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





                      THE IMPACT OF THE WORLD BANK
                      AND MULTILATERAL DEVELOPMENT
                       BANKS ON NATIONAL SECURITY

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

                                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

                               __________

                           SEPTEMBER 21, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-64











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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

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

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

                  GARY G. MILLER, California, Chairman

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


















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 21, 2011...........................................     1
Appendix:
    September 21, 2011...........................................    21

                               WITNESSES
                     Wednesday, September 21, 2011

Lago, Hon. Marisa, Assistant Secretary for International Markets 
  and Development, U.S. Department of the Treasury...............     7
Howard, Rear Admiral Michelle, Chief of Staff to the Director, 
  Strategic Plans and Policy, J5, The Joint StafF................     9

                                APPENDIX

Prepared statements:
    Lago, Hon. Marisa............................................    22

              Additional Material Submitted for the Record

Miller, Hon, Gary:
    Written statement of Daniel F. Runde, Center for Strategic 
      and International Studies (CSIS)...........................    26
    Written statement of Ambassador Mark Green (Ret.), U.S. 
      Global Leadership Coalition................................    33
    Written statement of Alan Larson, Covington & Burling LLP....    40
    Joint Treasury/Department of Defense letter dated September 
      21, 2011...................................................    48
    Memo to the Secretary of the Treasury from the United States 
      European Command, dated July 25, 2011......................    50
    Memo to the Secretary of the Treasury from the United States 
      Transportation Command, dated May 10, 2010.................    52

 
                      THE IMPACT OF THE WORLD BANK
                      AND MULTILATERAL DEVELOPMENT
                       BANKS ON NATIONAL SECURITY

