DEPUTY NATIONAL SECURITY ADVISOR JIM STEINBERG
NATIONAL ECONOMIC ADVISOR GENE SPERLING,
DEPUTY TREASURY SECRETARY LARRY SUMMERS
The Briefing Room
MR. LOCKHART: Good morning, everybody. Joining us this morning to giveyou a sense of the President's trip to Japan, Korea, South Korea and Guamarethe Deputy National Security Advisor, Jim Steinberg; Larry Summers, theDeputyTreasury Secretary; and Gene Sperling, who is Director of the President'sNational Economic Council.
Let me just, as promised this morning, give you a readout. ThePresident, at about 10:30 a.m. this morning, spoke with the Vice PresidentfromMalaysia. The Vice President briefed the President on the days he's thereandthe meetings he's had, the progress we've made at the APEC meeting. AndthePresident thanked the Vice President for going over there on short noticeandparticipating on his behalf.
Q Will the Vice President come back here before the Presidentleaves?
MR. LOCKHART: I think he won't be back here as to the-- I was asked yesterday something about whether they would both would beout ofthe country. I think the way the schedule looks now, if we leave on timewhich, as you all know, is a highly questionable proposition -- there maybe afew minutes where the President leaves our air space, the Vice Presidenthas yetto arrive. But it's a matter of minutes, and --
Q Did they talk about the controversial speech?
MR. LOCKHART: Let me finish this. But either way, as you allknow, thePresident remains the President no matter where he is and we have excellentcommunications.
Q Did the President Clinton tell Vice President Gore that hesupports everything that Gore said at APEC?
MR. LOCKHART: Absolutely. The Vice President briefed thePresident onthe speech he gave. The President said that he believed the Vice President didan excellent job and commended him for the speech and for his overalleffortduring the two days over there.
Q Was it the same speech that President Clinton wasscheduled to address?
MR. LOCKHART: It certainly was the same speech that thePresident was planning to use, and it certainly reflects U.S. policy.
Q So the wording he used is what President Clintonwould have used, had he been --
MR. LOCKHART: It was certainly the speech that we wereplanning to give, and it reflects U.S. policy.
Q Joe, you indicated earlier you might have somethingto say on the cross-examination?
MR. LOCKHART: These guys have a much tighter schedulethan me. Let's do this.
Q Are you going to brief afterwards?
MR. LOCKHART: I'll come back after.
MR. STEINBERG: Good morning.
Q How did you feel about the bombing of Iraq?
MR. STEINBERG: Let's talk about the trip.
Q Are you going on the trip?
MR. STEINBERG: Let me give you a brief overview of theschedule and just briefly on the security part. You've all alreadyheard from Ken Lieberthal earlier, so I won't spend a lot of time onthe specifics.
I think the President feels it's very important that heis going to have an opportunity to take this part of the trip. Itreally reflects the very strong commitment that he has to U.S.engagement in Asia, and particularly the importance of these twoallies of ours. The cornerstone of our engagement in Asia is builtaround our engagement with our treaty allies, and none are moreimportant than Japan and Korea.
The President will arrive in Japan. He'll begin with aprivate visit with the Emperor and the Empress. This is actually agenuinely private visit -- they're going to go to the privateresidence, which is a very rare honor that they've offered to thePresident. It very rarely happened in the past.
The President will then tape, for later broadcast thatevening, a town hall conversation with the Japanese people. Therewill be a group of sort of young-ish Japanese, 20 to 40 year olds, inthe audience. It will give him a chance to talk directly to thepeople of Japan about their issues and concerns and to give him achance to talk about the United States and our perspective on manyissues in security and economics that engage us both.
The next day, he'll give a talk to the American Chamberof Commerce, followed by a bilateral meeting with the Japanese PrimeMinister. He'll go on that evening to Korea. The events on thefirst day in Korea will be bilateral meetings with President KimDae-jung, followed by a press conference; and following that, a roundtable on democracy, civil society with a group of Koreans to talkabout democracy building in Korea, the impact of the changes andreform on day to day life and on the aspirations of the Koreanpeople.
On Sunday he'll probably attend church and then he'll goto the Korea Training Center where he'll have a chance to talk toboth U.S. and Korean troops, share a meal with them and then on toOsan Air Force Base to give a talk to U.S. forces there. And thenthe following day he'll go to Guam.
