[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]





                    THE IMPACT OF THE INTERNATIONAL
                   MONETARY FUND: ECONOMIC STABILITY
                            OR MORAL HAZARD?

=======================================================================

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 17, 2015

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-35
                           
                           
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
               Subcommittee on Monetary Policy and Trade

                   BILL HUIZENGA, Michigan, Chairman

MICK MULVANEY, South Carolina, Vice  GWEN MOORE, Wisconsin, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             BILL FOSTER, Illinois
STEVAN PEARCE, New Mexico            ED PERLMUTTER, Colorado
BILL POSEY, Florida                  JAMES A. HIMES, Connecticut
LYNN A. WESTMORELAND, Georgia        JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
ROBERT PITTENGER, North Carolina     PATRICK MURPHY, Florida
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
DAVID SCHWEIKERT, Arizona            DENNY HECK, Washington
FRANK GUINTA, New Hampshire
MIA LOVE, Utah
TOM EMMER, Minnesota

















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 17, 2015................................................     1
Appendix:
    June 17, 2015................................................    33

                               WITNESSES
                        Wednesday, June 17, 2015

Lowery, Clay, Vice President, Rock Creek Global Advisors LLC.....     3
Lundsager, Meg, Public Policy Fellow, Woodrow Wilson 
  International Center for Scholars..............................     5
Taylor, John B., Mary and Robert Raymond Professor of Economics, 
  Stanford University............................................     7

                                APPENDIX

Prepared statements:
    Lowery, Clay.................................................    34
    Lundsager, Meg...............................................    40
    Taylor, John B...............................................    45

 
                    THE IMPACT OF THE INTERNATIONAL
                   MONETARY FUND: ECONOMIC STABILITY
                            OR MORAL HAZARD?

                              ----------                              


                        Wednesday, June 17, 2015

             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 2:04 p.m., in 
room 2128, Rayburn House Office Building, Hon. Bill Huizenga 
[chairman of the subcommittee] presiding.
    Members present: Representatives Huizenga, Mulvaney, Lucas, 
Pearce, Pittenger, Emmer; Moore, Kildee, and Heck.
    Chairman Huizenga. This hearing of the Subcommittee on 
Monetary Policy and Trade will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. And I will note that we 
have been told to expect votes sometime between 3:15 and 3:45.
    Today's hearing is entitled, ``The Impact of the 
International Monetary Fund: Economic Stability or Moral 
Hazard?''
    And I now recognize myself for as much time as I may 
consume to give an opening statement.
    Today, we will examine closely U.S. contributions to the 
International Monetary Fund (IMF), and the role that the IMF 
plays in terms of global financial surveillance, technical 
assistance, and, of course, lending.
    Although the IMF membership is comprised of 188 countries, 
today the United States is the biggest contributor to the IMF, 
accounting for more than 17 percent of its quota resources. If 
a major default were to occur, it could put U.S. taxpayers on 
the hook for billions of dollars.
    Since the global financial crisis of 2008, there has been 
an increased attention on the IMF's activities and the role in 
the global economy. In recent years, the IMF has bent the rules 
multiple times as it relates to exceptional access.
    The most egregious was the loan to Greece, which was 3,212 
percent of Greece's quota, I will note, well above any of those 
quota norms. We wouldn't let a bank in this country make a loan 
this exorbitant in nature. So why does the IMF believe American 
taxpayers should back a loan that, by our Nation's standards, 
should not have been made in the first place?
    The 2009 Congress authorized a $100 billion commitment to 
the IMF in an account called, ``New Arrangements to Borrow 
(NAB).'' For the past 5 years, the Obama Administration has 
requested $63 billion of that authorization to be transferred 
to a permanent paid-in capital account. This would still leave 
billions in the NAB account, even though the NAB account is 
supposed to only be temporary.
    Now, why should hardworking taxpayers' dollars be used to 
bail out other countries, especially after suffering from 
bailout fatigue in our own backyard? If you will recall, the 
American taxpayers were forced to bail out such entities as 
Fannie Mae, Freddie Mac, and the Federal Housing Authority.
    Instead of furthering the bailout culture, wouldn't it make 
more sense for the United States to encourage advanced nations 
receiving loans from the IMF to better manage their spending 
and borrowing?
    Currently, every dollar that Congress sends to the IMF 
implicitly condones the IMF sending money from countries 
struggling to find their economic footing to nations in danger 
of squandering their inheritance.
    To be more direct, the use of the IMF as a backstop for 
advanced European countries calls into question, in my mind, 
whether this institution has become an enabling crutch instead 
of a helping hand.
    As we know from our experiences in this country, guarantees 
in bailouts can create moral hazards. Even for the most 
advanced nations, the freedom to succeed requires the freedom 
to fall and get back up again.
    I look forward to a meaningful discussion on the 
International Monetary Fund, and I look forward to hearing from 
our witnesses today.
    With that, I yield back the balance of my time.
    I will now recognize my ranking member, Ms. Moore from 
Wisconsin.
    Ms. Moore. Thank you so much, Mr. Chairman. And I want to 
thank you for calling this hearing. It is a very important 
hearing, and it is a subject that certainly deserves 
congressional attention.
    We are increasingly in a global world, for all that means, 
good and bad. And so I think the importance of the mission of 
the IMF has only been elevated. From the onset, let me say that 
I think that the United States Congress needs to immediately 
move to ratify the new IMF quota system. There is broad 
agreement that it is the rational move, and it has been agreed 
to.
    U.S. leadership and engagement in economic policy is vital 
in the long-term interest of our country. Global economic 
stability is, as we all know, smart geopolitics. Our borders 
are no longer a guarantee that what happens in far-off lands 
does not impact our shores economically or otherwise. Congress' 
lack of action has hurt U.S. standing internationally.
    Further delay makes even less sense as China moves to fill 
the vacuum created by the lack of action by this Congress. I 
know that one of our witnesses wants to tie approval of the 
quota system to other IMF reforms, and I respectfully disagree 
on that point and welcome the engagement on that, while being 
entirely open to considering the case for IMF reforms, but not 
necessarily to making approval of the quota system contingent 
on acceptance of these yet-to-be-debated reforms.
    First, time is of the essence, given the delay we have 
already seen. And, second, I think it would be an act of bad 
faith to hold this agreed-to quota realignment hostage to 
unspecified secondary demands.
    Finally, I want to say that I think that the U.S. Federal 
Reserve, the Treasury, and the Financial Stability Oversight 
Council are great, but I think that the IMF remains an 
important second set of eyes in global stability. And I think 
that the advice and stability role that they fill provides a 
valuable service to the United States and to the world.
    And, Mr. Chairman, I yield back.
    Chairman Huizenga. The gentlelady yields back.
    With that, we are going to start with our testimony. The 
order here will be Mr. Lowery, Ms. Lundsager, and then Mr. 
Taylor.
    Clay Lowery, who is the vice president of Rock Creek Global 
Advisors, joins us today. He had served as the Assistant 
Secretary for International Affairs at the Treasury Department 
from 2005 to 2009.
    And currently, with Rock Creek Global Advisors, he consults 
on sovereign debt, exchange rates, investment policy, and 
financial regulation. He is currently advising multi-national 
companies and financial institutions and trade associations on 
these matters.
    So with that, Mr. Lowery, we appreciate you being here and 
recognize you for 5 minutes.

