[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]








                   HOW CAN THE U.S. MAKE DEVELOPMENT
                       BANKS MORE ACCOUNTABLE?

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

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 27, 2016

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-85




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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota

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

                   BILL HUIZENGA, Michigan, Chairman

MICK MULVANEY, South Carolina, Vice  GWEN MOORE, Wisconsin, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             BILL FOSTER, Illinois
STEVAN PEARCE, New Mexico            ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
MARLIN A. STUTZMAN, Indiana          JOHN C. CARNEY, Jr., Delaware
ROBERT PITTENGER, North Carolina     TERRI A. SEWELL, Alabama
LUKE MESSER, Indiana                 PATRICK MURPHY, Florida
DAVID SCHWEIKERT, Arizona            DANIEL T. KILDEE, Michigan
FRANK GUINTA, New Hampshire          DENNY HECK, Washington
MIA LOVE, Utah
TOM EMMER, Minnesota


























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 27, 2016...............................................     1
Appendix:
    April 27, 2016...............................................    33

                               WITNESSES
                       Wednesday, April 27, 2016

Sheets, Hon. Nathan, Under Secretary for International Affairs, 
  U.S. Department of the Treasury................................     3

                                APPENDIX

Prepared statements:
    Sheets, Hon. Nathan..........................................    34

              Additional Material Submitted for the Record

Heck, Hon. Denny:
    Written responses to questions for the record submitted to 
      Under Secretary Sheets.....................................    39
Hinojosa, Hon. Ruben:
    Moody's Investors Service Credit Analysis of the North 
      American Development Bank, dated May 20, 2015..............    41
    2014 Annual Report of the North American Development Bank....    60

 
                   HOW CAN THE U.S. MAKE DEVELOPMENT
                        BANKS MORE ACCOUNTABLE?

                              ----------                              


                       Wednesday, April 27, 2016

             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 10 a.m., in 
room 2128, Rayburn House Office Building, Hon. Bill Huizenga 
[chairman of the subcommittee] presiding.
    Members present: Representatives Huizenga, Mulvaney, 
Pearce, Pittenger, Schweikert, Guinta, Love; Moore, Foster, 
Himes, Kildee, and Heck.
    Ex officio present: Representative Hensarling.
    Also present: Representatives Meeks and Hinojosa.
    Chairman Huizenga. The Subcommittee on Monetary Policy and 
Trade will come to order. Without objection, the Chair is 
authorized to declare a recess of the subcommittee at any time.
    Today's hearing is entitled, ``How Can the U.S. Make 
Development Banks More Accountable?'' I now recognize myself 
for 5 minutes to give an opening statement.
    The origins of multilateral development banks, or MDBs, lie 
within the creation of the World Bank at Bretton Woods in 1944. 
Today, the MDBs include not only the World Bank and its other 
lending arms--the IBRD and the International Development 
Association (IDA)--but also four regional banks: the African 
Development Bank; the European Bank for Reconstruction and 
Development; the Inter-American Development Bank; and the Asian 
Development Bank. Their core mission is to provide financial 
assistance such as loans and grants to developing countries to 
promote economic and social development.
    The multilateral development banks, or MDBs, can provide 
the capital to sustain MDB operations. Member countries are 
awarded shares in MDBs in proportion to the amount of capital 
that they provide. Because member nations provide the MDBs with 
a large capital base, the MDBs have a AAA credit rating, which 
allows them to borrow at favorable rates from private lenders. 
Because the United States is a member of each of these 
institutions, Congress plays a very important role in 
determining U.S. funding for those MDBs and engaging in the 
oversight of the Administration's participation in the MDBs.
    Although the Treasury Department represents the United 
States at the MDBs, and negotiates the amounts committed to 
them for general capital increases and the replenishment of 
concessional loan windows, only Congress has the constitutional 
authority to authorize and appropriate the funds required to 
fulfill these commitments.
    The U.S. Constitution details the power as well as the 
limitations of each Branch of Government. As the Legislative 
Branch of Government, Congress is the one to make laws of the 
United States of America. Additionally, it is Congress and 
Congress alone, not the President or any other Branch, that 
controls appropriations funding.
    On previous occasions, the Treasury has pledged money to an 
MDB without consulting Congress to the degree I believe it 
should, and then criticized this very body for not 
appropriating the full amount and failing to meet those 
commitments. In fact, Treasury has falsely claimed that 
Congress damaged U.S. credibility by failing to deliver on 
policy commitments made by Treasury that they didn't have the 
authority to make.
    It is important to note that some have said that the cost 
of funding the U.S. commitment to MDBs outweighs the benefits 
derived from them. This is because those MDBs have not 
necessarily supported U.S. interests, failed to meet their 
development goals, and failed to sufficiently combat corruption 
and abuses of individual rights in the nations which receive 
that MDB support. This is one of particular interest for me. 
Others have called for MDBs to focus more on public goods in 
order to minimize the risk of crowding out private lenders in 
that same space.
    Currently, the Obama Administration is undertaking 
negotiations for a 3-year replenishment of the World Bank's and 
African Development Bank's concessional loan windows, and is 
also in discussions of to how to alter the other institutions, 
including the Inter-American Development Bank, to finance 
future initiatives.
    Lastly, the Administration has proposed a doubling of the 
North American Development Bank, also known as NAD Bank, 
doubling their capital, the first such increase since its 
inception around the time of NAFTA.
    Today's hearing will examine the Administration's plans 
regarding these matters, many of which are contingent on 
congressional authorization, while addressing whether 
development banks are improving outcomes for low-income 
beneficiaries in a cost-effective manner.
    And with that, I will yield back the yield back the balance 
of my time.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentlelady from Wisconsin, Ms. Moore, for 5 
minutes for an opening statement.
    Ms. Moore. Thank you so much, Mr. Chairman.
    Mr. Sheets, I want to welcome you again to the committee. I 
have read your testimony and I think you make some really 
powerful points on the utility and power of these development 
banks.
    I am a card-carrying liberal with an incredibly deep and 
personal connection to the least, the last, and the lost in 
this country and around the world. So I don't think that I am 
going to shock anyone when I say that I believe the United 
States has a moral obligation to help poor people anywhere they 
are.
    But I am also a realist. The United States can't do this 
alone. We must leverage our commitment with other countries in 
the world and with private capital. And I think America is 
helping Americans when we support the work of development 
banks. It is just amazing to think about the close nexus of 
providing assistance and aid to people who are marginalized and 
maintaining our national security interests.
    We have talked about the importance of opening global 
markets around here a lot. We don't do that by waiving some 
sort of wand. We do that by supporting these development banks. 
These development banks can play an expanding role in helping 
business operate in some of these markets.
    Now, I don't want to rehash all of your points that you 
make in your written testimony, but I do want to make one point 
related to our development bank policy. As great a tool as this 
can be, we have to do it the right way.
    So I want to emphasize the need for a strong, enforceable 
safeguard regimen. I also want to flag for you a letter I wrote 
to the IFC about its conflict policy. I get it that we want to 
be creative and leverage private capital in these projects and 
I am all for it, but this letter is about how to do it the 
right way. And I consider this to be an ongoing dialogue, so I 
am not going to belabor the point, but I do want to make sure 
that we are looking at these programs and these moneys and we 
do it the right way.
    Thank you so much, and I yield back.
    Chairman Huizenga. The gentlelady yields back.
    With that, today we welcome the testimony of Dr. Nathan 
Sheets, who is the Under Secretary for International Affairs at 
the U.S. Treasury. Dr. Sheets was confirmed by the U.S. Senate 
on September 8, 2014, to serve as the U.S. Department of the 
Treasury's Under Secretary for International Affairs.
    Prior to joining Treasury, he was the global head of 
international economics at Citigroup, a position he held since 
September of 2011. And prior to joining Citigroup, Dr. Sheets 
worked at the Board of Governors of the Federal Reserve System 
for 18 years where he worked closely with his international 
counterparts, including as Director of the Board's Division of 
International Finance, and Economist to the Federal Open Market 
Committee (FOMC). So he has a deep background in this.
    And I am looking forward to hearing from you. You will be 
recognized for 5 minutes to give your oral presentation, Dr. 
Sheets. Without objection, your written statement will be made 
a part of the record. So, Mr. Under Secretary, you are now 
recognized for 5 minutes.

 STATEMENT OF THE HONORABLE NATHAN SHEETS, UNDER SECRETARY FOR 
     INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY

    Mr. Sheets. Chairman Huizenga, Ranking Member Moore, and 
members of the subcommittee, thank you for the invitation to 
testify today. I appreciate the opportunity to discuss 
Treasury's role working with the multilateral development 
banks, or MDBs. Through our leadership in the World Bank, the 
regional development banks, and the International Monetary 
Fund, the United States effectively influences global economic 
events, promotes American values, supports our allies, and 
helps drive inclusive growth and poverty reduction at home and 
around the world. The MDBs, in particular, play a vital role in 
the international system and in advancing American interests.
    First, the MDBs support development through investments 
that are not possible with private capital and domestic 
resources alone. They provide grants and highly concessional 
loans to low-income countries and loans to middle-income 
countries. Without such support, even countries with access to 
capital markets may not be able to attract sufficient capital 
in terms consistent with the sustainability of their debt. MDBs 
also catalyze private sector investment and provide technical 
assistance, research, and data.
    Second, the MDBs are important contributors to U.S. 
national security by playing a leading role in assisting key 
strategic partners such as Afghanistan, Iraq, Ukraine, and 
Mali.
    Third, the MDBs support countries undertaking valuable 
reforms including strengthening governance, building 
accountable institutions, mobilizing domestic resources, and 
fighting money laundering and the financing of terrorism.
    Fourth, by supporting long-term development, the MDBs help 
foster economic growth and fiscal sustainability, which reduces 
the likelihood of macroeconomic crises and countries' potential 
need for IMF financing.
    Regional development banks complement the World Bank's 
reach through expertise in areas of importance to their 
respective regions, which developing countries strongly value. 
For instance, the African Development Bank focuses on 
infrastructure, regional integration, and food security. The 
Inter-American Development Bank has expertise in social 
protection and the development of small and medium-sized 
enterprises. Notably, the North American Development Bank plays 
a unique role through its mandate to finance environmental 
infrastructure on both sides of the U.S.-Mexican border.
    Treasury is working to ensure that the MDBs continue to 
deliver on these important roles while improving their 
financial and operational efficiency and further strengthening 
their accountability and governance. As the largest shareholder 
in all but the African Development Bank, the United States is 
well-positioned to encourage the MDBs to implement such 
reforms.
    Treasury is pushing the MDBs to improve their financial 
efficiency. The MDBs offer the United States significant 
financial leverage. The $1.8 billion request for the MDBs in 
the President's proposed budget should support more than $100 
billion in MDB investments in developing countries.
    And the MDBs are taking steps to make their resources go 
further. The Asian Development Bank's reforms here are 
particularly compelling. We will see an increase in lending 
capacity while allowing donors to significantly reduce 
contributions.
    To complement efforts to boost financial efficiency, 
Treasury is advocating for the MDBs to enhance their 
operational efficiency, including streamlining project-approval 
processes and improving project preparation. The MDBs should 
take such steps without compromising high social, 
environmental, and fiduciary standards.
    Treasury continues to work to improve accountability and 
good governance at these institutions. The MDBs must measure 
success by project outcomes rather than by the amount of 
financing provided. And the MDBs must reform their governance 
structures to reflect the changing economic realities of 
shareholders in fair and transparent ways.
    As emerging markets seek greater influence in the MDBs, 
Treasury asks these countries to assume greater 
responsibilities, including increasing their role as donors and 
gradually moving away from MDB borrowing.
    As we push for continued improvements at the MDBs, the 
United States must also fulfill its responsibilities as a 
leader of these institutions. The MDBs will continue to need 
strong financial support from the United States and other 
shareholders, in particular for the poorest countries. Treasury 
asks that Congress support the Administration's request for the 
Fiscal Year 2017 budget so that MDBs can provide financing to 
the poorest.
    For the past 70 years, U.S. leadership has ensured that the 
MDBs and the IMF have remained critical partners in supporting 
U.S. strategic and economic priorities. It is crucial that the 
United States and these institutions, working together, 
continue to deliver on those priorities, including supporting 
peace, security, and sustainable economic growth.
    Thank you, and I very much welcome your questions.
    [The prepared statement of Under Secretary Sheets can be 
found on page 34 of the appendix.]
    Chairman Huizenga. Thank you, Mr. Under Secretary.
    At this point, I will recognize myself for 5 minutes for 
questioning.
    I want to touch on a number of issues. Before I get into 
sort of the IMF negotiations with the Eurogroup and Greece and 
some other things, I want to talk a little bit about structure. 
I understand that the Asian Development Bank has, by a vote of 
its board, combined both its hard and its soft loan portfolios 
as they are dealing with it. Can you give us a quick update, 
very quickly, as to how that is working? And is that the model, 
one of the things that is being used in some of the other 
reforms for the other development banks?
    Mr. Sheets. That is right. The consolidation of these two 
windows at the Asian Development Bank we see indeed as being a 
model or a template for the other MDBs going forward. And 
specifically as a result of this consolidation, the capacity of 
the bank to lend both concessionally and nonconcessionally has 
been increased by about 40 percent. And at the same time, the 
necessary replenishments to its concessional window have been 
reduced by more than 40 percent.
    Chairman Huizenga. So less paid in--
    Mr. Sheets. Exactly.
    Chairman Huizenga. --direct dollars because--
    Mr. Sheets. We are paying in less and we are getting more 
out on the other side.
    Chairman Huizenga. Yes, okay. That makes a ton of sense to 
me, so I want to encourage it.
    And then who actually negotiates the numbers and the 
increases with the various MDBs and with the other member 
nations? Is that you specifically or is that Secretary Lew? Who 
is involved in that negotiation process?
    Mr. Sheets. Broadly speaking, it would be the leadership at 
the Treasury. We have a Deputy Assistant Secretary who would be 
the point person, who would be attending the meetings, but then 
it would be approved all the way up the line.
    Chairman Huizenga. By you?
    Mr. Sheets. Including myself and the Secretary approving 
that.
    Chairman Huizenga. And Secretary Lew.
    All right. As I had said in my opening statement, there had 
been some concern from Congress--both House and Senate--and 
from the public comments from the Administration about a lack 
of willingness to support what they had negotiated. It seems to 
me a critical function to that would be getting us on board 
from the very beginning, which necessitates communication. And 
I hope that you will be committed to working with me, and 
working with the appropriations folks here in the House so that 
we won't have this conflict on that.
    Mr. Sheets. Indeed, we are very much open to that. We try 
to do our best. And we will continue to engage as necessary.
    Chairman Huizenga. So in the 2\1/2\ minutes that I have 
left, I want to talk a little bit about progress on corruption 
and human rights and whether the MDBs have had that. And I 
think I am going to actually follow that up with a written 
question, because I do want you to clarify the current state of 
the IMF negotiations with the Eurogroup and Greece.
    According to IMF rules, any country whose debt is found to 
be unsustainable, a so-called red zone country, cannot receive 
exceptional access assistance unless its debt is restructured 
to make it sustainable with high probability.
    Yesterday, I believe it was, or maybe the day before, there 
was an article in The Wall Street Journal about negotiations 
stalled between Greece and the international creditors. I 
expressed this to Managing Director Legarde earlier, I guess 
the end of last week. I expressed this to Secretary Lew when I 
last saw him. I want to make sure that we are not setting 
ourselves up even for an appearance of another Greek bailout 
when the Greeks aren't willing to do what is necessary to right 
the ship. So if you would please comment on that.
    Mr. Sheets. The status of these negotiations between the 
Greeks and their European partners in the IMF is an issue that 
we follow very closely on at least a day-to-day basis.
    I think the fundamental point that I would make is very 
consistent with the point that you were making, that the IMF 
has made clear that it will be involved in a Greek program in 
the sense of providing resources only if they are convinced 
that the reform program that is being put forward is a 
significant one and it is one where the Greek authorities 
themselves have significant ownership. That is a first 
condition that the IMF has made very clear, that this is the 
significant reform program. The Greeks have made progress over 
the last 5 years, but they still have work to do and it is 
imperative that--
    Chairman Huizenga. So can you assure us today that Greece 
will not have access to that exceptional lending--
    Mr. Sheets. Yes.
    Chairman Huizenga. --mechanism?
    Mr. Sheets. Yes. And then the second--
    Chairman Huizenga. That was a ``yes'' acknowledging the 
question or a ``yes'' to the question?
    Mr. Sheets. I would say ``yes'' to both.
    Chairman Huizenga. Okay.
    Mr. Sheets. Let me say, the second condition, which bears 
specifically on what you are saying, is that the IMF has made 
clear it will only provide resources to the Greeks if the 
program is accompanied by significant debt relief from Greece's 
European partners to ensure that condition of debt 
sustainability that you articulated is satisfied.
    And let me further say that the IMF's position on requiring 
a strong program and only joining the program if there is 
significant debt relief is very much supported by the Treasury.
    Chairman Huizenga. My time has expired. With that, I 
recognize the ranking member for 5 minutes.
    Ms. Moore. Thank you so much, Mr. Chairman.
    And again, thank you, Secretary Sheets, for coming to speak 
with us today.
    As I mentioned in my opening comments, I am very interested 
in some of the complexities of providing support and leveraging 
private capital with conflicts of interest that are raised. I 
did send a letter regarding, in particular, water policy. And I 
know that there have been some complaints at local levels, I am 
thinking in Manila and Nigeria, about these water policies.
    I have come up with an astronomical figure. In Manila, for 
example, when the IFC, the development arm, took an equity 
position in the water company, water rates were raised up to 
845 percent. That seems sort of unaffordable in any sort of 
monetary system, whatever your economy is, 845 percent seems 
unaffordable. And I am just wondering how that is helpful. In 
Nigeria, we have seen massive demonstrations regarding the 
equity investments in water.
    So I guess, how do we bridge the gap between the notion 
somehow that water is a human right? In Nigeria, they talk 
about an old African proverb that says that water has no 
enemies. But it seems like water is getting to be quite a bit 
of an enemy as we see its unavailability to people.
