[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                    EVALUATING U.S. CONTRIBUTIONS TO 
                    THE INTERNATIONAL MONETARY FUND 

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

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 24, 2013

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-17

                         U.S. GOVERNMENT PRINTING OFFICE 

80-883 PDF                       WASHINGTON : 2013 



                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             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            STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota          DAVID SCOTT, Georgia
KEVIN McCARTHY, California           AL GREEN, Texas
STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
BILL POSEY, Florida                  GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
    Pennsylvania                     ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri         GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan              JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin             TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia                BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York           DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
               Subcommittee on Monetary Policy and Trade

                  JOHN CAMPBELL, California, Chairman

BILL HUIZENGA, Michigan, Vice        WM. LACY CLAY, Missouri, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             GWEN MOORE, Wisconsin
STEVAN PEARCE, New Mexico            GARY C. PETERS, Michigan
BILL POSEY, Florida                  ED PERLMUTTER, Colorado
MICHAEL G. GRIMM, New York           BILL FOSTER, Illinois
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        DANIEL T. KILDEE, Michigan
ROBERT PITTENGER, North Carolina     PATRICK MURPHY, Florida
TOM COTTON, Arkansas



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 24, 2013...............................................     1
Appendix:
    April 24, 2013...............................................    23

                               WITNESSES
                       Wednesday, April 24, 2013

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

                                APPENDIX

Prepared statements:
    Brainard, Hon. Lael..........................................    24

              Additional Material Submitted for the Record

Clay, Hon. William Lacy:
    Letter to Speaker Boehner and Majority Leader Reid from the 
      Bretton Woods Committee....................................    28
    Letter in support of the IMF legislation.....................    30
Brainard, Hon. Lael:
    Written responses to questions submitted by Chairman 
      Hensarling.................................................    35
    Written responses to questions submitted by Representative 
      Grimm......................................................    37
    Written responses to questions submitted by Representative 
      Royce......................................................    41


