TRANSCRIPT: 1/23 REMARKS BY REP. LEACH ON ASIA ECONOMIC CRISIS

[USIA]

USIS Washington File

23 January 1998

TRANSCRIPT: 1/23 REMARKS BY REP. LEACH ON ASIA ECONOMIC CRISIS

(U.S. responded forthcomingly, to stay involved in Asia) (7680)

Tokyo -- The United States has responded responsibly to the Asian
economic crisis, says U.S. Representative James Leach, chairman of the
House Banking and Financial Services Committee.

He made the comments in a January 23 address in Tokyo, where he led a
delegation of five committee members, which had previously visited
Hong Kong, Beijing and Seoul.

The ongoing congressional delegation consists of Representatives
Leach, Bruce Vento (Democrat of Minnesota), Kenneth Bentsen Jr.
(Democrat of Texas), Jesse Jackson Jr. (Democrat of Illinois), and
Maurice Hinchey (Democrat of New York).

Commenting first on the American economic situation, Leach said, "The
good news of the day is that for the last 12 months the budget in
Washington has not only been balanced but has evidenced a fractional
surplus." He warned, however, that "the bad news is that as strong as
the American economy currently is, the United States is vulnerable to
a downturn in growth because of the economic turmoil in Asia."

Reviewing the situation in the areas they visited, Leach said, "The
speed in which Korea is moving to change its economic structure may be
unprecedented .... The sense in Seoul is that the economic and
security issues are interlinked and that the new government must
unflaggingly address the first so it will be in a stronger position to
give attention to the second. Meanwhile, America can be expected to
stand by its allies from a friendship as well as security
perspective."

With reference to Taiwan, Leach stated, "The Taiwanese democracy is
vibrant with social stability on the island vulnerable only to
outside, rather than internal, challenges .... As long as the
independence card is not played, economic stability is assured
whatever the ramifications of the current Asian crisis .... Meanwhile,
the United States is committed to seeing that any change in the status
of Taiwan must be peacefully advanced."

"As for China, it is positive that the renminbi has not been devalued
and critical that the Hong Kong peg be maintained ... In the current
context it is impressive that both Hong Kong and Beijing are committed
to currency stability," said Leach.

Emphasizing the importance of open markets for resolving economic
instability, Leach said, "The trade lesson of the century is that the
best way to stem trade problems is for nation-states in times of
turmoil to ... open, rather than close, their markets to outside trade
and investment. Open markets are particularly important in finance
where foreign banks and financial firms can assist countries in
capital formulation. In the United States, for instance, 20 percent of
bank assets and almost 30 percent of commercial loans are held by
foreign banks."

With reference to the IMF, Leach stated, "A strengthening of the
International Monetary Fund to ensure that it has adequate liquidity
and consideration of international bankruptcy laws for nation-states
would appear to be in order if we are to prevent public treasuries
from being placed disproportionately in financial jeopardy."

Addressing American concerns about the IMF, Leach said, "The American
people are naturally concerned today about aspects of IMF lending.
They see a circumstance where Asian economies are likely in the next
two years to increase their current account trade surpluses with the
United States. While it can be pointed out that the trade deficit
would certainly be worse for America if greater currency stability is
not achieved in Asia, political attention to trade deficit issues will
almost certainly escalate in the near future in America. Asian
countries would thus be advised to give the benefit of the doubt to
U.S. imports in the near future."

Leach reminded his audience that "What, in essence, Congress will be
addressing in the weeks ahead is not the current program for Asia, but
whether further resources will be transferred to the IMF to deal with
the next crisis wherever in the world it may occur .... The IMF stands
as a coherent alternative to chaos."

He also emphasized the role of Japan, saying, "Let me say, Japan has
played a very constructive role in terms of working with the United
States and other countries within the IMF framework .... In terms of
the solution to this problem, there is terrific international
consensus that the dilemma in Asia will not be resolved without a
serious role for Japan, partly in terms of assistance, but largely in
terms of reigniting its own economy."

(begin transcript)

Remarks by James A. Leach
Chairman, Banking and Financial Services Committee
U.S. House of Representatives
Keidanren Hall
Tokyo, Japan
January 23, 1998

Thank you very much for that thoughtful introduction. At the risk of
presumption, I would like to make a series of observations about the
current economic crisis in Asia from the perspective of a member of
Congress. I cannot speak for Congress as a whole -- where opinions and
judgments are extraordinarily wide -- or with the depth of knowledge
of many in this room. But I believe it may be helpful to lay out a
perspective based on the brief visit this small delegation has made to
the region, and the experience Congress has had in recent decades
coping with problems similar or analogous to some of the difficulties
which Asia is now witnessing.