  STATEMENT OF CLAY LOWERY, VICE PRESIDENT, ROCK CREEK GLOBAL 
                          ADVISORS LLC

    Mr. Lowery. Thank you very much, Chairman Huizenga and 
Ranking Member Moore, as well as the other members of the 
subcommittee. I want to thank you for this opportunity to 
testify on the IMF.
    I am honored to be testifying alongside John Taylor, who is 
not only my former boss, but he is one of the most important 
macroeconomic thinkers in the United States, as well as with 
Meg Lundsager, who is a long-term colleague who is very deeply 
knowledgeable about the IMF.
    The IMF promotes three objectives--macroeconomic stability, 
financial stability, and economic growth--using three basic 
tools: technical assistance; surveillance; or basically, 
evaluation of a country's financial policies and economic 
policies and lending.
    When the IMF lends money, the country is usually in very 
deep financial trouble. To protect itself from this highly 
risky form of lending, the IMF relies on two things: one, a 
presumption that its credits are senior to other credits: and 
two, a requirement that the borrowing country undertake reforms 
to alleviate the concerns of throwing good money after bad. As 
you can imagine, these things can be controversial, as we are 
currently seeing in Greece.
    The IMF finances itself through contributions by member 
countries, which are called quota. That takes into account a 
country's relative economic size. So, for instance, instead of 
being one country, one vote, as is the case in many 
international institutions, the United States has roughly 17 
percent of the voting share. No other country is even close. 
Japan is second, with around 6 percent.
    The IMF has evolved over the last 70 years, but one area 
that has harmed it in its legitimacy and its relevance is a 
representation structure that no longer fit the international 
economy.
    And so from 2005 through 2010, both in the Bush 
Administration and the Obama Administration, the United States 
led an effort to try to fix this problem. The 2010 agreement is 
the culmination of these efforts.
    First, it alters the voting wage to make adjustments so 
that countries such as China and Mexico and Korea will see 
their votes increase noticeably while others will fall. The 
United States will basically stay the same.
    Second, it alters how voting shares are translated into 
board seats. There are 188 members in the IMF, but only 24 
board seats. Europe disproportionately holds too many seats. 
After the reform package is put together, we will see that 
dynamic emerging market countries will have more seats, Europe 
will have less seats, and the United States will still have its 
seat.
    The quota reform also doubles IMF quota resources, as the 
chairman noted. It does this by reallocating money from an 
emergency pot of money called the ``New Arrangements to 
Borrow'' to the normal IMF pool of money based on quota 
allocation.
    For the United States, we will not increase our total 
contribution to the IMF, but instead will transfer a portion of 
our NAB contribution to quota resources. This allocation 
requires authorization and appropriations from Congress. To 
date, every major country has ratified this reform package 
except for the United States.
    So there are many economic and financial reasons for why we 
should support the United States, and it is probably not 
surprising to you that every Secretary of the Treasury, most 
U.S. Trade Representatives, and the Federal Reserve Chairmen 
since the Carter Administration have supported this IMF reform 
package.
    But maybe, just as importantly, the IMF is a foreign policy 
tool that the United States has called upon many times to 
provide finance and advice, whether it was South Korea in the 
1990s, Afghanistan and Iraq in the 2000 period, or Ukraine 
today. But I can provide you a more personal example of this.
    In 2008, I worked for many hours with the Prime Minister of 
Georgia after his country was invaded by Russia. He was worried 
about a banking crisis, and he was looking for liquidity.
    While the United States was very supportive of Georgia, we 
were in the midst of our own financial crisis in 2008 and were 
not in a position to provide emergency liquidity. Instead, we 
worked with the IMF, which stepped up very quickly to provide 
the financing Georgia needed to preserve confidence in its 
banking system and save its economy.
    In other words, the IMF is an important tool to conduct 
strong foreign policy and to provide the conditions that assist 
in keeping our troops out of harm's way. Don't take my word for 
it.
    Most of the Secretaries of Defense, National Security 
Advisors, and Secretaries of State from President Nixon through 
President Obama have supported the legislative request of this 
Administration. They recognize that U.S. leadership in the IMF 
is not only vital to the institution, but also important to our 
own national security interests.
    The IMF is far from perfect and will continue to need U.S. 
leadership to reform and evolve. However, U.S. leadership 
cannot occur from the sidelines and must come in the form of 
strong legislation with appropriate conditions.
    Therefore, I ask that Congress work with the Administration 
and join what I believe is a strong bipartisan consensus and 
demonstrate this leadership.
    Thank you. I am happy to answer any questions.
    [The prepared statement of Mr. Lowery can be found on page 
34 of the appendix.]
    Chairman Huizenga. Thank you, Mr. Lowery.
    With that, we will go to Ms. Meg Lundsager. She is a public 
policy fellow at the Woodrow Wilson International Center for 
Scholars, and she currently consults on international economic, 
financial, and regulatory issues.
    And while the United States Executive Director on the IMF 
executive board from 2007 through 2014, she focused on 
achieving effective IMF input into lending programs in Europe, 
securing adequate IMF resources, supporting low-income 
countries, and strengthening IMM oversight of exchange rate 
policies.
    And with that, Ms. Lundsager, we appreciate you being here 
and recognize you for 5 minutes.

   STATEMENT OF MEG LUNDSAGER, PUBLIC POLICY FELLOW, WOODROW 
            WILSON INTERNATIONAL CENTER FOR SCHOLARS

    Ms. Lundsager. Thank you, Chairman Huizenga, Ranking Member 
Moore, and members of the subcommittee for inviting me today.
    During my 14 years with the IMF, I represented three 
Presidents. I was nominated first by President Clinton, then by 
President Bush, and I continued to serve under President Obama. 
I am currently a public policy fellow, and I should just note 
that my views today are my own and not those of the Wilson 
Center.
    During the global financial crisis, the IMF was 
instrumental in helping many countries recover and return to 
private market financing. The IMF draws on many members to 
provide financing, keeping the U.S. share a little bit above 20 
percent, as Mr. Lowery was just describing.
    Nonetheless, U.S. leadership was crucial to bringing 
together all the elements needed for the IMF's international 
response, but that leadership is eroding as the United States 
delays approving the 2010 quota and governance reforms.
    The United States has the largest single country vote in 
the IMF with a veto over key decisions, such as amending the 
articles and increasing IMF financing. This current voting 
structure, though, doesn't really represent the rapid growth 
and emerging markets in developing countries. So we have 
Belgium with a larger vote in South Korea, Mexico, or Turkey. 
That is quite anomalous.
    The United States recognizes distribution of voting power 
threatens to undermine the legitimacy of the International 
Monetary Fund, and beginning in 2006 the Bush Administration 
proposed steps to realign quotas. And in 2010, IMF members 
reached a broader agreement, which now awaits U.S. approval.
    Today's hearing presents an opportunity to clarify the 
elements of the 2010 package, and I have provided many details 
in my written statement.
    First, the U.S. share will remain comfortably above the 15 
percent veto threshold. And, as you, Mr. Chairman, and Mr. 
Lowery explained, there is no change in the U.S. financial 
commitment with the shift coming from the New Arrangements to 
Borrow and being shifted to the quota.
    But Europe's voting share will decline and dynamic emerging 
market share will increase. These changes should help keep 
global economic policymaking centered in the IMF, and key U.S. 
allies will gain, including Mexico, South Korea, Poland, and 
the Baltic nations.
    Second, some claim the IMF should not have rescued Eurozone 
countries. But without the IMF as the crisis manager in Europe, 
I believe we risked a dissolution of the Eurozone, which would 
have reduced U.S. exports and increased the risk of European 
bank failures, ultimately affecting U.S. financial institutions 
and corporations as well as our stock and bond markets. The 
U.S. economic recovery would have been undercut.
    Did the IMF's ability to lend large amounts incentivize 
Eurozone countries to mismanage their finances and slide into 
crisis? That hardly seems likely, as evidenced by the very 
demanding policy adjustment programs they have had to 
implement. Countries avoid turning to the IMF until no other 
option remains. And while some investors might seek high 
returns in higher-risk countries, thinking that IMF will 
finance their exit, those illusions should be dissipating as 
some countries resort to capital controls and others turn to 
debt restructurings.
    Third, over the many decades of the IMF's existence, U.S. 
leadership and ideas has persuaded others to join in promoting 
reforms. The United States has been a leading voice for 
accountability, transparency, and change both at the 
institution itself and within member countries.
    U.S. initiatives at the IMF have led to much more openness 
in government accounts, sounder financial institutions as 
countries improve regulatory oversight, reductions in the 
financing channels for money launderers and terrorists, and 
improved economic growth and stability in low-income countries.
    Furthermore, important U.S. national security priorities 
were supported by IMF lending programs and technical assistance 
for Iraq, Afghanistan, Tunisia, and Jordan, among others.
    More recently, the IMF responded to U.S. calls to increase 
support for the Ebola-affected countries in Western Africa and 
to underpin economic reforms in Ukraine with vital financing in 
the face of internal conflict and Russian economic pressure.
    Sadly, U.S. leadership continues to erode as the United 
States delays approval of these reforms. In my last months at 
the IMF, it became increasingly clear that other countries had 
little enthusiasm for U.S. proposals such as extending the zero 
percent interest on low-income country loans.
    Let me just turn to a key financing issue. The IMF has a 
backstop of numerous bilateral loan agreements with a subset of 
nations. I fear that, if the United States does not ratify the 
2010 reform, strengthening the IMF core capital, the IMF will 
continue to seek bilateral loans negotiated with less 
transparency and without U.S. involvement. These decisions 
should be made around the board table with all of us there.
    Thank you very much, Mr. Chairman. And I look forward to 
your questions.
    [The prepared statement of Ms. Lundsager can be found on 
page 40 of the appendix.]
    Chairman Huizenga. Thank you.
    And, with that, we turn to Professor John Taylor. Professor 
Taylor has a very long and impressive career, including 
authoring many books and articles. He is currently the Mary and 
Robert Raymond Professor of Economics at Sanford University and 
the George P. Shultz Senior Fellow in Economics at the Hoover 
Institute.
    He is known for his research on foundations on monetary 
theory and policy, which is applied by central banks and 
financial market analysts around the world.
    And specifically related to this, for 4 years, between 2001 
and 2005, Professor Taylor served as the Under Secretary of 
Treasury for International Affairs, where he was responsible 
for currency markets, trades and financial services, foreign 
investment, and also the IMF and the World Bank.
    We welcome you, Dr. Taylor, again to this committee. You 
are recognized for 5 minutes for your opening statement.