    There is a notion that at some level, based on it being a 
human right, there ought to be in place sort of a fixed subsidy 
that recognizes water as a human right and then a charge for 
usage beyond this point.
    So question one, have you heard this? Can you comment on 
this? And what can we do to reduce the conflicts of interest?
    Mr. Sheets. Thank you.
    The issues that you point to are very rich and diverse and 
I think really cut to the heart of the mission of the 
multilateral development banks. Let me just give you a few 
reactions to your question and a few thoughts in response, and 
I would be happy to talk to you directly or have my team talk 
to your team.
    But I think that the issues you highlight, first of all, 
underscore the point of the necessity of there being 
safeguards. And the safeguards really boil down to, how do we 
implement the best practices and the lessons learned from 
development bank lending over the last 70 years? How do we 
implement that into the ongoing processes and lending 
approaches of the MDBs? And it is imperative that there be 
appropriate firewalls and that there be appropriate development 
impact assessments to think about the implications of various 
projects on the populations that will be experiencing that.
    It is also important that the safeguards have adequate 
resources to ensure that they are implemented fully and that 
there is monitoring of projects afterwards.
    I think that there is a very set rich set of issues 
regarding safeguards. I also think there is a very rich set of 
issues regarding what is a global public good, what is the 
global commons here that the MDBs are protecting. And I think 
protecting the health of populations and providing the 
infrastructure to support that through water or otherwise is 
very much at the heart and center of their mission. And I 
think, how do we deliver those public goods in a way that is on 
the one hand economically feasible, but on the other hand 
actually meets the real needs of the people who are being 
affected is a crucial question that we should be focused on and 
do more work on.
    Ms. Moore. And just as an extension of that, protections 
for women, LGBT clients, those people who are very poor. We 
have heard that water can reach some of the more opulent areas 
and the people who are very poor don't get it. So we have to 
make sure we get those safeguards in place and have more than 
just monitoring.
    Mr. Sheets. Protecting those diverse communities and 
ensuring human rights broadly is one of the aspects of the 
safeguards, and the social protections that have been put in 
place are important.
    Ms. Moore. Thank you for your indulgence, Mr. Chairman.
    Chairman Huizenga. The gentlelady's time has expired.
    The Chair recognizes the vice chairman of the subcommittee, 
Mr. Mulvaney of South Carolina, for 5 minutes.
    Mr. Mulvaney. I thank the chairman and the ranking member.
    And I thank Mr. Sheets for being here.
    I want to follow up and stay on a topic that the chairman 
started with towards the end of his questions, which is Greece. 
Did I hear you correctly, at the end you were asked two 
questions and you said ``yes'' to both, but I just want to go 
back in and make it even more clear, regarding Greece's 
potential use of the exceptional access funds. You are saying 
that simply is not going to happen, correct? Did we hear that 
correctly?
    Mr. Sheets. What was repealed by the IMF, and will not 
happen, is the systemic exemption. So that in 2010, the IMF was 
looking at the situation in Greece and there were legitimate 
questions about the sustainability of the debt, but there was a 
judgment made that at that point in time making the Greeks 
restructure their debt would pose significant risks to the rest 
of Europe, and that was the systemic exemption.
    In January of this year, the IMF removed the systemic 
exemption. So now debt sustainability and whether or not a 
program is improving the sustainability of a country's debt is 
very much at the heart and center of every judgment that the 
IMF and the IMF board has to make.
    Mr. Mulvaney. And the removal of the systemic exemption was 
something that Congress required of the IMF in the omnibus 
spending bill at the end of last year, correct?
    Mr. Sheets. The Congress made the phasing out of the 
systemic exemption a requirement in order for the quota payment 
to be made. So it was conditional on the quota payment; it 
wasn't actually a requirement of the IMF. The IMF voted 
independently of that, but it was necessary for the United 
States to pay the quota.
    Mr. Mulvaney. All right. I have just been handed a note to 
ask you to clarify between the new language and the way you are 
going to handle this and the systemic exemption. Is there 
something that is taking the place of that? Are we just saying 
now that the only consideration is going to be the debt 
restructuring and the sustainability of the debt? Is that the 
only issue that enters into the IMF's mind?
    Mr. Sheets. So, you have debt sustainability and whether or 
not the program is significantly improving that debt 
sustainability. Of course, there are important governance 
issues. Will the country follow the program as written? And is 
it credible in the commitments? And, frankly, those are the two 
prongs of what the IMF is now requiring for Greece: one, a 
solid program that the fund is comfortable will achieve the 
objectives and the Greeks will follow through on; and two, debt 
relief to ensure that the debt is sustainable.
    Mr. Mulvaney. Correct. Now, you mentioned the relationship 
with the Greeks and whether or not they will be able to carry 
out this program. There is some tension between the IMF right 
now and Greece--and, by the way, rightly so. And I am surprised 
that the ranking member didn't recognize--hasn't raised this 
issue. In fact, I don't think many folks on the other side of 
the aisle have.
    One of the questions that we have about the IMF's role in 
Greece is that it is a developed country, and whether or not 
you like the IMF, it is supposed to be helping the 
underdeveloped countries of the world, not Greece, and that 
every dollar we spend helping Greece is not going to help sub-
Saharan Africa. So that is sort of one of the rare bipartisan 
things that we agree on here.
    But let me ask you this. I am going to go into the 
relationship and I want to ask you about the leaked 
conversation earlier this month. It was the leaked conversation 
between the various IMF officials--one in Washington, and two, 
I think, in Geneva, about the Greek situation. Are you familiar 
with that situation, Mr. Sheets?
    Mr. Sheets. I have read the news reports, absolutely.
    Mr. Mulvaney. Do you know if the IMF has done any 
investigation as to how that happened?
    Mr. Sheets. I don't know how the IMF has responded 
internally.
    Mr. Mulvaney. Okay. Do we care? We are the largest funder 
of this. Does the United States Government care how an IMF 
internal phone conversation got tapped and then leaked? I care.
    Mr. Sheets. That was a confidential conversation between 
senior people at the IMF. Absolutely, it should have been 
confidential. As you say, as a shareholder worried about the 
governance of the institution, we care.
    Mr. Mulvaney. Have we done anything to find out how it 
happened? And here is why I wonder, because the substance of 
the leaked conversation--someone tapped somebody's phone. and 
then leaked the transcripts; actually the audio--is that the 
IMF may have been trying to promote some type of event in 
Greece prior to the July debt payments that are due in order to 
spur action. So I am curious as to what--
    Mr. Sheets. The interpretation in the press of the leak, 
and I think would share this, is that the source of it 
certainly wasn't the IMF.
    Mr. Mulvaney. The source of the leak wasn't the IMF?
    Mr. Sheets. Was not.
    Mr. Mulvaney. Okay, that is fine.
    Mr. Sheets. The IMF was underscoring the importance there 
of, one, the Greeks following through on the program, and two, 
in order to get the debt relief, the German authorities have 
been the ones who have been the most reluctant to put that on 
the table.
    Mr. Mulvaney. And you have mentioned that, about--
    Mr. Sheets. Those are the two parties, in some sense, the 
IMF is negotiating with.
    Mr. Mulvaney. And I hope we get a chance to continue this 
later because you have mentioned that a couple of times, about 
the importance of debt restructuring. And of course one of the 
biggest impediments to that is the German intervention, the 
discussion is they don't want them. But we will maybe continue 
that a second time.
    Mr. Sheets. I will be happy to speak with you bilaterally 
about that.
    Chairman Huizenga. The gentleman's time has expired.
    With that, the Chair recognizes Mr. Foster of Illinois for 
5 minutes.
    Okay, we will, at your discretion.
    The Chair recognizes Mr. Himes of Connecticut for 5 
minutes.
    Mr. Himes. Thank you, Mr. Chairman. I think we will come 
back to Mr. Foster.
    Mr. Sheets, thanks for being with us. I just wanted to use 
a little bit of my time or most of my time to go slightly off 
topic and give you a little bit of time to talk about the Asian 
Infrastructure Investment Bank. Obviously, we have had 
something of a stutter-step policy with respect to that bank, 
and how we have talked about it with our allies, several of 
whom obviously joined.
    I wonder if you could talk a little bit about, from your 
perspective, what you see that bank doing. In particular, 
obviously, the criticism and the concern is that it has become 
an instrument for Chinese policy and strategy. I am wondering 
if we are seeing that. I am wondering if that is causing 
tensions within the bank.
    And then I wonder if you could comment on how you see it 
interacting with or perhaps competing with other MDBs in which 
we have an interest?
    Mr. Sheets. Our view is and has been through the 
discussion, since the idea of an AIIB was launched, is that the 
Asian Infrastructure Investment Bank can be a constructive 
addition to the global infrastructure and to the global 
community if it adequately incorporates these lessons, these 
safeguard-like things that I have alluded to, these lessons of 
development bank lending over the last 70 years. So appropriate 
governance structures, awareness of debt sustainability, strong 
procurement policies, policies on environment and social 
safeguards, and so on and so forth.
    There is certainly a marked infrastructure need in Asia. So 
to the extent that it is implementing those projects in a way 
that is consistent with best practice and safe and responsible, 
it can be a constructive addition.
    Mr. Himes. Do we have any early returns on whether that is 
occurring?
    Mr. Sheets. We have been very vigorous in our advocacy with 
that position both with the Chinese directly and with countries 
that are members. And what we have seen so far is that the 
documents, the articles of agreement and the documents that 
have been produced to support the AIIB, are broadly in line 
with international best practice. So I would say that has been 
reasonably encouraging.
    But I think it is very important that we see how this 
institution actually operates and we need to see its track 
record. And one way to achieve that is for the AIIB to do whole 
co-financing with the Asian Development Bank and the World 
Bank, and I believe that both of those institutions are 
exploring options in that regard.
    So the AIIB has the potential to be constructive, and we 
are working through every dimension that we know of exerting 
leverage to try to ensure that actually is achieved.
    Mr. Himes. Is the Administration giving any consideration 
to potentially ultimately becoming a shareholder in the bank as 
a mechanism for achieving that leverage?
    Mr. Sheets. For now, we are focused on meeting the 
commitments we have to existing institutions. And before any 
