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5/5/2020 Remarks by Under Secretary Nathan Sheets at the Carnegie Endowment for International Peace U.S. DEPARTMENT OF THE TREASURY Press Center Remarks by Under Secretary Nathan Sheets at the Carnegie Endowment for International Peace 1/17/2017 WASHINGTON – Thank you, Ambassador Burns, for inviting me today to discuss Treasury's key priorities and achievements on international economic policy issues. The Office of International Affairs (IA) at the Treasury Department represents the U.S. government on matters of international economic policy. Carrying forward a legacy of decades of U.S. leadership in this area, the office seeks first and foremost to support a growing and vibrant U.S. economy. Our economy benefits from – and also depends critically on – a supportive international economic and financial environment. And this is equally true for our partners around the world. This shared reality provides the foundation for our collaboration in multilateral settings, including in the G-20 and IFIs, and for our bilateral economic relationships. Fundamentally, we aim to foster strong, sustainable, balanced, and inclusive global growth. This requires promoting economic resilience, openness, and a level global playing field for our workers and firms. Resilience means bolstering the sustainability of growth, the strength of key institutions, and the stability of global financial markets, in order to reduce the frequency of crises while limiting their intensity if they do occur. Openness means that goods and capital are free to flow across borders to their most productive uses. And a level playing field allows U.S. companies and workers to compete on equal footing and helps mitigate potentially destabilizing imbalances. Robust global economic performance requires that all countries play by a common set of rules, including trade and exchange rate policies, financial regulatory standards, and practices regarding the provision of export credits. In addition, our work plays an important role in advancing broader U.S. foreign policy objectives. Whether leading efforts in the international financial institutions to respond to emergent crises such as the Ebola outbreak and refugee flows, supporting economic stability in key countries such as Ukraine and Iraq, or contributing to the design of major sanctions programs, we interact closely with partners across the government to achieve foreign policy interests. We function on several related tracks to achieve our policy objectives. First, our work is based on extensive monitoring and analysis of the global economy. Our staffing levels are admittedly lean, but we seek to provide expertise and timely counsel on global economic developments and to identify potential issues before they hit the headlines. This work also provides analytical support for senior Treasury officials. Having personally benefitted from this over the past few years, I am deeply impressed by IA's strategic insight and ability to deliver rigorous analysis in real time. Second, we share our assessments of key economic and financial developments broadly within the U.S. government and seek to identify relevant policy options and promote sound decisions. Third, we work bilaterally with international partners in finance ministries, central banks, and financial regulatory agencies to manage economic relationships and work toward shared goals, with the objective of fostering U.S. economic and financial interests. Fourth, we engage multilaterally to advance U.S. perspectives at forums such as the G-7 and G-20, and through institutions like the IMF and the multilateral development banks. We also play a leadership role in keeping these organizations effective, relevant to the global economy, and reflective of U.S. values and interests. In the remainder of my remarks, I will discuss some specific examples of our work over the past three years that highlight the progress we have made. My comments will focus on our engagement with counterparts in Europe, China, and Ukraine, as well as our efforts in the G-20. But this discussion is hardly exhaustive. I could just as easily focus on our engagement with Latin America and India, our work on correspondent banking services for emerging market and developing countries, or the progress we have made in modernizing the multilateral development banks. International Economic Policy in Action: A Brief Tour Monitoring the Global Economy Having worked in the official sector through the Global Financial Crisis and in the years following, I understand the immense importance of tracking risks to financial stability. Time and again, IA has been the U.S. government's first responder when it comes to evaluating the economic implications of financial market and geopolitical events. One of my vivid memories from my time at Treasury was an all-night watch in my office as the results of the Brexit referendum came in. We closely monitored vote returns and financial market reactions, sending regular updates to Secretary Lew and to White House colleagues advising the President. I also checked in repeatedly with G-7 colleagues over the course of the night, including my counterparts in the UK and other European capitals and with key emerging markets