Washington, D.C., September 24, 2005 — Ladies and Gentlemen, I am delighted to welcome you to this press conference. I would like to thank our hosts at the International Monetary Fund for offering us once again this opportunity to meet here with the international press.

At the outset, since this press conference is taking place in the US, I want to express my profound sympathy, and that of my colleagues here, for the victims of Hurricane Katrina. We are, of course, also watching Hurricane Rita with concern.

The IIF is the leading global association of financial institutions with more than 340 member institutions from over 60 countries that operate across the world. Tonight we open our Annual Meeting, which will be attended by more than 500 representatives from our member firms. Our guest speaker this evening will be Governor Zhou Xiaochuan of the People's Bank of China and you are invited to attend.

This is a particularly opportune time to hear from Governor Zhou as the course of China's dynamic economy and its policy choices are of growing importance to the outlook for the world economy. This outlook is the prime topic that we want to discuss with you this morning. I will also briefly comment on developments in the architecture of the financial system and on regulatory issues facing the world's financial services firms.

We are meeting at a time of mounting economic uncertainty with significant downside risks to the global outlook. It is especially important that there be political leadership driven by a sense of urgency and involving concrete follow-through. With such actions the economic gains that have been very evident in recent years, and that we are seeing today in numerous economies, can be sustained and extended.

Policy actions are needed to address the widening global current account imbalances and the increasingly critical strains that we are facing in the energy area. As we tackle these problems, policymakers need to strike the right balance, being alert to inflationary pressures while being determined to overcome long-standing resistance to policy reforms.

Actions to address the imbalances should include such measures as:

• a strengthened U.S. commitment to reducing its fiscal deficit in the medium-term;
• rigorous actions in Europe to break through structural rigidities; and,
• further steps in Japan to revitalize the economy in order to sustain economic growth,
• greater exchange rate flexibility and stronger domestic demand in Asia, and,
• determined action to promote free trade.

Moreover, oil price increases have strengthened the need for actions in the energy sector, comprising greater efforts to facilitate oil output and refining, increase conservation and promote alternative sources to oil.

The problems of imbalances and energy are of a magnitude that the time has come for concerted action to share the burden of adjustment and maximize the benefits that such action can produce. National measures need to be taken within a cooperative framework that involves decisions by the leading industrial countries and key emerging market economies. What is required is a coordinated approach that can have a broad-based global impact.>

Many of the measures that are so necessary have been discussed at length, but now is the time to execute.

To facilitate concerted economic policy approaches it is necessary that the Group of Seven Finance Ministers and Central Bank Governors be expanded so as to include a few of the leading emerging market countries. This is especially timely given that markets and economies are becoming more and more globalized, while key policies have remained nationally focused.

Let me stress that to overcome too narrow a national focus and promote actions that can have a global impact, individual governments need to find more effective ways of strengthening public support, while countering domestic pressures. An example is trade, where protectionist pressures need to be resisted and the public needs to understand that the greater good lies in a path that leads to a successful outcome in coming months to the Doha Round of trade negotiations.

While timely concerted policy actions can sustain and fortify growth, the business community needs to cooperate with government to maximize the benefits of policy actions. Working together, government and business can boost confidence among market participants and add a crucial dimension to the prospects for growth and stability. This will also help to sustain healthy capital flows to emerging markets.

Let me now turn to two areas where the IIF is active and where productive cooperation has been seen between the public and the private sectors - the international financial architecture and regulation in the financial services sector.

The financial system has been strengthened, and thus the environment for emerging markets has been reinforced, by the early implementation of the "Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets," which were endorsed by the G-20 last November. In recent months, the Principles have gained increasing support among sovereign issuers and market participants alike as outreach efforts have been made. They are putting the Principles into practice. The Principles are being utilized as best practices for data transparency and investor relations by several countries, and they have also been helpful in a few restructuring cases. As we advance on implementation, so we now look forward to further informal collaboration with the IMF to enhance the synergies between IMF policies and the Principles.

Finally, let me turn to bank regulatory issues. Significant work was accomplished this summer with the Basel Committee's release of documents that have largely completed the new Basel II framework. We are very close to having a new worldwide framework that represents a major improvement in banking regulation and that will contribute to strengthening our financial system. It is important now that the concept of a level playing field be secured and that undue delays do not set back this important project.

Basel II is only one part of the regulatory landscape. In recent years there has been a substantial increase in the regulation of the financial services industry due to the rising complexity of the industry itself and to mistakes that have been made at individual firms. However, it is crucial that we find the right balance to avoid an overly burdensome regulatory environment and approaches to enforcement that risk constraining the contribution of the financial sector to economic growth.

We have also been concerned by issues related to credit derivatives. The IIF is initiating work in this important area and my colleague Cees Maas will comment further on this and other regulatory issues.

But, first of all, let me call upon Bill Rhodes to introduce the IIF's capital flows report, to discuss emerging market conditions and the need for prudent risk management.