[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
THE IMPACT OF THE WORLD BANK
AND MULTILATERAL DEVELOPMENT
BANKS ON U.S. JOB CREATION
=======================================================================
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
__________
JULY 27, 2011
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-52
----------
U.S. GOVERNMENT PRINTING OFFICE
67-947 PDF WASHINGTON : 2011
For sale by the Superintendent of Documents, U.S. Government Printing
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Washington, DC 20402-0001
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
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Page
Hearing held on:
July 27, 2011................................................ 1
Appendix:
July 27, 2011................................................ 37
WITNESSES
Wednesday, July 27, 2011
Hardy, John, President, The Coalition for Employment Through
Exports (CEE).................................................. 14
Harmon, James A., Chairman, Caravel Management LLC, and former
President, Export-Import Bank of the United States............. 10
Kolbe, Hon. James T., former Member of Congress, and Senior
Transatlantic Fellow, The German Marshall Fund of the United
States......................................................... 6
Leo, Benjamin, Research Fellow, Center for Global Development,
and former Treasury Department and National Security Council
official....................................................... 12
Mosbacher, Robert, Jr., Chairman, Mosbacher Energy Company, and
past President and CEO, Overseas Private Investment Corporation 8
APPENDIX
Prepared statements:
Hardy, John.................................................. 38
Harmon, James A.............................................. 42
Kolbe, Hon. James T.......................................... 46
Leo, Benjamin................................................ 50
Mosbacher, Robert, Jr........................................ 55
Additional Material Submitted for the Record
Miller, Hon. Gary G.:
Letter in support of the MDBs from the Business Roundtable,
et al...................................................... 58
Written statement of Philips Electronics North America....... 59
THE IMPACT OF THE WORLD BANK
AND MULTILATERAL DEVELOPMENT
BANKS ON U.S. JOB CREATION
----------
Wednesday, July 27, 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 2:17 p.m., in
room 2128, Rayburn House Office Building, Hon. Gary G. Miller
[chairman of the subcommittee] presiding.
Members present: Representatives Miller of California,
Dold, Manzullo, Campbell, Huizenga; McCarthy of New York,
Moore, Carson, Scott, and Perlmutter.
Also present: Representative Green.
Chairman Miller of California. The hearing will come to
order. Without objection, all members' opening statements will
be made a part of the record. On the opening statements, we
have agreed to a limit of 10 minutes for each side, as
previously agreed to with the ranking member.
Today's hearing is focused on the impact of the World Bank
and the multilateral development banks on U.S. job creation.
This is the second hearing in our subcommittee's consideration
of authorization for the World Bank's regional multilateral
development banks, or MDBs.
The United States is a lead shareholder at the World Bank
and at regional MDBs. The Administration has requested
contributions to the capital at these institutions, and has
argued that such contributions are important to retain our
leadership and position.
The hearing today will focus on how World Bank and MDBs
assistance to middle-income and poor countries around the world
contributes to the U.S. employment base. Through the
development activities, MDBs help contribute to stability
around the world, opening up markets for companies to engage.
By ensuring the global environment is stable, American
companies can thrive and contribute to robust economic growth.
Half of all global growth is expected to be in the developing
world, which is estimated to lead to over $3 trillion in
infrastructure spending. With MDB support, the developing world
can be a source of economic growth and opportunity for American
businesses.
MDBs also provide poor countries across Africa a nation
alternative to China for development finance and natural
resource development, allowing American companies access to
these markets. Our subcommittee is interested in learning about
how these MDBs help open markets and spur private sector-led
economic growth and employment in the United States.
We want to explore how the U.S. leadership position at
these institutions provides benefit to U.S. job creation. We
also want to hear about the potential consequences, if any, for
its economic interest of a delay or reduction in paying what is
committed to these institutions.
Specifically, we would like the witnesses to discuss the
impact MDBs have on the U.S. economy and U.S. job creation, the
economic benefit to U.S. companies of U.S. membership in MDBs,
how the MDBs help open markets and spur private sector-led
economic growth and employment in the United States, and the
consequence for global and U.S. economic interests of any
reduction in the amount requested by the Administration for the
MDBs or a delay in meeting the U.S. commitment to the MDBs.
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, improve
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. The American people are demanding
that their government learn to live within its means and stop
spending borrowed money.
The fact is, we simply 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 this subcommittee will assess the
Administration's request for funding. It is important for us to
understand the benefit to the U.S. economy and job creation of
continuing to assist emerging economies in implementing
economic, political, and social reforms.
Before we act, we want to understand clearly the
consequences to U.S. economic interests from any delay or
reduction in the amount requested by the Administration. Since
accepting the gavel for this subcommittee, I have said that our
agenda will focus on four things: job creation; global
competitiveness; economic growth and stability; and protecting
taxpayers.
This is the lens under which we review the Administration's
request for funding for 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.
I now yield to the ranking member for 5 minutes.
Mrs. McCarthy of New York. Thank you, Chairman Miller, for
holding this hearing and examining the important role the World
Bank and multilateral development banks play in the developing
world, and why the United States' continued commitments to
these institutions is so important for us.
Today, we will examine the role these institutions play in
the global economy as well as the U.S. economy. Emerging
markets in developing countries provide economical growth
opportunities for U.S. businesses and U.S. exports. Recently,
during a speech before the U.S. Global Leadership Coalition in
Washington, D.C., Secretary of State Clinton said, ``The growth
of the developing world presents a major economic opportunity
for America businesses today, and a thousand opportunities for
tomorrow.''
MDBs play a crucial role for developing countries,
providing assistance to weak and fragile states to promote
democracy. This helps advance our national security efforts and
creates stable markets and fiscal prosperity. Empowering a
country to move from poverty to a global middle class forces a
desire and a need for American products, and provides an
opportunity for U.S. businesses and U.S. job growth.
For example, products we take for granted such as phones
and computers are being rapidly adopted by the developing
countries. The United States has played a leadership role in
crafting a policy agenda to ensure our financial contributions
will be leveraged by other donors and borrowers, and that
investments may be made to institutions directly that support
our priorities.
If we do not maintain our leadership role, other global
competitors such as China, who will not share our values, will
undo the good reform work that has been adopted in these
institutions. MDBs provide support in the areas of education,
health, agricultural development, infrastructure development,
and humanitarian relief.
As well, the institutions work to strengthen principles of
good governance, fight corruption, and encourage human rights
standards. By fulfilling our commitments to the MDBs, we remain
globally competitive and strive to build a safer and a better
world.
I recognize that we are faced with extremely difficult
financial challenges in this country. As we work to address
these challenges, we must remain committed to our economic
recovery, and our participation in these institutions will
allow us to do that. I would like to thank the witnesses for
being here today, and I look forward to hearing your testimony.
With that, I yield back.
Chairman Miller of California. Vice Chairman Dold is
recognized for 3 minutes.
Mr. Dold. Thank you, Mr. Chairman. I want to thank you for
calling this important hearing. And I certainly want to thank
the witnesses for your time and your testimony here today.
Since coming to Congress, my primary focus has been on
improving the environment for job growth and economic
expansion. And I hope we have broad bipartisan agreement that
fully funding our commitments to the multilateral development
banks will promote job growth and economic expansion, as well
as also promoting our Nation's strategic security interests.
I believe that President Obama, congressional Democrats and
Republicans, military leaders, and business leaders all agree
on these points. However, many Americans and some politicians
might not appreciate the value that Americans receive from our
MDB leadership. And there seems to be a misimpression about how
much money we spend on foreign aid and on MDBs.
According to a recent poll, Americans believe that the
Federal Government spends approximately 25 percent of its
budget on foreign aid. And then that same poll indicated that
Americans would prefer if we only spent approximately 10
percent. The good news is that we really only spend
approximately 1 percent of the Federal budget on foreign aid,
and only a small fraction of that would be to fully fund the
MDB commitments.
So the fact is, our MDB spending is far less than many
Americans believe. And we cannot have any meaningful impact on
our deficits and our national debt by failing to fully
recapitalize these obligations. But in this economy and in this
budget environment, every dollar counts, and Americans are
entitled to ask what value we receive for these contributions.
How effectively does our MDB leadership promote job growth
and economic prosperity right here in the United States? And
that is why this hearing is so important. Our military leaders
have repeatedly told us that our MDB leadership makes our
Nation safer and more secure.
But our business leaders have also emphasized the vital
importance of our MDB participation in promoting our own export
markets, domestic economic prosperity, and domestic job growth.
So I look forward to hearing our witnesses elaborate on how we
can, with relatively little in terms of an investment, promote
economic prosperity and job growth right here in the United
States.
And with that, I yield back, Mr. Chairman.
Chairman Miller of California. Mr. Carson is recognized for
5 minutes.
Mr. Carson. Thank you, Mr. Chairman. Thank you. I want to
first thank the Chair for holding this hearing, as clearly the
World Bank and multilateral development banks are important
aspects of combating poverty in developing countries, and our
influential entities throughout the world.
Strategies and tactics employed by the Bank and MDBs are of
utmost importance, especially when implementing programs that
could influence job creation in up-and-coming economies, as
well as the United States. I am interested today in learning
more about how the process by which the World Bank and MDBs are
providing loans and grants for development projects in various
countries, and how these processes can be improved upon, as
this will only benefit U.S. markets.
I understand that any project supported by an MDB must use
an open procurement process devoid of any corruption. I would
be interested in learning how exactly that is achieved, and how
many more of these major infrastructure projects U.S. firms
have won through the open bidding process.
I believe there is much potential here for significant job
growth. The United States is, indeed, the largest shareholder
at each of the MDBs, and as a result of their large capital
base, each of these banks holds a triple-A credit rating. As
such, they are able to borrow at favorable rates in the private
markets.
However, as we grow near to the ever-looming August 2nd
date Treasury has given us, how do you believe the potential
for default will impact not only the credit rating of the MDBs,
but also our very own credit rating, especially as credit
rating agencies are threatening a U.S. credit downgrade?
During the economic crisis, private institutions sharply
reduced lending to these developing countries and MDBs
increased their lending to these nations which, in turn,
depleted their capital. I am interested in knowing how
negotiations to increase MDBs' capital are proceeding, and what
headway has been made.
The United States continues to face a growing deficit. We
want to ensure that the Administration's $3.3 billion funding
request has adequate oversight and will be going to service
things that actually fit. Finally, I do not agree that
investments in MDBs and a strong World Bank help to advance the
national security and economic interests of the United States.
We want to ensure that the money procured is actually going
to the promotion of national security initiatives, preventing
and mitigating financial instability as well as creating
markets for varying forms of viable employment. Again, I am
pleased the chairman has hosted this and I look forward to
hearing your testimony.
Thank you.
Chairman Miller of California. Thank you. I would like to
welcome our panel of witnesses today, and introduce them to the
public.
