[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
HOW AMERICA LEADS ABROAD: AN
EXAMINATION OF MULTILATERAL
DEVELOPMENT INSTITUTIONS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON NATIONAL SECURITY,
INTERNATIONAL DEVELOPMENT AND
MONETARY POLICY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 13, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-65
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-473 PDF WASHINGTON : 2020
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California ANN WAGNER, Missouri
GREGORY W. MEEKS, New York PETER T. KING, New York
WM. LACY CLAY, Missouri FRANK D. LUCAS, Oklahoma
DAVID SCOTT, Georgia BILL POSEY, Florida
AL GREEN, Texas BLAINE LUETKEMEYER, Missouri
EMANUEL CLEAVER, Missouri BILL HUIZENGA, Michigan
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANDY BARR, Kentucky
BILL FOSTER, Illinois SCOTT TIPTON, Colorado
JOYCE BEATTY, Ohio ROGER WILLIAMS, Texas
DENNY HECK, Washington FRENCH HILL, Arkansas
JUAN VARGAS, California TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York
VICENTE GONZALEZ, Texas BARRY LOUDERMILK, Georgia
AL LAWSON, Florida ALEXANDER X. MOONEY, West Virginia
MICHAEL SAN NICOLAS, Guam WARREN DAVIDSON, Ohio
RASHIDA TLAIB, Michigan TED BUDD, North Carolina
KATIE PORTER, California DAVID KUSTOFF, Tennessee
CINDY AXNE, Iowa TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts JOHN ROSE, Tennessee
BEN McADAMS, Utah BRYAN STEIL, Wisconsin
ALEXANDRIA OCASIO-CORTEZ, New York LANCE GOODEN, Texas
JENNIFER WEXTON, Virginia DENVER RIGGLEMAN, Virginia
STEPHEN F. LYNCH, Massachusetts WILLIAM TIMMONS, South Carolina
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
Subcommittee on National Security, International
Development and Monetary Policy
EMANUEL CLEAVER, Missouri, Chairman
ED PERLMUTTER, Colorado FRENCH HILL, Arkansas Ranking
JIM A. HIMES, Connecticut Member
DENNY HECK, Washington PETER T. KING, New York
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
JUAN VARGAS, California ROGER WILLIAMS, Texa
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
MICHAEL SAN NICOLAS, Guam ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
JENNIFER WEXTON, Virginia DENVER RIGGLEMAN, Virginia, Vice
STEPHEN F. LYNCH, Massachusetts Ranking Member
TULSI GABBARD, Hawaii WILLIAM TIMMONS, South Carolina
JESUS ``CHUY'' GARCIA, Illinois
C O N T E N T S
----------
Page
Hearing held on:
November 13, 2019............................................ 1
Appendix:
November 13, 2019............................................ 33
WITNESSES
Wednesday, November 13, 2019
Daar, Nadia, Head of Washington, D.C Office, Oxfam International. 7
Debevoise, Eli Whitney II, Partner, Arnold & Porter LLP.......... 12
Kenny, Charles, Senior Fellow, Center for Global Development..... 11
McGuire, Matthew, Vice Chairman, CapZone Impact Investments...... 5
Schwarz, Jolie, Policy Director, Bank Information Center......... 9
APPENDIX
Prepared statements:
Hill, Hon. French............................................ 34
Daar, Nadia.................................................. 39
Debevoise, Eli Whitney II.................................... 51
Haarsager, Mathew............................................ 57
Kenny, Charles............................................... 60
McGuire, Matthew............................................. 64
Schwarz, Jolie............................................... 67
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Clarification note regarding the Center for Global
Development................................................ 75
Cleaver, Hon. Emanuel:
Article from devex.com entitled, ``World Bank staff chastise
the board over lack of diversity,'' dated November 7, 2019. 78
Article from foreignpolicy.com entitled, ``Trump Is Beijing's
Best Asset,'' dated October 15, 2019....................... 82
Letter from the executive directors representing Sub-Saharan
Africa countries on the executive board of the World Bank
Group, dated November 11, 2019............................. 87
Garcia, Hon. Jesus ``Chuy'':
Written responses to questions submitted to Eli Whitney
Debevoise II............................................... 90
Written responses to questions submitted to Matthew McGuire.. 92
Written responses to questions submitted to Jolie Schwarz.... 95
HOW AMERICA LEADS ABROAD: AN
EXAMINATION OF MULTILATERAL
DEVELOPMENT INSTITUTIONS
----------
Wednesday, November 13, 2019
U.S. House of Representatives,
Subcommittee on National Security,
International Development
and Monetary Policy,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Emanuel Cleaver
[chairman of the subcommittee] presiding.
Members present: Representatives Cleaver, Perlmutter,
Sherman, Vargas, Gottheimer, Garcia of Illinois; Hill,
Williams, Emmer, Gonzalez of Ohio, and Riggleman.
Ex officio present: Representative Waters.
Chairman Cleaver. The Subcommittee on National Security,
International Development and Monetary Policy will come to
order. Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time. Also, without
objection, members of the full Financial Services Committee who
are not members of this subcommittee are authorized to
participate in today's hearing.
Welcome to the hearing, and we appreciate the presence of
all of you who are here.
Today's hearing is entitled, ``How America Leads Abroad: An
Examination of Multilateral Development Institutions.''
Before we go any further, let me just begin by welcoming,
as the ranking member of this subcommittee, someone with whom I
am very pleased to work, Congressman French Hill. I look
forward to working with you over the next year, or maybe
longer.
I am eager to partner with our new ranking member on
special subcommittee issues. And there are some issues that
have historically been bipartisan, and I intend to conduct
myself in a manner that would allow them to continue to be
such. I am confident that together we will continue the
tradition of shared focus and collaboration. So, welcome.
I now recognize myself for 4 minutes to give an opening
statement.
Let me also just tell you that there is a visible absence
of the media here, and we can understand why they are not here
today. So, we will proceed anyway.
I am very excited to convene this hearing, exploring an
issue our committee does not regularly discuss: international
development.
Development finance is a powerful tool in advancing the
strategic and national security aims of the United States.
Today, the threats that face the world are not just at
America's doorstep; they are in our homes. We are in a heated
trade war that is gripping both agricultural heartland and
consumers around the country.
In my home State of Missouri, for example, only 6 percent
of about 306,000 acres are being used for soybean planting. We
have 5.1 million soybean acres, and we are using 306,000. That
gives you an idea of how troublesome this whole issue of trade
is with our agricultural community.
The headwinds present a risk to the economic outlook of the
United States and the rest of the world. It limits our capacity
to assist our smaller partners, leaving them more vulnerable.
And as this pressure mounts, so, too, does the desire by our
competitors and adversaries to displace our country as stewards
of global order, regional stability, and balanced growth.
As a member of the Helsinki Commission, I visited and heard
from countries beset by China's debt trap diplomacy, a practice
which targets fragile developing countries with promises of
investment and needed projects, only to face predatory loans
and then leave them worse off.
In South Asia, China's harmful loan terms forced Sri Lanka
to sign over its critical ship import for 99 years, potentially
to be used for Chinese naval basing.
In Africa, China has successfully set up an overseas base
in Djibouti. In this very same country, the debt to China has
risen to 80 percent of their GDP.
Multilateral development institutions, such as the World
Bank, have served as invaluable tools in relieving pressure on
the U.S. to confront these disturbing trends. The World Bank
has allowed us to join our international partners to uplift
those who need development assistance, most without ceding
ground as a global leader. From its work on infrastructure
projects, to its response to the Ebola crisis, the World Bank
has helped confront the needs of the world.
The Bank also carries some of the greatest bang for the
American buck. According to the Department of the Treasury,
every U.S. dollar paid in capital leads to $25 in lending.
I am pleased that we have before our committee the Treasury
Department Secretary's authorization request for the world. As
important as this institution is in global development, it is
imperfect and requires thoughtful reform.
I continue to look down to see if the Chair of the Full
Financial Services Committee, Chairwoman Waters, is coming in,
to give her the final minute, so I will recognize her when she
comes in.
I now recognize the ranking member of the subcommittee, the
gentleman from Arkansas, Mr. Hill, for an opening statement.
Mr. Hill. Thank you, Mr. Chairman. Thank you for your kind
words. I, too, look forward to working with you. We have had a
great working relationship on this committee over the past 5
years. I particularly have enjoyed my work on the Terrorism and
Illicit Finance and Monetary Policy Subcommittees in past
Congresses, and I look forward to working with you in the
balance of this Congress on these important topics. I am glad
we are going to examine the multilateral development
institutions today.
Since 1945, the World Bank has been supporting low- and
middle-income countries by providing access to financing to
alleviate poverty, and promote economic development, and over
that time, the United States has approved capital increases 4
times: 1959; 1979; 1988; and 2010. This is the fifth time an
Administration is seeking congressional approval for a capital
increase.
The Trump Administration has proposed an additional paid-in
capital of $1.2 billion for the IBRD and $5.5 billion for the
International Finance Corp. Both would be financed by other
countries around the world. Regardless of where the funding
comes from, both of these amounts of money approved require
congressional approval.
As a part of that approval process, the Administration has
initiated several reforms that they are in the process of
implementing, such as limiting World Bank lending to higher-
income countries, capping overall salary growth, and achieving
expense savings. These reforms are tantamount to ensuring that
the Bank continues to perform effectively and fairly.
One of my goals for this subcommittee is to ensure that the
World Bank and other multilateral development banks are using
U.S. resources in a transparent, corruption-free, effective
manner before committing U.S. taxpayer funds to these
institutions. The U.S. must use its leadership at the Bank to
fight for an end to corruption and to make sure that all
lending is conducted with accountability.
To that end, I want to discuss China and their access to
the World Bank. China technically crossed an important World
Bank income threshold in 2016, which was supposed to begin a
discussion on graduation from Bank assistance. However, the
country has received more than $7.8 billion in funding since
that time. China continues to borrow an average of $2 billion
per year from the Bank.
Even more concerning to this subcommittee is, we often are
not confident where those loan proceeds are being used. For
example, is part of that money likely being used as a part of
China's Belt and Road Initiative?
