[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
                   THE ROLE OF THE U.S. IN THE WORLD
                   BANK AND MULTILATERAL DEVELOPMENT
                  BANKS: BANK OVERSIGHT AND REQUESTED
                           CAPITAL INCREASES

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                         INTERNATIONAL MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 14, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-38



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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

                   Larry C. Lavender, Chief of Staff
        Subcommittee on International Monetary Policy and Trade

                  GARY G. MILLER, California, Chairman

ROBERT J. DOLD, Illinois, Vice       CAROLYN McCARTHY, New York, 
    Chairman                             Ranking Member
RON PAUL, Texas                      GWEN MOORE, Wisconsin
DONALD A. MANZULLO, Illinois         ANDRE CARSON, Indiana
JOHN CAMPBELL, California            DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota          ED PERLMUTTER, Colorado
THADDEUS G. McCOTTER, Michigan       JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 14, 2011................................................     1
Appendix:
    June 14, 2011................................................    25

                               WITNESSES
                         Tuesday, June 14, 2011

Brainard, Hon. Lael, Under Secretary for International Affairs, 
  U.S. Department of the Treasury................................     5

                                APPENDIX

Prepared statements:
    Miller, Hon. Gary G..........................................    26
    Brainard, Hon. Lael..........................................    29

              Additional Material Submitted for the Record

Dold, Hon. Robert J.:
    Letter from the Business Roundtable et al....................    35
    Memorandum from the United States Transportation Command to 
      the Secretary of the Treasury..............................    36


                   THE ROLE OF THE U.S. IN THE WORLD
                   BANK AND MULTILATERAL DEVELOPMENT
                  BANKS: BANK OVERSIGHT AND REQUESTED
                           CAPITAL INCREASES

                              ----------                              


                         Tuesday, June 14, 2011

             U.S. House of Representatives,
                      Subcommittee on International
                         Monetary Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:35 p.m., in 
room 2128, Rayburn House Office Building, Hon. Gary Miller 
[chairman of the subcommittee] presiding.
    Members present: Representatives Miller of California, 
Dold, Manzullo, Campbell, Huizenga; McCarthy of New York, and 
Carson.
    Chairman Miller of California. This hearing will come to 
order. Without objection, all members' opening statements will 
be made a part of the record. With the agreement of the 
minority ranking member, we are going to allow 10 minutes for 
opening statements for each side.
    Today's hearing is focused on the United States' role in 
the World Bank and the multilateral development banks (MDBs).
    The United States is a lead shareholder in the World Bank 
and regional multilateral development banks. The Administration 
has requested contributions to the capital at these 
institutions. It has argued that such contributions are 
important to retaining our leadership position.
    Today, we begin the process of considering the 
Administration's request for capital increases for the MDBs. I 
look forward to hearing from Under Secretary Brainard--welcome; 
it is good to have you here again today--on how these banks are 
supporting many activities that are consistent with American 
interests and American values.
    For example, fragile and broken states represent 
opportunities for terrorist actors to operate and threaten the 
United States and its interests. MDBs can bring development and 
stability to these areas, filling the vacuum that allows 
terrorist actors free rein.
    The MDBs are hard at work in Afghanistan supporting the 
U.S. mission. General Petraeus has spoken about the importance 
of the Asian Development Bank's work to develop much-needed 
infrastructure across Afghanistan.
    As North Africa and the Middle East undergo tumultuous 
transitions, the MDBs are able to provide technical assistance 
and capital to nations enacting democratic reforms and moving 
forward in a sustainable and positive manner.
    In addition, the MDBs are making progress on regional 
integration in Africa, which holds promise for improving 
commerce and addressing many of the long-term issues that have 
exacerbated famine and poverty across the continent. The MDBs 
provide poor countries across Africa an alternative to China 
for development finance and natural resource development.
    MDBs allow the United States to leverage its resources 
alongside those of other member nations to achieve U.S. 
interests. As part of that model, MDBs must adopt necessary 
controls to ensure MDB actions achieve desired outcomes, and 
the borrowing nations must move toward the ability to borrow 
from private markets.
    Our subcommittee's goal is to ensure the World Bank and 
regional multilateral development banks are using U.S. 
resources in a transparent, corruption-free, and effective 
manner before committing U.S. taxpayers' funds to these 
institutions. The United States must use its leadership 
position at the banks to fight for the end of corruption and to 
make sure that all lending is conducted through transparent and 
accountable processes.
    We cannot lose sight of the fact that these requests are 
coming at a time when our country must focus on getting our own 
massive debt under control. While the United States has a vital 
interest in continuing to assist emerging economies to 
implement economic, political, and social reforms, we cannot 
overlook the costs. During these economically challenging 
times, Congress must continue to make the difficult choices 
necessary to reduce the debt and grow our economy, while also 
furthering U.S. strategic interests around the world.
    The American people are demanding that their government 
learn to live within its means and stop spending borrowed 
money. The fact is, we cannot continue to borrow 40 cents on 
the dollar and pass on the debt to future generations to repay. 
We must prioritize Federal dollars to ensure essential needs 
are provided for, and do more with less, just as American 
families and small businesses have had to do during these lean 
economic times.
    It is with these financial constraints at the forefront of 
our minds that the subcommittee will assess the 
Administration's request for funding. Today's hearing will give 
Members the opportunity to hear from the Administration about 
their rationale for the specific funding requests made for each 
MDB.
    Before we act, we want to understand clearly the 
consequences to global and U.S. economic and security interests 
from any delay or reduction in the amount requested by the 
Administration. Specifically, it is our hope that today's 
hearing will: highlight the role of the MDBs and their 
relevance in today's world; discuss the benefits to the United 
States of its membership in the MDBs, including the impact of 
the MDBs on the U.S. economy and U.S. strategic interests 
around the world; examine how the current role of the United 
States at the MDBs allows for the influence of day-to-day 
operations at these institutions and shapes their medium- and 
long-term goals; detail the reforms that the MDBs have agreed 
to implement as part of their general capital increases; and 
explore what additional reforms are needed at each MDB to 
