[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


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                            WASHINGTON : 2003
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                 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



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