decision like that could be considered, we would need to see a 
track record, and that still is quite a ways down the road, I 
think.
    Mr. Himes. Thank you.
    I yield back, Mr. Chairman. Thank you.
    Chairman Huizenga. The gentleman yields back.
    With that, the Chair recognizes Mr. Pearce of New Mexico 
for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    And thank you, Mr. Sheets, for being here.
    Following on the line of the questions of the chairman and 
the vice chairman, I would redirect attention to Argentina. The 
United States, at the beginning of this year, reversed its 
stance on making loans in Argentina. Could you explain why that 
was?
    Mr. Sheets. In December, Argentina had a watershed election 
where they elected a new government, President Macri. President 
Macri has made clear that economic reforms are a very important 
objective. They have taken significant steps to reform their 
economy, including freeing up the exchange rate and making that 
more market-determined. Recently, they have concluded a 15-year 
period of very protracted negotiations with creditors. So the 
tone of the policy in Argentina has shifted significantly.
    In addition, another factor that has been in play is that 
we had asked Argentina to take steps to normalize its 
relationship with Paris Club creditors, which we have seen it 
do.
    Mr. Pearce. One of the key elements appeared to be 
repayment of loans that they defaulted on. Are they beginning 
to repay those loans to U.S. investors?
    Mr. Sheets. They are through the Paris Club and, my 
understanding is, another bit of it was the ICSID awards, which 
there were outstanding, including to El Paso Energy. And my 
understanding is that they have taken or are taking steps to 
clear those arrears as well.
    Mr. Pearce. Are they actually paying those or they are 
taking steps that might someday lead them to pay them?
    Mr. Sheets. My understanding is that it is happening. It 
has either happened or is happening.
    Mr. Pearce. It is happening?
    Mr. Sheets. Yes.
    Mr. Pearce. So, again, I think Mr. Mulvaney asked the 
question properly, for 100 years Argentina was the leading 
economy in this hemisphere. The United States was second to 
them. Why are we, when we are supposed to be helping 
underdeveloped countries, going into countries that have 
squandered their position, for whatever reasons? Why are we 
doing that?
    Mr. Sheets. To the extent that the World Bank is involved 
in Argentina, it would be first of all making loans on a 
nonconcessional basis. And in general, our thinking is that the 
World Bank and the MDBs are best placed in middle-income 
countries to be focused on supporting and helping the poorest.
    Mr. Pearce. So have you rewritten your underlying goals and 
standards? Because much of your documentation says that you are 
here to help emerging countries. And if you feel like the best 
rate of return is on countries, it seems like you out of 
transparency should realign your goals and realign your mission 
statement.
    Mr. Sheets. But it is not a one-size-fits-all approach. So 
what it means to help a middle-income country like Argentina is 
significantly different than what it means to help a poor 
country.
    Mr. Pearce. I don't want to get into the nuances of it. I 
would just say that what your documents say is one thing and 
what you are describing to me here is completely different. It 
seems like as a matter of transparency you would want to 
realign what you tell the taxpayers or us or whoever that you 
are investing in.
    I recently had a conversation--or I didn't have a 
conversation directly, but a friend of a friend was in the 
Peace Corps, he is my age and spent his early years in the 
Peace Corps making investments. So he had a chance to go back 
after 50 years and look. And he stayed with the Peace Corps, it 
wasn't like the 2-year stint; he stayed and became one of the 
managers. And so he went back and he looked 50 years afterwards 
and he said the projects that we invested in are laying in 
ruins now.
    Do you all ever do, for instance, a 20-year look at where 
you stuck the world's money, I mean, $100 billion, your budget 
here, that is a lot of money. Do you ever look 3, 4, 10 years 
in the past? If we were to take a look at the top 20 projects 
of 20 years ago, what would we find? Would we find successful, 
prosperous ventures or would we find those rusting hulks that 
my friend from the Peace Corps talked about?
    Mr. Sheets. Speaking bluntly, I think we would find a mix. 
Some projects have been quite successful and others much less 
successful. And that is very much, it is kind of learning from 
the past, is what we are trying to do, in thinking about 
updating, modernizing, and making the governance of these 
institutions more efficient and to always be drawing on--
    Mr. Pearce. You talk about more efficiency, if you were to 
compare--and I know I am about out of time--but if you were to 
compare your investments in renewable energy and oil and gas, 
would the renewables be more or the oil and gas investments be 
more?
    Mr. Sheets. I am not sure. I am not sure we have enough 
track record.
    But let me also just say that I think the last 15 years in 
Argentina have been particularly difficult, that the country 
has struggled severely. And what you might see in Argentina 
could be more problematic given their choices, the governance 
choices they have made, than in other middle-income countries.
    Mr. Pearce. Mr. Chairman, as I close here, I would just 
make the observation that based on your report, I would guess 
that the investments in wind energy are probably significantly 
greater than oil and gas, for instance, and wind energy has 
about 12 percent effectiveness per dollar. So when you talk 
about efficiencies, it seems like you would want to be looking 
at those sorts of rates of return on the investment.
    Thank you. I yield back.
    Chairman Huizenga. The gentleman's time has expired.
    Before we go any further, I have a couple of items of 
business. And in case we have some other Members who are not a 
part of this subcommittee, without objection, Members of the 
full Financial Services Committee who are not Members of the 
subcommittee may participate in today's hearing for the purpose 
of asking questions of the witness. Without objection, it is so 
ordered.
    And then, I believe the ranking member has a question.
    Ms. Moore. Thank you, Mr. Chairman. I have a unanimous 
consent request to insert into the record correspondence 
referenced here at this hearing, April 12, 2016, to Dr. Kim 
regarding the letter I wrote to the IFC about its conflict 
policy.
    Chairman Huizenga. Without objection, it is so ordered.
    With that, we will return back to Mr. Foster of Illinois 
for 5 minutes.
    Mr. Foster. Thank you, Under Secretary Sheets, and Mr. 
Chairman.
    Let's see, I have a couple of questions. The first has to 
do with the attitude you take toward transfer unions. A lot of 
observers have said that the EU is more and more becoming a 
transfer union where the wealthy economies of Northern Europe, 
Germany and so on, are being asked to systemically bail out 
Greece, and other, more southern countries.
    I think observers have also mentioned that the United 
States is becoming much of a transfer union. I know in my State 
of Illinois, about $40 billion a year leaves the State every 
year because we pay a lot more in Federal taxes than we get 
back in Federal spending. The net present value of all the 
money that has been--wealth that has been transferred out of 
Illinois in the last 30 years is north of $1.5 trillion, much 
larger than the Greek debt, and is a large contributor to the 
fiscal woes of Illinois.
    All of that aside, you face a variety of transfer unions, 
everything from northern Italy to southern Italy to the 
different countries in the EU. So how do you handle this and 
what is your attitude when you are determining need?
    Mr. Sheets. This issue is really at the heart of what it 
means to be a union in that when you put together a set of 
somewhat heterogeneous economies, like those in Europe, 
invariably they are going to be at different places in their 
business cycles and be experiencing different kinds of economic 
developments. And it is imperative, if you are only going to 
have one monetary policy and one exchange rate, that there be 
some kinds of flows that go from those who are doing relatively 
well to those that are struggling.
    And with the United States, we have very flexible labor 
markets, and that is one of the key adjustment mechanisms that 
we have. In Europe, the labor markets are not as flexible, and 
the way you kind of equilibrate these different parts of the 
European economy is through transfers from one part to the 
other.
    Where it gets tricky and difficult is if there is a sense 
that there is a structural notion to it. So it is not just 
during the business cycle and sometimes one is doing well and 
sometimes the other is, but that structurally one part of the 
union is subsidizing the other part of the union. And I think 
there is that perception in Germany, and that is a true 
political economy challenge that the Germans face.
    On the other hand, if Germany had its own exchange rate, my 
sense is it would be valued at a different place than the euro 
is today.
    So there are a number of offsetting macroeconomic 
considerations. But these transfers that you highlight and 
their sustainability is really linked to the sustainability of 
a union.
    Mr. Foster. Well, thank you.
    Another effort where you have considerable leverage is just 
in reducing corruption. I think the Economist magazine is a big 
fan of the single most effective intervention we can do is just 
to discourage corruption wherever we can.
    So when you look at the distribution of your efforts, how 
do you rank that? And do you think you spend enough of your 
time trying to fix the corruption problem in developing 
countries?
    Mr. Sheets. I very much agree that if there is corruption--
and this may be one the lessons of development lending over the 
last 70 years--where there is corruption it becomes essentially 
impossible for development policy to work. The resources don't 
get to those who need them the most.
    And so I would say not only would it be high, it would be 
an indispensable ingredient of a successful development 
strategy. I know that it is one that the multilateral 
development banks and the IMF put a very, very high weight on.
    Mr. Foster. Are there initiatives, specific initiatives 
that would really improve the effectiveness that have been 
identified or just successful experiments in making the 
finances of all of the players who are involved in corruption 
more transparent?
    Mr. Sheets. There are various case studies and approaches 
that have been used, some to address low-level kind of petty 
sorts of ``petty corruption issues,'' others from a more high 
level. I think that the more high-level stuff is probably more 
legal, and legal enforcement and toughening that up. The petty 
stuff is more systemic and you have to think about what 
incentives and wages and so on and forth are being paid to the 
civil service.
    And then there is a related issue of tax compliance and 
making sure that the people who owe tax actually pay tax, and 
there are a number of countries around the world where that is 
an issue.
    So those are some of the things that I reflect on when you 
raise the issue of corruption. And all of them are necessary.
    I guess another one that is particularly important for the 
Treasury is that we are engaged all over the world on AML/CFT 
technical assistance and ensuring that the financial sector is 
free of abuse--
    Mr. Foster. I guess my time is up. I will yield back.
    Mr. Sheets. Yes, that is also another important thing. It 
manifests itself in many different ways and must be fought in 
all those different dimensions.