improve their operations and combat fraud and corruption.
    In conclusion, since I accepted the gavel of this 
subcommittee, I have said that the agenda will be focused on 
four things: one, job creation; two, global competitiveness; 
three, economic growth and stability; and four, protecting 
taxpayers.
    This is the lens under which we will review the 
Administration's request for funding for the MDBs. Our ultimate 
goal is to promote favorable conditions around the world for 
American companies in order to increase U.S. exports, and 
thereby create jobs in the United States.
    Through development activities, the MDBs help contribute to 
stability around the world, opening markets for our companies 
to engage. By ensuring the global environment is stable, 
American companies can thrive and contribute to robust economic 
growth.
    I yield 5 minutes to Ranking Member McCarthy.
    Mrs. McCarthy of New York. Thank you, Chairman Miller, for 
holding this important hearing. And I also would like to 
welcome Under Secretary Brainard here this afternoon to discuss 
the role and the operation of the multilateral development 
banks and the role of the United States in these institutions.
    Development banks are owned by member countries and provide 
financial and technical assistance through loans and grants to 
emerging markets in developing countries for investment 
projects and policy-based loans. For even the poorest countries 
that are too unstable to borrow from the private markets, 
development banks provide assistance for fundamental projects 
such as health services, clean water, sanitation, and 
agriculture through low-interest loans with longer repayment 
options.
    The United States has played a leading role in developing a 
policy agenda to ensure our financial contributions will be 
leveraged by other donors and borrowers, and that investments 
made by the institutions directly support our priorities.
    We receive a great deal of value from our contributions to 
these institutions, such as increased markets for U.S. exports 
and enhanced national security through investments in 
industries that promote long-term stability for a conflict 
country.
    A long-term member of the various development institutions, 
the United States is the largest shareholder in the World Bank 
and in the Inter-American Development Bank. By fulfilling our 
contributions and maintaining shareholder position, we create 
economical growth opportunities in emerging markets and 
maintain global competition.
    The financial crisis brought an increased demand in support 
for the multilateral development banks, requiring them to seek 
additional resources from their member countries to allow for 
substantial lending. Under these general capital increases, 
member countries agreed to increase support to the development 
banks by purchasing additional shares in the institution.
    I recognize that our Nation is faced with serious fiscal 
challenges that must be addressed. Fulfilling our funding 
commitment to the multilateral development banks and pledge for 
general capital increases enables us to strengthen our domestic 
economy and enhance national security, as well as promote 
economical development, good governance, and stability in 
developing countries.
    I do look forward to hearing your testimony, and I yield 
back the balance of my time
    Chairman Miller of California. Thank you. Vice Chairman 
Dold is now recognized for 3 minutes.
    Mr. Dold. Thank you, Mr. Chairman. And I want to thank you 
for calling this important hearing. And I certainly want to 
thank the Under Secretary for your time and for your testimony 
today.
    It is to our benefit and the entire world's benefit that 
America has been and remains the world's economic, military, 
political and, I would argue, cultural leader. We did not 
achieve our world leadership position through fearful 
isolation. We achieved our world leadership position by 
energetically engaging with the world through trade, 
investment, security arrangements, diplomacy, and foreign aid.
    While we can always do better, and while we will always 
have problems, our world leadership position has made America 
and the world more open, more prosperous, more secure, and more 
free. And for many decades, the World Bank has been one of the 
most important and most effective instruments of American 
leadership.
    Through the World Bank, America has been able to influence 
corrupt and tyrannical governments to become more open, more 
transparent, more peaceful, and more humane. Through the World 
Bank, America has been able to influence foreign nations to 
open their markets to American exports and to American 
investment.
    We have seen the World Bank have great success in places 
such as Indonesia, Korea, Africa, and Eastern Europe, which has 
helped create more security and more economic prosperity right 
here at home. Now, we see this great promise of a rapidly 
reforming Middle East where people are demanding more political 
freedom, government transparency, and economic opportunity. I 
expect that, as in the past, the World Bank will play an 
important role, which will in turn make the rest of the world 
more secure and more prosperous.
    Our military leaders recognize how important these 
multilateral development banks are to our own national 
security. General Petraeus and Commander Duncan McNabb have 
written a letter emphasizing the importance of the multilateral 
development banks to our own strategic interests, and I would 
ask the chairman for unanimous consent to submit this letter 
for the record.
    Chairman Miller of California. Without objection, it is so 
ordered.
    Mr. Dold. Our business leaders through various business 
organizations have recently written to the United States 
Congress to emphasize the vital importance of the MDBs in 
promoting our own export markets, economic development, and 
American leadership. I am convinced that the relatively small 
amount that we spend on the World Bank funding pays huge 
dividends in money we don't need to spend on military action 
and money that we don't need to spend on increased security 
measures and on economic prosperity that we receive through new 
markets for our businesses all across the land.
    We all benefit greatly in both tangible and intangible ways 
from America's great influence in the world, and the World Bank 
is one of our best assets for maintaining this influence, all 
at a relatively low cost.
    I realize that Federal spending is dramatically out of 
control and must be dramatically reduced. However, we must fund 
our priorities, and these programs provide significant value.
    With that, I yield back the balance of my time.
    Chairman Miller of California. Thank you. I now have the 
honor of introducing the Honorable Dr. Lael Brainard, who is 
the Under Secretary of Treasury for International Affairs. Dr. 
Brainard has spent most of her professional life as a devoted 
public servant, working to further understanding of 
competitiveness, trade, international economics, foreign 
assistance, and global poverty.
    During her tenure at Treasury, Dr. Brainard heads the 
Administration's agenda of strengthening U.S. leadership in 
global economies to foster growth, create economic 
opportunities for Americans, and address transitional economic 
challenges, including development, climate change, food 
security, and financial inclusion.
    I love this next part. Dr. Brainard is the highest ranking 
female Treasury official in American history--kudos to you--and 
plays a critical role as the most important financial diplomat 
in the Administration's efforts to sustain recovery from the 
financial crisis and strengthen global growth.
    The Honorable Dr. Brainard is recognized for 5 minutes.

