TRANSCRIPT: HOUSE BANKING COMMITTEE 1/22 SEOUL PRESS CONFERENCE

[USIA]

USIS Washington File

23 January 1998

TRANSCRIPT: HOUSE BANKING COMMITTEE 1/22 SEOUL PRESS CONFERENCE

(U.S. supports current IMF program) (5550)

Seoul, Korea -- The United States supports current International
Monetary Fund (IMF) efforts to stabilize a number of Asian economies,
according to a congressional delegation to Asia.

"The United States government is the only country that has a veto
authority in the IMF, and it has not only not exercised that veto
authority but has enthusiastically led this particular program for
which the resources exist to deal with," Representative James Leach
(Republican of Iowa) said in a January 22 press conference in Seoul,
Korea.

The delegation comprises five members of the House of Representatives
Banking Committee, of which Leach is chairman.

"What will be considered in the Congress in the weeks to come relates
to replenishment of IMF resources basically to deal with the next
crisis more than this particular crisis," he continued.

Leach stressed that the financial problems being experienced by Asian
economies are a global concern.

"With an expanding globalization of economy, which means extraordinary
new movements of currencies as well as trade, problems in one country
almost inevitably have effects in others," he said. "The United
States' economy is larger than any other economy in the world, but the
econometric models that have been put in place in the last several
months have indicated anywhere from 1/2 to 1-1/2 percent of real GDP
growth is likely to be reduced next year in the United States because
of the Asian problem."

"We're part of a Pacific Rim economy as well as a global economy and
to the degree that currency relationships change and more
spectacularly if economies actually crater, the competitive position
of American manufacturing companies will decrease and you'll have job
implications in the United States," he continued.

The ongoing congressional delegation to South Korea, Japan, and China
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).

Following is the transcript of the press conference:

(begin transcript)

PRESS CONFERENCE BY U.S. HOUSE OF REPRESENTATIVES
BANKING AND FINANCIAL SERVICES COMMITTEE
HELD AT USIS-SEOUL, KOREA

JAMES LEACH (REPUBLICAN - IOWA), CHAIRMAN
BRUCE VENTO (DEMOCRAT - MINNESOTA)
KENNETH BENTSEN JR. (DEMOCRAT - TEXAS)
JESSE JACKSON JR. (DEMOCRAT - ILLINOIS)
MAURICE HINCHEY (DEMOCRAT - NEW YORK).

JANUARY 22, 1998 -- SEOUL, KOREA

PRESS OFFICER: Good afternoon ladies and gentlemen. This afternoon we
have five distinguished members from the House Banking and Financial
Services Committee. I'll turn the floor over now to Congressman Leach,
the chairman of the committee, and he'll introduce the rest of the
members.

MR. LEACH: Along with myself at the table is Mr. Bruce Vento who's a
distinguished member from Minnesota, who came into the Congress with
me in 1977. Next to him is Mr. Ken Bentsen from the state of Texas,
next on the left is Mr. Maurice Hinchey from the state of New York,
and next to Maurice is Mr. Jesse Jackson, Jr. from Illinois. What I
thought I'd do is just give a very brief opening statement and throw
it open to any questions you might have.

First, we are representatives of the House Banking Committee with
jurisdiction over certain aspects of the international economic arena,
most particularly the IMF and the World Bank. We're on a visit to
parts of Asia to assess the economic circumstances. I would like to
leave any economic questions up to you but let me just say politically
we are extraordinarily impressed with the process of Korean democracy
at this time. It is clear that Mr. Kim Dae-jung symbolizes an
opposition party taking power, some say the first in many decades,
some say 1,500 years in Korea, in a peaceful way. But more impressive
than an opposition party taking power which is the norm in a
democracy, is that Korea appears to be undergoing an unprecedented
process of political party cooperation between a party that's been
defeated and a party that has prevailed in an election during a very
long and intensive interregnum and I know of no comparable cooperation
in any western democracy at any time like that that's occurring in
Korea today. It has to be understood to be exceptionally impressive.