STATEMENT OF JOHN B. TAYLOR, MARY AND ROBERT RAYMOND PROFESSOR 
               OF ECONOMICS, STANFORD UNIVERSITY

    Mr. Taylor. Thank you, Mr. Chairman, Ranking Member Moore, 
and members of the subcommittee.
    For the IMF to achieve the goals that Clay Lowery 
mentioned, such as economic stability, it really has to have a 
clear and predictable framework or strategy for carrying out 
its goal. Otherwise, decisions become highly uncertain. They 
lead to excessive risk taking and international spillovers. I 
think a framework like that also provides for transparency and 
accountability.
    A number of years ago, such a framework, called the 
``exceptional access framework,'' was adopted by the IMF. It 
set forth criteria that had to be met before the IMF could lend 
exceptionally large amounts to countries. The most important 
criterion said that the IMF could not make new loans to 
countries with unsustainable debts.
    The expectation was that this way of limiting loans would 
reduce bailouts of the private sector, contain moral hazard, 
lower uncertainty, reduce the recipient country's debt burden, 
encourage more responsible fiscal and monetary policy, reduce 
spillovers, improve accountability, and, therefore, create more 
economic stability.
    And, in fact, the introduction of this framework was 
accompanied by many such changes. Compared with the 1980s and 
1990s, there were a few crises emanating from the emerging 
markets in the years that followed and emerging market 
countries weathered the global financial crisis remarkably well 
and economic policy in those countries generally improved.
    Unfortunately, this exceptional access framework is no 
longer in place. It was abandoned in 2010, when the Greek 
sovereign debt crisis emerged, and the IMF staff could not 
establish that the Greek debt was sustainable with high 
probability.
    So the IMF simply changed the rule. It wrote in an 
exemption saying that new loans could be made in unsustainable 
situations so long as there was a ``high risk of international 
systemic spillover.'' That exemption is still in place.
    As is well known, events in Greece following the 2010 
decision have not been pleasant. And it is time, in my view, to 
reform and strengthen that exceptional access framework. A 
starting place would simply be to repeal the exemption for 
systemic risk. That exemption is the problem, not the solution. 
I have found much support for this kind of reform in the 
international community, including at the IMF.
    Importantly for the Congress, this reform is closely 
related to the quota and voting reallocation agreement that Meg 
and Clay just mentioned, which was negotiated way back in 2010.
    This agreement would sensibly reallocate voting shares to 
give more votes to countries that have grown more rapidly. It 
would also increase the total quota commitment to the IMF. The 
main rationale for that increase is that the global economy and 
capital flows have expanded.
    Of course, the increase in the quota must be scored by the 
CBO and may need offsets elsewhere in the budget. Legislation 
to approve the increased quotas and voting reallocation should, 
therefore, be tied to the exceptional access framework, which 
will also provide additional transparency and accountability.
    It seems to me that with the global financial system in an 
uncertain state of flux right now, it is an important time, a 
good time for such reforms. Approving the international quota 
agreement in a way that helps ensure that these new resources 
are used strategically, effectively, and with accountability, 
as I show in more detail in my written testimony, would be an 
important pillar of any such reform movement.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Taylor can be found on page 
45 of the appendix.]
    Chairman Huizenga. The gentleman yields back.
    And, with that, we are going to go into our question 
period. I am going to recognize myself for 5 minutes.
    Ms. Lundsager, when you were our Executive Director at the 
Fund--and I don't want to put words in your mouth--I assume you 
advised Treasury that a systemic exemption for Greece was a 
good idea. Is that accurate?
    Ms. Lundsager. Thank you, Mr. Chairman.
    As you may be aware, the systemic exemption was inserted in 
the Greek program that we approved in May 2010. And there was 
no advance discussion of that.
    So, at that point, I recall we were all very concerned 
about the situation in Greece. And, of course, any country has 
the right to ask for assistance from the IMF and the IMF 
responds. And, at that point, Greece was committing to a number 
of adjustment measures that would start to address some of 
their problems.
    And to be perfectly frank, at that time we were very 
worried about the rest of Europe. And my concern was that if 
contagion spread to a number of other countries, not just the 
smaller ones such as Portugal and Ireland who eventually needed 
IMF programs, but the larger ones, Italy or Spain--you remember 
the references to the GIIPS or the PIIGS years ago--that the 
IMF would not be able to handle, for instance, an Italy without 
great difficulty and that it would be very difficult for the 
Europeans to hold the Eurozone together, given that they had 
not built their own firewalls at that time.
    So the systemic exemption in the end was inserted by the 
staff. The board approved it, although many of us just became 
aware of it at the meeting itself, since the change was buried 
in this long document.
    I was dismayed that staff used that approach, but in the 
end, my concerns about Greece and about Europe overrode that 
dismay and I supported the program.
    Chairman Huizenga. In retrospect, do you think it was a 
good idea? This is something I asked Secretary Lew earlier 
today.
    And after a rather lengthy sidestep, he came out with yes, 
he felt it was still a good idea, at which point I was asking 
him, just as Professor Taylor was talking about, about the 
potential return of that language to that. And, as I have been 
having some conversations, I, too, am finding that support 
within the IMF and other countries that are involved with the 
IMF.
    So do you still think it was a good idea? And what is your 
take on whether we should return that language and return to 
that policy?
    Ms. Lundsager. Whether or not we have that particular 
language, I still feel that the IMF needs an ability to 
exercise judgment. And by the IMF, I mean the executive board, 
the membership itself.
    My concern with rigid rules is that, first of all, it is 
very difficult to know what the next crisis is going to be. And 
what we found when we had the exceptional access criteria, 
first set, each case ended up being different and didn't quite 
meet the criteria.
    And so I am not comfortable with being able to predict what 
a future crisis might be and how a country might or might not 
meet particularly rigid rules.
    I am also a little bit worried that these criteria are 
based on IMF calculations of debt sustainability, and these 
numbers are very difficult to pin down and very dependent on 
numerous assumptions, as I am sure you know, you are aware as 
you look at a number of these issues just in terms of the 
United States itself.
    So I am a bit worried that it could end up being very 
arbitrary. And if it is a key U.S. ally and the fund says, 
``Well, we are not ready to do exceptional access. Okay, United 
States. You are going to have to do it all bilaterally,'' we 
are back to the very place that we did not want to be or else 
we are forcing that country into a debt restructuring 
immediately.
    Chairman Huizenga. I have a little over a minute.
    Dr. Taylor, you were there and helped developed the 
exceptional access framework at Treasury.
    How do you respond to Ms. Lundsager, and what is sort of 
your take on the world right now?
    Mr. Taylor. I think there is quite a bit of flexibility in 
the way the original access rules or framework was put in 
place. So I don't think you need any more. And I think, 
ideally, you could go back to something like that.
    I think the experience has also shown that too much 
flexibility is a disadvantage. You think about the danger of 
lending to an unsustainable debt situation, you end up bailing 
out the private sector. That is basic. You think now, ``Who 
owns most of the Greek debt?'' It is the public sector. So it 
enabled the private sector to get out.
    Chairman Huizenga. Between the IMF and the EU, are these--
    Mr. Taylor. Yes. So that is the concern. I also think it 
creates an enormous amount of uncertainty. In talking to many 
in the private sector, they would prefer to go back to where we 
were because they recognize the current situation creates 
uncertainty. So for all the reasons you want to have a 
framework.
    Also, I would say, for accountability and transparency, 
this is money that you are going to have to authorize and 
appropriate. I think it is part and parcel the institution 
describes as best it can its framework for allocating these 
large sums of money. It is not rocket science, to be sure, but 
I think it is quite workable.
    Chairman Huizenga. All right. With that, my time has 
expired.
    And I recognize my ranking member, Ms. Moore, for 5 
minutes.
    Ms. Moore. Thank you so much, Mr. Chairman.
    And I want to thank all of the witnesses for joining us 
today.
    This is truly an opportunity, I think, for the committee to 
get a tremendous education with the aggregation of experience 
that you all have.
    I want to continue to pursue the discussion, maybe starting 
with Professor Taylor. I can truly identify with your notion, 
perhaps, that there is some moral answer in abandoning a 
framework where riskier loans, countries like Greece, were 
enabled to access the lending facility.
    But I hearken back--I was here when Secretary Paulson came 
and said, ``Give us $700 billion or else the United States' 
economy is going to collapse.'' And my first reaction was not a 
very ladylike response. It was like, ``blank, no.''
    But as I listened to experts such as yourself, I concluded 
that it just had to be done. And there was moral hazard. I 
think we are still experiencing it. I think we sort of bailed 
out the private sector more so than we did homeowners.
    And so I guess my question to you, sir, and to Ms. 
Lundsager, and perhaps to Mr. Lowery would be, what do you make 
of the ``high risk of international spillover''--the exception 
being the high risk of international spillover?
    Do you honestly believe that if the IMF is not in a space 
like Greece or the Eurozone or other things, that there will be 
no impact on our economy here?
    Mr. Taylor. What will happen in a situation like that is 
the IMF will say, ``Your debt is unsustainable, with high 
probability. There is no exemption for a systemic spillover. 
So, therefore, unless your debt is restructured, unless the 
private sector comes in and says, 'We are writing down or 
reprofiling that debt,' you don't get a loan.''
    But the result most likely will be that the private sector 
will get involved in that. And so that is really what--to have 
a clear rule in advance, a clear process in advance, that is 
basically what you hope will happen.
    I would add a few things based on my own experience. It is 
nearly impossible to determine about the systemic spillover 
risk. Therefore, it is very susceptible to political 
maneuvering and for people to claim there is this risk, 
systemically, of spillover, when nobody really knows.
    We discussed the difficulty of doing a sustainability 
analysis, what the likelihood is of the debt being sustainable. 
That does require numbers. But that is far easier than trying 
to determine the systemic risk.
    Ms. Moore. Ms. Lundsager, do you have a comment?
    Ms. Lundsager. Thank you.
    It is very difficult, first of all, to determine insolvency 
versus illiquidity for a particular country.
    But contagion can be a very real risk as deposits leave a 
country, leave the banking system, which causes problems as our 