 STATEMENT OF THE HONORABLE LAEL BRAINARD, UNDER SECRETARY FOR 
     INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY

    Ms. Brainard. Thank you very much. I want to just express 
my appreciation to Chairman Miller, to Ranking Member McCarthy, 
and to the distinguished members of this subcommittee for 
holding this hearing on this very important topic.
    The Administration's pending requests to recapitalize and 
replenish the multilateral development banks come at a moment 
of extraordinary importance. New powers, such as China, are 
expanding their global influence and investments. Historic 
transformations are sweeping the Middle East and North Africa. 
And as we witnessed during the recent financial crisis, in 
today's highly interconnected global economy, currents can 
shift suddenly, leaving the world's poorest even more 
vulnerable.
    At this critical time, America's leadership and investment 
in these institutions yields significant returns. The numbers 
speak for themselves. For each $1 that the United States 
contributes to replenish IDA and the African Development Fund, 
we leverage $25 of multilateral development investments. Our 
investments in Fiscal Year 2012 alone will leverage over $95 
billion of MDB financing off a base that is below 3. But the 
most important reason for our engagement is the people who are 
helped by these investments.
    In Zambia, U.S. investments have helped reduce malaria 
deaths by 50 percent. In Moldova, mother-to-child HIV 
transmission has decreased by 90 percent. And in Benin, more 
than 2 million insecticide-treated nets have been provided by 
the MDBs.
    Let me briefly touch on four reasons why we are seeking 
authorizations from this committee for our MDB commitments.
    First, these institutions have long advanced U.S. global 
leadership and provided unrivaled leverage. If we do not secure 
congressional authorization for recapitalization and 
replenishment, U.S. leadership will surely wane. At the World 
Bank, we would risk our unique veto over changes to the 
Articles of Agreement, which protect our prerogatives on bank 
membership and leadership. At the African Development Bank, the 
United States would miss our next payment, reducing U.S. 
shareholding by two-thirds, and putting our seat on the board 
of directors in jeopardy. And at the Inter-American Development 
Bank, no contributions can be made by any member unless the 
United States contributes.
    So being unable to participate for lack of authorization 
would deny the IDB of any funding. This would be interpreted as 
a retreat on the part of the United States from Latin America 
at the very time that China and others are deliberately 
increasing their presence in this institution and in this 
resource-rich region.
    These are once-in-a-generation investments. In 1988, 
President Reagan secured authorization for the last 
recapitalization of the World Bank. The U.S. capital 
contribution at that time of $420 billion supported $325 
billion in key investments over the next quarter century, a 
multiplier of 800 to 1. We are all familiar with the record of 
achievements secured by those investments: transition to 
democracy and to market economies throughout Central and 
Eastern Europe, South Korea, and Indonesia; the growth of 
stable democracies following the Cold War; and stronger 
national security for the United States.
    Second, today we see a similar opportunity in the Middle 
East and North Africa. The success of the historic 
transformations now under way in countries like Egypt and 
Tunisia will depend on whether democracy delivers on its 
promise of freedom and opportunity. By investing again today in 
the multilateral development banks, we will secure brighter 
futures for the generation gaining a voice in those countries 
and for Americans as we strengthen our foreign security and 
economic partners.
    The MDBs are already at work to support Egypt and Tunisia. 
At the recent G-8 summit, they committed to providing $20 
billion of investments to stabilize economies, invest in 
private sector growth, and promote greater accountability, 
transparency, and the fair rule of law, an investment many 
times larger than we would be able to make ourselves.
    Third, over the past 3 decades, investments by these 
important development banks have helped foster peace, 
stability, and growth in countries emerging from conflict, 
including Bosnia, Rwanda, and Liberia. In Afghanistan today, 
the World Bank and the Asian Development Bank are the second 
and third largest donors after the United States, building 
critical infrastructure like the Ring Road and the Uzbek-Afghan 
railroad. And as was noted here, both General Petraeus and 
General McNabb have noted that these projects are vital to the 
success of the U.S. strategy in both Afghanistan and the 
region.
    The MDBs are also on the front lines with us when disasters 
and conflicts leave countries weak and vulnerable. Today, the 
World Bank is assisting refugees fleeing repression in Libya. 
When the devastating tsunami hit Aceh in 2004, the MDBs 
immediately formed a new recovery and reconstruction fund to 
address urgent health crises, feed school children, and rebuild 
canals and bridges. And again, they did the same following the 
devastating earthquake in Haiti.
    Fourth, the multilateral development banks play a vital 
role in advancing our commercial and economic interests. They 
build the roads and ports to get our products to new markets. 
They build the soft infrastructure that makes markets work, 
reducing trade barriers, improving property rights, and 
slashing red tape.
    In infrastructure, the multilateral banks help to level the 
playing field for U.S. companies to compete. The alternative to 
multilateral development bank financing for infrastructure in 
too many of these countries is borrowing from countries like 
China.
    In contrast, the development banks, due to our leadership, 
have rigorous safeguards to protect the environment, uphold the 
rights of vulnerable populations, and combat corruption. They 
establish fair and consistent rules that create opportunities 
for U.S. companies to invest.
    And finally, we have consulted closely with Congress 
throughout the negotiations over the recapitalization and 
replenishment of these institutions, and the reforms in these 
institutions show the results of those consultations. We have 
made disclosure of significant policy documents the norm. We 
have put in place procurement rules to ensure companies have a 
fair chance to compete, and secured more effective internal 
audits to prevent and deter corruption.
    We have achieved higher standards for results. Indeed, a 
recent study by the Center for Global Development ranked IDA at 
the very top in development effectiveness among a large field 
of bilateral and multilateral development agencies.
    As our key partners in alleviating poverty, strengthening 
national security, and fostering economic growth and 
prosperity, we seek your support in reaffirming U.S. leadership 
in the multilateral development banks.
    Thank you.
    [The prepared statement of Under Secretary Brainard can be 
found on page 29 of the appendix.]
    Chairman Miller of California. Thank you, Under Secretary. 
I want to thank you for your candidness on the process. You 
have been forthright in providing the information we have 
needed. Ex-Im was a great example of that. You have expressed 
the concerns you have, the benefits you saw. There seems to be 
a nexus between MDBs and Ex-Im, as I listen to your testimony.
    I guess my concern would be, what consequences would there 
be for the United States if we didn't authorize your requests? 
And are there consequences the institution would suffer in the 
ability they have to do their business? Can you explain the 
importance of the United States maintaining a leadership 
position?
    Ms. Brainard. I think there are very direct and measurable 
consequences. As was noted earlier, we have built up our 
position of leadership in these institutions over decades, and 
it would be a terrible cost to us to forfeit that leadership at 
a time when it seems more important than ever.
    At the World Bank, if we were not able to support our 
capital contribution, we would have the risk of forfeiting our 
veto. We are the largest shareholder, and we are the only 
country that has a veto at the World Bank at present. And of 
course, with that, goes a long history of having an ability to 
provide leadership in direct policy directions in that 
institution.
    At the African Development Bank, if we fall behind, we risk 
our seat on the board of directors. We are the largest 
nonregional shareholder in the African Development Bank. And as 
you know, that institution sits in a region of the world where 
poverty is greater than in any other region, but so too we 
believe the opportunities for infrastructure, for food 
security, for a whole host of things in poverty alleviation and 
post-conflict development that are critical to the United 
States and have the greatest potential to be realized.
    At the Inter-American Development Bank, we are again the 
largest single shareholder. And in that institution, if we were 
unable to move forward with our share on the recapitalization, 
we would actually hold up the entire institution from moving 
forward, jeopardizing our investments in our own neighborhood, 
and very importantly an important agreement that we secured to 
have $2 billion worth of grant financing directed to Haiti.
    So in all of these cases, we secured very important reforms 
that will lead to loan pricing to middle-income countries that 
will allow greater resources to be transferred over to the 
facilities for the poorest countries. We secured very important 
reforms on measuring development effectiveness and achieving 
results, on transparency, on procurement that is very important 
to our companies.
    And so all the things that we all mentioned earlier, 
whether it be on economic advancement for our companies around 
the world in these very fast-growing markets, whether it be on 
ensuring stability in fragile states, responding to natural 
