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

                        THE IMPACT OF THE INTERNATIONAL
                       MONETARY FUND: ECONOMIC STABILITY
                                OR MORAL HAZARD?

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

                                    HEARING

                                   BEFORE THE

                            SUBCOMMITTEE ON MONETARY

                                POLICY AND TRADE

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 17, 2015

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 114-35

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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
    BILL POSEY, Florida                  JAMES A. HIMES, Connecticut
    LYNN A. WESTMORELAND, Georgia        JOHN C. CARNEY, Jr., Delaware
    MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
    ROBERT PITTENGER, North Carolina     PATRICK MURPHY, Florida
    LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
    DAVID SCHWEIKERT, Arizona            DENNY HECK, Washington
    FRANK GUINTA, New Hampshire
    MIA LOVE, Utah
    TOM EMMER, Minnesota

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        June 17, 2015................................................     1
    Appendix:
        June 17, 2015................................................    33

                                   WITNESSES
                            Wednesday, June 17, 2015

    Lowery, Clay, Vice President, Rock Creek Global Advisors LLC.....     3
    Lundsager, Meg, Public Policy Fellow, Woodrow Wilson
      International Center for Scholars..............................     5
    Taylor, John B., Mary and Robert Raymond Professor of Economics,
      Stanford University............................................     7

                                    APPENDIX

    Prepared statements:
        Lowery, Clay.................................................    34
        Lundsager, Meg...............................................    40
        Taylor, John B...............................................    45

                        THE IMPACT OF THE INTERNATIONAL
                       MONETARY FUND: ECONOMIC STABILITY
                                OR MORAL HAZARD?

                                  ----------

                            Wednesday, June 17, 2015

                 U.S. House of Representatives,
                               Subcommittee on Monetary
                                      Policy and Trade,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 2:04 p.m., in
    room 2128, Rayburn House Office Building, Hon. Bill Huizenga
    [chairman of the subcommittee] presiding.
        Members present: Representatives Huizenga, Mulvaney, Lucas,
    Pearce, Pittenger, Emmer; Moore, Kildee, and Heck.
        Chairman Huizenga. This hearing of 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. And I will note that we
    have been told to expect votes sometime between 3:15 and 3:45.
        Today's hearing is entitled, ``The Impact of the
    International Monetary Fund: Economic Stability or Moral
    Hazard?''
        And I now recognize myself for as much time as I may
    consume to give an opening statement.
        Today, we will examine closely U.S. contributions to the
    International Monetary Fund (IMF), and the role that the IMF
    plays in terms of global financial surveillance, technical
    assistance, and, of course, lending.
        Although the IMF membership is comprised of 188 countries,
    today the United States is the biggest contributor to the IMF,
    accounting for more than 17 percent of its quota resources. If
    a major default were to occur, it could put U.S. taxpayers on
    the hook for billions of dollars.
        Since the global financial crisis of 2008, there has been
    an increased attention on the IMF's activities and the role in
    the global economy. In recent years, the IMF has bent the rules
    multiple times as it relates to exceptional access.
        The most egregious was the loan to Greece, which was 3,212
    percent of Greece's quota, I will note, well above any of those
    quota norms. We wouldn't let a bank in this country make a loan
    this exorbitant in nature. So why does the IMF believe American
    taxpayers should back a loan that, by our Nation's standards,
    should not have been made in the first place?
        The 2009 Congress authorized a $100 billion commitment to
    the IMF in an account called, ``New Arrangements to Borrow
    (NAB).'' For the past 5 years, the Obama Administration has
    requested $63 billion of that authorization to be transferred
    to a permanent paid-in capital account. This would still leave
    billions in the NAB account, even though the NAB account is
    supposed to only be temporary.
        Now, why should hardworking taxpayers' dollars be used to
    bail out other countries, especially after suffering from
    bailout fatigue in our own backyard? If you will recall, the
    American taxpayers were forced to bail out such entities as
    Fannie Mae, Freddie Mac, and the Federal Housing Authority.
        Instead of furthering the bailout culture, wouldn't it make
    more sense for the United States to encourage advanced nations
    receiving loans from the IMF to better manage their spending
    and borrowing?
        Currently, every dollar that Congress sends to the IMF
    implicitly condones the IMF sending money from countries
    struggling to find their economic footing to nations in danger
    of squandering their inheritance.
        To be more direct, the use of the IMF as a backstop for
    advanced European countries calls into question, in my mind,
    whether this institution has become an enabling crutch instead
    of a helping hand.
        As we know from our experiences in this country, guarantees
    in bailouts can create moral hazards. Even for the most
    advanced nations, the freedom to succeed requires the freedom
    to fall and get back up again.
        I look forward to a meaningful discussion on the
    International Monetary Fund, and I look forward to hearing from
    our witnesses today.
        With that, I yield back the balance of my time.
        I will now recognize my ranking member, Ms. Moore from
    Wisconsin.
        Ms. Moore. Thank you so much, Mr. Chairman. And I want to
    thank you for calling this hearing. It is a very important
    hearing, and it is a subject that certainly deserves
    congressional attention.
        We are increasingly in a global world, for all that means,
    good and bad. And so I think the importance of the mission of
    the IMF has only been elevated. From the onset, let me say that
    I think that the United States Congress needs to immediately
    move to ratify the new IMF quota system. There is broad
    agreement that it is the rational move, and it has been agreed
    to.
        U.S. leadership and engagement in economic policy is vital
    in the long-term interest of our country. Global economic
    stability is, as we all know, smart geopolitics. Our borders
    are no longer a guarantee that what happens in far-off lands
    does not impact our shores economically or otherwise. Congress'
    lack of action has hurt U.S. standing internationally.
        Further delay makes even less sense as China moves to fill
    the vacuum created by the lack of action by this Congress. I
    know that one of our witnesses wants to tie approval of the
    quota system to other IMF reforms, and I respectfully disagree
    on that point and welcome the engagement on that, while being
    entirely open to considering the case for IMF reforms, but not
    necessarily to making approval of the quota system contingent
    on acceptance of these yet-to-be-debated reforms.
        First, time is of the essence, given the delay we have
    already seen. And, second, I think it would be an act of bad
    faith to hold this agreed-to quota realignment hostage to
    unspecified secondary demands.
        Finally, I want to say that I think that the U.S. Federal
    Reserve, the Treasury, and the Financial Stability Oversight
    Council are great, but I think that the IMF remains an
    important second set of eyes in global stability. And I think
    that the advice and stability role that they fill provides a
    valuable service to the United States and to the world.
        And, Mr. Chairman, I yield back.
        Chairman Huizenga. The gentlelady yields back.
        With that, we are going to start with our testimony. The
    order here will be Mr. Lowery, Ms. Lundsager, and then Mr.
    Taylor.
        Clay Lowery, who is the vice president of Rock Creek Global
    Advisors, joins us today. He had served as the Assistant
    Secretary for International Affairs at the Treasury Department
    from 2005 to 2009.
        And currently, with Rock Creek Global Advisors, he consults
    on sovereign debt, exchange rates, investment policy, and
    financial regulation. He is currently advising multi-national
    companies and financial institutions and trade associations on
    these matters.
        So with that, Mr. Lowery, we appreciate you being here and
    recognize you for 5 minutes.

      STATEMENT OF CLAY LOWERY, VICE PRESIDENT, ROCK CREEK GLOBAL
                              ADVISORS LLC

        Mr. Lowery. Thank you very much, Chairman Huizenga and
    Ranking Member Moore, as well as the other members of the
    subcommittee. I want to thank you for this opportunity to
    testify on the IMF.
        I am honored to be testifying alongside John Taylor, who is
    not only my former boss, but he is one of the most important
    macroeconomic thinkers in the United States, as well as with
    Meg Lundsager, who is a long-term colleague who is very deeply
    knowledgeable about the IMF.
        The IMF promotes three objectives--macroeconomic stability,
    financial stability, and economic growth--using three basic
    tools: technical assistance; surveillance; or basically,
    evaluation of a country's financial policies and economic
    policies and lending.
        When the IMF lends money, the country is usually in very
    deep financial trouble. To protect itself from this highly
    risky form of lending, the IMF relies on two things: one, a
    presumption that its credits are senior to other credits: and
    two, a requirement that the borrowing country undertake reforms
    to alleviate the concerns of throwing good money after bad. As
    you can imagine, these things can be controversial, as we are
    currently seeing in Greece.
        The IMF finances itself through contributions by member
    countries, which are called quota. That takes into account a
    country's relative economic size. So, for instance, instead of
    being one country, one vote, as is the case in many
    international institutions, the United States has roughly 17
    percent of the voting share. No other country is even close.
    Japan is second, with around 6 percent.
        The IMF has evolved over the last 70 years, but one area
    that has harmed it in its legitimacy and its relevance is a
    representation structure that no longer fit the international
    economy.
        And so from 2005 through 2010, both in the Bush
    Administration and the Obama Administration, the United States
    led an effort to try to fix this problem. The 2010 agreement is
    the culmination of these efforts.
        First, it alters the voting wage to make adjustments so
    that countries such as China and Mexico and Korea will see
    their votes increase noticeably while others will fall. The
    United States will basically stay the same.
        Second, it alters how voting shares are translated into
    board seats. There are 188 members in the IMF, but only 24
    board seats. Europe disproportionately holds too many seats.
    After the reform package is put together, we will see that
    dynamic emerging market countries will have more seats, Europe
    will have less seats, and the United States will still have its
    seat.
        The quota reform also doubles IMF quota resources, as the
    chairman noted. It does this by reallocating money from an
    emergency pot of money called the ``New Arrangements to
    Borrow'' to the normal IMF pool of money based on quota
    allocation.
        For the United States, we will not increase our total
    contribution to the IMF, but instead will transfer a portion of
    our NAB contribution to quota resources. This allocation
    requires authorization and appropriations from Congress. To
    date, every major country has ratified this reform package
    except for the United States.
        So there are many economic and financial reasons for why we
    should support the United States, and it is probably not
    surprising to you that every Secretary of the Treasury, most
    U.S. Trade Representatives, and the Federal Reserve Chairmen
    since the Carter Administration have supported this IMF reform
    package.
        But maybe, just as importantly, the IMF is a foreign policy
    tool that the United States has called upon many times to
    provide finance and advice, whether it was South Korea in the
    1990s, Afghanistan and Iraq in the 2000 period, or Ukraine
    today. But I can provide you a more personal example of this.
        In 2008, I worked for many hours with the Prime Minister of
    Georgia after his country was invaded by Russia. He was worried
    about a banking crisis, and he was looking for liquidity.
        While the United States was very supportive of Georgia, we
    were in the midst of our own financial crisis in 2008 and were
    not in a position to provide emergency liquidity. Instead, we
    worked with the IMF, which stepped up very quickly to provide
    the financing Georgia needed to preserve confidence in its
    banking system and save its economy.
        In other words, the IMF is an important tool to conduct
    strong foreign policy and to provide the conditions that assist
    in keeping our troops out of harm's way. Don't take my word for
    it.
        Most of the Secretaries of Defense, National Security
    Advisors, and Secretaries of State from President Nixon through
    President Obama have supported the legislative request of this
    Administration. They recognize that U.S. leadership in the IMF
    is not only vital to the institution, but also important to our
    own national security interests.
        The IMF is far from perfect and will continue to need U.S.
    leadership to reform and evolve. However, U.S. leadership
    cannot occur from the sidelines and must come in the form of
    strong legislation with appropriate conditions.
        Therefore, I ask that Congress work with the Administration
    and join what I believe is a strong bipartisan consensus and
    demonstrate this leadership.
        Thank you. I am happy to answer any questions.
        [The prepared statement of Mr. Lowery can be found on page
    34 of the appendix.]
        Chairman Huizenga. Thank you, Mr. Lowery.
        With that, we will go to Ms. Meg Lundsager. She is a public
    policy fellow at the Woodrow Wilson International Center for
    Scholars, and she currently consults on international economic,
    financial, and regulatory issues.
        And while the United States Executive Director on the IMF
    executive board from 2007 through 2014, she focused on
    achieving effective IMF input into lending programs in Europe,
    securing adequate IMF resources, supporting low-income
    countries, and strengthening IMM oversight of exchange rate
    policies.
        And with that, Ms. Lundsager, we appreciate you being here
    and recognize you for 5 minutes.