                    EVALUATING U.S. CONTRIBUTIONS TO
                    THE INTERNATIONAL MONETARY FUND

                              ----------                              


                       Wednesday, April 24, 2013

             U.S. House of Representatives,
                           Subcommittee on Monetary
                                  Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room 2128, Rayburn House Office Building, Hon. John Campbell 
[chairman of the subcommittee] presiding.
    Members present: Representatives Campbell, Huizenga, 
Pearce, Mulvaney, Pittenger, Cotton; Clay, Peters, Foster, and 
Carney.
    Also present: Representative Royce.
    Chairman Campbell. The Subcommittee on Monetary Policy and 
Trade will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time. And I will note that I am 
likely to be declaring a recess because we are estimating that 
votes are going to be called between 2:25 and 2:40 p.m.--we 
will recess while that vote series goes on. There should be no 
more than two or three votes, and then we will reconvene the 
hearing after that.
    Also, without objection, members of the full Financial 
Services Committee who are not members of this subcommittee may 
sit on the dais and may participate in today's hearing.
    So, with that, I would like to turn to opening statements. 
And I will recognize myself for 5 minutes--I won't use all of 
it--to recognize Under Secretary Brainard, and to thank you for 
being here. It is good to see you this afternoon.
    We are here to talk about the International Monetary Fund 
(IMF), and the potential transfer of money from the New 
Arrangements to Borrow, known as the NAB, to the quota for the 
IMF, which is an amount I will call $64 billion, since some 
estimate it at $63 billion and others call it $65 billion. So, 
I will call it $64 billion. And apparently, the Administration 
is interested in this. But today, I think we have a lot of 
questions about this. And I don't think that anyone up here, to 
my knowledge, has their mind made up one way or the other.
    But I do believe that we have a lot of questions. And 
amongst them are this is part of an agreement that the 
Administration made, it is my understanding, in 2010. But until 
the President's budget came out this year, there was never any 
formal request for this transfer. So if this agreement was made 
in 2010, and if this is a priority for the Administration, why 
have there been no other requests, nothing formal about this 
for 3 years until today, and even until last month.
    And even though there is something within the President's 
budget, it could be argued that there still isn't a formal 
request, and it could be argued to be a tepid request in one 
sort or another.
    Other questions that are raised are about why the money 
really is necessary: Why does the IMF need to expand the 
capital that it has?
    The IMF has nearly $400 billion of borrowing capacity 
available to it today. Does it really need another $500 billion 
when it is not using the $400 billion that it has? And if so, 
are there additional amounts that may be needed in the future 
beyond that amount as well?
    We have to look at all this in the context of our budget, 
of the budget of the United States Government. And we all know 
we have had a sequester. Some of us were late getting flights 
here because of that; whether that is justified or not is a 
matter of debate. But certainly the sequester is a matter of 
great discussion here in Washington and the Federal budget and 
reductions in the Federal budget, et cetera. And although this 
is often characterized as an exchange of assets, the United 
States' contribution to the International Monetary Fund cannot 
be considered as a zero cost or a benign contribution, or 
something that has no impact whatsoever on the United States, 
on our budget, or on how much money we have to borrow through 
Treasury bills in order to finance things.
    So I think we have to look at all this in the context of 
the other things that we are doing now in the International 
Monetary Fund and that we are doing with the U.S. Government as 
well.
    Further, recently in the continuing resolution, there was 
$4.6 billion which wound up being appropriated for the World 
Bank. Now, this was an amount which had never been requested, 
there had never been a hearing, never any exposure whatsoever. 
I still don't even, frankly, know entirely what it is because 
it never had any exposure or anything at all to this committee 
whatsoever and was merely stuck in by Senate Appropriators in 
the continuing resolution and then passed. That is not a 
correct way or a good way or a proper way to do this sort of 
appropriation, this sort of authorization with this sort of 
spending of U.S. taxpayer funds. So I would be remiss if I 
didn't mention that seeing that thing go on in the last month 
or so has left some of us up here with a not particularly good 
taste in our mouth for what exactly are the Administration's 
plans and why are they not being as forthcoming and as direct 
and as open with those plans as perhaps they could be.
    With that, I will now yield 5 minutes to the ranking member 
of the subcommittee, the gentleman from Missouri, Mr. Clay.
    Mr. Clay. Thank you so much, Mr. Chairman, and thank you 
for holding this hearing entitled, ``Evaluating U.S. 
Contributions to the International Monetary Fund.''
    Also, I want to thank Treasury Under Secretary for 
International Affairs Lael Brainard for appearing today to 
discuss the President's Fiscal Year 2014 budget request. As we 
all know, the IMF was born at the Bretton Woods conference in 
1944, post World War II, in the Great Depression, to address 
the concerns of allied nations. And the United States in the 
Bretton Wood Act requires congressional authorization to change 
the U.S. quota or shares in the Fund or for the United States 
to vote to amend the Articles of Agreement of the IMF or the 
World Bank. The U.S. Congress thus has veto power over major 
decisions at both institutions.
    Currently, the Administration has requested to authorize 
governance reforms at the IMF that increase U.S. quota share by 
$63 billion. Quotas are the primary national contribution to 
the IMF and are the foundation of country representation at the 
IMF. The country's quota determines subscriptions, access to 
financing, and voting power. The total of all member countries' 
quota subscriptions is $238 billion; special drawing rights, 
approximately $376 billion. In regards to voting power at the 
IMF, U.S. voting share is 16.75 percent. The United States is 
the only country able to unilaterally veto major IMF decisions. 
And the functions of the IMF are surveillance of financial 
monetary conditions in its member countries in the world 
economy, financial assistance to help countries overcome major 
balance of payment problems, and technical assistance and 
advisory services to member countries.
    Due to the recent financial crisis, Congress has become 
more aware of world economics. There are many issues that 
Congress may want to consider including: should the IMF act as 
an international lender of last resort; are the resources of 
the IMF sufficient to meet its goal; and how can IMF 
surveillance be more effective?
    Again, Mr. Chairman, thank you so much for this hearing. I 
look forward to the witness' testimony.
    Chairman Campbell. Thank you, Mr. Clay.
    The gentleman yields back. I now recognize the vice 
chairman of the subcommittee, Mr. Huizenga from Michigan, for 5 
minutes.
    Mr. Huizenga. Thank you, Mr. Chairman, and Ranking Member 
Clay as well for holding this hearing today. I know everyone 
recognizes the role that the IMF plays as far as global 
financial surveillance, technical assistance, and of course, as 
we have seen, lending, and a lot of it. And although the IMF 
membership is comprised of 188 countries, the United States is 
a contributor of about 17 percent of its budget.
    There are a lot of us who fear that if there was a European 
default of some sort, it would put taxpayers on the hook for 
that 17 percent. And, frankly, that is just not acceptable to 
me. It is not acceptable to my constituents in the Second 
District on the west side of Michigan.
    We simply have to look at the record. The IMF is--I would 
say most have recognized it as not always having its most 
shining moments in most eyes. Sixty-two percent of their total 
commitments are currently to Europe as a whole. Despite the 
IMF's financial commitments to Europe, obviously stagnation has 
continued to constrain the European economy. Optimism that it 
was headed toward a recovery has been punctured by continued 
struggles in Greece, of course, Cypress, the botched bailout 
there, and the court ruling against the austerity measures in 
Portugal, and certainly a lot of political pushback on that.
    Most everyone believes that Europe certainly has the 
capacity and the capability to solve these issues on their own. 
But they simply don't seem to be willing to do that. And that 
is where I think so many people have that concern.
    Every dollar that the Congress sends to the IMF implicitly 
expands the IMF's mandates from countries struggling to find 
that economic footing to nations in danger of squandering their 
inheritance. To be more direct, I believe the use of IMF as a 
backstop for advanced European countries calls into question 
whether the institution is becoming an enabling crutch instead 
of a helping hand for a lot of these countries which have gone 
through that.
    We simply have to look at what the Netherlands has done, 
and some of the other countries, contrasted with some of the 
other larger economies; some of those European countries have 
definitely put their financial house in order, and others are 
refusing to do so.
    As we know from our experiences in this country, guarantees 
can create moral hazards as well. And even for the most 
advanced nations, the freedom to succeed requires the freedom 
to fail and to get back up as well.
    What I don't understand, and I know the chairman alluded to 
this as well, is if this funding is a priority for the 
Administration, I am a little surprised and, frankly, a bit 
confused as to why it has not been more directly budgeted up to 
this point. And we will see what the Under Secretary has to say 
as well with this current budget proposal.
    But, Mr. Chairman, I appreciate that, and Ranking Member 
Clay, I look forward to this discussion. It is a meaningful 
conversation on these topics, and I am looking forward to the 
responses. So thank you. I yield back.
    Chairman Campbell. Thank you. The gentleman yields back.
    And now, I will yield 1 minute for an opening statement to 
the gentleman from Illinois, Mr. Foster.
    Mr. Foster. I hope not to use all of it. I just wanted to 
express my gratitude to Under Secretary Brainard for you making 
yourself available to me and my staff for a very good 
bipartisan meeting where I know that certainly I got all my 
questions answered and my staff was also completely satisfied. 
So I just want to thank you for really being, to my mind, very 
transparent and open about all the details that we had time to 
ask you. Thanks so much.
    Chairman Campbell. The gentleman yields back. All opening 
statements have been completed.
    I would now like to welcome our distinguished witness, the 
Honorable Lael Brainard, Under Secretary for International 
Affairs at the U.S. Department of the Treasury. She served as 
Deputy National Economic Advisor and Deputy Assistant to 
President Clinton for International Economics; held the 
position of vice president and founding director of the Global 
Economy and Development program at the Brookings Institution; 
is a former associate professor of applied economics at the 
Massachusetts Institute of Technology's Sloan School of 
Management; and was a former consultant for McKinsey and 
Company. She holds a bachelor's degree from Wesleyan 
University, and a master's and a Ph.D. from Harvard University 
in economics. I am exhausted just reading all that.
    But you will be recognized for 5 minutes to give an oral 
presentation of your testimony. Without objection, your written 
statement will be made a part of the record. I think you know 
all this, but on your table, there is a light. It will start 
out green. When it turns yellow, you have 1 minute to sum up; 
and when it turns red, please suspend. And each member of the 
subcommittee will have 5 minutes with which to ask you 
questions once your testimony is completed.
    Under Secretary Brainard, you are now recognized for 5 
minutes.

