[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
EVALUATING U.S. CONTRIBUTIONS TO
THE INTERNATIONAL MONETARY FUND
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON MONETARY
POLICY AND TRADE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
APRIL 24, 2013
__________
Printed for the use of the Committee on Financial Services
Serial No. 113-17
U.S. GOVERNMENT PRINTING OFFICE
80-883 PDF WASHINGTON : 2013
HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
GARY G. MILLER, California, Vice MAXINE WATERS, California, Ranking
Chairman Member
SPENCER BACHUS, Alabama, Chairman CAROLYN B. MALONEY, New York
Emeritus NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota DAVID SCOTT, Georgia
KEVIN McCARTHY, California AL GREEN, Texas
STEVAN PEARCE, New Mexico EMANUEL CLEAVER, Missouri
BILL POSEY, Florida GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK, KEITH ELLISON, Minnesota
Pennsylvania ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
Subcommittee on Monetary Policy and Trade
JOHN CAMPBELL, California, Chairman
BILL HUIZENGA, Michigan, Vice WM. LACY CLAY, Missouri, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma GWEN MOORE, Wisconsin
STEVAN PEARCE, New Mexico GARY C. PETERS, Michigan
BILL POSEY, Florida ED PERLMUTTER, Colorado
MICHAEL G. GRIMM, New York BILL FOSTER, Illinois
STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina DANIEL T. KILDEE, Michigan
ROBERT PITTENGER, North Carolina PATRICK MURPHY, Florida
TOM COTTON, Arkansas
C O N T E N T S
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Page
Hearing held on:
April 24, 2013............................................... 1
Appendix:
April 24, 2013............................................... 23
WITNESSES
Wednesday, April 24, 2013
Brainard, Hon. Lael, Under Secretary for International Affairs,
U.S. Department of the Treasury................................ 5
APPENDIX
Prepared statements:
Brainard, Hon. Lael.......................................... 24
Additional Material Submitted for the Record
Clay, Hon. William Lacy:
Letter to Speaker Boehner and Majority Leader Reid from the
Bretton Woods Committee.................................... 28
Letter in support of the IMF legislation..................... 30
Brainard, Hon. Lael:
Written responses to questions submitted by Chairman
Hensarling................................................. 35
Written responses to questions submitted by Representative
Grimm...................................................... 37
Written responses to questions submitted by Representative
Royce...................................................... 41
EVALUATING U.S. CONTRIBUTIONS TO
THE INTERNATIONAL MONETARY FUND
----------
Wednesday, April 24, 2013
U.S. House of Representatives,
Subcommittee on Monetary
Policy and Trade,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2 p.m., in
room 2128, Rayburn House Office Building, Hon. John Campbell
[chairman of the subcommittee] presiding.
Members present: Representatives Campbell, Huizenga,
Pearce, Mulvaney, Pittenger, Cotton; Clay, Peters, Foster, and
Carney.
Also present: Representative Royce.
Chairman Campbell. The Subcommittee on Monetary Policy and
Trade will come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time. And I will note that I am
likely to be declaring a recess because we are estimating that
votes are going to be called between 2:25 and 2:40 p.m.--we
will recess while that vote series goes on. There should be no
more than two or three votes, and then we will reconvene the
hearing after that.
Also, without objection, members of the full Financial
Services Committee who are not members of this subcommittee may
sit on the dais and may participate in today's hearing.
So, with that, I would like to turn to opening statements.
And I will recognize myself for 5 minutes--I won't use all of
it--to recognize Under Secretary Brainard, and to thank you for
being here. It is good to see you this afternoon.
We are here to talk about the International Monetary Fund
(IMF), and the potential transfer of money from the New
Arrangements to Borrow, known as the NAB, to the quota for the
IMF, which is an amount I will call $64 billion, since some
estimate it at $63 billion and others call it $65 billion. So,
I will call it $64 billion. And apparently, the Administration
is interested in this. But today, I think we have a lot of
questions about this. And I don't think that anyone up here, to
my knowledge, has their mind made up one way or the other.
But I do believe that we have a lot of questions. And
amongst them are this is part of an agreement that the
Administration made, it is my understanding, in 2010. But until
the President's budget came out this year, there was never any
formal request for this transfer. So if this agreement was made
in 2010, and if this is a priority for the Administration, why
have there been no other requests, nothing formal about this
for 3 years until today, and even until last month.
And even though there is something within the President's
budget, it could be argued that there still isn't a formal
request, and it could be argued to be a tepid request in one
sort or another.
Other questions that are raised are about why the money
really is necessary: Why does the IMF need to expand the
capital that it has?
The IMF has nearly $400 billion of borrowing capacity
available to it today. Does it really need another $500 billion
when it is not using the $400 billion that it has? And if so,
are there additional amounts that may be needed in the future
beyond that amount as well?
We have to look at all this in the context of our budget,
of the budget of the United States Government. And we all know
we have had a sequester. Some of us were late getting flights
here because of that; whether that is justified or not is a
matter of debate. But certainly the sequester is a matter of
great discussion here in Washington and the Federal budget and
reductions in the Federal budget, et cetera. And although this
is often characterized as an exchange of assets, the United
States' contribution to the International Monetary Fund cannot
be considered as a zero cost or a benign contribution, or
something that has no impact whatsoever on the United States,
on our budget, or on how much money we have to borrow through
Treasury bills in order to finance things.
So I think we have to look at all this in the context of
the other things that we are doing now in the International
Monetary Fund and that we are doing with the U.S. Government as
well.
Further, recently in the continuing resolution, there was
$4.6 billion which wound up being appropriated for the World
Bank. Now, this was an amount which had never been requested,
there had never been a hearing, never any exposure whatsoever.
I still don't even, frankly, know entirely what it is because
it never had any exposure or anything at all to this committee
whatsoever and was merely stuck in by Senate Appropriators in
the continuing resolution and then passed. That is not a
correct way or a good way or a proper way to do this sort of
appropriation, this sort of authorization with this sort of
spending of U.S. taxpayer funds. So I would be remiss if I
didn't mention that seeing that thing go on in the last month
or so has left some of us up here with a not particularly good
taste in our mouth for what exactly are the Administration's
plans and why are they not being as forthcoming and as direct
and as open with those plans as perhaps they could be.
With that, I will now yield 5 minutes to the ranking member
of the subcommittee, the gentleman from Missouri, Mr. Clay.
Mr. Clay. Thank you so much, Mr. Chairman, and thank you
for holding this hearing entitled, ``Evaluating U.S.
Contributions to the International Monetary Fund.''
Also, I want to thank Treasury Under Secretary for
International Affairs Lael Brainard for appearing today to
discuss the President's Fiscal Year 2014 budget request. As we
all know, the IMF was born at the Bretton Woods conference in
1944, post World War II, in the Great Depression, to address
the concerns of allied nations. And the United States in the
Bretton Wood Act requires congressional authorization to change
the U.S. quota or shares in the Fund or for the United States
to vote to amend the Articles of Agreement of the IMF or the
World Bank. The U.S. Congress thus has veto power over major
decisions at both institutions.