banking systems are based on deposits not all being withdrawn 
at one time. This can then spread to other countries that have 
similar characteristics.
    We saw this in 2010. We saw more of this in 2011 in Europe. 
And you have all seen the market jitters right now as all this 
uncertainty about Greece remains in the market as Europe's 
leaders debate the next step.
    So, yes, I was bothered about contagion then, and I still 
think that is the main reason that we have the International 
Monetary Fund. Thank you.
    Ms. Moore. Mr. Lowery, just very briefly, I think at least 
you and Ms. Lundsager have talked about the lack of leadership 
from the United States, given its veto power and so forth in 
the IMF. If we don't sort of adopt the framework, pay our dues, 
be the leader, what could ultimately be the impact?
    I am thinking of the formation of BRICS, for example. Could 
any of you sort of share with us what you think the 
consequences are of a diminishing influence of the IMF and the 
rise of something like the BRICS?
    Mr. Lowery. That is a good question.
    I think that--look, my own view is that the United States 
should be taking a leading role. We help formed the IMF. We are 
the leading country in the IMF.
    If that means that we need to pursue some of the reforms 
that John Taylor is talking about, I think we should probably 
be looking at doing that. If it means to do some other reforms, 
we should be looking at doing that.
    But that does not mean we should be holding up going 
forward on an agreement that everybody in the world has agreed 
to years ago that--I think that most people in the United 
States, people who have sat in the Executive Branch, actually 
think that this is a helpful institution for us to support.
    As to whether or not it means that the Asian Infrastructure 
Investment Bank or the BRICS bank is going to be created and 
those are the reasons it got created, I can't answer that 
because I don't know the mindset of the Chinese.
    I do know this, that there is concern that the United 
States is not stepping up as an international leader in a 
number of areas that are not just about the IMF, and this is an 
area where I think that we can come to an agreement if we 
worked hard together.
    Ms. Moore. Thank you. My time has expired.
    Chairman Huizenga. The gentlelady's time has expired.
    With that, we go to our Vice Chair, Mr. Mulvaney, for 5 
minutes.
    Mr. Mulvaney. Before we come back to Greece, I want to 
follow up very briefly on what Mr. Lowery just said to speak to 
the issue raised by the gentlelady from Wisconsin, which is, on 
the 2010 reforms, we have had some hearings on that before, 
back when John Campbell was the subcommittee Chair here. And, 
if I remember correctly, one of the fundamental principles of 
the reform was that we were going to move money out the New 
Agreements to Borrow into the quota.
    And I remember an issue coming up at the hearing, Mr. 
Chairman, which was, essentially, those two pots of money, for 
lack of a better word, are subject to different rules, 
different governance.
    And my understanding--correct me if I am wrong--is that, 
while the quota system is subject to rules essentially by 
consensus, the NAB, the New Agreements to Borrow, is subject 
heavily to our veto.
    That is my understanding. Am I wrong about that?
    Mr. Lowery. I think the rule for the NAB is that it is 
activated every 6 months. So, on that, the United States has a 
veto right. However, if there is a loan provided by the NAB, it 
is done on a majority decision.
    Mr. Mulvaney. Yes. That is my recollection. We can shut it 
off every 6 months.
    And I guess, Mr. Lowery, to your point, and Ms. Moore, to 
your point, that was one of the hang-ups we had, was that we 
were effectively moving money out of an area where we had 
considerable control and into an area where we had less 
control. That concern remains.
    And then I look at that concern against the backdrop of 
what we are talking about today in Greece and the difficulties 
that some of us have with the changes that were made regarding 
contagion, regarding systemic risk.
    Now, Ms. Lundsager, you said something--I am not interested 
in debating what happened with Greece several years back. But 
you did say something that I thought was relevant to the 
discussion about whether or not we should go back to the old 
rules as we go forward.
    You said that the Europeans did not have firewalls in place 
at the time and that, in part, justified changing the rules in 
the IMF in order to allow the IMF to participate.
    Those firewalls exist today, don't they?
    Ms. Lundsager. Yes, Congressman. They have built firewalls, 
and the European Central Bank is taking a number of actions. 
With that said, each country is still entitled to seek help 
from the IMF, to seek advice and to seek a program.
    Mr. Mulvaney. I am fine with all that. I am not trying to 
change the underlying rules. I am just trying to talk about 
whether or not that special exception--we are not going to look 
at whether or not they can pay the debt back, for example, if 
we fear contagion.
    And my point to you, I think, is that the firewalls that 
you said did not exist, accurately so, several years back do 
exist. So the need, perhaps, for the special exceptions for 
contagion have gone down.
    I also think that we need to recognize the fact that, while 
the Europeans were not ready at the beginning of the Greek 
crisis, they have loaned them, like, 8 times more money than 
the IMF has in the last couple of years.
    So, while the IMF's $25 billion to $30 billion was critical 
at the time, it pales in comparison to the couple hundred 
billion dollars that the Europeans have loaned them. This seems 
to be their problem. The contagion was the countries that you 
mentioned, all European countries. So it seems like it might be 
more appropriate to let them take the lead.
    Mr. Taylor, you have had some thoughts--and I want to get 
some more input from you in my last 2 minutes--on why you think 
we should make the changes and how you think we should go about 
the changes.
    So the rest of my time, sir, I will open up to you to help 
the committee understand why you think it is critical that we 
go back to the old rules and get rid of these special 
considerations for contagion.
    Mr. Taylor. I think the old rules worked. We thought about 
them a lot in advance. Other people thought about them. They 
were put in place to address exactly these problems, which was 
spillover, emerging market crises, which were very common in 
the 1990s and continued into the early 2000s.
    So it was part of a reform to really provide some 
guidelines or limits to what the IMF would do in these 
circumstances. It was essential, in my view, because, otherwise 
it was very ad hoc, very uncertain, and, in fact, causing the 
problems.
    So it worked well as far as we thought in advance, and in 
practice it worked well. Moreover, when we violated it, it has 
been a disaster. So a lot of evidence, it seems--
    Mr. Mulvaney. Examples of where we violated it in the past?
    Mr. Taylor. Greece.
    Mr. Mulvaney. Okay. So that is where we are today.
    And I guess, to the extent we are still talking about it, 
it doesn't seem to have solved the problem. I think Ms. 
Lundsager admits that the contagion risk is still there as of 
today.
    And I would suggest that the $30 billion that the IMF put 
in probably didn't make the difference one way or the other, 
but they were always charged with the problem of proving a 
negative. I hope we get a chance to get a second round.
    With that, I yield back the balance of my time.
    Chairman Huizenga. The gentleman yields back.
    And, with that, the Chair recognizes Mr. Heck of Washington 
for 5 minutes.
    Mr. Heck. Thank you, Mr. Chairman. And thanks very much for 
holding this hearing.
    My gratitude as well to the panel. You possess an amazing 
depth and breadth of expertise in this area, and I am genuinely 
grateful that you would share your time here.
    I just have two questions, if I can get to the second one 
even, however. I would like each of you to answer the 
following, beginning with you, Mr. Lowery: Given that the 
United States' attempt to dissuade other major economies from 
joining the Asian Infrastructure Investment Bank led by China 
failed somewhat miserably, what strategy would you recommend 
that we pursue as a result of that?
    And I would like each of you to answer that question, if 
you would, please.
    Mr. Lowery. In terms of the IMF, I think that I actually--I 
agree with most of what John Taylor said in terms of some of 
the reforms.
    I think that my own view is that the legislation should be 
written with conditionality into it, but I don't think that I 
would hold back the authorization appropriations while we try 
to solve the problem that John is trying to get at.
    I think that should be part of the conditionality of the 
legislation and that the Treasury Department should work on 
behalf of Congress within the IMF to actually make the types of 
changes that John is talking about.
    So I think that is the way that I would try to approach it 
as opposed to taking two unilateral stands, which, obviously, 
in the Asian Infrastructure Investment Bank we did and failed.
    Mr. Heck. So if I heard you correctly, you would have 
Congress pursue that particular avenue of action. I guess the 
question, given that we haven't been able to do that very well, 
is: Absent that, what should we do?
    Mr. Lowery. I am here to say that I think that we, the 
United States, through the Congress, should be pursuing an 
action of supporting the IMF. I believe that strongly. I 
believe that can be done in a way that is conditioned.
    I remember sitting in the Executive Branch going through 
many conditions on the IMF, the World Bank, and many other 
different institutions in which we were able to meet the 
obligations that Congress set upon us. They were not easy, but 
that doesn't mean we couldn't do it. I think it can be done 
here.
    Mr. Heck. Professor Taylor?
    Mr. Taylor. I think the reform of the exceptional access 
framework--the United States would not be unilateral here. 
There is a lot of interest in doing this.
    As I mentioned in my testimony, the staff and the 
management of the IMF seem comfortable with it. So, in a way, 
it is--the expression is it is almost a slam dunk for the 
Administration to say, ``This is fine.''
    I don't know what the members will do. I am not part of any 
negotiation. But this is something that several members seem 
interested in. It seems to me the Administration knows that 
they have allies. The United States is influential, anyway, in 
these discussions. I think it could move very quickly.
    Mr. Heck. Ms. Lundsager?
    Ms. Lundsager. Thank you.
    I would agree with what Mr. Lowery said, but I would hope 
Congress could move forward and approve these 2010 reforms and, 
at the same time, continue to work with the Administration as 
they work with the IMF to pursue reforms. I think it will be a 
challenge among the membership to come up with an agreement on 
how to deal with this going forward.
    And I think one of the difficulties will be, under this new 
framework the IMF is talking about, that the IMF, by standing 
back a bit and limiting its participation, will either be 
forcing the country into an immediate debt action when it may 
not be clear if it is insolvency or illiquidity and, at the 
same time, then looking to bilateral creditors to step up to 
the plate to fill up the remaining gap.
    And then I fear that the next crisis country that comes 
along would be a key U.S. ally and then the IMF will be turning 
to the United States. The United States Administration would 
have to come to Congress and seek the authorization and 
appropriation for bilateral support, which, as I recall, has 
been very difficult even for the very low-income countries such 
as Liberia or Haiti that we seek to support. Coming up with 
