[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
THE STATE OF THE INTERNATIONAL
FINANCIAL SYSTEM--IMF REFORM AND
COMPLIANCE WITH IMF AGREEMENTS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
FINANCIAL INSTITUTIONS AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MAY 13, 2003
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-27
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
89-630 PDF
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice JULIA CARSON, Indiana
Chairman BRAD SHERMAN, California
RON PAUL, Texas GREGORY W. MEEKS, New York
PAUL E. GILLMOR, Ohio BARBARA LEE, California
JIM RYUN, Kansas JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois CHARLES A. GONZALEZ, Texas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey
TIM MURPHY, Pennsylvania BERNARD SANDERS, Vermont
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Financial Institutions and Consumer Credit
SPENCER BACHUS, Alabama, Chairman
STEVEN C. LaTOURETTE, Ohio, BERNARD SANDERS, Vermont
Vice Chairman CAROLYN B. MALONEY, New York
DOUG BEREUTER, Nebraska MELVIN L. WATT, North Carolina
RICHARD H. BAKER, Louisiana GARY L. ACKERMAN, New York
MICHAEL N. CASTLE, Delaware BRAD SHERMAN, California
EDWARD R. ROYCE, California GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
SUE W. KELLY, New York DENNIS MOORE, Kansas
PAUL E. GILLMOR, Ohio CHARLES A. GONZALEZ, Texas
JIM RYUN, Kansas PAUL E. KANJORSKI, Pennsylvania
WALTER B. JONES, Jr., North MAXINE WATERS, California
Carolina NYDIA M. VELAZQUEZ, New York
JUDY BIGGERT, Illinois DARLENE HOOLEY, Oregon
PATRICK J. TOOMEY, Pennsylvania JULIA CARSON, Indiana
VITO FOSSELLA, New York HAROLD E. FORD, Jr., Tennessee
MELISSA A. HART, Pennsylvania RUBEN HINOJOSA, Texas
SHELLEY MOORE CAPITO, West Virginia KEN LUCAS, Kentucky
PATRICK J. TIBERI, Ohio JOSEPH CROWLEY, New York
MARK R. KENNEDY, Minnesota STEVE ISRAEL, New York
TOM FEENEY, Florida MIKE ROSS, Arkansas
JEB HENSARLING, Texas CAROLYN McCARTHY, New York
SCOTT GARRETT, New Jersey ARTUR DAVIS, Alabama
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
RICK RENZI, Arizona
C O N T E N T S
----------
Page
Hearing held on:
May 13, 2003................................................. 1
Appendix:
May 13, 2003................................................. 45
WITNESS
Tuesday, May 13, 2003
Snow, Hon. John W., Secretary, Department of the Treasury........ 5
APPENDIX
Prepared statements:
Oxley, Hon. Michael G........................................ 46
Emanuel, Hon. Rahm........................................... 48
Gillmor, Hon. Paul E......................................... 49
Hinojosa, Hon. Ruben......................................... 50
Waters, Hon. Maxine.......................................... 51
Snow, Hon. John W............................................ 53
Additional Material Submitted for the Record
Frank, Hon. Barney:
``A place for capital controls,'' The Economist, May 3, 2003. 62
Snow, Hon. John W.:
Written response to questions from Hon. Ruben Hinojosa....... 63
Written response to questions from Hon. Barbara Lee.......... 66
Written response to questions from Hon. Ron Paul............. 67
THE STATE OF THE INTERNATIONAL
FINANCIAL SYSTEM--IMF REFORM AND
COMPLIANCE WITH IMF AGREEMENTS
----------
Tuesday, May 13, 2003
U.S. House of Representatives,
Financial Institutions
and Consumer Credit
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to call, at 4:05 p.m., in Room
2128, Rayburn House Office Building, Hon. Michael Oxley
[chairman of the committee] presiding.
Present: Representatives Oxley, Leach, Bereuter, Castle,
Royce, Manzullo, Biggert, Tiberi, Feeney, Hensarling, Brown-
Waite, Harris, Renzi, Frank, Waters, Sanders, Maloney,
Velazquez, Watt, Sherman, Inslee, Capuano, Lucas of Kentucky,
McCarthy, Emanuel and Davis.
The Chairman. [Presiding.] The committee will come to
order.
We are pleased to welcome the Secretary of the Treasury,
Mr. John Snow, for his annual testimony on the international
financial system and international monetary fund.
We would like to welcome you, Mr. Secretary, to the first
hearing and your first appearance before this distinguished
panel.
This hearing is mandated, as you know, by the 1999 Foreign
Operations Appropriations Bill, which provided an $18 billion
funding increase to the IMF. We had planned on holding this
hearing early March, however the events in Iraq, obviously,
demanded your time and oversight. And, for that, we appreciate
your good work.
The IMF plays an important role in ensuring economic
stability around the world. As the largest contributor to the
IMF, the U.S. provides this institution with over 17.5 percent
of its total resources. As a result, it is critical for
Congress to ensure that the taxpayer dollars spent on IMF
programs are spent wisely and in accordance with the goals and
objectives of the U.S. government.
Today's hearing will give members of the committee an
opportunity to learn more about the activities of the IMF and
the reform sought for this institution. In addition, I look
forward to a dialogue on the state of the international
financial system in general and the Treasury Department's
activities.
Mr. Secretary, we have seen the success of our military in
toppling a corrupt regime that oppresses people and threatened
the security of its neighbors. Now that military activities
have slowed, I am interested in learning more from you about
the rebuilding of Iraq. Last month, subcommittee Chairman King
and I sent a letter to the President of the World Bank strongly
urging him to commit staff and resources to the rebuilding of
Iraq.
I am deeply concerned that any delay in the commencement of
activities in this country for purposes of gaining United
Nations support could result in a missed opportunity for the
people of Iraq.
The World Bank and the other aid institutions must act
quickly to help bring stability to this country and restore
freedom and prosperity to the people of Iraq. I understand that
the Treasury has sent many technical advisers and contractors
into Iraq to help restart the economy. I am very interested in
learning about the status of these efforts and to what extent
the IMF will participate in the development of monetary policy
for the newly liberated Iraqi people.
Debt relief is an issue that we have been examining here on
the Hill for many years. There are a number of proposals that
have varying costs and varying amounts of empirical data on
their effectiveness. The Administration has requested $75
million in additional funding for the HIPC trust fund. I
believe that we must live up to our commitments in the HIPC
program, but there seems to be a growing consensus that more
debt relief will be needed in the future.
Can you share with the committee your thoughts on the HIPC
program and what additional debt relief measures you think are
needed as appropriate? The committee looks forward to working
closely with you in developing an effective and workable debt
relief strategy.
I would like to address the recently proposed Millennium
Challenge Account. This account will direct bilateral
assistance to countries that are committed to ruling justly,
investing people and promoting economic freedom.
As proposed by the President, the Secretary of the Treasury
would sit as a member of the Board of Directors overseeing the
account and would play a key role in setting the performance
standards for the distribution of aid. If this board becomes
the primary body in which U.S. bilateral aid policy is
developed, I will be interested in hearing what role it would
be expected to play in development of U.S. multilateral aid
policy. It makes sense to me that U.S. bilateral and
multilateral policy should be as consistent as possible.
Finally, Mr. Secretary, I would like to address the
Development Bank authorizations before this committee. Congress
appropriated $959 million for U.S. participation in the
international development association, the Asian Development
Fund and the African Development Fund; however, the expenditure
of those funds has not yet been authorized. In the 107th
Congress, this committee and the International Monetary Policy
and Trade Subcommittee held eight hearings related to the
authorization of these institutions.
I want to thank you for working closely with the committee
on a bipartisan basis to formulate an authorization package for
these institutions. And I look forward to finalizing a proposal
soon. Secretary Snow, welcome and I look forward to your
testimony. I now yield to the Ranking Member of the committee,
the gentleman from Massachusetts, Mr. Frank.
Mr. Frank. Thank you, Mr. Chairman.
Mr. Secretary, one of the concerns I have had has been the
insistence of the U.S. government, over the objection of our
trading partners, certainly Chile and Singapore, in including
in free trade agreements a requirement that they agree, in
effect, never to use capital controls, no matter the
circumstance even if there are emergencies that arise and even
in those cases, and we have a right to insist on this, where
Americans are treated entirely fairly and there are no
discriminations.
I know as a fact that neither Chile nor Singapore wanted to
sign that. They requested, not want to pass up the chance to
have the access to the American market. What I have been struck
by, is the number of people who are very devoted free traders,
Professor Bhagwati of Columbia or the Economist magazine who
have made the point that capital and goods are somewhat
separate and having an American insistence on no capital
controls ever without them paying penalties seems to me to be a
grave error.
And I have to say, as you contemplate a broader set of free
trade agreements, it is going to be a very complicating factor.
And I am going to ask to put into the record at this point the
editorial from the Economist of May 3 talking about what a
grave error it is. And the Economist points out that if any
cause commands the unswerving support of the Economist it is
that of liberal trade. And they then go on to say that this
insistence on imposing these requirements in capital are a
mistake.
The Chairman. Without objection.
[The following information can be found on page 62 in the
appendix.]
Mr. Frank. Thank you, Mr. Chairman.
Secondly, I was glad that the chairman mentioned the highly
indebted poor country effort. I would hope it would simply be a
matter of policy that we would put enough money into that
account so that any country that complied would get its money.
Nothing could be--not its money in the legal sense, but in the
sense that we promised.
We did a lot of work and this committee did a lot of work
in shaping that HIPC. And there was a promise there made by the
U.S. that countries that complied would get the debt relief. I
think it would be a very grave error from a number of
standpoints if we were to run out of money. And whatever has to
be appropriated I hope it would be a sufficient amount. There
ought not to be anybody left in doubt about that.
Now, I was also struck by the Chairmans' reference of the
Millennium Challenge Account and I thought that was another
good initiative, as is the AIDS initiative. Some of us are
concerned that there may be a little borrowing from Peter to
pay Paul here and I hope you can assure us that these are added
there and that we are not going to be playing games and taking
money away.
There was one interesting part about the Millennium
Challenge Account and I would be interested in your view on
this. Not just for the Millennium Challenge Account, but I
notice in general in international economic relations, one of
the things we, and those of us who have argued, is that how
people ought to be reducing their budget deficits. Now, I
understand that budget deficits can be somewhat differently
viewed depending on whose they are.
But it does strike me that there has been a kind of a
change in the U.S. position here. And I am interested in your
view as to how our own budgetary situation affects the
credibility with which we preach deficit reduction to others.
Now, I know we have said, well, we do not worry about a
deficit now because we have got economic slow downs, we have
got unemployment. But, of course, many of the countries that we
are preaching deficit reduction to have economic problems and
social problems far greater than ours, unemployment far greater
than ours, social deficits far greater than ours.
And so, I am interested in the consistency of our message
there. And I want to be honest, Mr. Secretary, I hope you will
be able to reconcile some of your earlier comments on this
regard. It did seem to me, as I read the comments of yourself
and some other high-ranking economic officials in the
Administration, that there has been a kind of born-again
phenomenon that has gone beyond into the economic.
And I guess I am reminded, I know that in this
Administration French references are not popular, but Henry
Navarre, when he became King of France to become King of
France, converted from Protestantism to Catholicism and when
asked about the conversion, said, ``Paris is worth a mass.'' I
need you to reassure me that we are not now governed by people
who believe that Washington is worth a deficit. And the
adhesion of power is not the reason that we have seen this kind
of change.
Finally, and I appreciated your conversation earlier when
you called my colleague Congresswoman Lee and many others on
this committee have a particular concern about the very dire
situation of the people of Haiti. And I hope that we would be
able to continue to work to alleviate one of the worst cases of
human misery in the hemisphere and show to the people of Haiti
the kind of compassion and understanding that I think good
policy calls for.
Thank you, Mr. Chairman.
The Chairman. The gentleman's time is expired.
Any other opening statements on the other side?
Before I recognize the gentleman from Vermont, I would like
to welcome our guests in the audience from the Philippine
government study tour led by the Honorable Emilia Boncodin. I
hope our friends enjoy their visit to the United States and
welcome.
The gentleman from Vermont?
Mr. Sanders. Thank you very much, Mr. Chairman.
And, Mr. Secretary, thank you very much for being with us
today.
My opening remarks are going to touch on two issues. Number
one, I would like you to explain to the working people of this
country, especially those people who work in manufacturing
plants why you think our so-called free trade policy has been a
success, when all of the facts seem to indicate that it has
been a dismal failure.
As you know, we now have a record breaking $435 billion
trade deficit, including a $100-plus billion dollar trade
deficit with China. Now, what that translates into is that from
1994 to 2000 we have lost 3 million manufacturing jobs due to
NAFTA and the WTO trade agreements. During the last two years
alone, under the Bush Administration, we have lost 1.7 million
more manufacturing jobs representing 10 percent of the total
industrial sector.
In the last two years we have lost 10 percent of our
manufacturing jobs and at 16.5 million jobs, we now have the
lowest number of factory jobs since John F. Kennedy was
President.
So, I would like you to explain to working people all over
this country why the loss of 2 million manufacturing jobs in
the last couple of years is good and why our trade policy is
working for them. And I would also like you to tell the
American people why 15 or 20 years ago the largest employer in
this country was General Motors.
And with a good union, the General Motors workers there
then and now, earn a living wage. As you know, the largest
employer in America now is Wal-Mart, which is now being sued by
27 states for exploiting their workers in terms of overtime
pay.