Currently, the Administration has requested to authorize
governance reforms at the IMF that increase U.S. quota share by
$63 billion. Quotas are the primary national contribution to
the IMF and are the foundation of country representation at the
IMF. The country's quota determines subscriptions, access to
financing, and voting power. The total of all member countries'
quota subscriptions is $238 billion; special drawing rights,
approximately $376 billion. In regards to voting power at the
IMF, U.S. voting share is 16.75 percent. The United States is
the only country able to unilaterally veto major IMF decisions.
And the functions of the IMF are surveillance of financial
monetary conditions in its member countries in the world
economy, financial assistance to help countries overcome major
balance of payment problems, and technical assistance and
advisory services to member countries.
Due to the recent financial crisis, Congress has become
more aware of world economics. There are many issues that
Congress may want to consider including: should the IMF act as
an international lender of last resort; are the resources of
the IMF sufficient to meet its goal; and how can IMF
surveillance be more effective?
Again, Mr. Chairman, thank you so much for this hearing. I
look forward to the witness' testimony.
Chairman Campbell. Thank you, Mr. Clay.
The gentleman yields back. I now recognize the vice
chairman of the subcommittee, Mr. Huizenga from Michigan, for 5
minutes.
Mr. Huizenga. Thank you, Mr. Chairman, and Ranking Member
Clay as well for holding this hearing today. I know everyone
recognizes the role that the IMF plays as far as global
financial surveillance, technical assistance, and of course, as
we have seen, lending, and a lot of it. And although the IMF
membership is comprised of 188 countries, the United States is
a contributor of about 17 percent of its budget.
There are a lot of us who fear that if there was a European
default of some sort, it would put taxpayers on the hook for
that 17 percent. And, frankly, that is just not acceptable to
me. It is not acceptable to my constituents in the Second
District on the west side of Michigan.
We simply have to look at the record. The IMF is--I would
say most have recognized it as not always having its most
shining moments in most eyes. Sixty-two percent of their total
commitments are currently to Europe as a whole. Despite the
IMF's financial commitments to Europe, obviously stagnation has
continued to constrain the European economy. Optimism that it
was headed toward a recovery has been punctured by continued
struggles in Greece, of course, Cypress, the botched bailout
there, and the court ruling against the austerity measures in
Portugal, and certainly a lot of political pushback on that.
Most everyone believes that Europe certainly has the
capacity and the capability to solve these issues on their own.
But they simply don't seem to be willing to do that. And that
is where I think so many people have that concern.
Every dollar that the Congress sends to the IMF implicitly
expands the IMF's mandates from countries struggling to find
that economic footing to nations in danger of squandering their
inheritance. To be more direct, I believe the use of IMF as a
backstop for advanced European countries calls into question
whether the institution is becoming an enabling crutch instead
of a helping hand for a lot of these countries which have gone
through that.
We simply have to look at what the Netherlands has done,
and some of the other countries, contrasted with some of the
other larger economies; some of those European countries have
definitely put their financial house in order, and others are
refusing to do so.
As we know from our experiences in this country, guarantees
can create moral hazards as well. And even for the most
advanced nations, the freedom to succeed requires the freedom
to fail and to get back up as well.
What I don't understand, and I know the chairman alluded to
this as well, is if this funding is a priority for the
Administration, I am a little surprised and, frankly, a bit
confused as to why it has not been more directly budgeted up to
this point. And we will see what the Under Secretary has to say
as well with this current budget proposal.
But, Mr. Chairman, I appreciate that, and Ranking Member
Clay, I look forward to this discussion. It is a meaningful
conversation on these topics, and I am looking forward to the
responses. So thank you. I yield back.
Chairman Campbell. Thank you. The gentleman yields back.
And now, I will yield 1 minute for an opening statement to
the gentleman from Illinois, Mr. Foster.
Mr. Foster. I hope not to use all of it. I just wanted to
express my gratitude to Under Secretary Brainard for you making
yourself available to me and my staff for a very good
bipartisan meeting where I know that certainly I got all my
questions answered and my staff was also completely satisfied.
So I just want to thank you for really being, to my mind, very
transparent and open about all the details that we had time to
ask you. Thanks so much.
Chairman Campbell. The gentleman yields back. All opening
statements have been completed.
I would now like to welcome our distinguished witness, the
Honorable Lael Brainard, Under Secretary for International
Affairs at the U.S. Department of the Treasury. She served as
Deputy National Economic Advisor and Deputy Assistant to
President Clinton for International Economics; held the
position of vice president and founding director of the Global
Economy and Development program at the Brookings Institution;
is a former associate professor of applied economics at the
Massachusetts Institute of Technology's Sloan School of
Management; and was a former consultant for McKinsey and
Company. She holds a bachelor's degree from Wesleyan
University, and a master's and a Ph.D. from Harvard University
in economics. I am exhausted just reading all that.
But you will be recognized for 5 minutes to give an oral
presentation of your testimony. Without objection, your written
statement will be made a part of the record. I think you know
all this, but on your table, there is a light. It will start
out green. When it turns yellow, you have 1 minute to sum up;
and when it turns red, please suspend. And each member of the
subcommittee will have 5 minutes with which to ask you
questions once your testimony is completed.
Under Secretary Brainard, you are now recognized for 5
minutes.
STATEMENT OF THE HONORABLE LAEL BRAINARD, UNDER SECRETARY FOR
INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY
Ms. Brainard. Chairman Campbell, Ranking Member Clay, and
members of the subcommittee, thank you very much for taking the
time to consider this important issue and for giving me the
opportunity to discuss it with you today. On July 19, 1945, not
far from this room, Congress provided, on a strong bipartisan
basis, overwhelming support for U.S. participation as a
founding member and key architect of the International Monetary
Fund.
Today, the President's budget request for the IMF is vital
to preserve that leadership of the United States in the IMF.
The budget proposal will expand the core quota resources of the
IMF with no net new U.S. financial participation in the IMF,
while preserving the U.S. veto, the only veto, and enhancing
the legitimacy of the institution.
The President's budget includes this commitment in a way
that is fully offset and does not change the net U.S. financial
participation in the IMF. We are open to working with you and
other Members of Congress on any viable option to get this
enacted expeditiously.
Our participation in the IMF is an exchange of equivalent
assets. And our claims on the IMF are fully secure. The IMF has
a strong balance sheet, with a value of reserves and gold
holdings in excess of total credit outstanding. As the world's
preferred creditor, the IMF has an excellent repayment record
with no history of default. The IMF has the unique ability to
leverage strong economic reform conditions as a precondition
for extending credit.
We are the only country with a veto to shape major IMF
governance and resources decisions. We should carefully steward
this privilege, especially as emerging economies, like China,
seek greater influence in the coming years.