Just briefly on political and security agenda -- as Isaid, this will be an opportunity for him to reaffirm the centralityof the alliances that we have with these two countries. I think veryprominent on the agenda will be discussions about the situation inNorth Korea and the variety of our concerns about the North Koreannuclear program and their missile program. And very importantly, achance to talk in both countries to the people directly about ourstakes and our commitment to being involved in Asia and ourrelationships with them -- with a particular emphasis on the effortsto sustain economic growth and democracy during these challengingtimes.
Q You won't go to the DMZ?
MR. STEINBERG: He's not going to the DMZ, but he has twoseparate events on security at the Korea Training Center and Osan.So he's got really one whole day focused on our security engagementwith Korea.
Q Will he reinforce --
MR. STEINBERG: Why don't we let Gene go ahead?
MR. SPERLING: The President has clearly made clear onmany occasions over the last year how critical the resurgence ofgrowth in Japan is to the economic revitalization of the region, andhe will continue to stress those points, the very important need fordemand-led growth and for positive growth in Japan, the need forprompt, corrective action in the banking reform and the importance offurther market opening and deregulation -- altogether the three beingessential components to resurgence of growth that has never been moreimportant to world growth than it is right now with Japan supplying70 percent of the economic power of the region.
The President will go on to Korea, certainly SouthKorea. Kim Dae-jung has made significant economic reforms and hasmuch to be complimented on. There is obviously further work to do inensuring that everyone, including the large conglomerates -- aredoing their part.
I will let -- Deputy Secretary Summers will go into moredetail on these financial areas. Let me say something in the tradearea. Charlene Barshefsky, our USTR, is in Malaysia as we speak.
But on this third component, this certainly is acritical time in the world economy for market opening, it is criticalto the growth in the region. While U.S. imports from Southeast Asiahave been up $5 billion, they've been down $15 billion in Japan. Andso the combination of market opening and demand-led growth is anintegral part to helping the region.
It's also critical for us to show that even in thesedifficult times there's a commitment to further market opening. Andwe count on Japan joining us in a leadership role in further tariffreductions in the WTO, in the nine sectors discussed in APEC, inwhich 16 countries did make commitments in the hope of leveragingthose for an international agreement in the same way that theinformation technology agreement started at APEC and then went to theWorld Trade Organization.
The President will also stress the importance of makingprogress on the agreements that we already have in areas frominsurance to flat glass, where there's not been satisfactoryprogress. One of the positive efforts that we've been able to makeover the last few years has been in the deregulation initiative,where at Birmingham we had concrete steps that were announced inhousing, pharmaceuticals, telecommunications and financial services,we hope to be able to work on something that could be announced nexttime the two leaders met on those areas in energy as well, makingfurther progress.
And, finally, the President will stress the importanceat this time of ensuring that we are operating under a rule basedtrading system. There certainly is concern at the surge in steel,the increase by over 500 percent of hot rolled steel imported intothe United States from Japan. And the President will stress theimportance of each country at this time ensuring that they areoperating by a rule based trading measures to help further theconfidence in our rule based open market trading system that hasserved the global economy so well over the last couple of decades.
With that, let me turn to Deputy Secretary Summers andthen we will be available for questions.
DEPUTY SECRETARY SUMMERS: The President goes to Japanto continue our financial and economic dialogue with Japan at asignificant moment. Following the G-7's recognition that the balanceof risks have changes, U.S. passage of the IMF legislation, Japanesepassage of banking legislation, agreements to cooperate on thedevelopment of the future international financial architecture --there has been some improvement in the behavior of markets and somesigns of a return of confidence in recent weeks.
At the same time, large problems remain. After a periodof prolonged recession Japan is not expecting, quoting from manyforecasters, on the basis of all the actions that have been taken todate, to enjoy meaningful growth next year with most forecastsnegative. Deflationary risk factors in Japan have been sufficientlylarge that negative interest rates have been observed in recentweeks.
At a time when continued demand is crucial to the globaleconomy -- and in particular to the Asian economy -- Japan's currentaccount surplus has substantially increased and is expected to exceedthree percent of GDP in 1998 and 1999. Japanese imports from eightmajor Asian economies have actually fallen in the past year by morethan 13 percent, while U.S. imports from these countries have risen.
So economic policy in Japan and what the United Statesand Japan can do together for the Asian economies and the globaleconomy will be very much on the agenda when President Clinton meetswith Prime Minister Obuchi.