The Honorable James Kolbe--it is good to have you back here
again--was a Member of Congress for 22 years, and served as
chairman of the House Foreign Operations Subcommittee on
Appropriations for 6 years. He is currently senior
transatlantic fellow with the German Marshall Fund of the
United States. He advises on trade matters and the
effectiveness of U.S. assistance to foreign countries. It is
good to have you back.
Mr. Robert Mosbacher, Jr., is chairman of Mosbacher Energy
Company and past president and CEO of the Overseas Private
Investment Corporation, OPIC.
Mr. James A. Harmon is chairman of Caravel Management, and
chairman of the board of the World Resource Institute, WRI. Mr.
Harmon is past president and CEO of the Export-Import Bank of
the United States. It is good to have you here.
Mr. Benjamin Leo is a research fellow at the Center for
Global Development. Mr. Leo has extensive experience in these
issues through service to the White House, in the private
sector, and at the Treasury Department. Prior to joining the
Center, Mr. Leo worked at the White House National Security
Council as the Director of African Affairs. Mr. Leo has also
held a number of roles at the U.S. Treasury Department,
focusing on development finance in Africa.
And finally, Mr. John Hardy is president of the Coalition
for Employment through Exports, CEE. Mr. Hardy has spent his
career both in the government and the private sector in the
export, promotion, and project and trade financing sector. Mr.
Hardy served as Deputy Director, then acting Director, of the
Trade and Development Agency, before managing the private
sector investment fund at the Agency of International
Development.
Without objection, your written statements will be made a
part of the record, and each of you will be recognized for 5
minutes.
Mr. Kolbe, you are recognized.
STATEMENT OF THE HONORABLE JAMES T. KOLBE, FORMER MEMBER OF
CONGRESS, AND SENIOR TRANSATLANTIC FELLOW, THE GERMAN MARSHALL
FUND OF THE UNITED STATES
Mr. Kolbe. Thank you, Chairman Miller, Ranking Member
McCarthy, and members of the subcommittee. It is a great
opportunity and a pleasure to be back here before this
subcommittee and this committee in the House of
Representatives.
As you already noted, Mr. Chairman, I did serve 22 years in
the House. And 6 of those years were as chairman of the House
Foreign Operations Subcommittee on Appropriations, the one that
was responsible for providing the funds for the multilateral
development banks, or MDBs.
During that time, I think I gained a pretty good
understanding and level of respect for the work these
institutions accomplish in some of the world's poorest nations.
The MDBs play a role, and fill a gap in development
assistance--and specifically in economic development--that I
think is unparalleled.
They provide opportunities for developing nations to build
economic infrastructure and capacity, create private sector
growth in supply chains, and reform custom regulations and
barriers for economic growth, all of which raise the standard
of living in these nations and create new markets and consumers
for U.S. companies.
Ninety-five percent of the world's consumers, with 75
percent of the world's purchasing power, live outside of the
United States. The combination of opening markets through trade
agreements, and building capacity such as ports and roads,
bridges, financial institutions, and trade finance provide
opportunities for these developing nations to access the global
market, and opportunities for developed nations to access new
markets and consumers in the developing world.
As a result, U.S. exports to, and U.S. foreign direct
investment in, these nations increase when there is a capacity
for us to expand into these markets. Bob Zoellick, president of
the World Bank, recently said, ``Aid for trade--or trade
capacity building as we sometimes call it--is a practical
example of aid as self-interest, not charity.''
I could not agree more with that statement. There are
humanitarian and moral reasons to invest in development
assistance, but it is important--maybe even crucial--for us to
recognize the economic reasons, as well. Investing in the
multilateral development banks is a step in that direction.
Brazil, India, Turkey, Colombia, Vietnam, and Indonesia are
just several examples of countries that have significantly
benefited from MDBs investments. And, in turn, so has the
United States and our taxpayers and our consumers. U.S. exports
to India have nearly quadrupled. Exports to Brazil have more
than doubled in the past decade.
Both of these countries were substantial recipients of
World Bank and regional development bank investments not long
ago. The United States has increased exports by more than 200
percent to some of these nations, with the help of the work
that has been done by the MDBs.
In 2008 and 2009, the MDBs played an important role in the
global economic recovery. With a sharp decline in capital flows
and trade finance to emerging developing nations, MDBs
increased their commitments to help stabilize these economies
and, in essence, stabilized these countries at a time of global
economic instability.
They were able to fill a gap while the United States and
other developed nations focused on stabilizing the leading
financial institutions. The World Bank continues to support
trade flows with their global trade finance program and global
trade liquidity program.
Because of their multilateral structure, the MDBs have the
means to leverage U.S. dollars wisely for effective development
assistance. According to the U.S. Treasury, for every dollar
the United States contributes, the MDBs leverage $25 of
multilateral development aid. Specifically, the U.S.
contribution of $420 million to the World Bank has supported
$325 billion of investments since 1988.
It is hard to imagine another example of such powerful
leveraging with a contribution of this size. The World Bank's
reach is vast. Its International Development Association, or
IDA, for example, is one of the largest sources of assistance
to the world's poorest countries, impacting 2.5 billion people.
The ability of these institutions to leverage funds at a
large scale provides the United States with a greater bang for
its buck. At a time when fiscal constraints are at a peak,
leveraging investments and cooperating with multilateral
institutions and our allies is as important as ever.
As you mentioned, I serve as the Senior Transatlantic
Fellow at the German Marshall Fund of the United States, an
institution that stands as a permanent memorial to the Marshall
Plan. The goal is to decrease duplication of foreign assistance
programs, and provide tools to effectively work together on the
ground.
Cooperation with trusted allies allows the United States to
maximize development assistance with limited resources. The
same is true for the MDBs, which were created as a means for
nations to cooperate and to partner on development and economic
priorities. And I would add the same is true for partnering
with the private sector on development assistance, and you are
going to hear more about that today.
Countries like China are ready to fill the gaps that the
United States, Europe, and other multilateral institutions
leave open. This is occurring in both developed and developing
countries. While the MDBs create opportunities for U.S. trade
and investment, the Chinese provide opportunities for Chinese
trade and investment.
As China's economic influence grows, so will their overall
global influence. Let me conclude, Mr. Chairman, by saying that
I recognize the very tough budget constraints Congress faces at
a time of high unemployment, slow economic growth, and the
burgeoning debt.
And I do not think that all MDBs are the same. They are not
all equal. It is the responsibility of this committee to look
at them very closely and see which ones have been the most
successful in leveraging those dollars, which ones have been
the most successful in helping lift these countries out of
poverty and into economic growth.
So, I think that the money is really not about development
assistance. It is an investment, and I think it is a successful
investment. It is aid as self-interest, not charity. I thank
you for the opportunity to testify before you today, and I look
forward to questions.
[The prepared statement of Mr. Kolbe can be found on page
46 of the appendix.]
Chairman Miller of California. Thank you, Mr. Kolbe.
Mr. Mosbacher?
STATEMENT OF ROBERT MOSBACHER, JR., CHAIRMAN, MOSBACHER ENERGY
COMPANY, AND PAST PRESIDENT AND CEO, OVERSEAS PRIVATE
INVESTMENT CORPORATION
Mr. Mosbacher. Chairman Miller, Ranking Member McCarthy,
and distinguished members of the subcommittee, thank you very
much for the opportunity to appear before you regarding the
impact of the World Bank and multilateral development banks on
U.S. job creation.
As our country struggles with massive deficits and
tragically high unemployment, it is only natural that someone
question the wisdom of the United States' contributions to the
World Bank and multilateral development banks. Given the fact
that MDBs focus more on middle- and low-income countries and
not the United States, the temptation of some might be to cut
back on our contributions and to refocus those resources
elsewhere.
And yet such a decision would be extremely shortsighted, in
my judgment, because it would negatively impact job creation at
the very time when we are trying to rebuild our economy.
I spent 28 years helping run a family business, an energy
business located in Houston, Texas. And we operate primarily on
the Gulf Coast of the United States, but we have also done
business and operated in Los Angeles, North Africa, Asia, and
the Asian subcontinent.
Starting in 2005, I served for over 3 years as president
and CEO of the Overseas Private Investment Corporation, an
independent agency of the U.S. Government, that operates
profitably and helps facilitate U.S. private capital investment
in the developing world.
I have had the opportunity to witness firsthand the
emergence of an interdependent global economy, and observe the
critical role that the MDBs have played in that growth. And I
believe the United States in general, and American businesses
in particular, derive significant economic benefits from the
contributions to MDBs.
I urge the Congress to continue that support. There are a
few statistics I would like to touch on, and by the end of this
hearing, you will have heard all these 3 or 4 times. But nearly
95 percent of the world's customers, as Jim said, live outside
our borders, and they have three-quarters of the purchasing
power.
One in three acres of American farmland is planted for
consumers overseas. One in five American jobs is related to
trade. For every 10 percent increase in U.S. exports, there is
a 7 percent increase in employment. Over 280,000 small and
medium-sized businesses export, and that amount is nearly one-
third of all merchandise exports.
Now, you can ask, what is the role of the MDBs in this
scenario, and why should taxpayers support them? The answer,
very simply, in my judgment, is jobs. It is in our own
enlightened self-interest to access new markets, new customers,
and compete on a level playing field.
Half of U.S. exports go to developing countries, and those
markets are growing 3 times faster than exports to the other
countries. We often hear about Brazil, India, and China. But,
for instance, the 53, 54 countries on the continent of Africa
will soon represent a consumer class of over a billion people.
The MDBs are the most effective players in opening new
markets and creating more favorable environments for business
growth and investment. And using their leverage with
governments, derived from the loans, and from the financial
expertise they provide, the MDBs have been instrumental in
establishing better governance, promoting more transparency in
decision-making and bidding, and building stronger structures
for the rule of law.
Make no mistake about it. Corruption is and has been a
plague on African economies, Latin American economies, and
Asian economies that are in the emerging markets, and it is a
fight day-to-day to overcome that. But progress is being made.
I would like to focus the balance of my remarks on two
specific sectors in which some of the MDBs have focused great
attention and have had a hugely critical role in facilitating
growth: the first is financial services; and the second is
infrastructure. With respect to financial services, the truth
is that most small and medium-sized businesses that will
generate the vast majority of jobs--not just in this country,
but around the world--have no access to credit or capital in
most of the emerging markets, most of the developing world.
As a result of this, you do not have the growth capacity,
you do not have the hiring capacity. But most importantly, you
do not have the capacity to buy U.S. goods and services that
would be enabled by having a line of credit at a bank or the
capacity to borrow money on any kind of a long-term basis.
In recent years, that has begun to change, largely because
of the IFC of the World Bank, of the ADB--or the African
Development Bank, the Asian Development Bank, all of which have
supported greater access to credit for SMEs with real results.
This results in SMEs--again, in these countries--beginning to
purchase American goods and services and products.