Let me touch very briefly on the three ways the IMF
promotes American core interests. First, the IMF is the world's
financial firefighter. When financial conflagrations strike
beyond our shores, the IMF provides firebreaks to limit
contagion, while helping our trading partners stabilize and
heal their economies. By sheltering our economy from headwinds
abroad, the IMF helps to cushion the impact on U.S. jobs,
business investment, and household savings for college and for
retirement.
In Europe, the IMF has encouraged European leaders and the
ECB to put in place a joint strategy backed by a strong
European firewall which has enabled countries undertaking tough
necessary reforms to clean up bank balance sheets and ensure
ample liquidity. The IMF is now calling for a European strategy
to boost demand and combat unemployment, which is important to
our recovery here in the United States.
Second, the Fund's work as peace builder helps prevent and
mitigate the economic stresses that foster instability,
extremism, and violence. In the Middle East, the IMF is helping
to address longstanding impediments to sustainable and
inclusive growth that are essential in securing democratic
transitions in Arab Spring countries, such as Tunisia and
Yemen, and to anchor economic stability in Jordan and Morocco.
The United States has successfully advocated for the IMF to
support spending for poor people in its low-income country
lending arrangements and to eliminate Haiti's entire
outstanding debt to the Fund, following its devastating
earthquake, at no cost to the United States.
Third, and finally, the IMF is a key global economic
standard setter, setting standards for the open-market-based
system of international trade and finance that is core to U.S.
prosperity. When countries join the IMF, they sign up for
important obligations that help maintain open markets and avoid
beggar-thy-neighbor policies. The IMF releases public
assessments of member policy frameworks to strengthen market
discipline. The Fund helps investors better assess risks by
setting international standards for the quality, timeliness,
and consistency of national data reporting. Countries face
censure when they fail to meet those reporting obligations, as
was the case in Argentina recently. G-20 leaders committed to
implement the quota and governance reforms late, by the end of
last year. Today, only U.S. approval is necessary for these
important reforms to go into effect.
The IMF is one of the great triumphs of international
cooperation, forged in the ashes of war in order to strengthen
the foundations of peace. At its founding, the United States
had more influence on the IMF's design and operations than any
other country. Today, it is vital we safeguard that historical
legacy in the face of rapid shifts in the global economy. Thank
you.
[The prepared statement of Under Secretary Brainard can be
found on page 24 of the appendix.]
Chairman Campbell. Thank you, Secretary Brainard.
The Chair recognizes himself for 5 minutes for questioning.
Let's first talk about what this costs. You talked about an
exchange of assets, suggesting that perhaps there is little or
no taxpayer risk or no cost to this. We are not the CBO. But my
understanding is that if we move this $64 billion from the NAB
account to the quota, it requires a quarter of that to be paid
in capital, which actually requires a check from the U.S.
Treasury. Is that inaccurate?
Ms. Brainard. The IMF quota reserve tranche position is an
exchange of assets. So we have a reserve position at the IMF,
which is fully liquid and encashable. It is viewed as a one-
for-one exchange of assets, and has been for the decades that
Congress has supported U.S. participation in the IMF.
Chairman Campbell. Okay. I understand. But we do have to
have 25 percent paid in capital for the quota. I understand
what you are saying, an exchange of assets. But technically, if
I buy this table, it is an exchange of assets, cash for the
table. So every transaction, in a sense, is an exchange of
assets. But we do actually have to send roughly $16 billion
there, which will have to be borrowed. Isn't that correct?
Ms. Brainard. The way it operates is that we have access to
our liquid assets that sit at the IMF. And, in fact, we have
drawn on them in the past. So, in that sense, it really is
truly an exchange of liquid encashable assets. And it is been
viewed for decades by Congress as something that for those
reasons does not warrant outlays.
Chairman Campbell. Okay. I really have a hard time--I guess
it must be this 25 percent paid in capital because you haven't
actually answered that particular question. But assuming that
is correct, it is hard for me to sit here and say, all right,
this is a $64 billion investment that somehow doesn't take any
cash, doesn't take anything, and there is absolutely no risk to
the U.S. taxpayer. Gosh, why don't we send them a trillion
dollars, then? I don't think that is something that passes the
smell test, frankly.
Ms. Brainard. So the way that this has always been treated,
with one exception in 2009, by Congress, is, because it is
quite a unique arrangement, because the IMF reserve tranche of
the United States is a liquid encashable part of our reserves,
it has always been treated as not necessitating outlays of any
kind.
Chairman Campbell. Okay. Let me go on to something else,
then. We may be disagreeing on that.
It is also my understanding that the IMF right now has $400
billion in available lending capacity. I believe with the U.S.
interests and then the other countries' interests, it would
increase their capacity by about another $500 billion. Why does
the IMF need more money to lend when they aren't lending the
money they have?
Ms. Brainard. I would say, first of all, that while this is
a very modest expansion of the overall resources of the Fund,
it is primarily a transfer from the standing backstop, the NAB,
to the core quota resources of the Fund. And we view that as
important because it is in the core quota resources of the Fund
that we have our veto and that is the core central operations
of the IMF.
Chairman Campbell. Okay. But why does it need it there
potentially to loan more? Because there is a different
threshold for loaning money out of the quota than there is out
of the NAB.
Ms. Brainard. For the purposes of the IMF voting shares, of
course, it is the core quota resources of the Fund that we
think are critically important. The second thing you asked
about, the overall size of the Fund, the size of the Fund in
relation to the world economy has actually slipped pretty
considerably from closer to 1 percent of world GDP to
approximately half of a percent of world GDP today. So our
sense is that for the reasons that we all believe strongly,
because the IMF is a crucial financial firefighter that
protects our jobs, because the IMF protects U.S. national
security, and because the IMF helps to ensure open and
transparent international financial markets, we think it is
important that the Fund be adequately resourced relative to the
size of the global economy.
Chairman Campbell. Thank you, Under Secretary Brainard. I
want to keep myself and everybody else on time, if we can.
Mr. Clay is recognized for 5 minutes.
Mr. Clay. Thank you, Mr. Chairman.
Madam Secretary, before I get into the contributions to the
IMF, as you know, our neighbor to the south, Haiti, experienced
a devastating earthquake on January 12, 2010, that killed more
than 300,000 people, left over 1 million homeless, and crippled
the ability of the Haitian government to provide security and
deliver services. In the wake of the disaster, the American
people and the global community rallied in solidarity with the
Haitian people to provide one of the largest relief efforts in
history. As the Center for Economic and Policy Research points
out in a recent report, despite billions of dollars pledged to
build back better in Haiti, more than 350,000 Haitians remain
internally displaced, and it is unclear what sustainable impact
our funds have had. Congress has a responsibility to ensure
that relief and reconstruction funds in Haiti are effectively
spent to maximize long-term impact. Can you tell us about the
status of efforts in Haiti or provide this committee in writing
a report on the progress in Haiti since the disaster?
