Treasury Secretary Paul O'Neill said on Wednesday he was confident in the U.S. economy's ability to bounce back from its current slowdown and appealed to Japan to boost its own sluggish economy.
"While the U.S. economy has slowed, I have full confidence in its resilience," O'Neill told the opening session of the Asian Development Bank's annual meeting as demonstrators gathered outside to protest the influence the ADB exerts through its lending decisions.
He said a pronounced slowdown in U.S. economic activity over the past year will end when bulging stocks of unsold goods are brought into line with sales, and suggested that was already well under way.
"The rebound will come when the economy has cleaned up the overhang of production capacity and inventories, and if you look at the data we have seen in the last couple of weeks it looks like we are well along in that process," he said.
O'Neill said that growth had slowed not only in the United States in recent months but around the globe, and said it was important for all countries to try to operate closer to their economic potential.
He singled out Japan, the world's No. 2 economy and by far the most dominant economy in Asia, urging its new government to step up efforts to end a decade-long period of stagnation.
"It is important for Japan, after ten years of sluggish growth, to achieve strong, stable growth," O'Neill said. "We welcome Prime Minister (Junichiro) Koizumi's recent statements indicating his commitment to reform and look forward to seeing Japan take the steps needed to trigger an enduring recovery."
JAPAN URGED TO HELP WORLD GROWTH
At a media conference later, O'Neill repeated the need for a more strongly expanding economy in Japan that could act as an engine for growth throughout the region.
"Japan's performance at something close to their potential rate of growth is of importance to the rest of the world because operating at a higher level would mean increasing the aggregate level of demand in the world," O'Neill said.
"It would also create a greater pool of savings for investment for spreading economic activity around the world," he added.
Japan is the largest financial backer of the ADB, which makes loans to the neediest of its 59 member countries and seeks to boost the region's development.
A group of several hundred demonstrators - smaller than anticipated - protested the ADB's activities under the watchful eyes of police, sporting signs saying "Capitalism sucks" and "No aloha for the ADB."
O'Neill said East Asia was making an encouraging recovery from the severe financial crisis that many countries in the region suffered in 1997-98, and suggested many countries had learned their lesson from the crisis.
"The risk of further balance of payments crises has declined significantly as most countries have built up foreign currency reserves, reduced short-term external debt and adopted more flexible exchange regimes," O'Neill noted.
STILL WORK TO DO
But he cautioned there still was work to do in many countries and said the global slowdown in economic activity made some economies more vulnerable. There was "always room for improvements in fundamentals" among the Asian countries to make them better able to function as market economies.
"Like a receding tide, the decline in global demand, particularly for high-technology products, has revealed more clearly the drag weak banking and corporate sectors have on growth," O'Neill said.
He said the ADB, like other multilateral lenders, should become more efficient lenders through "greater selectivity, better coordination with other lenders, and more effective monitoring of performance."
The United States has been pressing a similar message to global lending institutions like the International Monetary Fund and World Bank, which are backed primarily by the United States.
At his media conference, O'Neill said he did not feel the United States was suffering any loss of influence by urging that lenders carefully assess the risks they take to try to avoid making loans that are never repaid.
"I don't have any sense that the United States has a waning or weak influence in these organisations," O'Neill said in response to questions.