With respect to infrastructure, the absence of sufficient
electricity, water, roads, etc., continues to be a huge
challenge to the developing world in realizing their economic
potential. Over the next several years, you will see massive
investments in infrastructure, and I am thinking particularly
about electric power.
Here again, this represents a wonderful opportunity for
American companies to construct dams, to construct power
plants, to operate power plants, to sell gear. And this is an
opportunity that we should not lose. The MDBs are the principal
financers of these projects, sometimes with commercial banks,
sometimes without.
But they are the lead party. You take them out of the game
and you leave the Chinese in charge. And with the Chinese comes
Chinese political influence, as well as Chinese approaches to
transparency in governance, which I do not think most of us
support.
So in conclusion, I urge continued support of the MDBs for
a host of reasons, not the least of which is the critical role
they play in helping American businesses sell goods and
services to the 95 percent of the world's customers who live
outside our borders.
More exports, more investment, and freer trade are the only
ways that we are going to generate the kind of broad-based
economic growth and prosperity for our citizens that we all
desire. Thank you very much.
[The prepared statement of Mr. Mosbacher can be found on
page 55 of the appendix.]
Chairman Miller of California. Thank you, Mr. Mosbacher.
Mr. Harmon, you are recognized for 5 minutes.
STATEMENT OF JAMES A. HARMON, CHAIRMAN, CARAVEL MANAGEMENT LLC,
AND FORMER PRESIDENT, EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. Harmon. Thank you, Mr. Chairman, and Ranking Member
McCarthy. My goal is to try to make a case without repeating
what you have just heard, which is all very logical. Plus, they
did it in the New York style, which was very quick, staccato
fashion. And that is the challenge I have undertaken in the 5-
minute rule.
First, I want to say that I am particularly proud of Ex-Im
Bank. During the 4 years I was chairman, from 1997 to 2001, we
increased support for exports to Sub-Saharan Africa from $40
million the first year to a bit more than a billion dollars in
the fourth year.
The AGOA legislation was helpful. I thought that was a good
piece of legislation, and that it memorialized the work of the
Ex-Im Bank in Sub-Saharan Africa. My first experience with the
World Bank was the $3.5 billion Chad-Cameroon project, the
largest project finance done in Africa at this time.
Ex-Im would never have done that were it not for the World
Bank. We looked to the World Bank to give us comfort in a
number of different areas. There were controversial aspects to
it, but were it not for the World Bank, Ex-Im would not have
done it. And Chevron and Exxon, which invested $3 billion in
that pipeline, and very significant exports were supported, I
give credit to an excellent structure that was created by the
World Bank at that time.
When I graduated from public service--and you should all
know there is life after public service--we formed a fund to
invest in the poorest parts of the world. Probably no one has
ever testified in Congress before who ran a fund that invests
in, I will say somewhat sarcastically, failing states.
But we actually invest throughout Africa, in some of the
poorest countries there. Also in Pakistan, in Lebanon, and
throughout the Middle East. Our returns, in 7 years, are a
little bit more than 19 percent compounded annually. And we are
buying marketable securities that can be priced every day.
So therefore, first, you can do well by actually investing
in these countries. The role of the World Bank and the African
Development Bank in encouraging us to make these investments,
and understanding the countries and the companies, was
important. Where we saw the World Bank and where we saw the
African Development Bank doing work, for example, in a country
like Rwanda--that encouraged us to take a look at Rwanda.
Two years ago, we started to invest in Rwanda. We have
invested. Rwanda has made remarkable progress in the last 18
months to 2 years. So we have invested in the two public
offerings they have done. Both have done extremely well. I give
the World Bank and the African Development Bank a lot of credit
for the growth that Africa, Sub-Saharan Africa, has experienced
since I finished public service--which is running now at maybe
5 percent per annum.
So improving governance, democracy, transparency, and the
rule of law are all very good things that the World Bank does.
I jump ahead to January of this year. I was asked to be the
representative from the United States to the G20 panel on
studying ways to increase funding for infrastructure in, first,
Sub-Saharan Africa, but in other states as well.
Each of the G20 countries has a representative. It is very
interesting. It was the first time that I have seen the power
of the Chinese in meetings. So I sarcastically say that when
each one of us was speaking, there was always someone else who
was not listening or was typing on their BlackBerry.
But when the Chinese representative spoke, no one took out
a BlackBerry. The power that the Chinese now enjoy in the
developing world, the significance--there are five Africans who
are on this G20 panel--of their role in China I cannot
understate, it is so important.
During this period of time, I might say, the Ex-Im Bank has
dropped from maybe 2nd or 3rd in size to maybe 12th or 13th in
size in supporting exports relative to other export credit
agencies. So, we are not doing a particularly good job. Not
that I am critical of Ex-Im Bank, but the structure of our
export credit agencies is not as competitive as it used to be.
If we take away any support for the World Bank and the
development banks, this is going to hurt us. It is going to
hurt us relative to the position we have in China. It is going
to hurt us throughout the developing world. The world is
watching what the United States does all the time.
They already think we are dysfunctional in our government
practices for all the reasons that we know. But if we stop
support for the World Bank and the other development banks, we
are not only losing a good investment opportunity, but we will
lose a power base.
I suspect that China will, whatever we do, continue to be a
very strong factor throughout the developing world. There is
not a country that we invest in, in the poorest parts of the
world--from Pakistan to Zimbabwe, to Lebanon, to all over Latin
America--where the Chinese are not present.
I am not sure the Members of Congress fully understand
where China is coming from or where they are going, but the
last thing we need to do is to slow down our support for a
World Bank and the multilateral development banks. Thank you
for having me.
[The prepared statement of Mr. Harmon can be found on page
42 of the appendix.]
Chairman Miller of California. Thank you, Mr. Harmon.
Mr. Leo, you are recognized for 5 minutes.
STATEMENT OF BENJAMIN LEO, RESEARCH FELLOW, CENTER FOR GLOBAL
DEVELOPMENT, AND FORMER TREASURY DEPARTMENT AND NATIONAL
SECURITY COUNCIL OFFICIAL
Mr. Leo. Thank you, Chairman Miller, Ranking Member
McCarthy, and members of the subcommittee. I appreciate the
opportunity to speak about this issue, which I am very
passionate about and have spent a lot of time looking at.
While my written statement addresses a number of issues,
some of which the other witnesses have touched on, I would like
to focus on just a couple of key points. First, the MDBs have a
very influential, key role in generating and helping to
establish the next generation of emerging markets.
I think India provides a really interesting example of the
MDBs' role, economic growth, and U.S. support in contribution
all come together in a way that is very beneficial for the
United States, for U.S. firms, and for job creation as well.
Over the years, the World Bank and the other MDBs have
provided a significant amount of assistance to India to help
build out its infrastructure, to reform its government
policies, and a number of other areas that have a really
important impact in terms of creating an environment that is
conducive for the private sector.
In the next couple of years, India is expected to graduate
from the concessional assistance that is provided by the
International Development Association, the soft-loan window of
the World Bank, and move on officially to middle-income status.
India is by no means an outlier in this case. According to
my research, over the medium term, the near to medium term,
about another 2 dozen countries who are currently low-income
are going to follow, as well. In those cases, while you cannot
say exactly in very quantitative, specific terms the role that
the MDBs have played, we know without any doubt that they play
an important role.
You just cannot exactly quantify it in terms of the things
that I mentioned before--infrastructure, the environment,
effectiveness--in those areas. What does that mean in terms of
the United States? Some of the other witnesses have touched on
this. I will try and use some different statistics for you.
So, five countries, the next ones that I expect to graduate
from IDA and move on to middle-income status: India; Nigeria;
Ghana; Zambia; and Vietnam. Collectively, those countries have
grown. Their economies have grown fourfold over the last 2
decades.
But more importantly, U.S. exports to these countries have
grown almost ninefold over the same period. So the role that
the MDBs are playing in promoting economic growth is having a
direct impact here at home. Just very briefly, as these
countries move on to the hard-loan windows like the
International Bank for Reconstruction and Development, that is
going to mean that there is going to be a lot more demand for
those resources.
They are going to need more capital to be able to handle
it, and to continue that process of promoting economic growth
and helping U.S. firms. One thing that has not been stressed as
much, coming out of the global economic crisis, or immediately
after it, the MDBs stepped up big-time to plug holes, to try
and minimize the fallout in the developing countries, as well
as maintain some market confidence in those places.
It had a very, very big impact for U.S. companies. Before I
joined the Center for Global Development, I was at Cisco
Systems doing business development in Sub-Saharan Africa, the
Middle East, and North Africa. And what we saw in those first
months--maybe 6 months, 12 months--after the crisis struck was
that the contract opportunities that were stable were almost
always MDB contracts.
I did public sector sales. The government contracts almost
completely dried up. So the MDBs were where we still had
opportunities, and that is what was driving our sales numbers.
It was very powerful. In terms of that procurement, just a
couple of points on this.
The direct benefits to U.S. firms are quite significant.
Over the last decade, from just one of the MDBs, the World
Bank, directly sourced contract awards, total about $1.6
billion. While that is large, in my view it substantially
underestimates what the true impact is.
And again, I go back to my experience at Cisco. If you look
at their lists of who won awards that are U.S. firms, you do
not see any Fortune 100 companies on there. There is a reason
for that. Because most of these firms are not directly bidding
on the contracts. They are using third parties to then sell
their goods.
That is how Cisco does business throughout the world. So
while Cisco was not in those databases, I personally was
involved in millions of dollars of sales in Nigeria, Zambia,
South Africa, Kenya, and Egypt which were financed by MDB
projects and loans.
Now lastly, on this issue in terms of the procurement, I
think if you look at the MDBs, there is a very clear, profound
benefit in the fact that their procurement standards are world-
class--transparent, open to all countries that are from
countries of their MDB members, and very fair.
My experience, compared to trying to win contracts that
were financed by the MDBs, compared to host governments in some
of the more difficult environments, it was night and day. We
would never have tried to--there were a number of markets where
we would not even try to go after the contracts at all because
it was so nontransparent, unless they were an MDB contract.
And when we were competing with the Chinese, it was an
equalizer. Huawei is their big telecom company. We lost a lot
of business to Huawei in the nontransparent environments. We
could fight head-to-head with them on MDB contracts. So it has
a very important impact.
I will stop there, and thank you for the opportunity. And I
look forward to any of your questions.
[The prepared statement of Mr. Leo can be found on page 50
of the appendix.]
Chairman Miller of California. Thank you, Mr. Leo.
Mr. Hardy, you are recognized for 5 minutes.
STATEMENT OF JOHN HARDY, PRESIDENT, THE COALITION FOR
EMPLOYMENT THROUGH EXPORTS (CEE)
Mr. Hardy. Chairman Miller, Ranking Member McCarthy, and
members of the subcommittee, the Coalition for Employment
Through Exports thanks you for the opportunity to testify on
the impact of the multilateral development banks on U.S. job
creation.