Ms. Brainard. Let me just speak briefly about the parts of
that effort that Treasury is responsible for overseeing. As you
say, Haiti experienced a devastating earthquake, and there was
strong bipartisan support here in Congress and certainly in the
Administration for helping Haiti to build back better from
that. Through the IMF, that led to full debt relief for Haiti,
which we think was extremely important. Also, through the
multilateral development banks, working hand in hand with our
bilateral assistance windows through the U.S. Agency for
International Development (USAID), we put a great emphasis on
moving quickly to help Haitian families recover and rebuild.
And the Inter-American Development Bank (IDB), in particular,
we were able to secure agreement around debt relief there that
released $200 million annually for 10 years of cash assistance,
of grant assistance to Haiti. And we are in the third year of
that funding today. That funding has gone toward helping to
create more private sector employment, and trying to help
rebuild devastated communities. We are frustrated, as you are,
that those efforts are as difficult as they are, but we are
very committed to continuing the hard work that needs to be
done.
Mr. Clay. Would you be able to supply this committee with
something in writing assessing the progress that has been made
in rebuilding?
Ms. Brainard. I would certainly be happy to do so, again,
with regard to the parts of our assistance efforts for which
Treasury has responsibility.
Mr. Clay. Going back to the budget request, do you believe
that United States involvement is required to help play a role
in balancing the world economy? Just a general question. Let me
hear your thoughts on that, please.
Ms. Brainard. The IMF is absolutely core to advancing
American values and interests around the world. It is designed
in a way that I think gives us disproportionate influence in
the way that countries prevent and respond to financial crises.
And, again, helping sustain the international system of trade
and finance that is so vital to our economic system. I think if
the United States were to walk away from this agreement, it
would lead to other countries finding alternative arrangements
and a devastating loss of U.S. influence in the international
financial system.
Mr. Clay. With the uncertainty of global economic status
and the results of the recent financial crisis, please explain
why the U.S. involvement with the IMF is necessary.
Ms. Brainard. I think it is a illustrative period in
history. In the wake of the financial crisis, which led to
unprecedented collapses in trade around the world, in 2009, the
G-20 leaders came together, and they asked the IMF to do more.
And they had very strong bipartisan support from Congress in
helping ensure that the IMF would have adequate resources to do
that. As a result of the efforts through the IMF and through
the other multilateral development institutions, trade was
restored quickly, financial flows, which were collapsing in
many emerging market countries were reversed--
Chairman Campbell. Secretary Brainard, if I could ask you
to wrap up?
Mr. Clay. My time is up, and I yield back.
Chairman Campbell. The gentleman yields back.
They have called the votes. I think we will do one more set
of questions here, and then we will recess at that time for
this series of votes, and then we will come back and continue
with Mr. Foster.
So, right now, I will recognize the gentleman from
Michigan, Mr. Huizenga, for 5 minutes.
Mr. Huizenga. Thank you, Mr. Chairman.
Under Secretary Brainard, do you believe the IMF has been
successful?
Ms. Brainard. I think the IMF has been successful in
advancing core economic interests and values and that the right
way to assess the value of the IMF is the extent to which we
have seen rapid rebounds from major financial crises abroad and
the extent to which we have managed to shelter jobs and
investment savings here at home from those events.
Mr. Huizenga. And that would be sort of your definition of
success?
Ms. Brainard. We have a broader set of interests. As I
stated earlier, the IMF was critically important, for instance,
when countries like Poland came into the community of market
democracies after many years. The IMF has been extremely
important in helping advance our national security. And today,
it is playing a role helping to provide economic foundations
for the political transitions currently underway in Arab Spring
countries and, of course, again, in helping to ensure an open
international financial and trade system.
Mr. Huizenga. But we know most of their activity is not in
the Arab world, it is not in Haiti, it is not in these other
places. The sixth largest commitments and/or loans that are out
there are Greece, Ireland, Portugal, Mexico, Poland, and
Colombia. You can make the argument that at least four of those
should be able to do this just fine on their own. With Colombia
and Poland, as you point out, there might be some issues.
But I am concerned because it seems to me that their
operations really ought to be grouped, and I think I talked
about this in my opening statement, technical assistance,
surveillance of what is happening, and then the lending part.
So it is one of three. And I think if we look at the
surveillance, with the IMF monitoring the economic and
financial policies of its member countries to identify possible
risks to financial stability and offer advice on policy
adjustments. Just look at Europe. It seems to me that is a
failing grade there.
Technical assistance: The IMF provides technical assistance
and training to help its member countries strengthen their
capacity to design and implement effective policies. And
whether it is assistance in monetary and financial policies,
fiscal policy and management, statistical data compilation,
economic and financial legislation, I haven't seen that out of
there either.
It is the third thing, the lending, that you are pointing
to as the definition of success. And, to me, that is a part of
that definition. It would seem to me that they need to be doing
all of the others. I am sure that they are surveilling this and
monitoring it, but I have not seen much success, by that
definition.
Ms. Brainard. I think it is very important that we do not
define the IMF primarily as a lending institution. It is
extremely important.
Mr. Huizenga. But didn't you just do that?
Ms. Brainard. I believe, in fact, that the emphasis I have
tried to place in the discussion here today, and certainly in
our engagement in the Fund, is very much on the activities of
standards setting and surveillance of implementation of those
standards.
Mr. Huizenga. Have they been successful on that?
Ms. Brainard. Just recently, the IMF censured Argentina for
not releasing public data according to internationally
acceptable standards.
You mentioned commitments to Mexico, Poland, and Colombia.
I think it is important to recognize those are conditional
commitments. And, in fact, none of the three countries has
drawn a cent from those three conditional commitments. They are
really intended as a certification of the really outstanding
policies, economic policies those countries--
Mr. Huizenga. Just a moment. You can't have it both ways.
And here is how you are trying to have it both ways. In this
particular instance, you are saying, well, this really doesn't
cost anything. It is just a commitment. It is really nothing
that needs to be accounted for. Yet we are hearing, from this
request, no, no, we need this additional money in because we
can't subject this to phantom accounting. And it seems to me
that you are being inconsistent on that particular point.
Ms. Brainard. Let me just read you a quote; I think it is a
really good quote: ``The IMF is not foreign aid and the
requested funds are not being given away. We will have
additional drawing rights in that amount from the IMF. The sum
we are asking Congress to approve does not increase our budget.
The IMF and its programs help keep Americans at work.''
That is a quote from President Ronald Reagan in 1983.
The emphasis that we are placing today on the IMF and the
way that we are asking for bipartisan support for this very
important commitment is absolutely consistent with bipartisan
leadership, both in the Executive Branch and in the Congress,
over the many decades the IMF has helped strengthen the world's
economy and our economy.
Chairman Campbell. Thank you, Madam Secretary.
The gentleman from Illinois, Mr. Foster, wants to try and
squeeze in a question before the vote. So I will recognize you
for 5 minutes, and hope you don't take it all.
Mr. Foster. That is my plan. Could you briefly walk us
through the sequence of events that could, in principle, lead
to a taxpayer loss from this commitment and highlight any
differences before and after the proposed transfer from the NAB
to the quota?
