Press Briefing by Secretary of Treasury Bob Rubin, Senator Patrick Moynihan, Congressman Sander Levin and Chair of Council of Economic Advisors Laura Tyson
The Briefing Room
12:08 P.M. EST
MR. MCCURRY: Good afternoon, everyone. Given the interest I detected from you earlier about the administration's effort to gain support for the economic support package for Mexico, I thought it might be useful to you to have an opportunity to talk to the Secretary of the Treasury and the Chair of the Council of Economic Advisors, along with two special guests. It's a pleasure to welcome to the White House Senator Moynihan and Congressman Levin.
I'll turn the program over to Secretary Rubin, and he will conduct forthwith.
SECRETARY RUBIN: Thank you, Michael. I'm going to make a few brief comments, and then Dr. Tyson will speak, Senator Moynihan, Congressman Levin.
I think everything starts and ends with the gravity of this situation for the United States, and it is that gravity with respect to United States' interests -- jobs, standards of living, security, and because of the peculiarities of our Mexican border, illegal immigration -- that we had the truly extraordinary meeting in the Cabinet Room late last week with the President of the United States, the Vice President of the United States, the bipartisan leadership of Congress, the Chairman of the Federal Reserve Board, myself. And at that meeting, as you know, all concerned committed themselves to dealing with -- to dealing effectively with this issue, and again, because of its effect on United States' interests.
A great deal of work is going on every day. And I think it's fair to say that there is substantial momentum. We absolutely insist, as you know, on strong economic conditions to protect our loan guarantee. Many people have concerns outside of the immediate economic arena, well-thought-through, legitimate, serious and sincere concerns. It is not clear how much can be accommodated in this vehicle with respect to those concerns, but there's a lot of work going on. But when all is said and done, it all comes back to the same thing, and that's the same issue which caused this extraordinary meeting in the Cabinet Room late last week and the commitment to resolve this, and that is the interests of the United States affected by the financial integrity in Mexico and the possible spillover effects to other parts of the world.
We have been in touch this morning, in fact within the last half hour, with the Speaker's office -- the staff of the Speaker's office. He is committed, as are all the other members of leadership, to getting this done. There will be a lot of issues, there will be a lot of debates, there will be a lot of discussions, there will be disagreements. But when all is said and done, the overriding concern is, as I said before, the enormous potential impact that not getting this done could have on U.S. interests. And that, in our view, is what will prevail and cause this legislation to be successful in Congress.
I think with that, what I will do is turn the podium over to Chairman Tyson, who will discuss the economic ramifications of this matter. We also, by the way, received a strong letter, or I should say, former President Bush issued a strong letter supporting this effort, and for exactly the same reasons; his recognition of the enormous gravity of not dealing effectively with this matter.
DR. TYSON: Thank you very much. The administration has been hard a work on both negotiation but also analysis. And we've been working hard with the Council and Treasury and other members of the economic team to really put together an assessment of what this does mean for the American economy. And I think it's important to keep in mind some facts here: Number one, 700,000 jobs in the United States currently depend upon exports to Mexico; exports to Mexico are critically important to many states.
If you look at Texas for example, $13 billion, or 30 percent of their exports just about, go to Mexico. Other important states involved here are California, Michigan -- the Treasury will be coming out actually this weekend with a state-by-state analysis of the breakdown of jobs and exports related to Mexico. So the first thing is jobs, incomes and exports of the United States. United States depend very much on a prosperous Mexico.
Second, immigration. If you look at standard models of immigration flows, you note that they depend very much on job availability in various locations and wages in various locations. And it is in our estimate, which is now being confirmed by other independent scholars, that if Mexico doesn't get through this crisis, one could see as much as a 30 percent increase in immigration flows. That's about a half a million people.
A third way to think about our interest is possible spillover effects. There's a really important danger here of contagion effects to other emerging markets. We've actually seen increased volatility in other emerging markets and we see some signs that if Mexico doesn't get through this liquidity crisis, in fact, one could see spillover effects to other emerging markets. Since we have become increasingly interconnected with emerging markets, both through financial flows and trade, we estimate that it's at least possible that over the next two years if this contagion factor were big enough, it might cost a percentage point off of our GDP growth in the next two years. So those are big numbers, and we want to make sure that the contagion effect, in fact, is not felt.