    Chairman Huizenga. The gentleman's time has expired.
    The Chair recognizes Mr. Pittenger of North Carolina for 5 
minutes.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Mr. Sheets, I appreciate this dialogue. I would like to 
follow up on Mr. Foster's inquiries.
    In reference to operation in countries that are complicit 
relative to human rights and corruption, last year the 
Financing for Development Conference took place in Ethiopia, 
which ranks 103rd on the Transparency International corruption 
index and is also rated by Freedom House as not free. How do 
you make the connection between that and your reference that it 
would not make good judgment to be providing this type of 
resource to the country that was complicit with corruption?
    Mr. Sheets. This is an important and a challenging endeavor 
in that there are 185 countries in the world, all of them at 
different places. And I think that the important thing is that 
we engage with these countries and do what we can to help, 
wherever they rank on that, that we are doing what we can to 
help move them up, at least in terms of their practices. I 
guess everyone can't move up simultaneously in a relative 
ranking, but everyone can move up simultaneously in terms of 
absolute standards and their expectations in fighting 
corruption.
    Mr. Pittenger. Mr. Sheets, with all due respect, aren't you 
really setting this country up as a qualified country, as one 
that would be acceptable by coming and honoring them in the 
presence of having your meeting there? I think to me it says to 
the rest of the world that those standards are highly flexible.
    Mr. Sheets. Yes, I think it is--and certainly this would be 
true for Ethiopia--that we think of this as a process of hiking 
and working with them to press forward--
    Mr. Pittenger. I think the higher you keep your standards 
in--
    Mr. Sheets. --I am not saying that anybody's perfect where 
they are today.
    Mr. Pittenger. --you are giving a visual to the rest of the 
world of what you believe is acceptable. And it seems to me if 
what you are saying is correct, that you want to support 
countries that do not tolerate corruption, that don't tolerate 
human rights abuses, that we should honor those who are doing 
it the right way.
    As you look at--on another issue--given the turbulent 
economic trends and issues that we see in China and Russia and 
Brazil, do you believe that they are sustainable in terms of 
their engagement with AIIB and also with the BRICS? Are they 
going to be a valid player in the market?
    Mr. Sheets. When we think of the BRICS, this is a period of 
greater economic uncertainty, I would say, for the BRICS than 
was the case, say, a decade ago. Brazil's economy is facing 
some significant challenges. Russia's economy, clearly, for a 
number of reasons is facing significant challenges. South 
Africa is feeling the effects of much lower commodity prices. 
And the Chinese economy is gradually slowing, which I would say 
is a moderation and not unexpected. No economy is going to grow 
as fast as China was growing. But it is a slower pace of 
growth. Of those BRICS, I would say the one notable exception 
is India, where it continues to grow at something over 7 
percent.
    In terms of the specific association amongst them, they are 
five of the leading developing, emerging markets economies of 
the world. And I think from that perspective, they have some 
common interests, but more broadly, they also are very 
heterogeneous.
    Mr. Pittenger. I appreciate your perspective.
    One more question. I am short on time. A follow-up to Mr. 
Pearce. The data that I received shows that 65 percent of 
NADR's portfolio went to wind and solar energy efforts. So 
there seems to be some data out there to support that.
    What process is used to decide which projects deserve 
financing over others? And I can also look at what you have 
done in terms of the border States. Texas has gotten--area has 
gotten a substantial amount, where Arizona has not, neither has 
New Mexico.
    So what standards do you use to provide these types of 
outcomes?
    Mr. Sheets. And which portfolio was 65 percent wind and 
solar?
    Mr. Pittenger. The NADR's portfolio.
    Mr. Sheets. Got it.
    So the NAD Bank's mandate is to invest in environmental 
infrastructure. And the question that would be asked of the 
projects, be they wind, solar energy, or waste management, 
roads, sanitary, et cetera, et cetera, is what is their 
development impact, what is the bang for the buck, so to speak.
    Mr. Pittenger. Thank you. My time has expired.
    Chairman Huizenga. The gentleman's time has expired.
    The Chair recognizes Mr. Heck of Washington for 5 minutes.
    Mr. Heck. Thank you, Mr. Chairman.
    Under Secretary Sheets, thank you so much for being here.
    One of my favorite adages is as follows: Not everything 
that counts can be measured and not everything that can be 
measured counts.
    Despite the fact that is one of my favorite adages, I, in 
fact, conduct my life in a way that seeks to do exactly that. 
Informed mostly by my time in the business sector, I think it 
is important to be intentional, to decide what success looks 
like, and to attempt to measure it. And accordingly, I was 
heartened to see you say in your testimony that the MDBs must 
measure success by the outcomes of projects, rather than the 
amount of financing provided.
    So, Under Secretary Sheets, could you give a little color 
to what outcomes you seek to measure, what success looks like, 
what are you trying to incentivize, and what the metrics are?
    Mr. Sheets. I also very much like that quote, and as an 
economist argue I have spent my life in other pursuits as well.
    Mr. Heck. My second favorite adage is, if you could take 
all the economists of the world and lay them end to end, it 
would be a good thing.
    Mr. Sheets. And one of my great frustrations is I only have 
two hands. Often, I wish I had three.
    But in terms of what we are measuring, again, it is 
development impact. So what is the implication of these 
projects in the lives of real people? And that can be some of 
these disadvantaged populations that Representative Moore has 
highlighted.
    It is also the business communities. How are they helping 
to facilitate small and medium-sized enterprise development and 
a business climate in these countries that is supportive and 
helpful?
    And then, there is a whole set of issues about the global 
commons that I mentioned. Are we delivering global public 
goods?
    And as you think about that on a country level, then it 
aggregates up into, what are the implications of these policies 
for the global economy, for global growth, for the global 
environment, for global poverty reduction, and then ultimately 
to the United States, in U.S. growth and U.S. employment?
    So I think of it as in some sense an escalating set of 
issues of rising generality. But in the first instance we have 
to say what does this mean for individual people inside the 
countries where the project is being done?
    Mr. Heck. GDP growth, small business growth, income growth, 
business climate as measured.
    Mr. Sheets. Poverty reduction.
    Mr. Himes. Poverty alleviation.
    So, Under Secretary, you have often warned about the 
potential negative impacts on U.S. global leadership if we 
don't stay in the game, if we don't meet our obligations or our 
commitments to participate in the international financial 
institutions.
    Putting this in a broader context, I think about the seeds 
of the MDBs being sown at Bretton Woods, and especially when 
combined with the Marshall Plan. We were hugely motivated just 
in part by altruism, but also we were seeking to avoid warfare. 
And I think that was one of the hard lessons between World War 
I and World War II. We were also seeking to do all the things 
you just talked about in order to create markets for our own 
goods.
    And I guess what I want you to talk about is why it is in 
our self-interest--leave altruism aside for the time being--why 
is it in our self-interest to pursue participation, robust 
participation in international financing institutions?
    Mr. Sheets. I think you made many of the arguments quite 
candidly there. Ultimately, what the international financial 
institutions are about, is developing strong, stable, 
economically and militarily, economically stable and secure, 
countries around the world. And as we see that achieved, that 
means more opportunities for U.S. exporters. It means more U.S. 
jobs. It means stronger global growth. It means more 
opportunities for U.S. investment.
    I think the MDBs' track record over the last 70 years is 
that they have contributed to these kinds of things, global 
stability, global growth, and rising opportunity for people 
around the world, which in turn, creates rising opportunities, 
rising demand, and opportunities in the United States.
    Mr. Heck. And it is, therefore, in our self-interest, sir?
    Mr. Sheets. Strongly. And let me, consistent with that, 
just say, that since the IMF quota money was paid to the IMF, 
our ability to be able to influence that institution in a way 
that is consistent with U.S. objectives has been greatly 
enhanced. So it is a concrete example of what you are speaking 
about.
    Mr. Heck. Sure.
    Chairman Huizenga. The gentleman's time has expired.
    The Chair recognizes Mrs. Love of Utah for 5 minutes.
    Mrs. Love. Mr. Sheets, thank you for being here.
    Many assume that the MDBs are poverty-fighting 
institutions. And even though their nonconcessional lending to 
middle-income countries can equal or exceed loans to poor 
governments, it was reported this month that the IBRD, the 
World Bank lending arm to the middle-income countries, is 
expected to have a banner year, pushing $25 to $30 billion out 
the door at levels unseen since the financial crisis.
    So by definition, a nonconcessional borrower at the MDBs is 
more creditworthy than poor countries borrowing from a soft 
loan window. Mr. Sheets, in your thoughts, why should taxpayers 
guarantee loans to countries that have access to capital 
markets anyway?
    Mr. Sheets. This is a very, very important question. First 
of all, let me emphasize that the terms that are extended to 
middle-income countries by the MDBs are different than those 
that are extended to poor countries by the MDBs. The MDBs' 
interactions with the poor countries are more likely to have a 
significant grant element to them, so just an outright passing 
of resources, and would be given at a lower interest rate than 
would be the case for middle-income countries.
    In terms of the case for lending to middle-income 
countries, my sense is that even in these middle-income 
countries, they have significant fractions of those who are 
still in poverty. And focusing lending on the poorest in these 
countries is something that is of great importance.
    Mrs. Love. Okay. So first of all, to the first point you 
were making, we are still pushing $25 to $30 billion out the 
door.
    Mr. Sheets. Yes.
    Mrs. Love. In terms of sheer numbers, that is one.
    Mr. Sheets. Yes. Yes, substantially.
    Mrs. Love. But also, I have heard the argument already 
that--I have heard this argument about the different areas in 
some of these larger countries that--
    Mr. Sheets. Yes.
    Mrs. Love. --that are experiencing extreme poverty. But it 
essentially means that China, India, and other large countries 
that still have many citizens who are living in extreme 
poverty, you have to understand that, to us, we understand what 
is going on there. China and India have ample resources that 
can benefit their own citizens.
    For instance, China still has over $3 trillion in reserves 
and has itself established not just one but two development 
banks. So again, I have heard that--I need to have some sort of 
other reason, because like my colleague said, every dollar that 
we spend in some of these countries is a dollar that we are not 