       STATEMENT OF MEG LUNDSAGER, PUBLIC POLICY FELLOW, WOODROW
                WILSON INTERNATIONAL CENTER FOR SCHOLARS

        Ms. Lundsager. Thank you, Chairman Huizenga, Ranking Member
    Moore, and members of the subcommittee for inviting me today.
        During my 14 years with the IMF, I represented three
    Presidents. I was nominated first by President Clinton, then by
    President Bush, and I continued to serve under President Obama.
    I am currently a public policy fellow, and I should just note
    that my views today are my own and not those of the Wilson
    Center.
        During the global financial crisis, the IMF was
    instrumental in helping many countries recover and return to
    private market financing. The IMF draws on many members to
    provide financing, keeping the U.S. share a little bit above 20
    percent, as Mr. Lowery was just describing.
        Nonetheless, U.S. leadership was crucial to bringing
    together all the elements needed for the IMF's international
    response, but that leadership is eroding as the United States
    delays approving the 2010 quota and governance reforms.
        The United States has the largest single country vote in
    the IMF with a veto over key decisions, such as amending the
    articles and increasing IMF financing. This current voting
    structure, though, doesn't really represent the rapid growth
    and emerging markets in developing countries. So we have
    Belgium with a larger vote in South Korea, Mexico, or Turkey.
    That is quite anomalous.
        The United States recognizes distribution of voting power
    threatens to undermine the legitimacy of the International
    Monetary Fund, and beginning in 2006 the Bush Administration
    proposed steps to realign quotas. And in 2010, IMF members
    reached a broader agreement, which now awaits U.S. approval.
        Today's hearing presents an opportunity to clarify the
    elements of the 2010 package, and I have provided many details
    in my written statement.
        First, the U.S. share will remain comfortably above the 15
    percent veto threshold. And, as you, Mr. Chairman, and Mr.
    Lowery explained, there is no change in the U.S. financial
    commitment with the shift coming from the New Arrangements to
    Borrow and being shifted to the quota.
        But Europe's voting share will decline and dynamic emerging
    market share will increase. These changes should help keep
    global economic policymaking centered in the IMF, and key U.S.
    allies will gain, including Mexico, South Korea, Poland, and
    the Baltic nations.
        Second, some claim the IMF should not have rescued Eurozone
    countries. But without the IMF as the crisis manager in Europe,
    I believe we risked a dissolution of the Eurozone, which would
    have reduced U.S. exports and increased the risk of European
    bank failures, ultimately affecting U.S. financial institutions
    and corporations as well as our stock and bond markets. The
    U.S. economic recovery would have been undercut.
        Did the IMF's ability to lend large amounts incentivize
    Eurozone countries to mismanage their finances and slide into
    crisis? That hardly seems likely, as evidenced by the very
    demanding policy adjustment programs they have had to
    implement. Countries avoid turning to the IMF until no other
    option remains. And while some investors might seek high
    returns in higher-risk countries, thinking that IMF will
    finance their exit, those illusions should be dissipating as
    some countries resort to capital controls and others turn to
    debt restructurings.
        Third, over the many decades of the IMF's existence, U.S.
    leadership and ideas has persuaded others to join in promoting
    reforms. The United States has been a leading voice for
    accountability, transparency, and change both at the
    institution itself and within member countries.
        U.S. initiatives at the IMF have led to much more openness
    in government accounts, sounder financial institutions as
    countries improve regulatory oversight, reductions in the
    financing channels for money launderers and terrorists, and
    improved economic growth and stability in low-income countries.
        Furthermore, important U.S. national security priorities
    were supported by IMF lending programs and technical assistance
    for Iraq, Afghanistan, Tunisia, and Jordan, among others.
        More recently, the IMF responded to U.S. calls to increase
    support for the Ebola-affected countries in Western Africa and
    to underpin economic reforms in Ukraine with vital financing in
    the face of internal conflict and Russian economic pressure.
        Sadly, U.S. leadership continues to erode as the United
    States delays approval of these reforms. In my last months at
    the IMF, it became increasingly clear that other countries had
    little enthusiasm for U.S. proposals such as extending the zero
    percent interest on low-income country loans.
        Let me just turn to a key financing issue. The IMF has a
    backstop of numerous bilateral loan agreements with a subset of
    nations. I fear that, if the United States does not ratify the
    2010 reform, strengthening the IMF core capital, the IMF will
    continue to seek bilateral loans negotiated with less
    transparency and without U.S. involvement. These decisions
    should be made around the board table with all of us there.
        Thank you very much, Mr. Chairman. And I look forward to
    your questions.
        [The prepared statement of Ms. Lundsager can be found on
    page 40 of the appendix.]
        Chairman Huizenga. Thank you.
        And, with that, we turn to Professor John Taylor. Professor
    Taylor has a very long and impressive career, including
    authoring many books and articles. He is currently the Mary and
    Robert Raymond Professor of Economics at Sanford University and
    the George P. Shultz Senior Fellow in Economics at the Hoover
    Institute.
        He is known for his research on foundations on monetary
    theory and policy, which is applied by central banks and
    financial market analysts around the world.
        And specifically related to this, for 4 years, between 2001
    and 2005, Professor Taylor served as the Under Secretary of
    Treasury for International Affairs, where he was responsible
    for currency markets, trades and financial services, foreign
    investment, and also the IMF and the World Bank.
        We welcome you, Dr. Taylor, again to this committee. You
    are recognized for 5 minutes for your opening statement.