Finally, I want to end simply by emphasizing what we've said many times before. This kind of approach is based on our view that Mexico has sound fundamentals in place for its long-term economic prosperity. It is on the right road to privatization, to marketization. It has a very sound fiscal situation in Mexico. It has a good -- it has had very much improved inflation performance. So it is a good fundamental situation in Mexico.
This is a liquidity crisis. It's a crisis of confidence. It's the kind of crisis which costs very little -- in fact, no current budgetary cost -- to deal with, but if we let go, could cost very much in terms of lost jobs, lost incomes, and lost exports to America.
Thank you. And now it's my pleasure to introduce Senator Moynihan.
SENATOR MOYNIHAN: I'll just pick up where Dr. Tyson left -- that this is a crisis that affects all Americans. And the Congress surely wants to respond, as the leadership has already done in both parties in both bodies to a crisis that can be dealt with effectively and quickly, and absent which we have real dangers. Did you say we might lose a point in GDP?
DR. TYSON: This would be with contagion in other financial markets, which is very possible.
SENATOR MOYNIHAN: Yes, yes. And you lose that forever. It just goes on the rest of your lives. And that would be about a quarter of what you'd expect, right?
DR. TYSON: Yes.
SENATOR MOYNIHAN: The Chair of the Council of Economic Advisors just suggested that a quarter of our economic growth in the next year might be --
DR. TYSON: Wait a minute. We're not --
SENATOR MOYNIHAN: Take that back. I said it. (Laughter.)
DR. TYSON: I have to say that the Senator does not yet know our economic forecast, which we, in fact, have not made public. (Laughter.)
SENATOR MOYNIHAN: But which will be 4.2 percent. (Laughter) --
I just want to say that those of us -- as you know, the NAFTA was a disputed judgment, and we were not uniform as we were on the GATT, which came off the Senate floor, I think, 86 to 12, something such as that -- the Uruguay Round -- a measure we've been dealing with some 1947 and familiar with.
In both bodies, the Uruguay -- the NAFTA was about a two-thirds, one-third vote, and not all of us were in the two-thirds. But we are all -- I hope that we're all -- all behind this action. It is in the American interest, and it is urgent and is moving along very well.
I think it's my role, I have the high honor and distinct privilege to introduce my colleague and friend, Sander Levin of Michigan.
SENATOR LEVIN: Thank you, Pat.
What happens in Mexico can affect Main Street, America. That's why I opposed NAFTA; that's why I'm very much in favor of moving on the loan guarantee . We really have no choice. Jobs are involved. I think we can look at conditionality. I think we have to do that. But the conditionality should relate to our trade relationship, our economic relationship with Mexico. And we can't load every issue on this loan guarantee issue.
You know, the crisis in Mexico today may be a two or three on the economic Richter Scale. I think if action isn't taken it could be a seven or eight, and the ripples would be felt throughout the American economy.
This should not become a political football. Speaker Gingrich indicated this morning again this should be a bipartisan issue. And I hope very much it is.
One last word: I've been in Congress a few years. I've seen government move quickly, and I've seen it delay. On the S&L crisis, for example, there was long delay. Everybody in America, surely middle America, paid a high price for that. We should not make the same mistake. We need to move on this. I think we need to move with intelligent conditionality and try to finish it next week.
Q: Is Representative Bonior on board? Do you have the support of the House Minority Whip?
CONGRESSMAN LEVIN: I am not sure what his position is on this issue. There are differences of opinion, as there were on NAFTA. My point is we can't replay NAFTA again in this issue. There are some issues that were involved in NAFTA that are involved here, including what will be the impact of a devalued peso. I think it could have an influence on import surges to the U.S. in manufacturing or agriculture. I think that the discussions between Mexico and the U.S. should address these concerns. But I don't think this bill should either become a replay of NAFTA, nor should it become simply a vehicle for loading on every outstanding issue between the two countries.