concessional resources for middle-income countries would be a 
real challenge.
    So I fear that the United States, as an official bilateral 
creditor, might be turned to in a bigger way and more 
frequently at a time when we have our own budget considerations 
and we are focusing on our other priorities. So I am not so 
sure this new framework is going to work out quite so smoothly. 
Thank you.
    Mr. Heck. To you, again, ma'am. I hope it is an easy yes or 
no--it is not, but I am going to do it anyway.
    Is there a point at which failure to enact reforms renders 
it all irrelevant because the fact of the matter is, other 
institutions will have developed over that period of time? How 
long before we are really in the pinch here because we haven't 
acted?
    Ms. Lundsager. I can't really put a timeframe on it, but it 
is clear the BRICS, China, are moving ahead in a number of 
areas, whether it is balance of payments backstops for each 
other or the infrastructure and BRICS bank. The Chinese are 
asserting their global leadership.
    And I really think it would be terrible if the United 
States conceded that, when over the years, I found over my many 
years in government--that countries valued United States' 
leadership and valued our participation in the international 
system and our engagement and our listening and our working out 
what the solution should be to different problems. And I think 
we should reassert that leadership by getting these reforms 
done. Thank you.
    Mr. Heck. Thank you for your forbearance, Mr. Chairman.
    Chairman Huizenga. The Chair has been rather generous, yes, 
with those, but I am happy to do so.
    With that, I would like to recognize Mr. Pittenger of North 
Carolina for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman.
    And thank you to the witnesses for being here with us 
today.
    I was troubled and really amazed last week, I guess it was, 
when I picked up the Journal and there was an article by the 
President of Greece rebuffing the European Bank for the reform 
demands that were being required of him. And I thought, how 
pompous: ``I owe you money,'' and yet, he had the ability to go 
back to them and say, ``How dare you make those requirements.'' 
I just imagine myself going to my banker to whom I owe money, 
and challenging my banker, ``How dare you make these demands.''
    But it brought me to more a clear focus of a different 
person, Margaret Thatcher. She was in Charlotte some 20 years 
ago for a dinner to speak of the challenges that she met in 
Great Britain when she was Prime Minister and all the enormous 
amount of rebuff that she received and, really, difficulty in 
trying to bring restructure and reform to her government. Well, 
go 20 years further, nearly.
    A couple of years ago I was with a member of Labor, and we 
were riding in a bus out to Fenway Park. Joe Kennedy had 
invited us to come out there for dinner one night. And I just 
reluctantly brought up the name of Margaret Thatcher and 
wondering what she would say, knowing the darts would fly. And 
her comment was, ``God bless her. She saved our country. 
Without Margaret Thatcher, we wouldn't be where we are today.''
    So I think my question is, the flexibility of exceptional 
access, has it created the lack of commitment to austerity 
reform? Has that flexibility created the lack of commitment or 
interest to pursue that, that they feel like, ``Well, they gave 
me one time. They will be lenient again'' and not make that 
full commitment internally to do what is necessary? Was that 
part of the case with Greece?
    You can each respond.
    Mr. Taylor. I think, briefly, the concern--it is sometimes 
called moral hazard--is that, if countries and their people 
recognize that there is going to be an increased chance to bail 
out, they will be more reluctant to make the reforms or the 
things that they need to do.
    I have always wondered how you prove that kind of thing, 
but I emphasize more the uncertainty that is caused by the lack 
of framework.
    I would say, in addition, it is not simply the exceptional 
access framework or not that is the situation in Greece now. 
There are a lot of other things happening. If you look at sort 
of the structural things the IMF wanted them to do, they make 
so much sense. They are really just moving towards more markets 
and less intervention by the government.
    And, of course, this government in Greece is not interested 
in that. And so I think that is really the problem. The 
structural reforms they have to do are clear, but they just 
don't want to do it.
    Mr. Lowery. If you don't mind, I will weigh in for just 1 
second.
    I think it depends on the case. Portugal and Ireland were 
in, not a similar situation, but a pretty bad situation just a 
few years ago.
    They have actually taken on very tough economic reforms in 
their countries and, frankly, if it wasn't for Greece dragging 
down sort of the rest of Europe, people would be celebrating 
how far and how much progress Ireland and Portugal have made 
during that time.
    So it is a tough argument. I think it is a good point that 
you are making about whether or not--if you put so much money 
on the table, do governments have a tough time taking those 
tough steps. I think it depends on the government.
    Mr. Pittenger. Sure. Thank you.
    Ms. Lundsager. Thank you.
    I would agree with what Mr. Lowery just said. And, frankly, 
I would also look to the countries that didn't seek IMF 
programs, but undertook very strong reforms, such as Estonia & 
Lithuania, Poland & Slovakia, and some of the others in Europe 
who have really--look at Poland over the years without seeking 
IMF support, and they have done it because they think it is in 
their own interest and that it is important for their unity 
with the European Union.
    Mr. Pittenger. Thank you. I yield back.
    Chairman Huizenga. The gentleman yields back.
    Mr. Kildee of Michigan has decided to pass. But I will 
recognize the ranking member again for 5 minutes. And we are 
going to start a second round as well. We still have a few more 
on our side.
    But, with that, Ms. Moore.
    Ms. Moore. Thank you, Mr. Chairman.
    And, again, I thank the witnesses for sitting through a 
second round of questioning.
    Professor Taylor, I want to go back to you. You spoke in 
the first round about--we were finishing our discussion; I 
didn't go any further--how Greece should restructure its debt, 
that is what they should have been required to do.
    And in the Wall Street Journal, you had an article talking 
about sovereign debt collective action clauses. And I guess I 
wanted you to expand a bit on these clauses.
    Let me tell you what the thrust of my question is. I am 
concerned that taking the board's discretion away, not having 
any flexibility, will impede the operations, just is not 
workable.
    So under what circumstances should the IMF require 
restructuring versus kind of reprofiling a country's debt? You 
say it should be part of a preset requirement. But what would 
be wrong with sort of a case-by-case basis within some 
framework?
    Mr. Taylor. A framework, in its own sense, has less case-
by-case to it. There is a treatment of, ``This is how we are 
going to treat people or countries in different 
circumstances.'' It sort of lays out your strategy to do it.
    There are different cases. And whether that is sustainable 
or not sustainable, for example, that creates different cases. 
But you ask, ``How you are going to treat those different 
cases?''
    So there is flexibility in the sense you have laid out your 
strategy, but that is laid out in advance as much as you can so 
people can understand it and so we can assess whether it is 
working or not and see when there is exceptions to it. I think 
that is the way to think about it.
    There is always a sense in which, especially if you are in 
public policy, you would like to have--you would like to get 
around that framework, you would like to, for some reason, do 
it differently. I have been there myself. I know what happens. 
Somebody gets a call from somebody who says, ``Look, something 
is wrong here. Our bank is in trouble. Could you help us out?''
    And you want to be able to resist that because, no, you 
have your principles, you have your rules, you have your 
strategy in place. If it becomes all tactics, it becomes 
hopeless. So I think that is the--
    Ms. Moore. But the whole point of this hearing is to talk 
about moral hazard versus contagion. And I guess I am concerned 
that completely abandoning the new regime that is being 
proposed would, of course, help us avoid more moral hazard, 
just to say, ``We are not going to lend to you.''
    But I guess, Ms. Lundsager, Mr. Lowery, do you think that 
would increase the contagion?
    Ms. Lundsager. Thank you.
    I would be a little bit worried because I fear that, if 
they set this in place, there is going to have to be some sense 
to the market and everyone what is the number, what is the 
debt-to-GDP number that is going to be the cutoff.
    We have the Maastricht numbers in Europe of 60 percent, and 
we have seen how well that has worked. But we don't know, 
really, what is sustainable in countries.
    And so, in Ukraine, they have set a goal of 70 percent of 
GDP. In Greece, the goal was set at 120 percent of GDP. How do 
we know what exactly is sustainable and what is unsustainable?
    And my fear is that U.S. authorities would be faced with 
the situation of a country saying, ``No. I am going to take the 
measures. I am going to adjust. I want to honor my debt.''
    Brazil did this in the early 2000s. They were not going to 
restructure, even though market commentators all over the place 
were saying Brazil would have to restructure. They did not 
restructure. They had a fund program. They drew on it. They 
adjusted and turned things around.
    And so it is very hard, if you have someone like that 
calling the White House and saying, ``No. I am not going to 
restructure my debt. The fund is pushing me into something that 
is not needed,'' for the United States bilaterally to resist 
that--right?--if it is a key U.S. ally. So I think we need to 
keep the flexibility. Thank you.
    Mr. Lowery. On my part, I--you are talking about a very, 
very tricky issue, which is the nuances of moral hazard and the 
nuances of contagion.
    I am not a humongous believer that there is moral hazard to 
countries. I am a believer that there is moral hazard to 
lenders and to investors. But could there be contagion? I think 
the answer is yes.
    But that does not mean that we should have the exceptional 
access--or systemic exemption for the exceptional access does 
strike me as a loophole that is extremely large.
    And so I would want to tighten it up, whether it is going 
back to the proposal that John Taylor is talking about, going 
to the proposal IMF staff is pushing. I would want to close it 
up a bit because of that worry.
    Chairman Huizenga. All right. The gentlelady's time has 
expired.
    And, with that, I need to correct a slight misstep on my 
part. We are supposed to go through an entire round first 
before we recognize Members a second time.
    Ms. Moore. You are so kind, Mr. Chairman.
    Chairman Huizenga. I am here for you, Ms. Moore.
    So, with that, I would like to recognize the new member of 
the committee and the subcommittee from Minnesota, Mr. Emmer, 
for 5 minutes.
    Mr. Emmer. Thank you Mr. Chairman. And thank you to the 
ranking member and the panel. Thank you for being here.
    I think I will be brief. It is interesting getting up to 
speed. And I appreciate the information and all the background 
materials.
    The IMF, along with the World Bank and the World Trade 
Organization, have all been around for 70-some years. The IMF 
had a different initial purpose that changed in 1973, 
primarily, when we adopted a new system of floating exchange 
rates. And I think today this institution plays a major role in 
monitoring the economic and financial policies of member 
countries.