                              ----------                              


                     Wednesday, September 21, 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 2:05 p.m., in 
room 2128, Rayburn House Office Building, Hon. Gary Miller 
[chairman of the subcommittee] presiding.
    Members present: Representatives Miller of California, 
Dold, Huizenga; McCarthy of New York, Carson, and Scott.
    Ex officio present: Representative Frank.
    Chairman Miller of California. Today's hearing is entitled, 
``The Impact of the World Bank and Multilateral Development 
Banks on National Security.'' The hearing will come to order.
    Without objection, all members' opening statements will be 
made a part of the record.
    We are going to limit the opening statements to 10 minutes 
per side as previously agreed to by the ranking member and 
myself.
    I recognize myself for an opening statement.
    Today's hearing is focused on the impact of the World Bank 
and the multilateral development banks (MDBs) on U.S. national 
security. The Treasury Department has requested authorization 
for the United States to make a payment for a capital increase 
at the World Bank, the Inter-American Development Bank, and the 
African Development Bank. The Administration also requests 
authorization for callable capital at these institutions and 
for the European Bank for Reconstruction and Development.
    This is the third hearing in our subcommittee's 
consideration of these authorization requests. Our first 
hearing looked at the leadership role of the United States at 
the MDBs. Under Secretary Brainard testified that the 
leadership position the United States currently has at these 
institutions brings great influence and, in some cases, veto 
power over decisions. If we do not authorize and fund these 
requests, the U.S. share will diminish, impacting our 
leadership and influence at these institutions. Our second 
hearing focused on the impact of MDBs on U.S. job creation. The 
hearing focused on how the MDBs helped open markets and spur 
private-sector-led economic growth and employment in the United 
States. The hearing today will focus on how World Bank and MDB 
assistance to middle-income and poor countries around the world 
contributes to U.S. national security.
    Our hearing comes as we mark the 10th anniversary of the 
September 11th attack on our Nation. This sober anniversary 
reminds us of how critical it is to do what we can to guard our 
national security. Today, we are focused on the effect of 
lending and grant-providings at MDBs in middle-income and poor 
countries on the U.S. national security. We want to understand 
how MDB assistance helps developing countries become stable 
nations that can counteract the proliferation of terrorism and 
other threats to the United States.
    We hope the hearing will focus on the following: the role 
of the MDBs and their relevance in today's world, specifically 
the impact the MDBs have on U.S. national security; how the 
MDBs' support for vulnerable nations around the world has 
helped to foster U.S. partnerships in addressing global 
threats; an example of MDBs creating the conditions for long-
term stability and economic development in vulnerable nations 
that are important to our U.S. national security; how the 
impact of U.S. leadership in the MDBs is ensuring that projects 
help to address urgent global threats and safeguard national 
security; and the consequences for global and U.S. national 
security of any reduction in the amount requested by the 
Administration for the MDBs or any delay in meeting the U.S. 
commitment to the MDBs.
    We hope to hear more about MDB support in the Middle East, 
including Afghanistan and Iraq, and in North Africa, 
particularly how the MDBs support stability and help prevent 
emerging threats and conflicts. And we are quite pleased to 
have the Rear Admiral with us today to discuss how the MDBs 
complement military operations to promote regional stability, 
which contributes to U.S. national security.
    These funding requests to capitalize the MDBs come at a 
time when our country is focused on getting our own massive 
debt under control. While the United States has national 
security interests in continuing to assist emerging economies 
implement economic, political, and social reforms, it is 
important to understand the costs and benefits of doing so. 
This is the purpose of this hearing.
    Our series of hearings on the Administration's request are 
intended to help us assess the benefit of MDBs, given the 
current fiscal challenge that we are facing today.
    Before we begin, we would like to point out that our 
hearing was originally scheduled for last week. Unfortunately, 
a meeting of the full committee caused our hearing to be bumped 
to today. We had an excellent second panel, who unfortunately 
are not able to join us today. We really appreciate the time 
they spent preparing for the hearing and the insight they 
offered to us in their written remarks. I plan to invite them 
back at our next hearing on this matter, which we anticipate to 
be held later this month.
    Without objection, I would like to insert their written 
testimony into the record. First, the Honorable Mark Green, 
former U.S. Ambassador to Tanzania and a Member of the U.S. 
House until 2008--he was part of my class. In fact, he served 
right here on the Financial Services Committee. Mr. Green 
currently is the senior director of the U.S. Global Leadership 
Coalition.
    Second, Mr. Daniel F. Runde, the chair of global analysis 
and the co-director of the Project on U.S. Leadership and 
Development at the Center for Strategic and International 
Studies. Mr. Runde was the head of the foundation unit at the 
International Finance Corporation of the World Bank Group. 
Before that, he served at USAID as the director of the U.S. 
Office of Global Development Alliances.
    And third, Ambassador Alan Larson, senior international 
policy advisor at Covington & Burling. Ambassador Larson served 
for 32 years as a career diplomat in the U.S. Foreign Service 
Office. He was Under Secretary of State for Economic and 
Business Affairs for 3 different Presidential Administrations: 
Bush 41, Clinton 42, and Bush 43. He also served as the 
alternate governor of the United States to the World Bank and 
to several regional development banks.
    I honestly regret that these witnesses are not here today. 
Their insight was very, very good, and we would love to have 
had that made a part of the testimony. But we will have them at 
a future hearing.
    And I yield to the ranking member, Mrs. McCarthy.
    Mrs. McCarthy of New York. Thank you, Chairman Miller, for 
holding this extremely important hearing on the role of the 
World Bank and the multilateral development banks with respect 
to the United States' national security.
    With the remembrance of the 10th anniversary of the 9/11 
attacks still fresh in our minds, it is fitting that we are 
holding a hearing to learn more about the role of the MDBs as 
it pertains to our national security agenda. The multilateral 
development banks play a vital role in combating global poverty 
and providing basic infrastructure needs for developing 
countries that are vulnerable to the spread of terrorism.
    The President's May 2010 National Security Strategy Report 
supports renewal of U.S. leadership in the multilateral 
development banks and the IMF, recognizing that engagement 
investments in these institutions is a means to strengthen the 
global economy, lifting people out of poverty and securing 
fragile states. Creating conditions within developing countries 
that foster long-term security and economic development will 
enhance the United States' national security initiatives and 
renew our commitment to human dignity, enabling people all over 
the world to access the basic necessities so many of us take 
for granted.
    Maintaining our commitment to the MDBs, as well as 
coordinating holistic government support, will further our 
mission to rid fragile nations across the globe of corruption 
and violence and bring principles of good governance and 
democracy.
    I recognize that we are faced with extremely difficult 
financial challenges in this country. As we work to address 
those challenges, we must remain committed to our national 
security. The United States commitment to the MDBs provides us 
the tools to promote peace and stability throughout the world 
and combat conflict through development and diplomatic 
investments. No doubt, the resources we use to honor our 
commitment today will bring far greater cost savings in the 
future and buy American security and economic prosperity.
    I thank the witnesses for coming today, and I look forward 
to your testimony.
    Chairman Miller of California. Vice Chairman Dold is 
recognized for 4 minutes.
    Mr. Dold. Thank you, Mr. Chairman.
    Secretary Lago, Rear Admiral Howard, I certainly want to 
thank you for taking the time to come and speak with us today 
about a very important topic.
    And, Mr. Chairman, I want to thank you for holding this 
hearing on how multilateral development banks impact our 
national security interests.
    This past summer, Chairman Miller held hearings that 
focused on the domestic economic benefits of fully funding our 
MDB commitments and thereby maintaining our leadership in the 
multilateral development banks. As we learned at those earlier 
hearings and as our business leaders have repeatedly 
emphasized, maintaining American MDB leadership is vital to 
promoting American exports, job growth, and economic 
prosperity.
    I am confident that we have broad bipartisan agreement that 
fully funding our MDB leadership commitments will cost-
effectively promote meaningful domestic job growth and economic 
expansion. But MDB participation and leadership also promotes 
our equally important national security interest, which is the 
focus of today's hearing.
    General David Petraeus and Commander Duncan McNabb, as well 
as Admiral James Stavridis, have previously written letters 
emphasizing the importance of American MDB leadership to the 
national security interests of our Nation. I am pleased that 
Rear Admiral Howard and Assistant Secretary Lago are here in 
person to elaborate more fully on this topic.
    But any time we discuss MDB funding, or any other spending 
