Press Center
Treasury Secretary Jacob J. Lew Remarks at the Brookings Institution: From Pittsburgh to Hangzhou: The Past, Present, and Future of the G-20
8/31/2016
WASHINGTON – Let me begin by thanking the
Brookings Institution, Kemal DerviΕ for the kind introduction, and David
Wessel for hosting this important discussion.
It is a pleasure to be with you. Later today, I depart for
Hangzhou, China to join President Obama at the G-20 Leaders Summit, the
last G-20 meeting the President will attend during his tenure. It is a
valuable moment to take stock of how we have used the G-20 over the past
eight years to promote economic growth and financial stability, both of
which remain so important to American workers and families. President
Obama will use this Summit to advance concrete steps toward a future
that is safer, environmentally sustainable, and one in which the
benefits of economic growth are more widely shared.
We have made significant strides during the past eight years. In
late 2008, the world economy suffered the worst financial crisis since
the 1930s. Recognizing the truly global nature of the crisis, President
Obama joined world leaders from large economies—both advanced and
emerging—for his first G-20 Summit in April 2009. It was a time of great
uncertainty, that required a spirit of close cooperation: G-20 Leaders
pledged to do whatever was necessary to halt the crisis, including
committing $5 trillion in new fiscal stimulus and bolstering the
resources of the International Monetary Fund and other multilateral
institutions.
Coordinated action made a difference. Five months later, in
September 2009, President Obama hosted the next meeting of the G-20 in
Pittsburgh, where in two simple words, leaders assessed the forceful
response to the crisis by declaring, and I quote, “It worked.” But they
also recognized that much more remained to be done. In Pittsburgh, G-20
Leaders committed to a comprehensive work program aimed at boosting the
recovery, strengthening the financial system, and building an
architecture to prevent future crises.
Since 2009, we have used the G-20 to deliver on that commitment:
We addressed the problem of “too big to fail” by strengthening the
global financial regulatory framework and putting in place structures to
prevent a repeat of the crisis, including higher capital standards,
improved monitoring and regulation of derivatives, and greater
transparency and resolution plans.
We built a critical consensus on exchange rate policies to avoid
beggar-thy-neighbor actions that leave us all worse off, and on working
towards shared global growth by using all available means—monetary
policy, fiscal policy, and structural reforms.
We reformed the governance of institutions like the IMF to make
sure they are well resourced and more representative of a diverse global
economy, so they continue to be relevant and effective in a changing
world.
We implemented reforms at the World Bank and regional development
banks to advance efforts to close the development gap and fight poverty.
We reaffirmed our resolve to fight terrorism in all of its forms, strengthening efforts to prevent the financing of terrorism.
We worked together to strengthen global action to fight climate
change, and to make sure that financial resources stand behind this
commitment.
And through a shared belief in the importance of financial
inclusion, we continue to strengthen efforts to improve access to the
world’s financial system.
Why the G-20 Matters
The United States is stronger and the American people are more prosperous because of the work we have done at the G-20.
First, the G-20 brings policymakers from leading global economies
together to exchange views about key global challenges, diagnose common
problems, and debate strategies to address them.
Sometimes there is broad agreement on these issues and the G-20
serves as a platform to coordinate policy responses and maximize their
effectiveness, as was the case in the immediate aftermath of the global
financial crisis. At other times, there are divergent policy views, and
the G-20 provides a platform to work through the issues with the goal of
building consensus over time.
When I became Secretary of the Treasury in 2013, a debate over
“growth vs. austerity” dominated these meetings. The United States
believed it was misguided to impose immediate fiscal austerity with the
global economic recovery still fragile and unemployment still
unacceptably high. We thought there was a need for short-term growth and
longer-term structural reforms. But not everyone agreed, and our
differences would not be resolved immediately.