    I think, Mr. Lowery, you started off by saying there are 
three specific tools: technical assistance; surveillance; and 
lending when necessary. It caused me to wonder about the 
surveillance piece. Where are we at today? And this is for all 
of you.
    But if surveillance has been a tool of the IMF since the 
1970s, maybe even before, since the beginning, why wasn't the 
alarm bell sounded well in advance of the Asian crisis? Why 
weren't we given warnings through the IMF about the crisis in 
2008?
    We have talked plenty about Greece. But could you just, 
amongst the three of you, whomever wants to address where is 
the surveillance at, why didn't it work back then, or maybe it 
did work and we just didn't hear about it, and what needs to 
happen in the future?
    Mr. Lowery. My own view is the surveillance piece of what 
the IMF does is probably the most important piece. It is the 
least talked about in some respects because there is not really 
money involved.
    But in terms of getting it right and understanding exactly 
whether or not a country is on the verge of catastrophe 
financially, it is a hard thing to do. Markets don't get it 
right. And there is, obviously, people making a lot of money 
out there thinking about this. And official sector actors don't 
get it right.
    But I think that the IMF does a pretty good job of looking 
at a number of countries as to why they didn't get this right 
or that right. I think that, one, sometimes their advice is not 
listened to, so that can't be on the IMF; and two, sometimes 
they just get it wrong.
    There are good economists there, but at the same time, it 
is hard to see, sometimes, where the crisis is going to come 
from. We look at our own country. We have how many people 
surveil, analyze, think about the U.S. economy? Only a handful 
got it right back in 2006 and 2007.
    Mr. Emmer. Which I appreciate.
    Professor Taylor and Ms. Lundsager, please take the next 
step. But you had two major ones in the late 1990s and then 
2008. We weren't just talking about one country. We were 
talking about a whole bunch.
    The question is, why? And what has been done to, hopefully, 
improve that so it doesn't happen in the future?
    Mr. Taylor. I think the surveillance with respect to other 
countries is important to think about, not just the major 
countries. And, also, that verges into this third role of 
technical assistance, which I think is very important.
    There are a lot of countries that just don't know about 
even budgeting or about monetary policy. And so there is 
actually good advice that can be conveyed.
    I actually think that, in a way, maybe there should be a 
fourth category. It is possible to have programs without loans. 
It is something called a program support instrument, I believe.
    But it is effectively like an IMF program where you lay 
out, ``Here is our''--it may be like a debt reduction strategy. 
It may be a way to get inflation down, whatever it happens to 
be. But the IMF works with a country. But it doesn't have to be 
a loan.
    Frequently the loan is the way they engage, but there are 
other ways to do it, which I would prefer. You engage with them 
and you help them. And there are people who haven't really 
haven't done much before. And the IMF does have expertise on 
that.
    Ms. Lundsager. Thank you, John, for mentioning the policy 
support instrument. I agree that has been very important and 
countries have liked that.
    In terms of the IMF engaging in surveillance, what has been 
really important is that the IMF has conversations with 
officials, the annual article IV review, and will raise its 
frank concerns.
    So, in 2008 and 2007, it was raising concerns in the United 
States about the subprime loans, even though the broad view 
across the Federal Reserve System, across many commentators, 
was that, ``Oh, we can handle this. These loans are a small 
part of our mortgage side.''
    Well, it turns out it wasn't such a small part, and it was 
a problem. But at that point, there wasn't agreement that it 
was going to blow up the way it did.
    So the strength of the IMF is to bring issues to the fore 
and to raise them with the country authorities and to say, 
``You really ought to be worried. We see imbalances emerging 
here that--perhaps you are seeing your debt having to be more 
and more short term. You are not able to issue longer term debt 
in an emergency.''
    So I think the IMF has done a very good job on that. But 
sometimes that is more private than public because the IMF, of 
course, doesn't want to be the cause of a crisis by saying, 
``Oh, it is headed your way.''
    Mr. Emmer. Thank you. My time has expired.
    Chairman Huizenga. The gentleman's time has expired.
    With that, we recognize the gentleman from Arizona, Mr. 
Schweikert, for 5 minutes.
    Mr. Schweikert. Thank you, Mr. Chairman.
    In a small attempt to sort of go on the theme of the 
hearing, the moral hazard, I would like to do this slightly 
more conversationally, because I want to sort of do the 
``Wayback Machine,'' for the last 25 or 30 years.
    From the 1980s to the 1990s, being someone who was very 
interested in the Tequila Crisis, when the Asian tigers--having 
been in Thailand, visited it on my way to India, when all hell 
was breaking loose.
    What countries through IMF and other bilateral agreements 
kept their promises, demonstrated a level of discipline? And 
where did we create almost a cycle where, once again, we see 
Argentina unavailable for comment or constantly--so walk me 
through this.
    And then, as we are doing this, I have always had a concern 
about some of the debt swap mechanisms, particularly when it is 
private capital being swapped out, and making sure that it does 
not become sort of a bailout mechanism for either bad credit 
decisions or large industries or large banking institutions 
that are ultimately swapping their debt position for what 
eventually is taxpayer money from around the world.
    Mr. Lowery, could you start with this, what has worked and 
what hasn't and debt swaps?
    Mr. Lowery. I think that what works usually is when the 
countries themselves make the reforms. It is not about the IMF 
imposing those reforms. The IMF will try to impose those 
reforms as part of its conditionality.
    But when the countries start adapting those reforms--you 
pointed to Mexico back in the Tequila Crisis. The Mexican 
authorities took very, very difficult steps over the next few 
years after the crisis, in 1994 and 1995, to the point where 
the ruling party lost its power in 2000 for the first time in 
70 years.
    Mr. Schweikert. But that also had an additional--was it $50 
billion through U.S. taxpayers?
    Mr. Lowery. Yes.
    Mr. Schweikert. Managed by the IMF, but--
    Mr. Lowery. No. No. The IMF did not manage. The taxpayer 
money--
    Mr. Schweikert. I thought that the $50 billion came from a 
special--
    Mr. Lowery. The exchange stabilization fund within the 
Treasury Department.
    Mr. Schweikert. But those dollars were managed through the 
IMF, I thought.
    Mr. Lowery. No. That was actually managed through the 
Treasury Department.
    Mr. Schweikert. Okay.
    Mr. Lowery. It is one of the few times that the Treasury 
Department actually kind of worked almost like the IMF during a 
crisis.
    Another example would be Korea back in 1997. An example I 
know that John worked on very closely, which would have been 
Uruguay. So during the Argentina crisis, which you mentioned, 
Uruguay also went through a crisis.
    Mr. Schweikert. Because of the limits of time, your model 
basically is, when the countries produce the list of reforms 
themselves, we have better outcomes?
    Mr. Lowery. Yes. When they are very serious about--
    Mr. Schweikert. Professor Taylor, tell me, what has worked 
out there, what hasn't, and your vision of what--
    Mr. Taylor. I agree with that part for sure.
    I think there are other things. That is the nature of the 
engagement. I like to compare Russia in 1998, where there was 
contagion.
    That decision was a shock, not to continue funding. It had 
to do with politics, a concern about the nuclear arsenal, et 
cetera. It wasn't really an economic decision. And there seemed 
to be a lot of contagion.
    Then you move 3 years later. And while Argentina was a 
problem, there wasn't contagion when it defaulted. It was 
really zero. And that is, I think, because the nature of our 
engagement was very clear, what we were going to do, when we 
were going to do it.
    And, also, there was the sense of trying to help Uruguay 
and Brazil nearby. So you had another way rather than just to 
do the bailout. So I think the nature of the program matters, 
too.
    Mr. Schweikert. Ms. Lundsager?
    Ms. Lundsager. Thank you.
    I think the ultimate goal or the immediate goal to fund 
programs is for countries to adjust enough, restore confidence, 
and resume borrowing from private markets.
    And I think we have had a number of successes in that case. 
And we have seen it in Europe, successes in terms of Ireland 
and Portugal turning things around.
    Mr. Schweikert. If I were to look at our last 25 years of 
history of participation, what would you consider our greatest 
failure and our greatest success? And what was the difference?
    Ms. Lundsager. I would say our greatest success is managing 
to convince the world that we still believe that being 
multilateral is important, that the United States is deeply 
engaged.
    Mr. Schweikert. I was trying to get it down to a country 
level. I know that is more uncomfortable. I am trying to 
understand--
    Ms. Lundsager. I would say Mexico.
    Mr. Schweikert. So Mexico post-1994?
    Ms. Lundsager. Yes.
    Mr. Schweikert. And what do you believe is our greatest 
failure?
    Ms. Lundsager. What is going on in Greece right now is a 
failure on the part of Greece and a failure on the part of 
everyone else as well to be able to put this together.
    Mr. Schweikert. Any quick comment in my last couple of 
seconds on my debt swap concern?
    Ms. Lundsager. I'm sorry. I didn't quite understand what 
you meant by debt swaps.
    Mr. Schweikert. The IMF comes in, provides a bilateral 
loan, and it is often used to pay off or move money around to 
pay off other obligations that are privately held.
    Ms. Lundsager. Yes. At times, the Fund does help countries 
honor their current obligations, and that can include paying 
off some of the private debts.
    But, as I said, the goal is to restore enough confidence 
that in a very short amount of time those private creditors do 
come back to the country.
    Mr. Schweikert. I yield back, Mr. Chairman.
    Within that, should be a conversation of what haircuts 
should be required by all participants.
    Thank you, Mr. Chairman.
    Chairman Huizenga. The gentleman yields back.
    I will note that you have definitely gotten the attention 
of every intern on Capitol Hill, talking about haircuts and 
tequila crises. There is great worry happening here on Capitol 
Hill.
    With that, the Chair recognizes the gentleman from New 
Mexico, Mr. Pearce, for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    I appreciate each of you being here.
    The Wall Street Journal said earlier this year, I think it 
was, that the IMF departed from its own regulatory rules and 
limits in order to make loans to Greece.
    Is that a fair characterization, Ms. Lundsager?
    Ms. Lundsager. Thank you.
    That was what we have been talking about in terms of the 
IMF changing the exceptional access rules when the staff and 
management asked the board to approve the program in May 2010.
    Mr. Pearce. I found that amazing. Earlier this year, I 
asked Secretary Lew that same question, and he said that he 
didn't believe they had changed anything, that they were acting 
with the same rules as before. I found that to be an amazing 
statement.
    What impact is the failure of Greece to pay earlier this 
week or whenever it was they didn't make their payment--what 
impact is that going to have? Mr. Taylor, I would look at you 