CEE has a number of members who are actively engaged with
the World Bank and other MDBs. We are also joined in this
testimony by the National Foreign Trade Council. It is a strong
supporter of the capital increase for the MDBs, and supports a
broad pro-trade agenda.
As you have heard from the previous witnesses, the impact
the MDBs have on U.S. job creation is significant for several
reasons. And I will try and keep this brief. The World Bank and
the regional MDBs reflect the continuing commitment of the
developed world to eradicate poverty and give people, wherever
they live, the opportunity for a better, healthier life.
It was not long ago that countries like China, India,
Indonesia, the entirety of Sub-Saharan Africa, and much of
Latin America were mired in poverty. After decades of work by
the international community, through the MDBs, the situation
for these countries has changed dramatically. These countries
now have a growing and dynamic middle class that are potential
customers of U.S. companies.
A second benefit of the MDBs we are seeing today--that is,
as the most dynamic portion of the world's economy is located,
to a significant degree, in the emerging economies--their
success has created new trading partners for the developed
world, but particularly for the United States.
The countries with which we are now trying to complete free
trade agreements were all beneficiaries of loans from the MDBs.
And many other emerging markets are even now recipients of MDB
funding. A prime example is India, whose trade with the United
States could well make its firm some of the largest users of
the Ex-Im Bank.
The successful transformation of these countries is due in
substantial part to the MDBs. These countries have become
inextricable parts of the international economy, and
increasingly significant participants in the global trading
system.
The third benefit of the MDBs is reflected in the fact that
the projects and activities themselves represent export
opportunities for U.S. companies. MDB funding, coupled with
resources contributed by the countries themselves, represent a
vast opportunity for private business.
The needs are immense, not only in infrastructure and
energy, but now in medical equipment, IT services,
communication systems, and the like. And U.S. companies are
ideally situated to pursue these opportunities. Let me provide
you with the example of Philips Electronics North America, a
prominent manufacturer in the health care and green energy
sector which has partnered with the MDBs for over 15 years.
Philips provides high-quality medical equipment that they
manufacture in the United States, such as MRIs, CT, and
ultrasound machines, patient monitors, ventilators, ECG
equipment, and cardiac defibrillators to developing countries
through MDB programs.
A senior Philips representative had this to say about the
company's experience work with MDBs: ``Philips has witnessed
first-hand the economic development benefits the MDB-funded
projects confer on recipient countries, through our procurement
experiences throughout the emerging markets.'' And they have
listed, in the testimony, about 15 or more countries.
``This benefit does not inure solely to the developing
country. However, as we also have recognized the role MDB
projects play in helping to maintain our U.S. employee base of
25,000, and potentially to create new highly-skilled U.S. jobs
through the promotion of exports, as U.S. markets have declined
or remained stagnant over the last several years, developing
countries have led the world with double-digit growth rates.
``MDB procurement programs offer U.S. manufacturers unique
opportunities to enter these vibrant developing markets through
a transparent and accountable procurement system that limits
the commercial risk.
``Moreover, manufacturers gain from the ability to increase
their exports and to establish themselves within these growing
consumer markets and develop a strong market position. These
opportunities help to expand the overall U.S. industrial export
base, supporting President Obama's goal of doubling U.S.
exports by 2014.''
As reflected in the above statement from Philips, a
significant attraction to MDB processes is the existence, over
the long term, of strong procurement standards that ensure
transparency of process and accountability in terms of outcome.
These elements are vital to promote multilateral development
goals, while maintaining the highest standards of integrity and
transparency in global procurement.
We hope the subcommittee will monitor any dilution of these
time-honored standards. Accordingly, we propose the following
recommendations to the World Bank and the other MDBs to ensure
a predictable and accountable procurement system for all
bidders: maintain the current international competitive bidding
procurement standards and bidding documents; maintain bank
procurement oversight of projects involving complex solutions
and projects over the current procurement thresholds; enhance
mechanisms for dialogue with civil society; ensure that any
innovation which involves substantial changes to the existing
procurement standards and processes will be tested through a
pilot phase; and ensure that any proposed procurement changes
should continue to provide real-time effective recourse to
bidders for procurement issues, including oversight by the
integrity units of the MDBs.
We thank the subcommittee for the opportunity to submit
this testimony regarding the important role of the MDBs, and I
am happy to answer questions. Thank you.
[The prepared statement of Mr. Hardy can be found on page
38 of the appendix.]
Chairman Miller of California. Thank you. I thank each of
you for your testimony. It was very informative.
The goal of this subcommittee has been to focus on jobs.
How do we create opportunity for American businesses, thereby
creating jobs in this country? I think we did a very good
bipartisan job on Ex-Im, and our goal is to accomplish that
here.
And Chairman Kolbe, it is wonderful to have you back here
with us again. It brings back a lot of memories, I know, for
both of us. In your testimony, you talked about the important
role that MDBs played in the global economic recovery.
Will you comment on how this fits into the broader efforts
to stabilize and improve our economy here in this country?
Mr. Kolbe. Mr. Chairman, it does definitely fit into the
broader stable of broader and more stable economy here at home.
Because we live in a--it is trite, but we have said it before
and we all know it is true--world that is increasingly a
globalized economy, it is important for us to not only have
access to markets abroad, which can be found through trade
agreements, but also through investments which are being made
abroad. We also increase our investments and our trade abroad
when these economies grow.
You have heard many of the statistics that have been
repeated here today about how it has happened in countries like
India and Vietnam, how we have had a ninefold increase in our
exports to those countries, while their economies have grown
substantially.
Part of that growth comes about as a result of the
investments that we make in these MDBs, not all it or even the
major part of it, but it certainly is a piece of it. So that is
why I said, in my last paragraph or so, my closing remarks,
that we are not talking about charity here.
We are talking about investments. And I do understand the
really difficult position that you find yourself in today, with
the enormous debt that we are facing, and the difficulties of
trying to match that with the revenues.
So I think it is important that as you do, you think about
what things are really investments--investments in jobs,
investments in the economy, investments that will help to grow
this country. And, as a result, increase the revenues for the
U.S. Government.
I think the MDBs clearly do that. There have been a lot of
studies done that demonstrate that fact. I cannot tell you here
today exactly what the different kinds of replenishments that
are being talked about, exactly how many jobs it is going to
create. But I do know that it is going to help the economy here
in the United States. It is going to help jobs here.
Chairman Miller of California. Thank you.
Mr. Leo, and Mr. Harmon, you both talked about the
situation with China. What do you think MDBs should do to
become an attractive alternative to countries like China for
developing finances?
Mr. Leo, then Mr. Harmon? Either one?
Mr. Harmon. May I add something to what was just said now?
Chairman Miller of California. Sure.
Mr. Harmon. U.S. share of global consumption between 2002
and 2008 went from 38 percent to 28 percent--38 to 28 percent.
That is U.S. share of global consumption. The emerging markets,
including the BRICs and all the other frontier countries, went
from 23 percent to 33 percent.
It is only a question of time before global consumption--
emerging markets, all the markets that we are talking about
today--will exceed 50 percent. So if the United States intends
to export into that world, and to pick up this new consumption
with the growth of the middle class, it needs the MDBs and the
World Bank to continue to play the critical role that they have
played.
Chairman Miller of California. They share, as partners,
with the Ex-Im Bank, in many cases.
Mr. Harmon. Yes. We just would not have done it unless we
felt comfortable with what the World Bank was doing in all the
major projects. I think it is still done. The World Bank takes
the leadership role there in these major infrastructure-type
transactions on projects.
Chairman Miller of California. Okay.
Mr. Leo?
Mr. Leo. Mr. Chairman, just a couple of quick additional
points. And I think Rob Mosbacher actually mentioned this a
little bit previously.
There are a couple of things in terms of what the MDBs can
do on the China issue and the influence issue. The first is the
one that I mentioned briefly on the procurement standards. The
procurement standards are a great equalizer and an opportunity-
creator for U.S. firms.
So, the more money that is channeled through those types of
systems, the better it is for U.S. business. And the MDBs not
only are helping create those with their own dollars that they
are allocating on the ground, but they are also playing very
active roles in terms of trying to reform the countries'
procurement standards themselves.
So non-MDB financed; it has a positive spillover effect,
which I think is very important.
Chairman Miller of California. They are modifying the
system in large--
Mr. Leo. Exactly. The reform.
The other issue which has been mentioned a couple of times
now, is if the MDBs are not in a couple of sectors--say, for
example, hydropower in Africa--it is going to be the Chinese
who build those dams, which means GE is not going to be selling
turbines.
And it means that the impact on the local communities is
going to be much more significant than it would be if an MDB
was involved in the project. We are seeing this in Ethiopia.
The African Development Bank got pushed out of a deal, and all
of a sudden a number of the safeguards that were negotiated
with the Ethiopian government are no longer there, including
some assistance packages.
And I will be extremely surprised if any U.S. companies are
able to win some procurement contracts from that particular
project.
Chairman Miller of California. Thank you. I have many more
questions, but I ran out of time.
Ranking Member McCarthy, you are recognized for 5 minutes.
Mrs. McCarthy of New York. Thank you. And I want thank
everybody for their testimony. It was actually a pleasure
reading everybody's testimony because you were all on the same
page. So when the chairman says this is definitely a bipartisan
issue for us, it is.
But there is one issue that I want to explore a little bit
further, because we are in Congress. At times, we have to
explain to our Members why this is so important. I want to go
back to the China issue, because I do not think people
understand. If we do not pay our share into the World Bank, we
lose a rating, which means someone who comes in will pay a
higher share. I would appreciate it if anybody here would
explain that to the panel.
Mr. Leo. The MDB that I know the best that is relevant on
this issue is the African Development Bank. If the United
States does not provide its contribution for the general
capital increase that creates an opportunity for other members
of the institution to buy those shares.
So our voting share declines, and China could come in--or
another country, but more likely it would be China--and pick up
those shares.
Which means beyond just the symbolic effect, the message--
which is very damaging for U.S. influence worldwide--has very
direct institutional governance implications, as well, in terms
of what the United States is able to push through, in terms of
the institution, some of the kind of governance issues.
So it is a huge danger. And I hope it is one that does not
come to pass.
Mrs. McCarthy of New York. I guess I want to follow up on
that. Because from what I understand from the reading that I
have been doing, it puts our values on it. We have our values
to be able to put on to the say on how we work with the money
in the World Bank.
And I think that is important for people to know. With
that, Mr. Harmon, with your experience in developing countries,
I am interested in your thoughts on the positive involvement of
MDBs, and how U.S. participation has impacted developments
within these institutions.
I believe it was the Congressman's testimony that talked
about how hard it is for us to go home and sell this to our
constituents. I get yelled at all the time. And I try to
explain to them, we only use basically 1 percent of our
national budget to be able to do all the things that we do.