Secondly, let me just say, speaking personally as an old friend of the
president-elect, having known him in Washington when he was in exile,
and having had him visit my congressional district at that time, that
it is my personal view that seldom has a head of state entered office
in such trying times with such an enormously appropriate background.
Probably few heads of state have more friends in the United States
Congress than Kim Dae-jung, nor have there been many heads of state
with as much respect at this time in Washington than Kim Dae-jung.
With that as an introduction let me throw it open to any questions you
might have.

Q: Stella Kim from Time magazine. We are so curious as to why Japan is
not playing a greater role in solving this financial problem in Asia,
especially when they have several hundred million dollars of foreign
reserves and Japan also offered to set up an Asia fund when Indonesia
was in trouble, but the U.S. declined. Do you find Japan cooperative
enough or do you find that they should or should not play a greater
role in resolving this financial crisis in Asia?

MR. LEACH: Well let me comment briefly and then ask Mr. Vento, who has
discussed this at certain meetings we've had. Our sense is that Japan
must be a part of the solution to the Asian problem. Japan is a
driving economy in Asia and we are very hopeful that it will play a
significant role in the recovery of Asian economies. Most economists
have come to the conclusion that while some of Asia has to tighten its
belt, Japan should be loosening its. So you have a contrasting set of
advice coming from the outside. But most of us that have looked at the
Japanese circumstance do believe that there are certain reforms that
may well have to be made in Japan, particularly relating to their
financial system, for which certain steps are now under way. It is the
impression of the delegation that Korea appears to have the capacity
to change direction more rapidly than other societies in Asia,
including Japan. But Japan should definitively be part of the
solution, and to the degree it's not part of the solution it becomes a
greater part of the problem. But let me ask Mr. Vento who has an
interesting perspective on this.

MR. VENTO: I'm Bruce Vento from Minnesota and I want to share in the
Chairman's opening remarks with regards to the Korean people's effort
and the vitality of President Kim and the political transition that is
taking place. We did raise the question of the Japanese and the
Japanese role. I think that there appears to be a reluctance on the
part of Japan to lead in this respect. Obviously, they did attempt to
set up a fund but there is I think also a greater acceptance of the
International Monetary Fund and the U.S. leadership in this area,
especially in Korea because of the long standing friendship and ties,
both for security and economic basis, in Korea.

As the chairman said, I think, that most of us look to, because Japan
has been in a long-term recession, we think that they need to
vigorously address their economic problems and attempt to work with
other nations in this region and area of Asia to solve the problem.
They have a big part of the credit and it is absolutely essential that
these economies make some structural economic changes, and I think
that's very difficult for the Japanese. But we are, this is next on
our itinerary, we are leaving basically after this meeting to spend
two days and three nights in Tokyo.

Q: Just to clarify, do you think Japan should take a greater role in
solving this problem? That they are not making enough effort?

MR. VENTO: Yes, I think there's a problem both on the part of the
acceptance of those nations that are affected by this. They accept the
IMF or the United States role, especially in the case of Korea, and I
think that there's also a reluctance on the part of Japan because the
recession and other factors not to be involved. They're choosing to be
involved importantly through the IMF.

Q: I'm Mary Jordan from the Washington Post. What are you most worried
about or some of the things you really do worry about, about the
effect on the U.S.? The Korean economy's effect and the Japanese
economy's effect on the U.S.?

MR. LEACH: Well with an expanding globalization of economy which means
extraordinary new movements of currencies as well as trade, problems
in one country almost inevitably have effects in others. The United
States' economy is larger than any other economy in the world, but the
econometric models that have been put in place in the last several
months have indicated anywhere from 1/2 to 1-1/2 percent of real GDP
growth is likely to be reduced next year in the United States because
of the Asian problem.

Specifically with regard to Korea, this is a country over most of the
last three years it's had a trade deficit with the United States. That
is likely not to be the case in the next several years. With regard to
this particular crisis, many companies are finding it difficult to,
among other things, simply get letters of credit to be able to import
certain parts to remanufacture more advanced parts. And so this is not
a happy situation for the United States. Now, one can argue that the
United States may be one of the less affected countries, given the
circumstance in Asia, but it will definitively be affected. We're part
of a Pacific Rim economy as well as a global economy and to the degree
that currency relationships change and more spectacularly if economies
actually crater, the competitive position of American manufacturing
companies will decrease and you'll have job implications in the United
States. So, we are an intertwined economy, particularly with Korea.
Beyond that forgetting the economic situation, we obviously have a
strategic vested interest in the South Korean circumstance and we
share totally with the South Koreans a desire to get the economic
situation rectified as quickly as possible so we can deal with the
strategic situation. And that is an absolute commonality of interest.
And so the United States is integrally involved whether we as an
economy might like to be or not. I don't know if anyone else up here
would like to ...