on that. What is the impact going to have worldwide on the 
confidence in the system?
    Mr. Taylor. It is very unusual to do this, although, 
technically, they can bundle, as I understand it. If they 
really completely go into arrears, then that is really damaging 
to the IMF. And I hope that doesn't happen, but it is on its 
way.
    It is actually, I think, for me, in our discussion an 
illustration of some of the problems I think you get into when 
loans are made to countries whose debt is just not sustainable. 
I wouldn't say I want to blame all this on that. There are 
obviously many other things.
    But I look back at what if, in 2010, there was then a 
serious restructuring of Greece as part of that loan. It would 
have made it much easier for Greece to start making the 
adjustments.
    But it was delayed, and then they had a restructuring. And 
it was sort of part of--people hoped that would be enough, and 
they said it wasn't enough.
    So I think addressing the problem at the time would have 
made a difference. And it is a counterfactual. You don't really 
know.
    But I think, to me, it is an example of why you need those 
frameworks and why changing them, especially at the same time 
you make the deal--that is probably the most disturbing.
    Mr. Pearce. Thank you, sir.
    Ms. Lundsager, I have read reports. I don't know if it is 
accurate myself. But in the surveillance of country policies, 
one of the reports is that Greece is having trouble because up 
to 40 percent of their population just refuses to pay the taxes 
that they owe. In other words, it is well-characterized.
    Is that report somewhat accurate?
    Ms. Lundsager. IMF staff reports have highlighted the 
problems with revenue collection, and that has been an element 
of the program from the beginning.
    So the Greek authorities are working on making the revenue 
administration more independent and doing a better job to have 
their own citizens--
    Mr. Pearce. And my quandary is that the average pay in my 
district is probably $31,000 to $35,000, and I have to go back 
to that district and explain to them why I should use their 
money to pay for people who refuse to pay their own taxes to 
bail them out.
    And I understand what you are saying, that the entire world 
system is kind of on thin ice and, if we don't do anything in 
the Eurozone, then we have spreading problems. But, to tell you 
the truth, people just barely making ends meet in New Mexico, 
they could hardly care, and I am not sure I am willing to make 
the case to them.
    So I just--
    Ms. Lundsager. I insisted on improving tax collection in 
every statement I have made on the Greek programs. Absolutely.
    Mr. Pearce. I appreciate it.
    Mr. Lowery, one of the things that I see a lot in the press 
about is that the IMF has recast itself, that they were facing 
the irrelevancy, or whatever words that one of you used in your 
testimony, and that one of the things they are doing in this 
reinventing is placing themselves where they can become the 
world's reserve currency with the SDRs and getting some gold to 
back that up.
    Is that a real possibility, in your opinion, that becoming 
the world's reserve currency--
    Mr. Lowery. No.
    Mr. Pearce. Ms. Lundsager?
    Ms. Lundsager. No.
    Mr. Pearce. Mr. Taylor, how about you?
    Mr. Taylor. No.
    Mr. Pearce. You don't think it is a possibility?
    Mr. Taylor. The SDR is a different--
    Mr. Lowery. The SDR is a reserve asset for how the IMF 
moves money among its members. It has nothing do with how you 
and I go buy a candy bar. We are not using an SDR.
    Mr. Pearce. Have you seen those reports that are saying 
that they are positioning themselves to take the place of the 
United States when people lose confidence in our currency?
    Mr. Lowery. I haven't seen those reports, and I wouldn't 
put much stock in them.
    Mr. Pearce. Okay. All right. I see my time has elapsed, Mr. 
Chairman. I yield back.
    Chairman Huizenga. The gentleman yields back.
    And still seeing no additional new Members on the Democrat 
side, we will continue with our side for our first round.
    Mr. Guinta from New Hampshire is recognized for 5 minutes.
    Mr. Guinta. Thank you very much, Mr. Chairman.
    Professor Taylor, you touched on something a little bit 
earlier that I am interested in. When I go back and look at the 
categories of focus of the IMF--lending, technical assistance, 
and surveillance--you touched on what I think you referred to 
as possibly a fourth area, what you called program support.
    That is something I am very interested in because I 
subscribe to the notion that--as Mr. Pearce was saying, this 
concern that constituents have about utilizing taxpayer money 
to bail out people in foreign countries.
    So it lends to the argument or the discussion of, how do we 
change the mission or modify the mission of the IMF? So you 
touched on it a little bit.
    But could you talk about, in the context of trying to keep 
balance within the financial world, what program support 
without a loan program could look like and how that would 
differ from what we are doing relative to, say, Greece: when we 
bail out, they fail to make a payment and you see front page 
news as a result of it?
    Mr. Taylor. Actually, it has been done, a policy support 
instrument. I guess the word is policy, not program, support 
instrument.
    And the goal is to have the same kind of program you would 
have as if you gave a loan to a country, with payments and 
tranches and all that, except you wouldn't have that. You would 
engage--you could think of it in our context.
    I just testified at the Budget Committee this morning. As 
you know, the resolution has a 10-year program to reduce the 
deficit to zero in 10 years. So that is like a policy.
    And so now you consider another country wants to implement 
such a policy and the IMF helps them with it. And they don't 
have to give them a loan to do it. They just help them with it. 
They maybe have meetings at certain dates. They have benchmarks 
to make. And it can work very well.
    Traditionally, that has been done in the context of a loan. 
But you really don't need a loan in many cases. And the loan 
kind of screws things up. So often debt becomes a major problem 
in our engagement.
    So I think it is a great idea. I hope they do more of it.
    Mr. Guinta. Should we be considering what the debt-to-GDP 
ratio is in how we--and I want to ask this of Mr. Lowery--how 
we consider the countries to which the IMF loans?
    Mr. Lowery. Yes. I think that is a helpful statistic in 
terms of trying to figure out the debt sustainability of a 
country.
    And this goes towards kind of the aspect of, if a country 
gets into a balance-of-payments problem--so not the policy 
support instrument you guys were just talking about, but an 
actual balance-of-payments problem--one of the measurement 
tools that the IMF will be looking at is: What is their debt-
to-GDP? What does their debt profile look like going forward? 
What is their stock-to-debt going forward? They are trying to 
make a judgment: Is this a liquidity problem or do they have a 
solvency problem?
    And that, I think, should help you make an argument as to 
what could the IMF do to help in that situation and do you need 
to go to a situation where the IMF can do something, but they 
can't do all of it. And so there needs to be some debt 
reprofiling or debt restructuring or what have you.
    Mr. Guinta. So in the circumstance of Greece, would you 
identify Greece as more of a solvency problem than a liquidity 
problem?
    Mr. Lowery. Yes. And I think the IMF would say that, too. 
And, remember, Greece has gone through two sections of--in 
2010, it was IMF money plus European money on the table. In 
2012, it was more IMF and European money, but also they 
restructured and took a big haircut, to use the words that were 
used earlier, on private sector creditors.
    And now we are in a situation where the only creditors 
left, pretty much--I think it is about 80 percent--are official 
sector creditors. And you do see reports out of the IMF that 
they think European members are going to have to potentially 
take a haircut themselves going forward.
    Mr. Guinta. What is the debt-to-GDP ratio for Greece? Do 
you know? Rough guess.
    Mr. Lowery. I am guessing it is about 175 percent.
    Mr. Guinta. Okay. So I think I heard Ms. Lundsager say 
earlier--I don't want to put words in your mouth, but I thought 
you said something like it is sort of difficult to specifically 
pinpoint what that ratio should be.
    But I think it is probably fair to say, logically, people 
would argue that kind of ratio is excessive and it is not 
liquidity, it is solvency. So it would stand to reason that a 
program support approach, in my view, would make more sense in 
the context of Greece, at least at that level.
    Is that fair to say, Ms. Lundsager?
    Ms. Lundsager. I think that is a possibility, where the IMF 
could be there providing advice and helping put the overall 
economic policy program together.
    And then the Europeans and the private sector, through a 
debt operation, would provide the financing. That certainly is 
a possibility.
    Mr. Guinta. Thank you.
    Chairman Huizenga. The gentleman's time has expired.
    We are going to go into round two. And as I have been 
consulting with my good ranking member, she has slid into that 
round two before we were supposed to. Mr. Heck is choosing to 
pass at this point.
    So going into round two, I am going to take my 5 minutes. I 
may not use it all. But I wanted to touch on a couple of quick 
things.
    Just as I have been listening through all this, I am 
curious, Dr. Taylor, in your view, returning to Greece and sort 
of the systematic exemption here, what would have happened had 
the IMF not stepped in? Would the EU and the ECB have really 
picked up that slack, in your opinion?
    Mr. Taylor. I think it is quite possible. Early on, the 
Europeans said they didn't want the IMF in. The president of 
the European Central Bank, Jean-Claude Trichet, originally had 
that position.
    So at the time of 2010, I wasn't in the room, but my sense 
is the Europeans could very well have started providing loan 
support. It may have been that they would have asked the IMF to 
monitor.
    It wouldn't have been called a policy support instrument, 
but the IMF could certainly have monitored the framework and 
the conditions. But I think that is one possibility.
    The Europeans talk most about the spillovers. I think a lot 
of their banks were holding the Greek debt at the time. So they 
would be talking their banks' books, so to speak. I wasn't in 
the room. I don't know for sure how that worked.
    But another possibility would be very straightforward, 
saying, ``Look, the debt is not sustainable. There are a lot of 
people in the private sector who are holding this debt. If we 
are going to put some new money in, the private sector has to 
think about reprofiling or more, restructuring.''
    And that is kind of the ideal, really. That is really what 
the exceptional access framework--if it is working well, that 
is what you would want to have happen, because you don't want 
the public sector just to bail out.
    In the banking area, we call this bail-in. Right? The 
Europeans call it bail-in now. We want some bail-in in these 
cases as well. So I think that is the ideal.
    Chairman Huizenga. Do you believe that it was maybe more of 
an intent that the Europeans had a belief that, with the IMF 
getting involved, that they would come in and sort of play bad 
cop to their good cop with Greece?
    Mr. Taylor. I don't know. I'm sorry.
    Chairman Huizenga. All right. I want to touch a little bit 
on Ukraine and support of the IMF that they have.
    Last week IMF stepped in and said it may go ahead with a 
$1.7 billion payment to backstop the country, even though the 
Fund has been wary about lending to countries that are in 
arrears with private creditors.
    And, obviously, Ukraine has a certain strategic importance 