But again, this is about jobs, and how many jobs we can
bring into this country. So if you could expand on that, I
would appreciate it.
Mr. Harmon. Thank you. If I could just add one thing to the
last point, I think the Chinese run as a non-member of the
OECD. They do not have any environmental standards. They do not
have any of the rules. So they are delighted to operate
independently.
And even the representative from China, who was at the G20
panel with me, we have gotten to know each other a bit--
recognizes this extraordinary advantage to be able to go to the
countries in Africa, or anywhere--whether it be Pakistan or
whether it be the Middle East--and propose projects which have
no environmental standards. It gives them a big advantage in
selling the product.
Also, the fact that they do not have to be concerned about
interest rate factors. It is no wonder that China's export
credit agency now supports $250-plus billion, and is heading
towards a much larger number. We have to wake up to the fact
that they are operating with a different set of rules.
The only way we can really continue, in my opinion, to even
come close is by keeping the World Bank and the multilateral
development banks strong. Because there, at least as Mr.
Mosbacher has alluded to, you have a much better chance of
winning business for the U.S. side.
Because in those areas where procurement involves the
development banks, we have close to a level playing field, but
still not a level playing field. So I am very concerned. Even
if we support them, as I think we have to, we are still running
against a very tough rival and competitor in China over the
next 5 years.
Mrs. McCarthy of New York. I agree.
Mr. Leo, in your testimony you recommend that government
play a role in helping U.S. companies win more MDB procurement
work. Could you go into a little bit more detail on how we
might possibly do that?
Mr. Leo. Yes, I have some thoughts. And I think a lot more
thinking needs to be done. My thoughts are more from
experiences of going after some of these contracts for a couple
of years.
I think there is a very strong role that the U.S.
Government can play from a commercial advocacy side. Whether it
is an MDB project that you are bidding for or some other type
of contract, in certain circumstances, in particular an
experience that I had in Nigeria, I was able to see how
powerful it could be.
And it was not necessarily, or it was not at all, an issue
of undue influence. It was more that when the U.S. Government
got involved, it was to stress that we needed transparency,
that we needed a competitive environment, and those types of
equalizing messages.
And it gave me a fair shake to try and get business. So
whether it is an MDB project or not, I think that this should
be looked at much more closely. Now within that context, I
think that there could be a fair amount of rationalization
within the embassies in terms of their presence, where they are
focused on growing certain embassies in this space, and moving
others around.
I think there is probably a number of other pieces that
could contribute to a broader strategy, which is a pro-export,
pro-growth strategy in the MDB procurement space. But this is
just one issue.
Mrs. McCarthy of New York. Thank you.
Chairman Miller of California. Vice Chairman Dold, you are
recognized for 5 minutes.
Mr. Dold. Thank you, Mr. Chairman.
Chairman Kolbe, if I can just start with you, in your oral
testimony you had mentioned, in wrapping up, that not all
multilateral development banks are created equal. They are not
all doing as well as some of the others. Do you have any in
mind that are not performing as well right now that we should
be looking at and focusing in on?
Mr. Kolbe. I thought I would not play the picking the
winners and losers here today. But I do think that it is
worth--and there is a good deal of data available that you can
look at that can show which ones have been better stewards of
the money, and which ones have projects that have suffered from
more corruption and misuse, and have not been completed.
I think that some of this data can be put together and you
can get a pretty good track record from them in terms of
determining which ones have done the best. I want to make it
clear that I think, in general, the MDBs have done a good job.
But I think there are some that do better than others.
Mr. Dold. And I will certainly follow up with you to try to
get more of that data. Because I would like to look deeper into
that.
One of the things that I was actually surprised about--and
I know this is really more focused in on jobs--is the fact that
we did not really talk about national security and how the
banks actually will help us in terms of our own security
abroad, how we are able to influence those emerging markets and
the like.
And I am sure we can get into that a little bit. Mr.
Mosbacher, you talked about how supporting the banks is really
supporting jobs. We are going to try to go back and sell this.
Certainly, I think we are all pretty much on the same page. Can
you give us some specific examples?
Mr. Hardy talked about exports and the statistics about how
for every billion dollars we increase in exports, I think the
statistic is we create about 6,250 jobs here in the United
States. And that is something that I think that we ought to be
focusing on.
But with the banks right now, can you give us some success
stories that we can use, not only for our fellow colleagues,
but back in our districts about wins that the development banks
are doing for American business?
Mr. Hardy. You could take the area of our sector of
infrastructure as a great example. And, beyond the sale of
turbines by GE or sale of large pieces of equipment that
American companies compete for, there are also an
extraordinarily large number of smaller parts and controls and
items that are manufactured in towns all over America.
What we do not do a good job of is tracking how those
collectively all add up to jobs. And that is why some of the
statistics, I think, are overwhelming in terms of the
importance of growth in exports, growth in sale of services to
growing our economy.
I just do not see the growth in the United States at a
level or at a breadth that will drive the kinds of job creation
or the kind of job creation that we are seeking. In the
infrastructure field, it is not just the small parts or the big
parts. It is also the management of these projects.
There are companies like AES. Or there is a little company
out of New York called ContourGlobal that just built the first
100-megawatt project in Togo, for instance. And again, financed
with support of international financial institutions.
Commercial banks would not touch it.
And that is going to be the pattern you are going to see in
so many of these developing countries is you just will not get
commercial banks to take that risk without a backup from an
MDB. So as we look at how do we sell more equipment, how do we
sell more systems, how do we sell more management and controls,
I think the MDBs are going to play an integral role.
Mr. Dold. Certainly, I understand your point on the small
businesses. We have 650 manufacturers back in the 10th
District. It is the third-largest manufacturing district in the
country, which is surprising to most, just north of Chicago.
And we get that. We need to make sure that we are beefing up
those parts that are getting sold.
Are we getting an advantage because of the MDBs? Does
America have some sort of a competitive advantage in winning
that business?
Mr. Hardy. I think we have a competitive advantage if there
is a relatively level playing field. I am quite confident that
we can compete effectively. But I have also seen playing fields
that were not level at all, and the fields of the sort that Ben
Leo has mentioned, for instance, or Jim Harmon has mentioned,
which the Chinese have come in with.
And we have been negotiating to try to get them not only to
do open, competitive, transparent bidding, but also to lay out
specs on the bids that we can all comply with. The Chinese show
up, decide, ``No, we are just going to negotiate this situation
with you. No reason to go through this open government thing.''
And the next thing you know, there is a big, front-end-loaded
cash contract with all sorts of frills that the United States
companies have absolutely no chance of competing with. So,
level the playing fields.
The MDBs are the principal referee in a lot of these games.
And where they are the designated referee, we have a chance.
Where they are not, in markets where the Chinese are
interested, it is a tough fight.
Mr. Dold. I thank you.
Chairman Miller of California. Mr. Scott, you are
recognized for 5 minutes.
Mr. Scott. Thank you, Mr. Chairman.
I find this to be a really fascinating subject, and I
really enjoy this subcommittee, because it is getting right to
the heart of an area I care very much about. I think it is
important to state just how significant you are, particularly
in relationship to the fact that our contribution to foreign
aid period is about 1 percent of our overall budget.
And the amount that we contribute to the MDBs is just 5
percent of that 1 percent, which amounts to 0.05 percent of our
overall budget. We get great returns for that. But I think it
is somewhat puzzling that in challenges we are measuring the
success of what we want to do with an organization whose
primary aim is international development, by how many jobs they
create in our country.
Which is a challenge to all of us, as you were pointing
out, Mr. Mosbacher. And I share that concern. It is sort of
like measuring the success of a car by how well it floats. That
is not the function of what this is. But it is noble, and it is
what we all care about.
But I want you to explore that a little bit as we move
forward on the difficulty of that. And our challenge is, how do
we really make that happen? But I do want to mention something
else. Mr. Kolbe and you, both, and I think Mr. Harmon,
mentioned something that I am very, very concerned about.
And that is China. I especially feel like the real future
area of the greatest magnitude of benefit and opportunity is on
the continent of Africa. And so I went there, and went into the
dark heart of Africa. If you are familiar with Africa, when I
tell you I went to Goma, I think you will know I really went
into serious Africa.
And an interesting thing happened. The natives over there
would come up to us as we went from place to place--and this is
a serious, serious, devastating place, with the lava and all of
that and all of the fighting that is going on--and they kept
saying to me that the Chinese are here, the Chinese are here.
And I would hear that where we are going. I was shocked.
But come to find out, they are really there. And they are
building railroads, they are building schools, they are
building hospitals. And it seems that the only thing that they
want in return for this, I found out is, their requirement is
that they learn Chinese.
That is very interesting. And if that story does not
motivate us in this country to understand that China is serious
competition and we truly need to realize that we need to really
step up to the plate and really become competitive in this in
our efforts.
And we might want to change our measurement, or at least
expand it, to not only just the jobs that we can get back in
this country from this. But the measurement and our role in
being competitive with China.
But my question is, I wanted to ask if you could elaborate.
This is kind of a difficult challenge here, measuring an
institution whose basic aim and basic consequences--
international aid and development--we measure success on the
number of jobs it creates here.
Just how serious is this box that we are put into? Mr.
Mosbacher, would you respond to that?
Mr. Mosbacher. I think part of the problem is that many of
the MDBs do so many different things that it is hard to
identify job creation or opening a market distinctly with that
MDB alone. It is a variety of factors. Some would argue that
democracy and governance is every bit as important, and
improvements in democracy and governance are every bit as
important as economic development.
But I am convinced that the MDBs facilitate, enable, and in
many ways actually drive investment into markets where there
simply has been nothing going on. Until they get there, you do
not see anything going on. And then all of a sudden, things
start to happen. And then it has kind of a demonstration effect
on other businesses who will come in and invest.
Jim Harmon is willing to go do private equity deals in
places that would strike most Americans as extraordinarily
challenging because he has been there and he knows high-risk,
high-reward.
Mr. Scott. No, I want to just get one--
Chairman Miller of California. Unanimous consent to give
Mr. Scott an extra minute, because I know you missed out on
opening statements.
Mr. Scott. Oh, you are mighty kind. Thank you. That is why
you do such a great job as chairman. Thank you so much.
Let me ask you, Mr. Kolbe, or Mr. Harmon, any of you, how
are the Chinese measuring their success? Are they measuring it
with how many jobs that they are creating back in China on
this? Or in other words, it might be wise for us to have a
broader vision, to be very serious about this.
What do the Chinese say they get out of it? How do they
measure their success in it? Jobs back home?
Mr. Kolbe. Mr. Chairman, others will, I am sure have a
comment on this. Your comments, Mr. Scott, were very
interesting. Because I was just in Malawi a couple of months
ago, and I saw the same sort of thing that you were mentioning
there, where the Chinese had moved in in a very large way.