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

    Ms. Brainard. Chairman Campbell, Ranking Member Clay, and 
members of the subcommittee, thank you very much for taking the 
time to consider this important issue and for giving me the 
opportunity to discuss it with you today. On July 19, 1945, not 
far from this room, Congress provided, on a strong bipartisan 
basis, overwhelming support for U.S. participation as a 
founding member and key architect of the International Monetary 
Fund.
    Today, the President's budget request for the IMF is vital 
to preserve that leadership of the United States in the IMF. 
The budget proposal will expand the core quota resources of the 
IMF with no net new U.S. financial participation in the IMF, 
while preserving the U.S. veto, the only veto, and enhancing 
the legitimacy of the institution.
    The President's budget includes this commitment in a way 
that is fully offset and does not change the net U.S. financial 
participation in the IMF. We are open to working with you and 
other Members of Congress on any viable option to get this 
enacted expeditiously.
    Our participation in the IMF is an exchange of equivalent 
assets. And our claims on the IMF are fully secure. The IMF has 
a strong balance sheet, with a value of reserves and gold 
holdings in excess of total credit outstanding. As the world's 
preferred creditor, the IMF has an excellent repayment record 
with no history of default. The IMF has the unique ability to 
leverage strong economic reform conditions as a precondition 
for extending credit.
    We are the only country with a veto to shape major IMF 
governance and resources decisions. We should carefully steward 
this privilege, especially as emerging economies, like China, 
seek greater influence in the coming years.
    Let me touch very briefly on the three ways the IMF 
promotes American core interests. First, the IMF is the world's 
financial firefighter. When financial conflagrations strike 
beyond our shores, the IMF provides firebreaks to limit 
contagion, while helping our trading partners stabilize and 
heal their economies. By sheltering our economy from headwinds 
abroad, the IMF helps to cushion the impact on U.S. jobs, 
business investment, and household savings for college and for 
retirement.
    In Europe, the IMF has encouraged European leaders and the 
ECB to put in place a joint strategy backed by a strong 
European firewall which has enabled countries undertaking tough 
necessary reforms to clean up bank balance sheets and ensure 
ample liquidity. The IMF is now calling for a European strategy 
to boost demand and combat unemployment, which is important to 
our recovery here in the United States.
    Second, the Fund's work as peace builder helps prevent and 
mitigate the economic stresses that foster instability, 
extremism, and violence. In the Middle East, the IMF is helping 
to address longstanding impediments to sustainable and 
inclusive growth that are essential in securing democratic 
transitions in Arab Spring countries, such as Tunisia and 
Yemen, and to anchor economic stability in Jordan and Morocco. 
The United States has successfully advocated for the IMF to 
support spending for poor people in its low-income country 
lending arrangements and to eliminate Haiti's entire 
outstanding debt to the Fund, following its devastating 
earthquake, at no cost to the United States.
    Third, and finally, the IMF is a key global economic 
standard setter, setting standards for the open-market-based 
system of international trade and finance that is core to U.S. 
prosperity. When countries join the IMF, they sign up for 
important obligations that help maintain open markets and avoid 
beggar-thy-neighbor policies. The IMF releases public 
assessments of member policy frameworks to strengthen market 
discipline. The Fund helps investors better assess risks by 
setting international standards for the quality, timeliness, 
and consistency of national data reporting. Countries face 
censure when they fail to meet those reporting obligations, as 
was the case in Argentina recently. G-20 leaders committed to 
implement the quota and governance reforms late, by the end of 
last year. Today, only U.S. approval is necessary for these 
important reforms to go into effect.
    The IMF is one of the great triumphs of international 
cooperation, forged in the ashes of war in order to strengthen 
the foundations of peace. At its founding, the United States 
had more influence on the IMF's design and operations than any 
other country. Today, it is vital we safeguard that historical 
legacy in the face of rapid shifts in the global economy. Thank 
you.
    [The prepared statement of Under Secretary Brainard can be 
found on page 24 of the appendix.]
    Chairman Campbell. Thank you, Secretary Brainard.
    The Chair recognizes himself for 5 minutes for questioning.
    Let's first talk about what this costs. You talked about an 
exchange of assets, suggesting that perhaps there is little or 
no taxpayer risk or no cost to this. We are not the CBO. But my 
understanding is that if we move this $64 billion from the NAB 
account to the quota, it requires a quarter of that to be paid 
in capital, which actually requires a check from the U.S. 
Treasury. Is that inaccurate?
    Ms. Brainard. The IMF quota reserve tranche position is an 
exchange of assets. So we have a reserve position at the IMF, 
which is fully liquid and encashable. It is viewed as a one-
for-one exchange of assets, and has been for the decades that 
Congress has supported U.S. participation in the IMF.
    Chairman Campbell. Okay. I understand. But we do have to 
have 25 percent paid in capital for the quota. I understand 
what you are saying, an exchange of assets. But technically, if 
I buy this table, it is an exchange of assets, cash for the 
table. So every transaction, in a sense, is an exchange of 
assets. But we do actually have to send roughly $16 billion 
there, which will have to be borrowed. Isn't that correct?
    Ms. Brainard. The way it operates is that we have access to 
our liquid assets that sit at the IMF. And, in fact, we have 
drawn on them in the past. So, in that sense, it really is 
truly an exchange of liquid encashable assets. And it is been 
viewed for decades by Congress as something that for those 
reasons does not warrant outlays.
    Chairman Campbell. Okay. I really have a hard time--I guess 
it must be this 25 percent paid in capital because you haven't 
actually answered that particular question. But assuming that 
is correct, it is hard for me to sit here and say, all right, 
this is a $64 billion investment that somehow doesn't take any 
cash, doesn't take anything, and there is absolutely no risk to 
the U.S. taxpayer. Gosh, why don't we send them a trillion 
dollars, then? I don't think that is something that passes the 
smell test, frankly.
    Ms. Brainard. So the way that this has always been treated, 
with one exception in 2009, by Congress, is, because it is 
quite a unique arrangement, because the IMF reserve tranche of 
the United States is a liquid encashable part of our reserves, 
it has always been treated as not necessitating outlays of any 
kind.
    Chairman Campbell. Okay. Let me go on to something else, 
then. We may be disagreeing on that.
    It is also my understanding that the IMF right now has $400 
billion in available lending capacity. I believe with the U.S. 
interests and then the other countries' interests, it would 
increase their capacity by about another $500 billion. Why does 
the IMF need more money to lend when they aren't lending the 
money they have?
    Ms. Brainard. I would say, first of all, that while this is 
a very modest expansion of the overall resources of the Fund, 
it is primarily a transfer from the standing backstop, the NAB, 
to the core quota resources of the Fund. And we view that as 
important because it is in the core quota resources of the Fund 
that we have our veto and that is the core central operations 
of the IMF.
    Chairman Campbell. Okay. But why does it need it there 
potentially to loan more? Because there is a different 
threshold for loaning money out of the quota than there is out 
of the NAB.
    Ms. Brainard. For the purposes of the IMF voting shares, of 
course, it is the core quota resources of the Fund that we 
think are critically important. The second thing you asked 
about, the overall size of the Fund, the size of the Fund in 
relation to the world economy has actually slipped pretty 
considerably from closer to 1 percent of world GDP to 
approximately half of a percent of world GDP today. So our 
sense is that for the reasons that we all believe strongly, 
because the IMF is a crucial financial firefighter that 
protects our jobs, because the IMF protects U.S. national 
security, and because the IMF helps to ensure open and 
transparent international financial markets, we think it is 