But first let me comment on the American economic situation. The good
news of the day is that for the last 12 months the budget in
Washington has not only been balanced but has evidenced a fractional
surplus. The bad news is that as strong as the American economy
currently is, the United States is vulnerable to a downturn in growth
because of the economic turmoil in Asia.

Before turning to the difficult challenges ahead, let me dwell briefly
on the positive. The good news is so stunning it is literally
unbelievable. For all the talk of setting a goal to achieve a balanced
budget seven years down the line, it simply hasn't sunk in to policy
makers or the public that for the last 12 months the United States has
enjoyed a $2 billion surplus.

The reasons are numerous and involve a number of factors, including a
restrained monetary policy led by the Federal Reserve, a change in
control of Congress that caused spending growth to be checked, and
moderating Presidential leadership.

But the principal economic phenomenon of the decade in America is that
American workers and business entrepreneurs have bailed out America's
politicians. The wisest political observation of recent Presidential
campaigns was that of President Clinton's advisors: "It is the
economy, stupid." In this context, it should be understood even by the
stupid in Washington -- that is an American assumption -- that it is
working Americans who have saved the hides of politicians.

Congress still has a long way to go in institutionalizing a balanced
budget and beginning an orderly way to chip away at public sector
debt. But prospects for doing so are credible as long as politicians
do not make the mistake of assuming that good times are never
reversible, or that the radical tax and spending approaches that are
under review can occur without taking into account budget
consequences.

The new macro-economic complicating factor is that even though the
American economy is in better shape today than any economist predicted
several years back, the Asian economic turmoil will have debilitating
ramifications in the United States and, unless it is prudently dealt
with, the great spurt in tax revenues which was based on record
individual income and corporate profitability levels is likely to be
stemmed. Macro-economic predictions are understandably tentative, but
American economists now indicate the likelihood that U.S. GDP growth
could be slowed anywhere from a half to one and a half percent next
year because of problems in Asia.

As many have observed, for the near future, geo-economic concerns are
likely to dominate geo-political ones in this region where America has
fought three wars in the last two generations. But there are at least
two political issues which carry severe economic, as well as military,
ramifications that could spiral out of control at almost anytime.

The first is the unresolved division between North and South on the
Korean peninsula. In this divided land, the United States, on a
bipartisan basis, can be expected to continue to maintain a commitment
to the democratic forces in the south. Despite economic turmoil, South
Korea has produced an impressive election in which an out-of-power
party and an once-exiled leader have prevailed. Opposition party
victories are the norm in democratic societies, but the degree to
which formerly antagonistic political camps are currently cooperating
in Korea may be unprecedented in any democratic country in this
century. Similarly the speed in which Korea is moving to change its
economic structure may be unprecedented. One can only hope that the
new legislature can maintain cohesion in the face of so many
difficulties. Most of all, one must hope that tensions between North
and South will continue to abate with unification becoming a reality
in the not-too-distant future.

The sense in Seoul is that the economic and security issues are
interlinked and that the new government must unflaggingly address the
first so it will be in a stronger position to give attention to the
second. Meanwhile, America can be expected to stand by its allies from
a friendship as well as security perspective.

Here let me note a symbolic act from my Congressional district. Last
year the president of the University of Iowa, Mary Sue Coleman,
visited South Korea to raise endowment funds from graduates of the
university. Last week she returned to Seoul on a different mission.
She declared that Korean students at the University of Iowa would be
given, where needed, financial assistance so that none would have to
give up their education because of the new constraints on the Korean
economy.

Likewise, America is fully prepared to be cooperative in providing a
significant share of UN-directed World Food Program assistance to
North Korea. We do not have a complete grasp of the degree of
difficulty in the North but it is possible the world community, led by
the United States, may have to be thinking of a quantum increase in
food assistance. However coercive or irrational state-controlled
economies are, people cannot be allowed to starve.

The other potential trip-wire in Asia is Taiwan where sovereignty
issues remain explosive. Taiwan may be the only political entity in
the world where a distinction needs to be made between the precepts of
self-determination and independence. The Taiwanese can maintain de
facto self-determination as long as independence is not declared.

As one who in the 1970s and 1980s closely monitored Taiwanese issues
from a Congressional perspective, I strongly advocated greater
democratization on the island. Social stability was clearly
jeopardized if the governing KMT elite did not give native Taiwanese a
greater say in political matters. In the last two decades the
government has taken remarkable steps in opening its political system,
and the Kuomintang -- which once resembled in structure but not
philosophy the Communist Part on the mainland -- today functions as a
classic western political party. Taiwanese democracy is vibrant with
social stability on the island vulnerable only to outside, rather than
internal, challenges.