disasters, supporting the historic transformations now under 
way in the Middle East, all of those things we believe could be 
put at some risk if we are not able to move forward on these 
authorizations.
    Chairman Miller of California. How did the Treasury come to 
the conclusion that capital increases were necessary? And the 
levels you prepared for Congress for the capital increases and 
for replenishment, how did you arrive at those?
    Ms. Brainard. In all cases, the institutions came to us as 
shareholders only after they had undertaken a great deal of 
analysis internally. As you know, these institutions very 
rarely get recapitalized. The last time we put additional 
capital into the World Bank was in 1988. So these are often 
once-in-a-generation investments. And I can't think of a time 
when all of the institutions needed capital, or most of them, 
at the same time.
    In the wake of the financial crisis, when these 
institutions responded as we prioritized them to do, which was 
to support trade flows--as you may recall, there was a collapse 
in trade financing that threatened our exports as much as any 
country's, as well as threatened to throw a whole generation 
back into poverty in many countries--these institutions really 
stepped up and disbursed and made a measurable difference in 
these economies. And as a result, their lending levels rose, 
putting into jeopardy their ability to continue lending in 
future years.
    So if you look at the African Development Bank, if we had 
not approved an increase in their capital, their lending in 
that critically important region would have fallen below $1 
billion, which would have been a huge step backwards. And I 
think you can tell the same story in each institution.
    The one thing I will note is that in almost every case, we 
pushed very hard to ensure that the capital increases would get 
us maximum value for each dollar invested. And they are in most 
cases much smaller than was originally requested, in part 
because we encouraged the institutions to push their own 
internal financial transfer mechanisms very hard, to raise 
their pricing on loans in some cases, and to transfer more 
money to the facilities for the poorest countries.
    So if you take the Inter-American Development Bank for 
instance, they had originally envisaged a 200 percent capital 
increase. And after spending a lot of time with them and with 
you on the numbers, I think they recognized that they could 
accomplish the same with a much smaller increase in their 
capital of 70 percent. And in each case, in the EBRD, the 
European Bank for Reconstruction Development, which will now be 
reorienting its operations to make room for Egypt and Tunisia 
and play the same role there that they played in Central and 
Eastern Europe, we actually called on them to use their 
existing capital more effectively. So that while we need an 
authorization, there won't actually be a need for additional 
U.S. dollars going into that institution.
    So we tried to stretch our dollars as much as we possibly 
could in each case, and I think the results will multiply our 
leverage and accomplish our goals in a smart way.
    Chairman Miller of California. I think it is important that 
we allow Dr. Brainard time to respond adequately to our 
questions. I think we easily have time for two rounds of 
questions. That is why I didn't try to cut her off. I think it 
is important to hear what she has to say. So I would encourage 
you to get your responses, because you will have a second 
opportunity.
    Ranking Member McCarthy, you are recognized for 5 minutes.
    Mrs. McCarthy of New York. Thank you. I appreciate it. I 
appreciate the testimony. And certainly, great minds must think 
alike, because I was going to ask the question that Chairman 
Miller asked you in the beginning, what would happen if we 
defaulted on not putting our share of money up. And I think it 
is important, certainly for the Members of Congress, but also 
people who actually watch this show--I can't tell you how many 
times when we go home as Members and people are saying, yes, we 
are having tough times here in this country. Why are we giving 
money to the World Bank? Why are we giving money to other 
nations? And it is our job to be able to explain that to them 
on how it does have an effect on our folks back home.
    But I think I would like to--you have provided in your 
testimony some good examples of the opportunities that 
multilateral development bank lending provides for the United 
States businesses growth through procurement context. But I 
think if you could go into a little bit more with the general 
capital increase providing increased lending by the 
multilateral development banks, how much more of an opportunity 
do you anticipate for United States business growth? And just 
if you could touch on, because I can come back to it later, 
when we talk about global threats and how the World Bank does 
play in protecting this country, because I think again that is 
something that people back home need to know.
    Ms. Brainard. Let me just respond first by saying I think 
we all are struggling to find the best, smartest way to 
leverage U.S. taxpayer dollars at a period of belt tightening 
around the country. And I believe that in part because of the 
agreements that we have reached with each of these 
institutions, and in part because of the lending model that 
they employ, these are some of the smartest investments of U.S. 
taxpayer money that we can think of. They are investments in 
expanded economic opportunities for our firms. They are 
investments in prevention. It is much cheaper to be helping 
countries to develop and grow and address poverty than it is to 
have to send in troops when they descend into conflict because 
of poverty and stresses over resources.
    With regard to some of the leverage numbers, again, because 
we invest in these institutions rarely, and they use their 
capital in very smart ways, a dollar invested in 1988 in the 
World Bank leveraged over $800 in investments over the 
subsequent 2 decades. And we think that the same kinds of 
results will come from our investments today.
    With regard to the commercial opportunities that these 
institutions foster for our companies, I think the support that 
we see from the business community and that was referenced 
earlier really speaks for itself. The U.S. business community 
is very supportive of these institutions because they benefit 
our economic interests both directly and indirectly, indirectly 
by building those bridges and roads and railroads and ports 
that enable us to get our products into these countries. And by 
creating the rules, lowering the trade barriers, getting rid of 
the red tape makes it much easier for our exporters to sell to 
consumers in Brazil or in India, around the world.
    If you look at direct opportunities that are provided by 
these institutions, the procurement rules that they put into 
place are rules that often govern not only the procurements 
that are directly associated with development banks, but also 
lead to more transparent and open bidding processes for 
projects more generally in those countries. And it really gives 
our companies a chance to compete on the strength of their 
products.
    If you look in the most direct way, I am just going to cite 
a few companies because you mentioned that, if you look at the 
procurements that have been made, TCI International of 
California won a contract to equip Malawi's utilities. Learning 
Resources of Illinois supplies educational materials to 
education projects in Honduras. Abbott Laboratories in Illinois 
won a contract to provide antiretroviral drugs to rural 
Cambodia. And the list goes on.
    So there are also direct procurement contracts. And we are 
going to keep working to ensure that these institutions promote 
U.S. economic opportunities.
    Chairman Miller of California. Vice Chairman Dold is 
recognized for 5 minutes.
    Mr. Dold. Thank you very much, Ms. Brainard. My 
understanding is that the Argentinian Government has recently 
become the first country in the 30-year history of the 
International Center for Settlement of Investment Disputes, 
which is the most widely used international arbital body in the 
world, and they refused voluntary payment of the awards that 
came out of that body. And I am sure you would agree that 
Argentina's actions are not only harmful to the United States 
businesses that have invested in Argentina, but that the 
Argentinian Government is establishing what I would call a very 
dangerous precedent that other countries, particularly those in 
Latin America, may follow suit. Although the World Bank can 
take unilateral action to help preserve the integrity of the 
ICSID process through the bank's operational policies, it has 
thus far not done so.
    Therefore, what actions can the United States Government 
take to compel Argentina to comply with its international 
treaty obligations? And if government-to-government measures 
are not successful, do you agree that it is appropriate to 
prohibit financing from multilateral institutions to countries 
that refuse to comply with their treaty obligations?
    Ms. Brainard. We think it is very important for countries 
to abide by the international obligations that they have taken 
on and to enter into dispute settlement proceedings through 
ICSID in a way that they actually respect the process. We are 
engaged through the MDBs as well as the IMF, and will continue 
to try to engage bilaterally with Argentina to address the 
various international discussions and decisions where they have 
not so far been in compliance. And we are happy to consult with 
you closely as those processes continue.
    Mr. Dold. Great. The Administration has requested increases 
for all of the MDBs. I certainly know that they stretch the 
dollar. And I know it is good for exports and for business. Mr. 
Chairman, I would like to, if I may, submit for the record a 
letter that we received from the Business Roundtable and the 
Coalition for Employment Through Exports and other business 
organizations, if I may.