Ms. Brainard. Yes. I think the record is pretty compelling
in this regard. Since 1945, there has been no taxpayer loss on
the IMF. The IMF has a very unique balance sheet. The IMF's
reserves and gold outstanding exceed total credit outstanding.
Again, the way this has traditionally always been viewed, and
it is viewed in every other country, is an exchange of assets,
where the U.S. position in the IMF is fully liquid and
encashable. And when the IMF itself--again, we are not exposed
directly to borrowing countries; we are exposed to the balance
sheet of the IMF. But when the IMF extends credit, it is quite
unique in being able to set the policy framework in which the
lending takes place so that there has never been a default on
an IMF--
Mr. Foster. I understand the historical record. But if you
are to be infinitely skeptical, can you define a series of
events, a bunch of unwise lending by the IMF followed by a
sovereign default or whatever it is, what sequence of events
might in principle lead to a taxpayer loss? And would there be
any differences before and after the proposed transfer?
Ms. Brainard. So for all the reasons that I suggested--the
rock solid balance sheet, the nature of our claims--it is very
difficult to specify circumstances under which the U.S.
taxpayer might actually lose money. And, again, these are
commitments that we ourselves have access to in times of
liquidity duress.
With regard to differences, the NAB is a permanent standing
backstop. So, in that sense, it is simply a transfer from one
window of the IMF to another. The only difference in the way
that the two mechanisms operate is that there is a reserve
position associated with a quota. We earn interest on that. It
is part of our set of liquid assets to which we have access.
Mr. Foster. I understand. I was just fishing for any
scenario--so you are saying that there is not any scenario that
you could--
Ms. Brainard. I couldn't rule out hypothetically--
Mr. Foster. Just describe one scenario.
Ms. Brainard. It is difficult because of the number of
safeguards to see that kind of a scenario coming to pass.
Mr. Foster. Okay. Thank you. I yield back. I have to go
vote now.
Chairman Campbell. Thank you, Mr. Foster.
The subcommittee will now be in recess until after these
votes.
[recess].
Chairman Campbell. The subcommittee will reconvene.
I thank Under Secretary Brainard very much for your
indulgence during these votes.
And I will recognize the gentlemen from New Mexico, Mr.
Pearce, for 5 minutes.
Mr. Pearce. Thank you, Mr. Chairman.
And thank you, Madam Secretary, for your presence here
today.
One of the things that I continue to hear no matter who is
testifying about the IMF is that we have never had a bad loan.
Have any of the terms ever been changed on any of the loans?
Ms. Brainard. There has never been a restructuring of the
loans, although, of course, programs do change as macroeconomic
conditions evolve and--
Mr. Pearce. So, you are saying we have never had a change
in loan terms? Have we ever written down any loans?
Ms. Brainard. Loans have not been written down at the IMF.
Mr. Pearce. Okay. And have we ever extended maturity dates?
Ms. Brainard. Normally, what would happen is you might have
a new program coming in, and that would be the more normal way
of doing things at the IMF.
Mr. Pearce. Yes. Since that doesn't translate to New Mexico
talk, I will just say that it sounds like we probably have. And
Christine Lagarde was here sitting out there right where you
are, except it was a very small gathering, kind of intimate,
quiet, after hours, no press, and she said absolutely that loan
terms have been changed, that loan amounts have been written
down, they extended maturity dates, all to avoid default.
And so when I hear that the taxpayers never lost a dime,
that is kind of a curious position, because when I think, has a
taxpayer ever lost a dime, we have never asked for the money
back? And so it is like the money I have loaned my brother
through the years and I never get it back, but I haven't
technically lost it. I suspect I could go and squeeze him and
maybe get part of it, but I can't declare it a loss. And I get
the feeling that our defensible position here is that we have
never asked for money back and so we have never really--we have
put a lot of money in.
So this idea that Greece is going to make good on its
loans, maybe in 100 years, maybe not. They are not paying their
taxes. That is the reason they are having problems.
And my difficulty is I have to go back and explain to
people who make $31,000 a year, on average, in New Mexico--we
are 47th per capita in income--why they are going to pay taxes
to bail out Greece when its own citizens won't pay taxes to
bail out Greece. So, that is a pretty hard sell. And, likewise,
Ireland--go ahead.
Ms. Brainard. I was just going to say, you won't need to
make that sell. The arrangements that we have with the IMF are
with the IMF. And so, in fact, U.S. taxpayers are not making
loans--
Mr. Pearce. That is funny, because I see a $63 billion
request here in the President's budget. Is that correct, that
we are going to send $63 billion? The fact that they may get it
back someday, I might get my money back that I lent to my
family, but maybe not also.
Ms. Brainard. Yes. No, it is not a bank. We have a reserve
position in the IMF. We have a one-for-one exchange of reserve
assets. And, in fact, we have a liquid position in the IMF that
we can and have drawn on, and so it is quite a different kind
of institution.
And the reality is that if every loan from the IMF were to
default tomorrow, the gold and reserves position at the IMF is
more than adequate to completely cover all of that. So it is a
very different kind of institution.
And, again, the history here is that because of the IMF's
preferred creditor position, unique preferred creditor
position, because of the strength of its balance sheet and
because it sets program conditions, we have never had countries
that actually borrow from the IMF default.
Mr. Pearce. If I could reclaim my time--
Ms. Brainard. So it is a very different kind of
institution.
Mr. Pearce. --because it is winding down pretty quickly. I
suspect that if we, the American taxpayer, went back and asked
for our money back, all the money we have sent through the
decades, I suspect that we could not get our money back no
matter how strong the balance sheet is. I suspect--I remember,
in 2008, we were sitting in this body and we were told that we
needed to bail out Fannie Mae and Freddie Mac, that they are
actually pretty solid, but we just need to guarantee those
loans, and if we guarantee them, we won't have to do them. We
are about $200 billion deep into that pool right now. I
remember a firm called AIG. I remember the four rating agencies
and the insurance firms that had less than $1 for every dollar
that they insured, and they collapsed right in front of our
eyes.
And so, when I am telling the New Mexico taxpayer that we
are going to send $63 billion, forget whether they actually are
giving it to them or not, we are going to write a check, and
they wrote a check to make that happen, I have a really hard
time selling that, because they are worried about what we are
going to do in this country to keep us afloat.
Thank you, Mr. Chairman. I yield back.
Chairman Campbell. Thank you.
I now recognize the gentleman from Delaware, Mr. Carney,
for 5 minutes.
Mr. Carney. Thank you, Mr. Chairman.
Thank you, Ms. Brainard, for being here with us today.
I was at that meeting, the informal meeting we had with
Christine Lagarde as well, with the gentleman, Mr. Pearce, and
I remember her saying that the member nations had never
experienced a loss as well, consistent with what you said
today.
But Mr. Pearce asked a pretty relevant question, and that
is, what is the relevance of the IMF to ordinary Americans? I
think you touched on it a little bit in some of your opening
comments, particularly when you talked about it being a
firewall in protecting U.S. commerce and U.S. workers.