    STATEMENT OF JOHN B. TAYLOR, MARY AND ROBERT RAYMOND PROFESSOR
                   OF ECONOMICS, STANFORD UNIVERSITY

        Mr. Taylor. Thank you, Mr. Chairman, Ranking Member Moore,
    and members of the subcommittee.
        For the IMF to achieve the goals that Clay Lowery
    mentioned, such as economic stability, it really has to have a
    clear and predictable framework or strategy for carrying out
    its goal. Otherwise, decisions become highly uncertain. They
    lead to excessive risk taking and international spillovers. I
    think a framework like that also provides for transparency and
    accountability.
        A number of years ago, such a framework, called the
    ``exceptional access framework,'' was adopted by the IMF. It
    set forth criteria that had to be met before the IMF could lend
    exceptionally large amounts to countries. The most important
    criterion said that the IMF could not make new loans to
    countries with unsustainable debts.
        The expectation was that this way of limiting loans would
    reduce bailouts of the private sector, contain moral hazard,
    lower uncertainty, reduce the recipient country's debt burden,
    encourage more responsible fiscal and monetary policy, reduce
    spillovers, improve accountability, and, therefore, create more
    economic stability.
        And, in fact, the introduction of this framework was
    accompanied by many such changes. Compared with the 1980s and
    1990s, there were a few crises emanating from the emerging
    markets in the years that followed and emerging market
    countries weathered the global financial crisis remarkably well
    and economic policy in those countries generally improved.
        Unfortunately, this exceptional access framework is no
    longer in place. It was abandoned in 2010, when the Greek
    sovereign debt crisis emerged, and the IMF staff could not
    establish that the Greek debt was sustainable with high
    probability.
        So the IMF simply changed the rule. It wrote in an
    exemption saying that new loans could be made in unsustainable
    situations so long as there was a ``high risk of international
    systemic spillover.'' That exemption is still in place.
        As is well known, events in Greece following the 2010
    decision have not been pleasant. And it is time, in my view, to
    reform and strengthen that exceptional access framework. A
    starting place would simply be to repeal the exemption for
    systemic risk. That exemption is the problem, not the solution.
    I have found much support for this kind of reform in the
    international community, including at the IMF.
        Importantly for the Congress, this reform is closely
    related to the quota and voting reallocation agreement that Meg
    and Clay just mentioned, which was negotiated way back in 2010.
        This agreement would sensibly reallocate voting shares to
    give more votes to countries that have grown more rapidly. It
    would also increase the total quota commitment to the IMF. The
    main rationale for that increase is that the global economy and
    capital flows have expanded.
        Of course, the increase in the quota must be scored by the
    CBO and may need offsets elsewhere in the budget. Legislation
    to approve the increased quotas and voting reallocation should,
    therefore, be tied to the exceptional access framework, which
    will also provide additional transparency and accountability.
        It seems to me that with the global financial system in an
    uncertain state of flux right now, it is an important time, a
    good time for such reforms. Approving the international quota
    agreement in a way that helps ensure that these new resources
    are used strategically, effectively, and with accountability,
    as I show in more detail in my written testimony, would be an
    important pillar of any such reform movement.
        Thank you, Mr. Chairman.
        [The prepared statement of Dr. Taylor can be found on page
    45 of the appendix.]
        Chairman Huizenga. The gentleman yields back.
        And, with that, we are going to go into our question
    period. I am going to recognize myself for 5 minutes.
        Ms. Lundsager, when you were our Executive Director at the
    Fund--and I don't want to put words in your mouth--I assume you
    advised Treasury that a systemic exemption for Greece was a
    good idea. Is that accurate?
        Ms. Lundsager. Thank you, Mr. Chairman.
        As you may be aware, the systemic exemption was inserted in
    the Greek program that we approved in May 2010. And there was
    no advance discussion of that.
        So, at that point, I recall we were all very concerned
    about the situation in Greece. And, of course, any country has
    the right to ask for assistance from the IMF and the IMF
    responds. And, at that point, Greece was committing to a number
    of adjustment measures that would start to address some of
    their problems.
        And to be perfectly frank, at that time we were very
    worried about the rest of Europe. And my concern was that if
    contagion spread to a number of other countries, not just the
    smaller ones such as Portugal and Ireland who eventually needed
    IMF programs, but the larger ones, Italy or Spain--you remember
    the references to the GIIPS or the PIIGS years ago--that the
    IMF would not be able to handle, for instance, an Italy without
    great difficulty and that it would be very difficult for the
    Europeans to hold the Eurozone together, given that they had
    not built their own firewalls at that time.
        So the systemic exemption in the end was inserted by the
    staff. The board approved it, although many of us just became
    aware of it at the meeting itself, since the change was buried
    in this long document.
        I was dismayed that staff used that approach, but in the
    end, my concerns about Greece and about Europe overrode that
    dismay and I supported the program.
        Chairman Huizenga. In retrospect, do you think it was a
    good idea? This is something I asked Secretary Lew earlier
    today.
        And after a rather lengthy sidestep, he came out with yes,
    he felt it was still a good idea, at which point I was asking
    him, just as Professor Taylor was talking about, about the
    potential return of that language to that. And, as I have been
    having some conversations, I, too, am finding that support
    within the IMF and other countries that are involved with the
    IMF.
        So do you still think it was a good idea? And what is your
    take on whether we should return that language and return to
    that policy?
        Ms. Lundsager. Whether or not we have that particular
    language, I still feel that the IMF needs an ability to
    exercise judgment. And by the IMF, I mean the executive board,
    the membership itself.
        My concern with rigid rules is that, first of all, it is
    very difficult to know what the next crisis is going to be. And
    what we found when we had the exceptional access criteria,
    first set, each case ended up being different and didn't quite
    meet the criteria.
        And so I am not comfortable with being able to predict what
    a future crisis might be and how a country might or might not
    meet particularly rigid rules.
        I am also a little bit worried that these criteria are
    based on IMF calculations of debt sustainability, and these
    numbers are very difficult to pin down and very dependent on
    numerous assumptions, as I am sure you know, you are aware as
    you look at a number of these issues just in terms of the
    United States itself.
        So I am a bit worried that it could end up being very
    arbitrary. And if it is a key U.S. ally and the fund says,
    ``Well, we are not ready to do exceptional access. Okay, United
    States. You are going to have to do it all bilaterally,'' we
    are back to the very place that we did not want to be or else
    we are forcing that country into a debt restructuring
    immediately.
        Chairman Huizenga. I have a little over a minute.
        Dr. Taylor, you were there and helped developed the
    exceptional access framework at Treasury.
        How do you respond to Ms. Lundsager, and what is sort of
    your take on the world right now?
        Mr. Taylor. I think there is quite a bit of flexibility in
    the way the original access rules or framework was put in
    place. So I don't think you need any more. And I think,
    ideally, you could go back to something like that.
        I think the experience has also shown that too much
    flexibility is a disadvantage. You think about the danger of
    lending to an unsustainable debt situation, you end up bailing
    out the private sector. That is basic. You think now, ``Who
    owns most of the Greek debt?'' It is the public sector. So it
    enabled the private sector to get out.
        Chairman Huizenga. Between the IMF and the EU, are these--
        Mr. Taylor. Yes. So that is the concern. I also think it
    creates an enormous amount of uncertainty. In talking to many
    in the private sector, they would prefer to go back to where we
    were because they recognize the current situation creates
    uncertainty. So for all the reasons you want to have a
    framework.
        Also, I would say, for accountability and transparency,
    this is money that you are going to have to authorize and
    appropriate. I think it is part and parcel the institution
    describes as best it can its framework for allocating these
    large sums of money. It is not rocket science, to be sure, but
    I think it is quite workable.
        Chairman Huizenga. All right. With that, my time has
    expired.
        And I recognize my ranking member, Ms. Moore, for 5
    minutes.
        Ms. Moore. Thank you so much, Mr. Chairman.
        And I want to thank all of the witnesses for joining us
    today.
        This is truly an opportunity, I think, for the committee to
    get a tremendous education with the aggregation of experience
    that you all have.
        I want to continue to pursue the discussion, maybe starting
    with Professor Taylor. I can truly identify with your notion,
    perhaps, that there is some moral answer in abandoning a
    framework where riskier loans, countries like Greece, were
    enabled to access the lending facility.
        But I hearken back--I was here when Secretary Paulson came
    and said, ``Give us $700 billion or else the United States'
    economy is going to collapse.'' And my first reaction was not a
    very ladylike response. It was like, ``blank, no.''
        But as I listened to experts such as yourself, I concluded
    that it just had to be done. And there was moral hazard. I
    think we are still experiencing it. I think we sort of bailed
    out the private sector more so than we did homeowners.
        And so I guess my question to you, sir, and to Ms.
    Lundsager, and perhaps to Mr. Lowery would be, what do you make
    of the ``high risk of international spillover''--the exception
    being the high risk of international spillover?
        Do you honestly believe that if the IMF is not in a space
    like Greece or the Eurozone or other things, that there will be
    no impact on our economy here?
        Mr. Taylor. What will happen in a situation like that is
    the IMF will say, ``Your debt is unsustainable, with high
    probability. There is no exemption for a systemic spillover.
    So, therefore, unless your debt is restructured, unless the
    private sector comes in and says, 'We are writing down or
    reprofiling that debt,' you don't get a loan.''
        But the result most likely will be that the private sector
    will get involved in that. And so that is really what--to have
    a clear rule in advance, a clear process in advance, that is
    basically what you hope will happen.
        I would add a few things based on my own experience. It is
    nearly impossible to determine about the systemic spillover
    risk. Therefore, it is very susceptible to political
    maneuvering and for people to claim there is this risk,
    systemically, of spillover, when nobody really knows.
        We discussed the difficulty of doing a sustainability
    analysis, what the likelihood is of the debt being sustainable.
    That does require numbers. But that is far easier than trying
    to determine the systemic risk.
        Ms. Moore. Ms. Lundsager, do you have a comment?
        Ms. Lundsager. Thank you.
        It is very difficult, first of all, to determine insolvency
    versus illiquidity for a particular country.
        But contagion can be a very real risk as deposits leave a
    country, leave the banking system, which causes problems as our