over the next twenty-four hours. Because of our close working relationships with our international counterparts, we were able to rapidly gather information and synthesize reactions as the outcome of the vote became clear. This coordination culminated in a public G-7 statement early the next morning, which helped calm global markets. Over a longer horizon, perhaps no issue illustrates our multi-pronged engagement with international counterparts more clearly than our work on the Greek debt crisis. The Treasury team has closely followed political and economic developments in Greece through its three bailout programs, and we continue to follow the country's ongoing negotiations with its creditors. Throughout this period, we have remained in close contact with the IMF, the ECB, and European colleagues, as well as with Greek officials, urging the parties to keep pushing toward a resolution. The urgent, fast-moving nature of these situations means that IA staff often work under relentless time pressure and must leverage long-cultivated expertise, as well as key relationships, to construct as full a narrative as possible. This work allows U.S. officials to provide real-time leadership as global economic events unfold. https://www.treasury.gov/press-center/press-releases/Pages/jl0710.aspx 1/3 5/5/2020 Remarks by Under Secretary Nathan Sheets at the Carnegie Endowment for International Peace Promoting Global Growth and a Level Playing Field through the G-20 Growth The G-20 is another essential channel of U.S. economic influence. While there has been broad agreement among the G-20 countries that the performance of the global economy is falling short of our reasonable expectations, countries have differing views as to what specific policies can most effectively address the challenges that we face. These challenges include high unemployment in too many countries, lagging middle-class income growth, and sluggish increases in productivity. In response, we have consistently advocated that countries like Germany, Korea, and Japan, with large amounts of excess saving and current account surpluses, should take steps to support stronger national and global demand. And we have called on China to use consumption-friendly fiscal stimulus if its growth slows more than expected. Through the G-20, we have worked with counterparts to build consensus on the need for collective action. For example, in advance of the G-20 meetings in Shanghai in February 2016, global markets were jittery due to concerns about China's economic transition, the prospects for global growth, and concerns about volatility in foreign exchange markets. We worked hard in advance of that meeting with key partners such as China and Germany to put together a package of measures that demonstrated that the G-20 was united in working toward an appropriate response. To this end, I personally logged some extended travel time, flying to China a week before the Shanghai meetings to help nail down key aspects of the package. In the communique that followed the meeting, G-20 Finance Ministers and Central Bank Governors for the first time committed to use all policy tools – fiscal, monetary, and structural – to energize the global economy. This is in contrast to the fiscal austerity that many policymakers had advocated in earlier years. G-20 Leaders subsequently endorsed these policy commitments during their Summit in Hangzhou in September. As a result, today more attention is being paid to whether countries' fiscal and monetary stances are supportive of strong and balanced growth. Finally, G-20 countries have long agreed on the benefits of economic and financial openness and the importance of fighting protectionism in all its forms. Expanding trade and investment relationships have been a key driver of U.S. and global growth through the post-war era. Even so, there is also agreement in the G-20 that we must make the case for such policies more convincingly and take steps to ensure that the resulting benefits are broadly shared. This underscores the importance of efforts to strengthen our educational systems, build infrastructure, and expand access to financial services. Currency Practices With the critical objective of fostering a level global playing field, we have intensively monitored the currency practices of our trading partners. The United States has long believed that countries should not engage in unfair currency practices to gain competitive advantage in their trading relationships. To this end, we've won important commitments in the G-7 and G20. G-7 countries committed to orient fiscal and monetary policies toward domestic objectives and to not target exchange rates. G-20 countries, which account for 85 percent of the global economy, committed to refrain from engaging in competitive devaluation and to not target their exchange rates for competitive purposes. And in Shanghai last year, after delicate negotiations, members of the G-20 also agreed to “consult closely” on exchange markets – an important component of G-7 communiques in the past, but never before included as a G20 commitment. Treasury also has consistently urged the IMF to strengthen the exchange rate analysis in its bilateral and multilateral reports. These outcomes drew on our careful analysis