for that matter, we should expressly acknowledge that we are 
now facing very difficult economic fiscal realities. And 
especially with this economic and budgetary environment, every 
dollar counts, and Americans are entitled to understand the 
economic and national security benefits that they receive for 
these MDB contributions.
    It is very important that we accurately and clearly 
communicate how much we actually spend on MDB contributions in 
exchange for these benefits. As I have mentioned before, these 
actual MDB funding costs are far less than widely believed. A 
recent poll indicated that Americans believe that the Federal 
Government spends close to 25 percent of its budget on foreign 
aid. When asked how much we should actually be spending, they 
said, maybe about 10 percent. In actuality, we only spend 
approximately 1 percent of the Federal budget on all foreign 
aid. And only a small fraction of that 1 percent would fully 
fund our MDB commitments and maintain the MDB leadership.
    All of us--the Administration, Congressional Democrats and 
Republicans--must more effectively communicate the actual 
amount that we spend on foreign aid generally and on the MDBs 
in particular. Fully funding our MDB commitments will actually 
cost far less than we have led many Americans to believe.
    We simply cannot have any meaningful impact on our deficits 
and national debt by relinquishing American MDB world 
leadership to China and other emerging nations. But 
relinquishing that leadership will diminish our economic 
prosperity and, I would argue, our national security interests 
as well.
    At the same time, for countries that receive MDB funding, 
we should have some basic standards, like cooperating with 
national and international security efforts, honoring valid 
U.S. court judgments and international arbitration orders.
    With all of that in mind, I look forward to hearing our 
witnesses elaborate on how we can effectively utilize our MDB 
dollars, not only for economic benefits but, more specifically 
today, for our national security interests.
    With that, Mr. Chairman, I yield back.
    Chairman Miller of California. I would like to recognize 
the ranking member and former chairman of the full committee, 
Mr. Frank, for 3 minutes.
    Mr. Frank. Thank you.
    To begin, I want to note that the chairman of this 
subcommittee and the ranking member of this subcommittee, Mr. 
Miller and Ms. McCarthy, have worked very constructively 
together in a bipartisan way, which is why the media has paid 
no attention, of course, to what they do, because good news is 
no news.
    But these are topics that could be contentious. This 
subcommittee has jurisdiction over these international 
financial institutions and has jurisdiction also over the 
Export-Import Bank. There has been a great deal of constructive 
work done. And this hearing is an example.
    I was pleased to hear the previous member talk about our 
national security interest here. Frankly, I and some others are 
critical of some of the money we are spending currently--for 
instance, in Afghanistan. A very small percentage of that money 
made available for the multilateral development banks could do 
more, I think, to protect our security.
    And I also want to say that one of the things that is very 
helpful is that, when I began working on these institutions 
earlier, there was a great deal of contention because they were 
seen as having a very rigid ideological view about the 
countries they dealt with. I congratulate the leaders of the 
World Bank and the International Monetary Fund and the other 
banks; they have gotten much more flexible. I think things have 
worked much better. No more pictures of international financial 
institutions standing, arms crossed, over a foreign leader, as 
we saw, although it was with the IMF and not one of these.
    And I am particularly pleased that we had comments from 
General Petraeus, and that we have comments today again from 
people in the military. This does protect our national security 
in a very, very real way. And it is also something about which 
we can feel good. It is the most efficient use, I believe, of 
our dollars to alleviate misery in the world. And if you are 
going to alleviate misery while at the same time protecting 
security, advance human progress while making the world more 
stable, that is a pretty good bargain.
    So I close as I began, Mr. Chairman, by thanking you and 
the ranking member for the very thoughtful and constructive way 
in which you have worked together.
    Chairman Miller of California. Thank you, Mr. Frank.
    And expanding on that, I think we probably set a record on 
the Ex-Im Bank markup, between Mr. Frank and Ms. McCarthy. We 
worked very well together and turned out a very good bill. I 
hope we win in the Senate on our version. And I want to thank 
you for that.
    I recognize Mr. Scott for 2 minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    Developing countries represent a unique challenge to 
multilateral development banks due to the fact that they often 
are severely lagging in several statistical indexes--namely, 
gross domestic product, life expectancy, and the rate of adult 
literacy. And each of these factors contributes to the nation's 
economic development and to its long-term stability. For these 
reasons, investment in MDBs in developing countries can yield 
benefits for the nations receiving aid and for those providing 
the assistance. Progress in these areas better allows for rule 
of law and for stability in developing countries' economies..
    National security is also a consequence of increased aid to 
these nations when targeted toward a country's specific 
challenges. One example of this is a $40 million equity 
participation in the African Agriculture Fund (AAF), approved 
by the African Development Bank. AAF is designed to respond to 
the food crisis that severely impacted the continent of Africa 
in 2008 in the wake of escalating food prices and stable export 
bans. The increased support to AAF is part of a coordinated 
reaction in preventing the crisis from reversing decades of 
progress, of growth, and investment in Africa. This increase of 
support for the AAF targets one of the most important issues 
for Africa today, and that is food security.
    I believe that MBDs' support for developing countries can 
be highly effective, and their ability to do so is paramount. 
So I look forward to finding out how Congress may continue to 
support the work, particularly in the AAF. Thank you again to 
the witnesses for your testimony today and for answering our 
questions.
    And thank you, Madam Ranking Member and Mr. Chairman.
    Chairman Miller of California. Mr. Carson, you are 
recognized for 2 minutes.
    Mr. Carson. Thank you, Mr. Chairman.
    I want to first thank the chairman again for this hearing. 
Strategies and tactics employed by the World Bank and 
multilateral development banks and their approach to 
implementation of programs are of utmost importance, especially 
as they relate to national security. I am indeed interested in 
learning more about the impact the World Bank and MDBs have on 
national security. I believe it remains in the interest of the 
United States to continue to promote international peace and 
democracy.
    I agree with many of my colleagues that we need to cut our 
deficits and carefully examine our budget needs. However, this 
should not be carried out in an irrational manner, particularly 
as international aid is often linked closely with our national 
security. International aid gives the U.S. political and 
diplomatic leverage, as well as leverage over the formation of 
democratic institutions. By continuing to provide funding, the 
United States can continue to have a major role in increasing 
democratic ideals abroad and create an environment that 
strengthens democratic principles.
    Although I do agree that investments in MDBs help to 
advance the national security and economic interests of the 
United States, I want to ensure the money is actually going to 
the promotion of national security initiatives, while 
preventing financial instability.
    I applaud the Bank for its work over the years. The World 
Bank holds an important role over many aspects of the global 
economy and U.S. relations in general and around the world.
    Again, I am pleased the chairman has chosen to hold this 
hearing, and I look forward to the testimony of the 
distinguished guests.
    Thank you, and I yield back.
    Chairman Miller of California. Thank you.
    I would like to welcome our witnesses today.
    The Honorable Marisa Lago is the U.S. Department of the 
Treasury's Assistant Secretary for International Markets and 
Development. Secretary Lago directs Treasury's portfolio on 
trade and development policy, exercising financial and policy 
oversight of the multilateral development banks to ensure that 
U.S. contributions are used effectively to deliver development 
results and technical assistance.
    Welcome. It is good to have you here today.
    We are honored to have Rear Admiral Michelle Howard with us 
today. Rear Admiral Howard is the Chief of Staff for the 
Director of Strategic Plans and Policy for the Joint Staff. 
Admiral Howard supports the Director of Strategic Plans and 
Policy, enabling the Chairman of the Joint Chiefs of Staff to 
provide military advice to the President, the Secretary of 
Defense, and the National Security Council.
    Admiral Howard is a graduate of the Naval Academy and holds 
the distinction of being the first African-American woman to 
command a naval ship.
    Congratulations. That is quite a distinction.
    I understand it is extremely rare for a senior military 
officer to appear before this committee. We very much 
appreciate your willingness to testify today so that we can 
understand the national security benefits of development 
assistance. Please know that we will strive to keep the 
dialogue focused narrowly on the intersection of development 
assistance and national security.
    Rear Admiral Howard, I know you don't have a written 
statement today.
    Without objection, Secretary Lago's written statement will 
be made a part of the record.
    You are recognized for 5 minutes each, but I am going to be 
very generous in the 5 minutes because we only have two 
witnesses.
    And, Honorable Ms. Lago, you are recognized first.