The initiative announced in Kuala Lumpur to cooperatefor Asian growth and recovery through the provision of finance fortrade and for private sector restructuring will, I'm sure, be asubject of discussion. And crucial economic policy priorities inJapan, making sure that fiscal stimulus is well and vigorouslyapplied -- and we have seen some signs after lagging implementationwith evidence of public construction increasing by 30 percent inSeptember. That will be very much a subject on the agenda.
And so, too, will be banking policy which, since thetime that President Clinton and Prime Minister Obuchi last met, theDiet has passed substantial legislation making substantial fundsavailable for the Japanese banking system. But if that legislationis to have the desired effects it is crucial that transparency beincreased, that funds be used as bad assets are disposed of andliquidated into the market, as was done with the RTC here; and it iscrucial, also, that the orientation of the financial system be tiltedtowards lending to productive uses and away from continued lendingfor unproductive low return projects.
So with the situation in Japan, there will be a greatdeal to talk about regarding the Japanese situation and also thesituation in Asia more generally.
In Korea, where interest rates have come down to singledigits, where exchange rate stability has been observed for sometime, and where the sense of rapid decline in output has abated, animportant priority will be private sector financial restructuring.And there the actions that the United States is going to take in thetrade finance area, and that working with the Japanese and themultilateral banks we intend to take to support bank recapitalizationand private sector restructuring, will be important areas fordiscussion.
Q Gene, you talk about areas of economic concern andlack of progress in Japan. How far off the tracks is thisrelationship? How critical is the United States? Can you just giveus a summary? What will the President say about the state of theU.S.-Japanese economic relationship?
MR. SPERLING: I think, first of all, the obvious answer-- and I'll let the President speak for himself there -- but I thinkthat the President and I think our policy has been to speak franklyabout what was positive and what we see lacking. There certainly wasa positive cooperation on the corporate debt restructuring initiativethat was announced yesterday, that was announced simultaneously instatements by Prime Minister Obuchi and President Clinton. That was,I think, a very clear example of how our two governments worktogether cooperatively.
In the banking reform area, I think that the President,Secretary Rubin, Deputy Secretary Summers have been positive inpraising the sums of resources that have been put forward to dealwith this, but have also been, as Secretary Summers was, candid inacknowledging that the implementation of that, whether it is done ina decisive and prompt way, will be critical to the success.
Clearly, there is no question that we were hoping formore cooperation in the early -- the EVSL, or the trade agreement,trade effort in APEC. And our USTR, Charlene Barshefsky, did aterrific job of moving that forward, that process forward and gettingan agreement that that be worked on in the World Trade Organization.But, again, there's no secret that we were disappointed by their lackof willingness to take some tough steps there.
But, again, to the extent that we now have an agreementto work together to try to get those tariff reductions as part of theWTO, that's a positive step we can focus on. So I think that this isunquestionably a positive and warm relationship between the two topeconomic powers and two of the top democracies in the world. Butthere has unquestionably been some very real differences of opinionon areas that we think are critical to regaining economic strength inthe region and we'll speak candidly and frankly to those individualmatters as we have for some time.
Q To follow up, what kind of overall grade would yougive them?
MR. SPERLING: Professor Summers? I haven't reallygraded since Wharton.
DEPUTY SECRETARY SUMMERS: The course isn't over for anyof us, and so we're in no position to give grades.
I think what's important to stress is that this is apositive sum agenda. The United States and Japan have a commonobjective. Japan is not satisfied with negative growth in Japan.Japan has the same stake we do in the resumption of growth andconfidence in Asia. So we will acknowledge together that there arereal problems remaining, but very much it is a cooperative agenda ofworking together to solve those problems. And I know that thePresident enjoys a strong relationship with Prime Minister Obuchi andcertainly Secretary Rubin very much values his relationship withPrime Minister Miyazawa and that goes right down the line across ourgovernments.
Q What's your thinking on the latest stimuluspackage? They keep adding more money, but it never seems to beenough.
DEPUTY SECRETARY SUMMERS: We'll have to evaluate itfully and evaluate which part -- which components of it areincremental; and obviously what will be crucial will be the speed ofimplementation. I think it is desirable that they are recognizingthe importance of domestic demand and they are taking further stepsto spur it. But we continue to be concerned that with forecasts ofgrowth for 1999 that are negative and that have deteriorated inrecent months despite all that has been done, that it will beimportant for Japan to focus going forward on doing enough to createmomentum, to get their economy going after what has been the longestrecession that they have experienced in the post-war period.