In terms of our trade policy, it seems to me the situation
is not only bad, it is likely to get a lot worse. According to
Forrester Research over the next 15 years, 3.3 million American
service industry jobs and 136 billion in wages will move
offshore to countries like India, Russia, China and the
Philippines.
There was a big article in the New York Times the other day
about jobs where you call up, you make a phone call, how can I
help you and that somebody in India is answering that call. I
would like you to talk about that later.
And the other issue, Mr. Secretary, that I would like you
to address and we discussed this with your staff, is the issue
of cash balance conversion plans.
On January 30 I sent a letter to the President signed by
217 members of the House and the Senate urging the Treasury
Department to immediately withdrawal the proposal which they
had brought forth and issue new regulations to protect older
workers. Now, I think you are familiar with this issue.
When you were chairman of CSX, if I understand it, you gave
your employers a choice when you converted from a defined
benefit pension plan to a cash balance plan. The Bush
Administration, before you became Secretary of the Treasury,
brought forth a plan, which would make it easier for companies
to go to cash balance.
I hope that you will tell us today that you are prepared to
give workers in this country a choice so that they will not
lose up to 50 percent of the pensions that have been promised
to them. And we are talking about millions of workers.
The Chairman. The gentleman's time is expired.
Mr. Sanders. Thank you very much, Mr. Chairman.
The Chairman. We now turn to the Honorable Secretary of the
Treasury, Mr. Snow?
STATEMENT OF HON. JOHN W. SNOW, SECRETARY OF THE TREASURY
Secretary Snow. Mr. Chairman, Representative Frank and
members of the committee, I am delighted to have this chance to
appear before you today and try and respond to the questions
that you will have for me and in particular the questions that
have been put to me already.
This, of course, is my first opportunity to be here. I am
still waiting for the wisdom of Alexander Hamilton to descend
on me in full, but I am hopeful.
I appreciate the chance to appear before you today and talk
about the international agenda of the Administration. Give me
an opportunity to describe where we are today in advancing that
agenda and what are priorities are for the future. I would like
to make a brief oral statement, Mr. Chairman, and ask that the
longer formal statement be submitted for the record.
The Chairman. Without objection.
Secretary Snow. The President is deeply committed to
promoting growth and stability worldwide, especially where
poverty is most serious and most acute.
As he has said, quote, persistent poverty and oppression
can lead to hopelessness and despair and when governments fail
to meet the most basic needs of their people, these failed
states can become havens for terror. Last year the President
set a goal of doubling the size of the economies of the world's
poorest countries within a decade. And he is proposed several
programs to move us toward that goal.
One of those is the President's proposal to establish the
millennium challenge account that was mentioned in the opening
statements. It seems to me this is one of the most promising
and most innovative development assistance programs in the
history of such endeavors or such undertakings.
The MCA creates real incentives for nations to govern
justly, invest in their people and encourage economic freedoms,
in other words, to lay in place the foundations for long-term
economic success. More recently the President announced the
emergency plan for AIDS relief, an effort that goes well beyond
existing efforts to help countries in Africa and the Caribbean
wage and win the war against HIV/AIDS with an emphasis, though,
again, on accountability and real measurable results.
The Treasury Department is closely involved with both of
these programs, MCA and HIV/AIDS, as well as the President's
new economic growth agenda for the multilateral development
banks.
His agenda focuses these institutions on raising
productivity and measuring results by channeling more funds to
those countries that follow good economic policies, pro-growth
policies. And by structuring our contributions to create
incentives for such policies.
He is called on the development banks to increase their use
of grants rather than loans for the poorest countries and the
banks, I am pleased to say, are already beginning to respond to
this call.
The Treasury's international programs are crucial
instruments in promoting our international economic agenda.
They also help pursue specific U.S. foreign policy objectives,
such as supporting economic assistance to key countries in the
war on terrorism and combating money laundering and terrorist
financing, all important objectives.
Similarly, Treasury's international debt programs help
support good policies in reforming countries while technical
assistance programs help performing countries put in place the
sound budget and financial systems needed for long-term growth.
The Treasury is also a key participant in the urgent
reconstruction efforts that are going on now in both Iraq and
Afghanistan. For Iraq, we have formed a task force at Treasury,
which is broad representation from the U.S. government agencies
to help address financial and economic aspects of Iraq's
reconstruction and we now have, I guess, about 20 people over
in Baghdad pursuing those activities.
Among other tasks, we will focus on restoring essential
operation of the finance ministry, the Central Bank, commercial
banks and the stock market, recognizing that the task ahead is
more than dealing with 2.5 weeks of conflict, it is really two
and a half decades of mismanagement and misrule.
In Afghanistan as well the Treasury Department is playing a
major role in addition to sending technical advisers to the
country Undersecretary Taylor, who I think testified recently
before you, has marshaled international financial support for
the Afghan government's day-to-day expenses through the World
Bank administered Afghanistan reconstruction trust fund.
We are committed to ensuring that the U.S. taxpayer
resources are put to good use and get good results. Treasury
will continue to press its pro-growth agenda in the
multilateral development banks and I am pleased to say I think
we are making some pretty good progress.
Our role includes holding these institutions accountable
for achieving significant and sustainable improvements in the
daily lives of people in poor and developing countries. We have
made real progress in the past year, but our work must continue
until our objectives are fully achieved.
I ask for your support as we strengthen these institutions
in an effort to increase global economic growth, reduce poverty
in the world's poorest countries and support key U.S. foreign
policy objectives.
I thank you and would be happy to try and respond to your
questions, Mr. Chairman.
[The prepared statement of Hon. John W. Snow can be found
on page 53 in the appendix.]
The Chairman. Thank you, Mr. Secretary. And we appreciate
your testimony and the opportunity for questions. Let me first
begin with the situation in Iraq. As you indicated, you have
created this task force at Treasury and at--you have some 20
people on the ground in Iraq.
I know that you highlighted the fact that Afghanistan is
receiving assistance currently from Treasury, the World Bank
and the Asian Development Bank, and I am concerned that it has
been slow to reach Iraq.
And, I am wondering what we would expect from the United
States, and particularly from Treasury to work with the World
Bank and the IMF to speed the necessary aid to the people of
Iraq. Are your folks on the ground in Iraq, as well as folks in
Treasury working with IMF and the World Bank towards that end?
Secretary Snow. Yes, yes they are, Mr. Chairman. I think
through some initiatives of ours that grew out of the last G-7
meeting in Washington several weeks ago, both the IMF and the
World Bank agreed to get engaged.
And, the World Bank is putting together a task force of
people who will do the preliminary assessments of the needs,
sanitation, health care, roads, highways, bridges and so on
while the IMF will assist with undertaking this assessment of
the state of the financial institutions, working with the
Treasury people who are already there.
As I say, we have roughly 20 people on the ground in Iraq
today, headed by a former deputy secretary of the Treasury
Department, Peter McPherson, whose on leave of absence from
Michigan University where he is the President. And I was
pleased to have a chance to speak to our group several days ago
as they were taking up their new responsibilities to urge them
well, and, as it turned out, Alan Greenspan was in the building
that morning to meet with me and Allen--the Chairman also
offered them his best wishes.
I would say we are anxious to get the World Bank moving
faster. But, they are engaged. And I talked to Mr. Wolfensohn,
the President of the World Bank and he is committed to making a
great success of the talents that the World Bank has to assist
in doing these assessments. I have talked to Mr. Kohler, the
head of the IMF and he is in the same position. So, I would
answer your question, yes, we are engaged in a cooperative
venture with both the IMF and the World Bank.
The Chairman. Could you add some sense as to the time line
here, say compared to Afghanistan. Obviously, Iraq presents
some unique and different issues than Afghanistan, but at the
same time Iraq has much more potential in terms of wealth,
obviously, the oil deposits. Do your people in Baghdad give you
any indication of when we could expect some major developments?
Secretary Snow. Mr. Chairman, I think it is a little early
for that. But, I am told the oil revenue should be flowing
within the next two or three months at volumes or levels that
would be quite meaningful. And, of course, as you suggested,
Iraq is quite different than Afghanistan in having a very rich
resource base.
And, as those oil revenues begin to flow, we want to see
their use for the benefit of the Iraqi people for the
rebuilding and reconstruction of the country. But, it is a very
significant resource base. Iraq is inherently a very wealthy
country and our technical assistance people are over there to
make sure they do what they can working with the Iraqis to put
in place the foundations for long term economic success.
But I would add they have got to dig out of a big hole.
Today there is no financial system as such. There is no set of
national accounts. There is no budget. There is no central bank
that functions as a central bank, the central bank functions as
a--the hand maiden of the regime.
There are no private financial institutions. There is a
command and control set of banking practices there. So, we have
a long way to go. But, we have a group of very dedicated people
ably led by Dr. McPherson and I will be able to tell you more
as we get into this further. They have just really gotten on
the ground. But, the outlook is certainly hopeful because the
resource base is so significant.
The Chairman. Thank you, Mr. Secretary.
Mr. Frank?
Mr. Frank. On the capital controls issue, Mr. Secretary,
you add here is what the Economist had to say, they talked
about past history and note that the problem of short-term
capital, not foreign direct investment, which they say should
not be restricted, but short-term capital, bank loans and other
short-term paper that floods in has caused problems in past and
was sharply pulled out.
And what they say is for the capital into an economy with
immature and poorly regulated financial institutions can do
more harm than good. And they are critical of the U.S.
insistence that countries not prevent that. They point to
Chile's past experience. Now Chile and Singapore disagree that
those are over.
We are talking now about a Central American free trade
agreement, I wonder do you agree that a flood of capital to an
economy with immature, poorly regulated financial institutions
can do more harm than good?
And, if you do, are all of the Central American countries
with which we are seeking a free trade agreement, do they all
have mature and well regulated financial institutions?
Secretary Snow. Well, I think what we need to do here,
Congressman Frank, is understand the relationship between
restraints on capital and what effects they have on long-term
capital flows. And by restraining flows or making flows
difficult, by putting barriers into any market place you always
raise the risk of contracting the amount of flows that exist.
And, what we are interested in is seeing a well functioning,
both capital and good flows into----
Mr. Frank. Let me try again. Mr. Secretary, they are
talking specifically and I am about--for instance, an effort by
a country precisely to lengthen the terms of the flow,
countries have had bad experience about and Chile tried to give
short terms inflows of capital.
What is wrong with a country, particularly if it is not
totally confident in the maturity of its financial system, in
trying to lengthen the term with the kind of tax that decreases
to a point of disappearance when you reach the same point,
because we are not--why is that a bad thing and why should we
insist, as a matter of--as the price of getting a free trade
agreement, people say we will never do it?
Secretary Snow. Well, because, as a general matter, I think
it is better to allow free flows of capital.
Mr. Frank. Even short-term, unrestricted short-term flows?
And what harm is done----
Secretary Snow. As a general matter that is coming out in
the case of both Chile and Singapore, I think we lengthened
that dispute resolution period from six months----
Mr. Frank. No, what you lengthened, Mr. Secretary, was the
period before which competition kicks in. But, they had no
grace period as to how long they can restrict it. I mean, that
is simply how long it takes them for they collect the money. If
you are suggesting that there would be a willingness to say,
okay, short-term capital controls that restricted--that said
that you wanted to get foreign direct investment to be for more
than a year, then I think you would have no dispute.
I mean, what about the Central American countries, is it
reasonable to say that none of them should try to lengthen--and
we are talking about with Chile here, the tax that decreases as
your investment expires, and we are not just talking about
general rules, we are talking about the specific countries.
Secretary Snow. Well, the general proposition that I think
makes the most sense is to have the fewest restrictions on
capital flows, both in and out.
Mr. Frank. Okay. Mr. Secretary, I would subscribe to that.
Secretary Snow. All right.
Mr. Frank. But, that does not encompass no restrictions in
the immature countries, immature systems. And the question is
what about a country which falls on its financial regulatory
system is not fully developed and they want to try to say that
they do not want any short-term investments, they want to get
it to be at least a year, not foreign direct investment, but
the flow of capital, is that wrong?
Secretary Snow. Well, as, I think it was Oliver Wendell
Holmes observed, broad principles do not always solve concrete
cases.
Mr. Frank. I understand that, is why I keep asking you----
Secretary Snow. And----
Mr. Frank. ----and you keep giving me broad principles.
Secretary Snow. ----that is why I was about to tell you
that, while we have broad principles, we also have a case by
case look at these things.
Mr. Frank. So, with regard to Central America there may not
be this insistence on banning on capital controls?
Secretary Snow. Right now, there is a broad principle and
broad principles get applied in individual cases.
Mr. Frank. Well, I hope so, because--thank you, that is
reassuring to me. My fear has been that the Administration was
not listening to another Holmes' quote in a different context
that the life of the law has not been logic. It has been
experienced. And in this case, I think it was the somewhat
rigid logic of free enterprise under all circumstances that
being called. Let me just ask one other----
Secretary Snow. ----a page of history is sometimes worth a
volume of logic. And we are going to use both history and
logic.
Mr. Frank. Good. If I could just ask one last question here
to submit for the record, our colleague, Congresswoman Lee, as
I mentioned is particularly interested, and I know this is
shared by a number of members of our committee on Haiti, I am
going to submit a question, it will be in the record and we
would appreciate if you could respond. It has got some fairly--
--
Secretary Snow. Sure.
Mr. Frank. ----specific efforts towards the policy.
Thank you, Mr. Chairman.
Secretary Snow. I would be pleased.
The Chairman. Without objection.