STATEMENT OF THE HONORABLE MARISA LAGO, ASSISTANT SECRETARY FOR 
 INTERNATIONAL MARKETS AND DEVELOPMENT, U.S. DEPARTMENT OF THE 
                            TREASURY

    Ms. Lago. Thank you so much, Chairman Miller, Ranking 
Member McCarthy, and distinguished members of the committee. It 
truly is a pleasure to be able to testify here before you 
today.
    As both Chairman Miller and Ranking Member McCarthy 
mentioned, the 10th anniversary of September 11th reminds us 
that our safety and security rests on the dual objectives of 
defeating the dangers that we face today while preventing and 
deterring the threats of tomorrow.
    I will briefly discuss three reasons why the multilateral 
development banks are fundamentally important for our national 
security and why we should meet our commitments to these 
institutions.
    First, the multilateral development banks, which we call 
the MDBs, support stability operations in weak states that are 
central to American security. Afghanistan is a prominent 
example. In Afghanistan, the World Bank and the Asian 
Development Bank are the second- and fourth-largest donors, and 
they work closely with the United States and other donor 
nations to build critical infrastructure, like the Ring Road 
and the Uzbek-Afghanistan railroad.
    MDB investments in Afghanistan are rebuilding nearly 2,000 
miles of roads so that our security forces can access remote 
regions of the country. The MDBs are rehabilitating irrigation 
systems that serve more than 1.6 million acres of land so that 
staple crops like wheat, maize, and barley can compete against 
the lucrative lure of crops like opium. And MDBs are expanding 
the rail transport network so that Afghanis can access routes 
for national and for international trade.
    These investments by the MDBs in Afghanistan's stability 
and reconstruction have already generated 2 million days of 
employment for unskilled laborers in Afghanistan. They have 
markedly increased the crop yields for poor farmers. These 
actions help us to undermine the recruitment efforts of the 
opium cartels and of the terrorist organizations.
    The MDBs are also supporting the economic transition that 
we now see unfolding across the Middle East and North Africa. 
They are also helping to build stronger countries in fragile 
places, like Haiti and Sudan, which could otherwise spawn 
terrorism, violence, drug trafficking, and refugee flows were 
these countries, these fragile states, to collapse.
    The second way in which the MDBs contribute to our national 
security is by providing the most powerful financial leverage 
of our entire foreign aid portfolio. The multiplier effect of 
our capital contributions, which take place every 10 to 20 
years, is a great example. The last time that the United States 
contributed capital to the World Bank was a vote by Congress 
during the Reagan Administration in 1988. That $420 million 
contribution catalyzed $383 billion in the next 20-plus years. 
This is an 800-to-1 leverage ratio. And while the number itself 
is dramatic, we believe that the results on the ground are even 
more powerful. That 1988 investment helped underwrite the 
successful transition of the former Eastern bloc countries from 
communism to open democracies and to open markets.
    Finally, our international leadership, which is a key 
component of national security, is at stake if we don't meet 
our commitments to the multilateral development banks. At the 
World Bank, we are at risk of losing our unique veto power over 
changes to the Articles of Agreement. These Articles of 
Agreement govern critical issues such as membership in the 
bank, the leadership of the bank, and the composition of the 
board.
    Were we to miss our payment deadline at the African 
Development Bank, we would effectively forfeit our single seat 
on the board of directors. We would need to be sharing it as 
part of a constituency with other countries.
    At the European Bank for Reconstruction and Development, we 
would fall from the single largest shareholder to number six. 
And this would be occurring at the time that this institution, 
at the urging of the United States, is poised to play a vital 
role in the Arab Spring.
    And across all of these institutions, were the United 
States to cede its shareholding by not meeting our commitments, 
we know that China and other emerging donors stand ready to 
purchase our shares. And they would be strengthening their 
influence at the same time that ours would be waning.
    We believe that these pending requests to recapitalize and 
replenish the multilateral development banks are of the highest 
priority and serve as a cornerstone of America's national 
security strategy.
    Thank you.
    [The prepared statement of Assistant Secretary Lago can be 
found on page 22 of the appendix.]
    Chairman Miller of California. Rear Admiral Howard, you are 
recognized for 5 minutes.

 STATEMENT OF REAR ADMIRAL MICHELLE HOWARD, CHIEF OF STAFF TO 
 THE DIRECTOR, STRATEGIC PLANS AND POLICY, J5, THE JOINT STAFF

