America's man to save world finances - Business - News - The Independent

America's man to save world finances

News Analysis: Lawrence Summers reveals his reform plans

LAWRENCE SUMMERS, the Deputy Secretary of the US Treasury, is the man at the heart of the debate about how to tackle the troubled state of the world economy and financial system. More than any other individual, the Harvard economist turned influential policy-maker is in a position to steer the world towards calmer waters.

In an exclusive interview with The Independent yesterday, Mr Summers emphasised the scale of the challenge facing the US and other governments.

"There has been considerable repair in recent months, but there are still very important challenges," he said.

He said he would not characterise himself as an optimist. "World growth is likely to be considerably lower than it has been in recent years. There is a lot for policy-makers to do."

One of the preoccupations of the US Administration that emerged at the recent gathering of the World Economic Forum in Davos was the reliance of the rest of the world on the American economy, the only significant engine of growth at present.

"One of the challenges is ensuring that the world economy flies on multiple engines, not just the US," said Mr Summers.

He echoed the view expressed by Al Gore, the US Vice President, that American consumers and companies could not act as importers of last resort for the rest of the world. The strength of US growth set against the rest of the world's is helping send the country's balance of payments into record deficit.

Asked whether he thought other G7 countries were doing too little to stimulate their own growth rates, Mr Summers added: "The important priority in both Japan and Europe has to be domestic, demand-led growth. The use of macroeconomic policies to achieve that is important, and they must carry through on that agenda."

He was careful not to predict that the successive waves of financial and economic crisis were now over, and in particular remained cautious about prospects for Brazil.

The success of the IMF-led rescue for Brazil now depends on the Government's ability to implement budget reforms - tax increases and spending cuts - in the face of political opposition. "Brazil's policy choices, the choices made by the government and people of Brazil, will be profoundly important, and certainly also to the US," Mr Summers said.

One lesson of the turmoil in emerging markets that started in Mexico at the end of 1994, and re-emerged in east Asia in mid-1997 was, he concluded, that good economic policies, in the sense of sound money, low budget deficits and structural reforms, do work. "When countries are able to implement good policies, then, like Korea and Thailand, they have started to recover."

The experience of successive crises had also set clear priorities for reforms to the international "financial architecture". At the top of the list was improved transparency.

"For the American capital markets, the most important single innovation was the idea of generally accepted accounting principles," he said. The spread of these principles "has the potential to bring about far-reaching cultural change".

In addition, better banking supervision and regulation would be needed. Mr Summers said the Basle capital standards, set by the Bank for International Settlements, would be reviewed.

Thirdly, the international authorities needed better systems of crisis response.

Asked whether such detailed changes would satisfy the critics - like George Soros - who argue that the world financial system has fundamentally broken down and needs sweeping reform, he replied: "These are serious and technical matters, but they are very profound."

However, speaking hours before the US Federal Reserve decided to announce its decision to leave US interest rates unchanged this month, Mr Summers was considerably less gloomy about the outlook for the US economy.

"The basic momentum of the US expansion should be maintained," he said, "albeit with some ups and downs."

"The economy is growing rapidly, inflation is low, the banking system is well capitalised and there is great flexibility. It gives the economy the ability to respond well to any shocks."

There were two important priorities for the US, in his diagnosis. One was working to combat inequality, the achilles heel of the remarkable success of the American economy.

The other was raising the saving rate, which has fallen to zero for the household sector. The private sector as a whole has a record financial deficit.

Mr Summers admitted, somewhat reluctantly, that he saw some merit in the "new economy" argument that new technology had improved the country's underlying performance.

"New developments in information technology are very important, and there's no question we seem to be in a period when normal rates of unemployment have fallen and normal rates of growth have risen."

But he went on: "These are real changes but it would be a mistake to assume they will be permanent changes.

"Still, I am increasingly convinced information technology will change the way the economy works."

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
Arts and Entertainment
Emma Thompson and Bryn Terfel are bringing Sweeney Todd: The Demon Barber of Fleet Street to the London Coliseum
theatre

Returning to the stage after 20 years makes actress feel 'nauseous'

News
peopleThe Times of India said actress should treat it as a 'compliment'
PROMOTED VIDEO
Property
Home body: Badger stays safe indoors
property
News
The programme sees four specialists creating what they believe are three perfect couples, based on scientific matchmaking. The couples will not meet until they walk down the aisle together
tvUK wedding show jilted
Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
Arts and Entertainment
You've been framed: Henri Matisse's colourful cut-outs at Tate Modern
artWhat makes a smash-hit art show
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
Student
The Guildhall School of Music and Drama is to offer a BA degree in Performance and Creative Enterprise
student

Top conservatoire offers ‘groundbreaking’ arts degree

Sport
Mikel Arteta pictured during Borussia Dortmund vs Arsenal
champions league
Voices
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh
voicesBen Judah: Is there a third option for England and Scotland that keeps everyone happy?
Arts and Entertainment
Pulp-fiction lover: Jarvis Cocker
booksJarvis Cocker on Richard Brautigan
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Consultant - Soho - IT, Pharma, Public Sector

£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week