spending in countries that may need those resources.
    Mr. Sheets. Specifically, with the case of China, but 
others as well, as I indicated in my remarks, we are vigorously 
engaged with these countries, emphasizing to them what their 
responsibilities are in the global system. And last summer, as 
we were negotiating with the Chinese in the run up to the 
summit between President Xi and President Obama, one of the key 
deliverables that we achieved with the Chinese was them making 
a commitment that over time they would increasingly be 
contributors to these institutions and decreasingly be using 
them.
    But you know, by the same token, as I said, my sense is 
there are tens of millions of poor people in China. When the 
MDBs come, that they bring international best practice, there 
is learning by doing in a number of different dimensions. So I 
think there is a case for the MDBs being in the middle-income 
countries, but it is also important, as they have resources, 
that they become contributors and that they taper off their 
borrowing.
    Mrs. Love. Do you have a specific matrix or any set 
criteria for evaluating when a middle-income country no longer 
needs multilateral development assistance?
    Mr. Sheets. That is actually a vigorous debate inside of 
these institutions that is under the rubric of graduation: When 
should countries graduate from being borrowers at the MDBs? And 
there is a whole--
    Mrs. Love. I would think that would actually be a priority, 
especially because--
    Mr. Sheets. Absolutely.
    Mrs. Love. --like I said, we have taxpayer dollars going 
into--
    Mr. Sheets. Absolutely.
    Mrs. Love. We have to be able justify.
    Mr. Sheets. Yes, we have been strong advocates of 
graduation when that is appropriate.
    Mrs. Love. Thank you.
    Chairman Huizenga. The gentlelady yields back.
    Mrs. Love. All 4 seconds.
    Chairman Huizenga. All 4 seconds, yes. Very generous of 
you. We appreciate your efficiency.
    With that, we recognize the gentleman from Michigan, Mr. 
Kildee, for 5 minutes.
    Mr. Kildee. Thank you, Mr. Chairman. And Mr. Sheets, thank 
you for your testimony, and I apologize. I just came in. If 
some of these questions--I really have only two areas I want to 
explore, if they have already covered them.
    But if I could ask you to comment on some research that we 
have seen which shows that investing in the education of young 
women and girls has an incredible rate of return. Talk to me 
about the extent to which MDBs are focused on that particular 
question, especially in light of real questions about economic 
growth actually being dragged down by the lack of full 
participation of populations in local economies, especially in 
developing parts of the world, and what levers, what tools can 
be used to ensure gender equality when it comes to access first 
to education but then to other aspects of a nation's economy.
    Mr. Sheets. I very much share your view, and I think that 
institutionally, the Treasury shares the view that education 
and encouraging strong education around the world is absolutely 
crucial. It is a key part of the development process, raising 
the expertise in the human capital of the public.
    We would further categorically agree with you that bringing 
women and girls into the education system and in the labor 
force is absolutely essential. We can look around the world and 
see countries that are quite advanced, as well as countries 
that are not advanced at all economically, that are not 
adequately using the capacities and the employment capabilities 
of women. And it is imperative, especially as we think about an 
aging global demographic, that women have opportunities in the 
labor force completely and fully.
    Now, consistent with what I am saying, education, 
particularly education of women and girls, is a key priority of 
the MDBs. It was one of the key priorities of the Financing for 
Development conference that was held last summer. It is at the 
center of the work programs in all of the MDBs. It is something 
that all of them are committed to achieving. Maintaining 
adequate resources for that is important.
    There is also another aspect of it, and that is a 
safeguards aspect of making sure that as projects are 
implemented, this objective of bringing in and allowing a fair 
participation, regardless of gender in projects, and that 
people are protected, that is also an important aspect of it as 
well.
    Mr. Kildee. Thank you. And just switching gears, I wonder 
if you could make any comments on the challenges, particularly 
in developing countries, regarding clean drinking water?
    I have a particular interest in the subject. I represent 
Flint, Michigan. I am often looking for some corollaries 
between the global challenges we face, and sadly, some of the 
unique challenges that we face in really distressed communities 
in our own country. But could you comment on the extent to 
which MDBs have been able to focus on the development of 
drinking water systems that don't absolutely have to have a 
market basis in order to be sustained? That is one of the big 
challenges, particularly in areas of high poverty.
    Mr. Sheets. This is also of great importance. I think that 
Representative Moore referred to access to water as being a 
human right, and I very much share that view.
    Water projects, sanitation projects, et cetera, et cetera, 
are core to the MDBs, and in fact, when I think about the 
restructuring that Jim Kim did at the World Bank where he 
reorganized the bank from focusing on regions to focusing on 
practice areas and areas of emphasis, one of those core areas 
that he is focused on is water and ensuring access and 
management and sanitation, and so on and so forth.
    The other point that I would make is I think the North 
American Development Bank, its mission of environmental 
infrastructure along the U.S.-Mexican border is also very 
relevant here of ensuring adequate access to water and 
sanitation and so forth in all parts of the United States.
    So I think there are a number of different dimensions here, 
and they are very important.
    Mr. Kildee. Thank you very much. I see my time has expired. 
I thank the chairman and the ranking member for this hearing 
and I yield back my time.
    Chairman Huizenga. The chairman appreciates your just self-
policing there on your time.
    The Chair recognizes Mr. Schweikert of Arizona for 5 
minutes.
    Mr. Schweikert. Thank you, Mr. Chairman.
    Dr. Sheets, I have a whole series of quick questions just 
for education dialogue.
    What is the most successful practice you believe that you 
have seen different development banks engage in to deal with 
corruption?
    Mr. Sheets. I think what we are seeing in the AML/CFT space 
right now is quite extraordinary, and the MDBs are working on 
it. We at Treasury have taken at look at this.
    Mr. Schweikert. Describe to me what the practice is.
    Mr. Sheets. The MDBs have technical assistance that is 
similar. Let me describe what we are doing in the space; it is 
similar. We have projects in 17 countries, and many other 
countries have requested it, where we send in teams of 
specialists who know bank supervision and how to root out 
unsavory transactions and sit down with their counterparts in 
developing countries and teach them how to do it, so it is 
really a hands-on technology transfer.
    Mr. Schweikert. Okay.
    Mr. Sheets. And I think that is the key, and you need to be 
hands on. You can't just pass a handbook. It has to be--
    Mr. Schweikert. And with that, going in the right 
direction, would you oppose, as we are getting ready to 
recapitalize and try to make sure we are doing things the right 
way, to also put in sort of the bad actor provisions, that 
these individuals cannot touch the money?
    Mr. Sheets. That bad actors, along with the AML/CFT, that 
bad actors--
    Mr. Schweikert. We have our classic examples of some of the 
assistance to Ukraine, and we know that certain folks managing 
the money are the very people whom we are also investigating 
for having done something dodgy.
    Mr. Sheets. Absolutely. In the Ukraine, as we have 
interacted with them in the contexts of the IMF program and 
also the loan guarantee--
    Mr. Schweikert. And I was just using them as an example.
    Mr. Sheets. Yes.
    Mr. Schweikert. It has been--
    Mr. Sheets. We have been emphatic about--
    Mr. Schweikert. --a worldwide phenomena.
    Mr. Sheets. --fighting corruption and making sure the bad 
actors aren't the ones who are in the position of applying the 
rules.
    Mr. Schweikert. In some of the literature, there is 
discussion about also trying to design the system so it is 
direct payments to contractors instead of it flowing through 
the partner country, that payment goes directly to the concrete 
company that delivered the concrete, all those sorts of things. 
Almost like if you were doing a development--let's say you were 
building some condos here or something of that nature, your 
bank, on occasion, would pay directly to your individual trades 
or contractors.
    Mr. Sheets. Yes.
    Mr. Schweikert. Is that comfortable?
    Mr. Sheets. I think the empirical literature on this 
suggests that to the extent you can make the payment directly 
to the source and cut out various administrative layers, 
unsurprisingly, that gives you much better results.
    Mr. Schweikert. Okay. So we have already come up with like 
two or three--
    Mr. Sheets. Yes.
    Mr. Schweikert. --at least conceptual reforms that we both 
like.
    Last one, and this one is a little more ethereal, but I 
think has a much grander scheme. There are a number of us here 
who have been talking about, for a couple of years, and--the 
idea of one of the most powerful things we could ever do in 
development aid is actually how do you get the money down to 
the population who is in most need of--is most in the 
categories of poverty?
    Okay. We have all seen the--we all grew up hearing the 
stories of the micro-lending in Bangladesh and those things. I 
am talking the next level where I have, even some of my poorest 
populations, walking around with some versions of smartphones 
where the smartphone is also their bank. How I do basically--I 
will use the term ``eBay'' or trade, and how do we use both the 
combination of technology and our resources to build that 
platform?
    So if I am here in North America and I go online and there 
is a small village in the middle of Myanmar that carves tables, 
that I can buy that directly from them, use this technology to 
send the money directly to them without the graft, baksheesh, 
whatever you want to call it, being skimmed off the top or huge 
portions of it disappearing, and that sort of bilateral trade 
with the folks in most need of it using our current technology. 
What do you believe your agency and organization would be 
willing to do to help us bring that about?
    Mr. Sheets. One frame on that is how to build micro-
nationals around the world. One place where we have seen this 
happening, and where the Treasury and the MDBs have been 
involved, is in India where the population has hundreds of 
millions of cellphones, and they are using those cellphones to 
connect into the financial system and to enhance financial 
inclusion.
    Mr. Schweikert. Mr. Chairman, I know I am out of time, but 
those four things, the three about corruption and the one about 
sort of the resources also going directly to the folks we 
intend to help by trading with them, and building a platform to 
do that, those are all ideas I would like to present to you in 
writing at some point. Thank you, Mr. Chairman.
    Chairman Huizenga. We appreciate that. And if it is all 
right with you, Secretary Sheets, the ranking member and I have 
discussed doing a brief second round as well, which may just 
consist of a couple of us, but I had a couple of follow-up 
questions, and we want to be mindful of your time as well.
    But with that, pursuant to our rules when we don't have 