In my opinion, the lack of oversight in dissemination of
funds to a more developed country like China, with $3 trillion
in reserves, is not acceptable. I know that others on my side
of the aisle share this view. The lending number needs to be
wound down and eventually get to zero.
The United States needs to ensure there is greater
transparency in how the Bank's money is disseminated and have
stricter guardrails on its use. That includes both the Bank and
the IDA. There are concerns of lack of competition for certain
lending proposals with that arm of the World Bank.
So, Mr. Chairman, I look forward to working with you on
these important issues. I thank you for the time, and I look
forward to our discussion today. I yield back.
Chairman Cleaver. I now yield to the gentlewoman from
California, the Chair of the Full Committee, Chairwoman Waters,
for such time as she may consume.
Chairwoman Waters. Thank you so very much, Chairman
Cleaver. I appreciate that.
In 1993 and 1994, I sat on the International Subcommittee
of what was then the Banking Committee at a time when a number
of people wanted to abolish the World Bank and the IMF because
they believed that the institutions were indifferent to human
needs and values such as worker rights, income distribution
effects, and the protection of the environment.
We made a good deal of progress enforcing change, including
especially the creation of the Inspection Panel. And in doing
so, we rescued the World Bank, as well as the IMF, from a
reactionary and unenlightened viewpoint that made them
legitimate targets. It took a while, but we were able to make
them more relevant, and more important, not just on the
particular issues we care about, but on their capacity to do
better work. So, I am very proud to have been part of that, and
I look forward to continuing to engage on these issues as we
consider the authorization request before us today.
Let me just say that there is a long history of people
saying that certain things are immovable, that some things
cannot change, but those things do, in fact move, and do
change.
Mr. Chairman, I want to hear about some discussion that has
been going on about IDA and the proposals to invest in IDA,
taking funds from the IDA appropriation, I believe. That is a
serious discussion.
And when we talk about these countries that need so very,
very much, we have to really understand whether or not some of
these proposals, like coming from the IFC, whether or not it is
real and whether or not we are taking away money that should be
going to support some very basic things in these poor countries
in an effort to support business and privatization.
We are not against business, but we have to take a look at
the history and the record of those who claim to want to invest
and what they have done in the past, whether or not they have
been successful, or whether or not they have actually failed.
And we have to take a look at whether or not the capability is
there to identify certain projects that can be done; or whether
or not this is kind of like pie-in-the-sky proposals that would
be given to IFC to proceed in a manner that is not a manner
that is proven to be successful.
I will not say any more. I am going to listen. And I yield
back the balance of my time.
Chairman Cleaver. Thank you.
Today, we welcome the testimony of five witnesses. Our
first witness is Matthew McGuire, who currently serves as the
president of CapZone Impact Investments. Prior to joining
CapZone, Mr. McGuire spent nearly a decade in public service,
largely focused on increasing economic development through
private investment, including as U.S. Executive Director of the
World Bank under the Obama Administration.
The second witness is Nadia Daar, who is the head of the
Washington, D.C. office of Oxfam International. Ms. Daar has
several years of experience working with civil society in the
Middle East and North Africa regions, as well as in North
America on social and economic justice. She has also promoted
the adoption of inclusive, accountable, and sustainable
development among international financial institutions.
The third witness is Jolie Schwarz, who is a policy
director at the Bank Information Center. Ms. Schwarz is a human
rights attorney and has focused on development policy reform at
the international financial institutions, with a focus on
social inclusion and accountability. She has experience working
to promote the rights of the most marginalized through legal
advocacy and policy reform.
The fourth witness is Charles Kenny, who is a senior fellow
and the director of technology and development at the Center
for Global Development. His current work focuses on gender and
development, the role of technology and development,
governance, and anticorruption, and the post-2015 development
agenda. Mr. Kenny is also a former World Bank employee.
Our final witness, E. Whitney Debevoise, is a partner at
Arnold & Porter. Mr. Debevoise's practice involves
international financial transactions, public policy,
international arbitration, multi-jurisdictional litigation,
banking, and international trade. Mr. Debevoise rejoined the
firm in 2010, having served as U.S. Executive Director of the
World Bank in 2007 under President George Bush.
Thank you all for being here today.
Mr. Debevoise, we know that you have a hard stop at 11:30,
so we will try to make sure that you are able to get out at
that point in time.
You will each be recognized for 5 minutes for an oral
presentation of your testimony. And without objection, your
written statements will be made a part of the record.
Thank you very much. We will begin with Mr. McGuire. You
are now recognized for 5 minutes.
STATEMENT OF MATTHEW MCGUIRE, VICE CHAIRMAN, CAPZONE IMPACT
INVESTMENTS
Mr. McGuire. Thank you, Chairman Cleaver. I appreciate it.
Ranking Member Hill, I appreciate you having us here, as well.
Chairwoman Waters, it's always a pleasure to hear you speak and
to be in front of you, as well, so thank you for joining today.
I also should just say that it is a pleasure to be here
with such a distinguished group of co-panelists, as well, with
such a diverse range of opinions, and I look forward to this
discussion.
I have submitted my testimony. Rather than read that, I
would like to address a couple of things that Chairwoman Waters
raised. And then I would like to speak, if I could, to the
larger context in which I see American support for the World
Bank being central.
Let me start with the latter, and it is just to say that in
the context of economic development broadly around the world, I
think it is very important to state the obvious, which Ranking
Member Hill alluded to, which is that countries around the
world are looking in two directions and trying to figure out
how to grow and how to align themselves over time.
One option is towards the view that America has held
historically in the World Bank as champion, which is having a
rules-based international order with free markets and not
having a state-led economy that centralizes decision-making and
controls business, and so on.
The other model is one that has had great success in China
over the last 20 years, and their state-led authoritarian model
of economic development is one that looks attractive to a lot
of countries around the world right now because China has been
able to pull so many of their people out of poverty.
What I think is important to remind ourselves is that, in
this context, the Bank is very much a champion and advocate for
opening markets up, to liberalizing economies, to moving away
from state-led, state-owned enterprises and other state-led
endeavors to drive economic growth over time.
The Bank understands that the historical record and the
evidence is quite clear, that that model has not worked very
well over the decades, whether in Latin America, Eastern
Europe, Africa, or any number of other places.
I think what we need to understand is that the Bank is seen
around the world as having the imprimatur of the United States,
carrying the values of our approach to economic development and
the values that have driven our success and growth over time.
And, so, I do strongly encourage this committee to
authorize the capital increases because the Bank can be a
powerful tool as we think about our influence globally and we
think about helping more people around the world come out of
poverty and have healthier, more sustainable lives in the
decades ahead.
If I may, Chairwoman Waters, address your question around
the private sector, I agree that we always need to have
accountability, and we have to be evidence-based in thinking
about how we make decisions here.
I would say that foremost for me, when I was serving the
country as the U.S. Executive Director at the Bank, what really
struck me is how much the Executive Directors and
representatives of emerging countries really wanted more
private sector involvement. They often said, ``We need to
figure out how to get more investment in our countries. We
cannot do it alone as a government for a range of reasons.''
And central to the whole effort to move from billions in
aid to trillions in capital inflows, central to that thinking
at the Bank has been pulling more private investors into
markets they otherwise would not go to.
So, what I would say about the private sector window for
IDA is two important things. One, the previous replenishment of
IDA was to the tune of $35 billion or $37 billion; I cannot
remember exactly what it was. This last one, which includes the
private sector window, was at $75 billion. So, because we
issued that against IDA for the very first time, we were able
to double the amount of money that was going to these poorer
and more fragile countries around the world.
Within that, $2.5 billion, as you know, was set aside for
the International Finance Corporation (IFC) to create a private
sector window. And it was quite targeted, but it was also
thought of as a first step. So, for example, one of the
instruments that was created was one to help with currency
fluctuations. That is one of the primary reasons a lot of
investors do not want to invest in poorer countries is they are
worried about the currency and getting their money back out.
So, it was quite targeted, it was narrow, and I think I
would suggest that we give it time to see how it works. But I
would emphasize that it was a small portion of a much bigger
pie in the last go-round, and that IFC has quite a good track
record over time of moving into markets where others do not.
And when IFC is there--and I have seen this personally as I
have traveled around the world--it is the imprimatur of the
Good Housekeeping seal of approval that other investors are
more willing to come into those projects or come into those
countries where they might not otherwise.
So, I will stop there, and I am happy to talk in more
detail. But again, I think it is very important that we do
think about this from an evidence-based perspective, but also
that we listen to the countries who are receiving this capital.
And when they say it is fundamental to have greater private
sector inclusion, I think we should endeavor to follow through
on that.
[The prepared statement of Mr. McGuire can be found on page
64 of the appendix.]
Chairman Cleaver. Thank you, Mr. McGuire.
Ms. Daar, you are now recognized for 5 minutes.
STATEMENT OF NADIA DAAR, HEAD OF WASHINGTON, D.C., OFFICE,
OXFAM INTERNATIONAL
Ms. Daar. Thank you, Chairman Cleaver, Chairwoman Waters,
Ranking Member Hill, and members of the committee. Thank you
for the opportunity to testify on behalf of Oxfam.
We are an international relief and developmental
organization committed to fighting the injustice of poverty and
inequality, and we work in more than 90 countries.
My office is responsible for Oxfam's engagement and
advocacy on the World Bank Group. I believe this institution
plays a critical role in developing countries, and I believe
wholeheartedly in its mandate to eliminate extreme poverty and
boost shared prosperity.
I also believe it is a role of civil society to raise flags
when we see the institution making choices that undermine its
mandate or cause harm to vulnerable communities. To that end,
my testimony focuses on recent and concerning trends in the
World Bank Group's education and financial sector portfolios.
Despite much of the Bank's education work supporting
governments to improve public education, we are deeply
concerned about the poverty and inequality impact of the
institution's increasing support for profit-driven commercial
schools. The International Finance Corporation (IFC) has
quadrupled its investments in for-profit primary and secondary
schools in recent years, while over one-fifth of the
International Bank for Reconstruction and Development's
(IBRD's) and the International Development Association's (IDAs)
projects include support for public-private partnerships
(PPPs), that use public funding to support private education.