Q: Could one of you try to explain with some clarity how it is that this condition of the Mexican currency would have the effects you've described on the U.S. economy, I mean, for the average citizen who doesn't understand why he's got to put up money to support the peso? How does it work?
CONGRESSMAN LEVIN: Let the Secretary do that. And I think I understand it; otherwise I wouldn't be here. I think the people who live in my suburban, middle-income district have a stake in a loan guarantee, not a bailout. So the Secretary, I'm sure, in a few words can say to the American people -- I'm sure you can, Bob -- what you have at stake. Otherwise, we wouldn't be here.
If we were bailing out anybody or if it were just bankers involved, if it weren't typical American investors, people who work in factories whose products need to be exported to Mexico and who are concerned about the devalued peso lowering the prices in Mexico of manufacturing goods, so they pour in here -- if there weren't these potential impacts, we wouldn't be here today. So you have the pleasure.
SECRETARY RUBIN: I think you've actually heard it explained rather well. Let me say, the issue here is not supporting the peso. The issue here is a country that is, I think as Laura said, a fundamentally sound economy, but is overextended in terms of its short-term maturities. The objective is to reschedule those short-term maturities, and get them through what is, at the moment, a very difficult financial situation.
Mexico, developing countries, and transitional countries around the world, as I think Laura very well said, are really the great opportunity for this country in terms of exports as you look forward. The obverse of that is if you have a serious problem in Mexico, and if that spills over, everything that we have looked forward to -- and it can contribute so significantly to jobs, to standards of living, and for that matter, to security in this country -- can go in the other direction, and we can lose all of the positives that we had hoped to gain; and furthermore, have to deal with social, political and security turmoil, not only in Mexico, potentially, but countries around the world.
This is a very -- but, you know, whether you accept -- the best evidence of the gravity of this issue, and the seriousness of that argument, is really the extraordinary meeting that the President, the Vice President, the bipartisan leadership and the Chairman of the Federal Reserve Board had in the Cabinet Room when they all, having analyzed this, committed themselves to solve it.
Q: Mr. Secretary, you keep describing the overextension of the Mexico economy as if it's a, as Mr. Levin said, an earthquake, something that happened without any kind of ability to foresee it or predict it. But a lot of people on Wall Street were actually saying that, in fact, this wasn't a very good risk to be investing in Mexico. Certainly, people at the Treasury Department should have been tracking the economic policies, that the policymakers in Mexico were following. Could you address the objection that, in fact, what we are doing is we are encouraging the morale hazard question, that we are rewarding policies that were unsustainable from the outset?
SECRETARY RUBIN: I don't think we're rewarding anything in this case. The people in Mexico are going to pay an enormous price. The political leadership and the people of Mexico are going to pay an enormous price for the financial difficulty that they're in and it will be a price that they are going to pay for many years to come -- which is not, by the way, at our advantage.
I think the question is, do we go through with this program, in which case, over time, we believe Mexico has the potential to become once again a very good trading partner for the United States, although they're obviously going to have a difficult interim period; or do we not do this, in which case conditions will very likely be far worse in Mexico, and then not only Mexico, but elsewhere in the world.
Q: Is the administration fully committed -- do you believe that all the policies that were pursued by the Mexican government before the evaluation of the peso were absolutely correct and accurate?
SECRETARY RUBIN: No. The answer to that is, absolutely not, and that is why we are going to have strong economic conditions so that the --
Q: So could you tell us what the problem is, what the fundamental --
SECRETARY RUBIN: What fundamentally happened in Mexico is that you had a lot of reforms, which were very positive -- regulatory reforms, opening markets, privatizations. You really have a very different Mexico today than you had 10 years ago, largely due to President Salinas, though also to some extent his predecessor.
On the other hand, in a financial sense, as the Chairman of the Federal Reserve Board explained so effectively in that meeting in the Cabinet Room, they had an eight percent current account deficit and what, in a sense, was a fixed exchange rate. And that was not a viable long-term policy, and that's how they got themselves in this difficulty.
And I will tell you, without question, without reservation, without equivocation, we will have strong economic conditions that will protect the economics of this loan guarantee program.