MR. HINCHEY: I would just say that one of the effects of the financial
crisis in Southeast Asia generally has been a phenomenon of
overproduction, of a great many goods and even commodities, everything
from computer chips to much larger consumer goods all across the
region. And that, of course, is having a depressing effect on prices
where we're seeing disinflation and even deflation in some Asian
economies. Not here in Korea, the opposite effect is expressing itself
here, there's in fact, inflation. But that inflation here will affect
the American economy also because the balance of trade surplus that we
have enjoyed with Korea, is about to evaporate. And that, I think,
will also have a depressing effect on prices in the United States as
the disinflation and deflation in other Asian economies is having a
depressing effect on prices in the United States.

This is one reason why we have to be concerned about this, if it were
not just for the humanitarian reasons, for reasons affecting our own
economy we have to be concerned about the situation here because if it
is not brought into check, if it is not held in control, it can have
negative effects to some extent on the American economy as well, and
those negative effects could express themselves in disinflation and
even deflation if the circumstance gets really out of control. And so
before it does, it's important for us to do everything we can through
the International Monetary Fund and primarily that vehicle, but others
as well, to help our friends here in South Korea and also try to
stabilize the other economies in this part of the world as well.

MR. LEACH: If I could ask Mr. Bentsen to say something as well.

MR. BENTSEN: On this question I think it is terribly important. If we
look at the region as a whole it represents about 28 percent, I
believe, of the U.S. export market, if you exclude Japan, it's about
12 percent of the export market, so the potential costs there alone is
quite great to the United States. In terms of bank loan exposure with
respect to Korea, it is not particularly great, although we learned
today that J.P. Morgan has done a $500 million dollar charge off, so
there is some exposure to the U.S. banking industry, but that it their
concern, not the United States government's concern necessarily. But,
more importantly, if the Korean situation is not dealt with and the
rest of the Asian situation is not dealt with, the fear is also it
could spread further to Japan which has been in a recession since the
early 1990s, and that has greater exposure for the United States, so
there's a great deal of potential risk that we should be concerned
about, and I think it's important that we assist with the IMF function
in providing liquidity.

Finally, I would add, there is also a great potential upside that the
United States should look at as well as Korea and other nations. Korea
we found has a very dynamic economy, a very strong middle class, a
very productive work force, a very entrepreneurial society with a
great deal of opportunity, and if the IMF package is adhered to,
particularly in terms of the financial and banking business and labor
reforms, as well as providing a social safety net, from what we have
been told by the leadership here, and the incoming leadership, they
should do quite well and that should be both to their benefit and to
the benefit of the United States. The opening up of the marketplace
here both to all Korean sectors of the population as well as to the
United States and the rest of the world, creates a great potential
upside for United States business which is something we should be
looking for as we try and continue our economic growth at home.

INTERPRETER: Could you repeat the part about the $500 million
charge-off?

MR. BENTSEN: That J.P. Morgan Bank announced yesterday, not
charge-off, that they were setting aside reserves, $500 million
dollars in reserves, for bad loans within the region.

Q: Bill Tarrant from Reuters. Notwithstanding what we've just heard
about all the reasons why Americans should feel that the IMF bailout
is a very good thing for Americans and for the world economy and so
forth, there does seem to be some opposition brewing in certain
quarters on Capitol Hill and in the American public, perhaps, a
groundswell of some sort, that is either directed at the recipient
countries themselves or perhaps at Wall Street in perhaps an
expression of populism, "why should we be bailing out, why should U.S.
taxpayer money be bailing out banks on Wall Street, why should they be
bailing out failed economies in Asia?" As politicians do you sense
that (a), and (b) do you sense it being directed at Wall Street or the
recipient countries or both, and how is it going to affect future
bailout programs and the future attitude towards assisting these
economies?