And it is not just a project here and there that we worry
about. Our analysis finds that the World Bank is actively
advising governments to expand the private education provision.
We have particular concerns around support for so-called low-
fee private schools, because no matter how small the fee is,
they are simply unaffordable for the poorest families. In
Ghana, a poor family will spend 40 percent of its household
income to send just one child to one of these schools. Evidence
shows that girls disproportionately lose out as parents are
forced to choose which child to send.
When it comes to quality, the evidence shows that these
schools cut costs by relying on unqualified teachers, who are
paid dismal salaries. This flies in the face of the World
Bank's own evidence that the presence of a trained and
qualified educator is one of the most important factors for
achieving strong learning outcomes. These schools also have a
track record of resisting government regulation and educational
standards.
Mr. Chairman, the lessons from around the world could not
be clearer. Pushing profit-driven and market-based alternatives
to a public education system creates educational segregation
and exacerbates educational inequalities and wider social
inequalities. Education is a right, not a market commodity.
Investing in free and inclusive public education of good
quality is the best way to ensure fulfillment of education for
all.
The World Bank Group should urgently redouble its focus on
supporting countries to expand and improve the public and free
provision of education. Our strong recommendation is that the
IFC stop funding for-profit commercial schools at the basic
education level, that is K through 12.
It is morally outrageous for companies to be making a
profit on the backs of poor families who are sacrificing other
basic needs to pay fees. And it is even more morally outrageous
for development finance to support that.
Let me now turn quickly to the financial sector. As you are
aware, the IFC lends money directly to private sector
companies, but it is increasingly lending money to financial
institutions such as commercial banks and private equity funds,
which then on-lend to companies. As of 2018, Oxfam's research
finds that 55 percent of the IFC's portfolio is invested in
these financial intermediaries, or FIs. That was a whopping
$6.4 billion. Ninety percent of that portfolio is made up of
commercial banking clients.
The challenge is an utter lack of information about where
the money ends up once the IFC gives it to these
intermediaries, and hence, what is the real impact that
follows, be it good or bad. Oxfam and others have done in-depth
research exposing the IFC's connection to several highly
problematic projects through its FI clients, including in
Honduras and in the Philippines, cases where the communities
are suffering from unmitigated risks, loss of livelihoods,
forced evictions, human rights abuses, and in some cases,
murders with impunity.
Lack of disclosure about IFC's FI subprojects means a
complete lack of accountability. The need for information is
real and urgent for communities who are facing day-to-day
suffering to know their rights as provided for in the
performance standards of the IFC and to know how to seek
recourse at the IFC if harm is done.
The U.S. has been a champion for strong environmental and
social standards for transparency and accountability at the
Bank over the years, and we ask you to continue that leadership
to promote systematized and required disclosure of financial
intermediary subprojects. There is a voluntary initiative,
which was recently announced by the IFC, but this must
absolutely be a stepping-stone towards a requirement for the
disclosure.
Finally, considering the discussions around IDA's private
sector window, we propose banning the use of this window to
finance any for-profit schools, as well as mandating the
disclosure of subproject information and any financial
intermediary investments made through the window.
Thank you.
[The prepared statement of Ms. Daar can be found on page 39
of the appendix.]
Chairman Cleaver. Thank you, Ms. Daar.
Ms. Schwarz, you are now recognized for 5 minutes.
STATEMENT OF JOLIE SCHWARZ, POLICY DIRECTOR, THE BANK
INFORMATION CENTER
Ms. Schwarz. Chairman Cleaver, Ranking Member Hill, good
morning, and thank you for the opportunity to testify today.
My name is Jolie Schwarz, and I am the policy director at
the Bank Information Center (BIC). BIC is an organization which
monitors and influences the policies and operations of the
World Bank Group and other international financial
institutions.
IFIs like the World Bank Group underpin the global
financial system. These IFIs set standards for other major
players in the broader development community, especially in
terms of transparency and accountability. In large part, this
is due to the history of leadership by the U.S. Government and
Congress, both of which have worked for decades to encourage
the adoption of strong social and environmental standards and
independent accountability mechanisms.
The World Bank Inspection Panel and the Compliance Advisor
Ombudsmen provide critical pathways for impacted communities to
raise concerns and ensure that projects supported by U.S.
taxpayers do not destroy the environment or undermine human
rights.
The current review of the inspection panel toolkit and the
recently commenced accountability review at the IFC present
clear opportunities for the U.S. Government and Congress to
encourage the Bank to adopt specific structural reforms,
including: number one, the addition of monitoring and dispute
resolution functions to the inspection panel toolkit; and
number two, the creation of a remedy fund at the IFC.
Congress generally, and this subcommittee in particular has
historically played a critical role in strengthening
accountability at the World Bank. The panel was created in 1993
in the wake of the Bank's withdrawal from the hugely
controversial Sardar Sarovar Dam on the Narmada River in India.
A hearing by this committee contributed to the growing
recognition that a lack of accountability in the Bank's
approval culture had eclipsed its focus on development
outcomes.
Congress took a number of other steps. Most critical among
those was Congressman Barney Frank using the authorization
authority of this subcommittee to ensure the Panel was
established. One of the Panel's most recent investigations
highlights its value in enhancing the Bank's development
outcomes. In that case, the Panel documented failures
associated with the World Bank-financed road project in which
dozens of girls in rural Uganda were victims of sexual
exploitation and abuse. The Bank responded by adopting sweeping
reforms and initiatives to improve the institution's response
to gender-based violence and child exploitation and abuse.
This, in turn, has catalyzed significant change across the
development finance landscape.
Over 2 years ago, the World Bank board of directors
initiated a process to modernize the inspection panel by adding
additional functions to its toolkit. The United States
Government has done a great deal to push the board to adopt the
proposed functions. However, the board's inability to come to a
consensus calls into question its commitment to strengthening
accountability at the institution.
At a time when civic space is closing and evermore
restricted around the world, it is critical that the World Bank
board brings its accountability system in line with similar
institutions across the development finance landscape by:
first, giving it the authority to monitor how the Bank responds
to the Panel's investigations; and second, by offering affected
communities and project proponents the opportunity to seek
dispute resolution through the Panel's offices.
While the review of the inspection panel's toolkit
continues, the board has also commenced a review of the
accountability system at the IFC, including the CAO. The CAO
had generally operated with less controversy and resistance
from management than the Panel, but in recent years, IFC began
to raise more objections to the CAO's compliance findings, and
in some cases, appeared to ignore the findings altogether. This
trend was exemplified by IFC's inaction with regard to the
CAO's findings on the Tata Mundra coal-fired power plant
complaint.
With nowhere else to turn, communities took the unusual
step of suing the IFC in Federal court in the United States. As
part of the response to this lawsuit, the CEO of the IFC,
Philippe Le Houerou, has taken some welcome steps to improve
the IFC's record in managing environmental and social risks of
its projects, but more is needed to strengthen IFC's response
to the CAO process and to enable remedy when harm occurs.
Establishing a community remedy and response fund is
necessary to protect communities from bearing the
disproportionate environmental and social risks of IFC finance
projects. As the Bank engages in evermore challenging context,
Congress also has an important oversight role to play to ensure
that the institution has the tools and resources it needs to
continue setting high standards for the broader development
community, and to ensure that all people are able to benefit
from its projects and programs.
Thank you.
[The prepared statement of Ms. Schwarz can be found on page
67 of the appendix.]
Chairman Cleaver. Thank you, Ms. Schwarz.
Mr. Kenny, you are recognized now for 5 minutes.
STATEMENT OF CHARLES KENNY, SENIOR FELLOW, CENTER FOR GLOBAL
DEVELOPMENT
Mr. Kenny. Thank you, Chairman Cleaver, Ranking Member
Hill, Chairwoman Waters, and members of the committee. Thank
you very much for the opportunity to testify this morning.
My name is Charles Kenny, and I am a senior fellow at the
Center for Global Development, a think tank in Washington, D.C.
I would like to make two main points. First, the World Bank
Group is a powerful force for global development. It has
benefitted from U.S. leadership and support. Second, the IFC,
the World Bank Group's private sector arm, needs reform if it
is to deliver more in the countries that need its help the
most.
As you know, the World Bank Group is a central component of
the multilateral financial architecture that has supported
global development and furthered U.S. interests in a stable,
secure, and prosperous world. Between them, the World Bank and
the IFC support the two vital pillars of development: an
effective government; and a robust private sector.
The Bank Group leveraged U.S. support to commit $62 billion
in development financing in 2019, operating at a scale and
across a range of countries and sectors that the U.S. is unable
to achieve alone. Continued American leadership and financial
support in the World Bank Group should be a high priority.
At the same time, as Ms. Schwarz mentioned, historically,
the U.S. Congress, and this committee in particular has played
an important role in ensuring that the World Bank Group's
activities support development that respects rights and the
environment, and targets some of the most vulnerable people in
the world.
In that regard, the recent performance of the World Bank
Group's private sector arm is concerning. Fragile and conflict-
afflicted states accounted for less than 5 percent of IFC
commitments, and low-income countries accounted for just 2.6
percent of commitments in 2016--2.6 percent--and that compares
to 25 percent in 2003. The problem is not so much a lack of
cash as a lack of good projects.
Nonetheless, the Bank Group's response has been to use $2
billion of resources from IDA, the lending arm that usually
finances governments in poor countries, to provide subsidies to
firms involved in IFC investments. Simply applying subsidies
does not significantly expand the pipeline of high-impact,
private sector projects in developing countries that the IFC
can support. Making matters worse, subsidies risk crowding out
other development finance institutions, and that includes the
new U.S. International Development Finance Corporation.
The current use of subsidies by the IFC ignores common-
sense rules of effective private sector engagement developed by
the World Bank Group itself. The Bank Group is a founder
signatory to a set of principles that calls for subsidies to be
driven by public sector priorities to be allocated fairly, on a
level playing field, and to be transparent. In reality, IFC's
use of subsidies meet none of these principles.