    Admiral Howard. Thank you, Chairman Miller, Ranking Member 
McCarthy, and distinguished members of the committee for 
allowing me the opportunity to appear before you today.
    Our combatant Commanders and the Chairman of the Joint 
Chiefs of Staff have been united in stressing the vital role of 
the multilateral development banks, the role that they play in 
the whole-of-government approach to ensuring our Nation's 
security.
    The former Commander of Central Command, General Petraeus, 
and the Commander of Transportation Command, General McNabb, 
highlighted the importance of the Asian Development Bank and 
its efforts in Afghanistan. They stated that their support, the 
Asian Development Bank's support, to ongoing projects is vital 
to the success of U.S. strategy in the theater and across the 
region.
    Admiral Stavridis, the current European Command Commander 
and former Commander of SOUTHCOM, outlined the importance of 
the role of the Inter-American Development Bank in Latin 
America, the Caribbean, and across the region during his time 
at Southern Command. As one example, the Admiral emphasized the 
IADB's central role in mobilizing international support for 
proven poverty-alleviation programs that directly contribute to 
local and regional stability by assisting more than 6 million 
families in need.
    The Department of Defense sees a clear linkage between the 
four pillars of our national security strategy--security, 
values, prosperity, and international order--and the assistance 
provided by the multilateral development banks. The U.S. 
Government's security cooperation efforts rest on a stable, 
prosperous, and coherent partner nation to enable engagement 
across the elements of our national power.
    In our military/security role, we view these instruments as 
force multipliers for the Department of Defense across the full 
spectrum of operations, whether it is recovering from 
humanitarian and foreign disaster relief efforts such as those 
following last year's earthquake in Haiti or severe flooding in 
Pakistan, to major combat operations in the stability phases, 
such as those in Iraq and Afghanistan.
    As we carefully shift our major combat engagements toward 
long-term partnership and cooperation efforts across the whole 
of government, the multilateral development banks can play an 
even greater role helping to restore stability, prosperity, 
rule of law, and good order to these nations.
    From my perspective, there are two things that the banks 
bring, that our whole-of-government effort brings. In the 
Department of Defense, we are here to fight and win our 
Nation's wars. I am sure you have heard many leaders say the 
best war is the one you never fight. And so when you have 
stable and secure countries, they are less likely to go into 
conflict. And when you have secure and stable countries, you 
often don't have to deal with transnational crime. And that 
allows the Department of Defense to focus on its core mission.
    But also, then, when we have to fight and then you want to 
help rebuild that country, our role is to help set the security 
so that we can help the country reconstruct. We have great 
expertise in terms of doing fundamentals like training police 
and securing the locals. But when it comes to governance, when 
it comes to infrastructure, it is not the Department of Defense 
that is going to put power grids in place or build roads. And 
it is that permanent infrastructure that allows a country to 
become stable, that facilitates the economy, that facilitates 
trade, that facilitates education of the people. And it is that 
infrastructure that allows for the people to have a decent 
life, to feel secure, and to have good governance. And so there 
is this complementary effort, working with our interagency 
partners, that has to go on in order for us to come out of that 
security role and return home.
    I hope my participation today will provide the information 
and insight that the committee seeks, and I hope it will be 
helpful in determining its course of action regarding these 
institutions. So thank you again for allowing me this 
opportunity to appear.
    Chairman Miller of California. Thank you, Rear Admiral 
Howard.
    There is a lot of debate around Congress about downsizing 
government and avoiding spending dollars in areas we don't 
really need to spend them. And one question that is asked of me 
is, since we are in tough economic times, why is it important 
for the United States to remain in a leadership role in the 
MDBs; why can't we just be another member country? I would like 
to hear your opinion on that question.
    Ms. Lago. Gladly.
    Obviously, we are very aware of the challenge of these 
economic times. And we actually think that needing to stretch 
every dollar further argues in favor of supporting the 
multilateral development banks.
    As I mentioned, they leverage our dollars in two different 
ways. One is that each dollar that we contribute brings in 
dollars from other donor nations, so our dollars are combined 
with those from the other major donors. In addition, these are 
banks, and so they lend out funds for development-oriented 
projects, but, as the funds are repaid, they are then available 
to be lent out again.
    And so we think that, as an economic proposition, the MDBs 
are the most highly leveraged form, the most cost-effective 
form of foreign financial assistance that we can provide.
    Chairman Miller of California. We have seen a lot of unrest 
in Libya, for example. Other countries, such as China, would 
like to take our position in many areas.
    Rear Admiral, have you seen much of an influence of China 
in Libya, for an example?
    Admiral Howard. Particularly in this job, where I have had 
a global perspective, it has become clear to me that just as we 
are globally dispersed, China is globally dispersed. And I have 
come to believe that where we are, there is China; where we are 
not, there is China. And as we were monitoring the collapse of 
Libya, it was striking to discover that the Chinese had to 
evacuate 30,000 citizens, because they are ubiquitous 
throughout particularly Africa.
    They will go in and provide projects on their own terms, 
where they--for example, we visited the African Union. They 
were building the African Union a new headquarters. But when 
they come in, they bring in their own labor, they bring in 
their own materials, and they completely control all the 
construction, which means there is no benefit to the local 
economy when they do something like that.
    And then, often, when they come in to do something like 
mining in a country, they will make sure that it is on terms 
where they are able to extract the natural resources, and the 
country no longer has the benefit of those natural resources.
    So they come in and use their influence differently, and 
not necessarily always to the benefit of the country.
    Chairman Miller of California. If we decided not to 
contribute our full share, and Russia and China decided to, how 
would you think that would impact our long-term national 
security?
    That is a tough question, I know, but it is a real--
    Admiral Howard. It is a fair question, yes.
    Chairman Miller of California. --issue that could occur.
    Admiral Howard. As our interagency partner, whatever DOD 
needs to do, wherever we are, and if we are in an area like 
Afghanistan or Iraq and we need to help stabilize, as our 
interagency partner, we in that agency can go to Treasury. Then 
there is this voice in the multilateral banks that says, ``We 
need to help bring roads and infrastructure, and we need focus 
on this country.'' So their ability to support us is there.
    If there is no U.S. voice, I don't know, as a member of 
DOD, that their ability to support us is there. They have the 
ability to say, ``This is important, this country is in need, 
and it aligns with the work that DOD does.'' If Russia or China 
have a greater say, as I have watched even in the last year in 
this job, how U.N. voting goes, it is clear we have different 
desires and outcomes for what goes on in a country.
    Chairman Miller of California. Thank you.
    Ms. Lago, would you like to expand on that?
    Ms. Lago. Yes. If I could build on the Admiral's comments, 
it is impossible to travel in Africa without seeing the 
presence of China. During my travels to Ethiopia, to Tanzania, 
to Ghana, one sees the Chinese road projects with Chinese labor 
on them.
    And, as the Admiral mentioned, the approach to development 
is different. In many of the countries in which the MDBs--and I 