    Chairman Miller of California. Without objection, it is so 
ordered.
    Mr. Dold. Also, there was a poll that was recently done not 
too long ago, I think by the University of Maryland, that 
polled the American public about the amount of money that we 
are spending on foreign aid. They came back and said they 
thought it was about 25 percent. And then when asked how much 
should we be spending, they said, well, maybe only 10 percent. 
In actuality, it is only about 1 percent is what we are 
actually spending on foreign aid. And a fraction of that is 
actually being spent on the World Bank and the other MDBs.
    But just from your perspective, how can the Administration, 
how can the Federal Government do a better job of getting that 
information out to the American public to let them know indeed 
what are relatively minor outlays? And yet we do face a 
significant deficit and debt issue that the Federal Government 
is spending more money than we should. But how do we get that 
message out that our priorities still need to be funded? And 
this is what I would consider to be an outstanding way for the 
United States to be able to be spending these resources, and 
spreading our influence across the globe.
    Ms. Brainard. I share the priority you put on that. I think 
American citizens, when they understand, and even better when 
they have the opportunity to witness firsthand the work in the 
field of these institutions, as well as, of course, as USAID 
and the work that we do bilaterally, they become extremely 
supportive of these institutions. And we also know from talking 
to Americans around the country, and also from polling, that 
the kinds of values and goals that these institutions support, 
rebuilding economies in the wake of disasters, in the wake of 
conflict, addressing deprivations associated with poverty, 
addressing food security, all of these things are things that 
Americans care about, and in their own volunteer time and with 
their own voluntary contributions they themselves directly 
support.
    So what we try to do is to connect with some of the 
organizations, whether they be faith-based or nongovernmental 
organizations, where Americans come together to express support 
for the goals of these institutions. The President talks a lot 
about these issues. He has talked a lot about food security, 
which is something that we have been working very hard to 
promote through all the multilateral development banks, where 
they are doing really terrific work. And he talked about it 
just a few weeks ago when he talked about the incredible work 
that the multilateral development banks are going to do in 
supporting the historic transformations now under way in Egypt, 
in Tunisia, and elsewhere in the Middle East, where these 
institutions really uniquely have both the scale and the 
staying power to help underwrite the many years that will be 
required to transform these economies to be able to give the 
young people who ushered in these historic transformations 
brighter futures.
    Mr. Dold. Thank you, Under Secretary Brainard.
    Chairman Miller of California. The gentleman from 
California, Mr. Campbell, is recognized for 5 minutes.
    Mr. Campbell. Thank you, Mr. Chairman. I have a couple of 
questions. Just following up on that Argentina discussion, the 
World Bank is loaning money to Argentina. I thought that we 
were supposed to be loaning to underdeveloped countries. 
Argentina is obviously a developed, established country. Is the 
World Bank making loans like that as well?
    Ms. Brainard. Just to step back for a second, the issue for 
Argentina really is settling outstanding claims, as opposed to 
moving forward on new loans. But more generally, the World Bank 
and each of the multilateral development banks have a set of 
activities that they do with countries which are middle-income 
countries and a set of activities they do with the poorest 
countries. Those two sets of activities reinforce each other.
    So, for instance, if you look at Egypt and Tunisia, those 
are middle-income countries. But they have tremendous needs to 
develop infrastructure to support growth, to develop better 
financing models so that small businesses can flourish, and 
young people can start businesses and get jobs and build 
futures. So when we look to supporting the economic 
transformations that have to take place to support democratic 
transition in Egypt and Tunisia, what the World Bank and the 
African Development Bank uniquely will bring is a set of policy 
changes that will go hand-in-hand with the medium-term reforms 
these economies are undertaking. So just as Egypt may be 
investing in small or medium-sized enterprise creation, so too 
the World Bank and the African Development Bank will encourage 
them to undertake reforms that make it easier for fruit vendors 
to register their businesses. As you remember, that was one of 
the issues that touched off the uprisings in Tunisia, that make 
it easier for entrepreneurs who may be young or who don't have 
a lot of capital to register businesses and to raise capital, 
to put in place more mechanisms to combat corruption.
    Mr. Campbell. Okay. Let me just get to a couple of other 
things. You mentioned the consequences if we didn't do this, 
and that our percentage of the multilateral banks, etc., and so 
forth would be recused. What is the problem with that? Why not 
say that in the G-20, the other 19 ought to carry more of the 
load? Maybe they ought to carry more of the share, and maybe we 
shouldn't be dominant? Maybe we shouldn't be controlling all 
this. We are not the only country that exports to these places. 
Germany does, as well as Britain, France, China, Japan, and 
others. Why not let them carry more of the load?
    Ms. Brainard. I think what you will see is that to some 
degree we are seeing a shift in shareholding in these 
institutions. But the countries that want to share that load, 
the countries, China for instance, would like to expand its 
share in the World Bank, they would like to be represented in 
the Inter-American Development Bank. They would like to have 
greater participation in the African Development Bank. Why? 
Because they see tremendous opportunities in these regions for 
their businesses and also to exercise leadership positions.
    I think for us, we have traditionally been able to wield 
disproportionate influence in these institutions because of our 
leadership position. We have, uniquely, a veto at the World 
Bank. We are the only non-regional shareholder, the largest 
that has its own seat at the African Development Bank. These 
are investments that we have made over time because we think it 
is important to our companies, we think it is very important to 
our national security in places like Afghanistan, and we 
believe that by exercising leadership in these institutions, we 
advance our national goals.
    Mr. Campbell. Let me ask you one more, because I could 
follow up with that, but we will come back, and then Mr. 
Manzullo may follow up on this. But you mentioned, you said 
that a dollar invested had been turned over 800 times or 
whatever. If that is the case, why don't we get paid back? In 
other words, why do we need to invest more? Why doesn't the 
World Bank generate its own capital to continue forward?
    Ms. Brainard. The World Bank actually has an internal 
funding model that we have helped to encourage, which does 
actually take the reflows from some of the lending to the 
emerging markets, those economies that started out much poorer 
and are now growing in wealth because of these investments in 
many respects, and are also growing as our consumer markets, 
and takes those reflows and uses them to provide financing to 
the poorest countries. So the way that we have structured our 
investments in these institutions has been to try to get 
greater contributions from the lending that we do to middle-
income countries so we actually do essentially make our 
contributions to the poorest countries smaller by transferring 
those reflows to the poorest countries.
    Mr. Campbell. Okay. Thank you.
    Chairman Miller of California. The gentleman from Indiana, 
Mr. Carson, is recognized for 5 minutes.
    Mr. Carson. Thank you, Mr. Chairman. Madam Secretary, I 
have a question. Does the World Bank plan to implement improved 
strategies to reduce poverty in countries by aiming a set of 
metrics only on boosting overall growth? It is evident that 
this strategy may miss opportunities to reduce poverty. I 
understand the reasoning behind focusing on sectors with growth 
potential, allowing for relatively quick payoffs. However, do 
these strategies really impact poverty reduction in the most 
efficient way?
    Ms. Brainard. I think at least with regard to the lending 
facility and the grant making facility for the poorest 
countries, IDA, we have seen that they are ranked very highly. 
There was a study done by the Center for Global Development 
which saw IDA as among the most effective on promoting 
development and addressing poverty among about 150 agencies 
that they looked at.
    So I think the answer is yes, we push them very hard. And 
we know this is something that Members of Congress care a great 
deal about, to be very focused on poverty reduction and on food 
security, where they have a lot of their resources devoted, as 
does the African Development Bank, and in coming up with 
programs that not just address food security today, but put 
smallholder farms in a much better position to grow more and 
earn more for their families and allow their kids to go to 
school and get themselves out of poverty traps over time.
    Mr. Carson. Are you worried that if the United States cuts 
funding for MDBs that it is tantamount to allowing China, for 
example, to expand influence in Africa and other developing 
nations, as was recently explained by Secretary Geithner?
    Ms. Brainard. I am worried. I would note simply that there 
is a huge interest on the part of many of the emerging markets 
to expand their share at these institutions, again because I 
think they see them, as we do, as very important for 
influencing the policy frameworks in these countries, for 