    banking systems are based on deposits not all being withdrawn
    at one time. This can then spread to other countries that have
    similar characteristics.
        We saw this in 2010. We saw more of this in 2011 in Europe.
    And you have all seen the market jitters right now as all this
    uncertainty about Greece remains in the market as Europe's
    leaders debate the next step.
        So, yes, I was bothered about contagion then, and I still
    think that is the main reason that we have the International
    Monetary Fund. Thank you.
        Ms. Moore. Mr. Lowery, just very briefly, I think at least
    you and Ms. Lundsager have talked about the lack of leadership
    from the United States, given its veto power and so forth in
    the IMF. If we don't sort of adopt the framework, pay our dues,
    be the leader, what could ultimately be the impact?
        I am thinking of the formation of BRICS, for example. Could
    any of you sort of share with us what you think the
    consequences are of a diminishing influence of the IMF and the
    rise of something like the BRICS?
        Mr. Lowery. That is a good question.
        I think that--look, my own view is that the United States
    should be taking a leading role. We help formed the IMF. We are
    the leading country in the IMF.
        If that means that we need to pursue some of the reforms
    that John Taylor is talking about, I think we should probably
    be looking at doing that. If it means to do some other reforms,
    we should be looking at doing that.
        But that does not mean we should be holding up going
    forward on an agreement that everybody in the world has agreed
    to years ago that--I think that most people in the United
    States, people who have sat in the Executive Branch, actually
    think that this is a helpful institution for us to support.
        As to whether or not it means that the Asian Infrastructure
    Investment Bank or the BRICS bank is going to be created and
    those are the reasons it got created, I can't answer that
    because I don't know the mindset of the Chinese.
        I do know this, that there is concern that the United
    States is not stepping up as an international leader in a
    number of areas that are not just about the IMF, and this is an
    area where I think that we can come to an agreement if we
    worked hard together.
        Ms. Moore. Thank you. My time has expired.
        Chairman Huizenga. The gentlelady's time has expired.
        With that, we go to our Vice Chair, Mr. Mulvaney, for 5
    minutes.
        Mr. Mulvaney. Before we come back to Greece, I want to
    follow up very briefly on what Mr. Lowery just said to speak to
    the issue raised by the gentlelady from Wisconsin, which is, on
    the 2010 reforms, we have had some hearings on that before,
    back when John Campbell was the subcommittee Chair here. And,
    if I remember correctly, one of the fundamental principles of
    the reform was that we were going to move money out the New
    Agreements to Borrow into the quota.
        And I remember an issue coming up at the hearing, Mr.
    Chairman, which was, essentially, those two pots of money, for
    lack of a better word, are subject to different rules,
    different governance.
        And my understanding--correct me if I am wrong--is that,
    while the quota system is subject to rules essentially by
    consensus, the NAB, the New Agreements to Borrow, is subject
    heavily to our veto.
        That is my understanding. Am I wrong about that?
        Mr. Lowery. I think the rule for the NAB is that it is
    activated every 6 months. So, on that, the United States has a
    veto right. However, if there is a loan provided by the NAB, it
    is done on a majority decision.
        Mr. Mulvaney. Yes. That is my recollection. We can shut it
    off every 6 months.
        And I guess, Mr. Lowery, to your point, and Ms. Moore, to
    your point, that was one of the hang-ups we had, was that we
    were effectively moving money out of an area where we had
    considerable control and into an area where we had less
    control. That concern remains.
        And then I look at that concern against the backdrop of
    what we are talking about today in Greece and the difficulties
    that some of us have with the changes that were made regarding
    contagion, regarding systemic risk.
        Now, Ms. Lundsager, you said something--I am not interested
    in debating what happened with Greece several years back. But
    you did say something that I thought was relevant to the
    discussion about whether or not we should go back to the old
    rules as we go forward.
        You said that the Europeans did not have firewalls in place
    at the time and that, in part, justified changing the rules in
    the IMF in order to allow the IMF to participate.
        Those firewalls exist today, don't they?
        Ms. Lundsager. Yes, Congressman. They have built firewalls,
    and the European Central Bank is taking a number of actions.
    With that said, each country is still entitled to seek help
    from the IMF, to seek advice and to seek a program.
        Mr. Mulvaney. I am fine with all that. I am not trying to
    change the underlying rules. I am just trying to talk about
    whether or not that special exception--we are not going to look
    at whether or not they can pay the debt back, for example, if
    we fear contagion.
        And my point to you, I think, is that the firewalls that
    you said did not exist, accurately so, several years back do
    exist. So the need, perhaps, for the special exceptions for
    contagion have gone down.
        I also think that we need to recognize the fact that, while
    the Europeans were not ready at the beginning of the Greek
    crisis, they have loaned them, like, 8 times more money than
    the IMF has in the last couple of years.
        So, while the IMF's $25 billion to $30 billion was critical
    at the time, it pales in comparison to the couple hundred
    billion dollars that the Europeans have loaned them. This seems
    to be their problem. The contagion was the countries that you
    mentioned, all European countries. So it seems like it might be
    more appropriate to let them take the lead.
        Mr. Taylor, you have had some thoughts--and I want to get
    some more input from you in my last 2 minutes--on why you think
    we should make the changes and how you think we should go about
    the changes.
        So the rest of my time, sir, I will open up to you to help
    the committee understand why you think it is critical that we
    go back to the old rules and get rid of these special
    considerations for contagion.
        Mr. Taylor. I think the old rules worked. We thought about
    them a lot in advance. Other people thought about them. They
    were put in place to address exactly these problems, which was
    spillover, emerging market crises, which were very common in
    the 1990s and continued into the early 2000s.
        So it was part of a reform to really provide some
    guidelines or limits to what the IMF would do in these
    circumstances. It was essential, in my view, because, otherwise
    it was very ad hoc, very uncertain, and, in fact, causing the
    problems.
        So it worked well as far as we thought in advance, and in
    practice it worked well. Moreover, when we violated it, it has
    been a disaster. So a lot of evidence, it seems--
        Mr. Mulvaney. Examples of where we violated it in the past?
        Mr. Taylor. Greece.
        Mr. Mulvaney. Okay. So that is where we are today.
        And I guess, to the extent we are still talking about it,
    it doesn't seem to have solved the problem. I think Ms.
    Lundsager admits that the contagion risk is still there as of
    today.
        And I would suggest that the $30 billion that the IMF put
    in probably didn't make the difference one way or the other,
    but they were always charged with the problem of proving a
    negative. I hope we get a chance to get a second round.
        With that, I yield back the balance of my time.
        Chairman Huizenga. The gentleman yields back.
        And, with that, the Chair recognizes Mr. Heck of Washington
    for 5 minutes.
        Mr. Heck. Thank you, Mr. Chairman. And thanks very much for
    holding this hearing.
        My gratitude as well to the panel. You possess an amazing
    depth and breadth of expertise in this area, and I am genuinely
    grateful that you would share your time here.
        I just have two questions, if I can get to the second one
    even, however. I would like each of you to answer the
    following, beginning with you, Mr. Lowery: Given that the
    United States' attempt to dissuade other major economies from
    joining the Asian Infrastructure Investment Bank led by China
    failed somewhat miserably, what strategy would you recommend
    that we pursue as a result of that?
        And I would like each of you to answer that question, if
    you would, please.
        Mr. Lowery. In terms of the IMF, I think that I actually--I
    agree with most of what John Taylor said in terms of some of
    the reforms.
        I think that my own view is that the legislation should be
    written with conditionality into it, but I don't think that I
    would hold back the authorization appropriations while we try
    to solve the problem that John is trying to get at.
        I think that should be part of the conditionality of the
    legislation and that the Treasury Department should work on
    behalf of Congress within the IMF to actually make the types of
    changes that John is talking about.
        So I think that is the way that I would try to approach it
    as opposed to taking two unilateral stands, which, obviously,
    in the Asian Infrastructure Investment Bank we did and failed.
        Mr. Heck. So if I heard you correctly, you would have
    Congress pursue that particular avenue of action. I guess the
    question, given that we haven't been able to do that very well,
    is: Absent that, what should we do?
        Mr. Lowery. I am here to say that I think that we, the
    United States, through the Congress, should be pursuing an
    action of supporting the IMF. I believe that strongly. I
    believe that can be done in a way that is conditioned.
        I remember sitting in the Executive Branch going through
    many conditions on the IMF, the World Bank, and many other
    different institutions in which we were able to meet the
    obligations that Congress set upon us. They were not easy, but
    that doesn't mean we couldn't do it. I think it can be done
    here.
        Mr. Heck. Professor Taylor?
        Mr. Taylor. I think the reform of the exceptional access
    framework--the United States would not be unilateral here.
    There is a lot of interest in doing this.
        As I mentioned in my testimony, the staff and the
    management of the IMF seem comfortable with it. So, in a way,
    it is--the expression is it is almost a slam dunk for the
    Administration to say, ``This is fine.''
        I don't know what the members will do. I am not part of any
    negotiation. But this is something that several members seem
    interested in. It seems to me the Administration knows that
    they have allies. The United States is influential, anyway, in
    these discussions. I think it could move very quickly.
        Mr. Heck. Ms. Lundsager?
        Ms. Lundsager. Thank you.
        I would agree with what Mr. Lowery said, but I would hope
    Congress could move forward and approve these 2010 reforms and,
    at the same time, continue to work with the Administration as
    they work with the IMF to pursue reforms. I think it will be a
    challenge among the membership to come up with an agreement on
    how to deal with this going forward.
        And I think one of the difficulties will be, under this new
    framework the IMF is talking about, that the IMF, by standing
    back a bit and limiting its participation, will either be
    forcing the country into an immediate debt action when it may
    not be clear if it is insolvency or illiquidity and, at the
    same time, then looking to bilateral creditors to step up to
    the plate to fill up the remaining gap.
        And then I fear that the next crisis country that comes
    along would be a key U.S. ally and then the IMF will be turning
    to the United States. The United States Administration would
    have to come to Congress and seek the authorization and
    appropriation for bilateral support, which, as I recall, has
    been very difficult even for the very low-income countries such
    as Liberia or Haiti that we seek to support. Coming up with
    concessional resources for middle-income countries would be a