It was only over time—through persistent discussion and evaluation
in G-20 meetings and as these issues increasingly became topics of
domestic political debate in many countries—that a consensus began to
form around the U.S. position. In February of this year, G-20 Finance
Ministers, meeting in Shanghai, finally committed to “use all policy
tools—monetary, fiscal, and structural—individually and collectively” to
support the recovery. Beyond words in a communiquΓ©, this commitment was
almost immediately reflected in new policy measures in several major
countries—including Canada, China, South Korea, Japan, and parts of
Europe—all undertaking additional fiscal spending or delaying tax
increases to support their economies. And today, the G-20 is no longer
debating growth versus austerity, but rather how to best employ fiscal
policy to support our economies, and increasingly how to make sure the
benefits of growth are more widely shared, while continuing to focus on
sustainable long term fiscal policies. More needs to be done, but we
have made real progress.
Second, G-20 meetings provide a mechanism to hold countries
accountable to one another for commitments they make, particularly when
their policy actions could harm others.
Take currency exchange rate policy. The United States has long
opposed using exchange rate policy to devalue a currency to gain an
unfair trading advantage. We have pressed this bilaterally and
multilaterally, and worked in the G-20 to build a consensus that all
major economies should refrain from unfair exchange rate practices. At a
time of slow economic growth, policymakers can be tempted to look at
interventions in foreign exchange markets to lower the value of a
currency, or prevent it from appreciating, as a quick and easy fix. But,
as we know, these policies in the past have led to a vicious cycle of
currency wars and protectionist measures that ultimately lead to lower
global growth—which hurts everyone over time.
We engaged counterparts on this issue at meeting after meeting, and
in 2012, President Obama affirmed with other G-20 Leaders a new shared
commitment to move more rapidly toward market-determined exchange rate
systems and exchange rate flexibility to reflect underlying
fundamentals, avoid persistent exchange rate misalignments, and refrain
from competitive devaluation of currencies. There, for the first time,
China committed to allow market forces to play a larger role in
determining movements in the renminbi , to continue to reform its
exchange rate regime and to increase the transparency of its exchange
rate policy. We continued to build upon those commitments, including in
Shanghai earlier this year, where the G-20 agreed for the first time to
consult closely on foreign exchange markets to avoid surprising one
another with sudden changes in policy that could have a negative impact
on other countries.
This was no small achievement considering China’s objection to such
policies not long ago—and we will continue to hold China and others
accountable to those commitments.
It is notable that amid the various political and economic
surprises that have periodically unsettled financial markets this year,
G-20 countries have continued to abide by their exchange rate
commitments, providing stability at otherwise volatile moments. To what
can we attribute this discipline? At one level, G-20 members know that
they each benefit from a collective restraint that is respected. But
they also want to avoid being taken to task by their G-20 peers should
they be the country to violate their commitment.
On top of the important progress achieved at the G-20, the United
States and 11 nations that are part of the Trans-Pacific Partnership
have agreed to high standards designed to address unfair currency
practices, including unprecedented transparency and reporting standards,
as well as enhanced communication and cooperation on macroeconomic and
exchange rate policy issues. And earlier this year, President Obama
signed legislation that puts in place important new exchange rate
reporting and monitoring tools of our trading partners and gives the
Administration the authority to levy meaningful penalties to hold
countries accountable for unfair currency practices. The Trans-Pacific
Partnership puts in place historic labor and environmental standards
that ensure our trading partners play by our rules and values. We are
committed to securing support for TPP, and hope that Congress will
approve the agreement as soon as possible. It is the right thing to do
for our economy and for American leadership in the strategically
important Asia-Pacific region.
Finally, G-20 meetings provide a platform for deepening
relationships and building trust among senior political and economic
leaders throughout the world’s leading countries.
Solid relationships are indispensable to making progress on the
work of the G-20. Relationships among G-20 leaders, finance ministers
and central bank governors, for example, were critical during the
extended effort to secure U.S. congressional passage of IMF reform
legislation. In 2009, we led the world to embrace reforms, which give
the IMF sufficient resources to be the first responder at times of
economic crisis, and also give emerging and under-represented countries a
greater stake, while maintaining U.S. influence. But after more than
five years, when the United States failed to ratify these reforms, many
countries, including our close allies, began to question our commitment
to the very international financial architecture that we helped design.