The IFC needs a change in its fundamental model in order to
increase its development impact in poorer countries and make
best use of the capital increase. I agree with Mr. McGuire that
poorer countries need more private investment, but this current
approach of the IFC is not working to deliver that.
Regarding subsidies, as a matter of routine, the IFC should
use competitive approaches or open offers to allocate. For any
non-competitive subsidy awards that remain, the size of a
subsidy should be capped at 10 percent or less of the total
value of IFC support. That is a little less than half the
average subsidy level reported on the projects that the IFC
subsidized in 2017 and 2018. That is because the risks of
subsidy are the greatest with these non-competitive allocation
approaches.
Subsidy terms should be transparent. The IFC has taken a
first step by reporting subsidy estimates, but it should also
report the market rate estimate from which the subsidy is
calculated, the mechanism of subsidy calculation, and the
economic justification for the subsidy. Again, the IFC should
mandate disclosure of beneficial ownership and tax jurisdiction
of investee firms as Congress has pushed for previously. As Ms.
Daar mentioned, this should apply to sub-investees, as well.
It is important that the U.S. shows leadership and
commitment to multilateralism, including at the World Bank
Group. I strongly support the U.S. taking part in the IBRD
capital increase, both as a statement of continued leadership
and commitment to multilateralism, and as an incredibly
effective tool to leverage U.S. resources for global
prosperity.
At the same time, while an IFC capital increase under the
current model will strengthen the institution as a tool for
engagement in wealthier developing countries, with reforms, it
could also have a significant impact in the world's poorest
countries. U.S. support for a larger IFC should be matched with
reforms for a better IFC.
Thank you very much.
[The prepared statement of Mr. Kenny can be found on page
60 of the appendix.]
Chairman Cleaver. Thank you, Mr. Kenny.
Mr. Debevoise, you are recognized now for 5 minutes.
STATEMENT OF ELI WHITNEY DEBEVOISE II, PARTNER, ARNOLD & PORTER
LLP
Mr. Debevoise. Thank you, Mr. Chairman, Ranking Member
Hill, Chairwoman Waters, and distinguished members of the
subcommittee. It is an honor to appear before you today to
speak about the authorization of capital increases for the
World Bank and the IFC.
It was mentioned, I think by the ranking member, that this
is only the fifth opportunity for a capital increase at IBRD in
its entire history, so these do not happen every year.
It is also the case that the capital increase for IBRD
which you are presented with is a reflection of the financial
crisis that we went through back in 2008. At that time, the G-
20 called on the Bank to open the faucets and to help the rest
of the world. And it did. It responded in kind.
That, in turn, led to an increase in lending from a pace of
about $13 billion a year to almost $34 billion a year. But that
was obviously an unsustainable pace, and that led to the fourth
capital increase request, which you had back in 2011. What you
see now is a reflection of a further discussion about whether
$34 billion a year or something less than that should be the
new normal. And it was obviously not sustainable to maintain
that higher pace.
So, what has happened is, the United States Treasury has
responded intelligently here. And I know there has been some
concern expressed about the volume of lending to countries that
are at or near the graduation level. This is an important
subject, and the Treasury has engaged with the Bank and reached
some understandings with the Bank about that. So, I think that
is an important reform.
As a shareholder of the Bank, the United States also has
been a leader in dealing with the financial structure of the
Bank, and we have always been a very strong advocate for
watching the budget very carefully, looking at policies like
loan pricing. And, in fact, with this capital increase comes a
reform in loan pricing, which will now be differential pricing.
When I was the Chair, there was a lot of talk about how we
were a big co-op and everybody should pay the same. But I think
the world has recognized that that needed to change, and that
is one of the reforms which is in this package.
The other point is that in any large institution, there is
always room to take a close look at the budget and to make
people accountable, and that has been done in this case, as
well.
There are new provisions that relate to salaries. I
remember quite well. When I was the U.S. Executive Director,
this Congress had the wisdom to limit my salary to the level of
an Assistant Secretary of the Treasury, which was appropriate.
I had no complaint about my salary, because for the average
American, it was a very healthy salary. I have colleagues on
the board who are earning substantially more because that was
the standard salary. But the Bank has agreed to start to limit
salaries, and to spend on personnel, which I think is another
important item.
There has been some discussion about the question of income
transfers from the Bank to IDA not continuing, and the use of
the private sector window at IFC as part of IDA. This
represents 3.3 percent of the entire IDA18 commitment. I think
that this is an experiment worth pursuing. And if you
disaggregate some of the programs that are there, one of them,
for example, is nothing other than the incorporation of
Multilateral Investment Guarantee Agency (MIGA) insurance
policies into IFC and IDA.
When I was there, we were constantly pushing for IFC to do
more in IDA countries and in fragile countries, and they
responded. They stepped up. And I think that this window is an
experiment worth pursuing. The countries are crying out for
infrastructure, and this is an important initiative.
Thank you.
[The prepared statement of Mr. Debevoise can be found on
page 51 of the appendix.]
Chairman Cleaver. Thank you, Mr. Debevoise.
I now recognize myself for 5 minutes for questions.
Mr. McGuire, I would like to chat with you first. I would
like to reference your time as Executive Director (ED) of the
World Bank during the previous Administration, the Obama
Administration, and the issue of ethnic diversity at the Bank
and your willingness to address the issue.
As we were preparing for the hearing today, our staff was
trying to get a better understanding of the ethnic diversity of
the Bank and could find very little information, very little
reporting on that subject. And I believe that where there is
little transparency, there is little trust. So, I have an
article here, ``World Bank Staff Chastises the Board Over Lack
of Diversity,'' and I would like to enter this into the record,
without objection.
Without objection, it is so ordered.
This issue comes up year after year after year, and I think
everybody has to struggle with the issue of inclusion,
including Congress. But I do believe that a diverse workforce
in the World Bank is extremely important, and only when we use
all parts of our great mosaic are we at our best.
Can you offer me some perspective, your perspective on the
inclusion issue?
Mr. McGuire. Certainly. Thank you for the question.
There are several things I would say related to diversity
at the Bank. I will separate the board from the staff.
The board, of course, is a little more of a challenge
because every country chooses whom they want to send forward,
and so there is really nothing that the Bank itself can do in
telling countries whom to send forward. And recall that while
we, Whitney and I, represented the U.S. alone, other EDs will
represent 10, 12, even 20 countries, and so there is a much
more complicated calculus in terms of where those members
select their EDs from. So, let's set the board aside.
I think that the issue within the staff more broadly, and
especially in various levels, the more senior levels, is an
ongoing one. It is one that the Bank has talked about at the
board level quite a bit, and it is one that I know senior
management has talked about quite a bit.
There are two things that I would say. One is that a little
bit of a challenge that the Bank has is that they really pay
attention to nations as opposed to ethnic minorities within
nations. So, when someone comes forward for hire, they
definitely track what country they are from for a number of
reasons, some quite good. In certain countries, they are very
wary of identifying people as an ethnic minority because those
ethnic minorities could be disenfranchised in the home
countries, or there are other reasons why people do not want to
identify as such.
The point is that it is only through self-reporting at this
point at the Bank that people--let's say if they are an
American hire, people have to choose to identify whether they
are African American or European American or Latino American
and so on.
Chairman Cleaver. Excuse me. But you do agree that there
should be a higher level of accountability and transparency?
Mr. McGuire. Certainly. And I agree also with your
fundamental premise that the more diverse staff you have, the
better decisions one makes in a better range of perspectives.
I would say, to that end, I know the Bank has been working
on that for several years now. They have a partnership with
Howard University, a Historically Black College in this town,
of course, working with their law school, and they have had
several dozen--I think it is 40--externs who have come to the
Bank to get experience in international development. And, so,
there are efforts underway that are led out of the corporate
secretariat.
So, it is something that the Bank cares about and has been
moving on, but I agree it is something we need to keep pushing
on to have greater transparency.
Chairman Cleaver. Particularly, since the level of the
participation of the United States in the Bank is high, or
certainly higher than the other nations. And, so, if it is
something we believe in, I think we ought to try to exploit it.
Can you also speak to the critical need for development
finance? And do you believe that the World Bank should be
leveraging the private sector to help in areas of need?
Mr. McGuire. I do, very much. And part of it just comes
down to basic market demand. The challenge that a lot of IDA
countries have is very few investors want to invest there. And,
so, pulling them in requires incentives sometimes, and it
requires risk mitigants that will make investments in those
countries more attractive.
I cannot think of a country at the Bank, IDA countries in
particular, that does not want more robust private sector
participation. So, while we need to make sure there are
guardrails around that, we need to make sure that it is done in
the right way. I do get wary when we try to take the judgment
away from IFC itself in terms of what is possible in different
countries, and we try to limit what they do, because it is hard
as it is now, but they have a long track record of doing it and
making a difference in low- to middle-income countries.
Chairman Cleaver. Thank you.
Mr. McGuire. They need to do more in true lower-income
countries and in true fragile states, but it is very, very
hard. There is very little market demand, so they have to be
aggressive in how they pull people in.
Chairman Cleaver. Thank you very much.
The Chair now recognizes the distinguished ranking member,
Mr. Hill, for 5 minutes.
Mr. Hill. Thank you, Mr. Chairman. And I thank the
witnesses. This is a good panel. I do hope, Mr. Chairman, that
we can have the Treasury Department back. I am sorry our
Treasury witness was under the weather today, but I think it
would be good to have the Administration on the record for this
issue.
Chairman Cleaver. Yes.
Mr. Hill. Thank you.
Mr. Debevoise, thanks for being here, and I appreciate your
service, too, as Executive Director. I want to turn to a
subject that we have not touched on yet this morning,
legislative mandates to the Treasury Department and our
Executive Directors in determining and basically telling them
how to vote in their role overseeing the Bank.
Do you believe these mandates are supporting or hindering
the Executive Director's effectiveness in advancing the United
States' national interest? And keep your answer short, because
I have several more questions.
Mr. Debevoise. I think that, number one, it is important
for the committee to understand that U.S. Executive Directors
pay very close attention to these mandates. When I took the
job, I was handed a 45-page manual of all of these mandates. I
must say, some of them were contradictory. Sometimes, the price
of metals is high, and sometimes, the price of metals is low.