important that the Fund be adequately resourced relative to the 
size of the global economy.
    Chairman Campbell. Thank you, Under Secretary Brainard. I 
want to keep myself and everybody else on time, if we can.
    Mr. Clay is recognized for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman.
    Madam Secretary, before I get into the contributions to the 
IMF, as you know, our neighbor to the south, Haiti, experienced 
a devastating earthquake on January 12, 2010, that killed more 
than 300,000 people, left over 1 million homeless, and crippled 
the ability of the Haitian government to provide security and 
deliver services. In the wake of the disaster, the American 
people and the global community rallied in solidarity with the 
Haitian people to provide one of the largest relief efforts in 
history. As the Center for Economic and Policy Research points 
out in a recent report, despite billions of dollars pledged to 
build back better in Haiti, more than 350,000 Haitians remain 
internally displaced, and it is unclear what sustainable impact 
our funds have had. Congress has a responsibility to ensure 
that relief and reconstruction funds in Haiti are effectively 
spent to maximize long-term impact. Can you tell us about the 
status of efforts in Haiti or provide this committee in writing 
a report on the progress in Haiti since the disaster?
    Ms. Brainard. Let me just speak briefly about the parts of 
that effort that Treasury is responsible for overseeing. As you 
say, Haiti experienced a devastating earthquake, and there was 
strong bipartisan support here in Congress and certainly in the 
Administration for helping Haiti to build back better from 
that. Through the IMF, that led to full debt relief for Haiti, 
which we think was extremely important. Also, through the 
multilateral development banks, working hand in hand with our 
bilateral assistance windows through the U.S. Agency for 
International Development (USAID), we put a great emphasis on 
moving quickly to help Haitian families recover and rebuild. 
And the Inter-American Development Bank (IDB), in particular, 
we were able to secure agreement around debt relief there that 
released $200 million annually for 10 years of cash assistance, 
of grant assistance to Haiti. And we are in the third year of 
that funding today. That funding has gone toward helping to 
create more private sector employment, and trying to help 
rebuild devastated communities. We are frustrated, as you are, 
that those efforts are as difficult as they are, but we are 
very committed to continuing the hard work that needs to be 
done.
    Mr. Clay. Would you be able to supply this committee with 
something in writing assessing the progress that has been made 
in rebuilding?
    Ms. Brainard. I would certainly be happy to do so, again, 
with regard to the parts of our assistance efforts for which 
Treasury has responsibility.
    Mr. Clay. Going back to the budget request, do you believe 
that United States involvement is required to help play a role 
in balancing the world economy? Just a general question. Let me 
hear your thoughts on that, please.
    Ms. Brainard. The IMF is absolutely core to advancing 
American values and interests around the world. It is designed 
in a way that I think gives us disproportionate influence in 
the way that countries prevent and respond to financial crises. 
And, again, helping sustain the international system of trade 
and finance that is so vital to our economic system. I think if 
the United States were to walk away from this agreement, it 
would lead to other countries finding alternative arrangements 
and a devastating loss of U.S. influence in the international 
financial system.
    Mr. Clay. With the uncertainty of global economic status 
and the results of the recent financial crisis, please explain 
why the U.S. involvement with the IMF is necessary.
    Ms. Brainard. I think it is a illustrative period in 
history. In the wake of the financial crisis, which led to 
unprecedented collapses in trade around the world, in 2009, the 
G-20 leaders came together, and they asked the IMF to do more. 
And they had very strong bipartisan support from Congress in 
helping ensure that the IMF would have adequate resources to do 
that. As a result of the efforts through the IMF and through 
the other multilateral development institutions, trade was 
restored quickly, financial flows, which were collapsing in 
many emerging market countries were reversed--
    Chairman Campbell. Secretary Brainard, if I could ask you 
to wrap up?
    Mr. Clay. My time is up, and I yield back.
    Chairman Campbell. The gentleman yields back.
    They have called the votes. I think we will do one more set 
of questions here, and then we will recess at that time for 
this series of votes, and then we will come back and continue 
with Mr. Foster.
    So, right now, I will recognize the gentleman from 
Michigan, Mr. Huizenga, for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman.
    Under Secretary Brainard, do you believe the IMF has been 
successful?
    Ms. Brainard. I think the IMF has been successful in 
advancing core economic interests and values and that the right 
way to assess the value of the IMF is the extent to which we 
have seen rapid rebounds from major financial crises abroad and 
the extent to which we have managed to shelter jobs and 
investment savings here at home from those events.
    Mr. Huizenga. And that would be sort of your definition of 
success?
    Ms. Brainard. We have a broader set of interests. As I 
stated earlier, the IMF was critically important, for instance, 
when countries like Poland came into the community of market 
democracies after many years. The IMF has been extremely 
important in helping advance our national security. And today, 
it is playing a role helping to provide economic foundations 
for the political transitions currently underway in Arab Spring 
countries and, of course, again, in helping to ensure an open 
international financial and trade system.
    Mr. Huizenga. But we know most of their activity is not in 
the Arab world, it is not in Haiti, it is not in these other 
places. The sixth largest commitments and/or loans that are out 
there are Greece, Ireland, Portugal, Mexico, Poland, and 
Colombia. You can make the argument that at least four of those 
should be able to do this just fine on their own. With Colombia 
and Poland, as you point out, there might be some issues.
    But I am concerned because it seems to me that their 
operations really ought to be grouped, and I think I talked 
about this in my opening statement, technical assistance, 
surveillance of what is happening, and then the lending part.
    So it is one of three. And I think if we look at the 
surveillance, with the IMF monitoring the economic and 
financial policies of its member countries to identify possible 
risks to financial stability and offer advice on policy 
adjustments. Just look at Europe. It seems to me that is a 
failing grade there.
    Technical assistance: The IMF provides technical assistance 
and training to help its member countries strengthen their 
capacity to design and implement effective policies. And 
whether it is assistance in monetary and financial policies, 
fiscal policy and management, statistical data compilation, 
economic and financial legislation, I haven't seen that out of 
there either.
    It is the third thing, the lending, that you are pointing 
to as the definition of success. And, to me, that is a part of 
that definition. It would seem to me that they need to be doing 
all of the others. I am sure that they are surveilling this and 
monitoring it, but I have not seen much success, by that 
definition.
    Ms. Brainard. I think it is very important that we do not 
define the IMF primarily as a lending institution. It is 
extremely important.
    Mr. Huizenga. But didn't you just do that?
    Ms. Brainard. I believe, in fact, that the emphasis I have 
tried to place in the discussion here today, and certainly in 
our engagement in the Fund, is very much on the activities of 
standards setting and surveillance of implementation of those 
standards.
    Mr. Huizenga. Have they been successful on that?
    Ms. Brainard. Just recently, the IMF censured Argentina for 
not releasing public data according to internationally 
acceptable standards.
    You mentioned commitments to Mexico, Poland, and Colombia. 
I think it is important to recognize those are conditional 
commitments. And, in fact, none of the three countries has 
drawn a cent from those three conditional commitments. They are 
really intended as a certification of the really outstanding 
policies, economic policies those countries--
    Mr. Huizenga. Just a moment. You can't have it both ways. 
And here is how you are trying to have it both ways. In this 
particular instance, you are saying, well, this really doesn't 
cost anything. It is just a commitment. It is really nothing 
