HIGHLIGHTS-Geithner’s testimony to Senate panel

(Adds Geithner on investor confidence in the U.S.)

WASHINGTON, March 3 (Reuters) – The following are highlights from testimony
by Treasury Secretary Timothy Geithner on Thursday before the Senate Foreign
Relations Committee on turbulence in the global economy and implications for
the United States.

For a story on Geithner’s testimony, please see [ID:nN03270497]

GEITHNER ON LOW RATES REFLECTING CONFIDENCE IN U.S.:

“If you look at the price we pay to borrow, for example, it is a measure,
in some sense, of confidence in our political will to get ahead of these
problems. And so far we have been able to sustain relatively modest rates for
borrowing. That is a reflection of that confidence. But again, that is
something we have to earn. People are watching us now.”

GEITHNER ON REBALANCING GLOBAL ECONOMY:

“China understands they can no longer depend on demand from United States
consumption being such a substantial contributor to growth. So, they have no
alternative but to shift their growth strategy to a growth strategy that relies
more on domestic demand.

“They are moving in that direction but it can’t happen unless they let
their exchange rate move too. If they don’t let their exchange rate move, it
will work against that imperative in rebalancing. It is not just China, it
requires a bunch of other countries that traditionally run large surpluses to
make those same changes.”

GEITHNER ON RISK TO THE DOLLAR:

“I see no erosion in that and no material risk to erosion in that. Unless
of course, over a long period of time, we are unable as a country to put in
place reforms, not just from the fiscal side, but more generally, that sustain
confidence in American financial leadership. That is the only risk to the role
of the dollar. There is no risk to the dollar’s role that we don’t … control
in some sense.”

GEITHNER ON APPRECIATION OF CHINA’S YUAN:

“It is essential for China that they move. If they do not move they will
face the risk of much more rapid inflation, much more risk of financial crises.
That is why they are beginning to adjust now. They have not moved that far yet
… in real terms against the dollar the currency is now moving at an annual
rate of 10 percent a year.

“(The yuan) is still undervalued substantially, they have not moved very
much yet. (But) we want this to be sustained over time, and we are going to
continue to use every tool of persuasion we have directly and multilaterally to
encourage them to move more quickly.

“It is inevitable it is going to happen. It is either going to happen
through more rapid inflation, in which case in real terms it is moving in our
direction, or it will happen because the exchange rate appreciates more
rapidly. But the real annual rate against the dollar is north of 10 percent a
year. If that were sustained that is a huge shift over time.”

GEITHNER ON BUILDING CLOSER TIES WITH BRAZIL:

“(Brazil’s new president) has made it clear to the United States that she
is looking for ways to build a closer relationship, not just economically but
also strategically, and we want to take advantage of that.

“We see enormous opportunity in a whole range of economic issues to build a
closer relationship.”

GEITHNER ON BUDGET CUTS TO TREASURY INT’L PROGRAMS:

“If we are unable to deliver on the commitments we made as a country…
then we face the following types of consequences across these institutions.

“In Asia, it means we fall even further behind… we cede more influence to
China, we lose our capacity to veto core decisions. That would be hugely
damaging to the United States.

“We need to look beyond that to the cost of further erosion of our
position in the World Bank or stopping the Inter-American Development Bank from
going forward.”

“The ranking member referred to the deep economic stake we have in Latin
America today as their economy expands; (there is a) huge economic stake for us
in being part of the expansion.

GEITHNER ON SEIZURE OF LIBYAN ASSETS:

“Thus far, we’ve found and seized almost $32 billion in assets — $30
billion initially, and we found another $1.9 (billion) just in the last couple
of days. This is the most effective and the quickest and the most forceful use
of our authorities under the … International Emergency Powers Act that we’ve
ever done. I want to just emphasize our commitment to make sure that we’re
working with counties around the world to help make sure this broader effort
has as much force as possible.”

(Washington newsroom 1-202-898-6310)