Q Two hundred billion dollars in stimulus packagedoesn't get that done, Larry?
DEPUTY SECRETARY SUMMERS: Let me take this and thenthis.
Q Do you see anything different in this stimuluspackage that would lead you to believe that it will make a differenceas compared to the numerous stimulus packages that have containedapparently similar types of things before?
DEPUTY SECRETARY SUMMERS: I'm glad you asked thatquestion, which I think is related to the question that Scott wasasking.
I think it is very important that in looking at Japanesefiscal policy, we focus not on particular spending that is identifiedas a stimulus package, but instead focus on what the overall budgetposture was; because often, the stimulus package comes on top of abaseline which is very contractionary. For example, the level offiscal stimulus in 1998 is still, according to IMF figures,significantly below that that was in place two years ago in 1996.And it is important to recognize that the year of most rapid growth,1996, corresponded to the year when fiscal stimulus was mostvigorously applied in Japan.
So our reading of the evidence is that on thoseoccasions when fiscal stimulus has been vigorously applied accordingto the internationally accepted measures, when you take the overallbudget put together that, in fact, it has resulted in significantgrowth -- and that on some occasions, the stimulus packages have notbeen large enough, even though they've been called stimulus packages,to offset what otherwise would have been a contractionary baseline.
So what will be crucial going forward will be that theoverall posture of fiscal policy going into 1999 be expansionary, andin that case, we believe that fiscal policy certainly can make adifference in an economy like Japan's where there is substantialunused capacity, as represented by significant unemployment and verylow interest rates, and so the crowding out concerns that arise inother contexts are not likely to be large.
Q If you're looking at contraction into 1999, what isthe effect of that alone on the American economy?
DEPUTY SECRETARY SUMMERS: Clearly, we have an importantstake in growth in Japan, both because of its impact on export demandfor U.S. products and because our capital markets are very tightlylinked. But I believe that if the Japanese situation and the globalsituation more generally remains contained, that the basic momentumof expansion in the United States should continue.
We have a very healthy expansion because it is based,unlike our previous long expansions, not on consumption andgovernment spending, but instead on investment and on exports. Thatgives a basis for it to continue as a healthy expansion.
MR. SPERLING: Just one fact, though, directly is thatour exports to Japan are down 12 percent this year, so in its mostdirect effect, the lack of satisfactory market opening and demandcertainly does have effect on our exports to the degree that it'scritical to the economic health of the region. In that impact, it isa broader impact. That does not mean we're not positive about theprojection for sustained growth in the future, but just to say thatfrom the start we have always has this need to be monitored becausein this situation, everything -- no country is completely immune,including the United States.
QQ My sense from Larry, though, Gene, is that it's aminor drag on the economy.
DEPUTY SECRETARY SUMMERS: Clearly the global situationhas important sectoral impacts and, depending on how it plays out,could pose real risks. There are risks that no one should want torun and there are sectoral dislocations that are quite important. Soit is very much in the economic interests of the United States -- Idon't want to minimize that in any way -- it is very much in theeconomic interest of the United States that the Japanese economy getback on track as rapidly as possible.
But at the same time, I think the basic momentum ofexpansion should continue.
MR. SPERLING: I just think it's important to understandthere's the direct impact in terms of our trade exports and thenthere is the indirect impact to the degree that Japan's resurgence iscritical to resurgence of growth in the region and how that affectsthe global economy.
So our concerns throughout have always been not on justthe impacts of a particular country, but of the health of the globaleconomy and giving stability there; because if that were to becomeunmanageable, that would start to have more of a significant impacton the U.S. economy.
Q Larry, you mentioned the Japanese steel exports tothe United States. Do we believe that Japan is dumping steel in theU.S.? And whether you technically call it dumping or not, are weseeing an impact on our domestic steel industry?
MR. SPERLING: I don't think there's any question thatthere has been a surge of steel imports that have been having anegative impact on our steel industry and on our steel workers.There is currently an anti-dumping case that has been filed againstJapan, Russia and Brazil; as that is a quasi-judicial measure, Idon't think it would probably be appropriate for us to pass judgmenton that.