The gentleman from Delaware, Mr. Castle?
Mr. Castle. Thank you, Mr. Chairman.
And, thank you for being here, Secretary Snow. We
appreciate your testimony. I would like to return to Iraq if I
could. And I want to approach this with nowwhere near the
knowledge that you have, but I guess I have developed a little
bit of skepticism concerning international organizations, the
United Nations conduct in the war on Iraq.
And I really would like the World Bank and the IMF, I have
a tremendous amount of respect for Mr. Wolfensohn in the World
Bank and the IMF. But, I am somewhat concerned, in your written
statement, at least, where you say that they--and I think you
said it last week, they have agreed to study this and to, you
know, come up with recommendations or something of that nature.
I mean, it was pretty apparent the last seven or eight
months that this was going to take place. It was also pretty
obvious that it would take place pretty much as it did, that it
would go quickly and we would be in this rebuilding phase and
there are many people, including me, I believe, who believe
that the rebuilding phase is as important as anything we are
doing there.
And, I am just worried about international organizations
that are sort of stepping back and looking at what should be
done. You have 20 people on the ground, you probably need a lot
more than that to get things going in Iraq. But, are you
satisfied with that? As I said, I have respect for the
organizations, but I mean to me this is--there are immediate
problems in Iraq.
All you have to do is turn on the television and see all
the young men and women who clearly are not working and then
the huge disruption, which is there. Are we harboring all the
assets we have to do what we can in Iraq? And, I do not mean
the United States assets necessarily, but all the international
assets?
Secretary Snow. Well, it is an immense job that lies ahead.
Mr. Castle. A huge job.
Secretary Snow. Yes, I will certainly agree with you fully
on that. The people we have in Iraq, supplemented by the work
that the World Bank and the IMF will do is essentially doing
assessments of what is needed and how difficult are
circumstances today, what sort of banking operations exist,
what sort of payment systems exist.
I think that the fact is right now the economy is broken
and not functioning. And we got to put in place the most
rudimentary elements of a well-functioning system. The people
we have there are very good. They have done this in
Afghanistan. They have done this sort of work in other places.
The World Bank has people like that, the IMF does. I think we
can get a good assessment of where things are what needs to be
done.
Mr. Castle. Well, let me ask you if this has--not to
interrupt, but we only have five minutes here. Let me ask you
precisely are you satisfied with where the World Bank and the
IMF are now? And what they are doing?
Secretary Snow. Well, I wish the World Bank were over there
already.
Mr. Castle. That is my impression is they are a little bit
slow in terms of getting there.
Secretary Snow. Yes, the IMF I think is somewhat ahead of
the World Bank in getting people over there and doing these
monetary systems, central banking, currency assessments. We
need to think about what is the appropriate currency over there
and get an effective currency system put in place.
So, no, I wish it were moving faster, particularly on the
World Bank side. But, I do have the commitment from Mr.
Wolfensohn, the chairman of the World Bank, that this is a top
priority and that the people are on the way.
Mr. Castle. Let me ask in a broader--broadening it a little
bit, if you can possibly broaden this throughout a difficult
subject, but what is your own confidence level in our ability
to reestablish the economy in Iraq, the monetary systems, the
economic systems, the various other components?
I mean in your written comments, I mean, there is a huge
agenda here in terms of dealing with civil servants and
teachers, schools in general, pensioners and a fair and
transparent federal budget responsible system, regulation and
supervision for financial institutions and it goes on.
All these tasks, to me, would involve incredible numbers of
people and sums of money. I mean, to me this is an important
mark that America do this law. Are you satisfied that we have--
I have a lot of confidence in you, but are you satisfied that
we have the resources to do this?
That we are committed to do it, that all of our agencies
are committed to do it? That we are really engaging the
international agencies in order to make this happen? Or do we
have to do more? Do we have to speed it up or put more assets
into it?
Secretary Snow. Governor, I think this is more than
reestablishing, because I do not think, in many cases, it ever
existed at least in the last 25 years. So, it is an immense
undertaking. I--you know, these resources may need to be
augmented. I certainly agree with that. I will be in regular
contact with Mr. McPherson.
I have told him if he needs more resources. Let me know. If
he needs a bigger budget, let us know. I have talked to Mitch
Daniels at OMB and said this may require more than we have
presently available.
I want to put a marker in that we may need to come back to
you out of the supplemental that was recently passed and lay
claim to more of those resources and Director Daniels was very
responsive when I told him the sort of thing you just told me,
that this is an immense undertaking and it is really putting in
place something that is not been there. It is more than
reestablishing and recreating, it is building from the ground
up.
I mean, I fully agree with the tenure of your comments.
The Chairman. The gentleman's time has expired.
Mr. Castle. Thank you, Mr. Secretary and good luck.
The Chairman. Mr. Secretary, we are certainly glad you
chose somebody from the big ten conference at least to----
Secretary Snow. Not Ohio State, but at least the Big Ten.
Right.
The Chairman. The gentleman from Vermont?
Mr. Sanders. Thank you, Mr. Chairman.
Mr. Secretary, as I mentioned a moment ago, I am very
concerned about the fate of millions of American workers who
may be forced to go into cash balance payment schemes, which
will result in, perhaps, as much as a 50 percent reduction in
the pensions that they have been promised by their workers. Let
me read something to you and then I--we only have five minutes,
so if you will bear with me I would like to read you something
and you respond, okay?
Mr. Secretary, before the Senate confirmed your nomination
you met with Senators Harkin and Durbin about this issue. Do
you recall that, sir?
Secretary Snow. Yes, I do.
Mr. Sanders. Okay. And, in a speech that Senator Harkin
gave on the floor of the Senate on January 30, this is what he
said, and I quote from Senator Harkin. ``I wrote down exactly
what Mr. Snow said, he said,'' and this is you, ``I believe we
should protect the basic rights of workers and if a rule does
not meet that test it will not move forward,'' end of your
statement, according to Mr. Harkin. ``Fundamental fairness will
be the center of any policy.''
Mr. Snow--and now I continue with Mr. Harkin's statement,
``Mr. Snow has said he would agree to meet with people,
employers, representatives of labor groups, representatives of
elderly groups to get their input on this approach and
hopefully are perhaps having a new rule.'' Let me start off, my
first question is you have now been in office, I know not for a
terribly long time, but presumably you have had time to study
this issue.
Are you now prepared to support legislation that would do
for millions of American workers what you, as I understand it,
did as the CEO of CSX Corporation and that is give workers the
choice when a conversion takes place so they do not see their
pensions slashed in front of their face. Could you respond to
that, sir?
Secretary Snow. Yes, yes, Congressman, I would be pleased
to.
I think you quoted me properly or Senator Harkin did more
appropriately, when I met with him and Senator Durbin some
months back, three or four months back, and they expressed to
me then, as you are now, concern about a cash balance plans,
the movement towards cash balance plans. And I committed to
them that there would be no chance in the existing rule until I
had a chance to review it.
In other words, we would leave the existing rule in effect
through this rulemaking process and not institute any interim
rules. I further told them that I was committed to this
principle of fundamental fairness in the rule and pointed out
as well that there was merit, particularly for younger workers,
in creating access to cash balance plans because so many of
these younger workers do not contemplate being with the
existing enterprise or firm for 30 or 40 years like the fire--
--
Mr. Sanders. I only have five minutes. So, my question was
will you give older workers, will you support the concept and
legislation giving older workers the choice so that they do not
see their pensions slashed? Can you respond to that?
Secretary Snow. I think this is better handled through
regulatory policy than legislative policy. And in implementing
that notion of fundamental fairness, I am committed to seeing
that we protect the fundamental interests of older workers so
they are not prejudiced or treated prejudicially as a result of
the new rule.
But, I do think this is a matter that is probably better
handled through regulatory process than trying to put it into a
rulemaking process.
Mr. Sanders. Well, the reason we have introduced
legislation is we are concerned that the Administration will
not do the right thing. So, if you could assure me and the
other 130 co-sponsors that you will do for the American worker
what, as I understand it, you did for CSX workers, we can talk
about the way you do that.
Secretary Snow. Well, Congressman, I am not sure that what
we did in the circumstances of CSX is the best for every
company. But, what I am committed to is making sure that we
weigh the interest of senior workers, older workers, who have
expressed concerns about losing out or that their interests are
well protected under the rule, while the rule also accommodates
the flexibility that I think companies need and younger workers
need.
Mr. Sanders. Okay. Mr. Secretary, in your discussions with
Senators Harkin and Durbin, with whom I work on this issue, you
also promised that you would be meeting with workers and senior
citizen groups. Have you done that yet?
Secretary Snow. Well, I have met with some, yes. I have met
with----
Mr. Sanders. And Senators Harkin and Durbin together with
those groups?
Secretary Snow. They have not been with me at these----
Mr. Sanders. Would you tell us now that you would be
prepared to meet with Senator Harkin, Durbin, myself and other
members, I know Mr. Emanuel is concerned about this issue,
others are, along with labor groups and senior groups so that
we can talk with you about the concerns that we have. Is that
something you would agree to now?
The Chairman. The gentleman's time is expired.
Secretary Snow. Well----
Mr. Sanders. If the gentleman could answer.
Secretary Snow. If that can be arranged, I would certainly
be amendable to it, sure.
Mr. Sanders. Okay. Thank you.
The Chairman. The gentleman from California, Mr. Royce.
Mr. Royce. Thank you, Mr. Chairman.
Thank you, Secretary Snow.
An analyst I know was arguing the point that the decline in
the dollars real exchange rate could be viewed in his view as a
real plus for the economy. He said, you know, the Federal
Reserve's own economic model shows that a sustained 10 percent
decline in the dollar boosts GDP growth by 4 percent after the
first year. And, furthermore, after the second year, it would
increase that GDP growth to 1.6 percent.
Such a decline in the dollar over two years produces as
much impact, according to this fed model, as a $10 a barrel
decline in oil price and a tax cut of 1 percent of gross
domestic product combined. So, I guess my question is does the
Treasury more or less agree with that fed model and what that
implies?
And, if so, is this analyst right that--when he argues why
support a strong dollar when the fed is, in fact, concerned
about deflation?
Secretary Snow. I have not seen that study and I probably
should not comment on any given study that I have not, myself,
reviewed, analyzed and studied. But, clearly, as I was asked
yesterday somewhere, there is a relationship between exports
and the value of the exchange value of a currency. That is
Economics 101.
Our policy, though, has been reaffirmed over and over
again, it is to focus on the fundamental of the characteristics
of the currency. We want a currency that is a good medium of
exchange. We want a currency that is a good store of value,
that introduces stability into the international, global
trading system. We want a currency that is widely accepted and
used for investments and as a store of value.
Mr. Royce. A stable monetary unit.
Secretary Snow. Yes, a stable monetary unit, all those
things, and we want a currency whose value is set through open
competitive markets processes. In fact, I think that is the
best policy for currencies generally. It is the best currency
regime generally. So, those policies we have affirmed for a
long time.
Mr. Royce. I guess my only point, though, is that if the
fed is concerned about deflation this certainly becomes a part
of a solution if economic forces continue--if the market
continues to dictate a weaker dollar.
Well, let me go to another question that I have and that is
your view of our G-8 allies, are they doing enough in the form
of economic stimulus themselves?
There is a noted British investment manager and writer,
Andrew Smithers, who said the other day, without strong fiscal
stimulus worldwide, we feel demand will remain depressed.
He believes that, quote, fiscal stimulus in the U.S. alone
seems likely and will probably be insufficient to set off a
sustained recovery worldwide.
So, I guess one of the questions I have is whether you will
be pressing your G-8 colleagues in any way to implement pro-
growth stimulus in their respective countries in order to try
to get the world economic engine moving, since we are all tied
together these days?
Secretary Snow. Absolutely, Congressman. That is one of the
themes that I intend to continue reiterating to our colleagues
in the G-7, G-8 this time, because Russia's going to be joining
us.
But, absolutely. Absolutely. We are taking steps here in
the United States to get our growth rates up, to get greater
prosperity here as we get our domestic economy stronger we are
able to buy more from abroad. One of the problems with the
world economy is that the domestic economies of so many of the
G-7 countries are weak and do not have real growth. And the
United States then becomes the market for their products, but
there has not a counterpart market in their countries.
So, what I have tried to urge on my brethren in the G-7 is
that we have a concerted effort among the large economies of
the world to promote growth. And that while in the United
States I think what we need now is fiscal policy and some of
those countries they need something else. They need to fine
tune their economies to deal with the issues that stand in the
way of growth there. But, absolutely, I am fully committed to
doing that.
The Chairman. The gentleman's time is expired.
The chair is now pleased to recognize the gentlelady from
New York, the Ranking Member of the subcommittee. I was going
to go to Ms. Maloney, the Ranking Member of the Domestic
International Monetary Subcommittee.
Mrs. Maloney. Actually, I just flew home from New York and
my cab driver was talking about the declining dollar. He is
from Morocco and he said it used to be eight Moroccan dollars
to the American dollar. It has now slipped to five Moroccan
dollars to the American dollar. And he said this was causing
him a lot of trouble. And I said well maybe it will help our
exports.
So, I want to ask you there is some speculation that your
recent comments may be an attempt to talk down the dollar and
to boost the U.S. exports and reduce the trade deficit, and the
trade deficit in 2002 was 436 billion, and given the ballooning
U.S. federal government deficit, it is possible that these twin
deficits could add up to 1 trillion combined this year.