MR. LEACH: First let me say that that is a profound issue vis-a-vis
the American political process and let me therefore as a premise
assert that the current IMF program has already been agreed to with
the support of the United States government. The United States
government is the only country that has a veto authority in the IMF,
and it has not only not exercised that veto authority but has
enthusiastically led this particular program for which the resources
exist to deal with. What will be considered in the Congress in the
weeks to come relates to replenishment of IMF resources basically to
deal with the next crisis more than this particular crisis, and as was
referenced in the question, there are philosophical concerns in the
United States Congress reflected in various media as well as in
editorial pages, and therefore one of the concerns relates to the
function of the IMF itself.

My personal view is that these are largely philosophical views that
relate to the proper role of government and it's my personal belief
that governments have a role in stabilizing economies and societies,
but that there should never be simply a replacement of private sector
liabilities by public sector liabilities. And so, as we move forth
with some public intervention, and I put this in the framework that
the public sector intervention will be very modest in relationship to
the totality of what the private sector is going to have to do to help
advance these economies, the public sector is going to have to be
protected in its invested dollar, very precisely, and over its
history, the IMF has never lost money. There are several countries in
Africa that are a bit behind in their schedule of repayment but these
have been written off by the IMF itself and the basic rule of thumb is
to maintain a system in which public intervention can occur to help
stabilize -- these funds have to be the first protected. And so I
think public sector support can be developed around the idea that to
protect against a greater cratering of economies, the IMF can play a
partial role.

But I would acknowledge fully that there are concerns being reflected
philosophically particularly against any precept that the IMF funds
will be used simply to bail out a bank or a banking system. And my own
view is this distinction between the IMF being the lender of last
resort to economies or the lender of last resort to banking systems
have to be kept in mind. It should never be for banks, it can be from
time to time for economies in general. But banks are going to have to
take some losses, as J.P. Morgan has recognized this week, and it's
not the role of the public to step in and defend any individual bank.

Let me say we have a limited period of time and so what I'd like to do
is ask if Mr. Jackson wants to address this question and then I would
like to ask if any of the Korean journalists present have some
questions. Mr. Jackson.

MR. JACKSON: Let me first express my appreciation to the people of
Korea for allowing us the opportunity to engage and participate in
this dialogue. I can express on behalf of this delegation without any
equivocation that the American people have great respect for your
President-elect, President Kim Dae-jung. He showed this delegation
great hospitality today at his home and we engaged in a great
discussion about the prospects for a mutual relationship between the
United States and Korea. The relationship between the United States
and Korea has been paid for in blood and sweat and tears, and it is a
relationship that has endured and is valued by the American people.

I think it is important that we recognize as Americans the question
was raised, what is it that we will do and share with our colleagues?
One of the things that I'm going to share with them is that each
economy in this region must be examined, viewed, and seen as part of
the global economic environment. But each is unique and its problems
are unique. This is particularly important, because history is also
important. We have a historical relationship with Korea that must last
much longer, and has lasted much longer than the present crisis. In
response to the uniqueness of the Korean problem, I must admit that I
was moved this morning almost to tears when I thought about the
possibility in my own country of my wife giving up her earrings or her
gold in the national interest. This is unheard of in America, but the
response and the overwhelming response by the Korean people in this
crisis is a testimony of their true strength. The world economic
community from my perspective shouldn't put and insist on conditions
that undermine the 5,000 year culture of this nation.

What do we have to worry about in America? Contagion is real, likely
to be felt in the third quarter of 1998, about the time all of us are
running for re-election. We're also very concerned, and this
delegation is very sensitive to the implication of this crisis for
women in particular. We know in the Korean society, as in our own
society, that women are the last-hired and the first-fired. Men, since
I've been in Korea, I've not seen them wearing many earrings and many
gold chains, and so the first people that are sacrificing in this
society are women, and this is an undue hardship. I must tell you
without much apology that I came here as part of a group, at least I
came here, to tell Koreans and their leadership that they need to do
more to buy American products. But I am going to leave here and I am
going to go back and tell my countrymen that we need to help our
friends preserve their culture. And once it is secure, then settle our
differences, whatever trade differences that might exist.