of foreign exchange practices, which are detailed in our biannual report to Congress. In 2015, Congress substantially strengthened Treasury's mandate to monitor and address unfair currency practices. The Trade Facilitation and Trade Enforcement Act sets out a data-driven framework to assess whether major U.S. trading partners may be pursuing unfair exchange rate policies. Treasury produced its first Report under the Act in April 2016, outlining robust and transparent criteria to help assess unfair currency practices. We also created, for the first time, a “Monitoring List” of major trading partners that merit close attention based on the criteria specified in the Act. In the latest Report, six major trading partners of the United States were included on the Monitoring List: China, Germany, Japan, Korea, Switzerland, and Taiwan. Paris Club We have also used the G-20 as a platform to urge emerging market economies to take on expanded roles and responsibilities in the international system. One example is our collaborative effort to broaden membership in the Paris Club, the premier forum for official sovereign debt restructuring. Given that many emerging market countries have become important international creditors, we have urged them to move beyond their traditional ad hoc participation in Club deliberations and become full Paris Club members. These efforts have achieved initial success, with Korea and Brazil joining during the past year. In addition, China and South Africa have increased their engagement and are considering the possibility of full membership. Engaging Constructively with China Let me now speak specifically about our engagement with China. As the world's second largest national economy, with banking system assets exceeding $30 trillion, what happens in China – and between the United States and China – impacts the rest of the world. We have made concerted efforts to build trust and a durable working relationship with our Chinese counterparts. The Strategic and Economic Dialogue (S&ED) has provided a mechanism for building this relationship and is a platform to encourage macroeconomic, financial, trade, and investment reforms. Efforts in the S&ED, along with our other engagements, have achieved results. China is taking steps to rebalance its economy away from exports and investment, toward a greater reliance on household consumption to fuel growth, and to embrace greater transparency and predictability in setting policies. China is also taking steps to reform its exchange rate regime. As the ultimate objective of these efforts, the exchange rate should be free to move in both directions, in line with evolving economic fundamentals. In numerous discussions with my Chinese counterparts, I have emphasized the importance of improving the transparency and scope of economic and financial data. China is now releasing greater detail on foreign exchange reserves, as part of the IMF's Special Data Dissemination Standard (SDDS). In September of last year, China for the first time was included in the IMF's Currency Composition of Official Foreign Exchange Reserves (COFER) database. China also committed in our last S&ED to publish a comprehensive monthly indicator of services sector activity and will work to publish quarterly GDP expenditure data. Through the S&ED, we also secured an important commitment from China to undertake further steps to reduce its excess steel capacity. This commitment was recently strengthened when Presidents Obama and Xi underscored the urgency of addressing excess capacity in industrial sectors, including by launching the Global Forum on Steel Excess Capacity. Our engagement has also encouraged China to assume greater responsibility within the existing international financial institutions. Notably, with the RMB now included in the IMF's SDR basket, China is more invested in – and has greater obligations to – the international system. In addition, Chinese authorities agreed last month to double their contributions to the World Bank's fund for the poorest countries. https://www.treasury.gov/press-center/press-releases/Pages/jl0710.aspx 2/3 5/5/2020 Remarks by Under Secretary Nathan Sheets at the Carnegie Endowment for International Peace Throughout our bilateral engagement, we have consistently pressed for a level playing field for U.S. firms in China and an improved business environment. We have opposed discriminatory industrial policies, sought to improve the environment for intellectual property, and advocated for fair competition and innovation practices. However, the Chinese authorities have much work to do before these goals are fully realized. If China were to take the steps necessary to conclude a high-standard Bilateral Investment Treaty with the United States, it would be an important milestone in this area, which would not only further economic reforms in China but also strengthen our economic integration and partnership. Supporting U.S. Priorities in Ukraine Our work with Ukraine over the past few years is an example of a different type of economic engagement – a focused response to geopolitical events. In this effort, we have interacted intensively within the U.S. government, with bilateral partners, and multilaterally to support Ukraine and respond vigorously to Russia's