**John B. Taylor
Under Secretary for International Affairs**

The US Treasury’s Under Secretary for International Affairs thinks it is important to celebrate important recent developments in the global economy. Likewise, he says it is necessary to learn from the winning economic strategies that brought these about.

Addressing the St. Louis Gateway Chapter of the National Association of Business Economists recently, Under Secretary John B. Taylor pointed to recent IMF estimates of 5% global growth for 2004. Supporting this:

• most economies are growing at a healthy pace;

• there is no major economy currently in recession;

• inflation is low in most countries and globally remains lower than in the 1990s;

• there is no major financial crises brewing (the contagion of financial crises across countries has diminished);

• interest rate spreads between emerging market bonds and US Treasuries (important measures of global risk) are at historically low levels.

Economic times “are good”, according to Mr. Taylor primarily because of economic policies – both better domestic policies and better international economic policy. In the US, e.g., the timely response of monetary and fiscal policies to setbacks such as economic downturn, terrorist attacks and corporate scandals helped bolster the economy. In Japan, monetary growth has increased as a direct result of fundamental changes in governmental policies. Similar economic policies have resulted in good performances in Latin America and elsewhere. Further, the decline of crises and risk spreads can be attributed to the more credible focus on price stability by central banks – aided by market-determined flexible exchange rates. *”This has resulted in laying the foundation for what may be the longest ‘global boom’ ever seen,”* says Mr. Taylor.

In terms of better international economic policies, international financial institutions have begun to reform, resulting in greater clarity and predictability in the use of large-scale financing from the International Monetary Fund, the use of collective action clauses in emerging market debt, and the movement toward grants rather than loans at the World Bank. Such reforms improve confidence, showing that international financial officials can work to make needed changes in the international financial system. Greater transparency at central banks and governments has also helped to reduce contagion by enabling market analysts to better discriminate between countries that follow good policies and those that do not. Other international policy developments of note include the G-7’s Agenda for Growth and Boca Raton Communiqué, the latter calling for monetary policies based on market-determined flexible exchange rates in large countries as the key to promoting price stability and smooth, and widespread adjustments in the international financial system. The G-8’s Broader Middle East and North Africa initiative is designed to support economic freedom and financial integration in this crucial region; and the Doha Development Agenda provides the mandate for global negotiations on a range of subjects, with the aim of reducing trade barriers.

Notwithstanding the improvements in economic policies and economic performance, the Under Secretary concedes that there is room for improvement, and future challenges. The accomplishments to date, however, should promote confidence that by continuing and expanding the winning strategies these future challenges can be tacked successfully. One element of risk today was defined as the high price of oil – considered a drag on economic growth. *”..but the global economy is strong and the expansion can withstand such shocks,”* says Mr. Taylor. He concludes that such risks are a reminder against complacency despite the otherwise excellent economic situation.

The goals of the Office of International Affairs are to increase economic growth and improve economic stability in developing countries, emerging market countries, and industrial countries. The staff of International Affairs pursues these goals by providing timely policy advice, by executing policies, and by implementing new policy initiatives on a broad range of economic and financial issues.