that needs to be accounted for. Yet we are hearing, from this 
request, no, no, we need this additional money in because we 
can't subject this to phantom accounting. And it seems to me 
that you are being inconsistent on that particular point.
    Ms. Brainard. Let me just read you a quote; I think it is a 
really good quote: ``The IMF is not foreign aid and the 
requested funds are not being given away. We will have 
additional drawing rights in that amount from the IMF. The sum 
we are asking Congress to approve does not increase our budget. 
The IMF and its programs help keep Americans at work.''
    That is a quote from President Ronald Reagan in 1983.
    The emphasis that we are placing today on the IMF and the 
way that we are asking for bipartisan support for this very 
important commitment is absolutely consistent with bipartisan 
leadership, both in the Executive Branch and in the Congress, 
over the many decades the IMF has helped strengthen the world's 
economy and our economy.
    Chairman Campbell. Thank you, Madam Secretary.
    The gentleman from Illinois, Mr. Foster, wants to try and 
squeeze in a question before the vote. So I will recognize you 
for 5 minutes, and hope you don't take it all.
    Mr. Foster. That is my plan. Could you briefly walk us 
through the sequence of events that could, in principle, lead 
to a taxpayer loss from this commitment and highlight any 
differences before and after the proposed transfer from the NAB 
to the quota?
    Ms. Brainard. Yes. I think the record is pretty compelling 
in this regard. Since 1945, there has been no taxpayer loss on 
the IMF. The IMF has a very unique balance sheet. The IMF's 
reserves and gold outstanding exceed total credit outstanding. 
Again, the way this has traditionally always been viewed, and 
it is viewed in every other country, is an exchange of assets, 
where the U.S. position in the IMF is fully liquid and 
encashable. And when the IMF itself--again, we are not exposed 
directly to borrowing countries; we are exposed to the balance 
sheet of the IMF. But when the IMF extends credit, it is quite 
unique in being able to set the policy framework in which the 
lending takes place so that there has never been a default on 
an IMF--
    Mr. Foster. I understand the historical record. But if you 
are to be infinitely skeptical, can you define a series of 
events, a bunch of unwise lending by the IMF followed by a 
sovereign default or whatever it is, what sequence of events 
might in principle lead to a taxpayer loss? And would there be 
any differences before and after the proposed transfer?
    Ms. Brainard. So for all the reasons that I suggested--the 
rock solid balance sheet, the nature of our claims--it is very 
difficult to specify circumstances under which the U.S. 
taxpayer might actually lose money. And, again, these are 
commitments that we ourselves have access to in times of 
liquidity duress.
    With regard to differences, the NAB is a permanent standing 
backstop. So, in that sense, it is simply a transfer from one 
window of the IMF to another. The only difference in the way 
that the two mechanisms operate is that there is a reserve 
position associated with a quota. We earn interest on that. It 
is part of our set of liquid assets to which we have access.
    Mr. Foster. I understand. I was just fishing for any 
scenario--so you are saying that there is not any scenario that 
you could--
    Ms. Brainard. I couldn't rule out hypothetically--
    Mr. Foster. Just describe one scenario.
    Ms. Brainard. It is difficult because of the number of 
safeguards to see that kind of a scenario coming to pass.
    Mr. Foster. Okay. Thank you. I yield back. I have to go 
vote now.
    Chairman Campbell. Thank you, Mr. Foster.
    The subcommittee will now be in recess until after these 
votes.
    [recess].
    Chairman Campbell. The subcommittee will reconvene.
    I thank Under Secretary Brainard very much for your 
indulgence during these votes.
    And I will recognize the gentlemen from New Mexico, Mr. 
Pearce, for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    And thank you, Madam Secretary, for your presence here 
today.
    One of the things that I continue to hear no matter who is 
testifying about the IMF is that we have never had a bad loan. 
Have any of the terms ever been changed on any of the loans?
    Ms. Brainard. There has never been a restructuring of the 
loans, although, of course, programs do change as macroeconomic 
conditions evolve and--
    Mr. Pearce. So, you are saying we have never had a change 
in loan terms? Have we ever written down any loans?
    Ms. Brainard. Loans have not been written down at the IMF.
    Mr. Pearce. Okay. And have we ever extended maturity dates?
    Ms. Brainard. Normally, what would happen is you might have 
a new program coming in, and that would be the more normal way 
of doing things at the IMF.
    Mr. Pearce. Yes. Since that doesn't translate to New Mexico 
talk, I will just say that it sounds like we probably have. And 
Christine Lagarde was here sitting out there right where you 
are, except it was a very small gathering, kind of intimate, 
quiet, after hours, no press, and she said absolutely that loan 
terms have been changed, that loan amounts have been written 
down, they extended maturity dates, all to avoid default.
    And so when I hear that the taxpayers never lost a dime, 
that is kind of a curious position, because when I think, has a 
taxpayer ever lost a dime, we have never asked for the money 
back? And so it is like the money I have loaned my brother 
through the years and I never get it back, but I haven't 
technically lost it. I suspect I could go and squeeze him and 
maybe get part of it, but I can't declare it a loss. And I get 
the feeling that our defensible position here is that we have 
never asked for money back and so we have never really--we have 
put a lot of money in.
    So this idea that Greece is going to make good on its 
loans, maybe in 100 years, maybe not. They are not paying their 
taxes. That is the reason they are having problems.
    And my difficulty is I have to go back and explain to 
people who make $31,000 a year, on average, in New Mexico--we 
are 47th per capita in income--why they are going to pay taxes 
to bail out Greece when its own citizens won't pay taxes to 
bail out Greece. So, that is a pretty hard sell. And, likewise, 
Ireland--go ahead.
    Ms. Brainard. I was just going to say, you won't need to 
make that sell. The arrangements that we have with the IMF are 
with the IMF. And so, in fact, U.S. taxpayers are not making 
loans--
    Mr. Pearce. That is funny, because I see a $63 billion 
request here in the President's budget. Is that correct, that 
we are going to send $63 billion? The fact that they may get it 
back someday, I might get my money back that I lent to my 
family, but maybe not also.
    Ms. Brainard. Yes. No, it is not a bank. We have a reserve 
position in the IMF. We have a one-for-one exchange of reserve 
assets. And, in fact, we have a liquid position in the IMF that 
we can and have drawn on, and so it is quite a different kind 
of institution.
    And the reality is that if every loan from the IMF were to 
default tomorrow, the gold and reserves position at the IMF is 
more than adequate to completely cover all of that. So it is a 
very different kind of institution.
    And, again, the history here is that because of the IMF's 
preferred creditor position, unique preferred creditor 
position, because of the strength of its balance sheet and 
because it sets program conditions, we have never had countries 
that actually borrow from the IMF default.
    Mr. Pearce. If I could reclaim my time--
    Ms. Brainard. So it is a very different kind of 
institution.
    Mr. Pearce. --because it is winding down pretty quickly. I 
suspect that if we, the American taxpayer, went back and asked 
for our money back, all the money we have sent through the 
decades, I suspect that we could not get our money back no 
matter how strong the balance sheet is. I suspect--I remember, 
in 2008, we were sitting in this body and we were told that we 
needed to bail out Fannie Mae and Freddie Mac, that they are 
actually pretty solid, but we just need to guarantee those 
loans, and if we guarantee them, we won't have to do them. We 
are about $200 billion deep into that pool right now. I 
remember a firm called AIG. I remember the four rating agencies 
and the insurance firms that had less than $1 for every dollar 
that they insured, and they collapsed right in front of our 
eyes.
    And so, when I am telling the New Mexico taxpayer that we 
are going to send $63 billion, forget whether they actually are 
giving it to them or not, we are going to write a check, and 
they wrote a check to make that happen, I have a really hard 
time selling that, because they are worried about what we are 
going to do in this country to keep us afloat.
    Thank you, Mr. Chairman. I yield back.