influencing the infrastructure investment plans, and for 
influencing how easy it is for our exporters to do business in 
these countries.
    So our leadership matters. And I think if we allow it to 
wane, there will be other countries that are only too happy to 
take up our shares.
    Mr. Carson. Thank you, Madam Secretary. Thank you, Mr. 
Chairman. I yield back my time.
    Chairman Miller of California. The gentleman from Illinois, 
Mr. Manzullo, is recognized for 5 minutes.
    Mr. Manzullo. Thank you, Madam Secretary. It is good to see 
you again. I have some real problems with regard to the 
practice of the World Bank talking about helping out other 
countries with loans to medium-sized and small businesses, and 
yet the regulatory environment that we have in this country, I 
have constituents back home who can't get loans--they are 
collateralized and everything--based upon the harsh regulatory 
environment of the OCC, the FDIC, etc., and the examiners 
classifying loans at banks that should not be classified. And I 
find it very difficult to vote for money to give to the World 
Bank, especially on the premise, and I know you didn't mean it 
in your statement, that the man who torched himself in Tunisia, 
if he had had access to World Bank money, would be alive today. 
You called that an act of courage and quest for dignity.
    I am having problems with the whole approach here, 
especially when you throw in with what Mr. Dold said about 
Argentina. Courts of jurisdiction, recognized in the legal 
system, applying the rule of law, have ordered Argentina to pay 
these debts not only to bondholders, U.S. bondholders, but to 
taxpayers who have invested our certificates with them. And as 
recently as April 28th of this year, long after Members of 
Congress had bitterly complained to the World Bank to cut off 
Argentina, the World Bank notwithstanding gave another $400 
million to Argentina. This could be the demise of the World 
Bank unless something happens with Argentina. It is not just 
one country.
    How do you address my constituents who can't get money to 
run their businesses and tell them, by the way, let's give $3.5 
billion to the multilateral development banks, especially when 
President Obama said he wants another $40 billion to give to 
these Arab countries so they can be taught democracy, 
ostensibly with the African Development Bank and the World 
Bank?
    Ms. Brainard. Let me just say I know your passion for small 
business and ensuring they get access to credit. I certainly 
share it. It is something that I know people at Treasury on the 
domestic finance side care a great deal about and are working 
very hard to address. We also think it is important around the 
world to make sure that credit flows to small businesses in 
part because that is key to development, and in part because it 
creates great opportunities for our exporters, as consumers and 
their business customers in developing countries grow and are 
able to purchase their goods.
    Mr. Manzullo. If the World Bank is lending money, you 
mentioned some Fortune 500 company, if the money is being 
loaned, why isn't it being repaid back?
    Ms. Brainard. Let me just be a little bit clearer in terms 
of the authorization for the World Bank, let's just take that 
for example. It is approximately $190 million for 1 year, and 
that takes place over 5 years. And then, we essentially don't 
fund it again for probably 2 decades. During that time, the 
United States retains its paid in capital during the World 
Bank, but that money is put to work as it would be in any well-
run financial institution.
    Mr. Manzullo. Then why do you keep on coming back for more?
    Ms. Brainard. And what that money does is it invests in 
peace and prosperity and stability around the world.
    Mr. Manzullo. I understand. I am asking--
    Ms. Brainard. Which I think takes the burden off of--
    Mr. Manzullo. I am not talking about peace and prosperity. 
I am talking about people who are broke and can't get money 
from banks. If these investments are working, then why isn't 
the World Bank working like a bank, as opposed to doling out or 
losing $190 million a year?
    Ms. Brainard. The World Bank is not losing any money.
    Mr. Manzullo. Then why are you seeking--
    Ms. Brainard. The contribution--let me go back to 1988, 
when President Reagan requested a capital infusion for the 
World Bank. This was the last time, 1988. We have not had a 
request like this for nearly a quarter of a century. He got 
approval from Congress for an investment of $420 million at the 
time. It is a very comparable number in many respects to 
today's number.
    Mr. Manzullo. I understand that.
    Ms. Brainard. And those institutions did not need to expand 
their lending beyond that over the subsequent 23 years. They 
came back to their shareholders at this time both because it is 
a period of extraordinary opportunity, and because they had 
stepped up and supported trade financing and financing to 
shield poor populations during the financial crisis.
    Mr. Manzullo. I know my time has run out. What I am trying 
to emphasize to you is you may not get any money. It is very 
possible you are not going to get $190 million for 5 years. And 
my question is, if the bank is so successful, why can't you run 
it like a bank and not depend upon taxpayers for a subsidy? 
That was my question.
    And my time has run out, so I don't know if I am going to 
get an answer on that.
    Chairman Miller of California. You are welcome to answer if 
you have time.
    Ms. Brainard. The way that we think about these investments 
is they are investments. And essentially, we provide--the U.S. 
Government puts a capital investment into the World Bank, and 
then that money works for the United States over 2-plus decades 
in expanding markets in places around the world.
    If you think about the growth of countries like Brazil, 
India, Vietnam, all of those countries were very poor 
beneficiaries of multilateral development banks. They are now 
huge customers for our products, and they are also in many 
cases supporters and partners in our endeavors in building 
market economies around the world and in supporting peace and 
stability around the world. So these are very good investments 
for the United States, and we hope that there will be a lot of 
support for them.
    Chairman Miller of California. The gentleman from Illinois, 
Mr. Huizenga, is recognized for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman. I have a quick 
question. Along this path, what do you believe are the 
consequences if we do not put this funding out there, if there 
are any? And elaborate on that a little bit.
    Ms. Brainard. I think the consequences across-the-board in 
the institutions is that we will lose ground. We will signal to 
the world that we are shifting our posture, that we no longer 
are going to exercise leadership in these institutions. And 
again--
    Mr. Huizenga. Lose ground to whom? And lose ground in what?
    Ms. Brainard. In the case of the World Bank, if we are not 
able to secure authorization, we will lose our veto. We are the 
only country that has a veto on fundamental governance changes 
at the World Bank. And we will jeopardize our leadership 
position. This is the flagship institution of the global 
system.
    In the case of the African Development Bank, we will put in 
jeopardy our seat on the board, which allows us to vote on very 
important issues.
    Mr. Huizenga. I am sorry, and this is just if we don't 
increase our standing. We are not talking about removing 
ourselves, right? This is talking about an increase?
    Ms. Brainard. What will happen is because the other 
countries, and you asked who will be interested in expanding 
their share, China is very interested in expanding their share 
for obvious reasons. In fact, most emerging markets and many 
European countries would be very happy to expand their shares 
if we decided to forfeit ours at all of these institutions, at 
the World Bank, at the African Development Bank, at the Inter-
American Development Bank, and at the European Bank for 
Reconstruction and Development. So by simply standing still we 
will jeopardize our veto at the World Bank, we will jeopardize 
our board seat at the African Development Bank, and in the case 
of the Inter-American Development Bank, we will simply paralyze 
the institution's ability to get funding from other countries, 
which will jeopardize the $2 billion in grant financing that we 
secured from all of the countries in the region for Haiti.
    Mr. Huizenga. So are we the front end of this, or the back 
end of this, or in the middle of this? Have other countries 
made commitments, or are they waiting for us to make this 
commitment?
    Ms. Brainard. Countries are moving very quickly. For 
instance in the Asian Development Bank, we have already fallen 
to I think the 8th position just by virtue of being a little 
slow off the mark relative to some of the other countries. 
Other countries like China are paying in their full amount in a 
single year rather than doing it over the course of 5 years. 
And so, we will inevitably fall behind if we are aren't able to 
start paying in on the capital replenishment to these 
institutions.
    Mr. Huizenga. So in the last remaining 2 minutes, in your 
opinion, the most important reason why we need to authorize 
would be what?
    Ms. Brainard. The most important reason is because we will 
lose our leadership of institutions that advance stability, 
American foreign policy, and our economic interests as well as 
fighting poverty which Americans care a great deal about.
    Mr. Huizenga. I appreciate that. And, Mr. Chairman, if it 
is all right, in my last minute-and-a-half, I would like to 
yield to my friend from Illinois to continue his line of 
questioning.
    Chairman Miller of California. Without objection, yes.
    Mr. Manzullo. I want to return to Argentina. Courts have 
held that Argentina owes United States taxpayers through U.S. 
obligations and U.S. bondholders $7 billion. You are asking for 
about a half billion. I don't know the extent of these that are 