In addition to moving impressively in Sun Yat-sen-envisioned stages to
achieve political democracy, Taiwan -- as much as any society in Asia
if not the world -- has advanced balanced economic growth with all
sectors of the population prospering. As long as the independence card
is not played, economic stability is assured whatever the
ramifications of the current Asian crisis. Taiwanese leaders may make
Beijing uncomfortable, but it would appear that contrasting democratic
institutions can be countenanced by the mainland Chinese as long as a
sovereignty confrontation is not pressed. A declaration of
independence would, from Beijing's perspective, amount to a
declaration of war. The ramifications would be catastrophic.

While Taiwan's island geography may serve as a partial protection
against superior land forces, the security issue for the Taiwanese
people isn't simply one that relates to the ability to deter invasion.
The Mainland Chinese have other tactical options, ranging from naval
to missile to economic coercion. It is always presumptive for an
outsider to advise another society, particularly one with democratic
institutions, but I feel obligated to underscore a judgment, shared by
many experts in Washington, that the government in Beijing is prepared
to take coercive, potentially irrational and dangerous steps, if
pushed on the sovereignty issue. For the sake of democracy on the
island, as well as for the security of the Taiwanese people, continued
caution is warranted. Time -- perhaps multi-generational -- may be
needed to resolve certain status questions. Meanwhile, the United
States is committed to seeing that any change in the status of Taiwan
must be peacefully advanced.

Talks between the two sides on Taiwan Straits issues would appear
particularly appropriate at this time where mutual suspicions are
higher than the outside world suspects.

In this regard, I was impressed with how concerned the Chinese
government appears to be that Taiwan might be attempting to strengthen
political claims by offering economic assistance to those countries in
the region weakened by the recent economic crisis. Chinese leaders
described this alleged strategy of taking advantage of the economic
circumstances as breaching traditional Chinese morality and cited a
prominent American economist, G. Fred Bergsten, who two months ago
suggested before the Banking Committee that Taiwan devalued its
currency to put pressure on the Hong Kong dollar. Most experts in the
U.S. and Hong Kong doubt this contention and believe the Taiwanese
decision principally related to Taiwanese concerns that the
competitive position of other Asian countries, particularly Korea,
would be too great with the currency devaluations in the region.
Whatever the Taiwanese motivation, it would appear that the island's
10 percent devaluation was a dubious strategy given Taiwan's
extraordinary reserve position and trade surplus. It is key to the
current situation in Asia that a further devaluation does not take
place.

As for China, it is positive that the renminbi has not been devalued
and critical that the Hong Kong peg be maintained. If Hong Kong can
ride out this crisis, and absent further economic cratering in the
region, there is no reason to believe it shouldn't, it is not
unreasonable to speculate that the next challenge to the peg could be
a few years hence when the pressure may be to appreciate, rather than
depreciate the Hong Kong dollar.

In the current context it is impressive that both Hong Kong and
Beijing are committed to currency stability. Perhaps in a future
setting when confidence in the underlying economic situation is
strong, consideration will be given to adopting a band or, less
likely, floating exchange rate approach, but for the immediate future
the peg would appear to be secure. Speculators play currency games at
their peril.

In the 1930s, the global economy contracted as countries competitively
devalued their currencies and raised tariff and non-tariff barriers to
trade. The trade lesson of the century is that the best way to stem
trade problems is for nation-states in times of turmoil to take the
opposite tact. Countries should refuse to adopt beggar-thy-neighbor
currency policies and open, rather than close, their markets to
outside trade and investment. Open markets are particularly important
in finance where foreign banks and financial firms can assist
countries in capital formulation. In the United States, for instance,
20 percent of bank assets and almost 30 percent of commercial loans
are held by foreign banks. In Hong Kong, foreign owned banks hold 70
percent of bank assets. Little appears more counter-productive for
countries than protectionism in financial services. And of all
countries in the world, the one that would likely benefit the most
from opening up comprehensively to foreign banking, securities and
insurance firms is China.

Two recent experiences in the Americas would appear relevant to the
Asian dilemma today. The first relates to Mexico. In what might be
described as the first crisis of the new economic order a
multi-billion dollar economic package was put together which exceeded
the need.

By making it clear that the international commitment potentially
exceeded $50 billion, of which less than one half was ever drawn upon,
any incentive for those who might negatively speculate on Mexico was
eliminated. The effect of delivering an economic package larger than
the contingency required is similar to the military strategy of
overwhelming force -- the doctrine that the greater the power
committed, the less the likelihood of significant casualties or policy
failures.