They have built a stadium. That is typical of what they do.
And they have built a very large hotel and conference center
there. Not exactly things that help people an awful lot. But
they have also, in the countryside, moved into a very large
amount of agriculture development.
But the interesting thing is, their people are now
scattered throughout the country. And they stay there after
they finish these projects. They remain there. They have their
own set of clinics, their own set of schools, their own set of
stores and retail businesses.
And what they are doing is essentially spreading Chinese
influence there. I think what they are looking for is, they
understand that these markets may be very small right now but
they know they are emerging and they are going to be much
bigger.
And they expect that business will come their way. That
these people, just as they have done in places like Malaysia
and Singapore and Indonesia, where you have had for more than a
hundred or several hundred years Chinese communities there that
still have ties to the homeland, and business connections as a
result of that, that is what they are looking for in Africa.
They are basically cleaning our clock in Africa right now,
and Europe and the United States are both in the same boat in
this.
Chairman Miller of California. We should have time for
another round of questioning so we can expand on that in the
second round.
Mr. Campbell, you are recognized for 5 minutes.
Mr. Campbell. Thank you, Mr. Chairman. You all speak with
one voice. I hear you. What is unsaid here is that we are being
asked, or will be asked, to authorize nearly a billion dollars
of taxpayer money for the World Bank. You all know what is
going on now, and this weekend.
And so as you have all alluded to, the pressures around
that. And on the margin, obviously, any dollars we spend are
100 percent borrowed. And there is a little irony there that we
would borrow this money from the Chinese, the Indians, and the
Brazilians to put into a bank to loan to the Chinese, the
Indians, and the Brazilians.
That irony is not lost on me. But my question is this: I
heard a number of you use the term ``investment'' a number of
times, and many times that is used as a euphemism for
``spending.'' But that is not the case here, and I get that,
that the MDBs and the World Bank lend money and it gets paid
back with interest, and that they make money.
But that then we take that money and put it in IDA, and
then many times we loan it--``we,'' the World Bank--and then it
does not get paid back. The question I have for you is this. Is
there a way to look at this, or to change this or whatever, so
it is more of a true investment in the sense that we put money
in and perhaps get a return on it.
Or at the very least, not eventually lose that money that
we put in. But at least keep it reinvested. Because what you
are all here to talk about is the non-direct, the indirect,
return from this investment in the bank. And I get that
What I am asking is, is there a way to change the actual
return, which currently is negative in terms of the U.S.
taxpayer?
Mr. Mosbacher. I would argue that some of it is a grant
and, as you said, it is simply mitigating the impact of
poverty. But you can look at from a national security
standpoint and say, ``Fine. To the extent that poverty becomes
breeding grounds for violent extremism then maybe we ought to
be mindful of that and try to prevent some of these things from
deteriorating any further.''
I think on the investment side, and by ``investment,'' I
mean things you get a return on--
Mr. Campbell. Right.
Mr. Mosbacher. --I think we could do a much better job of
structuring transactions in which public sector players team up
the private sector players so the public sector dollars are
being used to catalyze or to leverage more private sector
investment. What do I mean by that?
Like building a farm-to-market road that has to be built in
order to get increased produce from an area that wants to sell
under the international market to a market in a timely way. By
the same token, I think, and this is a conversation we could
have about foreign assistance, U.S. foreign assistance could be
used much more strategically to enable private sector-driven
economic growth.
And that conversation should take place. The same thing
could take place with the MDBs.
Mr. Campbell. Any other comments? Yes?
Mr. Leo. Yes, if I could, I just want to add another point.
If you are looking for a way to think about this in terms of a
direct return or a direct investment, I actually think when the
general capital increase, or the GCIs, are the cleanest for
trying to find that, frankly, if you are not talking about
national security or or poverty or something like that, take
the last GCI for the World Bank, the IBRD.
The United States contributed about $420 million over a set
period of time. And that GCI lasted, I guess, 23 years or
something along that. That is how long that capital lasted them
before they needed to go back to the till and get more.
And so, the United States was probably paying in maybe a
third of that time, and getting procurement contracts during
that time, as well. Once they quit paying in, once the U.S.
Government stopped having to pay in, they are still getting
procurement contracts and you are still getting financial
benefits.
So over the last 10 years, IBRD contracts, U.S. firms--and
this is the issue that I was differentiating before--just
direct procurement contracts were about $700 million. And I
would argue it is much bigger are able to quantify, in some
way, the indirect third-party sales, as well.
So this goes back to, on the GCIs, the leveraging issue. It
is very big, and it is very powerful.
Mr. Campbell. And in my last 11 seconds I will just, and I
do not know how, and maybe but to Mr. Mosbacher's point, some
of this stuff is grants and some of it is not grants. Maybe
there are some ways we look at this to separate those.
I just happen to believe, not just in this case but in
other cases of things we deal with here, when you know you are
not going to get something back necessarily, this is true in
housing and other things, if you sequester that, and you know
what that is and you identify that, and you do not confuse it
with the part which you do expect to get back, I think it is
just better clarity in budgeting, or authorizing.
And I yield back. Thank you for your indulgence, Mr.
Chairman.
Chairman Miller of California. Ms. Moore, you are
recognized for 5 minutes.
Ms. Moore. Thank you, Mr. Chairman. And I want to thank the
panel for appearing.
The hearing title is, ``The Impact of the World Bank and
Multilateral Development Banks on U.S. Job Creation.'' And
certainly, we are all concerned about that. So I guess my
question is, how do we track, how do the MDBs leverage U.S.
commercial lending to, in fact, make sure that we are creating
more exports?
I am really interested in the mechanics of this. Does a
potential exporter approach the commercial bank? Because if
they do, they are liable to be turned down, particularly in
this environment. So how, really, does it operate that American
businesses have the opportunity to interface with the MDBs?
If we are going to be making this investment, we want to
make sure that this is accessible.
Mr. Harmon. If I may take a crack at that, the joint
financing that was done for Ethiopian Airlines with the African
Development Bank, together with the U.S. Ex-Im Bank, if the
African Development Bank had not played a role, Ex-Im would not
have done it.
Boeing was the beneficiary. Boeing is, sadly, not at this
table. But if they were here, Boeing would be able to give you
chapter and verse on the number of small and middle-sized
companies in the United States that participate in every Boeing
equipment. They have become very good at that.
And it is very important for jobs in small and middle-sized
companies all over the United States. I have five other
illustrations where I have followed, all of which are
impressive. With regard to Africa, we could be discussing this
in other parts of the world, too.
The African Development Bank was the lead arranger and
financer of the Main One fiber cable project in West Africa
with Tyco. They finance the Kivu Watt Power in Rwanda. That was
particularly important for Rwanda. In the next few months,
Rwanda will announce that they are buying equipment from Boeing
for their airline now.
Again, each one of these--and I could give you three others
that I have listed here that I have watched the African
Development Bank work on--which, had they not done it, the
United States would not have benefited as exporters and jobs
would not have been created.
So I am frustrated a little bit that I cannot come up with
an answer from the Congressman who raises what is the specific
return that we can earn from this. It is an impossible
question, in my judgment. We can show how, without the African
Development Bank and the World Bank, certain jobs would not be
created.
Mr. Mosbacher. May I add to that?
Ms. Moore. Yes, sir, Mr. Mosbacher?
Mr. Mosbacher. I want to reemphasize a point I mentioned
during my testimony because it is so critical. I do not know of
a single business that I have ever been around where access to
credit was not pretty important to your survival, much less
your growth.
And yet, many of these SMEs in the developing world simply
have not had access to that. That is changing. That is a sea
change, and it is changing because MDBs are coming in alongside
commercial banks and sharing the risk on loan portfolios that
are not 12 months or 60 days, and 30 percent interest rates.
They are 5-year and 7-year term limits.
Ms. Moore. Who initiates it? What does the commercial
lender do when a deal comes to them? Do they call the MDB, or
does the MDB initiate the--
Mr. Mosbacher. Usually, the borrower initiates how they are
going to be able to finance the transaction. So, ``borrower''
is the person who wants to expand the business or make--
Ms. Moore. But they do not necessarily know about the MDB.
Mr. Mosbacher. Oh, many do. Many do not. But the MDBs have
actually taken the initiative in the last 3 to 5 years to go in
and look at banking systems and seeing where they can partner
with commercial banks to say, ``All right, let us start lending
to SMEs so they can buy more goods and services,'' which
includes American goods and services.
Ms. Moore. And so to mention goods and services, Mr.
Mosbacher, in your testimony you articulated a truth, that 95
percent of the world's customers live outside our borders. And
80 percent of Sub-Saharan Africans have no infrastructure, do
not have any electricity, and so on and so forth.
The United States is really struggling to have some kind of
comeback in U.S. manufacturing, but there has been a real shift
in providing services. So how do the MDBs support American
service industries like banks and insurance companies?
And to what extent are there activities, or are there
markets, for services in the way of exports?
Mr. Harmon. Yes, there are a number of financial services
that are created throughout all these countries in terms of
doing the arranging for the financing. Certainly, legal
services. Even the small business that we run, with 14 people,
is involved in investing throughout Africa.
To the extent that the African Development Bank and the
World Bank are involved, that gets us involved. So there are
many illustrations of financial services and legal services and
engineering service companies. In fact, most of the services
related to project finance benefit the United States.
Maybe not quite as dramatically as when they buy an
aircraft or when they do a major pipeline type project but,
certainly, services benefit.
Chairman Miller of California. Mr. Manzullo, you are
recognized for 5 minutes.
Mr. Manzullo. Thank you. Jim, it is always good to see you
here, and miss you. And then the great codels we used to take
to Mexico and all the fun we had.
Mr. Kolbe. Thank you, Mr. Manzullo. It is a pleasure to be
back with--
Mr. Manzullo. I am sure you do not miss it.
Mr. Kolbe. --good friends like you.
Mr. Manzullo. I miss you also.
Gwen and I serve on the manufacturing caucus, and she has a
Harley Davidson, and we are big into grease in our
congressional districts. And also we have, in our district,
Rockford, Illinois, nothing less than 90 manufacturers that are
involved in private jets.
I get very upset when President Obama talks about the
people flying private jets, and I think about companies such as
Skandia, with about 89 employees, that makes seats for these
private jets. And the reason I bring that up is the lack of
understanding in most of this country, especially in the White
House, as to the basis of manufacturing.
I have a constituent who utilized the program that I set up
in the Ex-Im Bank for small businesses, an $11,000 transaction
so that she could afford to export. And I thought that was
remarkable. We have worked with OPIC. I chair the Small
Business Committee.
