Treasury Secretary John Snow Says U.S. Needs Stronger Growth Overseas, Dispels Rumors He Is Leaving Treasury

Treasury Secretary John Snow, calling reports of him leaving the Treasury soon "fiction," says stronger economic growth overseas is necessary to help unwind global imbalances.

Nancy Syverson

May 18, 2006

WASHINGTON (Reuters) - Stronger economic growth overseas is necessary to help unwind global imbalances because the United States cannot do it alone, Treasury Secretary John Snow said on Wednesday.

At a Capitol Hill hearing where he said reports of him soon leaving Treasury were "a lot of fiction," Snow repeated it will take a cooperative effort to shrink imbalances that include big U.S. deficits on trade and capital flows.

He suggested the onus was on the rest of the world since the United States was doing its part by keeping its economy strong and by getting budget deficits down.

"The continued rise in global imbalances -- larger current account balances than were previously thought sustainable -- is a development that particularly needs attending to by economies with weak growth rates, less attractive investment climates or overly rigid exchange rate regimes," he told the House of Representatives Financial Services Committee.

Snow said Japan and Europe must implement reforms to spur faster growth, and China had "a particularly important role to play" by relying less on exports for growth and by adopting a more flexible currency regime so it can manage its economy better.

"We are intensively engaged with China in an effort to bring about greater exchange-rate flexibility, balanced growth and financial sector modernization," Snow said in wide-ranging testimony.

Snow told the committee that if China had been named a manipulator it might only have made China more reluctant to let the yuan rise in value. "The designation would in my view play out in ways that might not be helpful."

At the start of the hearing, Snow was questioned about recurring reports that he might be replaced as treasury secretary and was asked if the reports hurt his credibility.

"I think we've seen a lot of fiction here and it doesn't do any good for me to comment on rumors and speculation," he said, adding the reports were not hurting his ability to do his job.

Group of Seven finance ministers who met in Washington last month had an extensive discussion about global imbalances. Snow said Wednesday that reducing them was "a shared responsibility that will require contributions from Europe, Japan, developing Asia, particularly China, and energy exporters."

Since the G7 meeting on April 21, the dollar has declined in value against other key currencies.

He said that while Japan seemed to be in a recovery and Europe was on a cyclical upswing, "the outlook for future growth remains modest" unless they reform their economies.

On the other hand, Snow said the global economy currently was enjoying "exceptional growth," projected at 4.8 percent this year by the International Monetyar Fund. But it faces risks including high oil prices, potential protectionist trade actions and vulnerability to a downturn among emerging-market economies.

Snow said the United States backs an effort to give emerging-market countries a greater voice in the IMF to reflect their greater economic might.

"Fundamental reform is needed if the IMF is to remain legitimate and relevant to its membership," Snow said.

But he specified that any shift in quotas, or IMF voting power, at a fall meeting in Singapore must be coupled with other steps to make the IMF more effective.

"We are only willing to support a limited ad hoc increase at the IMF annual meeting in Singapore if it is credibly linked to a second step that delivers fundamental reform," Snow said, including revising the formula for calculating voting quotas.

Snow also said it was vital that the Doha Round of free-trade talks be brought to a successful conclusion, and suggested Europe was at fault in the current strained talks.