will focus particularly now on the African Development Bank--in 
many of the countries in which it operates, the African 
Development Bank's projects are the high-water mark of 
transparency, of good governance, of accountability, of anti-
corruption measures. This is important for the projects 
themselves, but also for the countries themselves, that they 
see this example of how development should occur.
    I will use a very, very current example of South Sudan. One 
looks at this new country that has its entire development 
future ahead of it. It is a country that is rich in a natural 
resource. And as we, as the African Development Bank, as the 
World Bank looks at how we would assist this nation, there will 
be a focus on public financial management, on transparent 
accounting for the oil revenues.
    And so, were we to cede our voice in the MDBs, we would 
lose our ability to influence the direction of development in 
countries that are so important to our national security, both 
for the promise that they hold going forward, but also, as the 
Admiral mentioned, if these countries decay, it then becomes a 
problem for the United States and, in particular, for our 
military.
    Chairman Miller of California. Thank you.
    Ranking Member McCarthy, you are recognized for 5 minutes.
    Mrs. McCarthy of New York. Thank you, Mr. Chairman.
    And I thank the witnesses for your testimony.
    Listening to you--I was going to ask Admiral Howard to 
follow up on--but I think now this question that I am 
formulating actually would go to both of you.
    As we are withdrawing our troops in Afghanistan--I have 
been to Afghanistan several times. And from what I saw on my 
first trip, which was many years ago, up to more recent trips, 
the infrastructure of the country, in my opinion, was amazing, 
but we still have a long way to go.
    I guess the question I am asking is, if we do not get the 
money that is needed for the World Bank, and if we cannot do 
the work that the security and the Department of Defense needs 
to do, where do you think this country will go in the future?
    Because I have been following it, and you are absolutely 
right that people don't understand that China is sometimes 
right behind us, and sometimes they are in front of us. And 
they have a strategy to go in, take the minerals, take the 
resources, and the country will be left with nothing.
    So please go into a little bit more detail on why, with our 
leadership, we need to pay our dues and why it is so important 
that the American people understand that this is something that 
we can't really fool around with. This is about our values, 
this is about our leadership, and it is at stake. And it is 
something that we need to do.
    Admiral Howard. Thank you, ma'am.
    Both of you--Chairman Miller and you--both talked about 9/
11. And you have to think about Afghanistan and the way the 
country was in order for al Qaeda to go in there and have a 
safe haven. So when you don't have good governance, when you 
don't have respect for rule of law, when you have ungoverned 
territories, those areas have a tendency to become safe havens 
for people who would do ill against this country.
    My job is to protect this homeland. During my career time, 
many of the threats for this homeland come from far away. And 
now we live in an era where people are willing to travel and do 
many amazing things to attack this country. And so, every time 
you have a country that is not stable, it is going to be a 
breeding ground. The worst case is terrorists, but what about 
transnational crime?
    And when you have a country where criminality forms because 
there is not good governance, that, too, ends up drawing in 
DOD, even when we are not pulled into conflict. In 2009, I was 
the counter-piracy task force commander. Somalia is a failed 
state. This is not about--we are not fighting a war in Somalia, 
but we sure are off the shores fighting crime. And we have to 
be there. I was the task force commander during Maersk Alabama. 
That is an American citizen that we rescued.
    But think about it. We are now committing ships to fight 
pirates because of a failed state and because the piracy is a 
criminal endeavor. How much better, then, if we didn't have to 
commit those ships and they could be doing other missions--
ballistic missile defense?
    So, in either case, whether that area becomes a haven for 
terrorists or a breeding ground for criminals, in many ways it 
either becomes a threat to this country or it pulls DOD away 
from a more focused area in protecting this country.
    Thank you.
    Ms. Lago. If I could build on the Admiral's comments by 
focusing specifically on Afghanistan, in my opening remarks, I 
mentioned the Ring Road and the Afghan-Uzbek railroad. Those 
are two connections that are critically important for military 
purposes and also for the civilian population to have an 
alternative to the opium trade.
    But there are other initiatives that are under way that go 
toward this longer-term building of a state. One that I would 
highlight is the power rehabilitation project. People in Kabul 
can now take for granted that they have reliable electrical 
power--something that we just take for granted in the United 
States, that we take for granted in developed nations.
    A second project is focusing on the rural areas of 
Afghanistan, which is the largest part of the country, and it 
is called the National Solidarity Project. This touches 70 
percent of the rural communities and sets up local community 
councils, which then focus on very small-scale, very local 
infrastructure projects, many of them having to do with access 
to drinking water. Through this National Solidarity Project, we 
are putting in place the roots of a government in a country 
that didn't have just this basic system of community 
organizing.
    So those are two examples in which we are preparing the 
country, in which the MDBs are preparing the country for life 
after military engagement.
    And, again, as I had mentioned in my opening statement, the 
World Bank is the second-largest donor in Afghanistan after the 
United States. The Asian Development Bank is the fourth-
largest. And we are able, the United States is able, because of 
our large ownership share, because of our influence in these 
organizations, to direct their resources to Afghanistan and 
also to Pakistan--areas that are of key importance to us from a 
national security perspective.
    Mrs. McCarthy of New York. Thank you.
    Chairman Miller of California. Vice Chairman Dold is 
recognized for 5 minutes.
    Mr. Dold. Thank you, Mr. Chairman.
    Secretary Lago, I would like to, if I could, spend some 
time on Argentina. I know that certainly some of my 
colleagues--Mr. Manzullo, Mr. Carnahan, Mr. Mack, and many 
other Members--as well as many Americans across the land share 
my concerns about Argentina and any similarly situated 
countries receiving MDB funding.
    Many of us believe that MDB funding recipients should have 
some respect for the rule of law--Admiral, you talked about 
that a little built earlier in some other testimony--and should 
be cooperating in our national and international security 
efforts.
    My understanding is that the Financial Action Task Force 
has routinely given Argentina very poor operations for any 
anti-money-laundering controls and terrorism-financing 
controls, to the point that task-force member governments have 
argued that Argentina should be blacklisted, along the lines of 
Iran and North Korea.
    And after intentionally defaulting on its sovereign debt, 
my understanding is that Argentina is now contesting roughly 
170 related lawsuits and refuses to honor over 100 related U.S. 
court judgments. Finally, I understand that Argentina has 
ignored valid international arbitration awards that were 
rendered by the World Bank's dispute resolution panel, even 
though Argentina had previously agreed to comply with those 
arbitration orders.
    Meanwhile, Argentina holds well over $50 billion in 
reserves and has also received many billions in MDB funding. 
Clearly, this Argentina situation just doesn't make sense to 
many Members of Congress and, I would argue, doesn't make sense 
to many Americans who understand what is going on.
    So could you please let us know what the Administration is 
doing to help prevent MDB funding for countries like Argentina 
who repeatedly ignore the security obligations, who have 
defaulted on sovereign debt, even though they have the ability 