Interestingly, at this junction in our history, Congress has a
tendency to transfer to the Executive branch discretion on
controversial foreign policy issues when Congress does not want to
leave voter-liability fingerprints. Clearly, it would have been
preferable for Congress to act to underscore bipartisan and more
importantly, bi-institutional support of lack therefor for a
significant policy initiative. But, in the end, the Executive Branch
acted without Congressional concurrence on the Mexican program, with
viable but minimal legal authority, utilizing its authority to tap
Treasury's Exchange Stabilization Fund.

In the wake of what proved to be a successful intervention in Mexico,
it had been my hope that in a time frame in which no crisis was at
hand the international community would have moved in the direction of
developing new multilateral approaches to international financial
crisis prevention and management. A strengthening of the International
Monetary Fund (IMF) to ensure that it has adequate liquidity and
consideration of international bankruptcy laws for nation-states would
appear to be in order if we are to prevent public treasuries from
being placed disproportionately in financial jeopardy.

The second relevant American experience relates to the internal
savings and loan debacle of the 1980s. In terms of contrast with
Japan's real estate problems, the U.S. savings and loan problem was
sparked initially by an interest rate mismatch. Institutions that
borrowed short and lent long were caught in an incurable dilemma when
interest rates skyrocketed in the late 1970s. Japan's problems are
different and more severe. In Japan, the problem is one of asset
values, not interest rate differentials. While the Japanese interest
rate setting could not be better for real estate lending today, the
lesson of America is that the more rapidly one deals with problems the
better it is for the economy. While the Resolution Trust Corporation
model led to imperfect judgments on the timing and valuation of
certain asset sales, it had the advantage of putting assets in strong
hands. The taxpayer was pinched but the economy was stabilized. It is
simply a fact of commerce that when financial intermediaries are
troubled, credit allocation is restricted or distorted. Likewise,
strong financial intermediaries are a prerequisite to sustainable
growth.

The American people are naturally concerned today about aspects of IMF
lending. They see a circumstance where Asian economies are likely in
the next two years to increase their current account trade surpluses
with the United States. While it can be pointed out that the trade
deficit would certainly be worse for America if greater currency
stability is not achieved in Asia, political attention to trade
deficit issues will almost certainly escalate in the near future in
America. Asian countries would thus be advised to give the benefit of
the doubt to U.S. imports in the near future. For the sake of the
Japanese standard of living, as well as economic growth in the Pacific
Rim, it is critical that Japan promote a demand-growth economic
agenda. While the rest of Asia may have to tighten its belt, Japan
should unloosen. Economic stagnation is neither good for Japan nor its
trading partners.

Last year's 41 percent increase in Japan's trade surplus with the U.S.
is potentially grist for problems for Japan in the Diet, as well as
Congress. The issue isn't simply economics. There has been a
remarkable loss of confidence in governments which failed to produce
economic growth and it is interesting that a hitherto perceived
dissident, Kim Dae Jung, now enjoys 90 percent approval ratings and
that a heretofore technocrat is now the most respected modern-day
leader of Thailand.

There are isolationist and protectionist tendencies in all countries.
In America today, isolationism may be stronger than protectionism, but
both instincts have common roots. As much, however, as Americans have
a hesitancy to look outward, the history of the century makes clear
that when challenged, Americans are willing to take on global
obligations. Deep down every American knows we can't live as the
world's largest island. There is no Maginot Line or Great Wall in
modern commerce. The global hiring hall is here whether we like it or
not.

Politically Americans are less secure without allies and economically
less prosperous without trading partners. Neither economic autarky,
nor political isolationism is viable for the world's lone remaining
superpower. Yet the American ambivalence is that what we know deep
down is not always what we would prefer. Despite, for example, having
the world's largest economy with the most far-reaching global
interests, our Congress has found it politically difficult to
authorize payment of our annual dues to the United Nations, to grant
effective negotiating authority to our own trade negotiators (what is
dubbed "fast track" discretion) and to provide critical resources to
international financial institutions. Each of these issues will be
seriously reviewed early in this Congressional session and I am
cautiously optimistic about a constructive outcome.

However, whatever Congress's judgment about the above issues, American
will stay involved in Asia. More crucial that replenishment of the IMF
will be the actions of U.S. companies. The decisions of Citicorp,
Merrill Lynch and AIG, for instance, will be more important for Asia
than those of the United States Government.

Nevertheless, it should be clear that the United States has responded
forthcomingly through the IMF, as well as with separate decisions
involving the Exchange Stabilization Fund. In this regard, the current
program has been put in place with the support of the U.S., which is
the only country with veto power in the IMF. What, in essence,
Congress will be addressing in the weeks ahead is not the current
program for Asia, but whether further resources will be transferred to
the IMF to deal with the next crisis wherever in the world it may
occur.