But I think it is appropriate, however, for us to makeclear to any country that it's important that they, in a sense, havetheir own house in order and ensure that they are operating byrule-based measures. Certainly, in hot rolled steel, you've seen anincrease so far of 200,000 to 1.3 million metric tons; that's a 550percent increase. That certainly is significant -- and a 114 percentincrease in steel overall. So there's no question that there hasbeen a surge and that that is certainly causing pain, real pain insome steel communities in this country.
I think what the President will do when he speaks inKorea and in Japan is to stress the importance of a rule-based fairtrading system and that the importance of that for maintainingconfidence in open global markets. And those will be points he willmake; those certainly are points the Vice President made today in hisbilateral of Kim Dae-jung yesterday.
Q Larry, what do you make of the market'sunenthusiastic reception of the Brazil rescue plan? What does thatsay about the whole model for early intervention sort of structurethe President has called for?
DEPUTY SECRETARY SUMMERS: I think we'll have to see howthings play out in Brazil. I was encouraged by the statement of Mr.Rhodes after chairing a lunch of major United States banks in NewYork, that it was their intention to maintain key commitments toBrazil and have been encouraged by the pattern of reserve flows inBrazil, which has been different in November and much more favorableto Brazil than it had been earlier. And certainly Brazil's stockmarket has moved quite substantially in the last six weeks.
But what will be crucial is not -- obviously the supportthat is provided is very important. But what is most important forthe prospects of maintaining stability and laying a foundation forresumption of growth in Brazil would be the actions that Braziltakes. That's why the discussion of fiscal policy in Brazil betweenPresident Cardozo and the Brazilian legislature will be so veryimportant going forward and certainly we will be watching those, aswe expect investors will, very carefully going forward.
Q Can you answer a question about in consumer terms,that the average Joe American can understand? What do you hope toget out of this trip that's going to impact Americans' lives? Whatis your best hope for this trip that will actually have an impactwhere people live?
DEPUTY SECRETARY SUMMERS: A healthier Asian economy,which will mean higher wages for workers because there will be moredemand for U.S. exports, and better returns for American saversbecause our markets will perform better and more stability in theworld, which is ultimately important for the security interests thataffect all of us as Americans.
Q Would you grade this one? Today is the fifthanniversary of NAFTA, one of the major initiatives of PresidentClinton. Would you give it a grade?
DEPUTY SECRETARY SUMMERS: I left the classroom sometime ago, so no --
Q Okay, don't give us a grade, give us an overall ofwhat do you think --
DEPUTY SECRETARY SUMMERS: So no grades. But I wouldsay this: I think that through a period when there has been a greatdeal of change and uncertainty, I think the presence of NAFTA has hada very important and beneficial interest on -- beneficial impact onU.S. interests. Without NAFTA, the United States would havesubstantially fewer exports to Mexico. Without NAFTA, our capacityto cooperate with Mexico on issues ranging from immigration to drugswould be substantially diminished, and I believe that NAFTA has hadan important impact on maintaining stability in Mexico through a verydifficult time.
Q Secretary Summers, when you said that the overallfiscal stance of Japan in 1998 is less than that of 1996, were youtaking into account the latest stimulus package and are you,therefore, labeling it insufficient? And also, do you subscribe tothe OECD's forecasts today that forecast .6 percent growth in Japanas late as the year 2000?
DEPUTY SECRETARY SUMMERS: I haven't had a chance toreview the OECD's forecasts and their assumption. The figures I wasciting on the cyclically adjusted deficit for Japan were IMF figuressome time ago referring to 1998. But the actions taken today wouldhave their primary impact in 1999, and so I don't think they wouldlead to a significant change in the 1998 figures that I was citingfor Japanese fiscal policy.
Q Is this stimulus getting more expensive for them asthey delay it? Would $200 billion have worked last year and it isgoing to cost them more if they wait longer?
DEPUTY SECRETARY SUMMERS: I think as in any financialand economic problem, as we saw with the S&L crisis in this country,it is easier to address problems sooner rather than later, and that'swhy we have been consistently encouraging stronger policy action.So, certainly, the pace with which actions come, as well as thequantity of those actions, is very important.
MR. LOCKHART: The President requests all of yourpresence upstairs.
Q Saved by the bell.
Q Gene, are you on the trip?
MR. SPERLING: Yes.
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