2nd UPDATE:Geithner Warns On Ending Economic Support Too Soon
By Deborah Solomon and Corey Boles WASHINGTON -(Dow Jones)- U.S. Treasury Secretary Timothy Geithner told lawmakers Tuesday that the world's economies will face a challenge as they try to shift away from unprecedented levels of government support and cautioned against unwinding the safety net too quickly.
"As stabilization and recovery take hold, our policy challenge will shift to catalyzing private demand and business investment," Geithner told the Senate Foreign Relations Committee. "This will require continued policy support. We cannot make the mistake of putting on the brakes too early or withdrawing support prematurely."
Geithner, who is testifying at a hearing about the Group of 20 industrial and developing nations, faced questions from senators about the pace of a regulatory overhaul of the financial sector's rulebook and about China's increasingly bold statements regarding U.S. trade and economic policy.
"China has to take steps to move away from excessive reliance on exports," Geithner said in his opening remarks.
In subsequent testimony, he said that a move by China away from being so heavily dependent on exports and toward domestic consumption for economic growth would be gradual, but he was confident it would occur.
"It's going to take a lot of time, a long period of time, a lot of reforms," Geithner said.
He said the Obama administration hoped the Chinese government would pursue "reforms to their exchange system over time," sending a far less urgent signal about the value of China's currency value than have previous holders of the Treasury secretary's office.
The Obama administration is seeking a restart to U.S-China relations, Geithner said, arguing that such an approach would be more productive in overcoming problems in the future.
On the pace of financial-regulatory overhaul, Geithner said it was essential that the U.S. moved while the memory of last year's crisis is still fresh in people's minds.
He said the U.S must work together with its international partners to enact changes to the system, and that the U.S. must be seen to be leading the way.
"We have to be able to set the international agenda on reforms...because we can't have a system without a level playing field," Geithner said.
The hearing comes as President Barack Obama concludes a tightly controlled visit to China and just days after China criticized the U.S. as jeopardizing a global recovery and engaging in "protectionist" trade policies. Earlier this week, China's banking regulator said the U.S. was inflating asset bubbles around the world and another official criticized recent U.S. measures against Chinese tire and steel-pipe exports to the U.S.
In his prepared remarks, Geithner said an open trade policy is critical "to ensuring future U.S. economic growth, prosperity and sustainability."
Much of the testimony focused on preventing another global financial crisis by strengthening rules and regulations across the globe, including putting in place "stronger constraints on risk taking across the financial system."
Geithner said the G-20 countries must coordinate financial-regulatory reforms to avoid a "race to the bottom" in which financial players seek out the least-restrictive regulatory regime. He said the "challenge" is to implement these changes and noted that working with Congress to overhaul financial-regulatory rules in the U.S. "is one of my highest priorities."
Geithner also faced questions from Indiana Sen. Richard Lugar, the ranking Republican on the committee, about the Obama administration's support for a $100 billion loan to the International Monetary Fund.
"The administration's $100 billion loan request for the IMF last September came very late in the process," Sen. Lugar is said in his opening remarks.
"There was no opportunity in the House or the Senate for hearings or authorizing legislation addressing whether the money should have been conditioned on reforms."
Lugar said the "American people must have confidence that our funds will be managed effectively, efficiently, and transparently. Given our domestic budget and employment situation, it is all the more critical that we ensure that our contributions promote U.S. interests."
Geithner touched on the IMF loan and other international development banks in his remarks, including asking Congress to potentially commit more money to help developing countries enact climate change and to help combat poverty in emerging nations.
He also reiterated the administration's support for revamping the IMF's governance structure "to reflect the relative weights and changing dynamics of the world economy."
Geithner also downplayed the possibility of expanding the G-20, which has now supplanted the Group of Eight as the primary international economic forum.
"Our view is that you can't make it bigger without undermining its effectiveness," Geithner said in response to questions from lawmakers about whether new countries might be included. He acknowledged that the G-20's makeup is "not perfect" and that some economies, such as those in Europe, are over-represented. He said the group "may find a way to change" the makeup somewhat but said the overriding view is to keep the core membership stable.
"If we keep changing the seats at the table, you won't have the continuity of engagement," he said.
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Publié le 17 novembre 2009 Copyright © 2009 Dowjones
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