[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


 ADMINISTRATION PRIORITIES FOR THE INTERNATIONAL FINANCIAL INSTITUTIONS

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

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 8, 2017

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-57
                           
                           
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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
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                  Kirsten Sutton Mork, Staff Director
               Subcommittee on Monetary Policy and Trade

                     ANDY BARR, Kentucky, Chairman

ROGER WILLIAMS, Texas, Vice          GWEN MOORE, Wisconsin, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
BILL HUIZENGA, Michigan              BILL FOSTER, Illinois
ROBERT PITTENGER, North Carolina     BRAD SHERMAN, California
MIA LOVE, Utah                       AL GREEN, Texas
FRENCH HILL, Arkansas                DENNY HECK, Washington
TOM EMMER, Minnesota                 DANIEL T. KILDEE, Michigan
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                CHARLIE CRIST, Florida
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    November 8, 2017.............................................     1
Appendix:
    November 8, 2017.............................................    25

                               WITNESSES
                      Wednesday, November 8, 2017

Malpass, Hon. David, Under Secretary for International Affairs, 
  U.S. Department of the Treasury................................     4

                                APPENDIX

Prepared statements:
    Malpass, Hon. David..........................................    26

              Additional Material Submitted for the Record

Malpass, Hon. David:
    Written responses to questions for the record submitted by 
      Representative Heck........................................    37