And is this a policy of the Bush Administration? And, if
not, to what do you attribute the recent weakening of the
dollar? And I might note that today in the Wall Street Journal
they are talking about the dollar dilemma, a weaker currency
helps the economy.
And I know you have commented in your comments, but I would
like to hear more that it is literally the talk of the taxicab
drivers now, the declining American dollar.
Secretary Snow. Well, the dollar, you know, against the
euro is about where it was when the euro came out. And we have
a system of freely fluctuating exchange rates where
predominantly the value of currencies is set, is set through
open competitive market forces.
There is no conscious policy on the United States, I want
to assure you, to move the dollar at all. We have a strong
dollar policy. We have had it forever in this Administration
and in the prior Administration, going back, I think it has
four secretaries.
But, the strong dollar has those characteristics that I
talked about, a good mean of exchanges, store of value,
something people are willing to hold, stable and set in
competitive currency markets with devaluations held to a
minimum. That is the sort of regime that I think supports the
strong dollar and reflects the strong dollar.
Nobody is very good at telling you why currencies go where
they go in the short-term or maybe in the long-term. They are
the product of a multitude of very complex economic forces.
You know, Lord Keynes, who many think was the greatest
economist of the 20th century, almost took himself and his
college down when he was the college treasurer and decided to
do currently arbitrages.
Fortunately, he said some wealthy alums who helped bail him
out. The currency is an extraordinarily complex phenomenon and
if anybody really knew where currencies were going they would
be richer than Croessus, you know? We do not. We do not.
And, those who make a living out of trading currencies end
up with zero profits as a whole because on every transaction
there is somebody on the other side of it whose win is your
loss or whose loss is your win. So, it is what economists call
a zero sum game.
And I think economists are quite frank to say they cannot
tell you at any one time why currencies are going this way or
that. But, it is the interaction of this multitude of
interactive forces. And the better reading, I think, of modern
economics is that countries do not have much ability to control
the value of their currency because of all these complex web
of----
Mrs. Maloney. One of the impacts on this is the growing
deficit, combined with the ballooning trade deficit. And you
have known many people equate you as a strong deficit hawk
before becoming the Secretary of the Treasury. You were often
warned of the dollar consequences of government deficits. And
without commenting on the President's economic plan on which we
disagree, what are the global economic consequences of
increasing the U.S. government deficit in the IMF and also the
impact on our constituents' mortgage loan, credit card payment,
interest rates.
Secretary Snow. I would say basically negligible given the
budget, which brings the deficit down to basic balance over the
budgetary period. Deficits create problems when the deficit is
large relative to the GDP of a country, not all that different
than a family's budget, if your income is double X you can
afford debt of X.
If your income is X, you have got a tough time affording a
debt of X. So, it is that relationship that is more important
rather than the absolute size. The deficit will be is
relatively modest, it is higher than I would like to see it,
but it is manageable.
And the concern about deficits has to do with crowding out
private capital, that is not happening today. The concern about
deficits has to do with driving up interest rates and yet we
have the lowest interest rates in 40 or 45 years.
The deficits become troublesome when they are seen as large
and growing, large relative to the GDP and get built into the
financial fabric of the country. They get built into the
financial fabric of the country if lenders, if financial
markets begin to perceive them as, as I say, rising with time
and becoming large.
The Chairman. The gentlelady's time is expired.
Secretary Snow. That is not the case here.
The Chairman. The gentleman from Arizona, Mr. Renzi?
Mr. Renzi. Thank you, Mr. Chairman.
I have two questions I want to try and sneak in here, one
on Afghanistan and the other on micro-financing. On
Afghanistan, I listened to your vision on Iraq and I can see in
the future how Iraq can pull itself out using its own depth of
natural resources.
When I read your comments on Afghanistan I worry a little
bit more that not only is the focus obviously on Iraq now,
maybe Afghanistan is a little bit more on the back burner, not
that America has done that, but in a sense that what natural
resources--and I think we are talking about an agriculture
based society, we hear reports of then moving back to more
poppy growth and the drug trade. We have reports of the war
lords moving in a little bit in certain areas.
I saw President Clinton the other day at a commencement
address talked about the fact that American and French served
was still there working side by side on the commodity that
exists.
Has the world, particularly those countries who may not be
assisting in Iraq, are they pouring the kind of efforts in to
Afghanistan that we need in order to bring that nation out? And
where is it the future what vision do you have as far as what
kind of exports or where is their economy going, just real
quick?
Secretary Snow. Well, I think the commitment was made for
$4 billion or $4.5 billion growing out of that Tokyo conference
back in January of 2002. The United States made a commitment is
on the record for a commitment of some 900 million. So, there
is substantial multilateral commitment here of funding for
agriculture and health and education and the foundations for a
stronger economy in the future.
But, infrastructure and that ring road that we are involved
in that Secretary O'Neill went over and got involved in and so
on. So, I think there are a lot of positive things going on. I
met with President Karzi and his cabinet here just a month ago
when they were in town and we talked about these things.
There is clearly concern about the warlords. And there is
clearly concern about the things that need to be done to get
this economy into higher gear, that ring road is one of them.
And I am pleased to say it is beginning to show some progress
of really being put in place. But, it does not have the sort of
natural wealth; I would agree with you that----
Mr. Renzi. Well, if there is, it is an agriculture-based
society.
Secretary Snow. It is an agricultural-based society. Right.
Mr. Renzi. Okay. I am going to move to micro-financing if
you do not mind real quick. The idea that the World Bank and
the IMF have targeted a lot of their resources towards
governments, American being a very small business driven
economic engine, particularly in rural Arizona where I am from.
Is there thought to more emphasis that it will be placed on
the idea that small businesses and individuals should be the
recipients rather than directing that monies to major
government organizations?
Secretary Snow. Absolutely. And I think that is one of the
reforms that the Treasury Department, under Undersecretary John
Taylor has been pushing that the money go directly to these
small businesses because they are so fundamental, so critical
to a country's development. So, we have put that as one of the
three major initiatives that we are pushing. So, absolutely,
absolutely, I agree with you.
The Chairman. Does the gentleman yield back?
Mr. Renzi. Thank you, Mr. Chairman.
The Chairman. The gentleman from Illinois, Mr. Emanuel?
Mr. Emanuel. Thank you, Mr. Chairman.
I have a question, Mr. Secretary, about reconstruction in
Iraq. But, before I get to that, I would like to add my voice
on the cash balance savings plan just so you know I happen to
think they're a good instrument.
And I happen to think the rules making processes is the
right venue. And having testified in front of the IRS with
Bernie Sanders, and with my colleagues, I believe that you can
create a win-win situation rather than a win-lose situation if
you have a grandfather clause. So, I will add my voice to that.
They are a good instrument. Companies should be allowed to do
it, but not freehandedly where they hurt the older workers. And
you can create a win-win situation rather than a lose.
On reconstruction, earlier you had two members, the
chairman asked you about reconstruction and the use of oil, not
use of oil, but you answered it oil in Iraq, it is a oil rich
nation, yet the Wall Street Journal yesterday said that,
although there could be $15 billion a year in revenue from
Iraq's oil that that will not be enough to solve Iraq's
economic needs and reconstruction needs.
And we have a plans, I pulled them up from the USAID on
housing, health care, education for Iraq. What is your
estimate, and I say you, both the Treasury and the State, for
the cost of the United States for the reconstruction?
It is clear that the oil in Iraq will not cover it all. And
it is clear we are going to need others and we are out right
now soliciting other nations to contribute and I know we have
a, like any good business, you have a low estimate and a high
estimate, depending if the United Nations turns over the oil
rather than them controlling for their oil for food program.
There must be an estimate. What is the estimate now between
the two different agencies or just the Treasury agency of what
the U.S. will be asked to put in over the next three years
given the estimates as low as 60 billion to as high as a $100
billion?
Secretary Snow. I actually do not have that estimate. And I
do not know, maybe OMB has that estimate, but I do not. The oil
will be a huge part of the whole picture.
In addition, there will be the Iraqi assets of the Saddam
regime; it should really be given to the Iraqi people for the
purposes of reconstruction. We vested, I think, it was a
billion seven in those assets recently back in march in other
countries. And I think there is an additional billion two or
so. I think appropriated are a couple of billion.
Mr. Emanuel. We gave in the supplemental 1.7, which is only
the first of a series of down--1.76, I think, to be exact.
Secretary Snow. Right.
Mr. Emanuel. But, I know there is. Look, they do have oil.
It is going to be important to their oil, it is going to be
important to the reconstruction.
But, if you look at USAID plans, 20,000 units of housing in
Iraqi is planned, 13 million Iraqis will get universal health
care, 100 percent maternity coverage in Iraq, 12,500 schools
will be given basic supplies, 12 million Iraq children will be
given an early childhood education.
And, if we compare that to here in the U.S. we do not have
anywhere the estimates are like that. And I know there is a
plan for Iraq reconstruction. We have estimates, but we have
goals and targets. What is the U.S. contribution towards that
$60 billion?
And 1.76 is not alone, do we apply 20 billion? 15 billion?
The low end is 10, the high end is 25?
What is the guesstimate of what we would ask the taxpayers
to pay for reconstruction?
Secretary Snow. Well, as I say, I do not know that. I know
that oil will be a big part of it. You say 15 billion, I have
heard much higher estimates on that. We have the vested assets.
We have the concealed assets that we are going after. And
we also have, and I intend to take this up with the G-7
ministers when we meet here, I guess it is Friday, the donor
funds and I would hope we would have a robust response to our
request for donor funds, just as we have had in Afghanistan.
But, I am not privy to whatever those numbers are, if anybody
has pulled them all together.
Mr. Emanuel. My colleague from Delaware asked a good
question and he said the reconstruction is going to be as
important, if not more important than the military plan. We had
a military plan within Turkey at letting us move in, if Turkey
did not let us move in. We have estimates now what we want to
do for reconstruction.
We know that the revenue from oil is only going to produce
X amount of cash. We know what we want to get towards. We have
a plan. We must have some guesstimate. If you cannot provide it
today, and I am not saying you are privy to it, could you help
get the answer, what are the taxpayers of the United States
going to be asked?
How much of the tab to the taxpayers over the next three
years for the $100 billion or $60 billion?
It is only 5 billion, 10 billion?
I cannot imagine we would go to a war without a plan for
different scenarios. And my guess is somewhere within the
agencies of State and Treasury exists a plan of how much we are
going to ask the taxpayers of the United States to flip for
this?
Secretary Snow. Well, I doubt that there is----
Mr. Emanuel. I just know it is good management. You would
have it. I am not saying you, but somebody has a plan, somebody
is working on it.
Secretary Snow. It may exist. But, it is--you are dealing
here with extraordinary set of imponderables. We have not even
gotten, as I said earlier, the World Bank fully engaged yet in
doing their preliminary assessments. And until we get those
preliminary assessments and get some sense of what the state of
infrastructure is, sanitation requirements, power company
requirements, electricity, pipelines, on and on and on. You
know, I think it is important to get the facts before I try and
answer your question.
Mr. Emanuel. Well----
The Chairman. The gentleman's time has expired.
Mr. Emanuel. Thank you.
The Chairman. The gentleman from Texas, Mr. Hensarling?
Mr. Hensarling. Thank you, Mr. Chairman.
Mr. Secretary, in your written testimony you stated that
trade liberalization is one of the most fundamental steps that
countries around the world can take together to achieve growth
and reduce poverty.
One of my colleagues earlier, I think, questioned the
benefits of free trade, particularly as it related to
industrial sector jobs in America. Reports I have seen
concerning the two large trade agreements of the 1990s, the
Uruguay Round of trade negotiations and NAFTA, have data
published by the previous Administration saying that a family
of four benefited annually about $600 to $800 through the
Uruguay round of trade negotiations and the annual benefit to a
family of four from NAFTA was about $140 to $720.
So, if the reports of the previous Administration are true,
it would seem to indicate that consumers at least are a big
winner under free trade.
I am curious whether this Administration agrees with the
assessment of the previous Administration? And whether or not
you believe that trade has also created more jobs in America as
opposed to the absence of globalized trade?
Secretary Snow. I am not familiar with those estimates of
the prior Administration, but I certainly agree that trade
promotes jobs and promotes wealth.
Mr. Hensarling. With respect to the IMF I am somewhat
concerned about the whole issue of moral hazard. I have seen a
report where 70 nations have depended upon the IMF aid for over
20 years. Twenty-four countries have received loans for over 40
years. And, perhaps, my numbers may be a bit dated, but the
United States still appears to be one of the largest
contributors via its line of credit to the IMF.
I guess my fundamental question would be what is the
federal taxpayer getting for his money and his risk?
Secretary Snow. Well, we are trying to make sure he gets
more. And clearly moral hazard is an issue with respect to
this. That is one reason that the Treasury Department has taken
the lead in trying to focus the attention of these facilities,
these financing facilities, to emerging countries on real
bottom line results. So, that they do not need to keep coming
back and back and back, that is the problem you are getting at
and I agree with you. It is an endemic problem of the history
of these institutions.
But, by focusing on real results, and by real results I
mean putting in place the foundations for economic
sustainability where you gain the financial strength and the
financial degrees of freedom to go into the private
marketplace.
We would hope that the number of these countries would not
just be emerging, but would eventually emerge, because that
should be the end of this exercise. Not perpetually emerging,
but eventually emerged, but to emerge they have got to put in
place the foundations for economic successes. And if you put in
place the foundations for economic success then private capital
will come in and the private financing markets will give you
credit. And that is where this all should point towards. So, I
agree with where you are going.