They are in surplus, or they are in short supply. And yet, we
were directed to vote this way or that way on copper or this or
that, and that did not seem to make a lot of sense.
Mr. Hill. Thank you. Let me go on.
Do you believe that list, the 45-page manual, is excessive?
Mr. Debevoise. I believe that it could be reviewed from
time to time and trimmed, yes.
Mr. Hill. When was the last time it was reviewed, to your
knowledge?
Mr. Debevoise. Never.
Mr. Hill. Thank you.
One is a particularly well-known mandate because it is
named in honor of our Speaker, Mrs. Pelosi, and this was
adopted, I think some 30 years ago. It requires that the Bank
report on environmental considerations 120 days before the Bank
votes on a particular commitment. Whereas, over in the Ex-Im
Bank, those same environmental concerns are done in 30 days.
They have to be reported 30 days before the Ex-Im Bank reports.
Can you comment on that particular mandate and its
usefulness or challenges to our work?
Mr. Debevoise. Yes, sir. The Pelosi Amendment was a very
valuable addition to the toolkit. It was done at a time when
communication was very different from what it is today. I think
environmental impact statements were being posted on bulletin
boards in countries, and now it is all over the internet. I
would support a reduction from 120 days to 60 days for this
mandate. The mandate itself, I think is important to keep.
If we do not make that reduction, we give IFC, which has as
its internal rule a 60-day mandate, the ability to embarrass
the United States in its foreign policy whenever it desires. I
had to vote against a loan for the Panama Canal expansion--our
good ally, Panama--because notwithstanding the fact that the
environmental impact statement had been done to the Queen's
taste for more than a year, and Ex-Im Bank and IDB were also in
the project, the IFC came late because of the financial crisis
to replace private banks. It only went up 72 days, and I had to
abstain.
Mr. Hill. I think that is a good working example for our
listeners to try to understand this. Many times we are asked to
abstain based on a mandate, and then that weakens our
negotiating ability in changing the terms of agreement.
Mr. McGuire, do you agree with that?
Mr. McGuire. Absolutely. And when our hands are tied, it
limits the amount of diplomatic work we can do back and forth.
The thing to keep in mind, as well, is that we may want
that project to go forward. There may be a project down the
road that someone else wants to go forward, and it is just like
here in Congress. The ability to pull both levers and to get
one thing done is a compromise for something else, and is core
to having an effective U.S. Executive Director.
Mr. Hill. That is good. Thank you both for your thoughts on
that.
Mr. Chairman, I do hope we can assist this whole mandate
list and see if it can't be streamlined. And certainly the
contradictory points that just pile up statutorily with no
reform are frustrating the work of two fine gentlemen who
carried on this responsibility.
Mr. McGuire, you noted, and I thought it was interesting--
you were talking about the temporary facility about dealing
with currency fluctuations that the Bank proposed. Isn't that
really the International Monetary Fund's (IMF's) job?
Mr. McGuire. Given the challenges in some of these
countries, I think a lot of people need to pay attention to it.
Where it specifically comes in is in helping investors who come
in and invest in another currency to know that they have a
hedge when they need to pull those back out, let's say back
into dollars. So, it is just one more tool in the toolkit.
The IMF certainly is trying to help at the macro level to
stabilize currencies. But on a project-by-project basis, where
you may invest today and you may exit in 2 to 3 years, if you
do not know where the currency is going there and you have a 10
or 15 percent drop, it is pretty limiting for a lot of
investors and they pull back. The IMF is not going to come in
at the project level, and so that happens.
Mr. Hill. Thank you, Mr. McGuire, and I yield back my time,
Mr. Chairman.
Chairman Cleaver. The gentleman yields back.
The Chair now recognizes the distinguished Chair of our
full Financial Services Committee, Chairwoman Waters.
Chairwoman Waters. Thank you very much, Mr. Chairman. I
want to get back to where I started early on in my opening
statement, dealing with the IFC and IDA. First, I want everyone
to understand that we are not opposed to business. We believe
in economic development. We would like to see the private
sector perform, and so I want that to be clear.
However, as I take a look at what is being proposed as a
private lender from IDA with the proposal for $5.5 billion that
would go to the IFC, and recognizing that, at one time, the IFC
was giving $2.5 billion to IDA. So, it is a reversal here.
And I also want to understand exactly what the performance
has been. There was something that was put up just a moment ago
that showed that IDA basically performed better than the IFC.
I am also interested in knowing why we cannot understand
those investments from the financial intermediaries that are
used, like the big banks, why there is no transparency? We do
not know what they do.
To talk about this kind of enhanced appropriation without
having a track record, without having transparency, why
wouldn't they be coming with us with reforms now? Because with
reforms, I think we could all get together. But without
reforms, I don't see how we can.
Let me just ask, who knows who the banks invest in, the
fiscal intermediary that the IFC gives its money to? Do you
know, Mr. Debevoise?
Mr. Debevoise. This is something which is not known. The
loan is made to the financial intermediary. And the IFC may
keep track of how the recipient of the loan on-lends it, but
that information is not made available.
Chairwoman Waters. But we do not know whether or not they
are investing in small businesses in certain areas and whether
or not their investments are hurting or helping in some of
these very needy countries, do we?
Mr. Debevoise. I think, Madam Chairwoman, you can ask for
more transparency or more information about that, but I think
that it would be a big breach of faith with the board,
certainly, if the IFC were not fulfilling the commitment that
they make--
Chairwoman Waters. Yes, of course, it would.
Mr. Debevoise. --when they bring the loan to the board. The
financial institution is supposed to use it for women-led
businesses or minority businesses.
Chairwoman Waters. Okay. Yes.
Mr. Debevoise. Or small businesses.
Chairwoman Waters. We know that, but we do not know that--
Mr. Debevoise. And I am assuming that they are tracking--
Chairwoman Waters. Reclaiming my time, we do not know that
they do that. The private equity firms are transparent, is that
correct? They do tell us where the money is going, where the
money is invested, is that right?
Mr. Debevoise. In my time at the Bank, there was not that
much being done through the private equity windows, so I
honestly do not know the answer to that question. I think
asking for more information is legitimate.
Chairwoman Waters. Very good. So, we need more
transparency. That is extremely important.
And I question the amount of the proposal--$5.5 billion is
a lot of money. And the fact that the IFC does not give to IDA,
the 2.5 that they were given is just--it is the reversal that
concerns me.
Mr. Chairman, what I would like to just kind of end with is
this: Come with reforms. Come with reforms to tell us exactly
how you are operating, who is benefitting from it, on and on
and on, and let's see if we can get together on this. Without
those kinds of reforms, I am just not interested in giving any
support.
With that, I yield back the balance of my time.
Mr. McGuire. Madam Chairwoman?
Could I address that, Chairman Cleaver?
Chairman Cleaver. Yes, please.
Mr. McGuire. Several things. I appreciate all of the points
that you made, Madam Chairwoman.
What I would say is that, as a person who was on the board
when we put through this IDA replenishment, these new changes
were a part of a broader set of reforms. This was, as I
mentioned in my testimony, a follow-up to safeguard reforms we
put in place to make sure there was greater accountability and
higher standards. But the idea here was we were actually
changing the way IOC was doing business by creating this
private sector window.
I would argue we need more time to see its effectiveness.
But, again, because we also issued debt for the first time, we
were giving much more money to IDA countries, so this is part
of a range of reforms that we have made.
And what I would say is that if we do not support it now,
it weakens American leadership broadly. But also, I think what
we want to do is make sure we are judging it over the full
course of time, and then we can take another look at the next
replenishment as opposed to restricting it too much now.
Chairman Cleaver. Thank you, Mr. McGuire.
The gentleman from both of my home States is recognized,
Mr. Williams.
Mr. Williams. Thank you, Mr. Chairman. You are always
welcome in Texas.
One of the newest multilateral development banks is the
Chinese-led Asian Investment Infrastructure Bank, otherwise
known as the AIIB. This bank was opened in 2016. Even though it
is relatively young, the Chinese-led institution has already
loaned more than $5 billion to projects in over 13 countries.
It seems like the AIIB is simply an extension of China's Belt
and Road Initiative.
So, my question to you, Mr. McGuire is, can you talk about
these differences between the AIIB and other MDBs as it relates
to China, who appears to be using this institution to advance
their own foreign policy agenda?
Mr. McGuire. Sure. And it really goes to the fundamental
difference between the World Bank and the AIIB in that the AIIB
is quite explicitly supportive of Chinese state-owned
enterprises doing a lot of this work.
As I said earlier, the Bank's historical evidence, but also
its orientation, is not to utilize state-owned enterprises and
not to directly tie into a national interest of some sort like
what China is doing on a bilateral basis through the Belt and
Road Initiative.
So, the Bank's approach is fundamentally different. And,
again, that is why I think the support is so important because
many countries that I have traveled to and I talked to, would
much rather work with the American-led system. If we are not
there, they will work with whomever is there. So, if we do not
have a strong, robust World Bank offering our way of building
economies, then they will turn to the other option.
Mr. Williams. Okay. Thank you.
In 2015, the World Bank suspended the Uganda Transport
Sector Development Project due to sexual misconduct by Chinese
contractors and the use of child labor. The Bank admitted that
there was not proper oversight over this project. But in June
2017, the World Bank lifted its suspension.
Ms. Schwarz, you briefly mentioned the Uganda case in your
testimony. Can you elaborate on what reforms have been
implemented at the World Bank to ensure proper oversight so
that these horrific incidences will never happen again?
Ms. Schwarz. Sure. Thank you for the question.
I think with respect to the Uganda Transport Sector
Development case, as I mentioned in my testimony, it is also a
really great example of how the current accountability system,
the inspection panel specifically, is working well at the World
Bank. Not only were they able to implement reforms in the
context of that specific project on the ground in making sure
that the people who were impacted, especially the children in
the community, were able to access services, the Bank came in
with supplemental projects afterwards and were able to help
girls access life skills services, re-enter into school, and
things like that. So, there were really important things that
happened on the ground with respect to that project because of
the accountability process.