A lady by the name of Monique Matty, born in Liberia,
became a U.S. citizen, got an OPIC guarantee, and went into
business in Tanzania and Ghana. And it was at that point, with
Danny Davis who was sitting on the committee with me, to see
what OPIC was doing in Africa. And the bottom line is that both
OPIC and Ex-Im programs make money for the United States.
We, of course, want to push OPIC and Ex-Im to concentrate.
Not concentrate, but to make more money available for the small
businesspeople. But the problem that we are having with the
World Bank is the fact that Argentina defaulted on $81 billion
in sovereign debt, has stuck many American investors.
Bond holders that won over 100 U.S. Federal court
judgments, in excess of $7 billion. There has been $900 million
in arbitration awards threat the ICSID arbitration process. And
yet, the World Bank continues to give money to Argentina. And
we are looking at a situation here where this Congress may
decide to defund the World Bank.
I cannot impress on the people at the World Bank enough
that they have to do something except, we will work with you,
we will do this. We had a hearing here about 3 weeks ago, and
the same thing happened again. World Bank turned around and
gave $400 million more in loans to Argentina.
And my question to anybody who wants to tackle it is, why
should the United States, why should this Congress, continue to
support the World Bank when it does not back U.S. citizens who
have been stuck with Argentina debt, and shoved it right in the
face of American investors and bondholders and other world
investors, and yet continue to be a recipient of the World
Bank.
Mr. Mosbacher. I guess--
Mr. Manzullo. You got stuck.
Mr. Mosbacher. --Mr. Manzullo, the World Bank is operating,
as its title suggests, all over the world. And I think we ought
to continue to put as much pressure as we can on them to help
protect those who have been defrauded, or stiffed, by
obligations that are held by sovereign governments.
But I personally do not believe that we would be doing
ourselves a favor by cutting off the World Bank completely. I
think we lose influence. In that situation, we would reduce our
chances of being able to ultimately protect those who are
impacted negatively by the failure of the Argentineans to pay
their debts.
Mr. Manzullo. But when you see that--go ahead, Mr. Harmon.
Mr. Harmon. First, I would like to say there have been,
obviously, some defaults. There was a default in Russia, there
was a default in Argentina. There could be further defaults in
Europe at some point. The amount of profits that Americans have
made in the emerging world far exceeds any losses that have
been exceeded--
This is a very profitable area. In fact, one of the
problems the United States had is increasing flow of capital
from outside the United States to the emerging markets.
Mr. Manzullo. But we could do that if we did not give any
more money to Argentina. The World Bank will not even cut off
the spigot to Argentina.
Mr. Harmon. I am not sure it is the World Bank that the
criticism should be leveled at. I think that a number of other
major departments in the United States Government could have
acted with Argentina, or shortly thereafter, to have been sure
that there was a fair resolution on that debt.
I do not think it was the World Bank who should have done
it, myself. I think the State and Treasury Departments could
have played a role there. But there are not too many
experiences in the last 20 years. Argentina is one, granted,
where there have been some losses. Clearly, there have been
losses in Greece.
There were a few others that we all can think about. But
they are modest compared to the total amount--
Mr. Manzullo. But you have U.S. citizens, who are
bondholders who have been stuck with debt from Argentina, who
are being asked to use their taxpayer dollars to give more
money to Argentina through the World Bank. That does not pass
the sniff test.
Mr. Harmon. But I am not sure that the resolution is to
thereby cut off the World Bank because of all the good the
World Bank may do. I think that every multilateral institution
is clearly going to do a few things that are not perfect. On
balance, from my observation of the World Bank in the last 30
years, they have done a lot more good than the few
illustrations that you could be critical of.
And I have some reservations about the Argentina
illustration there. You will have other countries which are
going to default on American investors. At least the Americans
should have an investment agreement. We do not have an
investment agreement with Russia, so Americans lost over a
billion dollars on Yukos back in 2004 and 2005.
We should have done something about that. I can give you
other illustrations having nothing to do with the World Bank,
but I think it is more Treasury that should be involved in some
of these areas rather than the World Bank, when you are looking
for criticism.
Chairman Miller of California. The gentleman's time has
expired.
Mr. Manzullo. Thank you.
Chairman Miller of California. We are going to have a
second round. Mr. Manzullo, we had a meeting with the Under
Secretary of the Treasury last week on this specific issue. And
Treasury is trying to move forward, see what they can do on
this. So we took your concerns to heart the last time you
brought them up, and we are trying to--
Voice. [Off mic.]
Chairman Miller of California. They are moving forward to
see what they can do, yes, sir.
Mr. Perlmutter, you are recognized for 5 minutes.
Mr. Perlmutter. Thank you, Mr. Chairman. And I just have to
say to my friend, Mr. Manzullo, about the corporate jets, I was
hoping we would not get into a--firing across the bow for each
other. But we want your people to work. I know I do.
I just want to make sure that before I take it out of
grandma's hide on Medicare that millionaires and billionaires
are paying their fair share as we put our fiscal house back in
order. And I think that is where the President is coming from.
But having said that, speaking of jets, we now have the FAA
shut down. Boeing, who was mentioned earlier, has several jets
that are in the process of being tested--787s, big 747 cargo
planes--that are to be sold in the international market that
cannot be tested today because we basically do not fund the FAA
completely.
I do not know how many millions of dollars that is to the
commerce of the United States. So, these games that we are
playing with the budget have to stop. I do agree with Mr.
Campbell. And Mr. Harmon, I want to direct these to you and Mr.
Leo. We really do have money going in that we are probably
borrowing on the margin.
So we do need to know, generally, just like a bank gets
money from its depositors and then lends it out and hopes to
make a spread, hopefully I can show to my constituents, the
people of the suburbs of Denver, that there is some real value
here.
There is maybe the spread, I can show an interest spread,
or the intangibles are valuable. And the intangible that is
most important to Americans today are jobs. So how do I show
them direct jobs coming from providing funds to the World Bank
or to any of these other banks?
How do I show that? How do I quantify, you gave this amount
of money to the World Bank. It provided this kind of return, or
it helped us get this many jobs, and separate it from, say,
USAID or Millennium Challenge Corporation or whatever?
Do you understand my question?
Mr. Kolbe. Yes, it is a good question. But I gave you, on
the African Development Bank specifically, six financings--I
just had to make notes to them before I came to the meeting
here--where, in the last few years, if they were not involved,
the financing would not have taken place.
They would not have bought the equipment from the United
States. We have these GE turbines, or Boeing equipment, or
other pumps that we saw. Those transactions would not have
gotten done without the African Development Bank. You could
actually go a step further.
I just did not have the staffing like I used to have when I
was in the public service area to be able to do the
calculation. But you could almost calculate the number of jobs
created by each of those transactions. I have no question that
part you could analyze.
Mr. Perlmutter. I am just saying we need to do that, and I
am sure we can. And if we are going to continue to provide
capital for these organizations, I have to go back to my area,
because they are asking, ``Why are we giving all this money to
other countries? Why are we doing all this when we need to have
people with good, long-lasting jobs here, where they got a
chance to provide for their family, to have the American
dream.''
And I always say, it is just a tiny part. It helps us
develop investments overseas and export. But for me, I really
have to show them that this is 20,000 jobs. Boeing, right here,
or Seattle, whatever. And you said we have made a lot of profit
over time. We are definitely in a ``what have you done for me
lately'' moment.
Okay? So you have to show us. Otherwise it is hard, whether
you are a Democrat or a Republican, to sell this stuff.
Mr. Kolbe. Mr. Perlmutter, may I just respond to this? I
share your frustration at wanting to be able to quantify this
very precisely. But I think, as you know, in many of these
areas it is very difficult to quantify very precisely because
it is not as though it is a completely controlled experiment
where you can isolate one thing.
There are a lot of things that go into this. But I take to
heart what you are saying, and I am going to go back and take a
look. There have been some studies that I know that have been
done that I think have quantified some of this. And I am going
to see what we can find, and make that available to you.
Mr. Mosbacher. Congressman, I would recommend that you find
a few exporters in your district. They may be manufacturers,
they may be farmers who are selling into these markets and
whose purchases are being financed through lines of credit
through local banks, or through trade finance, that exist in
the purchasing country solely because of the MDBs.
In other words, there is connectivity there.
Mr. Perlmutter. And I want to support this. I just want to
be able to show it. Because this is an uphill battle right now.
So with that, I appreciate the chairman--
Chairman Miller of California. Thank you.
Mr. Perlmutter. --letting me take a shot at Mr. Manzullo.
And I will move on.
Chairman Miller of California. You guys get boxing gloves.
We will figure this out.
I ask unanimous consent to place a statement in the record
from Philips Electronic North America. Without objection, it is
so ordered.
Mr. Hardy, would you you please comment on that
relationship with multilateral development banks and Philips
Electronic?
Mr. Hardy. I think it is reflective--and this is why I
wanted to include it in our testimony--of the fact that in a
variety of sectors, U.S. firms are doing extremely well in
terms of being able to market their goods and services within
the MDBs.
I think that the World Bank actually has an agreement
focused on the IT sector. And so that companies like Cisco,
Oracle, and others are very heavily engaged in terms of being
able to expand their access into the emerging markets by being
able to work through the MDBs.
I certainly understand the concern the Congressman has
raised. And I think that there are a number of issues around
it. For example, the Department of Commerce has for years had
commercial support officers actually in the banks who act to be
able to assist exporters as they came in.
They would not necessarily know their way around or who to
contact. And because of limitations, Commerce is now thinking
about withdrawing those individuals right at the time when we
really need to be be doing more. So it is really an issue
across the government in terms of being able to keep the pieces
in place so that we have a system.
But it is very clear that in particular sectors, such as
with Philips, that they have a 15-year relationship with the
MDBs. And as these markets have grown, as the middle class has
developed, their market has only expanded. And so it has been,
I think, very fruitful for them.
But if I can add one element, and that is an element that
actually they focused upon in the statement that they made, was
it about the security of the procurement system? And in a way,
this goes back in my mind to what Congressman Manzullo was
talking about, which is that the MDBs need to understand that
there are standards they absolutely need to comply with. And in
terms of bankruptcy situations, in terms of people losing
money, that there be consequences to that.
There are clearly concerns within the business community
about potential erosion in procurement standards. And I think
that is very clearly an issue that needs to be monitored. Very
clearly, if there is an erosion in the procurement strategies,
then, very clearly, you are going to see American, European,
and Canadian firms begin to back away from--
Chairman Miller of California. That is the United States
maximizing the financial benefits of MDBs that they create.
Mr. Hardy. I think we are, as long as the pieces are in
place. That needs to continue, so that it is difficult to be
saying, on the one hand, we need to continue to expand the role
that the MDBs are playing, and then at the same time for
Commerce to be pulling out individuals who have a concrete role
in terms of assisting exporters and U.S. companies in terms of
getting work and understanding how the procurement process
works and how they can maximize the benefits of that.