Mr. Hensarling. In your testimony you talk about the
President's initiative on the Millennium Challenge Account, and
our commitment to the IMF compared to the Millennium Challenge
Account. If that program is successful will it lessen the
taxpayer commitment to bodies like the IMF?
Secretary Snow. Well, I think if our policies are
successful that we are advancing with the IMF, this focus on
measurable results, encouraging small business, anti-
corruption, law and order, budgetary responsibility, if all
those things, respect for private property, encouragement for
foreign investment and so on, if those initiatives are followed
then we should reduce significantly our call for funding for
those institutions because these countries, as I say, will
emerge.
They will be able to get their funding from private markets
and reduce the call on the IMF. The MCA, the Millennium
Challenge Account, builds on those basic principles, but it
does so with the poorest countries, the very poorest countries
and says that we should look at the poorest countries and say
that those among the poorest countries who are adopting the
right policies, who are really making commitments to the right
things, should be rewarded.
So, the IMF is dealing more with the emerging countries and
the MCA is dealing more with the very poorest countries.
The Chairman. The gentleman's time is expired.
The gentlelady from New York, Ms. Velazquez?
Ms. Velazquez. Thank you. Finally, Mr. Chairman.
Mr. Secretary, as you know, the reconstruction of Iraq will
cost many millions of dollars. And, while this reconstruction
effort will directly benefit the Iraq people, it will also
benefit the American companies fortunate enough to be awarded
the large contracts from the U.S. government.
As ranking member of the Committee on Small Business, I am
particularly concerned that small businesses will not be given
the opportunity to participate in this reconstruction effort.
What is the Administration doing to ensure that small
businesses will be afforded an opportunity to be our newest
government contracts for the reconstruction of Iraq?
Secretary Snow. The contracting for the reconstruction of
Iraq will be done primarily by people who are not in the
Treasury Department. So, I am not in a very good position to
answer that. But, I will certainly look into it and see if I
can give you a more detailed answer.
Ms. Velazquez. So, you are not in a good position to tell
the Administration that small businesses play an important role
in our economy and as such, they should be given an opportunity
to be on those contracts.
Secretary Snow. Well, I agree with you very, very much
about the----
Ms. Velazquez. Thank you.
Secretary Snow. ----role of small business.
Ms. Velazquez. Following up on Mr. Renzi's question about
micro-enterprises, as you mentioned, as a result of the 1998
reforms, the Administration is required to promote certain
economic policies in our interaction with international
financial institutions.
One such provision directs the Administration to promote
structural reforms that facilitate the provision of credit to
micro-enterprises. And your response to him was that you
recognize the important role of micro-enterprises and small
businesses.
But, I would like for you to do more than that, would you
please provide the specifics about what is it that the
Administration is doing?
Secretary Snow. Well, we are encouraging them to focus
heavier attention on the micro-finance. We are pointing out the
importance of these smaller enterprises in being engines for
economic growth. We are making technical assistance available
to those smaller businesses and trying to make support for
micro-enterprises a part of the basic policies of the IFIs.
I was down in, I think it was Honduras and Brazil, just the
week before last and spent a considerable amount of time with
micro-finance issues and micro-business issues. And this was
all part of the Inter-American Development Bank's set of
activities. And they sponsored the conference with the micro-
finance providers. The micro-finance is a big part of this,
too.
But, you are actually right, we need to get these
international financing organizations more focused on the role
of small, small business.
Ms. Velazquez. But, there is a concern that systematic
effort from the Administration to promote through these
financial institutions the structural reforms that are needed.
Secretary Snow. Well, we are making that a part of our
message to all the IFIs.
Ms. Velazquez. I would like----
Secretary Snow. A very important part of our--it is really
a very important part of the message. It is a new message that
we are taking to these international financing institutions.
Ms. Velazquez. I would like to follow up on Mr. Royce and
Ms. Maloney's question regarding the weakening of the dollar.
As she stated, and we have been reading, the dollar has
recently weakened substantially, hitting all time lows against
the euro, five-and-a-half year lows against the Canadian
dollars and 10-month lows against the Japanese Yen.
As you know, both strong and weak dollars have their pluses
and minuses. A weak dollar, while grateful for those that sell
their goods abroad, may provide an incentive for a foreign
investor to pull out of U.S. markets, because interest rates
are apt to rise and limit economic growth.
A strong dollar has the opposite effect, dampening
inflation and encouraging foreign direct investment, but
increasing the prices of U.S. export abroad.
While I understand the effect of strong and weak dollar
policies, I would like your opinion on what effect such a
humanly, disorderly decline of the U.S. dollar will have on the
U.S. financial markets and the economy more generally?
Secretary Snow. Well, as I said earlier, the relative value
of currencies is one of the most complicated and I guess the
word might be, annexable, annullable phenomena in modern
economic life.
And the nature of a freely fluctuating currency regime is
that demand and supply forces will dictate what the currency's
value is relative to other currencies. It is always a relative
valuation.
The important thing, I think, is that the currency's
valuation reflect real demand and supply forces. And that it
not be held through interventions to a level that is above its
natural market rate or below its natural market rate because
when the currency is propped up or suppressed it introduces a
lot of other negative conduct and behaviors into the economy.
So, that is why we talk about the wanting a strong dollar
that reflects these key characteristics, stable, good store of
value, good medium of exchange, because that promotes trade on
a world basis. We want people to have confidence in the
currency. And we want the currency set through a regime of open
competitive markets with interventions kept to a minimum. That
sort of regime I think will serve the best long-term interest
of the United States.
The Chairman. The gentlelady's time has expired.
The gentlelady from Illinois, the Vice Chair of the
International and Domestic Subcommittee on Monetary Affairs.
Mrs. Biggert. Thank you very much, Mr. Chairman.
My first question, I hope you can help me with since the
Treasury Department is playing a key role in the rebuilding of
Afghanistan. In the fiscal year 2003 foreign ops appropriations
bill, the women of the House and the Senate requested monies to
build women's centers in Afghanistan.
There was to be one each in the 31 provinces. A center
where women could find health care. They would have education
for the women and the children and then a place for economic
development or trades, such as quilting or chicken farms or
whatever.
And this was loosely left for who was to administer that,
probably USAID. And we worked with the women ministers of
Afghanistan. But, we have not heard much about what has
happened to that money and I wondered if the Treasury
Department is playing any role in that development?
Secretary Snow. Not to my knowledge, Congresswoman. I will
check and see. But, it has not hit my radar screen yet.
Mrs. Biggert. Well, nothing has happened, I think, because
of the fear of, you know, some of the warlords. I would
appreciate that if you know anything about that.
Secretary Snow. We will look into it and respond.
Mrs. Biggert. Thank you. And then next I would like to just
commend the Treasury Department for its efforts in negotiating
the strong trade agreements between the United States and Chile
and Singapore.
And maybe you could just comment on some of the greatest
breakthroughs in those agreements for U.S. financial services
providers?
Secretary Snow. Well, it is the free flow of capital. It is
the ability for capital to be honored and respected without
prohibitions on its free movement, just like the movement of
goods and services. The mobilization of capital, both domestic
and international, is really an essential component of a well-
functioning economic system.
You got to have capital flows. And using borrowed capital
effectively and attracting foreign direct investment are
hallmarks of countries that work, countries that get their
economies functioning the right way, who get it by economic
development and growth. So, I think clearing the wave of
barriers there for this free flow of capital is a real
milestone.
Mrs. Biggert. Okay. And then in the----
Secretary Snow. And I would say not having capital controls
and I would respectfully disagree with Congressman Frank on
that. The evidence is pretty clear that capital controls
inhibit capital flows. If you cannot get your capital out of
someplace, you are not as likely to put it in.
So, having good capital flows in and out requires the
absence of constrictions on capital flows. So, getting
agreements without those constrictions or inhibitions or
prohibitions, I think, is very positive.
Mrs. Biggert. Okay. Then we just had the HIV/AIDS bill in
the House and part of that would allow private contributions to
be made to the global fund, by the private sector. We have had
one contribution from one group that I think was $100 million.
Do you think that this is beneficial and that the World
Bank has the capability to accept these contributions?
Secretary Snow. Well, yes, I would certainly think so. I
certainly think it is a funding for AIDS has to be in--HIV and
AIDS has to be a real priority. It is why the President
advanced that initiative.
And with real dollars, I mean a very substantial amount of
dollars and we are, I guess, President Wolfensohn of the World
Bank has indicated that no country with an effective HIV/AIDS
threat issue should go unfunded. And we are very supportive of
that full funding for countries that have those effective
strategies.
Mrs. Biggert. I would think that--I will agree with you and
I think that part of the amendment also will allow for more
publicity or a PR campaign to let people know that even a small
amount is very helpful to this fund.
Secretary Snow. And I think the World Bank has set up a
task force for more rapid implementation of that funding, which
is a positive thing, because I think some of the implementation
had been slower than it should have been.
The Chairman. The gentlelady's time is expired.
The gentleman from Alabama, Mr. Davis?
Mr. Davis. Thank you, Mr. Chairman.
Mr. Secretary, good evening to you. Let me, if I can, turn
to the subject of Mr. Hensarling's questions earlier about the
Millennium Challenge Account. When I listen to your testimony
and I look at some of the things that I have read about it, it
certainly is a very noble sounding concept.
But, the criteria that are laid out governing justly,
investing in people and promoting economic freedom, my guess,
is that Dick Gephardt and George Bush could both run on that
platform and they would probably have a very different
interpretation of those phrases.
At one point, during your testimony you said that one of
the goals of the challenge account is to promote companies
following the right policies, quote, unquote. Now, again, given
the great diversions that we have just on this committee, much
less in the House, about what the right policies are in this
country as far as monetary growth is concerned.
Can you talk for a minute about how we ensure that as we
formulate policies they are not simply done from one
perspective?
And I will give you two examples that trouble some people.
The Board of Directors of the Millennium Challenge Account,
as I understand it, is to be made up exclusively of cabinet
officers chaired by the Secretary of State. It would seem to me
that there might be some utility in certainly, including some
economic experts who are not part of the Administration.
Second of all, it is very clear that Congress has not been
involved, and I am sure there is an intent to really involve
Congress in sifting through these criteria, getting them from
the very general categories to the more specific.
So, how do you address the general concern about the right
policies in effect when rewarded from a very particular
perspective and the more specific concerns about the lack of
outside input?
Secretary Snow. Well, the right policies, I think, are laid
out pretty clearly as are the eligibility criteria.
Mr. Davis. What are they beyond those three categories
though?
Secretary Snow. Well, there are things like having an
effective education system, there are things like having an
effective program to deal with corruption, having an effective
system of law and order; things like, on the financial side,
the country's debt levels versus its GDP, its monetary
policies. Does it have a monetary policy, which is well
calculated to avoid excessive inflation?
Good governance is a part of this and the criteria there
are taken from an external group.
Mr. Davis. I do not want----
Secretary Snow. Freedom House and I were just trying to
think what it was, a group called Freedom House that has laid
out some criteria for governance. So there are, I think, fairly
well established and hardly exceptionable criteria for
performance.
Mr. Davis. I do not want to interrupt you now, but one
thing that is conspicuous, but missing from that list, there
are no real reference to the persistence of poverty in a
particular country or the level of income disparity in the
country in that criteria. Those seem to me to be pretty
important criteria that ought to be weighed.
Secretary Snow. Well, there are poverty criteria. This is
only for poor countries. But, it is an effort to focus on poor
countries, who are doing the right things and reward doing the
right things.
Leaving the countries who do not meet this criteria really
to USAID for support, assistance and so on. But, there is
merit, I think, in this idea of rewarding the right behaviors,
rewarding countries that deal for countries that are reforming
themselves and dealing with the pressing issues of corruption
and law and order and fiscal deficits and----
Mr. Davis. Well, let me try to comment a little bit, since
the time is so limited.
Again, given the diversions that I think a lot of us would
have or what it means to follow the right policies, why not
include some people who are not President Bush's appointees on
the Board of Directors of the organization?
Secretary Snow. Well, this is an executive branch
initiative. And the members of the board are the Secretary of
State----
Mr. Davis. Would there be some utility in including
outsiders from your perspective?
Secretary Snow. I think the Administration has put forward
the proposal that they think makes the most sense.
Mr. Davis. What about congressional input?
Secretary Snow. We can certainly--it would certainly be a
matter for discussions as we move through the legislative
process. But, I do hope this will get a lot of attention in the
legislative process because it is, I think, one of the most,
and I mean this sincerely, innovative and potentially powerful
additions to the whole enterprise of trying to lift poor
countries up and doing it the right way.
The Chairman. The gentleman's time has expired.
The gentlelady from Florida, Ms. Harris?
Ms. Harris. Thank you, Mr. Chairman.
Welcome, Secretary. I wanted to just follow up with the
gentleman from Alabama's comments on the Millennium Challenge
grants. I think they are going to be an exciting program that
the President has put forward, in terms of expending bilateral
aid.
But, I would like to go to the Millennium Challenge
Corporation itself, as well. I think under the President's
proposal, the MCA Board would not only include the secretary of
State and the undersecretary of Treasury and the director of
OMB, but there is some discussion at this point that would also
include officers of USAID.
My concern is that the accountability that would be offered
by this separate corporation, the kind of opportunity that we
could uniquely fund these countries and the 15 indictors that
will apply to those three exciting criteria that you set
forward before that really are clearly stated and accountable,
measurable, factors.