The broader sets of reforms that happened after that? As I
mentioned, the Bank took the unusual step of actually reviewing
its portfolio more broadly. Normally, in the accountability
process, the focus is really on the specific project and on the
people who were harmed in that specific project. In this case,
they took a much broader approach looking at the entire
portfolio. They put together a gender-based violence task
force, which suggested many different reforms and how they can
do this better along procurement policies, as well as in how
they interact with their contractors, and how teams are looking
to address and mitigate risks up front in the design of
projects.
Mr. Williams. Okay.
Ms. Schwarz. There has been a lot of additional guidance
and tools that have been made available now to Bank staff to
make sure that they are looking for these problems up front,
and they are able to put together mitigation plans that help
address and prevent these risks.
Mr. Williams. Okay. Thank you.
Mr. Debevoise, I would like for you to discuss the role of
trust funds at the World Bank. There has been bipartisan
concern about the trust funds accountability compared to board-
approved assistance. So, I guess I would ask you, can you
explain why trust funds are preferable to having board members
direct funds to be allocated where they will have the greatest
impact?
Mr. Debevoise. Thank you, Mr. Williams. The trust fund area
is an area which has grown tremendously. I think it now
probably exceeds $25 billion. Trust funds come in all kinds of
sizes. Many small countries use trust funds just as a
substitute for their own development agency, and they
essentially get the Bank to do the fiduciary work.
And then there are some very large trust funds, like the
Global Fund, which is absolutely fundamental in terms of public
health around the world, and the U.S. is a strong supporter of
it.
There can always be more oversight of trust funds and more
transparency, but I think this is also an area where perhaps
some of the problem could be addressed by limiting the minimum
size of the trust fund that the Bank is willing to accept
because there is a proliferation of funds, and the fiduciary
controls are obviously harder to impose the more trust funds
you are managing.
Mr. Williams. Thank you, and I yield back.
Chairman Cleaver. The gentleman yields back.
The gentleman from Colorado, Mr. Perlmutter, is now
recognized for 5 minutes.
Mr. Perlmutter. Thanks, Mr. Chairman.
I have just some basic questions, but before I do that, Mr.
Williams mentioned China. We have been looking at the screen
that shows China's financial influence around the globe. Last
night on the Rules Committee, we talked about the Export-Import
Bank and whether or not they should be supporting state-owned
organizations, businesses that might be owned by China. And I
just want to enter into the record from foreignpolicy.com an
article dated October 15, 2019. The title is, ``Trump is
Beijing's Best Asset.''
Chairman Cleaver. Without objection, it is so ordered.
Mr. Perlmutter. My questions really are to the basic
structure of this lending network that we have that came out of
Bretton Woods many, many moons ago.
To anybody on the panel, can you explain to me the lending
in the international sphere, from America's point of view? We
have the United States Agency for International Development
(USAID). We have the Millennium Challenge Corporation (MCC). We
have been talking about the International Development
Association (IDA), the International Finance Corporation (IFC),
the Export-Import Bank (Ex-Im), and the International Monetary
Fund (IMF).
So, in the spectrum, how do these things fit together? And
then, I want to ask about a basic lending deal and why we do
not know where the money goes specifically.
Mr. McGuire, do you want to take a crack at it for me? Just
sort of give me a primer on all of our lending entities and who
they--USAID is to the poorest. And maybe you, Ms. Daar, can
jump in, too?
Mr. McGuire. Sure. And others may want to augment this.
USAID gives grants as opposed to loans, largely for
humanitarian interventions of various sorts. For example, in
Northern Jordan, to help with the Syrian refugee crisis, they
give direct grants there.
Mr. Perlmutter. Millennium?
Mr. McGuire. Millennium Challenge Corporation works with
specific countries that are lower income and fit a certain set
of standards. And what they do is they have an agreement. It is
called a compact. If a country does X, Y, and Z, they get X
amount of money.
Mr. Perlmutter. So it is a loan agreement?
Mr. McGuire. Yes. It is similar. Where the World Bank is
different is that it is working with countries--almost every
country in the world is a member. And what it is doing is
targeting, through their expertise in conjunction with the
ministers of finance largely, what specifically would help to
build the economic development of that country. And then, it
lends relatively cheap money to those countries for them to
implement those programs with the Bank's help. So, it is a very
hands-on way of helping countries to develop their economies
and grow more quickly.
Mr. Perlmutter. International Monetary Fund?
Mr. McGuire. The International Monetary Fund is the
firefighter that comes in when someone is in big distress, for
example, Argentina, when they had their currency devaluation
last year. The IMF goes in to try to shore things up and to
provide capital necessary to stabilize things. So, it is much
more the firefighter in the system.
Mr. Perlmutter. Okay. Now give me a basic deal--and maybe I
will turn to you, Mr. Debevoise--that the World Bank makes a
loan through something, to somebody, for some purpose. How does
it work?
Mr. Debevoise. Thank you. Actually, I am not sure that I
can give you a primer in the 5 minutes allotted because, within
the World Bank Group, there are at least 3 different financial
models.
The IBRD has a very small amount of paid-in capital, and
then they have a lot of callable capital, which this Congress
has authorized.
But the key word there is leverage. With USAID, there is no
leverage. With MCC, there is no leverage. With IBRD, there is
leverage, about 25 times. So, for every $1 we put in, we get
$25 of lending.
Mr. Perlmutter. Alright. So, give me a basic deal.
Mr. Debevoise. So that is IDA. IDA is grants. IDA is not
going to the market to raise money.
IBRD, small capital, go to the bond market to raise the
money that you lend.
IDA is grants. That is an annual appropriation.
IFC is private sector, but it has paid-in capital only.
There is no callable capital at the IFC. There is leverage at
IFC, but it is not as great as the leverage at IBRD.
Mr. Perlmutter. When you say no callable capital, you
cannot collect the loan? I'm sorry. I was a banking lawyer but
I do not know what you are talking about.
Mr. Debevoise. So, here is the point. This goes back to the
founding of the Bank. The big concern was we have limited
resources post-World War II. We are going to put in a small
amount of capital. We are going to go to Wall Street and sell
bonds.
Mr. Perlmutter. Okay.
Mr. Debevoise. So we get leverage, okay? Now, in order for
those people to buy those bonds, they want to know that they
are backed by something. That is where the callable capital
comes in. The callable capital can only be called to pay the
bonds.
Mr. Perlmutter. Okay.
Mr. Debevoise. It cannot be called just because the Bank
wants to lend more money.
Mr. Perlmutter. Alright. So, in that instance, wouldn't you
want to know who the heck the money is going to, ultimately?
Mr. Debevoise. Yes. And with IBRD, you know that
absolutely. The borrower is a country and you know absolutely
where that--
Mr. Perlmutter. But you don't know within the country where
it is going?
Mr. Debevoise. You do not know every detail, but you have a
lot of mechanisms for understanding how the money is being
used. But I am not going to sit here and tell you that we--
Mr. Perlmutter. Well, no.
Mr. Debevoise. --know every penny. Money can be detoured.
And we have had discussions about corruption, and that is an
important agenda.
Mr. Perlmutter. Thank you for your testimony.
Chairman Cleaver. Thank you, Mr. Debevoise.
The gentleman from Ohio, Mr. Gonzalez, is now recognized
for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Chairman Cleaver and
Ranking Member Hill, for holding this crucial hearing to
examine multilateral development institutions. And thank you to
our panel.
Properly focused, I think the Bank does help lift nations
out of poverty while building a robust institutional integrity,
and I think that is important. My fear is that instead of being
focused on this task, the Bank has instead become an important
tool for China to expand its ambitions.
To that end, this week I introduced legislation to support
the Administration's efforts to graduate China from IBRD
lending. Currently, a country's potential graduation from IBRD
lending stands at a gross national income (GNI) per capita
level of $6,975. The Bank calculates China's GNI per capita as
equivalent to over $9,000. But, according to the Center for
Global Development, China has received $7.8 billion since
crossing the graduation, the theoretical graduation threshold
in 2016.
So, my first question is, how do we even allow that to
occur when you consider that China has the world's fastest
super computer, the most powerful hypersonic wind tunnel, and
the first quantum-secured satellite communication system? Why
on earth should U.S. taxpayers be subsidizing that? And I will
ask Mr. Debevoise.
Mr. Debevoise. Thank you. This is a discussion that has
been going on for a long time, going back to the Meltzer
Commission, as I am sure you know. And there should be
graduation for China, and the Bank has been, how do we say,
flexible on that standard. But I believe that they are now on a
track which is going to produce a winding down of this lending
effort.
But the point of the reforms--
Mr. Gonzalez of Ohio. Excuse me for one second. How
confident are you in that? Because the latest report I read
suggests that China will graduate when China has decided that
they are in fact a developed country, and they are leaving it
to the borrower nations to determine that as opposed to
anything else.
Mr. Debevoise. I could be wrong, but I do not believe that
is the case. But the historical argument that was used to
justify this lending was that, in fact, the Chinese use it to
acquire knowledge in key areas of interest to them. The
counterargument, obviously, is go to the market and get the
money if you want that knowledge.
Mr. Gonzalez of Ohio. Right. But also--
Mr. Debevoise. But the Bank does have development knowledge
which is not available elsewhere. And, so, the answer to that
is if you want the knowledge, pay for technical services; don't
borrow.
Mr. Gonzalez of Ohio. So, they have not graduated yet. We
seem to be in agreement that they should. How do we get them to
go from here to there, in your estimation? What is the best way
to get them to graduate?
Mr. Debevoise. I think it has to be peer pressure. The
other countries in the institution need to have a rule, and
they need to enforce it.
Mr. Gonzalez of Ohio. Mr. McGuire, do you have a
perspective on that?
Mr. McGuire. I was going to say this is, I am sure, a topic
of regular conversation with the board. We have a U.S.
Executive Director who can be quite forceful on this and can
move it forward. I know that one of the issues some other
countries have had is that much of the lending--about half, I
think, according to Charles' analysis is going towards public
goods, like reducing their carbon emissions.
Mr. Gonzalez of Ohio. Right.
Mr. McGuire. And, so, other countries are supportive, but
absolutely can be graduated. I think that is the appropriate
place for the board to weigh in and our ED to push.
