when Nixon closed the gold window in 1971, what kind of changes has the U.S. Treasury Department had to undergo in order to keep up with change?
Undersecretary: There have been certainly since that period-there have been a lot of changes in how Treasury approaches global economic issues. In the international arena, there is much more focus on emerging markets and their importance to the global economy and their importance in reducing poverty in their own countries. Recently over the last decade, the importance of China, Brazil and conceivably India and managing the emergence of those countries as major players on the world's stage. That is a much different situation than in the 70's or early 80's when Treasury focused on the industrialized countries and our relationship to them. It is a much bigger picture that we focus on.
Veon: There is a whole host of international actors that have come on the scene to support an interconnected world. In 1996, the G7 called for a "new international economic infrastructure" -- how important was it and what kind of framework did it set in place for today?
Undersecretary: I think it was very important at that time and the steps taken since them have been part of an on-going process to improve the international economic infrastructure are important and have borne fruit: some concepts that have been focused on is to streamline conditionality from IFIs when they provide assistance to countries on what is really important. That has been successful at the IMF. Redrawing clear lines between the mission of the IMF and the multilateral development banks (World Bank). There has been success in that effort in the last 6-7 years. Limiting the scope for official finance-when the official community will step in to provide official support and when they won't. While there is still work to do there, we have provided more clarity there to that the scope for official finance is limited-not a bottomless pocket of money that creates the moral hazard concerns that some were concerned about in the 90s so I think those steps were important. There has been follow-through and there is more work to do, which we are continuing to do.
Veon: We are not done-change is continual and constant. The world is evolving. Just as you mentioned-China, India, and Brazil coming into their own. Could they be part of the G8 or the G20?
Undersecretary: The things you mention are important. The G20 on these economic issues we have found to be very valuable. The Financial Stability Forum-FSF (JV: That is my next question). For dealing with the technical financial issues the global economy faces. As far as next steps-I think-we have been encouraging discussion and thinking about recognizing the 60th anniversary of the Bretton Woods institutions and what measures have been taken to lock in some of the changes. There have been a number of policy changes we have discussed but are there ways to institutionally lock these in but are there ways to institutionally lock these in? These are still in the early stages and there are a lot of ideas that are being considered. To institutionalize and ensure they are durable and it will take longer and there is commitment among the G7.
Veon: You mentioned the Financial Stability Forum and I have interviewed a key official at the BIS several times, I have been looking for a way to explain how it functions in the world. It is no longer just Treasury looking at problems but it is the treasuries of the G7, it is the Comptrollers of the Currencies of the G7 and a larger number of actors. What role do you see the FSF playing today?
Undersecretary: I think that the institutions that are gathered together in the Financial Stability Forum are necessary to deal with some of the difficult international regulatory issues that the world is going to face-whether they are issues being raised by the integration of the European financial system, ongoing issues about derivatives exposures-these are all issues that require that combination of political mandate and political expertise that no single institution is going to have, so I see its role continuing to be critical and to grow. Roger Ferguson is the chair of the FSF and has begun attending the G7 finance Ministers meetings-not everyone but regularly-I think that is important recognition of the input that the Financial Stability Forum ought to have in the international architecture.
Veon: Roger Ferguson-that is only as a result of his position as Chair of the Financial Stability Forum because as Vice-Chairman of the Federal Reserve-it is his boss, Alan Greenspan that is part of the G7 Finance Ministers and central bankers.
Veon: The Agenda for Growth that the G7 Finance Ministers have put forth-all of the various proposals-taxes, pensions, labor reform, etc. With regard to taxes, what are you looking for countries to end up with? Is there going to be a harmonization of globally of tax codes to help with the remittances of tax dollars?
Undersecretary: No. Tax harmonization is definitely something that we would not propose or support. What we think in the Agenda for Growth is that the economic challenges that face the various G8 members are individual so that the specific measures that Japan needs to take are difference from those the U.S. needs to take or those that Germany needs to take. So there is not a single set of tax measures that all the G8 need to take. We have pointed out that in our own structural reform efforts-litigation reform, tort reform, tax reform-we have done, the Germans have focused on labor market rigidities, the French are working on pension rigidities, and the Japanese with regard to their labor markets, etc. I think that those differing sets of priorities are exactly what should have come out of the Agenda for Growth Initiative, not a template of the measures that all the countries would impose jointly but the specific priorities each country ought to have and a reinforcing effort to support each country in dealing with those priorities.
Veon: With regard to the Bush tax package-in reading it a year ago, it is a ten-year program (he said yes). The U.S. is the only country, along with India not to have a VAT tax or national sale tax. In looking to raise revenues, is not a national sales tax something that is attractive to the Administration to raise revenues?
Undersecretary: The Treasury is always-the tax policy folks are always thinking of ways to improve the efficiency of our tax system. There are a lot of ideas that they put on the table. That's one. Certainly at this point we would not be ready to endorse any particular one of them but the Treasury is always looking at ways to improve our tax system.
Veon: I was at the Boca Raton and Washington G7 Finance Ministers meetings. At the IMF/World Bank Spring meetings where the World Bank Development Committee presented a paper entitled, "Financing Modalities for Millennium Development Goals," are you familiar with that?
Veon: This presented various forms of global taxation, having been around for a while-this goes back to 1994 and earlier. Where is the Bush Administration with regard to raising monies through environmental taxes, a tax on currency or to be foolish to do a global lottery-we have the law of the Sea-
Undersecretary: We are not really supporting any of these supranational global tax schemes as ways of generating development funding. One of our emphases has been on the private sector that is the engine of a country as has been our experience as a country. When we moved from being a third world to a first world over the course of the 19th century as a result of private investment and enterprise, we think this is the way countries today still need to do that. Far more important then trying to invent schemes to increase the amount of official development assistance, countries and the developing countries and multilateral development banks need to help them develop attractive business investment climates in order to draw private sector investment into their countries that will really lead to durable economic growth to alleviate poverty.
Veon: The UN for years as well as other bodies have supported public private partnership-are you saying just private corporations or a combination of public-private?
Undersecretary: Certainly private corporations themselves, private enterprise itself, whether it is pouring it into the country or creating it from within-there are ways public-private partnerships can work.
Veon: Therefore what you are saying is that it is private enterprise, it is not any kind of global taxation scheme. As such using private enterprise-the remittances for example to invest those dollar short term-to look at every "nook and crannies" to facilitate growth in business…. Is that correct?
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