Could you talk about that a little bit, why you think that
this investment and our involvement in the IMF is important for
U.S. workers?
Ms. Brainard. I think the history at the IMF has been that
there has been strong bipartisan support from Presidents from
both parties, and Members on both sides of the aisle in
recognition that we created this institution in part because we
thought it was vital to both U.S. national security and
economic interests.
When there are massive financial conflagrations abroad, the
IMFs ability to go in and to create a fire break to help
countries to stabilize their economies and to grow means that
the financial contagion is limited, and as a result, Americans
don't suffer risk to their college savings, and their
retirement savings. Business investment here falls much less
than it would otherwise and our jobs are preserved. And we saw
that in 2009 when Congress had the foresight to support the new
arrangements to borrow, and we have seen that repeatedly in the
Asian financial crisis, in Latin America, with Italy and the
U.K. in the 1970s during the oil crisis.
Mr. Carney. Somebody mentioned earlier today--I think it
was Mr. Huizenga--that the six largest loans were Greece,
Ireland, Portugal, Poland, Colombia, and I don't know what the
others were.
Please briefly comment on the protection that those loans
might be providing for U.S. workers and commerce here in the
United States.
Ms. Brainard. We need to distinguish between Poland,
Mexico, and Colombia, which just have credit lines with the
IMF.
Mr. Carney. Okay.
Ms. Brainard. And, in fact, that reflects their really
outstanding macroeconomic performance. They haven't drawn a
penny from those lines.
In the case of Greece, Portugal, and Ireland, as you will
remember, just as our economy was starting to gain strength,
financial stress in Europe began to transmit to our financial
markets, and we saw that equity values fell, and we saw that
funding markets were also stressed here, until the IMF, working
with the euro area, came in and helped these countries put in
place programs to stabilize their economies.
Mr. Carney. So, in some ways, this is like a hedge against
contagion or against negative impacts on our own economy, which
would affect the men and women in my district who make $40,000,
and the men and women in Mr. Pearce's district and other
districts who make middle-income wages. Would that be your
view?
Ms. Brainard. Exactly. It is a cushion. We help to cushion
our economy from negative impacts from abroad through the IMF.
Mr. Carney. So why is the Administration supporting this
particular change? Could you speak on that briefly?
Ms. Brainard. Yes.
Mr. Carney. My time is running short, but--
Ms. Brainard. This is no net new financial participation on
the part of the United States. We think this is important
because it strengthens the core of the IMF, which is where our
veto sits, and it will help strengthen the core resources of
the IMF and also make sure that our veto remains secure. Again,
we are the only--
Mr. Carney. Does that mean we have more say over what our
funds, what our investments or how our investments are being
used or--
Ms. Brainard. We are the only country in the world that can
veto changes in governance or in resources, the only country in
the world. And secondly, we do have, through the quota,
outsized influence on the policies of the IMF that we, I think,
would see slip away if we did not step up and act.
Mr. Carney. So the consequences of not approving this could
be that we would lose influence or--
Ms. Brainard. Yes. I think the consequences of not going
forward and supporting this change in the IMF, again, no net
new financial participation by the United States, would be to
lead to more arrangements going outside of the quota, the IMF
would spend more time raising bilateral loans from members
that--
Mr. Carney. Where we have less say.
Ms. Brainard. We would absolutely have less say.
Mr. Carney. Thank you very much. My time is up.
Chairman Campbell. Thank you. The gentleman yields back.
Now, I would like to yield for a moment to the ranking
member for a unanimous consent request.
Mr. Clay. Thank you, Mr. Chairman. I ask unanimous consent
to submit into the committee record two letters: one from the
Bretton Woods Committee, with a list of signees; and another
letter stating their support for the Administration's request.
Chairman Campbell. Without objection, it is so ordered.
Now, I yield 5 minutes to Mr. Mulvaney, the gentleman from
South Carolina.
Mr. Mulvaney. Thank you, Mr. Chairman.
Secretary Brainard, I would like to go back to a question
that I thought was well-phrased by my friend, Mr. Foster,
before we took the break, which was, can you foresee
circumstances under which taxpayers would be on the hook for
IMF loans? I think your answer, and I don't want to put words
in your mouth, was that it would be difficult. I would
respectfully suggest to you that doesn't answer the question.
Can you foresee circumstances under which the taxpayer would be
on the hook for these loans?
Ms. Brainard. Again, let me just say if all the credit
outstanding today were to go into default--of course we have
never seen a default--today, the reserves and the gold holdings
of the IMF would be more than sufficient to completely cover
all of those claims. So for that reason, it is extremely hard
to envision circumstances where the U.S. taxpayer would be in
any way at risk. And, in fact, again, the IMF is for us a--we
have a liquid claim on the IMF where if we needed to do so, we
would have access to those resources as well.
Mr. Mulvaney. Okay. Let's move on to another part of your
testimony, which was--and I may have misheard it, so I had them
actually take a look at the transcript during the break,
because either I heard it wrong or you and I are saying
different things about different parts of the IMF, which is
that you said it is in the core resources of the Fund that we
have our veto.
My understanding was that we have a veto on the NAB account
in terms of new activities, activating the account. If we are
going to lend money out of the NAB, we have a veto there, but
that our veto in the quota account, what I think you called the
core account, exists mostly to do with the governance of that
account and the paid-in shares, the quotas, and that a loan out
of the quota account is not subject to our veto. Do I have that
correctly or not?
Ms. Brainard. That is right. Loans from both the NAB and
the IMF are subject to majority votes.
In the case of bilateral loans, however, because we don't
participate in bilateral loans, and as you know, the IMF has
recently amassed $460 billion of bilateral loans, because the
quota had not been fully put in place, we don't have any kind
of veto in that arena of activities.
Mr. Mulvaney. So if we move the $64 billion out of the NAB
account into the core account, what I am calling the quota
account, we would not have veto rights over the subsequent
lending of that $64 billion out of the quota account? Is that a
true statement?
Ms. Brainard. We will have a veto on governance and
resources, but not on each individual loan, as has always been
the case.
Mr. Mulvaney. Right. So if the IMF decides to take the $64
billion, along with all the other contributions from the other
countries under this same program, and lend that out, we will
not have a veto over that particular process?
Ms. Brainard. We will have--that is right. It is a majority
vote. And we have a 17, slightly above 17 percent share on
those. So it is--
Mr. Mulvaney. All right. I want to go to--again, I am
struggling with why we are doing this. I may have just hit upon
it, because now essentially we won't have a veto right over the
loan in the future, but your testimony is interesting. It says
this deal that we are talking about will also allow the United
States to accept an amendment to the IMF articles of agreement
facilitating changes in the composition of the IMF executive
board while preserving a U.S. board seat and veto.
By the way, just coincidentally, this morning Jack Lew said
almost exactly the same thing. He said the legislation will
allow, et cetera, et cetera, preserve the U.S. board seat. He
didn't mention the veto in his testimony this morning.
