It is a pleasure to speak with you this evening. Let me begin by expressing my deep gratitude to you for honoring me with the Paul Tsongas Award. The decision last year to rename this award after Paul Tsongas was a fitting way to honor a man who deserves so much credit for focusing attention on the importance of deficit reduction. And the Concord Coalition has done an invaluable service to our country by advancing the message of the importance of fiscal discipline, the message Paul Tsongas worked so hard to convey.
By honoring me, you honor President Clinton's entire economic policy team, and, most importantly, the President himself. I remember in January of 1993, during the transition, I traveled with the rest of the economic team to Little Rock, to visit then President-Elect Clinton to discuss the plan to cut the deficit, a plan that was tough, but necessary in order to put our fiscal house in order. One of the President's political advisors said that politically this will be very difficult to do, and that there is a reason why it had not been done already. After a relatively brief discussion, the President said we have to do it, because he said the deficit was the threshold economic issue facing the country, and without successfully addressing that issue we would not be able to focus on other priorities such as education and training.
At the time we were meeting in Little Rock, the government was running a deficit of $290 billion --an all time high. The federal debt had quadrupled from 1980 to 1992. The forecasts at the time were for continued ballooning of the deficit. These huge deficits kept interest rates high, diminished confidence, lowered investment and stifled growth. We have come a long way. In a few days, we will be told officially that during this fiscal year just ended, the Federal government recorded a budgetary surplus for the first time in 29 years.
In my judgment, the indispensable factor in this historic accomplishment was the 1993 deficit reduction plan. This deficit reduction increased confidence and helped bring interest rates down, and that in turn, helped generate and sustain the economic recovery, which in turn, reduced the deficit further. The result was a healthy, mutually reinforcing interaction of deficit reduction policy and consequent economic growth.
Moreover, the dynamics of today's global capital markets greatly heighten the importance of fiscal discipline. These markets confer great benefits on countries with sound policies --lower interest rates, greater confidence, more stable flows of capital --and conversely, impose severe penalties on countries with unsound policies. In times of financial instability, it is particularly important to have sound policies. For example, while the U.S. economy has felt some effects from the recent financial crisis, that impact would have been much more severe had our economy not attained sound fundamentals over the last five and a half years.
Having discussed the importance of fiscal discipline, which as I said, has been absolutely central to our economy's success over the last six years, we must not let the progress we have made mask the challenges we face in building a prosperous economy and society for the years and decades ahead.
It seems to me there are four central pieces of an economic strategy going forward.
First, we must remain diligent in keeping our nation's fiscal house in order. One of the biggest fiscal challenges we face, as you well know, is addressing the long term health of our Social Security system. The President has fought for what I believe is a sensible proposal to leave the surplus intact until we address Social Security reform. Over the past 10 months, the President has worked to foster debate and discussion to lead to a consensus. The Concord Coalition has contributed greatly by helping to organize three national forums on the topic this year with the President and Vice President and by raising the country's awareness of the challenges that this issue presents. In December, the President will convene a White House conference as a final step in this year of national dialogue. Soon after the turn of the year, the President wants to work with Congress to produce a bipartisan plan to put this program on a sound footing for the long term. As the Concord Coalition has so effectively argued, fiscal discipline is not an easy path, but it is the essential path. We must not flag in our commitment to it.
Our second key challenge is to continue to work to improve education in all of its aspects, but especially our public school system. I have found it interesting that even in meetings with Finance Ministers and Central Bank Governors we often discuss the critical importance of education in today's global economy to productivity, competitiveness and economic success.
Third, we face the challenge of tremendous social costs and loss of productivity that results from having millions of Americans left out of the economic mainstream --a problem that is most closely associated with our inner cities. Even if one does not view this as a moral or social issue --although I happen to think it is --it makes good economic sense. This is a problem that affects all of us, no matter where we live or what our incomes may be. At Treasury we have used our expertise in capital markets to help attract capital to distressed economic areas through various programs, and as a member of the President's budget team, I have had the opportunity to work to emphasize Head Start and other programs that promote education, public safety and the other requisites for giving the residents of distressed areas a real opportunity to join the economic mainstream.