anybody on the other side of the aisle present, we will go to 
the next person on the Majority side, Mr. Emmer from Minnesota.
    Mr. Emmer. Thank you, Mr. Chairman. Thanks for holding this 
hearing, and thank you to the Under Secretary for joining us 
this morning.
    We are here today, as I understand it, to discuss the World 
Bank and the four regional MDBs because the Treasury is 
currently negotiating a replenishment of the World Bank and the 
African Development Bank. And the term ``replenishment'' is 
really another way of saying what Americans are being asked to 
contribute. Isn't that correct?
    Mr. Sheets. Yes.
    Mr. Emmer. And there is a paid-in amount and then there is 
an overall commitment, correct?
    Mr. Sheets. There are two modalities through which these 
contributions are made. One is through capital increase, which 
would be the called in, but there are also in the concessional 
windows that are used to support the poor.
    Mr. Emmer. If I can interrupt, Mr. Sheets. I understand--
    Mr. Sheets. Though we make contributions directly.
    Mr. Emmer. That is not where I am going. I am just asking, 
if it is not true that we have a paid-in amount that the United 
States will actually deliver in cash--
    Mr. Sheets. Right.
    Mr. Emmer. Where it goes, I am not concerned right now. And 
then there is an overall commitment, the number that we have 
capital-on-call, if you will, correct?
    Mr. Sheets. Yes. I was just saying, particularly at the 
World Bank, I think of it as two accounts. The GCI, the paid-in 
capital requirement to the balance sheet, that is not on the 
table now. Now we have the IDA, which will go to support the 
poorest through concessional lending and grants.
    Mr. Emmer. And I appreciate the clarification. For the past 
3 years, because my understanding is now every 3 years we have 
to do this, and let's just talk about the World Bank, what was 
the overall amount paid in by the United States as opposed to 
what was the overall commitment?
    Mr. Sheets. So my recollection--do we have that number? 
Okay. So the overall replenishment for IDA 3 years ago was $52 
billion.
    Mr. Emmer. Okay.
    Mr. Sheets. And the United States paid in $3.9 billion, and 
these were payments to the concessional window for the poorest.
    Mr. Emmer. Got it. So now we are talking about the next 3 
years. Treasury is proposing what for the paid-in amount, the 
overall commitment? Let's do it the other way.
    Mr. Sheets. We are now in vigorous negotiations with 
foreign counterparts as to where this thing might land. My 
instinct is that the next replenishment is going to look 
broadly similar in terms of size to where we were before.
    Mr. Emmer. All right. Now two of the goals of the World 
Bank are: one, end extreme poverty; and two, push for greater 
equity. I think that as part of the goal of ending poverty in 
underdeveloped and developing countries, to lift their standard 
of living around the globe, the World Bank, the idea is, it 
facilitates the availability of capital to deploy on projects 
that these underdeveloped and developing countries can use to 
develop, for instance, their transportation infrastructure, 
correct?
    Mr. Sheets. Absolutely.
    Mr. Emmer. And their water and sewer infrastructure, their 
energy infrastructure, their communication infrastructure, all 
of these things, right?
    Mr. Sheets. All of the above.
    Mr. Emmer. And as I was reading it conceptually, my 
colleague from Michigan earlier talked about the important 
foreign policy considerations of making sure that we have 
stable countries around the globe, that their standard of 
living is rising not only so that they can trade with the 
United States and others but so we can develop a relationship 
that perhaps doesn't lead to conflict down the road. That is 
one of the purposes.
    Mr. Sheets. Yes, exactly.
    Mr. Emmer. But it is also to an advance, isn't it--it is 
also a part of what the Administration, whomever is in charge, 
uses to advance their global agenda, isn't it?
    Mr. Sheets. There are policy judgments that are made.
    Mr. Emmer. And let's talk about that quickly because in the 
time I have left, the loans that are being made, whether they 
are to middle-income countries or to those that need the help 
in the concessional window, the loans aren't just based on an 
ability to pay and a plan as to how to pay. The World Bank 
makes a decision as to whether or not this project is worthy 
based on social considerations as well as an ability to pay?
    Mr. Sheets. Yes. I will say, inevitably, there is a 
prioritization--
    Mr. Emmer. Let me--
    Mr. Sheets. --of the project.
    Mr. Emmer. I will be very specific. My understanding is 
that the World Bank will not facilitate financing for a hydro-
electric development in a developing nation at this point.
    Mr. Sheets. I have no basis to--as far as I know, that it 
can.
    Mr. Emmer. It can.
    Mr. Sheets. Yes. Why I--
    Mr. Emmer. That isn't the point. It can. They can do a lot 
of things.
    Mr. Sheets. They can.
    Mr. Emmer. But my point is, there has been a decision made 
somewhere that it will not facilitate loans for hydro-electric 
development.
    Mr. Sheets. The Power Africa is about bringing all various 
kinds of power into Africa.
    Mr. Emmer. I see my time has expired. If we can just do 
this, Mr. Under Secretary--
    Mr. Sheets. Yes.
    Mr. Emmer. --going forward, can I get with your office and 
get a list?
    Mr. Sheets. Yes.
    Mr. Emmer. Somewhere, it has to be written down.
    Mr. Sheets. Yes.
    Mr. Emmer. What is appropriate, what is not.
    Mr. Sheets. Yes. And I would be happy to chat with you 
offline as well.
    Mr. Emmer. Thank you.
    Mr. Sheets. Thanks for your questions.
    Mr. Emmer. Thank you.
    Chairman Huizenga. The gentleman's time has expired. I will 
remind the gentleman that he can also submit written questions 
to the Chair, and we will forward those on and be able to get 
some of those answers on the record that would probably be 
illuminating for everybody.
    Mr. Emmer. Thank you, Mr. Chairman.
    Chairman Huizenga. Without objection, we are going to move 
to a second round of questioning. And with that, the Chair 
recognizes the ranking member for 5 minutes.
    Ms. Moore. Thank you so much, Mr. Chairman. And thank you 
for your indulgence and patience with us, Under Secretary 
Sheets.
    I don't want to belabor the point here, but we have talked 
a lot about accountability and transparency at these 
institutions, and I am wondering--and I know that I am very 
impressed with the fact that we have been able to get some sort 
of cooperation among and between these multi-development banks.
    But I am wondering, are we able to sort of export our 
concerns about corruption and so on to these other banks? To 
the extent that they are independent but they have carved out 
their separate roles for development in their regions, to what 
extent are we able to enforce safeguards and transparency among 
the banks? What is that mechanism?
    Mr. Sheets. We are the largest shareholder in the World 
Bank, but we are also the largest shareholder in all of the 
regional development banks, with the exception of the African 
Development Bank where Nigeria is number one and we are number 
two.
    Ms. Moore. What about the Asian Development Bank?
    Mr. Sheets. In the Asian Development Bank, we and the 
Japanese have the same share, so we are co-largest in that 
institution. So we are a very significant voice in the boards 
of all of those institutions, and in all of those institutions, 
we vigorously advocate for the kinds of things that we talked 
about today.
    And as a result of our advocacy and through the choice of 
leadership of the institutions, I think we have been quite 
effective in raising this as a key goal for these institutions 
to achieve. Of course, there is always work to be done to 
achieve the goal more effectively, but--
    Ms. Moore. What about BRICS?
    Mr. Sheets. What is that?
    Ms. Moore. The BRICS.
    Mr. Sheets. The BRICS bank.
    Ms. Moore. The BRICS multi-development bank across 
countries.
    Mr. Sheets. With the BRICS bank, the key shareholders are 
Brazil, Russia, India, China, and South Africa, and that is a 
new institution that they have recently established. There our 
influence has to be more indirect, and it is a matter of 
engaging with that institution and with those countries and 
encouraging them to pursue these policies.
    The BRICS bank hasn't made any loans yet, so it is too 
early to say whether or not they will follow these practices, 
but my sense is that these practices are good policy and the 
case for them is very strong, so we will continue to persuade 
them to follow it.
    Ms. Moore. Good. Are we anticipating participating in loans 
with BRICS funds?
    Mr. Sheets. As the BRICS banks have acceptable loans, I 
think that the MDBs would consider that. But I would say, given 
the more limited shareholdership in that institution, that is 
somewhat less likely than co-financing with the AIIB where many 
more countries around the world are actually members.
    Ms. Moore. We should watch this very carefully.
    Mr. Sheets. Indeed, yes, we are.
    Ms. Moore. Okay. Thank you. I yield back.
    Chairman Huizenga. The gentlelady yields back. The Chair 
now recognizes himself for 5 minutes as we wrap this up.
    Under Secretary Sheets, on page two of your written 
testimony, you talk about the NADB bank and how it is unique, 
and at the end of that first paragraph say that, ``The NADB 
bank's financing of projects in areas like wastewater 
collection and treatment, solid waste management, and air 
quality improvement enhance the quality of life and protect the 
environment and communities on both sides of the border.''
    There is, however, evidence in a chart in front of me here 
that two-thirds of the financing of the NADB bank is in wind 
and solar, and I think that goes back to my colleague, Mr. 
Pittenger's, question, and being from Michigan as well, and my 
mother being from Flint originally, I am very concerned about 
what has been happening with Flint, and what Mr. Kildee was 
talking about, and it seems to me that maybe NADB bank has 
really pulled itself off of its core intent, wastewater 
collection and treatment, solid waste management, air quality 
improvement.
    And as I recall with NAFTA passing early in the Clinton 
Administration, that was a major, major concern, that you were 
going to have companies shifting across the border and then 
having all of their environmental regulations taken off, a 
shared watershed along the Rio Grande, that things were just 
going to be dumped in there, and the idea of the NADB bank was 
to be going in and making sure that there was the 
infrastructure, whether it is drinking water or sanitation, 
roads, all of those different things, not two-thirds of its 
portfolio in solar and wind power.
    And so I think it begs the question now, aren't they 
pulling those dollars away from some of that vital 
infrastructure that Mr. Kildee was talking about?
    Mr. Sheets. My understanding is that they are operating 
consistent with their mandate, which is environmental 
infrastructure. Part of that is ensuring reliable power 
sources.
    Chairman Huizenga. Would you acknowledge that is maybe a 
little broader definition of what environmental infrastructure 
might be than it was in 1993, I guess it was, when this was 
passed? We didn't have massive wind farms envisioned at that 
point.
    Mr. Sheets. Right. But I would think that it would include, 
on the one hand, ensuring sustainable energy for the region and 
also ensuring reliable energy for the region. But as you said, 
these other functions of water and sanitation and roads and so 
on and so forth are also of great importance.
    Chairman Huizenga. Okay. And I want to, in the last 
remaining 2 minutes here, hit on the BRICS banks and the AIIB 
as well. And I am very concerned and curious, will the Asian 