The irony of current IMF bashing deserves review. In Latin America the
IMF -- which was a decade ago pilloried by the left and right for
advancing anti-inflation policies -- appears to be increasingly
vindicated. Fiscal and monetary policies that have radically reduced
inflation have lifted all boats. As for Asia, it is possible that IMF
conditionally ought to include greater concerns for human rights,
environmental and labor concerns, but there are few economists who
don't support the IMF's efforts to advance greater market competition
with less corruption feeding governmental intervention in various
societies. If the IMF didn't exist, analogous institutional efforts
would be re-created for each crisis. Whatever mistakes in judgment are
ascribed to it, the IMF stands as a coherent alternative to chaos. And
in times of disorder, institutions which help re-establish order take
on enhanced significance, psychologically and substantively.

The key at this time in this type of crisis -- which may be more a
result of structural rather than currency problems -- where imprudent
banking practices appear to have been disproportionately responsible
for a sudden loss of confidence in several economies -- is for care to
be taken to ensure that the IMF's role is not expanded from being a
last resort stabilizer of currencies and economies to a last resort
lender to banking systems. The IMF can responsibly undergird economies
to protect the public, but it is not the IMF's role to bail out banks.
Capitalists should not be shielded from mistakes of capital
allocation.

Hence, it is appropriate for banks to take hits on their banking
misjudgments as J. P. Morgan did this week to the tune of a half a
billion dollars in reserving against potential losses in Asia. Indeed,
there are long-standing international banking covenants that the
countries in which banks are chartered and operate are responsible for
regulation of individual financial institutions and for dealing with
problems as they occur. Not only do moral hazard problems come into
play with regard to any IMF policy which might be designed to bail out
banks, but it would be the wrong publics asked to take responsibility.

In this context, the appropriate goal of American bank officials in
negotiations in New York this week with Korean officials, should be to
advance maximum long-term stability in Asian markets, not maximum
short-term profitability for individual banks. The faster and fairer
an agreement is reached, the sooner economic growth can resume and the
greater the likelihood that social instability that jeopardizes
Confucian values, middle class achievement and ethnic tolerance in
countries like Indonesia can be avoided.

Let me also state that almost everywhere we go and almost everyone we
have talked with used the term "bail out" in discussing IMF-led
programs. Bail out indicates that someone is getting something for
nothing. This is wrong on two fronts. First, the IMF is a lending
institution, not an aid granting one, and every year of its existence
it has made a profit. Funds transferred by nation-state treasuries to
it are the equivalent of bank account movements of resources, not the
giving up of assets. Second, no one government or international
institution has the capacity to resolve this crisis in Asia. Grand,
sweeping solutions don't exist. It will take cooperation of
governments, banks, commercial businesses and most of all ordinary
citizens to solve this problem, and private institutions must take the
lead.

As for the role of bank regulation, there are, according to the U.S.
Federal Reserve staff reports, two immediate problems facing Japanese
banks: (1) insufficient capital against the loan and equity portfolios
to which they are exposed; and (2) market uncertainty about the bank
conditions because of weak accounting and disclosure standards. Simply
adding capital to the banking system without fixing the root cause of
the problem will not transform it into a robust system. The underlying
problem of inefficient bank operations and poor credit underwriting
and risk management procedures must be addressed. Accordingly, the Fed
recommends closing insolvent banks, increasing bank capital and
strengthening reporting and disclosure requirements. These would
appear to be common sense steps.

A review of regional economies indicates that those countries with
prudential and transparent regulation have done well and those without
have found public treasuries jeopardized. In addition, the chaebols of
Korea, the keiretsus of Japan and cartels of Indonesia have lessons
for the United States. Those who today actively advocate financial
modernization legislation in the United States Congress which mixes
commerce and banking might want to take a hard look at the kinds of
conflicts of interest endemic to systems that have allowed such
mixing.

With regard to the question of corruption, the lessons are writ large:
the best antidote to cultural corruption is a legal system where small
conflicts are treated philosophically as seriously as large ones and
where economic enterprise is decentralized and subject to as little
control by government as possible. The general level of corruption
goes down as the degree of market competition increases. Free market
systems are not only more efficient than statist models, but more
honest.

Here the comments yesterday of Kim Dae Jung made to us at lunch are
instructive. The President-elect suggested there was little economic
freedom in Korea when business had to rely on government allocations
of credit and resources and where such allocations were dependent on
contributions to politicians and political parties. There could be no
freedom, he exclaimed, if the government had the power to break any
business that didn't cooperate with its agenda.