I guess my concern is do you think that it will weaken the
MCA autonomy if, indeed, we do bring in USAID and we do not
have that kind of separation and do you think that it weakens
really what the President is trying to do with regard to the
Millennium Challenge Account?
Secretary Snow. Yes, I think there is a separate and
distinct role for the MCA from USAID. And I think it would
confuse those roles. They are both important roles, but they
are different. And this is a results oriented economic
assistance and development program focused on outcomes where
countries really have the wherewithal and the ability to
produce good outcomes.
And the whole point here is to reward those countries that
are reforming themselves and making progress. There are a
number of countries who are not. And those countries who are
not still deserving of support and assistance, but that is more
the USAID role. And I think it confuses roles and the strength
of this idea to conflate them, to bring them together.
Ms. Harris. One of the comments I wanted to follow up from
the gentleman from Texas in terms of the Millennium Challenge
Account, do you think it will be a unique opportunity for
Treasury, typically you work in a multilateral fashion, now you
would have the chance to work bilaterally with the Millennium
Challenge Accounts.
Would that strengthen your position?
I understand this question with regard to IMF and you are
going to be strengthening some of these countries with the debt
level, but do you think that would be an important new role for
Treasury?
Secretary Snow. Yes, I think it would. I think it would.
The Millennium Challenge Account really puts into practice for
the poorer countries the very ideas that the Treasury
Department has been advancing as the fundamentals for economic
growth.
I think we know an awful lot more today about economic
development then we knew 40 years ago when I took my first
course in economic development.
We have got a track record of what works and what does not
work. And, the Millennium Challenge Account will push those
ideas, advance those ideas, help those countries that are using
those right ideas. And I think it will hopefully accelerate the
rate of their removal from poverty.
You know, the President's goal is to make great strides
over the next decade in eradicating poverty. This is one of the
key vehicles to do that.
Ms. Harris. Let me just say I think it is important because
in talking with some of the heads of state that happen to come
through, they are very excited about this opportunity and they
are already challenging themselves, pushing to try to move
those criteria. So, I think just by virtue of putting it out by
way of doing that it is already achieving some good results.
Let me shift gears for just a second. With regard to Iraq,
I think one of the most important issues is that the creation
of a central bank and the leader is apparently on it in terms
of one that prescribed international standards and it
constitutes one of the main ingredients of a country's ability
to achieve and maintain strong financial stability.
Would you comment on any developments regarding the
creation of a strong and independent central bank in Iraq that
can be capable of preserving strong currency regimes, and what
role do you think the Treasury Department will play and how can
Congress assist in that aspect?
Secretary Snow. Well, I agree with you, it is absolutely
essential to have a central bank and to have a well functioning
central bank that controls the monetary aggregates and interest
rates and so on.
Iraq has not had one for an awful, long time. The precise
request to the IMF was to go in and do an assessment of the
central bank practices and the requirements to put in place a
well functioning central bank.
But, we also need to put in place a well functioning
ministry of finance, which does not exist. We need to put in
place a well functioning set of national accounts that does not
exist. We need to put in place a well functioning payment
system that does not exist.
So, there is a far-reaching set of things that needs to be
done. But, I would agree with you that at the very center of
that is having a good monetary authority.
The Chairman. The gentlelady's time has expired.
Secretary Snow. Controlling the money supply is essential
to the economic performance of any economy.
The Chairman. The gentlelady from New York, Ms. McCarthy?
Mrs. McCarthy of New York. Thank you, Mr. Chairman.
Secretary, I need some--listening to all the comments from
my colleagues--I just need some clarification. When you talked
about it, and I think it is great that we are going to be
giving 100 percent grants to the poorest countries on those
that are dealing with HIV and AIDS, but I think one of the
reasons that we see so many of our undeveloped countries not
making it is because no one is talking about all the other
diseases that are in our poorest countries.
The diseases, by the way, that are very, very easily
curable. And I am hoping that we are going to be finding money
through the MCA or the IDA or the World Bank because on two
businesses really correlate together diseases and the poorest
of the countries' poverty, those are all diseases we are losing
thousands and thousands of children a year. And they lose their
eyesight, they lose their hearing or they are crippled and $35
can probably cure most of them.
So, will some of the money or is the money only going--and
I do not want to take any money from HIV because, obviously,
that is something we have to eradicate, but we are still
dealing with diseases that this country has not seen in 20
years.
Secretary Snow. Yes, I am not an expert on those issues
that you raise, but the global fund will, I understand, focus
primarily on AIDS, HIV/AIDS----
Mrs. McCarthy of New York. But, do you----
Secretary Snow. But, I think TB and malaria are also noted
or earmarked as diseases to be addressed.
Mrs. McCarthy of New York. I think my point is that if you
are going to continue to give these monies to this undeveloped
countries, until you really look at it holistically you can
pour all the money you want, but until you reach to the young
people that survive them, they are not going to be able to be
educated.
So, you are going to be dealing with poverty. In homes we
have that cycle, we got to break the cycle, that is what I am
saying. We are going to do it with AIDS. And I think that is
terrific.
But, we actually had been dealing with these other diseases
even long before AIDS was actually discovered and I think that
is why the comments that were made earlier on giving money to
some of these undeveloped countries for 25 to 30 years is
because we have never put the two together.
A country is not going to develop unless they are healthy.
And if they are not healthy they are going to stay in poverty.
And if they stay in poverty, we can dump all the money we want,
we have to break that chain.
So, basically, with your influence, and certainly with the
Administration's influence, we would look at this together.
There is a reason why some of the policies have failed. It is
mainly because the people are not healthy.
Secretary Snow. Well, I will educate myself on that subject
better. My understanding today, though, is that this global
fund is, as I said earlier, about equally divided among TB,
malaria and AIDS.
Mrs. McCarthy of New York. I think if you educate yourself,
if you really look at it, any diseases and those affects. And,
by the way, it is a very small cost to prevent a lot of these
diseases. But, with the credits, and hopefully these countries
then can put their monies into the health care system that they
really need.
That is the only way we are going to see these countries
develop and end this. We have done it in this country. Those
countries that have developed have eradicated these diseases.
And I really hope you get involved in it because it will make
your job a lot easier.
Secretary Snow. Thank you very much.
Mrs. McCarthy of New York. You are welcome.
The Chairman. Mr. Feeney?
Mr. Feeney. Thank you, Mr. Chairman.
And I wanted to first follow up on a question from the
Ranking Member that he has asked before. And I actually
disagree with his conclusion and I think that he has hit a key
premise that I probably agree with and maybe I would describe
it as a paradox of liquidity because from the borrowers
perspective if you are an emerging country, an industry or a
financial institution it would be nice to able to lock in a
capital investment for a period of time.
The suggestion is that by driving up the risk that there
will be restrictions on the outflow of capital that ultimately
allowing for those restrictions is going to make the risks
higher for those lenders either through fixed investments or
through equitable investments in the long run, because of that
higher risk is essentially regular or what I would refer to as
the paradox of liquidity that you are not doing any long-term
saving to the borrowing nation's institutions and enhance the
risk because you made the price of capital higher and the long-
term growth and prosperity lower.
Secretary Snow. Well, I think that was my basic response
with Congressman Frank that I think there is an IMF study that
concludes as much. That if you make capital flows more
difficult, you raise the cost of capital. And if you raise the
cost of anything you have less of it.
And, if you raise the cost of capital you have to put a
risk premium on it, you are going to have capital flowing in
and out. And it could make it difficult to take capital out of
the country, you are going to get less capital coming in. And I
think it is for that reason that the IMF came down in that
study arguing against those sorts of controls.
Mr. Feeney. And, on another matter, you mentioned Lord
Keynes earlier and you suggested that some people thought he
was the greatest economist of the last century.
He clearly was the most important for seven or eight
decades, depending on your philosophy, maybe not the greatest;
but, as I understand it, what Lord Keynes suggested is that
full employment in a free market economy was actually the
exception or an anomaly and not the rule.
And that in times of less than full employment that it was
incumbent on an aggressive government to get involved in fiscal
policy such as tax cuts, or he actually preferred government
spending because of the multiplier effect as he described it.
And, while that theory sort of dominated economic thought
for some time, in the last 15 or 20 years, as I understand it,
there has been a shift in significant economic response to that
for a couple of reasons.
Number one, the multiplier effect is not as certain today
in economic theory as it was. As a matter of fact, some people
would argue that the multiplier effect is closer to one-to-one
than six-or seven-to-one, because of the crowding out of
borrowing and investment in the private sector.
And, secondly, it seems to me that increasingly free market
thinkers are coming to the attitude that if you have the right
set of circumstances in a market--low marginal tax rates, the
rule of law, respect for property, et cetera--that solid
monetary growth is probably more important than anything that
you are doing on the fiscal side in an otherwise healthy free
market.
And, so could we conclude that increasingly we have got
economists who are basically finding that the visible hand of
government does more harm than the invisible hand of the
private marketplace does good?
Secretary Snow. Well, I would have to go back and brush up
on Lord Keynes, but you are absolutely right, he was concerned
about something he called the liquidity trap. And the liquidity
trap is this notion that whereas markets normally adjust pretty
well and you get into a down-turn in the economy and prices
will go down.
Interest rates might not fall low enough to secure
appropriate levels of demand for capital, to assure that you
had a full employment system or that you would then--he really
thought you could get stuck. I think that the revolution of
modern economics is to suggest that the adjustment processes
really do work awfully well.
Mr. Feeney. Well, he also----
Secretary Snow. And concerned about getting stuck is
misplaced.
Mr. Feeney. Well, yes, because he also implied there was a
paradox of thrift, the money you saved under certain
circumstances, the worse it was for long-term investment and
growth. And he actually implied that there was a difference
long-term in the economy between savings and investment. But,
as I understand it, most economists today think there is very
little difference, if any, between savings and investment.
Secretary Snow. Savings and investment equilibriate.
Mr. Feeney. Well, I----
Secretary Snow. And they do so through the interest rate
mechanism and I think the core idea of Keynes is not widely
accepted today, that economies get stuck and that the problem
is excess savings. I think, because interest rates will be--
will induce more investment to pick up the extra savings is
sort of the standard view today, I think.
Mr. Feeney. Well, I have one question more, but I am out of
time.
The Chairman. Thank you for those thoughts.
Mr. Watt?
Mr. Watt. Thank you, Mr. Chairman.
Mr. Secretary, at the bottom of page one of your prepared
statement you make a comment that I profoundly agree with when
you say our first international economic priority should be
getting economic policies right at home by strengthening
economic growth in the United States we provide a natural
impetus for global growth.
And then at the top of page-two of that same statement, you
start me to worry because then you say that that is why
President Bush's job and growth package is so critical, not
just for the U.S. economy but for the global economy as well.
And, obviously, I agree that a jobs and growth package of some
kind is critical.
I would have to tell you, though, that I have not been a
big, strong supporter of the concept of trickle down economics,
giving substantial tax breaks to the wealthiest people. And, I
am especially looking at what happened in terms of employment
after the Economic Recovery Tax Act was passed July 29, 1981,
the 12-month period following the passage of that we had over 2
million jobs lost.
And, then again, March 8, 2001, that was 20 years later, we
passed another Economic Growth and Tax Relief Act, which
followed the same kind of trickle down economic theory and
since then we have had a net job loss in non-farm jobs of over
1.7 million jobs.
So, the track record that following President Bush's jobs
and growth package in the United States has not been all that
stellar, I would have to say. And, so I am troubled by that on
the domestic front.
I am also troubled when I try to apply it to the situation
in Iraq, because as I understand the reconstruction package
what we are talking about in Iraq is something that we have
been aspiring to in our communities right here in this country
for years and years and years; that is, universal health care,
universal education and quality education for all our children,
the whole range of things that I have been advocating for here
in this country.
And it strikes me that those things cost money and it
either has to be paid for out of U.S. government tax money, or
it has to be paid for out of Iraqi tax money. So, the notion
that we are following the same prescription for Iraq that we
are following on the domestic front is not very encouraging to
me.
So, I did not mean to just give a speech, I want you to
maybe help set me at ease that you cannot be saying that the
policies that we have followed here have been successful, or
even are being successful. And I do not see how you think they
are going to be successful in Iraq. So, I have got more time,
so I will give you the rest of it.
Secretary Snow. Thank you.
The Chairman. Excuse me, the gentleman has four additional
seconds.
Secretary Snow. I will respond briefly. I am not sure I
will convince you, but I will respond.
Mr. Watt. I doubt you will convince me, too, but go ahead.
Secretary Snow. The tax relief plan or reduction plan that
the Congress enacted in 2001, I think, was precisely what was
called for then. I think if you had not done that, if Congress
had not responded as you did, we would have found ourselves in
a much deeper, much longer and much harsher recession.
Mr. Watt. More than 1.7 million jobs lost.
Secretary Snow. I think, Congressman, in all deference, if
you had not acted as you did then it would have been much,
much, much worse. And I will never forget my old life as a
business person, getting the numbers from the subsidiaries of
the company that I worked with coming into Richmond, Virginia,
and I looked at these numbers and it was a transportation
company with operations in the barge line business and the
trucking business and logistics and railroads and ocean
shipping and ports and terminals, and it was as if our numbers
and our business had fallen off a cliff.
And I called the people from the--who were responsible for
these various subsidiaries and I said these numbers cannot be
right. This cannot be right. Well, they were right. And they
got worse.
And by the time the new Administration took office, a very
significant decline was already underway and I remember going
to meet with then President-elect Bush in Austin, Texas, in
January and with a group of other business people and
economists and academics and so on, and being asked the
question: ``Well, what is the state of the economy?''