annexation of Crimea and its support for separatists in Eastern Ukraine. By the middle of 2014, Ukraine faced a deep economic crisis, which reflected Russia's disruptive actions as well as the sustained failings of Ukraine's prior governments. In response, the United States worked closely with other official creditors to establish a $40 billion international assistance package, anchored around a four-year IMF program. U.S. bilateral assistance to Ukraine has come mainly through three $1 billion sovereign loan guarantees. This international financial assistance has been conditioned on Ukraine making concrete progress on much-needed economic reform measures. In response, the Ukrainian authorities have put in place important fiscal and banking sector reforms, and have taken steps to fight corruption and stabilize the economy. The U.S. Treasury has provided over 30 technical advisors to Ukrainian government institutions to support these reform efforts, Treasury's largest technical assistance program globally. Encouraging signs are now evident, with Ukraine's economy emerging from a deep recession and returning to positive growth. At the same time, Russia's aggressive actions demanded a response. A core element of the resulting international effort – which included the EU, the G-7, and other like-minded partners – was the implementation of financial sanctions designed to impose costs on Russia and provide leverage for diplomatic engagement with Moscow. Tasked with developing a coordinated response with our allies, we in IA worked closely with Treasury's experts on sanctions to examine the Russian economy and its significant global linkages. Our objective was to identify areas where Russia relied on European and U.S. technologies and financing and where sanctions would have the greatest impact on the Russian economy, while minimizing spillover effects on us and our allies. This was a challenge that we had never faced on a comparable scale. The resulting sanctions constrained the ability of large Russian banks and several major energy firms to tap international financial markets for new financing. The sanctions also inhibited Russia's access to Western technology and expertise in oil exploration and production, and targeted nearly all of Russia's defense industry. While Russia's subsequent economic decline was amplified greatly by the dramatic drop in oil prices, our targeted sanctions have worked as intended. They have imposed costs on key Russian firms and the economy more generally, with only limited macroeconomic effects on the U.S. and European economies. Our close coordination with partners in Europe and the G-7, who have implemented similar measures, has bolstered the resulting effects and underscored to Russia that its actions in Ukraine have consequences. Conclusion: The Importance of U.S. Leadership I came to my job at Treasury with a deep appreciation for the legacy of U.S. international economic leadership, and I believe that the Office of International Affairs in recent years has been an effective custodian of that legacy, working to advance principled, rigorous, and data-driven policymaking. We have made important progress in the areas that I have discussed today and in many others. Coming out of the Global Financial Crisis, we worked to raise standards globally to protect financial stability while maintaining a level playing field for U.S. firms. We completed quota reform and continue to push for governance reforms at the IMF so that the institution reflects the global economy of today. Similarly at the World Bank, we have worked to realign shareholding while introducing new mechanisms to help the Bank better deploy its resources to reach those in need. We have expanded our work providing technical assistance, determined to foster a stable and inclusive financial system and strong, sustainable growth. We have deepened our working relationships with G-7 and other partners around the world, and opened doors to new counterparts. And we continued the basic – yet critical – work of monitoring the global economy for risks and assessing opportunities, while maintaining a rigorous analytical foundation in our engagements. To close, let me emphasize the value of U.S. leadership in all of the areas that I have discussed. Our position in international economic affairs is a reflection of the size of the American economy and the pre-eminent role of our financial markets. But that is only part of the story. Other core building blocks of U.S. leadership include the quality of our ideas, the breadth and intensity of our engagement, and our dedication to an open, resilient, and inclusive global economy. That is why the world has looked to us for leadership through the post-war period, and why the world continues to look to us for leadership today, a phenomenon I have seen again and again. This carefully cultivated leadership role provides us a unique capacity to protect and advance U.S. interests, as we continue to pursue the enduring task of achieving a stable, robust, and integrated international environment that is conducive to strong economic performance in the United States. ### https://www.treasury.gov/press-center/press-releases/Pages/jl0710.aspx 3/3
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