What some countries in Asia may need is a good dose of Teddy Roosevelt
trust-busting, the privatization of state enterprises in China and the
elimination of nepo-capitalism that hallmarks too many countries.

Analogously, what American politicians need is a deeper understanding
that trade, as long as it is fair and reciprocal, is good and that we
cannot isolate ourselves from global problems. Just as this crisis has
produced a leadership test for governments in the region, with the
question of whether they have the will to address controversial
problems in their societies, it has provided a leadership test for the
United States, with the question of whether we can remain a global
leader.

Finally, let me conclude with an observation from Gordon Wu, a Hong
Kong engineer/philanthropist. Wu speaks to Americans with as much
moral authority as anyone in Asia because he donated $100 million to
his U.S. alma mater in appreciation for the education he received. He
told our group last week in Hong Kong that America's choice is simple.
If it puts out a helping hand today, people in Asia will remember
tomorrow. If it doesn't, that will be remembered as well.

Thank you very much.

MODERATOR: Thank you very much, Chairman Leach, for your presentation.
Then, as promised, we will now like to proceed to the Q and A session,
exchange of views session. As I mentioned earlier, we do have many
representatives from the media this afternoon, but if we may, I'd like
to first allow member companies of Keidanren to ask and direct their
questions, and perhaps ask them to share their comments. And then, we
would like to set aside some time for Q and A with the members of the
media who have turned out in such large numbers.

Again, since his time is limited, let us proceed immediately. Then
proceed to the discussion period. Any questions from the members of
the Keidanren member companies? Comments? Questions or comments,
please.

Please be sure to identify yourself, sir. Thank you.

QUESTION: Shia Mu from Kawasaki Heavy Industries. I understand that
you have visited various Asian countries. You have visited the ROK,
Thailand and Indonesia. What is your impression -- how many years do
you think it will take for these countries to overcome their current
state of difficulties? (EDITOR'S NOTE: The U.S. delegation stopped in
Hong Kong, Beijing and Korea before arriving in Tokyo late on January
22, 1998.)

REPRESENTATIVE LEACH: Well I think that is a difficult issue to
suggest with any degree of confidence, and many of you will have
better judgments than we do. But we believe there is a great deal of
differentiation between the countries. We are exceptionally impressed
with the speed with which Korea is moving in terms of its commitment
as a society, as well as its decision to move in new directions. And I
think this group is very optimistic on Korea. Indonesia has been much
in the news. We're not experts on Indonesia, but there may be
different judgments that might apply to Indonesia. But I am very
hopeful that Kim Dae Jung is correct that in a year and a half we may
see a very different basis for growth in Korea.

MODERATOR: Any other questions, please, or comments? Yes, please. The
microphone will be brought over to you, sir. Yes, please.

QUESTION: Last year --

MODERATOR: Would you make --

QUESTION: My name is Fujimoto of the Compaq Corporation. Last year our
Minister of Finance issued guidance to our major banks, those which do
international financial business, that they should apply the so-called
BIS capital assets ratio, which is 80 percent. And at that time almost
all of our people were relatively optimistic about our economic
recovery. However, after that we began facing a difficult economic
situation. Therefore we have many economists and politicians who
suggest we postpone implementation (of the rule). I'd like to hear
your views, and any suggestions.

REPRESENTATIVE LEACH: Well, first, let me say, in the American
context, I am not well appreciated by all of our banks because I have
pushed for higher capital ratios for all of them in my time in
Congress, and I am a very strong believer in very strong capital. I
believe this makes for a stronger banking system and therefore a
stronger economy. It also protects publics from the costs of potential
bailouts when things go wrong. And so I believe very strongly in
moving further. And I would also say when you look at your banks, one
of their characteristics is that all of them have solid positions in
the stock market. The owners of the financial institutions do not want
to dilute their shares, but any of the major Japanese banks in a
ten-day period could raise gigantic sums of money if they chose to
dilute. As a public policy maker, I believe in strong capital and that
you don't protect shareholders. And so I am an advocate of raising
capital the old-fashioned way, which implies some dilution to
financial institution owners. But the public interest is for strong
capital, and so as a representative of the public, that is what I
advocate. But I recognize there is always a case at any given time for
a little bit more forbearance. But the history of American difficulty
in the financial arena -- and we've led the world in having the first
great difficulties so we know a lot about difficulty -- is that the
more you postpone, the more difficult the situation. But my colleagues
may differ with me and they may have a different judgment.