And, I said, Mr. President, ``You are inheriting the
recession. There is no mistake about it. You are inheriting a
recession.''
And, of course, the National Bureau of Economic Research,
as I think dated the beginning of that recession back to that
first quarter of 2001. So, think the Congress did exactly the
right thing then. And I do not go back far enough to--1981 was
it? That, I would have to dig out my--the facts on that one.
But, I think for 2001, you did precisely what was called for.
It was the right remedies, the right medicine for the time. So,
I take my hat off to you.
The Chairman. The time of the gentleman has expired.
The chair will recognize himself.
Mr. Secretary, for a couple of decades in international
affairs has been conjecturing around the concept of nation
state bankruptcy as an analogue to individual corporate or
individual bankruptcy.
And in the last half a dozen years that conjecture has--or
thinking has reached a somewhat greater maturity. As we look at
the circumstance in Iraq, it would seem that you had a country
that was both a political and morally bankrupt regime.
But, it is also economically left the Iraqi people with a
staggering amount of debt, most of which was invested in
armaments or the good life of the leadership. And, so, one of
the great questions as we proceed is, what is the status of the
debt of the country of Iraq?
And how should it be treated?
And does the Administration want to consider looking at the
possibility of nation state bankruptcy or does it only want to
look at the notion of reordering or reconstituting debt? And
then, what processes and procedures does the Administration
have in mind?
And, frankly, from an American taxpayer point of view, if
this is a very large issue, because to the degree that all Iraq
assets might have to be on the table for debt repayment, that
implies that the U.S. taxpayer might be supporting a transfer
of wealth from our society to the Russians, the Germans or
French, who hold so much of this debt. And that seems not a
very credible thing from an American perspective.
There are obvious moral hazard issues, as well, but how are
you thinking about this, because this is your department's
principle bailiwick and it is a really critical thing to be
done right.
Secretary Snow. I agree with you, Mr. Chairman, that it is.
It is an issue that I intend to put on the table with my G-7
brethren here this weekend, when we meet in France for this
round of G-7 meetings.
I think it is pretty clear that the debt, while it, the
debt levels of Iraq, are so high that they are not sustainable.
They have not made any interest payments on that debt or
principle payments for 12 or 13 years, I am told.
We are not sure just what the debt levels are, but they are
going to be large. I have seen estimates of $80 billion, $90
billion to $125 billion or $130 billion. So that is a great
multiple of the GDP of the country. A lot of that is arrears,
is interest that has accumulated. And I think we should engage
in a process to begin setting in motion, anyway, a framework
for dealing with that debt.
At the last G-7 meeting, I asked that the Paris Club
process be invoked to begin doing the assessments, so that the
Paris Club would have a better fix on just what these debt
levels are. I think my suggestion, the last G-7 meeting got
well received.
And I am hopeful that we will continue those discussions.
There was an agreement last time that the Paris Club framework
would be assessments through the Paris Club framework would
begin. I hope to see where we stand on that.
And I certainly agree with your general observation that we
do not want to put the American taxpayers at risk vis-a-vis
other countries, who are unwilling to be entertaining debt
reductions or debt forgiveness, or postpone payments, or the
rest of the options that are available to us.
The Chairman. Well, I appreciate that. I am not convinced
that, policy-wise, we are as far along as we might be. But, I
just want to stress that I think, from the perspective of many
of us, a dramatic change in the framework of thinking about
this kind of issue might well be in order at the Department of
the Treasury.
Let me note that there are, I believe, two members that
have not asked questions yet.
Is that right?
And I will call on them next. Congressman Frank has asked
for a second set of observations, and then I would like to
call--and did you want to ask anything further, Mr. Feeney?
Mr. Feeney. Mr. Chairman, I would be pleased either way. I
would love to ask questions, but not at the cost of my
colleague's time. So, whatever your pleasure.
The Chairman. Okay. Fair enough, Mr. Feeney.
Let me first turn to the two members that have not asked
questions.
Mrs. Waters, you are recognized.
Ms. Waters. Well, thank you very much.
Thank you for being here, Mr. Secretary. What I am about to
say I do not wish you to take it personally. I know that you
have been here for a limited period of time and you may not
have even had the opportunity to focus on Haiti.
I know that my colleague, our Ranking Member, has indicated
that they will be submitting to you questions that were raised
by Congresswoman Barbara Lee, but I want you to know I join in
with Congresswoman Lee and others about deep concerns about
Haiti, and I wish to use my time to focus you on Haiti as you
sit here today.
I know many of my colleagues that are disgusted by the
Administration's indifference to the needs of the people of
Haiti and by its ongoing efforts to prevent the Inter-American
Development Bank, from disbursing $145.9 million in loans
previously approved for Haiti.
Haiti's a deeply impoverished country and an island just
off our shores. It is the fourth poorest country in the world.
Half of the population in the country earns no more than $60 a
year. Haiti has an unemployment rate of about 60 percent and a
literacy rate of only 45 percent.
Only 40 percent of all Haitians have access to potable
water. Tuberculosis cases in Haiti are 10 times as high as
those in other Latin American countries and 90 percent of all
the HIV infections in the Caribbean are in Haiti.
Our own State Department has acknowledged that because
``Haiti is the hemisphere's poorest country, there is a
continued need for assistance to programs that increase access
to education, combat environmental derogation, fight the spread
of HIV/AIDS and foster the creation of legitimate business and
employment opportunities. These programs can create an
atmosphere conducive to building democracy and reducing illegal
migration.''
Yet, at somebody's urging in this Administration, the
Intra-American Development Bank is denying Haiti any access to
loans for the developmental assistance.
Haiti has already had $145.9 million in development loans
approved by the IDB. These loans include $50 million for rural
development, $22.5 million for reorganization of the health
sector, $54 million for potable water and sanitation and $19.4
million for basic education programs.
Haiti also could qualify for an additional $317 million in
new loans for development projects, as well as a $50 million
investment sector loan. However, IDB is refusing to consider
Haiti for any additional loans and has not even dispersed the
loans that have been approved.
The reasons provided by the IDB and the U.S. government
concerning the suspension of lending and assistance to Haiti
shift from day to day. None of the purported explanations
provide any justification for withholding this vitally needed
aid. While the IDB and the Administration sit back and offer a
new excuse each week why these loans cannot be dispersed, the
people of Haiti suffer and continue to live in extreme poverty.
On March 5, 2003, I introduced H.R. 1108, the Access to
Capital for Haiti's Development Act. This bill does require the
United States to use its voice, vote and influence to urge the
Inter-American Development Bank to immediately resume lending
to Haiti, disperse all previously approved loans and assist
Haiti with the payment of its existing debt and consider
providing Haiti debt relief.
The Access to Capital for Haiti's Development Act would
allow Haiti to build roads and infrastructure and provide basic
education and health care services to the Haitian people. This
bill currently has 26 co-sponsors.
The United States is now spending billions of dollars to
rebuild Iraq. Earlier this month, the Congress passed a
supplemental appropriation act that contained $1.7 billion to
rebuild Iraq's infrastructure. That bill included funds for
health care services for 13 million Iraqis and on and on and
on.
It included money for Columbia, Afghanistan, Israel,
Jordan, Turkey and the Eastern European countries of Poland,
Hungary, the Czech Republic, Slovakia, Estonia, Latvia,
Lithuania, Romania, Slovenia and Bulgaria.
How, in good conscious, can this Administration provide
loans and assistance to countries all over the world while
ignoring the needs of suffering Haitians so close to our border
by denying Haiti loans that are so desperately needed?
What can you do?
What are you willing to do, Mr. Secretary, to ensure that
the IDB will immediately resume lending to Haiti and disburse
all previously approved loans?
I need your help. What can you do?
Secretary Snow. Well, I think there is a little good news,
Congressman Waters, that I just learned about recently on this
score that I think is encouraging. The government of Haiti does
not, at this point, have an IMF program because of these
arrearages. But, an IMF team has been, I think is currently in
Haiti trying to work with the government on discussions for one
of these staff monitored programs, which is a prelude to
getting the arrearages worked off.
I am told, and we need to confirm this, but I am told that
there is now, among the staff anyway, an agreement to proceed
with a staff monitored program and that will be recommended
soon to Mr. Kohler, the President of the IMF.
And, that would be an important first step in trying to get
these efforts advanced to help Haiti clear its arrears with the
IDB, an important step. And if those arrears are cleared, of
course, then they will be able to reactivate their IDB funding
program, the United States intends to be helpful in this
process.
And, of course, once this IDB arrears are worked off, then
we can--the IDB will be in a position to begin disbursements
with respect to those four pending approved IDB project loans
that would be so helpful for the country. So, I think this is
an encouraging note.
The Chairman. The time of the gentlelady is expired.
Ms. Waters. Mr. Chairman, 30 seconds, please. I would like
to indulge you for just 30 seconds.
The Chairman. The gentlelady has asked unanimous consent
for an additional 30 seconds. Without objection.
Ms. Waters. It is not as encouraging as you would think.
This has been going on for far too long. We believe that there
should be debt forgiveness and we believe that the same kind of
strong program that has been put together for Iraq to assist
should be done in Haiti.
And you also need to know that the Caricom countries have
offered to even pay off the debt and that has not even been
dealt with. So, I would like to follow up with you personally
and to arrange for a meeting with me and about 15 other members
of Congress who have been going back and forth to Haiti for far
too long, watching this poverty and this debt so that you can
help us move this process forward.
Secretary Snow. I would be pleased to meet with you. I am
told that there is bilateral donor support here for helping
deal with this arrearage problem. Of course, the United States,
on another score, it makes available some 50--I think it is $50
million a year through USAID.
And I think Haiti is one of only a handful, maybe 12 to 13,
14 countries eligible for assistance under the President's
emergency HIV/AIDS initiative. So, but I would be very pleased
to meet with you and your colleagues to discuss aid.
The Chairman. Mr. Inslee?
Ms. Waters. Thank you.
Mr. Inslee. Thank you, Mr. Secretary, I got here late, but
I read your testimony and there was a theme running through it,
I think, that I understood in talking about our international
aid programs that basically events the philosophy of the
Administration to encourage countries to have sound economic
social policies, political policies and to try to provide
carrots for those that do and I think that is probably a wise
policy.
But, one of the things you mentioned is that you wanted to
be on the lookout for countries that had, I think you said, had
deficits and that you wanted to be somewhat judicious in that
regard.
And that our current government on policies that the
Administration is advocating will have a willfully inflicted
deficit of hundreds of billions of dollars, depending on what
day it is because they keep going up, of course.
And, not only for this year, and not only for the next year
and not only for the year following that, but for decades,
perhaps our lifetime.
And, to me, it is a little bit difficult it seems to me for
us to be providing these incentives and this encouragement when
we have a fiscal policy that is making us look at little bit
like a Banana Republic at home, fiscally.
Where we are raiding the Social Security trust account
occasionally, a forethought of billions of dollars, not
accidentally, not out of unforeseen recessions, but willfully
raiding the Social Security trust fund in order to finance the
tax cuts the new Administration has added to it.
Now, the question I have is, you know, to me that is a
little bit difficult to go preaching the gospel on sound fiscal
policies and sound democratic traditions around the world, when
we are sort of like the virtuous--almost like the virtuous, you
know, the preacher of virtue gets found out that he is a big
time gambler.
It is almost that bad, almost. And, it is a serious
question how you are expected to go around the world instead of
bringing the gospel for this sound fiscal policies home, when
the current Administration is leading us into these enormous
structural deficits, which I understand. At one time, I spoke
the gospel we are not sound economic policy.
And, so, my question to you is how do you expect to succeed
in being the saint and spreading this gospel around the world,
when right here at home we are creating these structural
deficits in the trillions of dollars of debt to increase the
debt tax on our taxpayers at home?
Secretary Snow. Well, Congressman, thank you for that good
question.
There is a real fundamental difference here between the
debt levels of the United States, which we can clearly afford,
where our interest rates are the lowest in what 40 years, 45
years, compared with these developing countries, who have debt
levels that are very large relative to their GDPs, and which
are unable to get access to financing at low interest rates.
They are paying huge country premiums to get access to capital.
The U.S. deficit is never welcomed.
But it occurs at a time when the United States is dealing
with a number of priorities, the war on terror, the homeland
security and the need to get the economy moving again, create
jobs. And we are under performing.
It is one thing to have a deficit at a time when the
economy is under performing where there is no risk of crowding
out capital and where there is no risk of having an adverse
affect on interest rates and that is the case here today, and
having deficits as we did in the 1990s, when I was quite
outspoken about the deficits because then we had a growing
economy. We had full employment. We had high GDP growth rates.
Mr. Inslee. Could I ask you to----
Secretary Snow. That environment is--now, sure I will
answer it again, but it is the main environment that you have
to worry about deficits, because those deficits were rising
over time, and I was concerned they would distort financial
markets and drive interest rates up and crowd out capital. That
just cannot happen under the current circumstances.
Mr. Inslee. I kind of want to make sure I understand your
answer, because my understanding of the Administration
proposals are not that we are going to have a deficit this year
or during the time of war and recession or maybe next year when
we have the cloud of the recession and war, but we are going to
be crowding capital investment for public activities and you
are going to be increasing the debt tax, which is the interest
paid by American taxpayers on the federal indebtedness, not for
the next year or two.