held by the Federal Government, but I would suggest that the 
World Bank better do something very quickly with Argentina if 
you want to get any support in this committee or this Congress.
    That is not a suggestion. You have to do it. Don't talk to 
me about eliminating poverty in Argentina. Don't talk about 
what is going to happen. The United States is complicit with 
Argentina in disobeying the international rule of law.
    I don't think you realize how serious that is and what it 
means to this body and to the taxpayers to sit there and see 
this country stiff all the people, $7 billion to U.S. people, 
and then you turn right around and give them another $400 
million.
    Ms. Brainard. I would just say that we agree very much with 
your position on Argentina. We will continue to pursue--
    Mr. Manzullo. Then don't give them any more money.
    Ms. Brainard. --honoring their obligations, and we will 
also continue to think it is very important. We have interests 
around the world, in Egypt, Tunisia, and Cote D'Ivoire and 
every region of the world that we think are very important that 
would be compromised if we were not able to continue to support 
our leadership position in these institutions.
    So we will continue to work on both fronts very 
assiduously.
    Chairman Miller of California. The reapportionment is 
taking place, but I didn't mean to move Mr. Huizenga from 
Michigan to Illinois in the process. I move you back to 
Michigan.
    Mr. Huizenga. Thank you, Mr. Chairman. That was going to be 
an interesting gerrymandering across Lake Michigan.
    Chairman Miller of California. In California, I could be in 
Mexico the way I am going. So you never know.
    Madam Secretary, I know you have a busy schedule. I think 
there is a desire to go through another round of questioning if 
you have time.
    Do the members request it?
    Many questions have been asked and it raises some concerns 
and issues. If you had to prioritize funding between general 
capital increases and a concessional window replenishment, what 
would you consider most critical and, since we are in tough 
times, what organizational funding do you consider to be a top 
priority?
    I know you like them all.
    Ms. Brainard. I would no sooner choose among my daughters. 
We have already prioritized in the requests that we are 
submitting to you today, and we have done it in full 
consultation with members of this committee and more broadly, 
so that when we presented you with these requests it was 
following quite hard fought negotiations to ensure that within 
each institution, the recapitalization of the hard loan windows 
was done in a manner that would support the replenishment of 
the facilities for the poorest countries.
    In the case of IDA, which is the World Bank facility for 
the poorest countries, which again has very high marks for 
effectiveness, we were able to mobilize 75 percent of the 
additional funding from IDA from internal resources from the 
middle-income arms of the World Bank. And so, these 
negotiations have been carefully balanced packages, if you 
will, that have tried to the greatest extent possible to price 
loans in a way that we could transfer income to the facilities 
for the poorest, which then reduces the amount that we have to 
pay in for the replenishments every year.
    And similarly across the institutions, we were pretty hard 
headed in trying to reduce the overall size of the capital 
replenishments and push the institutions to make their capital 
work harder.
    And we told them as we undertook these negotiations that 
because we were doing the negotiations all in one go, we were 
able to be a little more hardheaded about the actual size each 
institution needed because we expect them to work better 
together. And they have done that. They, for instance in the 
case of Egypt and Tunisia, have developed a joint action plan 
and they are developing their lending programs with the other 
institutions in the room so that we use the money most 
effectively not only with within each institution but across 
institutions.
    So the request that we have presented to you is one where 
we have already tried to squeeze down the size of the request 
to the greatest extent possible and make U.S. taxpayer money 
work as effectively as possible.
    Chairman Miller of California. That is a good answer 
because you eliminated my second question, which was if you had 
top priorities over some that weren't, why were you asking for 
the ones that were not a top priority? But it seems that you 
thought the process through very well.
    In your testimony, you mentioned a series of policy 
accomplishments the United States has been a major player in 
implementing at the MDBs. What are your top policy initiatives 
you are pushing at them now? Have they changed in any way?
    Ms. Brainard. I think they have probably evolved over time, 
although I will say that a perennial strategic priority for the 
United States is to keep the institutions focused on poverty, 
fighting poverty in a way that allows countries to grow 
permanently out of poverty and move from the more concessional 
financing to becoming countries that borrow from the middle-
income windows. And we have seen very successful transitions 
over time. Again if you look at the Vietnams, the Indias, the 
Indonesias, these have become booming markets for our exports. 
They were very poor countries not too long ago. So we will 
continue to emphasize poverty.
    We are very focused on U.S. national security priorities. 
Afghanistan is a huge priority in the Asian Development Fund 
and in the World Bank. And similarly, Egypt and Tunisia are 
going to be huge priorities right now going forward because we 
know how important these democratic transitions are.
    We also have asked these institutions--and they are very 
forward leaning on--focused on global health, focused on 
education and, very importantly right now with food prices 
skyrocketing, on addressing challenges such as food security 
and climate.
    Chairman Miller of California. I hope somehow through the 
process, countries like Brazil and Vietnam, we get a message 
across that some of their tariffs are very excessive on some of 
the American products we are sending to them, that it is not a 
fair return for what America is trying to do for them in the 
process. Hopefully, that message can get to them.
    Ranking Member McCarthy, I recognize you for 5 minutes.
    Mrs. McCarthy of New York. Thank you. I just want to go 
back to and follow up, building up off of Mr. Campbell's 
question earlier, if another country takes leadership, wouldn't 
that allow them to basically change an awful lot of important 
U.S.-led accountabilities, transparencies, anti-corruption? So 
without naming a country, but there are one or two countries 
out there that have the possibility of taking the lead, and I 
would say the majority of people sitting here would probably 
not agree with an awful lot of their policies. They could then 
put their own policies in place.
    I think that is probably what a lot of people don't 
understand of what we are trying to survive--to get to, which 
came off the beginning of my question, that the American people 
have to understand why this so important. Because we are the 
leaders. And I also think it is worth mentioning again because 
we hear it all the time on decisions that should be made; let's 
leave it to the generals.
    We have General Petraeus talking about why the World Bank 
is so important and we have Joint Chief of Staff Admiral Mullen 
also saying the same thing. So maybe you could clarify that a 
little bit more so that people understand this isn't just 
giving money to a bank. Yes, many of us agree we want to help 
poor countries. We want to build them up. I am one of those who 
happens to believe that by doing that, hopefully we are 
preventing future terrorists from coming over here to injure 
us. When people live in terror, they will believe anything. We 
are trying to give them a different way of life. If you could, 
lead off on those questions.
    Ms. Brainard. Mrs. McCarthy, I think the way you have 
framed it is exactly right. And the areas where we have been at 
the forefront are areas that Americans care a great deal about: 
transparency; full disclosure of lending programs; and ensuring 
that infrastructure projects undergo full environmental impact 
assessments and social impact assessments. These are areas, 
anti-corruption, where by virtue of having a leading share in 
all these institutions the United States has pushed these 
institutions to reflect American values. And I think that your 
fear is well founded that if we forfeit and appear to be less 
committed to these institutions, that other countries with 
different values will promote different agendas, which will be, 
I think, a step backwards on the development of these countries 
that they are lending to because we promote these values 
because we think they are good for the countries themselves. 
They are critically important to the functioning of our 
economy, but also because they create huge opportunities for 
us.
    I think you are also right that these are preventative 
investments. In many cases, they allow us to put small 
investments on the ground now and to avoid much larger and more 
costly entanglements later if indeed they are successful, and 
that is why I think our military speaks so strongly in support 
of these institutions as does our business community.
    The final thing I would simply say is that just going back 
to this question about prioritization, we did actually push 
back altogether on capital replenishments for both the EBRD and 
for the IFC because we asked them to work harder at making 
their capital go further, and so we need authorizations but we 
actually don't have to make additional contributions to those. 
So we really did work hard to try to get the maximum in terms 
of development impact, national security impact for the least 
amount of U.S. investment dollars.
    Mrs. McCarthy of New York. Thank you.
    Chairman Miller of California. The gentleman from Illinois, 
Mr. Dold, is recognized for 5 minutes.