    Chairman Campbell. Thank you.
    I now recognize the gentleman from Delaware, Mr. Carney, 
for 5 minutes.
    Mr. Carney. Thank you, Mr. Chairman.
    Thank you, Ms. Brainard, for being here with us today.
    I was at that meeting, the informal meeting we had with 
Christine Lagarde as well, with the gentleman, Mr. Pearce, and 
I remember her saying that the member nations had never 
experienced a loss as well, consistent with what you said 
today.
    But Mr. Pearce asked a pretty relevant question, and that 
is, what is the relevance of the IMF to ordinary Americans? I 
think you touched on it a little bit in some of your opening 
comments, particularly when you talked about it being a 
firewall in protecting U.S. commerce and U.S. workers.
    Could you talk about that a little bit, why you think that 
this investment and our involvement in the IMF is important for 
U.S. workers?
    Ms. Brainard. I think the history at the IMF has been that 
there has been strong bipartisan support from Presidents from 
both parties, and Members on both sides of the aisle in 
recognition that we created this institution in part because we 
thought it was vital to both U.S. national security and 
economic interests.
    When there are massive financial conflagrations abroad, the 
IMFs ability to go in and to create a fire break to help 
countries to stabilize their economies and to grow means that 
the financial contagion is limited, and as a result, Americans 
don't suffer risk to their college savings, and their 
retirement savings. Business investment here falls much less 
than it would otherwise and our jobs are preserved. And we saw 
that in 2009 when Congress had the foresight to support the new 
arrangements to borrow, and we have seen that repeatedly in the 
Asian financial crisis, in Latin America, with Italy and the 
U.K. in the 1970s during the oil crisis.
    Mr. Carney. Somebody mentioned earlier today--I think it 
was Mr. Huizenga--that the six largest loans were Greece, 
Ireland, Portugal, Poland, Colombia, and I don't know what the 
others were.
    Please briefly comment on the protection that those loans 
might be providing for U.S. workers and commerce here in the 
United States.
    Ms. Brainard. We need to distinguish between Poland, 
Mexico, and Colombia, which just have credit lines with the 
IMF.
    Mr. Carney. Okay.
    Ms. Brainard. And, in fact, that reflects their really 
outstanding macroeconomic performance. They haven't drawn a 
penny from those lines.
    In the case of Greece, Portugal, and Ireland, as you will 
remember, just as our economy was starting to gain strength, 
financial stress in Europe began to transmit to our financial 
markets, and we saw that equity values fell, and we saw that 
funding markets were also stressed here, until the IMF, working 
with the euro area, came in and helped these countries put in 
place programs to stabilize their economies.
    Mr. Carney. So, in some ways, this is like a hedge against 
contagion or against negative impacts on our own economy, which 
would affect the men and women in my district who make $40,000, 
and the men and women in Mr. Pearce's district and other 
districts who make middle-income wages. Would that be your 
view?
    Ms. Brainard. Exactly. It is a cushion. We help to cushion 
our economy from negative impacts from abroad through the IMF.
    Mr. Carney. So why is the Administration supporting this 
particular change? Could you speak on that briefly?
    Ms. Brainard. Yes.
    Mr. Carney. My time is running short, but--
    Ms. Brainard. This is no net new financial participation on 
the part of the United States. We think this is important 
because it strengthens the core of the IMF, which is where our 
veto sits, and it will help strengthen the core resources of 
the IMF and also make sure that our veto remains secure. Again, 
we are the only--
    Mr. Carney. Does that mean we have more say over what our 
funds, what our investments or how our investments are being 
used or--
    Ms. Brainard. We are the only country in the world that can 
veto changes in governance or in resources, the only country in 
the world. And secondly, we do have, through the quota, 
outsized influence on the policies of the IMF that we, I think, 
would see slip away if we did not step up and act.
    Mr. Carney. So the consequences of not approving this could 
be that we would lose influence or--
    Ms. Brainard. Yes. I think the consequences of not going 
forward and supporting this change in the IMF, again, no net 
new financial participation by the United States, would be to 
lead to more arrangements going outside of the quota, the IMF 
would spend more time raising bilateral loans from members 
that--
    Mr. Carney. Where we have less say.
    Ms. Brainard. We would absolutely have less say.
    Mr. Carney. Thank you very much. My time is up.
    Chairman Campbell. Thank you. The gentleman yields back.
    Now, I would like to yield for a moment to the ranking 
member for a unanimous consent request.
    Mr. Clay. Thank you, Mr. Chairman. I ask unanimous consent 
to submit into the committee record two letters: one from the 
Bretton Woods Committee, with a list of signees; and another 
letter stating their support for the Administration's request.
    Chairman Campbell. Without objection, it is so ordered.
    Now, I yield 5 minutes to Mr. Mulvaney, the gentleman from 
South Carolina.
    Mr. Mulvaney. Thank you, Mr. Chairman.
    Secretary Brainard, I would like to go back to a question 
that I thought was well-phrased by my friend, Mr. Foster, 
before we took the break, which was, can you foresee 
circumstances under which taxpayers would be on the hook for 
IMF loans? I think your answer, and I don't want to put words 
in your mouth, was that it would be difficult. I would 
respectfully suggest to you that doesn't answer the question. 
Can you foresee circumstances under which the taxpayer would be 
on the hook for these loans?
    Ms. Brainard. Again, let me just say if all the credit 
outstanding today were to go into default--of course we have 
never seen a default--today, the reserves and the gold holdings 
of the IMF would be more than sufficient to completely cover 
all of those claims. So for that reason, it is extremely hard 
to envision circumstances where the U.S. taxpayer would be in 
any way at risk. And, in fact, again, the IMF is for us a--we 
have a liquid claim on the IMF where if we needed to do so, we 
would have access to those resources as well.
    Mr. Mulvaney. Okay. Let's move on to another part of your 
testimony, which was--and I may have misheard it, so I had them 
actually take a look at the transcript during the break, 
because either I heard it wrong or you and I are saying 
different things about different parts of the IMF, which is 
that you said it is in the core resources of the Fund that we 
have our veto.
    My understanding was that we have a veto on the NAB account 
in terms of new activities, activating the account. If we are 
going to lend money out of the NAB, we have a veto there, but 
that our veto in the quota account, what I think you called the 
core account, exists mostly to do with the governance of that 
account and the paid-in shares, the quotas, and that a loan out 
of the quota account is not subject to our veto. Do I have that 
correctly or not?
    Ms. Brainard. That is right. Loans from both the NAB and 
the IMF are subject to majority votes.
    In the case of bilateral loans, however, because we don't 
participate in bilateral loans, and as you know, the IMF has 
recently amassed $460 billion of bilateral loans, because the 
quota had not been fully put in place, we don't have any kind 
of veto in that arena of activities.
    Mr. Mulvaney. So if we move the $64 billion out of the NAB 
account into the core account, what I am calling the quota 
account, we would not have veto rights over the subsequent 
lending of that $64 billion out of the quota account? Is that a 
true statement?
    Ms. Brainard. We will have a veto on governance and 
resources, but not on each individual loan, as has always been 
the case.
    Mr. Mulvaney. Right. So if the IMF decides to take the $64 
billion, along with all the other contributions from the other 
countries under this same program, and lend that out, we will 
not have a veto over that particular process?
    Ms. Brainard. We will have--that is right. It is a majority 
vote. And we have a 17, slightly above 17 percent share on 
those. So it is--
    Mr. Mulvaney. All right. I want to go to--again, I am 
struggling with why we are doing this. I may have just hit upon 
it, because now essentially we won't have a veto right over the 
loan in the future, but your testimony is interesting. It says 
this deal that we are talking about will also allow the United 
States to accept an amendment to the IMF articles of agreement 
facilitating changes in the composition of the IMF executive 
