[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
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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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