    Mr. Dold. Thank you, Mr. Chairman.
    Under Secretary Brainard, what is the Administration's 
position on the importance of ensuring that the World Bank 
presidency remains with an American?
    Ms. Brainard. I think we believe that the benefit, the 
World Bank has benefited tremendously from American leadership 
over the past several decades. And we also believe that the 
current president, Bob Zoellick, is doing an excellent job of 
steering the World Bank and advancing the goals of that 
institution.
    We have stated that for all of the international financial 
institutions we support an open and transparent and merit-based 
process. And again, we feel that the actual leadership of the 
World Bank has served the institution very well over many 
years.
    Mr. Dold. So that means it is important, we hope? You want 
an open process but you--the Administration is just supporting 
an open process or do you believe that it is important that an 
American sit at the head of the bank?
    Ms. Brainard. We believe that the institution has been very 
well served by having an American heading it over many years. 
But we also are very supportive at all the international 
financial institutions of ensuring an open, transparent, and 
merit-based process so that we will have the best leadership 
possible.
    Mr. Dold. I appreciate that.
    One of the big responsibilities we have here in the United 
States Congress is to ensure that taxpayer dollars are 
protected from corruption, and certainly I would say a 
conservative estimate of bribery annually is about $1 trillion. 
And before we agree to sign on to give the banks additional 
taxpayer funds, we need to know that they are serious about 
fighting corruption. I think a World Bank analyst estimates 
that there is a 400 percent governance dividend of corruption 
control; in other words, countries that crack down on 
corruption and improve the rule of law can expect on average 
about a 400 increase in per capita income over the long run. 
This means that a country with a per capita income of $2,000 
can, over the long haul, see that increased to $8,000 by 
addressing corruption. So especially at this time of cutting 
back here in the United States Congress, we need to protect our 
investments and ensure that they are directed.
    The real question is, what are the banks doing to ensure 
that they are cracking down on corruption? And what is the U.S. 
Government doing to put pressure on the banks to make sure that 
they are following through on that?
    Ms. Brainard. I would say that fighting corruption and 
ensuring that countries put in place strong anti-corruption 
policies is something that is now a deeply held value at all of 
the institutions; among the senior management of all the 
institutions, this is something that they really, I think, have 
taken to heart. As you said, the World Bank has come up with 
the most compelling research on why corruption is a scourge on 
development for countries who allow it to flourish themselves.
    They pursue initiatives against corruption in a host of 
ways. First of all, through the reforms that we have worked so 
hard to secure, they fight against the space for corruption to 
penetrate into their own operations. So between inspection 
panels and publication of documents, they have a whole host of 
internal controls.
    Secondly, they are not banks, as was said earlier. They are 
policy institutions that bring technical assistance and policy 
conditionality to bear when they lend into countries. And one 
of the very important policy areas that they push is to ensure 
countries have very strong legal and enforcement frameworks to 
combat corruption.
    Mr. Dold. The banks I know have the ability to debar 
people, companies, nongovernmental organizations, if they are 
found guilty of fraud and corruption. And I would say that some 
of these corrupt actors also have the ability to be prosecuted 
criminally.
    What are the banks doing? Do they have a mechanism to make 
sure that those are reported to the different entities so that 
they can be prosecuted?
    Ms. Brainard. I can speak to the debarment process. They 
have, each institution has now agreed to cross debarment so 
that the information is shared among the institutions, and when 
a company is debarred from one institution, that debarment also 
affects the other institutions. So I think they are trying to 
become more effective as a group on working against corruption.
    Mr. Dold. Are they being transferred though? The debarment 
process which I appreciate is a good one so that they are not 
getting engaged in the other MDBs, but are they sending that 
other information to the different countries so that they can 
be prosecuted?
    Ms. Brainard. In each case, they have offices that can 
develop investigative materials for purposes of pursuing 
debarment proceedings and investigations of those entities.
    Mr. Dold. Thank you so much.
    Chairman Miller of California. The gentleman from Michigan, 
Mr. Huizenga, is recognized for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman. And I hope you enjoy 
Reno in your new district.
    I do appreciate you coming here, and this is some tough 
questioning. We are all in a spot here where we are trying to 
make sure that we use every dollar that is entrusted to us, and 
quite honestly most people, including this one, don't believe 
that we have used those dollars to their highest and most 
efficient use and that it has been problematic in the past, and 
whether it is Argentina or some of these other issues, we need 
to make sure that we can look our constituents in the eye and 
say those dollars that you are sending to Washington, those 
dollars that you entrust to us, we are using them properly.
    And that is, I think, a legitimate spot for them to be in 
and much like my friend from Illinois, Mr. Dold, was talking 
about, the corruption element is something that is concerning. 
I am also concerned or curious I guess, maybe not concerned as 
much as curious, about your view as to what makes this 
particularly more effective or is it more effective than direct 
aid that may be going to some of these developing countries? 
And why is this an important element that the U.S. Government 
should be even really engaged in?
    Ms. Brainard. Let me just say that we obviously across the 
Administration support both our bilateral funding mechanisms as 
well as our multilateral funding mechanisms and we see them 
working in complementary ways to each other. The multilateral 
development bank investments that we are talking about today 
have unrivaled leverage.
    So again, first, for an investment today of $1, or take the 
investment that President Reagan made in 1988, $1 into the 
World Bank at that time has leveraged $800 million of 
development and investments. We simply cannot get that kind of 
leverage by our direct bilateral funding.
    Second, these institutions have tremendous scale advantages 
and staying power so that they have unique capacities to 
undertake multi-year infrastructure projects. They have very 
strong criteria for evaluating those infrastructure 
investments, so that for a country in Africa, for instance, 
that has very few alternatives on how to finance a port or a 
railroad or a bridge, the multilateral development banks come 
with funding that ensures there is transparency and corruption 
safeguards, that environmental assessments and social impact 
assessments are done.
    The alternative investment comes with different kinds of 
strings attached and ones that I think serve our national 
interest much more poorly.
    Mr. Huizenga. I am assuming you would acknowledge that 
there have been issues or problems with whether it is 
corruption or whether it is some sort of ill-gotten gain that 
people had. What are we doing to ensure that that doesn't 
continue and diminishes?
    Ms. Brainard. We are using and have used our leadership 
position in these institutions to ensure that they to the 
greatest extent possible reflect best practice and reflect our 
values. So they publish all of their lending now. That is very 
important to enable a civil society to exercise some 
accountability over it. They have very strong internal controls 
against corruption, and they have inspection panels which allow 
members of any community in which they are operating to raise 
questions and to get a hearing about the operations of the 
institutions.
    We have very strong procurement safeguards which ensure 
that on these projects, procurement processes are open and 
transparent and awarded to the most cost-effective, highest-
value bidder. So there is a whole host of things that we have 
put in place that reflect how the United States likes to see 
business being done. We think it is the best practice globally. 
But I can assure you that if we did not have a leadership 
position at these institutions it is likely that other 
countries would perhaps push in other directions.
    Mr. Huizenga. I appreciate your input, Under Secretary 
Brainard, and your time as well, and I think it is just our 
responsibility to make sure that we can look our constituents 
in the eye and say, we are using your dollars in the most 
responsible way that we possibly can. So I appreciate that. 
Thank you.
    Thank you, Mr. Chairman.
    Chairman Miller of California. Dr. Brainard, I want to 
thank you for your testimony. You were very informative and 
very candid and you were very generous with your time, and I 
look forward to working with you as the process continues.
    Ms. Brainard. I appreciate the opportunity. Thank you.
    Chairman Miller of California. The Chair notes that some 
members may have additional questions for this witness which 
they may wish to submit in writing. Without objection, the 
hearing record will remain open for 30 days for members to 
submit written questions to this witness and to place her 
responses in the record.
    The hearing is adjourned.
    [Whereupon, at 4:00 p.m., the hearing was adjourned.]


                            A P P E N D I X



                             June 14, 2011


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