Mr. Gonzalez of Ohio. Yes, because money is fungible,
right? And, so, if we are lending at subsidized rates, and yes,
these might be noble projects, but that means that China can
use other dollars more effectively for their SOEs and to expand
whatever their ambitions are.
I want to focus on HR specifically for a second. Part of
the issue I would argue has to do with leadership structure.
Shaolin Yang, as an example, is a Chinese national who serves
as the chief administrative officer, and is responsible for
strategy, budget, and ethics. Do you see any issue with having
someone from a country that deters its own people, restricts
birthrates, and denies basic human rights to its people, not to
mention what is happening in Hong Kong, Taiwan, and Tibet, as
the head of the ethics department? Mr. Debevoise, do you see
any issues with that? It just seems odd.
Mr. Debevoise. Well, I happen to know the gentleman. He is
an international civil servant. I have seen him in action. And
I believe that the Bank generally functions that way. Once you
become a bank official, you are not to be taking instructions
from your home country. And I think if we believe in the
multilateral system, we have to have faith in that.
I agree with you that on the surface, it might look strange
to some. But I believe that if the president believes that the
person in the job is not doing the job, then the president of
the Bank has the ability to suggest that person might be
reassigned.
Mr. Gonzalez of Ohio. Thank you. I think it is worth
additional scrutiny, and I yield back.
Chairman Cleaver. We are going to have a semi next round of
questions. I will begin, and then yield to Mr. Perlmutter for 5
minutes, and then the ranking member will have 5 minutes, as
well.
Mr. Hill. Don't forget Mr. Riggleman.
Chairman Cleaver. Mr. Riggleman?
Mr. Hill. Yes, who missed--
Chairman Cleaver. Where is he?
Mr. Hill. He was here, had been sitting here before.
Chairman Cleaver. The late Mr. Riggleman--
Mr. Hill. Well, he is not late. He is still alive.
[laughter]
Chairman Cleaver. --will also have an opportunity.
I recognize myself for 5 minutes.
Ms. Daar, earlier in the year, concerns were raised,
appropriately, from my perspective, about the World Bank's
proposed $100 million development project in Myanmar, where
there is active and well-known ethnic cleansing taking place.
And then, the New York Times, in an investigatory piece,
reported that $50 million of World Bank funds marked for
education had been linked to detention camps in a Chinese
province.
Are you aware of these incidents or alleged incidents? And
if so, as the chairwoman of the Full Committee mentioned
earlier, what kind of reforms can we put in place to make sure
that we reduce, if not completely eliminate, these kinds of
acts by bad actors?
Ms. Daar. Thank you, Mr. Chairman. I think you raise an
important point about added scrutiny, especially as the World
Bank is increasing and looking to scale up its investments in
fragile and conflict-afflicted states.
In the case of Myanmar specifically, I am not aware of the
details around one of the projects that you mentioned. I am
aware of a proposed project in Rakhine State, and we have
concerns around that project and want to make sure that no
project is going to be financed that would result in the
exclusion of certain communities. In this case, we are
particularly concerned around Rohingya communities not being
able to fully benefit from a project in Rakhine State.
In terms of the kinds of reforms that can be made forward,
I think a lot of scrutiny should be made. While there can be a
lot of benefit brought from the World Bank engaging more in
fragile and conflict-afflicted states, I think there should be
a lot of scrutiny about how they will deal with governments
that would be party--that are party to conflict especially.
Chairman Cleaver. Yes.
Ms. Daar. And I think enhanced and full transparency around
where money is ending up is critical. That is why today, in my
testimony, I pushed for full transparency and required
disclosure of subprojects and financial intermediaries.
Chairman Cleaver. Thank you. I have to agree with you
strongly.
Mr. Perlmutter is now recognized.
Mr. Perlmutter. Thanks, Mr. Chairman.
Mr. Kenny, I would like you to talk about the IFC's
business model and whether or not you think they are capable
and competent to enter into some of the riskier investments,
and whether they are going to do this in IDA countries? I turn
it over to you, sir.
Mr. Kenny. Thanks very much, Congressman.
The IFC has been trying and has previously made commitments
that it would do more in IDA countries. To date, it has not
delivered. In 2011, it said that 50 percent of its projects
would be in IDA countries. The actual level is close to 24
percent.
As I mentioned in my testimony, I think that reflects not
that the IFC is not trying reasonably hard; it is that there
aren't very many projects that fit its model in those
countries, and so it needs to change its model. And, of course,
the private sector window that is taking money out of IDA and
giving it to private firms has been sort of one part of their
response.
It has been called an experiment worth pursuing. I would
say two things about that. One is, yes, sure, it is an
experiment, but actually we have a fair amount of history when
it comes to how to subsidize the private sector to deliver
better. And, indeed, the World Bank has developed principles
around how to subsidize the private sector in order to help it
deliver better. The IFC is ignoring those principles in how it
uses IDA's money, and I think it needs to stop doing that.
The second part is that if it is an experiment worth
pursuing, we need to know if the experiment worked. We will not
know if the experiment worked if they are not a lot more
transparent about what is going on.
Mr. Perlmutter. Thank you. I yield back to the Chair.
Chairman Cleaver. Thank you.
The Chair now recognizes the ranking member, Mr. Hill.
Mr. Hill. Thank you, Mr. Chairman.
The Senate has included a capital increase for the Bank in
the State Foreign Ops Appropriations Bill, and it appears that
there is consensus that the World Bank lending will fall
significantly without this U.S. contribution. And the
credibility of the U.S. maintaining its leadership as the
largest shareholder, failing to authorize the capital package
might jeopardize the world's work for the most impoverishes
countries and fragile states.
I am interested, is there anyone on the panel today who
would oppose the capital increase being approved? Would you
raise your hand if you are opposed to the capital increase
being approved?
So, Mr. Chairman, our panel today all support the capital
increase that is being proposed for the Bank. I find that
interesting. I had not heard that this morning fully, so that
is helpful.
Ms. Daar. May I make a comment, respectfully?
Mr. Hill. Yes.
Ms. Daar. Thank you.
Mr. Hill. Quickly, yes.
Ms. Daar. Yes, sure. Just to say that I think what the
consensus that I am hearing also is that there are a lot of
reforms needed as the U.S. enters the negotiation and continues
conversations around the general--
Mr. Hill. Sure. We all support significant reforms, and I
ticked off a few of those in my opening statement, and will put
the rest of them in my opening statement for the record. I
think the Bank has a lot of things it needs to do, and I am
sure Mr. McGuire and Mr. Debevoise would agree with that.
It was created in 1944. Today, is a different world. We
have lifted poverty and living standards around the world. We
were 50 percent of GDP in 1944. We are 18 percent of GDP now in
the world, so there is a lot more that lots of countries can do
to help alleviate poverty and increase development around the
world. So, reforms are important.
And that brings me to something that Larry Summers said
recently, our former Treasury Secretary. Mr. Summers said that
he was concerned about the fungibility of money. My friend from
Ohio noted that. And he asked questions just specifically about
China. He said, ``Let's apply that fungibility issue to China,
which sits on $3 trillion in reserves.''
If the World Bank is financing a project in China, why
isn't Beijing doing the project anyway? And if the Bank does
finance it, what are we doing permitting Beijing to otherwise
spend its resources on it? So, aren't we funding the Belt and
Road Initiative around the world--the Majority has put these
charts up--by lending them $7 billion?
Mr. Debevoise, do you want to tackle Mr. Summers' concern?
Mr. Debevoise. Yes, indeed. Money is fungible, so from that
perspective, it is the case.
As I have said before, I think it is time for China to
graduate, and it needs to wind down. Again, though, the Bank is
an incredible repository of knowledge about--
Mr. Hill. I know that, and I hear that all the time, and
people who push back--
Mr. Debevoise. And they should pay for it. That is the
point. We should do fee-for-service.
Mr. Hill. Yes, I agree.
Mr. Debevoise. If they want the knowledge, they should pay
for it.
Mr. Hill. Yes, but technical assistance ideas is something
we have developed over 7 decades, so why don't we convert it
into a revenue stream for the Bank and not necessarily tie it
to lending?
Mr. Debevoise. Saudi Arabia does that. There is an example.
Mr. Hill. Yes. Thank you.
Mr. McGuire, based on your experience working in this
important job, would you support the World Bank having lending
conditionality on disclosure of any other sovereign debt to
that country that has undisclosed terms or conditions? In other
words, that we increase transparency.
If we are going to lend money for a project in the Congo
and we find that they have other sovereign loans, say from
China or somewhere else that has undisclosed terms and
conditions, should we make our lending through the IBRD
conditional on knowing those terms? How do you collect the loan
if you have--somebody else might have a first mortgage to be--
Mr. McGuire. I hear that concern, but I don't think I would
go down that path.
Mr. Hill. Yes.
Mr. McGuire. Because I think it could open up a Pandora's
box of any number of other proposals to come forward and make
the Bank's money less attractive to other countries.
Mr. Hill. Right.
Mr. McGuire. And I do think in all countries, you want the
Bank there, because they are a very positive interlocutor in
shifting the way that other countries operate and bring people
out of poverty.
Mr. Hill. But you do think the Bank should continue its
efforts that are underway now to collect more transparency and
inform the Third World countries, particularly, the poorest
countries, about what a benchmark good loan looks like versus a
bad loan. Is that fair?
Mr. McGuire. Certainly. As advisors, and as those who are
lenders themselves, you always want the countries to whom you
are lending to be fully aware of all the parameters of their
debt and to understand more of what they are up to, certainly.
Mr. Hill. Thank you, Mr. Chairman. I yield back.
Chairman Cleaver. Thank you.
The Chair now recognizes Mr. Sherman from California for 5
minutes.
Mr. Sherman. When was the last time that the IBRD or any
other unit of the World Bank made a loan to Iran?
Okay. Nobody knows.
Mr. Debevoise. I do not know the current answer. I can tell
you what the situation was when I was the Chair, which was that
there was no new lending to Iran.
Mr. Sherman. Has the Bank done everything possible to call
the loans that it made previously, or are they leaving those
outstanding?