CONGRESSMAN BRUCE VENTO (D-MINNESOTA): Not on that particular point.
Not on that. We worked with that as Members, on the Savings and Loan
issue to, in fact, establish a plan for the S and L's that didn't have
capital standards to, in fact, stay in business, but they had to have
core capital and work from there. And so that was the way that we
addressed that, but I think your problem here is much more broad.

MODERATOR: Thank you very much. The three Representatives, of course,
will be taking part in the Congressional session when they return to
the U.S., and they will be conveying their findings from their Asian
visit to their colleagues in Congress. They visited the Republic of
Korea and they believe that there are new forces at work to bring
about change in Korea, at least that is the impression that they have
received as a result of their visit to Republic of Korea. Their stay
in Japan has not been long so far, however, having said that, I
believe that they have different concerns and expectations vis-a-vis
Japan. As far as the state of affairs in Japan is concerned, perhaps
there may be some of you who would wish to convey your own message to
these gentlemen so that they can convey your messages or views to
their colleagues back in U.S. Congress. May I invite views from my
Japanese colleagues.

QUESTION: Thank you very much. I'm the Chairman of the Mitsubishi
Research Institute and I'm a member of the Financial System Council
within Keidanren. I visited New York quite recently and I met Governor
McDonough of the New York FRB, and he said that global capital is
being traded on a 24-hour basis. Of course, you have New York for the
U.S., you have London for Europe, and the Governor said that the Tokyo
market will have to be more robust in order to represent the views of
Asia. I totally agree. Now, where do the problems lie? The Keidanren
financial system study group and members of the Ministry of Finance
have all studied the matter. (inaudible) with the taxation issue,
(inaudible) with the regulatory issues and the high cost of living.
All of these are contributing factors, perhaps. But the Japanese
international financial market, if that is to be created, I wonder if
Congressman Leach could give us some advice as to what would be
important factors if Japanese Tokyo market is to become a truly global
financial market? Thank you. Any advice please?

REPRESENTATIVE LEACH: Well, let me say, first of all, it is. Tokyo is
a financial center. And as you know, a number of the top 25 banks in
the world are located here. It also has substantially-sized securities
firms. But one of the things that's happened in Japan is that while
your manufacturing companies have been very profitable, your banking
system has not been as profitable and so its been hard to raise
resources. When I come back to the prior question I will mention an
American -- and it may be (an) anomaly -- but every bank that raised
capital found that its stock went up in value. And so it wasn't as if
the institution was punishing itself. And I think what you have in
place with the current Diet program with regard to financial
institutions amounts to a transfer of resources to the financial
system. And that will strengthen the financial system. It will be at
some sacrifice, frankly, to taxpayers, and there is every reason that
taxpayers should be less than happy with the thought of it occurring,
although in the long term, it will be extraordinarily stabilizing for
the economy and I think will help make Tokyo an even bigger financial
center than it currently is. And then, of course, you have the issue
of trading and securities and you are a major center at the moment,
and as we all know, one of the phenomenon particularly of the last
several years has been every stock index has followed every other
stock index, and your index has certainly revealed Japan as a very
important financial center.

MODERATOR: Congressman, is that all right?

REPRESENTATIVE LEACH: Yes.

MODERATOR: We have a remainder of ten minutes with us. Yes, please. A
microphone will be right over to you.

QUESTION: From Tokyo Mitsubishi Bank, my name is Yoshizawa. I'd like
to ask a question concerning the Asian currency crisis. It's very
serious, and it has affected the global economy, and the effects that
come forward from this situation may be rather grave. It's just as the
Congressman had mentioned earlier on. In this connection, you
mentioned the IMF and the role of the IMF. Now you said that the
function of the IMF is not to bail out banks. That is the point that
you made, I think. Currently, in the U.S. Congress, the contribution
of your country to the IMF is now a focus of attention, and there are
some views that perhaps this is a bailout of financial institutions
through the IMF. There seems to be a lot of debate about this matter.
I, myself, as a member of the private sector bank, feel that today's
situation is one in which that the private sector banks certainly must
be held accountable for a part of the problem. I will not deny that.
But the current situation is one in which you have a fire and it's
burning very strong, and when you have the fire burning very strongly,
then you need the IMF, the governments, the private sector financial
institutions of all countries to cooperate, to first of all bring down
the fire, to wipe out the fire, rather than right now discussing who
is responsible or where the responsibility lies for the fire. More
than that, appropriate and timely measures to be taken up to
(inaudible) the fires, first and foremost, I think, that would be most
necessary, and until and unless that is done, very serious situation
may arise. I'd like to hear the Congressman's views on that.

REPRESENTATIVE LEACH: First let me just say on a very personal level,
I am a great admirer of your great bank, the largest in the world.
And, indeed, I have an uncle in Chicago who just retired last month
from the Board of the American part of your bank. And so I am -- I
know a great deal about your fine institution.