    real challenge.
        So I fear that the United States, as an official bilateral
    creditor, might be turned to in a bigger way and more
    frequently at a time when we have our own budget considerations
    and we are focusing on our other priorities. So I am not so
    sure this new framework is going to work out quite so smoothly.
    Thank you.
        Mr. Heck. To you, again, ma'am. I hope it is an easy yes or
    no--it is not, but I am going to do it anyway.
        Is there a point at which failure to enact reforms renders
    it all irrelevant because the fact of the matter is, other
    institutions will have developed over that period of time? How
    long before we are really in the pinch here because we haven't
    acted?
        Ms. Lundsager. I can't really put a timeframe on it, but it
    is clear the BRICS, China, are moving ahead in a number of
    areas, whether it is balance of payments backstops for each
    other or the infrastructure and BRICS bank. The Chinese are
    asserting their global leadership.
        And I really think it would be terrible if the United
    States conceded that, when over the years, I found over my many
    years in government--that countries valued United States'
    leadership and valued our participation in the international
    system and our engagement and our listening and our working out
    what the solution should be to different problems. And I think
    we should reassert that leadership by getting these reforms
    done. Thank you.
        Mr. Heck. Thank you for your forbearance, Mr. Chairman.
        Chairman Huizenga. The Chair has been rather generous, yes,
    with those, but I am happy to do so.
        With that, I would like to recognize Mr. Pittenger of North
    Carolina for 5 minutes.
        Mr. Pittenger. Thank you, Mr. Chairman.
        And thank you to the witnesses for being here with us
    today.
        I was troubled and really amazed last week, I guess it was,
    when I picked up the Journal and there was an article by the
    President of Greece rebuffing the European Bank for the reform
    demands that were being required of him. And I thought, how
    pompous: ``I owe you money,'' and yet, he had the ability to go
    back to them and say, ``How dare you make those requirements.''
    I just imagine myself going to my banker to whom I owe money,
    and challenging my banker, ``How dare you make these demands.''
        But it brought me to more a clear focus of a different
    person, Margaret Thatcher. She was in Charlotte some 20 years
    ago for a dinner to speak of the challenges that she met in
    Great Britain when she was Prime Minister and all the enormous
    amount of rebuff that she received and, really, difficulty in
    trying to bring restructure and reform to her government. Well,
    go 20 years further, nearly.
        A couple of years ago I was with a member of Labor, and we
    were riding in a bus out to Fenway Park. Joe Kennedy had
    invited us to come out there for dinner one night. And I just
    reluctantly brought up the name of Margaret Thatcher and
    wondering what she would say, knowing the darts would fly. And
    her comment was, ``God bless her. She saved our country.
    Without Margaret Thatcher, we wouldn't be where we are today.''
        So I think my question is, the flexibility of exceptional
    access, has it created the lack of commitment to austerity
    reform? Has that flexibility created the lack of commitment or
    interest to pursue that, that they feel like, ``Well, they gave
    me one time. They will be lenient again'' and not make that
    full commitment internally to do what is necessary? Was that
    part of the case with Greece?
        You can each respond.
        Mr. Taylor. I think, briefly, the concern--it is sometimes
    called moral hazard--is that, if countries and their people
    recognize that there is going to be an increased chance to bail
    out, they will be more reluctant to make the reforms or the
    things that they need to do.
        I have always wondered how you prove that kind of thing,
    but I emphasize more the uncertainty that is caused by the lack
    of framework.
        I would say, in addition, it is not simply the exceptional
    access framework or not that is the situation in Greece now.
    There are a lot of other things happening. If you look at sort
    of the structural things the IMF wanted them to do, they make
    so much sense. They are really just moving towards more markets
    and less intervention by the government.
        And, of course, this government in Greece is not interested
    in that. And so I think that is really the problem. The
    structural reforms they have to do are clear, but they just
    don't want to do it.
        Mr. Lowery. If you don't mind, I will weigh in for just 1
    second.
        I think it depends on the case. Portugal and Ireland were
    in, not a similar situation, but a pretty bad situation just a
    few years ago.
        They have actually taken on very tough economic reforms in
    their countries and, frankly, if it wasn't for Greece dragging
    down sort of the rest of Europe, people would be celebrating
    how far and how much progress Ireland and Portugal have made
    during that time.
        So it is a tough argument. I think it is a good point that
    you are making about whether or not--if you put so much money
    on the table, do governments have a tough time taking those
    tough steps. I think it depends on the government.
        Mr. Pittenger. Sure. Thank you.
        Ms. Lundsager. Thank you.
        I would agree with what Mr. Lowery just said. And, frankly,
    I would also look to the countries that didn't seek IMF
    programs, but undertook very strong reforms, such as Estonia &
    Lithuania, Poland & Slovakia, and some of the others in Europe
    who have really--look at Poland over the years without seeking
    IMF support, and they have done it because they think it is in
    their own interest and that it is important for their unity
    with the European Union.
        Mr. Pittenger. Thank you. I yield back.
        Chairman Huizenga. The gentleman yields back.
        Mr. Kildee of Michigan has decided to pass. But I will
    recognize the ranking member again for 5 minutes. And we are
    going to start a second round as well. We still have a few more
    on our side.
        But, with that, Ms. Moore.
        Ms. Moore. Thank you, Mr. Chairman.
        And, again, I thank the witnesses for sitting through a
    second round of questioning.
        Professor Taylor, I want to go back to you. You spoke in
    the first round about--we were finishing our discussion; I
    didn't go any further--how Greece should restructure its debt,
    that is what they should have been required to do.
        And in the Wall Street Journal, you had an article talking
    about sovereign debt collective action clauses. And I guess I
    wanted you to expand a bit on these clauses.
        Let me tell you what the thrust of my question is. I am
    concerned that taking the board's discretion away, not having
    any flexibility, will impede the operations, just is not
    workable.
        So under what circumstances should the IMF require
    restructuring versus kind of reprofiling a country's debt? You
    say it should be part of a preset requirement. But what would
    be wrong with sort of a case-by-case basis within some
    framework?
        Mr. Taylor. A framework, in its own sense, has less case-
    by-case to it. There is a treatment of, ``This is how we are
    going to treat people or countries in different
    circumstances.'' It sort of lays out your strategy to do it.
        There are different cases. And whether that is sustainable
    or not sustainable, for example, that creates different cases.
    But you ask, ``How you are going to treat those different
    cases?''
        So there is flexibility in the sense you have laid out your
    strategy, but that is laid out in advance as much as you can so
    people can understand it and so we can assess whether it is
    working or not and see when there is exceptions to it. I think
    that is the way to think about it.
        There is always a sense in which, especially if you are in
    public policy, you would like to have--you would like to get
    around that framework, you would like to, for some reason, do
    it differently. I have been there myself. I know what happens.
    Somebody gets a call from somebody who says, ``Look, something
    is wrong here. Our bank is in trouble. Could you help us out?''
        And you want to be able to resist that because, no, you
    have your principles, you have your rules, you have your
    strategy in place. If it becomes all tactics, it becomes
    hopeless. So I think that is the--
        Ms. Moore. But the whole point of this hearing is to talk
    about moral hazard versus contagion. And I guess I am concerned
    that completely abandoning the new regime that is being
    proposed would, of course, help us avoid more moral hazard,
    just to say, ``We are not going to lend to you.''
        But I guess, Ms. Lundsager, Mr. Lowery, do you think that
    would increase the contagion?
        Ms. Lundsager. Thank you.
        I would be a little bit worried because I fear that, if
    they set this in place, there is going to have to be some sense
    to the market and everyone what is the number, what is the
    debt-to-GDP number that is going to be the cutoff.
        We have the Maastricht numbers in Europe of 60 percent, and
    we have seen how well that has worked. But we don't know,
    really, what is sustainable in countries.
        And so, in Ukraine, they have set a goal of 70 percent of
    GDP. In Greece, the goal was set at 120 percent of GDP. How do
    we know what exactly is sustainable and what is unsustainable?
        And my fear is that U.S. authorities would be faced with
    the situation of a country saying, ``No. I am going to take the
    measures. I am going to adjust. I want to honor my debt.''
        Brazil did this in the early 2000s. They were not going to
    restructure, even though market commentators all over the place
    were saying Brazil would have to restructure. They did not
    restructure. They had a fund program. They drew on it. They
    adjusted and turned things around.
        And so it is very hard, if you have someone like that
    calling the White House and saying, ``No. I am not going to
    restructure my debt. The fund is pushing me into something that
    is not needed,'' for the United States bilaterally to resist
    that--right?--if it is a key U.S. ally. So I think we need to
    keep the flexibility. Thank you.
        Mr. Lowery. On my part, I--you are talking about a very,
    very tricky issue, which is the nuances of moral hazard and the
    nuances of contagion.
        I am not a humongous believer that there is moral hazard to
    countries. I am a believer that there is moral hazard to
    lenders and to investors. But could there be contagion? I think
    the answer is yes.
        But that does not mean that we should have the exceptional
    access--or systemic exemption for the exceptional access does
    strike me as a loophole that is extremely large.
        And so I would want to tighten it up, whether it is going
    back to the proposal that John Taylor is talking about, going
    to the proposal IMF staff is pushing. I would want to close it
    up a bit because of that worry.
        Chairman Huizenga. All right. The gentlelady's time has
    expired.
        And, with that, I need to correct a slight misstep on my
    part. We are supposed to go through an entire round first
    before we recognize Members a second time.
        Ms. Moore. You are so kind, Mr. Chairman.
        Chairman Huizenga. I am here for you, Ms. Moore.
        So, with that, I would like to recognize the new member of
    the committee and the subcommittee from Minnesota, Mr. Emmer,
    for 5 minutes.
        Mr. Emmer. Thank you Mr. Chairman. And thank you to the
    ranking member and the panel. Thank you for being here.
        I think I will be brief. It is interesting getting up to
    speed. And I appreciate the information and all the background
    materials.
        The IMF, along with the World Bank and the World Trade
    Organization, have all been around for 70-some years. The IMF
    had a different initial purpose that changed in 1973,
    primarily, when we adopted a new system of floating exchange
    rates. And I think today this institution plays a major role in
    monitoring the economic and financial policies of member
    countries.
        I think, Mr. Lowery, you started off by saying there are
    three specific tools: technical assistance; surveillance; and