Mr. Debevoise. To my knowledge, the Bank was not calling
the loans to Iran.
Mr. Sherman. Okay.
Mr. Debevoise. They had--
Mr. Sherman. And if they were to make a new loan--
Mr. Debevoise. They are being paid down, to my knowledge.
Mr. Sherman. Okay.
Mr. Debevoise. But I am not--
Mr. Sherman. So, they are being paid down, but Iran still
benefits.
The proponents of the Bank have testified here over the
years that we would have an absolute veto over Iran getting
loans, and then, they got the loans. Do we have a veto now, or
could we be outvoted in the future?
Mr. Debevoise. We have never had a veto on any--
Mr. Sherman. I know. The previous experts and proponents of
the Bank were lying to me then, and then that was--
Mr. Debevoise. We have never had a veto. But I can tell you
when I was the Chair, there was no new lending to Iran. And not
only that, we managed to discourage disbursements on existing
loans by reminding the Bank of their due diligence duties.
Mr. Sherman. But there were actually--
Mr. Debevoise. And eventually, task force actions--
Mr. Sherman. --some disbursements--so, you say there are no
new loans, but there were new disbursements while you were the
Chair?
Mr. Debevoise. No. There were none when I was there because
we managed to convince the Bank--
Mr. Sherman. Reclaiming my time, have there been
disbursements since you left?
Mr. Debevoise. I do not know the answer to that question.
Mr. Sherman. Okay. We will try to find the answer to that.
What policy can we have short of withdrawing from the Bank
to make sure that no concessionary loans are given to China?
Does anybody have any ideas?
Mr. McGuire. I'm sorry. I am confused.
Mr. Sherman. Okay. China benefits from this Bank, correct,
the IMF?
Mr. McGuire. Yes.
Mr. Sherman. That is an attack on the security of the
people of the United States.
Mr. McGuire. I'm sorry, you mentioned the IMF?
Mr. Sherman. Excuse me. I meant the World Bank.
Mr. McGuire. Okay. We have talked quite a bit today about
the graduation, China graduating out.
Mr. Sherman. Right, and I regard that as insufficient. As
long as China benefits one penny from this institution, it is
an attack on the national security of the United States. What
do we do so that we can still have a World Bank and make sure
that not one penny of concessionary aid or loan goes to China?
Does anybody have a plan for that?
Mr. McGuire. I would say that one of the things we have to
continue to do is operate according to a rules-based system.
And when they exceed the income limits for further lending,
we--
Mr. Sherman. So you do not have a plan that--
Mr. McGuire. I do.
Mr. Sherman. Okay.
Mr. McGuire. I do. And, so, we continue the graduation--
Mr. Sherman. But your plan is not designed to be effective
immediately.
Ms. Daar. May I just respond on the concessionary--
Mr. Sherman. Yes, because I know you are all--
Ms. Daar. China does not receive, as far as I am aware, any
concessionary aid from the World Bank. That is reserved
strictly for the poorest countries.
Mr. Sherman. But it does get loans from the World Bank on
terms that are better than what's available in the commercial
market. So, those who advocate the status quo can draw a
distinction between better than the market and aid, but any
normal person would say that it is certainly an aid to China
when they are able to borrow money at costs lower than the
commercial market would provide. But we can't engage in
sophistry in an effort to tell us that everything is fine and
we should approve all the money and don't worry about China's
threat to American security.
Is there anyone here who has a plan for how we can achieve
the purposes of the World Bank and make sure that not one penny
goes to China on any terms better than available in the
commercial market?
Mr. McGuire. I would say that the consideration that the
U.S. ED, I am sure, is considering right now is that you cannot
just isolate one set of rules for one country. All countries
that move past--
Mr. Sherman. We could adopt new rules and say either we do
not participate in the Bank--that is option one. Or option two,
any country that incarcerates over half a million people in
East Turkmenistan or Xinjiang Province is ineligible for all
World Bank loans. That could be a new rule. If we do not get
acceptance of that rule, we can find other organizations that
can take our money and help achieve the world's efforts to
alleviate poverty. We do not have to put our money in an
organization that subsidizes a threat to American national
security.
Mr. McGuire. What I--
Mr. Sherman. But that is unthinkable in the conventional
world, and my time has expired.
Mr. McGuire. Can I--
Chairman Cleaver. Thank you.
The Chair now recognizes the gentleman from Virginia, Mr.
Riggleman.
Mr. Riggleman. Thank you, Mr. Chairman, for calling this
hearing today, and thank you for extending it a little bit for
me because I think there is another hearing out there today
that other people are interested in. But I am glad that we
could be here today.
I'm going to go pretty quickly here. Mr. Debevoise, your
testimony described the posture of the U.S. towards MDBs as
occasionally being tough love, and I know I am sort of
following up on some of the questions that have already been
asked here.
I just want to get your opinion on what can we in Congress
or the folks at Treasury do to ensure that the U.S. is not
indirectly funding bad actors or illicit trade throughout the
world?
Mr. Debevoise. Historically, the way the subject has been
approached has been through mandates. If the Congress believes
that it wants to demonstrate its displeasure with lending to a
particular economy or a particular structure, they have
instructed the U.S. Executive Director on how to vote on that.
But as the previous line of questioning showed, I do not think
there is currently a mechanism for stopping things outright.
Mr. Riggleman. Do you think some of those mandates could be
increased transparency or additional requirements on exactly
where those funds might be going?
Mr. Debevoise. Transparency is a value that the United
States has always advocated at the Bank, and I was a big
advocate for it. I know that Mr. McGuire was when he was there.
And, so, we can always benefit from that, I believe.
Mr. Riggleman. Yes, I just returned from four countries I
think everybody would find interesting. I just went to
Honduras, and then to Panama, Argentina, and Peru. We were
looking at some of the Chinese trade practices there, so I got
to talk to a couple of presidents, the foreign ministries, and
also the trade ministries there. I found it interesting that
they--and I know this might surprise you--were a little opaque
on some of their answers to the questions that I had,
especially on the technical side.
I think this is a very important issue, and my worry is--
what I really like about this subcommittee is that there are
very thoughtful, somber people here. And I like that we try not
to politicize it too much, believe it or not, on the National
Security Subcommittee, and I think that is a testament to Mr.
Cleaver's leadership.
But I would be remiss in not talking about China. Tomorrow,
we are voting on the Ex-Im Bank bill, where the SOE portions
were removed, which I was in favor of, which was the addition
now of some state-owned enterprises. Also, on emerging
technologies, based on the fact that I just left as the Senior
Consultant for Electronic Warfare and Countermeasures at the
Pentagon, as you can probably guess, Asia was a huge priority
for us.
In that vein, I want to ask additional questions, but I
want to make note of the World Bank's new leadership under
David Malpass. There was a great deal of hand wringing by
certain people, I believe from the left, but others seemed to
have a shocking reaction to this. And I think, as we go forward
on China, we have to take some of the politicization of this
out of what we are doing because we are really in trouble here.
In Peru, China is the number one trading partner. I was
looking at some of the Tweets about David Malpass, and one
which was pretty interesting to me, was from a senior fellow at
the Center for Global Development, who wrote, ``David Malpass'
disdain for the World Bank's mission of fighting global poverty
rivals John Bolton's respect for the United Nations. There is
no case for Malpass on merit.''
That same senior fellow is also busy floating conspiracy
theories about Malpass and Ukraine.
Another one of the Center's senior fellows tweeted this
about Malpass when he was nominated for the World Bank
position: ``An incorrigible arsonist will now be our fire
chief. The man spends his adult life denigrating
multilateralism and now has the pleasure of running one of its
pillars. When does it end?''
All of these things were re-Tweeted by the Center's then-
communications director, a former Obama Administration
official, who later left the Center to take a job with the New
Hampshire Democratic Party.
And I think when you see that kind of partisanship from the
Center, it can be extremely disappointing, because Republicans
and Democrats have benefitted from its testimony and research
in the past years.
I think these attacks on Malpass were especially silly
given how much he has done at the World Bank to restore staff
morale after the disastrous leadership of Jim Yong Kim, an
Obama-nominated World Bank president whose failed 7-year tenure
we are now supposed to conveniently erase from our memory.
Well, we remember the World Bank President who came before
David Malpass, and the staff of the World Bank certainly
remembers.
I urge the Center for Global Development to return to its
core mission of rigorous research on development. When it
strays into politics, it unnecessarily puts its reputation at
risk.
And, Mr. Chairman, without objection, I would ask for
unanimous consent to enter into the record a New York Times
investigation from 2014 showing how a foreign government paid
for the Center to help influence policymakers in Washington.
For me, it is very important that we keep those types of
lobbying firms out of that.
Chairman Cleaver. Without objection, it is so ordered.
Mr. Riggleman. Thank you. I think it is very important for
us to do that. And for those who want to take the time to read
it, the article claims that Washington think tanks are for
sale. Listen, this is what I have been doing for 26 years
combined, in the military and also in intelligence work. I
think it would vastly undermine the integrity of all those who
work there if we continue to allow this to happen.
I hope the Center can say no to foreign influence
campaigns, and hopefully the kneejerk trashing of the
Administration at this point when we have such an important
task in front of us.
Thank you, and I yield back the balance of my time.
Chairman Cleaver. Thank you, Mr. Riggleman.
Without objection, I would like to enter into the record a
letter addressed to me and Mr. Hill from the Sub-Saharan
African Executive Directors of the World Bank, who wanted to
present their perspective--
Mr. Kenny. Excuse me. Can I--
Chairman Cleaver. --which has been represented.
Mr. Kenny. --just reply briefly?
Chairman Cleaver. Time has expired. I'm sorry.
Without objection, it is so ordered.
I would like to thank 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.
I would like to say as we conclude that you are the real
Americans, the great Americans, whose symbol is here in this
place, understanding that the most important thing going on, on
Capitol Hill, was this committee hearing.
[laughter]
Feel comfortable in the fact that you are a great American
for being here. This hearing is adjourned.
[Whereupon, at 11:39 a.m., the hearing was adjourned.]
A P P E N D I X
November 13, 2019
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