By Donald A. Hilger
On Behalf of the
North American Export Grain
Committee on Banking and
U.S. House of Representatives
Asian Financial Crisis
February 3, 1998
Mr. Chairman and members of the Committee, I am pleased to appear before you today on behalf of the North American Export Grain Association to outline the significance of trade with Asia for American agriculture. My name is Don Hilger. I am an assistant vice president of Cargill, Incorporated, based in Minneapolis. The perspective I offer has been gained from my position as senior economist for Cargill's Grain Division.
NAEGA was established in 1912. It represents the companies and cooperatives that are the leading exporters of U.S. grains and oilseeds to customers around the world.
NAEGA supports authorizing $3.5 billion for the new account for New Arrangements to Borrow and $14.5 billion to cover the U.S. share of the international quota increase to replenish funding for the International Monetary Fund. Both are necessary to meet the demands of the current financial crisis in Asia. We urge the Congress to approve both tranches of funding promptly, without U.S. conditions, to deal with the immediate situation Asia and the world economies face from the current financial crisis. For the long term, Asian, and indeed global, economic growth and stability will come from the commercial ties and competitive disciplines emanating from trade liberalization. There is no getting around the absolute need for the United States to be fully engaged and providing leadership in regional and multilateral trade negotiations. That requires the approval of fast track negotiating authorities by this Congress. NAEGA urges the passage of fast track as soon as possible.
Financial panic and currency devaluations have cast a heavy shadow over Asia and clouded the economic and political outlook for a number of countries. At the minimum, the stalling of the tremendous Asian economic engine will slow Asia's growth and affect the global economy for the immediate future. Just how much and how long this uncertain period will last will be shaped to a large degree by the package of financial carrots and sticks extended by the IMF, and affected by the speed and level at which the IMF program is implemented.
The members of NAEGA provide many of the linkages between Asian consumers and American agriculture. As traders of grains and oilseeds to Asia and the rest of the world, we believe in the market system. We understand the concerns that arise from the appearance that IMF funding would bail out foreign creditors and banks that repeatedly refused to take well-founded advice to open markets and correct economic systems. It is difficult to accept that the assistance we are advocating may help foreign competitors get back on their feet. If the market is truly to work, these businesses ought to be closed and banks ought to fail and eventually, everything will sort itself out. As James Glassman quoted economist Allan Meltzer recently. "Capitalism without failure is like religion without sin."
But that is not the approach that the United States took here at home a few years ago. The same causes said to be behind the Asian crisis -- unwise investment, bad debts, cozy arrangements between borrowers and banks, and the lack of transparency without diligent financial regulation and oversight -- were used to explain our own massive savings and loan crisis. In that case, the choice was made to stop the spread of the crisis, just as the IMF is seeking to restore order in the Asia region and stem any further upheaval. We recognized then that there may be other ways to effect needed change that do not require millions of innocent people to suffer wrenching unemployment, dislocation and hunger.
Acting affirmatively and expeditiously to contribute to this effort also is in our own interest. Asia is a major customer for U.S. food, fiber and forestry products. In fact, it is the largest single market for American farm goods, accounting for 40 percent of total U.S. agricultural exports. The Asian market has been the fastest growing for U.S. agriculture.
Behind that rate of growth are a number of factors. Asia is more densely populated than other continents, and its population is growing faster. Asia has experienced tremendous economic growth in recent years, and its people have followed the same path followed by hundreds of millions of others acquiring income: they improve their diets. Asia must rely to a larger degree on trade to supply more and better quality foods; land, water and other resources needed to produce additional food aren't readily available in many Asian countries.
With currency instability and devaluation, American agricultural exports to Asia have slowed in recent months. When currencies are in a free-fall, it is impossible for buyers to open the letters of credit that sustain regular commerce. Once currencies are stabilized, but with buying power reduced by as much as 40 to 70 percent in devaluation, buyers generally must reduce their reliance on imports.
Just what does that mean for U.S. agricultural exports to the hardest-hit Asian countries? We already are feeling a slow-down in exports, but the effects in agriculture may not be as great as other exporting sectors will face. In the countries where financial problems are concentrated, we are likely to see a reduction in higher value agricultural exports -- in other words, we may export less processed foods, meats, fruits and vegetables. However, reliance on basic U.S. agricultural products is strong in these countries where grains, oilseeds, cotton and hides are staples or inputs to manufactured goods. Despite the financial crisis, there will continue to be imports of vital goods to maintain food supplies and to keep industries running. Trade, facilitated by the extension of USDA GSM credit guarantees, is resuming as IMF programs take hold.
That fact raises an important point about food trade and its role in developing secure and long-lasting relations with many Asian nations. Efficient food trade is a key to the advancement of developing countries in Asia and elsewhere in the world. In the developing world, people must spend the majority of their incomes for food. When they can obtain food more efficiently, more income is freed up for other purposes -- educating children, acquiring medical care, raising standards of living, protecting resources and generating wealth. In other words, agriculture is a primary building block of an economy.
In recognition of that, the U.S. National Center for APEC has launched an initiative called the "Open APEC Food System." If realized, this system may "achieve the most efficient, cooperative, reliable safe, secure and sustainable food supply to all of APEC." I ask that a copy of the National Center's proposal be included in the record.
Prompt IMF funding is strategic to a broad initiative that can build and maintain long-lasting relations between the United States and Asia. No other institution can play the role that the IMF must in this crisis to end the downward economic spiral and to achieve the reforms that will strengthen the economies of affected Asian countries. The agreements the IMF has achieved in recent weeks appear to address cronyism, to open economies for competition, and to meet a number of liberalization goals that U.S. companies have been seeking for years. We believe that progress should not be encumbered with conditional funding from United States.
But IMF funding is only the first step. Unless it is followed with the more important initiative of trade reform, the United States will not reap as many of the benefits accruing from the IMF program as will our competitors who are committed and active in trade negotiations. Let us be clear about this: as other nations conclude free trade agreements among themselves, U.S. products become less competitive in those markets. To the extent that we exclude ourselves from participating in the formulation of new trade agreements, U.S. priorities -- such as our efforts to lower trade barriers, rely on sound science to guide health and safety regulations, end market distortions and apply the principles of fair commercial trade -- are placed at risk.
NAEGA members strongly urge you to match IMF funding with prompt approval for the United States to enter and provide leadership in specific trade liberalization efforts. Like our colleagues at the witness table today, we support broad, clean fast track authorities. Very simply, U.S. leadership at the negotiating tables where the rules of trade are to be defined is critical to American agriculture being able to compete and prosper in the years ahead.