to us and to Europe and the Europeans. And I am curious, any of 
the three of you, how you view the IMF's involvement in Ukraine 
so far? Any of the three of you feel free to jump in.
    Mr. Taylor. Let me say this is part of a broader context, 
and Ms. Lundsager also referred to this. There is always a 
strategic aspect of our engagements with countries. And 
sometimes there will be a strategic aspect of another country's 
engagement, maybe an African case for Europe.
    And I think it is really important to try to distinguish 
those as much as you can. Sometimes it is going to have to be 
there. But, ultimately, some of those things are going to have 
to be bilateral rather than use the international institution.
    I think the Uruguayan thing is very complicated because it 
has both strategic and serious economic issues. You just have 
to be wary of those circumstances. The exceptional access 
framework is a way in which you can bring the economic 
considerations in more rather than the political ones. I think 
that is generally healthy. You can't do it all the time.
    Ms. Lundsager. Thank you.
    I was just going to add that, on Ukraine--and I am not part 
of this decision-making, but I suspect the point is to indicate 
that the IMF and the community--the executive board 
representing all the countries wants to continue to support 
Ukraine so it can take the measures it is starting to take, 
reforms that are very much needed, and to keep the pressure on 
the private sector to come to the table and reach terms on 
finding a way to work and reduce the debt burden that Ukraine 
is facing.
    So I think that is why the IMF is going ahead, because 
Ukraine is still working with the creditors, consulting and 
negotiating, but the intent is to keep the country going, too.
    Mr. Lowery. The only thing I was just going to add is I 
think Ukraine is a very difficult circumstance. IMF is putting 
money in. They are actually taking a lot of the type of actions 
that John Taylor has talked about, which is they are actually 
saying, ``We need you to do a debt restructuring with your 
private creditors,'' which they are trying to do. And they are 
taking significant reforms, the Ukrainian Government.
    The biggest problem Ukraine has is Russia. That is creating 
huge, huge financial and economic pressure. So they can be 
taking lots of reforms, but they have this significant problem 
right next to them.
    Chairman Huizenga. Okay. My time has expired.
    With that, I will recognize our Vice Chair for a second 
round, Mr. Mulvaney.
    Mr. Mulvaney. Just a few things.
    Professor Taylor, to follow up on a question that the 
chairman asked you, you mentioned that when the Greek crisis 
originally started, the Europeans had expressed some concern 
about the IMF getting involved.
    Do you have any insights as to why they were apprehensive 
about that?
    Mr. Taylor. I really don't. I think the issue was--
remember, the IMF lending to these developed countries is quite 
unusual in recent years. Emerging markets have been the focus.
    In fact, the exceptional access framework had--so, in a 
sense, the Europeans I think originally were saying, ``This is 
our problem. We don't want the IMF here. The IMF is for those 
guys who are problem guys,'' Latin America or something.
    I think that was the concept that they had. I don't think I 
know for sure, but that is my sense, that, ``We will handle 
this,'' but then it just got too big. I'm not sure.
    Mr. Mulvaney. Ms. Lundsager, you were involved at that 
point. Correct?
    Ms. Lundsager. Yes. In Greece, yes.
    Mr. Mulvaney. Any insight as to why the Europeans--same 
question to you. I am just trying to get a feel for the lay of 
the land in 2010, I guess.
    Ms. Lundsager. Again, I wasn't directly in the 
conversations with the European leaders. But I understood that, 
initially, they felt that, if it is the Eurozone, they should 
solve the problem themselves, which, of course, many of us 
fully supported.
    But I think, in the end, what happened was the Europeans 
realized they are going to need a real adjustment program in 
Greece and that it was very difficult for the Europeans to do 
that bilaterally, to impose that kind of conditionality.
    And, furthermore, for them to come up with the financing 
all on their own meant--and it did initially as well with the 
EFSF--they had to go back to each one of their individual 
Parliaments for approval. So it took a while to--
    Mr. Mulvaney. It took some time.
    Ms. Lundsager. Yes. It took some time.
    So I think, in the end, they realized they needed the IMF 
because the IMF can move quickly and pull together the 
resources.
    Mr. Mulvaney. Coming forward to an issue that I think Ms. 
Moore raised regarding bailouts, you mentioned bail-in, 
Professor Taylor. The money ultimately ended up where?
    At the beginning of the crisis, most, a majority--I don't 
remember the percentage--of the Greek debt was held by private 
financial institutions, Ms. Moore. At the end, it had been 
socialized, held by governments and by the IMF.
    It strikes me that what the IMF did is bail out the private 
banks in Europe. Am I wrong about that? The money certainly 
didn't go to the Greek people. And to the extent it went to the 
Greek government, it was immediately paid to the private money 
center banks. Correct?
    Mr. Taylor. I think that is a good way to describe it. It 
is not perfect. Bailout is an ambiguous term. But I think that 
is right.
    Originally, you had a lot of private sector holding debt, 
and now you have a lot of public sector holding debt. So it 
does look like--I think the word ``swap'' was used earlier.
    Mr. Mulvaney. And I know she has to leave. But I do hope 
that our Democrat colleagues understand that some of us have a 
problem with that and that, if we are looking to reform the 
IMF, it may be to prevent circumstances like that.
    That is a very different thing for the IMF to do. If they 
were lending money to a Third World country, to an undeveloped 
nation, that really wouldn't be as much as an issue as they are 
when they are lending to either emerging economies or even more 
so to developed economies.
    So, anyway, I am starting to get a little sidetracked on 
various issues. Thank you very much for your time.
    I yield back.
    Mr. Lowery. Can I just make--there is one slight amendment 
in that--
    Mr. Mulvaney. Sure.
    Mr. Lowery. --in 2012, Greece did work with the IMF and 
there was a fairly significant haircut to a number of private 
creditors. So I don't disagree with the premise of your 
question in the 2010. But, in 2012, there was actually--a lot 
of private creditors took a major haircut on their claims.
    Mr. Mulvaney. Thank you, Mr. Lowery.
    And thank you, Mr. Chairman.
    Chairman Huizenga. The gentleman yields back.
    And we have had votes called. We are going to try and 
quickly get in one or two more, if that is okay with the panel.
    And, with that, I would like to recognize Mr. Pearce from 
New Mexico for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    Kind of following along the same line--you may have already 
answered. I apologize. I have been in and out--there is 
generally a truism in business that when the bank loan gets big 
enough, they no longer have a loan. They have a partner.
    Was there a conversation like that in the IMF as we are 
going up to lending to Greece, that we are lending at 3,200 
percent of their quota share? Was there any conversation in the 
room?
    Ms. Lundsager, I think you would be the one who might have 
been there.
    Ms. Lundsager. Thank you.
    We were all very aware that it was a large number in terms 
of percent of quota. In terms of Greece's GDP, it was maybe 
around 12 percent of Greece's GDP.
    And, of course, earlier we had done some fairly large 
programs. The Uruguay program was about 18 percent of GDP. And 
I always preferred that metric because quotas could be very 
much out of line in terms of a country's real economic 
situation.
    So, yes, all board members were very well aware of how big 
the program was. But it was the sense that--and I went back and 
looked at the discussion and what I said. But at every board 
meeting I insisted that the Europeans reconfirm their support 
for their Eurozone partner, which they did.
    Mr. Pearce. They did give that support?
    Ms. Lundsager. They did give that support. Of course, it is 
conditioned on the Greek authorities adhering to their program.
    But my bottom line is I still feel that it is very much the 
European responsibility to ensure that Greece honors its 
obligations to the IMF.
    The IMF has been a supremely valuable institution for 
Europe not just in the Eurozone, but in European engagement 
with countries around the world. So I do look to my former 
European colleagues, their governments, to make sure that this 
problem is resolved. Thank you.
    Mr. Pearce. You had also mentioned that you had insisted 
that adjustments be made in the way that the Greek authorities 
collect their taxes.
    Ms. Lundsager. Yes.
    Mr. Pearce. You went ahead and voted for the transfer even 
though I don't think they have made much progress in collecting 
those taxes.
    But you voted for the loan.
    Ms. Lundsager. Yes. I voted for the loan, and I did support 
the reviews that came along the way, again, because the Greek 
authorities were committing to taking measures. They would have 
taken some parliamentary actions and were committing to take 
additional measures.
    We did start to see some improvements in some of the 
numbers, even though I think many of us were hoping that there 
would have been quite a bit better performance.
    Mr. Pearce. Okay. If the performance stays roughly the same 
as it is and the question came up again and they maybe weren't 
making their payments and asked for more money, would you still 
vote for it?
    Ms. Lundsager. Well, no. If a country is not making its 
payments to the IMF, basically, it can't draw on the IMF. And, 
frankly, Greece hasn't been able to draw this past year while 
this program review has been under negotiation. But any country 
in arrears to the IMF cannot draw.
    Mr. Pearce. Let's say that they make the payment that was 
due. Let's say they make that, but they have not made the 
internal adjustments.
    Because I asked the German Bundestag or Bundesrat, 
whichever was here, ``How long will your people tax themselves 
more in order to pay for the people who refuse to pay their own 
taxes?''
    They understand that is a ticking bomb that they are going 
to have to deal with at some point because the Germans appear, 
when I visited there last, that was getting to be softer 
ground, that total commitment to the idea that we are going to 
hold the Eurozone, no matter the pain, was being felt at the 
ballot box. And that was the ultimate test.
    So if they made their payments and they had not made 
significant changes in their internal collections, would you 
still vote then if they were asking for more?
    Ms. Lundsager. It would depend on the constellation of what 
they were proposing they would do.
    Mr. Pearce. Fair enough.
    I yield back, Mr. Chairman.
    I appreciate the input from all of the panelists. Thank you 
very much.
    Chairman Huizenga. The gentleman yields back.
    And, with that, we have about 8 minutes left to go in our 
vote, so I am going to call an end to this hearing.
    I just would like to say thank you to each of our witnesses 
for their testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, 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 these witnesses and to place their 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 with that, this hearing is adjourned.
    [Whereupon, at 3:37 p.m., the hearing was adjourned.]







                            A P P E N D I X



                             June 17, 2015
                             
                             
                             
                             
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