Your policies, under your numbers, create deficits for the
next decade of trillions of dollars. Now, did I understand this
correct that your Administration policies create deficits for
years and years and years, not just during these little
integral times of recession and war, but permanent deficits as
long as we can see. Isn't that your proposal?
Secretary Snow. Congressman, the deficits that we foreseen
under the President's budget plan that were sent to the
Congress has the deficit coming down to well below 1 percent.
And I think it was Alan Greenspan testified up here not too
long ago and said to you the deficits that matter are those
years, those deficits in the out years that had to do with
Social Security and with Medicare and those programs.
And that the United States, nothing troubling about a
deficit at 2 percent of GDP. That could go on, I think he said,
indefinitely and not rile up our financial markets.
So, no, I think you have misconstrued the budget plan. The
budget plan has the deficit coming down nicely to well under 1
percent and that is even before you do dynamic scoring. And, of
course, there is some feedback from more jobs and more capital
market transactions and higher corporate profitability to the
revenue stream in the United States. So, I think a realistic
assessment is that in those out years, not only will this
deficit be modest, but it will converge with zero.
Mr. Inslee. Well, I appreciate it.
The Chairman. The time of the gentleman has expired.
Mr. Frank is recognized.
Mr. Frank. Thank you. I know it is hard to keep things
straight, but I have to tell you that you have mis-cited both
the IMF and Alan Greenspan. In his most recent testimony, Mr.
Greenspan, first of all, has consistently said that he is not
in favor of net tax cuts right now adding to the deficit.
I did note that in 1995 in your article to the Richmond
Times in favor of balanced budgets, which did not differentiate
any of the nuances that we now have over here. They were not
good deficits and bad deficits and indifferent deficits, they
were all bad ones.
And you did say this is not speculation, it is the
consensus of a wide range of respected economists and financial
market analysts, including Federal Reserve Chairman Alan
Greenspan. And I wanted to ask you when you and he had split on
the issue and what point remembered.
But, you seem now to have cognitive dissidence, if you are
thinking he agreed with you. When he most recently testified
here he said that a recent fed study in his view made even more
robust, his word, the evidence that deficits raise long-term
interest rates and he, in fact, did not say that it is not a
problem until we get to the Social Security situation.
In fact, I cited to him the budget charts that show under
the President's budget plan the debt, the debt now, not the
deficit, as a percentage of GDP would have doubled over this
period. And he agreed, according to this study of the fed that
would add significantly to long-term interest rates. So, I
think you misunderstand Mr. Greenspan's testimony.
Secretary Snow. Well, I do not think I do, frankly,
Congressman. I think what he is talking about is deficits.
Mr. Frank. No, excuse me, Mr. Snow, I am sorry, but you are
simply wrong. I asked him a specific question about the debt,
not the deficit, and particularly the OMB study did say that
there was a relationship, four basis points, et cetera for one
percentage of the difference in the ratio between the debt and
the GDP.
And I asked him specifically about that and he said he
thought that the study was right and it would have added about
more than half a percentage point to long-term rates. So, it is
simply wrong to say that he was not talking about debt.
Secretary Snow. Well, I may be referencing some other
testimony.
Mr. Frank. Yes, different testimony.
Secretary Snow. The testimony that I recall.
Mr. Frank. No, I am not asking you about that----
Secretary Snow. ----is testimony that----
Mr. Frank. ----Mr. Snow, I only have five minutes.
Secretary Snow. Okay.
Mr. Frank. And, I advise you to read his most recent
testimony because he made it very clear that he is not in favor
of a tax cut that would be a net reduction in revenues at this
point. He also said with regard to scoring, he would never
catch up. And he did say that he thought that that relationship
was quite robust.
As to the IMF, and I saw, but I gather your maximum
concrete the general principles do not decide concrete cases of
Holmes got overruled while I was gone, because apparently you,
in later questions, told some of my colleagues that you did
hold to the fact that there should never be an allowance for
any kind of capital free flows.
Secretary Snow. No I did not. I cited general principles.
Mr. Frank. Well, let me ask you----
Secretary Snow. It is the general principle that capital--
--
Mr. Frank. ----a question then.
Secretary Snow. ----controls are a bad idea.
Mr. Frank. Does that mean in every case they are a bad
idea, Mr. Secretary. Does that mean that--let me ask you
specifically, dealing with Central America--by the way the IMF
opposed the notion of capital controls as we embodied in the
last two treaties.
Mr. Rogoff, the chief economist, was critical and I asked
Ann Kreeger in a conversation and she said yes, the IMF did not
support that--the inclusion there, probably because of the
nature of--well, let me ask you this specifically for a
concrete case.
Central American countries, we are not talking now about
controls over capital outflows, you could write a treaty that
said no controls over capital outflows. But, are you, in every
case, for the United States insisting that countries do not
adopt any proposals that seek to restrict very short-term
capital flows of say, less than a year?
Is that our general--is that not our general position, is
that the position that we will be taking?
Secretary Snow. I am not here to utter procrustean views.
Mr. Frank. I asking your views, forget procrustean. That is
not what I am saying.
Secretary Snow. Well, but procrustean views are views that
fit----
Mr. Frank. ----that we----
Secretary Snow. But, I am not----
Mr. Frank. You are not going to answer----
Secretary Snow. ----going to articulate those sorts of
views, but I think you will be--one view that fits every
circumstance.
Mr. Frank. I am asking you, not about every circumstance. I
do not understand what the problem is and why you are being so
evasive. I am asking you about the proposal to deal with the
Central American countries, that is not every view. Is it the
intention of the Administration to say to the Central American
countries that they should not ever try to restrict inflows of
short-term capital? That is pretty concrete.
Secretary Snow. Yes, and I would say in response that the
general principle should be not to have----
Mr. Frank. Mr. Secretary, I am not asking you for your
general principle. What game are you playing here?
You, first of all, say, ``well, look, it is two general--I
do not want to be procrustean.''
I am asking you specifically, forget the insistence on all
general principles. In this particular case, the Central
American countries, which I think not well developed in every
case financial situations, inflows of capital. It is a very
specific question.
Secretary Snow. And, you know, what are these bilateral
negotiations all about?
They are about advancing the interests of the U.S. and the
U.S. investors. And I do not think it is wise for somebody who
is involved in those negotiations to answer in advance
questions like the one you are advancing to me because----
Mr. Frank. American policies, and if you----
Secretary Snow. Well, the policy comes in the context of
time which when the individual negotiations.
Mr. Frank. I am really disappointed in your evasiveness and
your refusal to give me honest answers. This is really a
disappointment.
The Chairman. Mr. Feeney?
Mr. Feeney. Thank you again for being here, Mr. Secretary.
I hope that at least, at a very minimum you will look at this
as great practice for some talk show host, in your new
position.
Secretary Snow. It is better than that by far.
Mr. Feeney. Your new position will come in handy. Mr.
Secretary, I am new in the federal level of policy making and
it seems to me that I have been deeply disappointed over the 30
or 40-year track record of what is generally known as foreign
aid.
And, I would include in that private trainable work,
certainly foreign aid directly authorized by our Congress. I
would include the IMF, the World Bank and other international
institutions, because it occurs to me that the continued
commitment to do a large amounts of foreign aid through these
programs, whether it is grants or gifts or charitable work or
whatever, it basically amounts to the type of hope over
experience because I think we have gotten very little good
long-term for our money with the exception of maybe some
American contractors, you know, I cannot see any long-term
benefit from our history there.
I am encouraged and at least open to the President's
proposal to have incentives and what has been referred to today
as carrots for companies that adopt certain fiscal and monetary
policies that may, in the long run, make some good use out of
the future of aid in general.
But, it occurs to me that these lessons are pretty hard and
they are not very complicated.
And, as complicated as monetary and fiscal policy and
economics and currency exchange rates are, the bottom line is
that when a nation with absolutely no valuable resources, I can
think of that is basically one huge rock that has soon poured
over 99 percent of its food that has gotten them in democracy,
because they are a colony of Britain that has their key trade
progress for the last 40 years, thousands of miles away, is one
of the first and most prosperous countries on the face of the
Earth.
And, of course, I am referring to Hong Kong, that there is
a lesson for Iraq and Africa and emerging nations all over the
world that has not been taught and it certainly has not been
learned by American and international foreign aid policies.
And I would like you to describe for me how you are going
to hold accountable, not just through the new program that has
been suggested by the State Department and the President, but
through all foreign aid, as our Treasury Secretary, to make
certain that countries, if they are going to participate, that
they are very committed to the long-term of free trade,
property rights, both intellectual and literal, low marginal
tax rates on investment, the rule of law, transparency, with
respect to dealing with government and low government
expenditures as a percentage of gross domestic product.
And I would be, I guess, enthused if and only if I can be
convinced that the Administration is committed to doing things
that heretofore have not been part of a very thorough and very
expensive set of programs.
Secretary Snow. Congressman, it seems to me from that
comment that you are really in economics, which includes an
open figment as well as Lord Keynes. And maybe Mr. Metzler as
well.
Mr. Feeney. But, if I could do, all you need to do is get
out the real almanac and the second highest per capita income
are people that on an overpopulated rock that cannot grow any
food. It is pretty dramatic stuff.
Secretary Snow. Let me say that I am not an apologist for
the performance of the institutions that have made aid
available, development assistance available. I think they need
to be reformed. And the Metzler Commission pointed the road.
Undersecretary Taylor has added to that and the Treasury
Department has been in the forefront of a really far-reaching,
results-oriented, reorientation of the behaviors of the IMF and
the other IFIs.
It is a results-based orientation. It is an orientation
that says that large grants should not be readily made
available. We should limit official finance. We should make
sure we are not making the entry to moral hazard situations.
We should focus countries' behaviors, on the fundamentals
of their economies you are suggesting. Do they have in place
anti-corruption systems?
Do they have in place respect for private property? Do they
have in place the ability for loader markets to work right?
Do they have in place policies and monetary and fiscal
policies that create financial soundness?
We are very insistent, very insistent that these are the
right policies and that funding should only be made available
where these policies are being advanced.
And the funding should be short-term. And the objective, I
will go back to what I said earlier, the objective should not
perpetuate emerging countries, but to see emerging countries
emerge.
Success will be when the countries do not need to go to the
IMF window, but have access to the private capital markets, to
get them access to the private capital markets they have to do
these things that you and I discussed.
But, once they do them, then private capital will be
available, and once private capital is available then the need
for access to these subventions through the IFIs will be
greatly reduced. That is where we ought to be pointing. I agree
with you.
The Chairman. Thank you, Mr. Feeney.
This has been a very long day, Mr. Secretary, and you have
put up with a lot and we are very appreciative of your stamina,
as well as the difficulty of some of the philosophical issues.
I would like to end with one observation that will not
require an answer. But, one of the obvious dilemmas of the
Millennium Challenge Account, as thoughtful as it is, is what
happens when you have a situation which one country receives
benefits and another, because it does not meet any of these
standards does not, but the people are in a difficult position
and one can say, ``Well, we will do that through AID, but AID's
money is surprisingly locked up.''
And anyone that thinks that AID has a lot of discretion,
that is not the case. The discretionary budget will be in the
Millennium Challenge Account and my only minor suggestion to
you, sir, is to keep a little bit of an open mind to an
imperfect country, not to give anything through the government,
but through an NGO or a faith-based organization in the event
of a true, true humanitarian dilemma, which could well arise in
parts of the world with governments that are absolutely
intolerable by any of the decent standards that this
Administration or any outside group would arise.
And I only suggest that that little bit of discretion be
kept in mind, not moving through governmental channels in the
event that that circumstance comes to the floor.
And I do not want an answer. I just want to suggest that
you think that through.
Secretary Snow. I will and I take your point on that. It is
worth pondering, I agree.
The Chairman. In any regard, we are very appreciative of
your testimony today and much more importantly for the public
service that you have offered this President.
Thank you very much.
Secretary Snow. Thank you, Mr. Chairman.
[Whereupon, at 6:36 p.m., the committee was adjourned.]
A P P E N D I X
May 13, 2003
[GRAPHIC] [TIFF OMITTED] T9630.001
[GRAPHIC] [TIFF OMITTED] T9630.002
[GRAPHIC] [TIFF OMITTED] T9630.003
[GRAPHIC] [TIFF OMITTED] T9630.004
[GRAPHIC] [TIFF OMITTED] T9630.005
[GRAPHIC] [TIFF OMITTED] T9630.006
[GRAPHIC] [TIFF OMITTED] T9630.007
[GRAPHIC] [TIFF OMITTED] T9630.008
[GRAPHIC] [TIFF OMITTED] T9630.009
[GRAPHIC] [TIFF OMITTED] T9630.010
[GRAPHIC] [TIFF OMITTED] T9630.011
[GRAPHIC] [TIFF OMITTED] T9630.012
[GRAPHIC] [TIFF OMITTED] T9630.013
[GRAPHIC] [TIFF OMITTED] T9630.014
[GRAPHIC] [TIFF OMITTED] T9630.015
[GRAPHIC] [TIFF OMITTED] T9630.016
[GRAPHIC] [TIFF OMITTED] T9630.017
[GRAPHIC] [TIFF OMITTED] T9630.018
[GRAPHIC] [TIFF OMITTED] T9630.019
[GRAPHIC] [TIFF OMITTED] T9630.020
[GRAPHIC] [TIFF OMITTED] T9630.021
[GRAPHIC] [TIFF OMITTED] T9630.022
[GRAPHIC] [TIFF OMITTED] T9630.023
[GRAPHIC] [TIFF OMITTED] T9630.024