Time and again at these meetings, either the President or I needed to
persuade the world that we would keep our commitment, and that the world
should not try to move on and find other paths forward that would
dilute U.S. influence. Personal trust, forged in large part through the
G-20 process, prevented the United States from being isolated, and even
during this difficult period, we were still able to marshal support for
U.S. priorities like the IMF’s Ukraine program and the response to the
Ebola crisis. And, with the approval of IMF quota reform legislation by
Congress last December, we quickly restored U.S. political capital for
future challenges that lie ahead.
Close working relationships also allow for rapid and clear
communication, and action at challenging times, particularly when events
or issues can be difficult to understand and predict at moments of
turmoil. This was certainly the case in the wake of the recent UK Brexit
referendum. Regulatory and policy collaboration by Finance Ministers
and Central Bank Governors in the lead-up to that vote was effective and
helped to settle nervous global markets. In the days following the
referendum, the Treasury team worked closely with our international
counterparts, again drawing on strong relationships of mutual trust. So
when volatile currency movements could have prompted uncoordinated
responses, coordination among G-20 counterparts helped calm financial
markets. And the benefits of this coordination are not limited to
economic and financial shocks. We also see the benefit, for example, in
the wake of terrorist attacks, when rapid cooperation on areas like
tracking and blocking terrorist financing are critical.
Our Goals for Hangzhou and Beyond
We have come a long way in a short period of time. When I became
Treasury Secretary three and a half years ago, there was still a
lingering bitter view around the world based on the fact that the U.S.
was at the epicenter of the 2008 global financial crisis. But today,
there is broad appreciation for the resilience of the U.S. economy and
our ability to again drive growth, providing much needed support for the
global economy. As a result, economic policymakers around the world
again see the United States as an example to be emulated, which
historically has been a very real source of U.S. leadership and
strength.
But there is more work to do in Hangzhou. At his final G-20,
President Obama will press on several issues to help ensure stronger
growth, an environmentally sustainable future, and a global economy that
truly works for everyone.
The President will call on his counterparts to follow through on
the G-20’s commitment to use all policy tools—including fiscal policy—to
achieve robust and inclusive growth, and he will underscore the
importance of investing in jobs and supporting middle-class incomes.
Support for the global economy can—and should—be stronger. And we
continue to believe that more countries have room to enact pro-growth
policies. We also see the choice of using fiscal or structural tools as a
false choice. Some countries have defined structural reforms as a
solution in and of themselves. But it is clear that macroeconomic
support is essential for many structural reforms to be successful, both
to provide important transitional assistance to displaced workers, and
regions, and to boost an economy during an adjustment period when
necessary structural changes can lead to a short term decline in
economic activity, such as when excess industrial capacity is retired.
The President will press for action on excess capacity, most
notably in the steel industry. Excess capacity distorts markets and the
environment, harms our workers, and runs counter to our efforts to
achieve strong, sustainable, and balanced growth. He will also press for
fiscal measures both to smooth the transition and increase short term
demand.
As we work to achieve strong, sustainable, and balanced growth, the
G-20 must also remain mindful of the need to redouble our focus on
making sure the benefits of growth are broadly shared by all our
citizens, and that the benefits of global economic integration reach
working and middle class families through better jobs and living
standards. Around the world, the message of anxious and angry citizens
who feel left behind underscores the need for global financial
discussions to show both an understanding of this concern, and a
commitment to action. That is why, at the July G-20 Finance Ministers
Meeting in Chengdu, we pressed the G-20 to refocus on the goal of
strong, sustainable, balanced, and inclusive growth. In Hangzhou,
President Obama will advocate for greater emphasis on inclusive growth
by the G-20, including policies to create opportunities for youth and
vulnerable populations, and will encourage countries to develop action
plans to promote digital financial inclusion so that banking services
become more universally available.