board while preserving a U.S. board seat and veto.
    By the way, just coincidentally, this morning Jack Lew said 
almost exactly the same thing. He said the legislation will 
allow, et cetera, et cetera, preserve the U.S. board seat. He 
didn't mention the veto in his testimony this morning.
    I ask you, why are we doing this, and why can't we preserve 
our U.S. board seat and our veto without doing this?
    Ms. Brainard. We will maintain our board seat and our veto, 
but we will be the only country not to move forward with an 
agreement that we believe to be in the U.S. interest. And we 
will, I believe, by doing that, contribute to the erosion of 
that core voting arrangement, core resources of the IMF, which 
is and has been at the center of the International Monetary 
System and--
    Mr. Mulvaney. Fair enough. Tell me, then, why--
    Ms. Brainard. --will undermine U.S. leadership.
    Mr. Mulvaney. And I am sorry to cut you off, but you know 
we are under these tight time constraints.
    Tell me why it is in our best interest, when we could loan 
money directly out of net--we could loan the $64 billion. 
Again, I know it is a number that may not be accurate, but we 
could loan it out of the NAB. We have done it in the past. 
Okay? We could loan it out of there today subject to our veto. 
Once we move it into the quota account, we won't have that 
veto. Why is it in our interest to move that $64 billion 
essentially into an account that we no longer have unilateral 
veto over?
    Ms. Brainard. I think it is important to say that the veto 
that you are talking about, the NAB, is only on activation.
    Mr. Mulvaney. Correct.
    Ms. Brainard. It is not on--it is not any different in that 
sense, then, in the core resources of the Fund. It is only on 
activation; it is not on the individual program decisions. So I 
think that distinction is not there.
    It is in our interest because for us, the quota is the core 
governance mechanism of the IMF. The IMF is a quota-based 
institution. And to the extent that we want to continue to have 
the IMF be at the center of the system and not have our 
influence eroded by ad hoc arrangements like bilateral loans, 
it is very important for the United States to sustain--
    Mr. Mulvaney. But we have made loans out of--
    Ms. Brainard. --and support international agreements around 
the world.
    Mr. Mulvaney. We have made loans out of the NAB account in 
the past without running them through the quota account, 
correct? That ability is available to us?
    Ms. Brainard. The additional piece that I am referring to 
is bilateral loans directly to the IMF from other countries 
that the United States did not request and is not participating 
in.
    We think it is very much in our interest to shift back to 
the model of the IMF as focused on its core quota resources. 
And this agreement will do that, again, at no net new financial 
participation on the part of the United States.
    Mr. Mulvaney. Thank you.
    Chairman Campbell. The gentleman's time has expired.
    The gentleman from North Carolina, Mr. Pittenger, is now 
recognized for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Madam Secretary, thank you for being with us. Tell me, in 
what developing countries in Africa and also in the Arab world, 
Arab Spring countries, has the IMF played a role?
    Ms. Brainard. The IMF is very actively engaged with all of 
the Arab Spring countries and other important Arab countries in 
the region that we think are vital to our strategic interests 
and vital to the future stability of that region.
    Mr. Pittenger. Could you kindly outline those?
    Ms. Brainard. Yes. The IMF has concluded and is currently 
active on a very important program with Jordan. The IMF has 
negotiated an important program with Morocco. The IMF has 
negotiated an important program and is in ongoing discussions 
with Tunisia. And, of course, as you know, today discussions 
between Egypt and the IMF are ongoing. We think Egypt's 
discussions with the IMF are vitally important for successful 
transition in that context. And, of course, the same has also 
been true in Yemen, where the IMF has negotiated an agreement.
    Mr. Pittenger. Madam Secretary, are there political and 
governmental structure parameters, philosophies that are 
required for IMF funding?
    Ms. Brainard. The IMF, when it engages with its members, 
focuses on the macroeconomic policy framework, so that they are 
generally engaged in designing programs that create investor 
confidence, where private sector capital plays the dominant 
role. It is also very important that IMF agreements command 
broad legitimacy in the system, and so they will often, before 
completing a negotiation, make sure that opposition as well as 
current government representatives have participated in 
discussions so that the conditions of the overall program are 
ones that are broadly accepted in society.
    Mr. Pittenger. Are American interests part of the purview 
of those who represent us in the IMF, particularly as it 
relates to any measure or role we play that could also be 
counterproductive?
    Ms. Brainard. I think the United States has always played, 
both directly through its large shareholding position and 
indirectly because of our leadership position, an active 
engagement with the IMF, a disproportionate role in terms of 
where the IMF is active and also how it moves forward, for 
instance, ensuring that its programs are broadly legitimate, 
that they lead to market-based growth. As I noted earlier, the 
IMFs function of ensuring that countries publish accurate, 
timely data in accordance with IMF standards is critically 
important for investors and for the broader international trade 
and financial system. IMF members take on obligations to 
maintain open trade accounts and not to engage in beggar-thy-
neighbor policies. And the IMF publishes reports on every 
member every year to that set of obligations.
    So we believe it is very much advancing our interests, and 
so do the many former Treasury Secretaries and Secretaries of 
State and Presidents, both Republican and Democratic, who have 
testified on behalf of the IMF.
    Mr. Pittenger. We have had, I think you would acknowledge, 
a history of foreign aid and military assistance that has 
ultimately become counterproductive. Would you agree with that?
    Ms. Brainard. I think it is important to distinguish--and 
earlier I read a quote from Ronald Reagan, who said this even 
more directly: The IMF really is not foreign aid.
    Mr. Pittenger. I understand that. No. I am just making that 
connection.
    Ms. Brainard. Yes.
    Mr. Pittenger. I am saying we have been proactive in areas, 
well-intended, that had incompatible conclusions that were not 
what we had purposed to have achieved.
    Ms. Brainard. That may well be true. I think with reference 
to the IMF and its current programs, again, we have had a great 
deal of influence, and we believe that they support our 
national interests.
    Mr. Pittenger. Thank you.
    Chairman Campbell. The gentleman yields back.
    And I believe our final person to ask questions--we had 
asked unanimous consent earlier for Mr. Royce, who is not a 
member of this subcommittee, but is a member of the full House 
Financial Services Committee and, more importantly, is the 
chairman of the House Foreign Affairs Committee. So Mr. Royce, 
the gentleman from California, is recognized for 5 minutes.
    Mr. Royce. Chairman Campbell, thank you. Thank you very 
much for doing that. And thanks for this hearing.
    I did want to ask a question about IMF governance. The 
United States has the largest quota at the IMF. We are no 
longer the largest IMF contributor, because of the big increase 
in bilateral borrowing agreements, but the IMF now has 
bilateral agreements with 20 countries, including China, 
France, Germany, and Saudi Arabia that exceed $400 billion. And 
the continued reliance on borrowed funding has an effect, and 
in a way it threatens the long-term legitimacy of the quota-
based IMF.
    Many argue that countries with the largest bilateral 
agreements with the IMF have the most influence, and the 
decisions are being made with those countries behind closed 
doors rather than being made transparently at the executive 
board.
    So I would just ask your view. Do you think that the 
bilateral agreements are undermining U.S. influence at the IMF? 
Is the United States losing ground on policy issues, such as 
how the IMF treats currency manipulation, capital controls, 
fiscal policy? That is primarily my interest here.
    Ms. Brainard. I will say that I share your concern that if 
the IMF were to move in a direction where bilateral loans 
became the predominant mechanism for funding, that would be a 
concern, and that is the reason we think it is extraordinarily 
important to have bipartisan support for the agreement we 
negotiated at the IMF, which will put the focus back on the 
core quota resources.