Having said that, please do not misunderstand me: I favor
replenishment of the IMF. But it is critical what the IMF does with
its resources. And the publics of the world will not allow the IMF to
continue if it is perceived or in actuality becomes a bailout
institution for banks. Legal systems exist in other ways for that
issue. On the other hand, as you indicated and as you are precisely
correct, when you have a fire, everybody has to pull together. These
will include nation states, international financial institutions,
private institutions, lenders and creditors. Everybody has to work
together. And I personally am coming back from the part of the region
that we have visited with the complete conviction that, in northern
Asia, a very constructive effort is underway that will lead to a very
positive resolution of the dilemma. I may not have quite as much
optimism about several other countries.

MODERATOR: Well, thank you. We would now like to open the Q and A
session to the members of the press as well as to the members of the
member companies of the Keidanren in the last five minutes, please.
Any of you with questions, please. Yes. Please be sure to identify
yourself.

QUESTION: Anthony Rowley, Singapore Business Times. Congressman Leach,
how confident are you that U.S. banks will continue to roll over their
existing credit lines to Asian borrowers and extend new credit lines
in the future? And also, could I ask you very briefly how you reacted
to the recent suggestion by Mr. George Soros? A similar suggestion was
put forward by (the) Japanese government, that a new credit guarantee
agency should be set up as a kind of sister institution to the IMF.

REPRESENTATIVE LEACH: Well, first, I am very optimistic about the role
United States banks will play in the process. The negotiations on
Korea that commenced this week apparently have been on a positive
note. And I personally believe that everyone recognizes there are
shared responsibilities and there are shared opportunities, and that
Asia is going to recover. And when it recovers, it is going to be a
huge opportunity, and as it's recovering it will be a different kind
of opportunity for given kinds of companies, including financial
institutions. So I am very much optimistic about the outcome.

With regard to Mr. Soros's suggestion, which you indicate is also a
suggestion of someone in Japan, I think that is one of the kinds of
ideas that ought to come under very serious review. But I would
strongly suspect that something that might be analogous to an
international RTC under the IMF might have some difficulties. And so
we'll have to look at it very, very carefully. But I think this is a
time period for lots of ideas to be discussed, although I will tell
you, I think it's preferable to be able to deal with these kinds of
circumstances in less-trying times. But sometimes you have no option
but to deal with them when times are a little more trying.

MODERATOR: Thank you. Another question, please. Microphone, please.

QUESTION: Congressman, Mr. Leach, I'd like to ask your view about
Japan's leadership with regard to Asian financial turmoil in terms
(of) Japan's effort to boost up its own economy, and also Japan's
efforts to help other ailing Asian countries, either through IMF or
beyond IMF. Thank you.

REPRESENTATIVE LEACH: Well, the second question first. Let me say,
Japan has played a very constructive role in terms of working with the
United States and other countries within the IMF framework. It has
also made what I think is a constructive suggestion, although one that
was not, in the end, adopted by the regional community, but indicated
that Japan was prepared to act in terms of a new facility. In terms of
the solution to this problem, there is terrific international
consensus that the dilemma in Asia will not be resolved without a
serious role for Japan, partly in terms of assistance, but largely in
terms of reigniting its own economy. In this regard, it is understood
that the government has a program that is not inconsequential,
including helping the banking system, and providing some spurs to the
economy. It has been described to us by your Vice Minister for
International Affairs at the Ministry of Finance as a one percent of
GDP stimulus over a two-month period, which is not insignificant. We
understand that Japan may also -- Japanese leadership -- consider
further steps if the need arises, which might go further. Generally
speaking, it's the view of the international economic community that
whereas virtually all of Asia is going to have to tighten its belt for
the next year or two, Japan should unloosen its (belt). And it is
quite possible that more fiscal stimulus may well be needed. And
certainly the view of the United States government that it is.

MODERATOR: Thank you. Thank you very much. I'm sure there are more
people in the audience who would like say their views, but
unfortunately the Delegation has a very busy schedule ahead of
themselves. We'd like to conclude this meeting, unfortunately, at this
point in time. It is indeed very timely and a very valuable
opportunity for us that we're able to listen to the views of such
distinguished members of the U.S. Congress. They have visited various
countries in Asia and we were most impressed by their insight. We in
Japan have been taking various measures at a very expeditious pace and
I do hope that your views and influence can be reflected in the
measures that are taken by the Japanese government. Well, then, we'd
like to close the meeting at this point in time, and could we show our
appreciation in the usual manner, please. Thank you very much.

(end transcript)