 
 ADMINISTRATION PRIORITIES FOR THE INTERNATIONAL FINANCIAL INSTITUTIONS

                              ----------                              


                      Wednesday, November 8, 2017

             U.S. House of Representatives,
         Subcommittee on Monetary Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:03 a.m., in 
room 2128, Rayburn House Office Building, Hon. Andy Barr 
[chairman of the subcommittee] presiding.
    Present: Representatives Barr, Williams, Huizenga, 
Pittenger, Hill, Emmer, Davidson, Tenney, Hollingsworth, Moore, 
Sherman, Heck, Kildee, Vargas, and Waters.
    Chairman Barr. The committee will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time, and all members will have 
5 legislative days within which to submit extraneous materials 
to the chair for inclusion in the record.
    This hearing is entitled ``Administration Priorities for 
the International Financial Institutions.'' I now recognize 
myself for 5 minutes to give an opening statement.
    Today, we welcome the testimony of Mr. David Malpass, Under 
Secretary of the Treasury for International Affairs. This is 
the under secretary's first appearance before the committee 
since his confirmation this summer. We congratulate you on your 
confirmation, and our subcommittee looks forward to working 
with you.
    Mr. Malpass is responsible for overseeing U.S. 
participation in the international financial institutions, 
which includes the World Bank, the IMF (International Monetary 
Fund), and regional development banks. This subcommittee has 
emphasized that these organizations need to focus on clear 
objectives and demonstrable results, not chase money at every 
turn or reward their employers for just pushing funds out the 
door. Take the World Bank as an example. For at least a quarter 
century, the bank's own management reviews and evaluations have 
pointed out that staff incentives prioritize churning out 
loans, not producing results for the poor or generating useful 
lessons to help them grow their way out of poverty.
    This subcommittee has also examined, on a bipartisan basis 
I might add, shocking lapses in basic project management, as 
well as the use of World Bank assistance in support of 
governments that are contemptuous of their citizens' economic 
freedom. In addition, the bank keeps lending to middle income 
countries that have easy access to resources. Two and a half 
billion dollars have already been committed to China this year, 
even as Beijing has set up rival development institutions.
    Meanwhile, the World Bank's leadership is now suggesting it 
needs a capital increase to spend more money in this fashion, 
despite their receiving a capital increase as recently as 2010. 
All of this leads to the impression that the World Bank is more 
excited about fundraising than it is about showing its 
shareholders what it has actually achieved. A case in point, 
the media reported earlier this year that the bank has stripped 
its chief economist of control over its research division due 
to his critique of the bank's communications style.
    As anyone who has suffered through the bank's endless 
jargon knows too well, this just underscores how out of touch 
the World Bank risks becoming. Earlier this year, the Financial 
Services Committee passed a World Bank Accountability Act, 
which attached some of the most significant reform requirements 
ever to an IDA authorization. It had been more than a decade 
since the committee acted in this manner, underlining the 
weight we place on seeing changes at the bank.
    Mr. Malpass, Congress has better uses for limited funds 
than empty rhetoric and budget support. I, therefore, look 
forward to hearing how you propose to exercise leadership at 
the bank.
    At the same time, the World Bank is not alone in its lack 
of focus. Looking to the IMF, we have seen a 7 year long 
involvement with Greece that has tarnished the fund's 
reputation as the IMF's own evaluation department has shown in 
detail.
    I am pleased that the IMF has recently expressed skepticism 
toward committing additional resources to the Euro zone's 
bailout of Greece. As we look ahead, I hope that the Treasury 
Department will use the Greek disaster in order to push for 
clearer guidelines governing the IMF's interaction with 
regional financing arrangements.
    As we all know, the international financial institutions 
coexist with an increasing number of multilateral 
organizations, including the Asian Infrastructure Investment 
Bank, the European Stability Mechanism, and others. While some 
have used the emergence of these organizations as an argument 
for more U.S. Funding to fight back potential rivals or to push 
for a more expansive mission at the international financial 
institutions, I would point to an alternative conclusion. It 
seems to me that exerting U.S. leadership in the world and 
ensuring that the IFIs (international financial institutions) 
preserve their legitimacy means advocating that they 
concentrate on clearly defined objectives and are held 
accountable for results.
    Leadership at these institutions doesn't boil down to who 
can open their checkbook the fastest. Leadership means 
demanding economic growth, institutional transparency, and 
responsible project management that puts its beneficiaries 
first. In short, we need a back-to-basics approach. I am 
optimistic that the Trump Administration views things 
similarly.
    Looking beyond the IFIs, I am also hopeful that the under 
secretary and his colleagues will provide new energy in 
advancing U.S. interests with our international partners. It is 
encouraging to have an Administration that looks at economic 
diplomacy through the lens of economic growth. We have an 
opportunity to rein in the regulatory overkill of the past 8 
years. I am confident Mr. Malpass will help us seize this 
opportunity in the talks he leads with his counterparts around 
the world.
    I look forward to working with the under secretary to 
advance these priorities, and I thank him again for his 
testimony.
    The Chair now recognizes the Ranking Member of the 
subcommittee, the gentlelady from Wisconsin, Gwen Moore, for 5 
minutes, for an opening statement.
    Ms. Moore. Good morning. Thank you so much for joining us. 
I am very eager to hear your testimony. I have had the 
opportunity to peruse some of your comments.
    Under Secretary, I want to say first that your discussions 
of the benefits of private capital flows over development 
finance seems to misstate, perhaps, my view or the nature of 
development finance.
    Former World Bank president James Wolfensohn testified to 
this difference. As an investment banker, he said he never once 
had a conversation with the government about their social 
policies or their economic policies. But when the World Bank 
comes in, it looks at what is happening to the people in the 
country, what is happening to social stability, and what is 
happening on issues like governance and inequality. So I think 
it is important to not just look at these types of finances as 
always interchangeable.
    Your discussion of private capital is the engine of many of 
the innovations that have produced the greatest measurable 
results in fostering growth and lifting people out of poverty. 
Stems from, I believe, an outdated belief that unfettered 
markets, laissez-faire, of kind of the discussions we are 
having in Congress now, trickle down, will only create wealth 
and stability, but also solve almost any social problem through 
a trickle-down benefit to others in society.
    I am struck that in all of your discussion about global and 
domestic growth, you never mention the growing problem of 
inequality. Excessive inequality not only undermines social and 
political cohesion, it has also been shown to have negative 
effects on growth. We can go back, Plato, Adam Smith, Brandeis, 
Plutarch, as far back in history as you want to, and we hear 
some of the greatest minds talk about a destabilizing impact of 
inequality.
    Our current Fed chair, Janet Yellen, has been before this 
committee many times, and talked about inequality being a huge 
problem. I would appreciate hearing from you what you believe 
would be an appropriate set of public policies that we would 
need to have in place, both domestically and internationally, 
to rein in the excesses of the market, maintain stability, and 
assure that the benefits of capitalism are broadly shared.
    Thank you so much. I yield back my time to Mr. Sherman.
    Mr. Sherman. Mr. Barr, I enjoyed working with you on the 
World Bank Accountability Act, which passed the committee 
unanimously, and look forward to bringing it to the floor.
    I would point out that the World Bank loaned some $880 
million to Iran from 2000 to 2005. Finally, we were able to get 
that stopped. But it is important that we not let that happen 
again. Even for those of us who are advocates of the bank, you 
can imagine how painful it is to then go back to your district 
and say, we put money in here, and Iran takes money out of 
there. That is a pain I experienced last decade, and I don't 
want to experience it next decade.
    I join the Ranking Member in belief that World Bank finance 
plays an important role that cannot be substituted for just by 
the private sector. I look forward to learning what we are 
doing so that the World Bank is not financing middle income 
countries that can afford to do it themselves, but particularly 
those middle income countries like China that are expanding and 
competing for jobs or unfairly taking jobs from the United 
States.
    With that, I would yield to any member. Seeing none, I 
yield back.
    Ms. Moore. I yield back.
    Chairman Barr. The gentlelady yields back.
    Today, we welcome the testimony of the Under Secretary for 
International Affairs at the U.S. Department of Treasury, David 
Malpass.
    Under Secretary Malpass oversees policies in the areas of 
international finance, trade, and financial services, 
investment, economic development, and international debt 
policy. He also coordinates financial market policy with the 
group of 7 industrialized countries.
    He previously served as Deputy Assistant Secretary of the 
Treasury under President Ronald Reagan; Deputy Assistant 
Secretary of State under President George H.W. Bush; and Chief 
Economist at Bear Stearns. In addition to his Treasury and 
State Department positions, Malpass served as Senior Analyst 
for Taxes and Trade at the Senate Budget Committee and 
Republican Staff Director of the U.S. Congress' Joint Economic 
Committee.
    He holds a bachelor's degree in physics from Colorado 
College and an MBA from the University of Denver, and studied 
international economics at Georgetown University, School of 
Foreign Service.
    Without objection, your written statement will be made part 
of the record. Under Secretary Malpass, you are now recognized 
for 5 minutes to give an oral presentation of your testimony.