I ask you, why are we doing this, and why can't we preserve
our U.S. board seat and our veto without doing this?
Ms. Brainard. We will maintain our board seat and our veto,
but we will be the only country not to move forward with an
agreement that we believe to be in the U.S. interest. And we
will, I believe, by doing that, contribute to the erosion of
that core voting arrangement, core resources of the IMF, which
is and has been at the center of the International Monetary
System and--
Mr. Mulvaney. Fair enough. Tell me, then, why--
Ms. Brainard. --will undermine U.S. leadership.
Mr. Mulvaney. And I am sorry to cut you off, but you know
we are under these tight time constraints.
Tell me why it is in our best interest, when we could loan
money directly out of net--we could loan the $64 billion.
Again, I know it is a number that may not be accurate, but we
could loan it out of the NAB. We have done it in the past.
Okay? We could loan it out of there today subject to our veto.
Once we move it into the quota account, we won't have that
veto. Why is it in our interest to move that $64 billion
essentially into an account that we no longer have unilateral
veto over?
Ms. Brainard. I think it is important to say that the veto
that you are talking about, the NAB, is only on activation.
Mr. Mulvaney. Correct.
Ms. Brainard. It is not on--it is not any different in that
sense, then, in the core resources of the Fund. It is only on
activation; it is not on the individual program decisions. So I
think that distinction is not there.
It is in our interest because for us, the quota is the core
governance mechanism of the IMF. The IMF is a quota-based
institution. And to the extent that we want to continue to have
the IMF be at the center of the system and not have our
influence eroded by ad hoc arrangements like bilateral loans,
it is very important for the United States to sustain--
Mr. Mulvaney. But we have made loans out of--
Ms. Brainard. --and support international agreements around
the world.
Mr. Mulvaney. We have made loans out of the NAB account in
the past without running them through the quota account,
correct? That ability is available to us?
Ms. Brainard. The additional piece that I am referring to
is bilateral loans directly to the IMF from other countries
that the United States did not request and is not participating
in.
We think it is very much in our interest to shift back to
the model of the IMF as focused on its core quota resources.
And this agreement will do that, again, at no net new financial
participation on the part of the United States.
Mr. Mulvaney. Thank you.
Chairman Campbell. The gentleman's time has expired.
The gentleman from North Carolina, Mr. Pittenger, is now
recognized for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
Madam Secretary, thank you for being with us. Tell me, in
what developing countries in Africa and also in the Arab world,
Arab Spring countries, has the IMF played a role?
Ms. Brainard. The IMF is very actively engaged with all of
the Arab Spring countries and other important Arab countries in
the region that we think are vital to our strategic interests
and vital to the future stability of that region.
Mr. Pittenger. Could you kindly outline those?
Ms. Brainard. Yes. The IMF has concluded and is currently
active on a very important program with Jordan. The IMF has
negotiated an important program with Morocco. The IMF has
negotiated an important program and is in ongoing discussions
with Tunisia. And, of course, as you know, today discussions
between Egypt and the IMF are ongoing. We think Egypt's
discussions with the IMF are vitally important for successful
transition in that context. And, of course, the same has also
been true in Yemen, where the IMF has negotiated an agreement.
Mr. Pittenger. Madam Secretary, are there political and
governmental structure parameters, philosophies that are
required for IMF funding?
Ms. Brainard. The IMF, when it engages with its members,
focuses on the macroeconomic policy framework, so that they are
generally engaged in designing programs that create investor
confidence, where private sector capital plays the dominant
role. It is also very important that IMF agreements command
broad legitimacy in the system, and so they will often, before
completing a negotiation, make sure that opposition as well as
current government representatives have participated in
discussions so that the conditions of the overall program are
ones that are broadly accepted in society.
Mr. Pittenger. Are American interests part of the purview
of those who represent us in the IMF, particularly as it
relates to any measure or role we play that could also be
counterproductive?
Ms. Brainard. I think the United States has always played,
both directly through its large shareholding position and
indirectly because of our leadership position, an active
engagement with the IMF, a disproportionate role in terms of
where the IMF is active and also how it moves forward, for
instance, ensuring that its programs are broadly legitimate,
that they lead to market-based growth. As I noted earlier, the
IMFs function of ensuring that countries publish accurate,
timely data in accordance with IMF standards is critically
important for investors and for the broader international trade
and financial system. IMF members take on obligations to
maintain open trade accounts and not to engage in beggar-thy-
neighbor policies. And the IMF publishes reports on every
member every year to that set of obligations.
So we believe it is very much advancing our interests, and
so do the many former Treasury Secretaries and Secretaries of
State and Presidents, both Republican and Democratic, who have
testified on behalf of the IMF.
Mr. Pittenger. We have had, I think you would acknowledge,
a history of foreign aid and military assistance that has
ultimately become counterproductive. Would you agree with that?
Ms. Brainard. I think it is important to distinguish--and
earlier I read a quote from Ronald Reagan, who said this even
more directly: The IMF really is not foreign aid.
Mr. Pittenger. I understand that. No. I am just making that
connection.
Ms. Brainard. Yes.
Mr. Pittenger. I am saying we have been proactive in areas,
well-intended, that had incompatible conclusions that were not
what we had purposed to have achieved.
Ms. Brainard. That may well be true. I think with reference
to the IMF and its current programs, again, we have had a great
deal of influence, and we believe that they support our
national interests.
Mr. Pittenger. Thank you.
Chairman Campbell. The gentleman yields back.
And I believe our final person to ask questions--we had
asked unanimous consent earlier for Mr. Royce, who is not a
member of this subcommittee, but is a member of the full House
Financial Services Committee and, more importantly, is the
chairman of the House Foreign Affairs Committee. So Mr. Royce,
the gentleman from California, is recognized for 5 minutes.
Mr. Royce. Chairman Campbell, thank you. Thank you very
much for doing that. And thanks for this hearing.
I did want to ask a question about IMF governance. The
United States has the largest quota at the IMF. We are no
longer the largest IMF contributor, because of the big increase
in bilateral borrowing agreements, but the IMF now has
bilateral agreements with 20 countries, including China,
France, Germany, and Saudi Arabia that exceed $400 billion. And
the continued reliance on borrowed funding has an effect, and
in a way it threatens the long-term legitimacy of the quota-
based IMF.
Many argue that countries with the largest bilateral
agreements with the IMF have the most influence, and the
decisions are being made with those countries behind closed
doors rather than being made transparently at the executive
board.
So I would just ask your view. Do you think that the
bilateral agreements are undermining U.S. influence at the IMF?
Is the United States losing ground on policy issues, such as
how the IMF treats currency manipulation, capital controls,
fiscal policy? That is primarily my interest here.
Ms. Brainard. I will say that I share your concern that if
the IMF were to move in a direction where bilateral loans
became the predominant mechanism for funding, that would be a
concern, and that is the reason we think it is extraordinarily
important to have bipartisan support for the agreement we
negotiated at the IMF, which will put the focus back on the
core quota resources.