    lending when necessary. It caused me to wonder about the
    surveillance piece. Where are we at today? And this is for all
    of you.
        But if surveillance has been a tool of the IMF since the
    1970s, maybe even before, since the beginning, why wasn't the
    alarm bell sounded well in advance of the Asian crisis? Why
    weren't we given warnings through the IMF about the crisis in
    2008?
        We have talked plenty about Greece. But could you just,
    amongst the three of you, whomever wants to address where is
    the surveillance at, why didn't it work back then, or maybe it
    did work and we just didn't hear about it, and what needs to
    happen in the future?
        Mr. Lowery. My own view is the surveillance piece of what
    the IMF does is probably the most important piece. It is the
    least talked about in some respects because there is not really
    money involved.
        But in terms of getting it right and understanding exactly
    whether or not a country is on the verge of catastrophe
    financially, it is a hard thing to do. Markets don't get it
    right. And there is, obviously, people making a lot of money
    out there thinking about this. And official sector actors don't
    get it right.
        But I think that the IMF does a pretty good job of looking
    at a number of countries as to why they didn't get this right
    or that right. I think that, one, sometimes their advice is not
    listened to, so that can't be on the IMF; and two, sometimes
    they just get it wrong.
        There are good economists there, but at the same time, it
    is hard to see, sometimes, where the crisis is going to come
    from. We look at our own country. We have how many people
    surveil, analyze, think about the U.S. economy? Only a handful
    got it right back in 2006 and 2007.
        Mr. Emmer. Which I appreciate.
        Professor Taylor and Ms. Lundsager, please take the next
    step. But you had two major ones in the late 1990s and then
    2008. We weren't just talking about one country. We were
    talking about a whole bunch.
        The question is, why? And what has been done to, hopefully,
    improve that so it doesn't happen in the future?
        Mr. Taylor. I think the surveillance with respect to other
    countries is important to think about, not just the major
    countries. And, also, that verges into this third role of
    technical assistance, which I think is very important.
        There are a lot of countries that just don't know about
    even budgeting or about monetary policy. And so there is
    actually good advice that can be conveyed.
        I actually think that, in a way, maybe there should be a
    fourth category. It is possible to have programs without loans.
    It is something called a program support instrument, I believe.
        But it is effectively like an IMF program where you lay
    out, ``Here is our''--it may be like a debt reduction strategy.
    It may be a way to get inflation down, whatever it happens to
    be. But the IMF works with a country. But it doesn't have to be
    a loan.
        Frequently the loan is the way they engage, but there are
    other ways to do it, which I would prefer. You engage with them
    and you help them. And there are people who haven't really
    haven't done much before. And the IMF does have expertise on
    that.
        Ms. Lundsager. Thank you, John, for mentioning the policy
    support instrument. I agree that has been very important and
    countries have liked that.
        In terms of the IMF engaging in surveillance, what has been
    really important is that the IMF has conversations with
    officials, the annual article IV review, and will raise its
    frank concerns.
        So, in 2008 and 2007, it was raising concerns in the United
    States about the subprime loans, even though the broad view
    across the Federal Reserve System, across many commentators,
    was that, ``Oh, we can handle this. These loans are a small
    part of our mortgage side.''
        Well, it turns out it wasn't such a small part, and it was
    a problem. But at that point, there wasn't agreement that it
    was going to blow up the way it did.
        So the strength of the IMF is to bring issues to the fore
    and to raise them with the country authorities and to say,
    ``You really ought to be worried. We see imbalances emerging
    here that--perhaps you are seeing your debt having to be more
    and more short term. You are not able to issue longer term debt
    in an emergency.''
        So I think the IMF has done a very good job on that. But
    sometimes that is more private than public because the IMF, of
    course, doesn't want to be the cause of a crisis by saying,
    ``Oh, it is headed your way.''
        Mr. Emmer. Thank you. My time has expired.
        Chairman Huizenga. The gentleman's time has expired.
        With that, we recognize the gentleman from Arizona, Mr.
    Schweikert, for 5 minutes.
        Mr. Schweikert. Thank you, Mr. Chairman.
        In a small attempt to sort of go on the theme of the
    hearing, the moral hazard, I would like to do this slightly
    more conversationally, because I want to sort of do the
    ``Wayback Machine,'' for the last 25 or 30 years.
        From the 1980s to the 1990s, being someone who was very
    interested in the Tequila Crisis, when the Asian tigers--having
    been in Thailand, visited it on my way to India, when all hell
    was breaking loose.
        What countries through IMF and other bilateral agreements
    kept their promises, demonstrated a level of discipline? And
    where did we create almost a cycle where, once again, we see
    Argentina unavailable for comment or constantly--so walk me
    through this.
        And then, as we are doing this, I have always had a concern
    about some of the debt swap mechanisms, particularly when it is
    private capital being swapped out, and making sure that it does
    not become sort of a bailout mechanism for either bad credit
    decisions or large industries or large banking institutions
    that are ultimately swapping their debt position for what
    eventually is taxpayer money from around the world.
        Mr. Lowery, could you start with this, what has worked and
    what hasn't and debt swaps?
        Mr. Lowery. I think that what works usually is when the
    countries themselves make the reforms. It is not about the IMF
    imposing those reforms. The IMF will try to impose those
    reforms as part of its conditionality.
        But when the countries start adapting those reforms--you
    pointed to Mexico back in the Tequila Crisis. The Mexican
    authorities took very, very difficult steps over the next few
    years after the crisis, in 1994 and 1995, to the point where
    the ruling party lost its power in 2000 for the first time in
    70 years.
        Mr. Schweikert. But that also had an additional--was it $50
    billion through U.S. taxpayers?
        Mr. Lowery. Yes.
        Mr. Schweikert. Managed by the IMF, but--
        Mr. Lowery. No. No. The IMF did not manage. The taxpayer
    money--
        Mr. Schweikert. I thought that the $50 billion came from a
    special--
        Mr. Lowery. The exchange stabilization fund within the
    Treasury Department.
        Mr. Schweikert. But those dollars were managed through the
    IMF, I thought.
        Mr. Lowery. No. That was actually managed through the
    Treasury Department.
        Mr. Schweikert. Okay.
        Mr. Lowery. It is one of the few times that the Treasury
    Department actually kind of worked almost like the IMF during a
    crisis.
        Another example would be Korea back in 1997. An example I
    know that John worked on very closely, which would have been
    Uruguay. So during the Argentina crisis, which you mentioned,
    Uruguay also went through a crisis.
        Mr. Schweikert. Because of the limits of time, your model
    basically is, when the countries produce the list of reforms
    themselves, we have better outcomes?
        Mr. Lowery. Yes. When they are very serious about--
        Mr. Schweikert. Professor Taylor, tell me, what has worked
    out there, what hasn't, and your vision of what--
        Mr. Taylor. I agree with that part for sure.
        I think there are other things. That is the nature of the
    engagement. I like to compare Russia in 1998, where there was
    contagion.
        That decision was a shock, not to continue funding. It had
    to do with politics, a concern about the nuclear arsenal, et
    cetera. It wasn't really an economic decision. And there seemed
    to be a lot of contagion.
        Then you move 3 years later. And while Argentina was a
    problem, there wasn't contagion when it defaulted. It was
    really zero. And that is, I think, because the nature of our
    engagement was very clear, what we were going to do, when we
    were going to do it.
        And, also, there was the sense of trying to help Uruguay
    and Brazil nearby. So you had another way rather than just to
    do the bailout. So I think the nature of the program matters,
    too.
        Mr. Schweikert. Ms. Lundsager?
        Ms. Lundsager. Thank you.
        I think the ultimate goal or the immediate goal to fund
    programs is for countries to adjust enough, restore confidence,
    and resume borrowing from private markets.
        And I think we have had a number of successes in that case.
    And we have seen it in Europe, successes in terms of Ireland
    and Portugal turning things around.
        Mr. Schweikert. If I were to look at our last 25 years of
    history of participation, what would you consider our greatest
    failure and our greatest success? And what was the difference?
        Ms. Lundsager. I would say our greatest success is managing
    to convince the world that we still believe that being
    multilateral is important, that the United States is deeply
    engaged.
        Mr. Schweikert. I was trying to get it down to a country
    level. I know that is more uncomfortable. I am trying to
    understand--
        Ms. Lundsager. I would say Mexico.
        Mr. Schweikert. So Mexico post-1994?
        Ms. Lundsager. Yes.
        Mr. Schweikert. And what do you believe is our greatest
    failure?
        Ms. Lundsager. What is going on in Greece right now is a
    failure on the part of Greece and a failure on the part of
    everyone else as well to be able to put this together.
        Mr. Schweikert. Any quick comment in my last couple of
    seconds on my debt swap concern?
        Ms. Lundsager. I'm sorry. I didn't quite understand what
    you meant by debt swaps.
        Mr. Schweikert. The IMF comes in, provides a bilateral
    loan, and it is often used to pay off or move money around to
    pay off other obligations that are privately held.
        Ms. Lundsager. Yes. At times, the Fund does help countries
    honor their current obligations, and that can include paying
    off some of the private debts.
        But, as I said, the goal is to restore enough confidence
    that in a very short amount of time those private creditors do
    come back to the country.
        Mr. Schweikert. I yield back, Mr. Chairman.
        Within that, should be a conversation of what haircuts
    should be required by all participants.
        Thank you, Mr. Chairman.
        Chairman Huizenga. The gentleman yields back.
        I will note that you have definitely gotten the attention
    of every intern on Capitol Hill, talking about haircuts and
    tequila crises. There is great worry happening here on Capitol
    Hill.
        With that, the Chair recognizes the gentleman from New
    Mexico, Mr. Pearce, for 5 minutes.
        Mr. Pearce. Thank you, Mr. Chairman.
        I appreciate each of you being here.
        The Wall Street Journal said earlier this year, I think it
    was, that the IMF departed from its own regulatory rules and
    limits in order to make loans to Greece.
        Is that a fair characterization, Ms. Lundsager?
        Ms. Lundsager. Thank you.
        That was what we have been talking about in terms of the
    IMF changing the exceptional access rules when the staff and
    management asked the board to approve the program in May 2010.
        Mr. Pearce. I found that amazing. Earlier this year, I
    asked Secretary Lew that same question, and he said that he
    didn't believe they had changed anything, that they were acting
    with the same rules as before. I found that to be an amazing
    statement.
        What impact is the failure of Greece to pay earlier this
    week or whenever it was they didn't make their payment--what
    impact is that going to have? Mr. Taylor, I would look at you
    on that. What is the impact going to have worldwide on the