Addressing these problems --education, the inner cities and other matters central to our economic and social well-being --is not in conflict with fiscal discipline. Instead, we must set priorities soundly within a framework of fiscal discipline.
Fourth and finally, we must continue to be deeply engaged in providing leadership on the issues of international economic policy. A successful strategy on these issues to promote American prosperity in the global economy includes three components: first, opening markets and trade liberalization; second, promoting growth and reform in the developing world and transitional countries; and third, dealing with the problems of financial instability and crisis like we are now experiencing. Let me say a word about this last point for a moment.
The current financial crisis may be, in many respects, the most serious global financial crisis of the last fifty years. It has presented two sets of challenges to the international community. The first is to address the current crisis and help the affected countries return to stability and growth and limit contagion. And that is no simple matter. This crisis is a product of problems that developed over many years. There are no magic wands or easy answers and we will have to work our way through this over time. But, in my view, we are on the right track. The key is for all nations --developed and developing --to meet their respective challenges in pursuing sound economic policies, promoting growth, and working together.
There have been some important developments in recent days, which in my view are in part a product of increased energy and greater emphasis on growth stemming from the President's speech on the global economy in New York a few weeks ago, from the G-7 Finance Ministers and Central Bank Governors statement that followed, and from the various international meetings in Washington two weeks ago. The United States, after a year long debate, finally approved funding for the International Monetary Fund, and will continue to pursue fiscal discipline and other policies to promote growth in our nation. Japan has just passed important legislation reforming its banking sector and the key is to implement it quickly and strongly and put in place appropriate fiscal measures that will promote demand-led growth. And Europe seems be on a stronger growth path; the key is for the nations of Europe to move forward on the requisites for strong, sustained growth. For the developing countries, we have seen some signs of progress in nations that have taken ownership of reform. In Korea, short-term interest rates have fallen from 25% to 7% and the currency has substantially strengthened, and Thailand has made similar progress, though clearly there are enormous challenges ahead, in both countries. Recovery will take time, the road may be bumpy, and there are great challenges for all to meet, but, as I said a moment ago, I believe we are on the right track.
The second challenge is to build a new architecture for the international financial system for the 21st century, something which this crisis demonstrates we urgently need. The global economy cannot live with the kinds of vast and systemic disruptions that have occurred over the last year. For better prevention of financial instability, and better response when it does occur, is critical to our ability to maintain and expand the free market system, which has benefitted so many people around the globe.
A critical challenge in our own country is to greatly increase public understanding of the importance to our economic well being of strong U.S. engagement and leadership on the issues of the global economy. Although Congress finally approved funding for the International Monetary Fund today, we are the only major country in arrears to the United Nations, we still lack the authority to negotiate new trade agreements, even though expanding trade is very much in our interest, and protectionist pressure seems to be increasing.
In recent years, we have seen both an erosion of the traditional bipartisan base of support for international economic engagement and, at the same time, a re-ignition of one historical strain in American thought, a rejection of the outside world. This has occurred for at least two reasons: anxiety brought by the rapidity of change in this era of the global economy and dramatic technological developments; and the end of the Cold War, which caused the foreign policy consensus to lose its centerpiece --the effort to contain Communist expansionism.
I am deeply concerned that public support for forward-looking international economic policies may be waning at a time when our country's economic, national security and geopolitical interests require the opposite. Many of your members, including Pete Peterson, have worked hard to address this challenge.
The Concord Coalition has played a crucial role in building understanding of the importance of fiscal discipline. We need a similar effort with respect to the importance of U.S. leadership on the issues of the global economy. I know that this is outside your traditional purview, but it is critical important to our economic well being. All of us --public sector officials, the business community, foreign policy experts --must work together to develop broad-based public support for strong, forward looking American international economic policy. Our success in meeting this critical challenge is imperative as we approach a new century.
Again, I thank you for this honor, and I look forward to working with you in the future.