to pay, or who have refused to honor U.S. court judgments and 
valid arbitration awards?
    Ms. Lago. Thank you, Congressman, for raising the issue of 
Argentina. We share the very serious concerns that you raised 
about Argentina's actions in a variety of areas, including its 
failure to honor its ICSID awards--that is, the World Bank 
arbitration process that you had mentioned. But we also share 
concerns about the country's unwillingness to engage with its 
creditors, its unwillingness to engage with international 
institutions. We find Argentina's approach particularly 
troubling because, if you look at Argentina's per capita 
income, it falls squarely within the ranks of middle-income 
countries.
    In light of these concerns, the United States will oppose 
lending to Argentina in the two MDBs in which Argentina 
participates--that is, the World Bank and the Inter-American 
Development Bank. We will make exceptions in those rare 
circumstances when the proposed loan would be targeted very 
effectively and very narrowly on very poor and vulnerable 
populations, because we don't believe that they should be 
suffering because of their country's activities.
    We already put this policy into practice. On the 14th of 
September, a proposal came before the Inter-American 
Development Bank. It was a proposal for a $230 million loan. It 
was called the Provincial Agricultural Services Program, a 
pretty traditional type of loan program for the IDB. It would 
have been focused on boosting productivity in the agricultural 
sector. We voted ``no'' to send a message of our concerns about 
this.
    We will continue to vote ``no'' for loans to Argentina in 
the MDBs. And we will look forward to engaging with other 
donors who may share our concerns to send a message that we 
value ICSID, and we believe that countries need to live up to 
their international obligations.
    Mr. Dold. I thank you, Madam Secretary. And I certainly 
hope that message is getting through loud and clear to 
Argentina and other nations that are not standing up to their 
obligations.
    I would like to, if possible, kind of change the direction 
to just a different region of the world right now. My 
understanding is that the MDBs are poised to approve about $2 
billion in new infrastructure lending to Egypt in the next 
year.
    Obviously, with what has been going on in Egypt as of late, 
the situation in the Middle East, certainly with one of our--I 
would say our one true ally in the Middle East, with the State 
of Israel, and the idea that Egypt potentially is rattling its 
saber, saying it might not hold the treaties that it has held 
for the last 3 decades with the State of Israel, what role can 
the MDBs play and the United States influence in the ability 
for infrastructure lending to make sure that they are obligated 
to or encouraged to hold their end of the bargain on those 
treaties and help, I believe, keep peace in the Middle East?
    Ms. Lago. As you mentioned, both the United States and the 
MDBs are very focused on the emerging Arab Spring, with Egypt 
and Tunisia obviously being the first two of the countries.
    The MDBs have pledged significant amounts, far in excess of 
what the United States bilaterally could, to these countries. 
But we are working very closely to assure that the funds are 
part of a transition within these countries, that the funds 
will lead to growth, sustainable growth, and economic 
opportunity across the spectrum. The funds are not going out 
all at once. We recognize that in both countries we are 
currently dealing with transitional governments. And so the 
MDBs will continue to engage, as the United States is 
bilaterally.
    A key part of what the MDBs bring to a region like the 
Middle East, like Egypt in particular, is expertise. It is not 
just the dollars, it is the know-how--the know-how with respect 
to governance, the know-how with respect to public financial 
management. And they also bring an approach to development that 
relies on, or is based on, anti-corruption measures, 
transparency in how funds are spent, accountability for 
development impact. And I believe that all of these will be 
sending the right message to the Egyptian authorities and, 
ultimately, to the elected Egyptian Government.
    Mr. Dold. Thank you.
    My time has expired, Mr. Chairman.
    Chairman Miller of California. It looks like we have a vote 
coming up, but we have a little more time. I will give myself a 
few minutes, and we will try to give each of us a couple of 
minutes and see if we can get another round of questions in.
    Country-specific questions: If we, let's say Egypt, we are 
dealing with infrastructure lending in the next year. Tunisia, 
fast disbursing budget support to assist the government reform. 
In Libya, the World Bank recognized the Transitional National 
Council, Libya's interim anti-Qadhafi government, as the Libyan 
Government authority under the World Bank's de facto government 
policy. In Haiti, we are promoting development of an 
international relationship based on the natural disaster they 
have incurred. And in Africa, humanitarian aid in Africa that 
is going on.
    How, specifically, do you believe in the long run that 
benefits this country? And you can hit lightly, if you want to, 
on each. But those are five different areas; I don't have time 
to take 2 minutes on each.
    Admiral Howard. This gets back to my earlier statement that 
when countries develop down a path where they become secure and 
stable, it prevents them from becoming havens for criminals or 
for terrorists. And you have hit every part of the world where 
we see some countries that aren't doing as well that are 
dealing with transnational crime or with terrorists.
    So our ability--for example, in Africa, the Department of 
Defense has been focusing on providing security assistance but 
training, for example, in West African nations like Nigeria. 
Our role, then, would be to help them develop something like 
their coast guard and do training, and then go visit them and 
reinforce that military relationship.
    In the same area, the multinational banks' role would be to 
help build up the port systems so that commerce can thrive, so 
that those countries develop revenue and people have jobs, and 
so that the country is on a firm standing and people have other 
choices than turning to crime.
    So those types of efforts can be very complementary to what 
we do in DOD in making sure that nations are secure.
    Chairman Miller of California. Ms. Lago, would you like to 
respond?
    Ms. Lago. I would focus on two very different countries 
that you had mentioned--the first being Libya.
    In Libya, we are confronting a country that has no 
government mechanisms and also has tremendous wealth in its oil 
wealth. And so the way the MDBs are approaching Libya is, how 
can we send the technical assistance that is needed to create 
the basics of government, to create a public financial 
management system that will allow the Government of Libya to 
operate in a transparent way so that the country, with its 
wealth, will not need to be dependent over the long term on 
development assistance.
    Libya is also another example of what the Admiral had 
mentioned, that instability in one country can lead to regional 
instability. So, the importance of quickly putting in place 
government structures, allowing the people to have respect for 
their government and the expectation that their government will 
provide them water, sewage treatment, electricity. And that is 
where the MDBs, with their expertise both in public financial 
management and governance and in infrastructure development, 
can be invaluable.
    Haiti: In Haiti, what the IDB, in particular, has done is 
remarkable. The IDB was able to cancel all of its debt to 
Haiti. It was the single largest creditor of the nation. It 
also agreed that, through the fees that are generated by the 
countries borrowing from the IDB, they would direct $200 
million a year for 10 years, a total of $2 billion, to Haiti. 
This was a remarkable internal redirection of resources, which 
was driven by the United States. As the largest shareholder, we 
were instrumental in developing this mechanism and in gaining 
the support of the board of directors. Without funding for the 
GCI, this is what would be put at risk.
    With respect to what would happen on the ground were 
resources not to continue to float to Haiti, we would see the 
risk of significant displaced populations. The original place, 
or the initial place, that the displaced population could be 