Infrastructure Investment Bank and BRICS bank hold borrowers to 
the same standards that these other MDBs, and transparency? 
Give me a comment on that.
    And then, given the turbulent economic state of China, 
Brazil, Russia, you name it, with what is happening there, what 
is their impact at this point?
    Mr. Sheets. On the AIIB and holding borrowers to the same 
standards, that is the core, the crux of our engagement with 
the Chinese on this issue is pressing for approaches and lender 
modalities that are consistent with these best practices that 
we have discussed in this hearing.
    Chairman Huizenga. Is there any reason to believe, though, 
that they are going to follow through on that? Much like they 
don't adhere to our standards on their own air pollution 
standards, for example.
    Mr. Sheets. The written documents that have been produced 
are broadly consistent with international best practice, so I 
would say that is a positive. And there were countries, and we 
are working with them as well, who are members of the AIIB who 
are pushing. So we are pushing the Chinese directly. We are 
also working with those that are members to push on the board.
    And then a third modality to achieve this outcome is for 
them to co-finance with the MDBs in the sense that, as they are 
getting coming together and doing projects jointly, they 
inherit all of these safeguards and practices that we 
described. But this is a key issue. We are watching it very 
closely, and we will continue to emphasize to the Chinese the 
necessity of following through.
    I guess one other point here that is material to your 
question is during the summit in September between President Xi 
and President Obama, the Chinese committed to ensure that the 
practices of the AIIB would be consistent with best standards.
    Chairman Huizenga. With that, my time has expired.
    And we would like to welcome Mr. Meeks of New York here for 
round two, and I think he will be our final questioner. So with 
that, the Chair recognizes Mr. Meeks from New York for 5 
minutes.
    Mr. Meeks. I thank the chairman and the ranking member.
    Mr. Sheets, good morning to you. I have been watching and 
working with, and following the work of the MDBs for awhile, 
being on this committee for a long period of time, longer than 
I care to think about. And I have no doubt in my mind that 
their mission is absolutely essential for combating poverty and 
for the most vulnerable regions, and that is absolutely 
essential for our own national interests, both economically and 
for our security.
    But I am not sure if they are doing enough and that 
institutions like the IMF and the World Bank have the capacity 
to do enough to drastically reduce poverty. The World Bank and 
other MDBs are currently looking for ways to leverage the 
equity from their concession window so they can do more in 
terms of grants and concessional loans, and I support these 
initiatives. But I want to make sure that greater concessional 
support would be accompanied by better governance.
    I think that not just at the project level but also at the 
country level. And what I want to do is so that we can set an 
example so that if they--you see better governance happening, 
other countries can see that if you do better, then the 
likelihood of them getting the support would be great.
    And that will help and have a huge impact in reducing 
poverty. So I was wondering if you could give me a comment on 
that?
    Mr. Sheets. I broadly agree with your assessment. First, it 
is important for us to continue to think of ways to better 
utilize and leverage the resources of these institutions, 
particularly with an eye to continuing to meet the needs of the 
poorest countries.
    As we discussed earlier, we have seen that achieved with 
some success at the Asian Development Bank, and there is now a 
process ongoing at the World Bank thinking about how to better 
to deploy the IDA resources and how those resources might be 
better used to meet the needs of both developing and other 
countries.
    The other part of your question, I think, very much cuts to 
the importance of safeguards and ensuring that the lending 
processes are high quality and incorporating the experience of 
the past. And not only that we articulate that up front as 
being important but that actually, once these projects are in 
place and completed, that resources be allocated to ensure that 
the safeguards have been followed so that there is a focus not 
only on articulating good safeguards but on implementing them 
and monitoring them after the fact, and make sure that the 
countries that are involved, the companies that are involved, 
the workers and so on and so forth that are involved, are 
following through on those best practices.
    Because as you say, the countries that are following 
through and implementing are the ones that should be rewarded 
with additional financing and should be given priority. I have 
talked about this prioritization process. And in some sense you 
have to prioritize across sectors. You also have to prioritize 
across countries. And those countries that are following 
through and engaged are the ones that should be given priority 
for more funding going forward.
    Mr. Meeks. All right. I concur with you.
    Let me also add, Director Lagarde has recently been very 
clear that her institution at the IMF lacks the resources to 
respond to potential emerging market debt crises, which is now 
an emerging risk in the face of the commodities prices slump 
and currencies devaluations that we have seen across many of 
the regions.
    She has called, for example, for currency swap lines with 
central banks, and for credit lines with the MDB, so that 
developing countries can reallocate some of their foreign 
reserves to local investments. And I was just wondering, has 
the Treasury looked into this request at all?
    Mr. Sheets. Our sense is that with the passage of the quota 
reforms, and they were agreed to in 2010 and then recently 
completed this year, the IMF is well-resourced and is in a 
position where it is able and should be able respond to the 
challenges that emerging markets in developing countries face.
    Now, in addition to the discussion of the size of the IMF's 
balance sheet, there is also a discussion of what is being 
called ``global financial safety nets,'' so is there some way 
to provide an additional kind of backstop for emerging market 
economies to, or in developing countries, to give them 
liquidity during a time of stress? The IMF provides some of 
that through its flexible credit lines or FCL, but is there 
some way, working together, the international community can 
provide additional support?
    My sense is that, to date, those discussions are very 
preliminary, and we haven't yet seen a way forward that makes 
sense.
    Mr. Meeks. Thank you.
    Chairman Huizenga. The gentleman's time has expired, and we 
welcome an additional member of the committee here, Mr. 
Hinojosa of Texas, for 5 minutes.
    Mr. Hinojosa. Thank you, Chairman Huizenga, and Ranking 
Member Moore. Forgive me.
    Chairman Huizenga. Please proceed.
    Mr. Hinojosa. I want to thank you and Ranking Member Moore 
for holding this hearing on development banks. I can say that 
today's schedule is extremely packed, and I have been at two 
other hearings where I just had to speak because I had some 
bills there.
    I want to take this opportunity to ask a question that is 
on a subject that involves the bank that I am so interested in, 
so I could say that over the history of the NADB bank located 
in San Antonio and serving Mexico and the United States has 
financed 218 projects, with only 26 in the area of renewable 
energy, including wind and solar, which is a slight 11 percent.
    In fact, over the last 5 years, 41 of those projects have 
been completed in the area of water and wastewater, while only 
18 clean and renewable projects have been completed. Few, if 
any, have that record that I just read to you, but the benefits 
that are being received by the constituents on my side of the 
Texas congressional district, and then of course the people 
from Mexico where these projects were done, have improved 
quality of life in a way that is easy to see and appreciate.
    My question is, how does NADB bank financing renewable 
projects help the bank accomplish its mission, as well as 
produce economic development and opportunity for the 
impoverished communities along the United States-Mexico border?
    Mr. Sheets. We very much share the assessment of the NADB 
bank that you articulated, that it has been a powerful source 
of development along both sides of the border and that there is 
clear additionality here with this institution that is able to 
do projects in the United States as well as in Mexico and work 
directly with municipalities and so forth in ways that the 
other MDBs would not be able to do.
    Now, consistent with the mandate for environmental 
infrastructure, it is, as you indicate, very important to focus 
on water and sanitation and roads and so on and so forth along 
the border, but also sustainable, reliable sources of energy 
are a very important objective in the economic development of 
that region. So that is how we would see that fitting into that 
broader mandate.
    Mr. Hinojosa. Dr. Sheets, how is the NADB bank accountable 
to the United States for our portion?
    Mr. Sheets. We, along with the Mexican Government--the U.S. 
Government and the Mexican Government are the shareholders, so 
we would be on the board of those institutions and manage them.
    Mr. Hinojosa. The monies that are used at NADB bank are put 
in, half from the United States, and half from the Mexican 
government?
    Mr. Sheets. Correct.
    Mr. Hinojosa. I have been talking to friends on both sides 
of the aisle, and they seem to be very impressed with the 
quality of the projects and the success that they have had, how 
they have benefitted, and so we have asked for an increase so 
that it will be $6 million, half and half, both governments.
    Do you support that?
    Mr. Sheets. Very much so. This capital increase would allow 
the NADB bank to continue to lend at a pace of $200 to $250 
million a year, which is essentially where it has been in 
recent years. Our sense is that the demand along the border is 
quite substantial, and the need there is significant.
    Also, as you indicate, our counterparts in Mexico look at 
this as a very important signal of our bilateral commitment and 
the capacity of the two governments to work together, which is 
something that we see as being very important.
    Mr. Hinojosa. I appreciate that kind of support.
    Mr. Chairman, I would like to ask unanimous consent to 
enter the NADB bank's 2014 annual report and Moody's 2015 
rating of the NADB bank into the record for today's hearing.
    Chairman Huizenga. Without objection, it is so ordered. And 
you actually beat me to the punch.
    Mr. Hinojosa. With that, I yield back.
    Chairman Huizenga. The gentleman yields back. I was going 
to request the same to point out the charts that NADB bank 
itself had submitted for 2013 and 2014. As far as their total 
dollar infrastructure spent, 36.6 percent in wind energy and 
26.5 percent in solar energy in 2013; and 36.3 percent in wind 
energy and 28.8 percent in solar energy in 2014.
    Those were their own numbers, which we are comparing apples 
and oranges when 26 of those projects accounted for two-thirds 
of the total funding that they utilized.
    So without objection, the NADB bank 2014 annual report will 
be submitted.
    And I would like to thank our witness today for his 
testimony, the Honorable Dr. Nathan Sheets.
    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 his 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.
    This hearing is adjourned.
    [Whereupon, at 11:45 a.m., the hearing was adjourned.]

                            A P P E N D I X



                             April 27, 2016


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