    confidence in the system?
        Mr. Taylor. It is very unusual to do this, although,
    technically, they can bundle, as I understand it. If they
    really completely go into arrears, then that is really damaging
    to the IMF. And I hope that doesn't happen, but it is on its
    way.
        It is actually, I think, for me, in our discussion an
    illustration of some of the problems I think you get into when
    loans are made to countries whose debt is just not sustainable.
    I wouldn't say I want to blame all this on that. There are
    obviously many other things.
        But I look back at what if, in 2010, there was then a
    serious restructuring of Greece as part of that loan. It would
    have made it much easier for Greece to start making the
    adjustments.
        But it was delayed, and then they had a restructuring. And
    it was sort of part of--people hoped that would be enough, and
    they said it wasn't enough.
        So I think addressing the problem at the time would have
    made a difference. And it is a counterfactual. You don't really
    know.
        But I think, to me, it is an example of why you need those
    frameworks and why changing them, especially at the same time
    you make the deal--that is probably the most disturbing.
        Mr. Pearce. Thank you, sir.
        Ms. Lundsager, I have read reports. I don't know if it is
    accurate myself. But in the surveillance of country policies,
    one of the reports is that Greece is having trouble because up
    to 40 percent of their population just refuses to pay the taxes
    that they owe. In other words, it is well-characterized.
        Is that report somewhat accurate?
        Ms. Lundsager. IMF staff reports have highlighted the
    problems with revenue collection, and that has been an element
    of the program from the beginning.
        So the Greek authorities are working on making the revenue
    administration more independent and doing a better job to have
    their own citizens--
        Mr. Pearce. And my quandary is that the average pay in my
    district is probably $31,000 to $35,000, and I have to go back
    to that district and explain to them why I should use their
    money to pay for people who refuse to pay their own taxes to
    bail them out.
        And I understand what you are saying, that the entire world
    system is kind of on thin ice and, if we don't do anything in
    the Eurozone, then we have spreading problems. But, to tell you
    the truth, people just barely making ends meet in New Mexico,
    they could hardly care, and I am not sure I am willing to make
    the case to them.
        So I just--
        Ms. Lundsager. I insisted on improving tax collection in
    every statement I have made on the Greek programs. Absolutely.
        Mr. Pearce. I appreciate it.
        Mr. Lowery, one of the things that I see a lot in the press
    about is that the IMF has recast itself, that they were facing
    the irrelevancy, or whatever words that one of you used in your
    testimony, and that one of the things they are doing in this
    reinventing is placing themselves where they can become the
    world's reserve currency with the SDRs and getting some gold to
    back that up.
        Is that a real possibility, in your opinion, that becoming
    the world's reserve currency--
        Mr. Lowery. No.
        Mr. Pearce. Ms. Lundsager?
        Ms. Lundsager. No.
        Mr. Pearce. Mr. Taylor, how about you?
        Mr. Taylor. No.
        Mr. Pearce. You don't think it is a possibility?
        Mr. Taylor. The SDR is a different--
        Mr. Lowery. The SDR is a reserve asset for how the IMF
    moves money among its members. It has nothing do with how you
    and I go buy a candy bar. We are not using an SDR.
        Mr. Pearce. Have you seen those reports that are saying
    that they are positioning themselves to take the place of the
    United States when people lose confidence in our currency?
        Mr. Lowery. I haven't seen those reports, and I wouldn't
    put much stock in them.
        Mr. Pearce. Okay. All right. I see my time has elapsed, Mr.
    Chairman. I yield back.
        Chairman Huizenga. The gentleman yields back.
        And still seeing no additional new Members on the Democrat
    side, we will continue with our side for our first round.
        Mr. Guinta from New Hampshire is recognized for 5 minutes.
        Mr. Guinta. Thank you very much, Mr. Chairman.
        Professor Taylor, you touched on something a little bit
    earlier that I am interested in. When I go back and look at the
    categories of focus of the IMF--lending, technical assistance,
    and surveillance--you touched on what I think you referred to
    as possibly a fourth area, what you called program support.
        That is something I am very interested in because I
    subscribe to the notion that--as Mr. Pearce was saying, this
    concern that constituents have about utilizing taxpayer money
    to bail out people in foreign countries.
        So it lends to the argument or the discussion of, how do we
    change the mission or modify the mission of the IMF? So you
    touched on it a little bit.
        But could you talk about, in the context of trying to keep
    balance within the financial world, what program support
    without a loan program could look like and how that would
    differ from what we are doing relative to, say, Greece: when we
    bail out, they fail to make a payment and you see front page
    news as a result of it?
        Mr. Taylor. Actually, it has been done, a policy support
    instrument. I guess the word is policy, not program, support
    instrument.
        And the goal is to have the same kind of program you would
    have as if you gave a loan to a country, with payments and
    tranches and all that, except you wouldn't have that. You would
    engage--you could think of it in our context.
        I just testified at the Budget Committee this morning. As
    you know, the resolution has a 10-year program to reduce the
    deficit to zero in 10 years. So that is like a policy.
        And so now you consider another country wants to implement
    such a policy and the IMF helps them with it. And they don't
    have to give them a loan to do it. They just help them with it.
    They maybe have meetings at certain dates. They have benchmarks
    to make. And it can work very well.
        Traditionally, that has been done in the context of a loan.
    But you really don't need a loan in many cases. And the loan
    kind of screws things up. So often debt becomes a major problem
    in our engagement.
        So I think it is a great idea. I hope they do more of it.
        Mr. Guinta. Should we be considering what the debt-to-GDP
    ratio is in how we--and I want to ask this of Mr. Lowery--how
    we consider the countries to which the IMF loans?
        Mr. Lowery. Yes. I think that is a helpful statistic in
    terms of trying to figure out the debt sustainability of a
    country.
        And this goes towards kind of the aspect of, if a country
    gets into a balance-of-payments problem--so not the policy
    support instrument you guys were just talking about, but an
    actual balance-of-payments problem--one of the measurement
    tools that the IMF will be looking at is: What is their debt-
    to-GDP? What does their debt profile look like going forward?
    What is their stock-to-debt going forward? They are trying to
    make a judgment: Is this a liquidity problem or do they have a
    solvency problem?
        And that, I think, should help you make an argument as to
    what could the IMF do to help in that situation and do you need
    to go to a situation where the IMF can do something, but they
    can't do all of it. And so there needs to be some debt
    reprofiling or debt restructuring or what have you.
        Mr. Guinta. So in the circumstance of Greece, would you
    identify Greece as more of a solvency problem than a liquidity
    problem?
        Mr. Lowery. Yes. And I think the IMF would say that, too.
    And, remember, Greece has gone through two sections of--in
    2010, it was IMF money plus European money on the table. In
    2012, it was more IMF and European money, but also they
    restructured and took a big haircut, to use the words that were
    used earlier, on private sector creditors.
        And now we are in a situation where the only creditors
    left, pretty much--I think it is about 80 percent--are official
    sector creditors. And you do see reports out of the IMF that
    they think European members are going to have to potentially
    take a haircut themselves going forward.
        Mr. Guinta. What is the debt-to-GDP ratio for Greece? Do
    you know? Rough guess.
        Mr. Lowery. I am guessing it is about 175 percent.
        Mr. Guinta. Okay. So I think I heard Ms. Lundsager say
    earlier--I don't want to put words in your mouth, but I thought
    you said something like it is sort of difficult to specifically
    pinpoint what that ratio should be.
        But I think it is probably fair to say, logically, people
    would argue that kind of ratio is excessive and it is not
    liquidity, it is solvency. So it would stand to reason that a
    program support approach, in my view, would make more sense in
    the context of Greece, at least at that level.
        Is that fair to say, Ms. Lundsager?
        Ms. Lundsager. I think that is a possibility, where the IMF
    could be there providing advice and helping put the overall
    economic policy program together.
        And then the Europeans and the private sector, through a
    debt operation, would provide the financing. That certainly is
    a possibility.
        Mr. Guinta. Thank you.
        Chairman Huizenga. The gentleman's time has expired.
        We are going to go into round two. And as I have been
    consulting with my good ranking member, she has slid into that
    round two before we were supposed to. Mr. Heck is choosing to
    pass at this point.
        So going into round two, I am going to take my 5 minutes. I
    may not use it all. But I wanted to touch on a couple of quick
    things.
        Just as I have been listening through all this, I am
    curious, Dr. Taylor, in your view, returning to Greece and sort
    of the systematic exemption here, what would have happened had
    the IMF not stepped in? Would the EU and the ECB have really
    picked up that slack, in your opinion?
        Mr. Taylor. I think it is quite possible. Early on, the
    Europeans said they didn't want the IMF in. The president of
    the European Central Bank, Jean-Claude Trichet, originally had
    that position.
        So at the time of 2010, I wasn't in the room, but my sense
    is the Europeans could very well have started providing loan
    support. It may have been that they would have asked the IMF to
    monitor.
        It wouldn't have been called a policy support instrument,
    but the IMF could certainly have monitored the framework and
    the conditions. But I think that is one possibility.
        The Europeans talk most about the spillovers. I think a lot
    of their banks were holding the Greek debt at the time. So they
    would be talking their banks' books, so to speak. I wasn't in
    the room. I don't know for sure how that worked.
        But another possibility would be very straightforward,
    saying, ``Look, the debt is not sustainable. There are a lot of
    people in the private sector who are holding this debt. If we
    are going to put some new money in, the private sector has to
    think about reprofiling or more, restructuring.''
        And that is kind of the ideal, really. That is really what
    the exceptional access framework--if it is working well, that
    is what you would want to have happen, because you don't want
    the public sector just to bail out.
        In the banking area, we call this bail-in. Right? The
    Europeans call it bail-in now. We want some bail-in in these
    cases as well. So I think that is the ideal.
        Chairman Huizenga. Do you believe that it was maybe more of
    an intent that the Europeans had a belief that, with the IMF
    getting involved, that they would come in and sort of play bad
    cop to their good cop with Greece?
        Mr. Taylor. I don't know. I'm sorry.
        Chairman Huizenga. All right. I want to touch a little bit
    on Ukraine and support of the IMF that they have.
        Last week IMF stepped in and said it may go ahead with a
    $1.7 billion payment to backstop the country, even though the
    Fund has been wary about lending to countries that are in
    arrears with private creditors.
        And, obviously, Ukraine has a certain strategic importance
    to us and to Europe and the Europeans. And I am curious, any of