    The areas that you cited, currency manipulation and capital 
markets openness, responsible fiscal policies, those are the 
core areas where we think the IMF's influence is extremely 
important to us, to our national interests, and we think the 
quota-based center of IMF governance should continue to be the 
dominant arena, which is, again, why we would like to see 
Congress move forward on this.
    Mr. Royce. Yes. One of the difficulties is that on these 
very issues, we do not necessarily have the same perspective as 
those countries with growing influence who have a very 
different take on fiscal policy, certainly a different take on 
capital controls, right, currency manipulation. In a way, we 
have the fox guarding the hen house on some of these issues.
    Let me ask you another question, and that is about 
alternative institutions that are developing. The Europeans 
created the European Financial Stability Facility, and then the 
European Stability Mechanism, which have already been tapped by 
Cyprus and by Greece, by Ireland and Portugal. Separately, as 
an alternative to the World Bank, Brazil, Russia, India, China, 
and South Africa are all in joint discussions about creating 
their own development bank.
    How does the creation of alternative institutions impact 
the IMF and the World Bank, and maybe from a perspective of our 
global leadership?
    Ms. Brainard. I think we are very mindful that these 
institutions were created at a moment of unique power and 
influence of the United States in the world and the global 
economy, and that today, we continue to enjoy privileges that 
were associated with our being there as the architect and the 
leading proponent of their creation, and we think that it is 
extremely central in America's interest to continue making the 
IMF and the World Bank the center of the international 
financial system.
    I would distinguish in the case of the European Stability 
Mechanism, that is working hand in glove with the IMF. And, of 
course, we encourage the Europeans to be the primary source of 
funding to defend their own monetary union. They have the 
capacity, and we thought it was extremely important for them to 
demonstrate to markets that they were going to stand behind 
their monetary union. So the IMF is a minority funding partner 
in those programs. It is only about $1 to $5 of European 
funding for every $1 of IMF funding, but I will say the IMF is 
an equal partner when it comes to design of programs. And we 
think that is extremely important.
    But I agree with you that as emerging markets talk about 
creating alternative financing arrangements completely outside 
the purview of the global institutions that we were so central 
in creating, it should give us pause, and we should recommit, I 
think, to the institutions that we, on a bipartisan basis, have 
spent so much time strengthening.
    Mr. Royce. Mr. Chairman, if you could indulge me, there is 
one thing I don't know the answer to, and I was just going to 
ask, do either of those European institutions, those new 
institutions, have any access by way of a call on the IMF? Is 
there a backstop in any way?
    Ms. Brainard. No. The European member states are members of 
the IMF in their own right. And then the European Stability 
Mechanism and its predecessor were euro-area financed 
mechanisms.
    Mr. Royce. But neither de facto nor--
    Ms. Brainard. There is no direct call on the IMF. And we 
would not have supported such a call.
    Mr. Royce. Madam Secretary, thank you.
    Thank you very much, Mr. Chairman.
    Chairman Campbell. Chairman Royce's time has expired.
    And so now Mr. Peters, the gentleman from Michigan, is 
recognized for 5 minutes.
    Mr. Peters. Thank you, Mr. Chairman.
    And Under Secretary Brainard, it is nice to have you here 
discussing the IMF. I think I have some questions just related 
a little bit to the history of the IMF, which will put some 
things in perspective for me in my mind as we work through 
these issues. And if you would be so kind as to discuss maybe 
some of the precedents for Europe and other developed countries 
when they had to borrow from the IMF, and particularly in 
periods of global crisis?
    Ms. Brainard. Yes. As you know, the IMF was originally 
created to help strengthen our European partners in the wake of 
World War II and to help ensure that they would be strong, 
healthy democracies. There is ample precedent for developed 
countries drawing on their claims on the IMF. In particular, we 
saw that during the 1970s, during a period of balance of 
payments difficulties associated with oil price increases.
    Mr. Peters. Could you discuss any differences in how--if we 
looked back to the fairly recent global crisis in 2008, would 
things have played out differently if the IMF were either 
undercapitalized or did not exist? What may have been different 
in this recent crisis that we unfortunately still remember all 
too well?
    Ms. Brainard. I think the role of the IMF was 
extraordinarily important in the global recovery from the very 
severe financial crisis of 2008. As you recall, leaders, G-20 
leaders came together in 2009 and agreed to increase the 
resources of the IMF by $500 billion. Congress acted very 
quickly to support U.S. participation in that. And we saw that 
trade and capital flows that had been plummeting turned around 
more quickly, we believe, than they would otherwise have done. 
And, of course, it is those funds that we are talking about, 
taking a portion of those funds from the permanent backstop, 
and then transferring them over to the core quota resources 
today.
    Mr. Peters. You talk about trade picking up much quicker 
than it would otherwise. I come from Michigan, and 
manufacturing is a big deal in my State, and is certainly a big 
deal for the entire country. So can we assume that 
manufacturing, which certainly was impacted, would have been 
impacted to a considerably greater extent had it not been for 
the IMF?
    Ms. Brainard. I think there is ample evidence. You saw an 
absolute collapse of trade volumes, a collapse of trade 
finances. You will recall very sharp reversals of capital flows 
from emerging markets that have become important customers of 
ours. And, of course, the same has been true more recently with 
Europe accounting for 20 percent of U.S. exports and a very 
large percent of investment into the United States. Had 
financial instability really been uncontained in Europe, I 
think it would have led to a much more difficult recovery here 
in the United States.
    Mr. Peters. It seems to me, too, as I have watched the IMF 
and policies here on the Hill over the years, that there has 
always been a lot of bipartisan support from Congress and 
certainly from Administrations in the White House no matter who 
was in the White House, no matter the political party.
    Could you discuss--kind of look back a little bit about the 
support that the IMF has received from both Republicans and 
Democratic Administrations over the last few decades? This has 
been one area in which people have come together to support 
because folks understand the importance of the IMF to make sure 
that the global economy is sound. If you could speak to that, I 
would appreciate it.
    Ms. Brainard. When the IMF was originally founded, there 
were very strong bipartisan votes in both Houses of Congress. 
And if you look at the last few capital increases, you have 
seen President Reagan successfully coming to Congress with 
arguments which are very similar to the ones you have today, 
that this is really what protects American jobs. You saw 
President George Bush coming in the early 1990s at the time of 
transition of the Eastern European economies into market 
democracies. More recently, President Bush came to Congress for 
a quota reallocation in 2008, and ultimately Congress acted on 
that in 2009, along with a request from President Obama, and 
then, again, we saw, in 1999, President Clinton. So you can see 
there is a track record there of absolutely bipartisan support. 
And you will also see that, if you look at President George 
Bush back in 1991, the U.S. quota increase for the IMF was 
specifically assumed in the budget agreement and does not 
require an outlay. This same treatment has been applied by 
Presidents on both parties over many decades.
    Mr. Peters. Thank you. I yield back.
    Chairman Campbell. The gentleman's time has expired.
    Seeing no additional Members who wish to speak, I would 
like to thank Secretary Brainard for coming and for your 
testimony today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place her responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    And without objection, this hearing is adjourned.
    [Whereupon, at 3:54 p.m., the hearing was adjourned.]



                            A P P E N D I X



                             April 24, 2013

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