Q: Are Democrats going to have to back off on criticizing Speaker Gingrich in order to get this through? And what do you make of Congressman Leach's remarks about this?
CONGRESSMAN LEVIN: I think the Speaker answered it this morning, saying he doesn't, he said, necessarily accept such linkage. I would say there should be no such linkage. We have to take this issue on its merits.
It's an important issue and not -- it's one thing to attach fiscal conditionality. We should, and the Secretary has said, and Dr. Tyson has said we will. I think we also can attach some conditions in terms of the impact of a devalued peso in terms of exports from there here and imports from here. That's all part of the economic picture. But we can't let this thing become a football so that it's affected and determined by what's going on on the floor in terms of unfunded mandates, or what's going on on the floor in terms of relations between the Speaker or Bob Walker and some member of the Democratic Caucus.
Look, I take the leaders seriously. Maybe that isn't in vogue these days. They have pledged on a bipartisan basis -- with the President and Dr. Greenspan, we're going to proceed on a bipartisan basis. My prediction is, when all the -- goes on, including the letter from Representative Leach, we will proceed on a bipartisan basis and pass it.
Q: You won't agree to back off --
CONGRESSMAN LEVIN: What?
Q: You won't say, okay, put out the word to back off?
CONGRESSMAN LEVIN: I'm not in favor -- the answer is, no. The answer is, people should not use this economic crisis in Mexico as the vehicle to accomplish something that's irrelevant to this economic problem. The people of the district I represent, which is a pretty typical middle American district, want problems solved in and of themselves. And they don't want every issue becoming a play thing to try to resolve other issues.
Q: Mr. Secretary, can you tell us something about the conditions? The initial reports from leaked drafts up on the Hill are that they are not very strong and that the Mexicans are objecting to specific strict controls demanded by the U.S.
SECRETARY RUBIN: I think as we're working this out --it probably is true in any negotiation, it's best not to discuss the specifics. But one thing -- and I'm just repeating what I said before -- I will assure you absolutely and without equivocation, this is not going ahead unless we have conditions that protect the integrity of these loan guarantees. Absolutely, period, and no question.
Q: contain penalties or performance clauses as opposed to just promises?
SECRETARY RUBIN: We have a structure which I think really it's inappropriate to discuss until we complete this that we think will -- it's a good question -- that will relate to the conditions that we think will assure conformance with the conditions.
Q: Has the Mexican government accepted those conditions?
Q: How will this affect other agreements that are pending with Chile? And can you talk about the wisdom of this interconnection between our economy and Mexico's and the other Latin American countries, from the Summit of the Americas and all these --
SECRETARY RUBIN: Well, you're raising a much broader and bigger and, I think, very important question. I think that, as the President so often said, there is a modern economic world that we are part of, and I think you can either turn back from it, which, as he so often says, cannot be a successful strategy; or you can deal with it effectively. And when you -- and that is really what he has geared himself toward in everything he's done -- education, training, and everything else.
When you get down to the specifics of this particular matter, he believes -- and I think rightly so -- that our great opportunity, or one of the great opportunities of this country is, a, to be competitive through productivity, education, training, all the rest; and then open markets around the world so that we can sell into those markets and export to them. And that really is, I think, the -- it's that combination that is the great opportunity for us in the modern world.
What we clearly are going to have to do internationally, internationally over time, is find ways of dealing with these kinds of problems because all the countries of the world are going to be affected by them.
Q: Mr. Secretary, are they going to pledge -- are the Mexicans going to pledge oil receipts as collateral for the loan guarantees?
SECRETARY RUBIN: The loan guarantees will have an assured means of repayment that will consist of the oil revenues from the exports of oil. And as you know, oil is a dollar-denominated commodity. And the purchasers of that oil will pay the price of that oil back into the New York Fed, and that will then be available if there is a default on the loans that are guaranteed.
THE PRESS: Thank you.
SECRETARY RUBIN: Thank you.
END12:29 P.M. EST
William J. Clinton, Press Briefing by Secretary of Treasury Bob Rubin, Senator Patrick Moynihan, Congressman Sander Levin and Chair of Council of Economic Advisors Laura Tyson Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/270237