The areas that you cited, currency manipulation and capital
markets openness, responsible fiscal policies, those are the
core areas where we think the IMF's influence is extremely
important to us, to our national interests, and we think the
quota-based center of IMF governance should continue to be the
dominant arena, which is, again, why we would like to see
Congress move forward on this.
Mr. Royce. Yes. One of the difficulties is that on these
very issues, we do not necessarily have the same perspective as
those countries with growing influence who have a very
different take on fiscal policy, certainly a different take on
capital controls, right, currency manipulation. In a way, we
have the fox guarding the hen house on some of these issues.
Let me ask you another question, and that is about
alternative institutions that are developing. The Europeans
created the European Financial Stability Facility, and then the
European Stability Mechanism, which have already been tapped by
Cyprus and by Greece, by Ireland and Portugal. Separately, as
an alternative to the World Bank, Brazil, Russia, India, China,
and South Africa are all in joint discussions about creating
their own development bank.
How does the creation of alternative institutions impact
the IMF and the World Bank, and maybe from a perspective of our
global leadership?
Ms. Brainard. I think we are very mindful that these
institutions were created at a moment of unique power and
influence of the United States in the world and the global
economy, and that today, we continue to enjoy privileges that
were associated with our being there as the architect and the
leading proponent of their creation, and we think that it is
extremely central in America's interest to continue making the
IMF and the World Bank the center of the international
financial system.
I would distinguish in the case of the European Stability
Mechanism, that is working hand in glove with the IMF. And, of
course, we encourage the Europeans to be the primary source of
funding to defend their own monetary union. They have the
capacity, and we thought it was extremely important for them to
demonstrate to markets that they were going to stand behind
their monetary union. So the IMF is a minority funding partner
in those programs. It is only about $1 to $5 of European
funding for every $1 of IMF funding, but I will say the IMF is
an equal partner when it comes to design of programs. And we
think that is extremely important.
But I agree with you that as emerging markets talk about
creating alternative financing arrangements completely outside
the purview of the global institutions that we were so central
in creating, it should give us pause, and we should recommit, I
think, to the institutions that we, on a bipartisan basis, have
spent so much time strengthening.
Mr. Royce. Mr. Chairman, if you could indulge me, there is
one thing I don't know the answer to, and I was just going to
ask, do either of those European institutions, those new
institutions, have any access by way of a call on the IMF? Is
there a backstop in any way?
Ms. Brainard. No. The European member states are members of
the IMF in their own right. And then the European Stability
Mechanism and its predecessor were euro-area financed
mechanisms.
Mr. Royce. But neither de facto nor--
Ms. Brainard. There is no direct call on the IMF. And we
would not have supported such a call.
Mr. Royce. Madam Secretary, thank you.
Thank you very much, Mr. Chairman.
Chairman Campbell. Chairman Royce's time has expired.
And so now Mr. Peters, the gentleman from Michigan, is
recognized for 5 minutes.
Mr. Peters. Thank you, Mr. Chairman.
And Under Secretary Brainard, it is nice to have you here
discussing the IMF. I think I have some questions just related
a little bit to the history of the IMF, which will put some
things in perspective for me in my mind as we work through
these issues. And if you would be so kind as to discuss maybe
some of the precedents for Europe and other developed countries
when they had to borrow from the IMF, and particularly in
periods of global crisis?
Ms. Brainard. Yes. As you know, the IMF was originally
created to help strengthen our European partners in the wake of
World War II and to help ensure that they would be strong,
healthy democracies. There is ample precedent for developed
countries drawing on their claims on the IMF. In particular, we
saw that during the 1970s, during a period of balance of
payments difficulties associated with oil price increases.
Mr. Peters. Could you discuss any differences in how--if we
looked back to the fairly recent global crisis in 2008, would
things have played out differently if the IMF were either
undercapitalized or did not exist? What may have been different
in this recent crisis that we unfortunately still remember all
too well?
Ms. Brainard. I think the role of the IMF was
extraordinarily important in the global recovery from the very
severe financial crisis of 2008. As you recall, leaders, G-20
leaders came together in 2009 and agreed to increase the
resources of the IMF by $500 billion. Congress acted very
quickly to support U.S. participation in that. And we saw that
trade and capital flows that had been plummeting turned around
more quickly, we believe, than they would otherwise have done.
And, of course, it is those funds that we are talking about,
taking a portion of those funds from the permanent backstop,
and then transferring them over to the core quota resources
today.
Mr. Peters. You talk about trade picking up much quicker
than it would otherwise. I come from Michigan, and
manufacturing is a big deal in my State, and is certainly a big
deal for the entire country. So can we assume that
manufacturing, which certainly was impacted, would have been
impacted to a considerably greater extent had it not been for
the IMF?
Ms. Brainard. I think there is ample evidence. You saw an
absolute collapse of trade volumes, a collapse of trade
finances. You will recall very sharp reversals of capital flows
from emerging markets that have become important customers of
ours. And, of course, the same has been true more recently with
Europe accounting for 20 percent of U.S. exports and a very
large percent of investment into the United States. Had
financial instability really been uncontained in Europe, I
think it would have led to a much more difficult recovery here
in the United States.
Mr. Peters. It seems to me, too, as I have watched the IMF
and policies here on the Hill over the years, that there has
always been a lot of bipartisan support from Congress and
certainly from Administrations in the White House no matter who
was in the White House, no matter the political party.
Could you discuss--kind of look back a little bit about the
support that the IMF has received from both Republicans and
Democratic Administrations over the last few decades? This has
been one area in which people have come together to support
because folks understand the importance of the IMF to make sure
that the global economy is sound. If you could speak to that, I
would appreciate it.
Ms. Brainard. When the IMF was originally founded, there
were very strong bipartisan votes in both Houses of Congress.
And if you look at the last few capital increases, you have
seen President Reagan successfully coming to Congress with
arguments which are very similar to the ones you have today,
that this is really what protects American jobs. You saw
President George Bush coming in the early 1990s at the time of
transition of the Eastern European economies into market
democracies. More recently, President Bush came to Congress for
a quota reallocation in 2008, and ultimately Congress acted on
that in 2009, along with a request from President Obama, and
then, again, we saw, in 1999, President Clinton. So you can see
there is a track record there of absolutely bipartisan support.
And you will also see that, if you look at President George
Bush back in 1991, the U.S. quota increase for the IMF was
specifically assumed in the budget agreement and does not
require an outlay. This same treatment has been applied by
Presidents on both parties over many decades.
Mr. Peters. Thank you. I yield back.
Chairman Campbell. The gentleman's time has expired.
Seeing no additional Members who wish to speak, I would
like to thank Secretary Brainard for coming and for your
testimony today.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to this witness and to place her responses in the record. Also,
without objection, Members will have 5 legislative days to
submit extraneous materials to the Chair for inclusion in the
record.
And without objection, this hearing is adjourned.
[Whereupon, at 3:54 p.m., the hearing was adjourned.]
A P P E N D I X
April 24, 2013
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