expected to go is the Dominican Republic, which shares the same 
land mass. But we would run the risk of large waves of refugees 
looking to resettle within the Caribbean to the United States, 
creating a humanitarian crisis and also the possibility of a 
national security crisis.
    Chairman Miller of California. Thank you.
    Ranking Member McCarthy, you are recognized for 2 minutes 
and however long the response takes.
    Mrs. McCarthy of New York. Thank you.
    Number one, before we end this hearing, I want to just say 
thank you to both of you. I happen to think that the answers 
were very concise and very easy for the American people. 
Believe it or not, sometime around 2 o'clock this morning, this 
will be on TV, and there are actually people who do watch it, 
besides Members of Congress.
    Chairman Miller of California. We are sleeping.
    Mrs. McCarthy of New York. Right, we are sleeping.
    But anyway, Secretary Lago, we talked about--again, I am 
going to go back to one of the things that I feel is so 
important--why we need to continue to take the lead. If you 
could talk about some of the reforms that we have been able to 
integrate into the Multilateral Development International Bank 
and what a difference that has made, or if we weren't there, if 
you can answer that, if we weren't there, which way it might 
have gone.
    Ms. Lago. Thank you, Congresswoman, for raising that, 
because in dealing with the multilateral development banks, 
obviously the focus is on the development that occurs on the 
ground. But the United States is extremely active in working 
with the banks in making sure that how the development occurs, 
in the ``how'' of the development. Because we believe that to 
be sustainable, development has to take place in an accountable 
way and a transparent way.
    We knew that these institutions needed more capital, and we 
took advantage of the negotiation process for the general 
capital increase to drive through a series of reforms. Many of 
these reforms came about as a result of our discussions with 
Members of Congress who had taken a long-term interest in the 
institutions. We also consulted extensively with civil society, 
with the national organizations, the nonprofits that have an 
interest in development to hear what concerns they saw.
    There are a couple of key changes that have come to the 
institutions. The first one that I would highlight is 
transparency about what the banks do. It used to be that, at 
the World Bank, they had a positive list: ``We will post on our 
Web site only those documents that appear on this list.'' They 
have now changed the presumption, and this is an instance where 
a negative list is better. The World Bank and the other 
regional development banks now say, ``We will post on our Web 
site every document except for a narrow list''--sensitive 
personnel items, things that are not appropriate to be posted. 
This is a revolutionary approach to transparency in how the 
banks operate.
    We also put in place stronger financial accountability. We 
wanted to be sure that the loans that were being made to the 
middle-income countries were properly priced so that the bank, 
when it got repaid, would have resources to be able to make 
more loans but also to redirect funds to the poorest countries. 
The example that I just gave of Haiti is one such example.
    Another reform that we put through was cross-debarment. If 
one of the banks has had problems with a contractor and has 
debarred the contractor, that information is shared across all 
of the multilateral development banks, and that contractor is 
debarred for all, so a bad actor can't move from one bank to 
the other.
    Perhaps the most important is impact evaluation. Banks now 
have mechanisms to be able--are required to evaluate the impact 
on the ground of their projects. That is coupled with, in the 
banks, a complaint mechanism. If a community believes that they 
are seeing fraud, if they believe that the bank's environmental 
and social safeguards aren't being followed, there are 
independent complaint mechanisms.
    All of these are, for us Americans, the way we expect 
business to be done, but these banks in the countries in which 
they operate are beacons, because of the fact that we have been 
able--because of the fact that they operate so well. And 
through this GCI, we have been able to implement these even 
more recent reforms.
    Mrs. McCarthy of New York. Thank you.
    Chairman Miller of California. Vice Chair Dold, you are 
recognized for 2 minutes.
    Mr. Dold. Thank you, Mr. Chairman.
    Secretary Lago, going back to you, there is this sudden 
instability in the countries like Libya or Egypt, which have 
seen, obviously, with the Arab Spring and what has been going 
on. What mechanisms do the MDBs employ to reduce that 
instability? And on a follow-up right there, how quickly do the 
MDBs respond to sudden regional or national volatility?
    Ms. Lago. If I could take the second question first--
    Mr. Dold. Of course.
    Ms. Lago. Thank you. The MDBs are not the humanitarian 
agencies, which go in as the initial relief workers, but there 
was a recognition that the MDBs needed a rapid response 
mechanism. And so, the World Bank and the African Development 
Bank have set up rapid response mechanisms.
    The strong suit of the MDBs, their comparative advantage, 
is on the governance building, the building up of the systems 
of government, and also on infrastructure. And infrastructure, 
by its very nature, is a longer-term proposition.
    How do the banks do it? They have a toolkit. One is, it is 
important to emphasize the staff of these institutions. They 
are the world's leading experts on agricultural development, on 
building wastewater-treatment facilities in rural areas, on 
water projects, on basic transportation. And, frequently, 
countries are looking in the very short term for that type of 
expertise. The other things that the banks bring, as is evident 
in the fact that they are banks, is the financing, is the 
ability to finance these large projects, projects at a scale 
that no individual country, including the United States, would 
be able to finance. And so those are the tools that they bring 
to bear.
    The MDBs work very closely with the United States' 
bilateral assistance efforts and with the humanitarian 
agencies. We will use Haiti as an example, where the MDBs were 
very quickly there, working on rubble removal, working on 
rebuilding schools, working on rural water systems--areas that 
have been their traditional areas of expertise.
    Mr. Dold. I want to thank you both for taking the time to 
come. I have other questions, but we are out of time, so I am 
going to yield back.
    Thank you, Mr. Chairman.
    Chairman Miller of California. I would like to thank the 
Honorable Marisa Lago for your testimony and Rear Admiral 
Michelle Howard for your time, talent, and your service to this 
great country. We really appreciate it. The testimony was 
invaluable and will go a long way to reauthorizing our efforts 
with the World Bank.
    I would like to submit three items for the record, without 
objection: first, a letter from Treasury Secretary Geithner and 
Secretary of Defense Panetta about the vital role the MDBs play 
in promoting U.S. national security, including deterring 
emerging threats, supporting foreign and national security 
goals, and fostering global economic growth.
    Second, a memorandum to the Secretary of the Treasury from 
General Petraeus when he was Commander of the United States 
Central Command and General McNabb, Commander of the United 
States Transportation Command. The memo states that, ``The 
Asian Development Bank plays an important apolitical role in 
getting countries to work together for common interests. United 
States engagement in the Asian Development Bank contributes to 
our strategic interest in the region.''
    And third, a memorandum to the Secretary of the Treasury 
from Admiral James Stavridis, Commander of the United States 
European Command. The memo states, ``The Inter-American 
Development Bank plays an important role in the region, 
contributing directly to the U.S. strategic interest.''
    The Chair notes that some members may have additional 
questions for the 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 response in the record.
    This hearing is officially over.
    [Whereupon, at 3:10 p.m., the subcommittee was adjourned.]

                            A P P E N D I X



                           September 21, 2011






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