Letters & Speeches
Ambassador's Remarks for International Anti-Corruption Day "The Global Response to the Financial Crisis"
Ladies and Gentlemen,
It is a pleasure for me to be here to address you on International Anti-Corruption Day, especially as part of such a distinguished panel.
JC Welimuna has asked me to speak to you about the global response to the financial crisis. Before I do so, I would -- noting the day -- like to say a few words about corruption. As we all know, corruption is not unique to any one country or company. It is something we all must grapple with. A well-governed country has institutions in place that monitor and investigate corruption, so that those engaging in it can be brought to justice and the public can have confidence in its public institutions and public servants.
My own country is a good example. Recently, U.S. Senator Ted Stevens from the state of Alaska was found guilty of lying on his financial disclosure forms for failing to report gifts from a campaign contributor. Senator Stevens had served for forty years and was arguably one of the most powerful U.S. Senators, but he was not above the law.
In another instance, in 2005 an individual working for the Army Corps of Engineers in Iraq informed the government about waste and fraud that was occurring by private contractors hired by my government. In some countries this would not have happened due to fear of job loss or retribution. In the U.S., federal employees are not only encouraged to report corruption, they are specifically protected from retribution for doing so under "whistleblower" laws. Corruption is a battle every country must actively engage in, especially those seeking to attract foreign investment. To win such a battle, countries must not only have the proper institutions and laws to do so, but a strong commitment at all levels of government. That is why the work of watchdog institutions like Transparency International is so important.
Let me return to my main topic -- the global response to the financial crisis.
The financial crisis that started in the U.S. has become global and is now affecting a wide range of financial institutions, asset classes, and markets. Constraints on credit availability and slumping asset values have in turn helped to generate a substantial slowdown of economic activity. That is where we all are today. The U.S., as announced last week, is in recession.
Although financial problems first surfaced in the U.S. market, the interconnectivity of global financial markets -- and the fact that most major financial institutions operate in many countries -- means that a significant problem in one economy can have a snowball effect and cause significant problems in many other economies.
In the initial days of the crisis, the United States was very focused on its own efforts to restrict the negative implications of the market downfall. On September 19, the President and his senior staff committed to helping relieve pressure on financial institutions by announcing a plan to purchase difficult-to-sell assets, establish a temporary guarantee program for money market mutual funds, thereby providing for additional liquidity in those same funds to support the flow of credit to households and businesses. They also prohibited the practice of short selling. That was followed by an $85 billion bailout of insurance giant AIG and, eventually on October 3, the passage of a revised $700 billion package known as the Emergency Economic Stabilization Act. However, it was obvious that a more concerted international effort would be necessary.
We started talking with other countries as they too were taking domestic action. For example, a large Benelux bank was partially nationalized with investments by the governments of the Netherlands and Belgium. Irish lawmakers enacted legislation guaranteeing Irish bank deposits and debts up to 400 billion euros. Iceland took control of its largest bank.
Moving ahead with an initial, joint international response, on October 8, the U.S., EU, Canada, UK, Swiss and Swedish Central Banks agreed to jointly cut interest rates. This unprecendented cooperation was meant to ease global monetary conditions. Shortly after, Finance Minister and Central Banks from the Group of Seven met in Washington on October 10 and devised a plan of action to, in short, prevent major financial institutions from collapsing. On October 12, European leaders met in Paris to agree on plans to help banks through the turmoil.
The leaders of the G20 nations came together on November 15 in Washington and agreed upon a forty-seven point action plan that includes specific near and longer term actions.
Summing up these 47 points were six broad measures.
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First, there was a broad agreement on the importance of G20 countries taking and implementing pro-growth investment and pro-growth policies to stimulate our economies.
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Second, leaders pledged to improve regulatory regimes to ensure that all financial markets, all financial products, and all financial market participants are subject to appropriate regulation or oversight. Related -- and key -- to this was a pledge to enhance international cooperation among regulators and between regulators and international financial institutions. This will occur via the creation of "supervisory colleges," where financial regulators will compare notes, ensure better cooperation between nations on regulations, and -- eventually -- standardize accounting rules governing how companies can value assets.
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Third, leaders agreed on the need to reform international financial institutions to give greater representation to emerging market and developing economies.
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Fourth, they agreed to affirm free market principles. including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial markets. Just as significantly, there was agreement not to go overboard -- an acknowledgement that over-regulation hampers economic growth and exacerbate the contraction of capital flows, in particular to developing countries.
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Fifth, the leaders rejected protectionism. As part of this, the leaders said they would not impose or raise new barriers to trade and investment during the next twelve months.
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Sixth, the parties recognized and committed to address the needs of the poorest, both by honoring our aid commitments and by ensuring that the World Bank and IMF are adequately resourced so they can help countries through the crisis.
I think you will agree that this unprecedented cooperation will help to ensure that this financial downturn does not spiral into something greater than it already is, and will help diminish the chances that it will occur again. As I speak, international partners continue discussions to find the right way forward, even as we in the U.S. deal with continued questions surrounding the survival of auto-makers and market liquidity.
The U.S. also plans to take additional steps to jump start the American economy. President-elect Obama promised last weekend that his Administration -- once it takes office on January 20 -- will undertake the largest public works construction program since our interstate highway program 50 years ago. The program will include infrastructure projects to repair roads and bridges, and create green jobs that reduce energy use and global warming emissions. The President-elect’s goal is to create 2.5 million new jobs in the first two years of his administration.
In today's financial market, government intervention was, and is essential. The key, in coming months, will be ensuring that we find a good middle ground of regulation that will allow markets to not only flow, but to thrive.
Once again let me thank Transparency International for inviting me to participate in this important conference.