    the three of you, how you view the IMF's involvement in Ukraine
    so far? Any of the three of you feel free to jump in.
        Mr. Taylor. Let me say this is part of a broader context,
    and Ms. Lundsager also referred to this. There is always a
    strategic aspect of our engagements with countries. And
    sometimes there will be a strategic aspect of another country's
    engagement, maybe an African case for Europe.
        And I think it is really important to try to distinguish
    those as much as you can. Sometimes it is going to have to be
    there. But, ultimately, some of those things are going to have
    to be bilateral rather than use the international institution.
        I think the Uruguayan thing is very complicated because it
    has both strategic and serious economic issues. You just have
    to be wary of those circumstances. The exceptional access
    framework is a way in which you can bring the economic
    considerations in more rather than the political ones. I think
    that is generally healthy. You can't do it all the time.
        Ms. Lundsager. Thank you.
        I was just going to add that, on Ukraine--and I am not part
    of this decision-making, but I suspect the point is to indicate
    that the IMF and the community--the executive board
    representing all the countries wants to continue to support
    Ukraine so it can take the measures it is starting to take,
    reforms that are very much needed, and to keep the pressure on
    the private sector to come to the table and reach terms on
    finding a way to work and reduce the debt burden that Ukraine
    is facing.
        So I think that is why the IMF is going ahead, because
    Ukraine is still working with the creditors, consulting and
    negotiating, but the intent is to keep the country going, too.
        Mr. Lowery. The only thing I was just going to add is I
    think Ukraine is a very difficult circumstance. IMF is putting
    money in. They are actually taking a lot of the type of actions
    that John Taylor has talked about, which is they are actually
    saying, ``We need you to do a debt restructuring with your
    private creditors,'' which they are trying to do. And they are
    taking significant reforms, the Ukrainian Government.
        The biggest problem Ukraine has is Russia. That is creating
    huge, huge financial and economic pressure. So they can be
    taking lots of reforms, but they have this significant problem
    right next to them.
        Chairman Huizenga. Okay. My time has expired.
        With that, I will recognize our Vice Chair for a second
    round, Mr. Mulvaney.
        Mr. Mulvaney. Just a few things.
        Professor Taylor, to follow up on a question that the
    chairman asked you, you mentioned that when the Greek crisis
    originally started, the Europeans had expressed some concern
    about the IMF getting involved.
        Do you have any insights as to why they were apprehensive
    about that?
        Mr. Taylor. I really don't. I think the issue was--
    remember, the IMF lending to these developed countries is quite
    unusual in recent years. Emerging markets have been the focus.
        In fact, the exceptional access framework had--so, in a
    sense, the Europeans I think originally were saying, ``This is
    our problem. We don't want the IMF here. The IMF is for those
    guys who are problem guys,'' Latin America or something.
        I think that was the concept that they had. I don't think I
    know for sure, but that is my sense, that, ``We will handle
    this,'' but then it just got too big. I'm not sure.
        Mr. Mulvaney. Ms. Lundsager, you were involved at that
    point. Correct?
        Ms. Lundsager. Yes. In Greece, yes.
        Mr. Mulvaney. Any insight as to why the Europeans--same
    question to you. I am just trying to get a feel for the lay of
    the land in 2010, I guess.
        Ms. Lundsager. Again, I wasn't directly in the
    conversations with the European leaders. But I understood that,
    initially, they felt that, if it is the Eurozone, they should
    solve the problem themselves, which, of course, many of us
    fully supported.
        But I think, in the end, what happened was the Europeans
    realized they are going to need a real adjustment program in
    Greece and that it was very difficult for the Europeans to do
    that bilaterally, to impose that kind of conditionality.
        And, furthermore, for them to come up with the financing
    all on their own meant--and it did initially as well with the
    EFSF--they had to go back to each one of their individual
    Parliaments for approval. So it took a while to--
        Mr. Mulvaney. It took some time.
        Ms. Lundsager. Yes. It took some time.
        So I think, in the end, they realized they needed the IMF
    because the IMF can move quickly and pull together the
    resources.
        Mr. Mulvaney. Coming forward to an issue that I think Ms.
    Moore raised regarding bailouts, you mentioned bail-in,
    Professor Taylor. The money ultimately ended up where?
        At the beginning of the crisis, most, a majority--I don't
    remember the percentage--of the Greek debt was held by private
    financial institutions, Ms. Moore. At the end, it had been
    socialized, held by governments and by the IMF.
        It strikes me that what the IMF did is bail out the private
    banks in Europe. Am I wrong about that? The money certainly
    didn't go to the Greek people. And to the extent it went to the
    Greek government, it was immediately paid to the private money
    center banks. Correct?
        Mr. Taylor. I think that is a good way to describe it. It
    is not perfect. Bailout is an ambiguous term. But I think that
    is right.
        Originally, you had a lot of private sector holding debt,
    and now you have a lot of public sector holding debt. So it
    does look like--I think the word ``swap'' was used earlier.
        Mr. Mulvaney. And I know she has to leave. But I do hope
    that our Democrat colleagues understand that some of us have a
    problem with that and that, if we are looking to reform the
    IMF, it may be to prevent circumstances like that.
        That is a very different thing for the IMF to do. If they
    were lending money to a Third World country, to an undeveloped
    nation, that really wouldn't be as much as an issue as they are
    when they are lending to either emerging economies or even more
    so to developed economies.
        So, anyway, I am starting to get a little sidetracked on
    various issues. Thank you very much for your time.
        I yield back.
        Mr. Lowery. Can I just make--there is one slight amendment
    in that--
        Mr. Mulvaney. Sure.
        Mr. Lowery. --in 2012, Greece did work with the IMF and
    there was a fairly significant haircut to a number of private
    creditors. So I don't disagree with the premise of your
    question in the 2010. But, in 2012, there was actually--a lot
    of private creditors took a major haircut on their claims.
        Mr. Mulvaney. Thank you, Mr. Lowery.
        And thank you, Mr. Chairman.
        Chairman Huizenga. The gentleman yields back.
        And we have had votes called. We are going to try and
    quickly get in one or two more, if that is okay with the panel.
        And, with that, I would like to recognize Mr. Pearce from
    New Mexico for 5 minutes.
        Mr. Pearce. Thank you, Mr. Chairman.
        Kind of following along the same line--you may have already
    answered. I apologize. I have been in and out--there is
    generally a truism in business that when the bank loan gets big
    enough, they no longer have a loan. They have a partner.
        Was there a conversation like that in the IMF as we are
    going up to lending to Greece, that we are lending at 3,200
    percent of their quota share? Was there any conversation in the
    room?
        Ms. Lundsager, I think you would be the one who might have
    been there.
        Ms. Lundsager. Thank you.
        We were all very aware that it was a large number in terms
    of percent of quota. In terms of Greece's GDP, it was maybe
    around 12 percent of Greece's GDP.
        And, of course, earlier we had done some fairly large
    programs. The Uruguay program was about 18 percent of GDP. And
    I always preferred that metric because quotas could be very
    much out of line in terms of a country's real economic
    situation.
        So, yes, all board members were very well aware of how big
    the program was. But it was the sense that--and I went back and
    looked at the discussion and what I said. But at every board
    meeting I insisted that the Europeans reconfirm their support
    for their Eurozone partner, which they did.
        Mr. Pearce. They did give that support?
        Ms. Lundsager. They did give that support. Of course, it is
    conditioned on the Greek authorities adhering to their program.
        But my bottom line is I still feel that it is very much the
    European responsibility to ensure that Greece honors its
    obligations to the IMF.
        The IMF has been a supremely valuable institution for
    Europe not just in the Eurozone, but in European engagement
    with countries around the world. So I do look to my former
    European colleagues, their governments, to make sure that this
    problem is resolved. Thank you.
        Mr. Pearce. You had also mentioned that you had insisted
    that adjustments be made in the way that the Greek authorities
    collect their taxes.
        Ms. Lundsager. Yes.
        Mr. Pearce. You went ahead and voted for the transfer even
    though I don't think they have made much progress in collecting
    those taxes.
        But you voted for the loan.
        Ms. Lundsager. Yes. I voted for the loan, and I did support
    the reviews that came along the way, again, because the Greek
    authorities were committing to taking measures. They would have
    taken some parliamentary actions and were committing to take
    additional measures.
        We did start to see some improvements in some of the
    numbers, even though I think many of us were hoping that there
    would have been quite a bit better performance.
        Mr. Pearce. Okay. If the performance stays roughly the same
    as it is and the question came up again and they maybe weren't
    making their payments and asked for more money, would you still
    vote for it?
        Ms. Lundsager. Well, no. If a country is not making its
    payments to the IMF, basically, it can't draw on the IMF. And,
    frankly, Greece hasn't been able to draw this past year while
    this program review has been under negotiation. But any country
    in arrears to the IMF cannot draw.
        Mr. Pearce. Let's say that they make the payment that was
    due. Let's say they make that, but they have not made the
    internal adjustments.
        Because I asked the German Bundestag or Bundesrat,
    whichever was here, ``How long will your people tax themselves
    more in order to pay for the people who refuse to pay their own
    taxes?''
        They understand that is a ticking bomb that they are going
    to have to deal with at some point because the Germans appear,
    when I visited there last, that was getting to be softer
    ground, that total commitment to the idea that we are going to
    hold the Eurozone, no matter the pain, was being felt at the
    ballot box. And that was the ultimate test.
        So if they made their payments and they had not made
    significant changes in their internal collections, would you
    still vote then if they were asking for more?
        Ms. Lundsager. It would depend on the constellation of what
    they were proposing they would do.
        Mr. Pearce. Fair enough.
        I yield back, Mr. Chairman.
        I appreciate the input from all of the panelists. Thank you
    very much.
        Chairman Huizenga. The gentleman yields back.
        And, with that, we have about 8 minutes left to go in our
    vote, so I am going to call an end to this hearing.
        I just would like to say thank you to each of our witnesses
    for their testimony today.
        The Chair notes that some Members may have additional
    questions for this panel, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 5 legislative days for Members to submit written questions
    to these witnesses and to place their responses in the record.
    Also, without objection, Members will have 5 legislative days
    to submit extraneous materials to the Chair for inclusion in
    the record.
        And with that, this hearing is adjourned.
        [Whereupon, at 3:37 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                 June 17, 2015

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