Chairman Miller of California. And you talked about the
growing middle class in Vietnam, Indonesia, countries like
that, and how that is a benefit for the American workers. I
have seen some of the tariffs placed on some of our exports to
Vietnam that are quite outrageous. How are we dealing with a
lot of those?
Mr. Hardy. Trade rules an ongoing negotiating process.
There is no question that everybody is looking to take
advantage of the system, to try and work the system in a way
that most supports their own particular situation, which means
that the USTR and the Department of Commerce need to continue
to be aggressive in protecting U.S. exporters and supporting
rules of fair trade.
And even as we continue to pursue free trade and FTAs--
because that is a necessary and, indeed, a critical part of the
process, we cannot just enter in agreements, and then let them
slide and not pursue, and ensure that the rules are being
followed.
Chairman Miller of California. Mr. Harmon, you painted
quite a scary picture of what might result from reduced
contributions for the MDBs from the United States, and the
specific role China is trying to backfill. You argue in favor
of spending funds over the years that go to directly to
American jobs.
Do you think that the picture you have painted is going to
become a reality should we lose our position with the MDBs?
Mr. Harmon. Yes, I do. I think this is almost a no-brainer
in my mind. Because if we drop back, we are going to lose our
leadership position.
Chairman Miller of California. I agree with that. I would
like to hear you expand on it.
Mr. Harmon. Right. I have watched the G20 now in these
meetings I have been attending for the last 8 months, and the
other countries are constantly asking about what is happening
in the United States. What is happening not only in our
politics--because they do not fully understand that--but the
role of the World Bank and the African Development Bank and the
other development banks, too--who come to all of our meetings,
by the way--are so important to all these other countries.
If we take a position which says that we are not fully
supporting them, someone else is going to fill the position
that we are not. China is already at our throats, as far as I
can see, on a competitive basis--
Chairman Miller of California. [Off mic.].
Mr. Harmon. And so it is so clear to me that this would
just add fuel to a fire that we are having trouble controlling
right now. I do not think the American people fully understand
what this means long term for jobs in the United States.
Chairman Miller of California. And it is our job to explain
that. Thank you.
Ranking Member McCarthy, you are recognized for 5 minutes.
Mrs. McCarthy of New York. Thank you. And again, I want to
thank everybody for their testimony. This is actually my first
year on this particular subcommittee. I had an awful lot to
learn, and I had to read a lot, and I had to ask a lot of
questions to find out.
Because I was probably like--Members of Congress, we know a
little bit about everything, but we do not know a lot about
some things. I went back to Long Island, and I wanted to find
out because the first thing we were going to be working on was
our exporting.
I went to the Long Island Business Association, which is
the largest business association on Long Island for small
businesses. And the numbers that I received on how much we were
making for Long Island on exporting blew my mind--$10 billion.
So to answer some of the questions that my colleagues
asked, those companies are all paying taxes. That, to me, is a
way that, again, we are getting money back into the system. And
the more I started digging in and educating a lot of small
businesses on the island, they are third contractors,
subcontractors.
But with that being said, those are jobs. Those are
hundreds and hundreds of jobs that would not have been there if
they had not been exporting. And the Export Bank helped them a
lot. Same as all of you, when we were talking about the economy
that we have been going through, and everybody has been doing
it, it was the MDBs that covered those loans.
The Export Bank did the same thing. So in my opinion, for
the amount of money that we owe, hopefully we will pay and this
Congress will okay that. Our returns, in my opinion, are
extremely strong and a good reason why, because we are getting
back, and it is certainly having an effect as far as jobs here
in this country with large corporations, but very also small
corporations.
And people have to understand that. I know it is hard
because we still have to do an awful lot for jobs here in this
country. But to me, it is a good deal. When I see a return, as
Mr. Leo has said and others have said on what the returns are
coming back into this country, it is a good deal, especially if
you look at what you are getting on some of your accounts right
now as far as whether it is savings or money management. I know
we all think that way, but it is a good deal as far as the
government goes. So with that being said, I do want to ask one
other question.
As we came through, and as the MDBs have covered the loans
that were given out to other countries that we are helping,
what do you think? What do you see, I should say? Do you see
the support shifting back to more traditional infrastructure
and development projects?
Because right now, the MDBs were helping the banks, helping
the countries just kind of get through this with loans to do
what they had to do to get through everything. With the global
economy recovering, where do you see that these countries are
going to be going to stabilize their own country a little bit
better, and to do the infrastructure
So large roads. Afghanistan, gosh, I called that the land
of dirt the couple of times I have been there. But you give
that country some roads. We know they have minerals. We know
that they have products.
They have a lot of water. They can grow. They can be part
of that part of the country as far as supplying food. But if
you do not have roadways or trains, if you do not have
refrigeration at the end, it is not going to go anywhere. So
where do you see the world, on the whole, going forward as we
get out of this recession?
And we will get out, by the way. I feel confident on that.
Mr. Mosbacher. I might say on Afghanistan that the World
Bank and the MDBs have been absolutely instrumental in helping
finance infrastructure there beyond what the United States
Government pays for. The MDBs have played an integral role
there.
Second, the Inter-American Development Bank has taken a
very aggressive posture in trying to finance infrastructure
additions throughout Latin America. This is a continent,
actually, that relatively speaking is doing pretty well. There
are obviously countries, just like there are in Africa, that
are going backwards.
But there is an awful lot of growth. Even beyond Brazil,
look at Colombia. And so the MDBs financing of projects on
infrastructure--roads, water sanitation, electricity plants--
are having a tremendous impact on improving the competitiveness
of those countries.
The same thing goes for Africa and Asia. So I think they
are stepping up. I think they are, frankly, the only game in
town once we went through the financial crisis of 2008. And as
you said, as well--very important point, and Ben Leo made this
case--when things started to fall apart they could have fallen
even worse apart around the rest of the world.
But for the staunching of the building, if you will, that
many of these MDBs did. A role that was little-sung, little-
understood, but had a huge impact on how free the fall was that
we were going through.
Mrs. McCarthy of New York. Thank you.
Chairman Miller of California. In fact, our next hearing
will be on the MDBs' impact on national security.
Mr. Scott, you are recognized for 5 minutes.
Mr. Scott. Thank you. Just a few quick questions. What, in
a nutshell, would each of you say to the question, what are the
Chinese really up to? What are they up to in Africa?
I just was so amazed with my trip there, and I want to come
back to that. I tend to think they are up to more than what the
surface is showing. And if you had any figures on how much the
Chinese are spending on foreign aid, and how much they are
spending in Africa, for example.
And just to try to get a good little quick handle on how we
sum up Africa, I mean China, right quick. I would like to
just--yes, Mr. Harmon?
Mr. Harmon. I will start, just briefly. The Chinese need to
maintain a growth rate of probably north of 7 percent. They are
at 9 percent now, but 8 or 9 percent in order to keep their own
country stable. Because at a lower growth rate, they will have
serious problems with their own people.
In order to--
Mr. Scott. But let me ask you about that, because that is
where my mind was taking me. I figure there is something else.
When you say a problem with their own people, are we talking
about the rapid population growth of the Chinese?
Mr. Harmon. If you have unemployment in China, you will
have disruption. There is a history in China that you would
have those problems. The Chinese are a very capable people.
They know what they are doing. There is nothing that I have
seen yet that puzzled me about what they are doing.
They have to maintain a growth rate in order to maintain
stability in their whole system. And that growth rate is much
higher than most of us in the United States are used to. So
when we talk about numbers like 8 and 9 percent, this an
enormous growth rate for a country the size of China.
In order to maintain that growth rate, they have to
continue to be very active in exporting product. They also have
to transition into more of a consumption society. But what they
are up to in the developing world, in Africa specifically, is
resources, natural resources.
So short-term, or medium-term, they negotiated as they
could in Zimbabwe for certain natural resource products. They
have done the same over and over and over again. So it is
natural resources. When you operate outside the rules of the
OECD, it is enormously difficult competition for the rest of
the world.
China does not have to be worried about that. In fact, in
this particular G20 panel that I am on, the Chinese are hoping
that we are going to encourage more infrastructure in Africa,
which would be good for the African people, good for commerce.
But they intend, when the project preparation gets
completed appropriately, they are going to go in and bid for
that infrastructure project themselves. They will take control
of that infrastructure, and they will build it. Some people in
Africa think it is colonialization again--by the Chinese coming
in and not taking much time, as the World Bank will tell you or
the IFC will tell you, as they got through their process, and
all the procurement obligations that we have at the World Bank,
the IFC is at a disadvantage.
Because the Chinese have moved in and said, ``We do not
need to check any of that. We will do the following for you.''
And so, they take off with a project. Over and over again, you
are seeing that. We are competing against a much larger entity.
Now in real numbers, in the year 2000 the Chinese came to
me, as chairman of the Ex-Im Bank and said, ``We would like to
secund a few people to Ex-Im Bank so we can learn more about
export credit agencies.'' I thought they were going to do two
or three people. And it was a joke at the Bank because the
number of full-time employees of the Ex-Im Bank is about 440.
And they said, ``We would like to secund 40.'' I said,
``Forty people? That is 10 percent of our whole staff. We could
never do such a thing as that.'' But at that time, they were
supporting, literally I think the number was something like $5
billion of exports from China. And today we think they are
doing something like $250 billion.
Mr. Kolbe. Mr. Scott, could I just add very quickly to
that? It not about political colonialism. It is about economic
colonialism. They do have to have a very rapid growth rate. And
it is about resources in Africa. Clearly, they are looking for
resources.
But in a country like Malawi, which does not have a lot of
natural resources, it is something else. And it is about
markets. So they take a very long-term view of this thing. They
have a very long-term view, and it is about expanding their
markets and being able to maintain that growth rate.
And that is what they are doing in a very effective way.
Mr. Scott. Thank you.
Chairman Miller of California. I would like to thank each
of you for your testimony. It was very, very informative. It
helps us to undertake the goal we have sought after to complete
this process. And you have given us a lot of very, very good
information. I mean that from my heart. You did a great job.
Thank you for your time, your expertise, and your talents.
And Chairman Kolbe, it was very good to have you back with us
today. Without objection, I would like submit for the record a
letter in support of the MDBs signed by the following
organizations: the Business Roundtable; the Coalition for
Employment Through Exports; the Emergency Committee for
American Trade; the National Foreign Trade Council; the U.S.
Council for International Business; and the U.S. Chamber of
Commerce.
The letter states that: ``MDB loans and expertise help
developing countries become reliable trading partners and open
up their markets for U.S. goods. And over half of all U.S.
exports now go to developing countries that have received
assistance from the MDBs.''
The Chair notes that some members may have additional
questions for this panel which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for members to submit written questions to these
witnesses and to place their responses in the record.
This meeting is adjourned.
[Whereupon, at 4:08 p.m., the hearing was adjourned.]
A P P E N D I X
July 27, 2011
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