President Obama will also reiterate his support for an open,
integrated global economy. As the President has said, there are very
real concerns about globalization and technology, but the answer cannot
be to close ourselves off. The U.S. has a strong interest in increasing
access to markets that are becoming a larger share of the global
economy. The United States looks forward to discussing ways to ensure
the G-20 is upholding high standards, protecting workers, ensuring a
level playing field, and expanding opportunity.
The President will also continue to emphasize the importance of the
G-20’s work to ensure a level playing field for workers and businesses
to compete. In recent years, the G-20 has made significant progress,
cracking down on corruption and addressing tax evasion and avoidance.
These efforts remain critical to promoting broad-based economic
opportunity.
In the wake of the financial crisis, the United States played a
leadership role in pressing for and implementing financial reforms. The
U.S. financial system is considerably stronger than it was eight years
ago, and we will continue to work with the G-20 and the Financial
Stability Board it created to strengthen regulation and supervision of
the financial system, which in most cases brought standards closer to
our own. President Obama will stress the need for all countries to
implement the agreed financial reform agenda on a timely basis.
In Hangzhou, we will take the opportunity to reaffirm our
commitment to preserving access to the U.S. financial system while
continuing to protect its integrity by enforcing U.S. laws and
regulations against money laundering, terrorist financing, and sanctions
evasion. To advance these complementary goals, we have worked together
with federal banking agencies to bring greater clarity to the
conversation about correspondent banking including, through a joint fact
sheet released yesterday, outlining supervisory and enforcement
processes with respect to anti-money laundering and sanctions. Access to
the formal banking system is not only a key to unlocking economic
potential, it is a critical way to avoid illicit activity in an informal
cash economy.
Climate change remains a serious threat to the global economy and
to international security, and no nation is immune. The longer we wait
to address this challenge, the more costly it will be, both in financial
and human terms. The G-20 must continue to exercise leadership in
meeting this critical challenge.
At the Pittsburgh summit in 2009, Leaders agreed to phase out
inefficient fossil fuel subsidies over the medium term. We must renew
our efforts to phase out these subsidies, and in Hangzhou the President
will press to move forward with this commitment. The United States and
China have recently completed our respective fossil fuel subsidy peer
reviews—the first to be undertaken under the auspices of the G-20. We
congratulate Germany and Mexico for launching their own reviews, and
encourage other G-20 members to do the same.
The G-20 is also making important contributions to meeting climate
and other environmental challenges through the new Green Finance Study
Group. A final report showing the group’s progress this year will be
publicly released along with the CommuniquΓ© at the Leaders Summit, and
we encourage the G-20 to continue developing this valuable body of work.
And we will continue to look for ways the G-20 can support the
implementation of the Paris Agreement.
Finally, President Obama will underscore the continued importance
of the G-20 going forward. At the Pittsburgh Summit in 2009, we made the
decision to elevate the G-20 as the premier forum for international
economic cooperation. Since then, the G-20 has made global economic
governance more effective and representative, and provided an
indispensable setting to facilitate cooperation among the world’s
leading economies. And the President believes the G-20 will continue to
play a central role in preventing a re-emergence of the types of
imbalances and regulatory gaps that contributed to the global financial
crisis in 2008.
I will close by noting that the G-20 has proven to be a flexible
forum for global cooperation. As we have seen over the last few years,
moments of global crisis like 2008 and 2009 call for one kind of
coordinated response, like we saw in Pittsburgh. Periods of lesser
stress require something different: a commitment to common principles,
and individual action that move important issues towards better
outcomes, while allowing partners to maintain a dialogue to deal with
potential or real crises. A one-size-fits-all approach to coordination
will never work, but the interdependence of the global economy demands
frequent communication, and building consensus requires the investment
of constant attention to detail and persistent efforts.
Thank you very much, and I look forward to the discussion with David Wessel.