I am of the opinion, and I've shared this with the chairman of this
committee and I will share it in full committee hearing when Alan
Greenspan is before this committee, that 300 or 350 basis points are
unacceptable terms for short-term relief for this crisis. We have
three scenarios: a bailout of these economies and workers will clearly
pay the price; we don't bail them out and workers will lose their
jobs, workers still pay the price. I'm looking for an idealistic
circumstance, where we can bail out our friends and help them and
workers at the same time benefit. I think this is one of the many
messages that this delegation will take back to the United States, and
I'm certainly hoping that many of my colleagues who did not get the
opportunity to come here and see the crisis for themselves, will take
the words of many of us who have seen the crisis and recognize that
this is not an Asian crisis, it's a market crisis and it will affect
us. Thank you very much.

Q: I am from the Joong-ang Ilbo. If I understood correctly you said
that the IMF and government intervention should not be used to bail
out private banks. And right now in New York there is a Korean debt
renegotiation going on underway with the international banks. And the
United States banks have demanded that Korea convert its short-term
debts to government-secured loans or government bonds. And just last
week, the Deputy Treasury Secretary Lawrence Summers visited Korea and
said that the outcome of the New York negotiation is linked to the
disbursement of $8 billion in G-7 contingency loans to Korea. So, the
understanding on the part of Korea was that Mr. Lawrence said that
there won't be any disbursement of the $8 billion loans until the
negotiation in New York is over. Is this true?

MR. LEACH: Well, first let me say, Mr. Summers speaks for the
executive branch, and we're the congressional branch, and I assume
that what he has stated on the public record is the position of the
United States government. We all believe that, as the government of
Korea believes, that it is very important that these negotiations
proceed successfully and rapidly. Beyond that, we are not negotiators
on either side, and this is an issue between the banks and their
counterparts here in Korea, and I think it would be inappropriate for
us coming from congress to assert what is exactly the most appropriate
position for either side. Mr. Bentsen would like to add on to this
question.

MR. BENTSEN: If I could briefly, from my perception it's also
important that there is a distinction between the IMF portion and what
is being negotiated between the Korean banks and the American banks
and European banks and other banks. The IMF function as I see it, is a
short-term liquidity facility, relating to the sovereign credit of
Korea. The negotiations going on in New York, relate to the
credit-worthiness of the Korean private sector banks. Now the two are
obviously intertwined as to the Korean economy and everything that is
going on, so it's very hard to separate them. But the IMF/G-7 package
is aimed at restoring liquidity to the Korean economy, so it may grow
out of this difficulty, and it is, I would imagine that the executive
branch position is and this would make sense, that part of growing out
of that package is ensuring that the banks do not default on the debt
that is owed, but they are two different parts.

Q: I am John Kim from Maeil Kyong-je. I have a couple of questions.
The first question is that there's a lot of talk about overcapacity in
the financial sector in Korea and throughout Asia. I want to know how
big and how soon you think the shake-out is going to be. Second point
is that many of the problems that you talked about in Japan and Korea
is asset-based government-directed lending as opposed to lending on
cashflow. How do you see the prospects for and how do you think the
progress is going and the chances for Korean banks to get credit
lending skills? And the last thing is something that Mr. Jackson
touched upon -- the whole anti-import, buy Korean campaign. (Name
uninteligible) over at Ford Korea, he talked about type certification
issues on autos, and the high taxes. But what exactly, do you have a
specific message because there's been reports that American exporters
might retaliate or respond to the whole campaign that's going on in
Korea. Will you have a specific message directed to them when you
return to Washington?

MR. LEACH: You have three questions. The first relates to
over-capacity. I personally am very impressed with the analysis of
Paul Krugman of MIT that suggests this is more a banking than a
currency crisis and that banks have, in effect, put out funds without
prudential lending guidelines, and so in effect you've had an
over-capacity in the banking system, of a lot of money chasing few
good loans. And that has contributed to this circumstance. Now the
question becomes as is a shake-out, does that imply that suddenly
you'll have an under-capacity. And one of the great concerns is that
you keep financial systems working and that is one of the reasons the
Korean government has moved and apparently fairly forthrightly to
change its regulatory system as well as to look at seeking a given
amount of foreign investment in the banking sector.

We have emphasized in the United States for instance, that about 20
percent of our bank loans are controlled by foreign banks, up to 30
percent of our commercial loans by foreign banks, and so that we would
assert that an open banking system is healthy for own economy and
therefore should be for other economies. The size of the shake-out is
at this point undetermined and will depend a great deal on how the
Japanese government responds to the Japanese banking system. The
Japanese banking system overwhelmingly is the largest in Asia, and has
some very large losses embedded in it both with regard to foreign
loans and domestic, and as people that follow banking know,
particularly real estate loans. On the other hand frankly they have
some appreciated assets that are related to investments in United
States bonds that have appreciated in value, and particularly
appreciated vis-a-vis the recent changes in the currency relationship.

As for your third question which is will lending be of an asset-based
nature or of another nature, I think that as virtually everyone has
looked at this process, there are a lot of lessons that are being
learned in a very short time frame that relate to prudential lending.
It appears that those banking institutions that have followed and been
governed by prudential regulation have substantially lower losses than
those that have not. And that lesson is being observed very closely
not only in the countries directly affected, but those much less
directly, such as China. And I think you'll see a greater emphasis on
international standards, particularly the Basil type of standards in
how people assess lending itself.

MR. VENTO: Well on the over-capacity in terms of credit, I think it's
really a misallocation of the character of the credit as opposed to
direct lending, it needs to, I think, address to the securitization,
and bonds, and other means, of course credit allocation to the large
conglomerates, the chaebols in Korea, is something that will take
years to change. So, structural economic changes here need to take
place. The assets-based government lending is, I think the strength in
Korea is that they have a good infrastructure, a modern
infrastructure, and they have a good investment in human resource, so
that while they have credit problems, they also have something
tangible to work with. The question on imports is a key one, obviously
our purpose and our discussions centered around limiting the crisis,
as it should. In doing that, of course, we recognized devaluation of
the Korean currency, the won, but at the same time if we can eliminate
the subsidies and some of the other issues that have made for the
problem and the economic misallocations that will hopefully balance
out. But in the short term we realize that some of the trade problems
will be more acute. Thank you.

Q: ....Chosun Ilbo... story out of Washington Secretary Rubin calls on
bankers to... are you willing to associate yourself with that?

MR. LEACH: Thank you. Let me make this the last question and repeat
it. The gentleman has asked whether this group agrees with a comment
that Secretary Rubin may have made today urging banks to ease terms. I
have not seen the story, so let me just respond very briefly: As a
general proposition, I am a strong supporter of Secretary Rubin's
basic strategy in the region, so I would not want to undercut it in
any way. As a second proposition, I personally believe very strongly
that this is a time that the goal should be maximum stability in the
region, not maximum profitability for any individual banks, and so
restraint on all sides would appear to be the most prudential and the
most humane policy at this time. Having said that, I think there might
be several others on the panel that might want to respond.

MR. JACKSON: Very quickly our goal is to restore confidence in the
Korean economy as quickly as possible and the answer to your question
is "yes." I would have no problem associating myself with the
secretary's remarks.

MR. HINCHEY: Specifically with regard to Korea, we have a close, deep
relationship with this country going back over 50 years. As Mr.
Jackson suggested a few moments ago, American blood was spilled on the
hills surrounding this city and up and down this peninsula in the
preservation of democracy and freedom. I don't think it's at all
appropriate that anyone in the United States ought to be attempting to
capitalize on the difficulties that this country might be having at
this particular moment. Our responsibility is to do what we can to be
helpful in a judicious and reasonable way and to stabilize this
economy and to do everything we can to stabilize the other economies
in this region. Both for clear humanitarian reasons and reasons based
on long friendship, but also for reasons based upon our self interest.
If we fail to act in a prudential way to prevent the difficulties here
from spreading, we can in some measure feel the effects of it
ourselves. So I would, as I understand your question, support very
much what the secretary apparently said. I haven't seen the story
either, but what he apparently said earlier today.

MR. LEACH: Well, it appears that this delegation is in agreement.
Thank you all.

(end transcript)