            STATEMENT OF THE HONORABLE DAVID MALPASS

    Mr. Malpass. Thank you very much, Chairman Barr and Ranking 
Member Moore. It is a pleasure to be here with members of the 
Financial Services Monetary Policy and Trade Subcommittee. So 
thank you for holding this hearing.
    One of the Trump Administration's top objectives is to 
achieve faster U.S. and global growth in ways that improve 
after-tax wages for American workers. Median income we would 
like to see go up. This involves ambitious reforms for taxes, 
regulation, trade, energy, financial regulation, 
infrastructure, and the budget.
    A key driver of growth is the effectiveness of the 
financial regulatory framework so that small- and medium-size 
businesses are able to get the working capital they need to be 
more productive and create more jobs. As Secretary Mnuchin said 
in October, our agenda is aimed at restoring much needed 
dynamism to the U.S. economy.
    In today's testimony, I will focus primarily on the World 
Bank and the IMF, but each of the international financial 
institutions, the IFIs, presents its own set of challenges and 
opportunities. The context for today's discussion is an 
improvement in global growth in recent quarters, though it 
remains well below its true potential.
    Following the 2008 financial crisis, there was an unusually 
weak recovery, both in the U.S. and abroad. Per the IMF, world 
GDP, which stood at $73 trillion in 2011, was stuck at just $74 
trillion in 2015, and $75 trillion in 2016. We welcome the 
recent U.S. acceleration to 3 percent growth in the second and 
third quarters, and believe faster U.S. and global growth rates 
are possible, sustainable, and will be a key factor in 
improving wages for American workers.
    With growth accelerating and the world financial system 
relatively stable and liquid, now is an opportune time to 
discuss the appropriate role of multilateral development 
finance in global growth and in prosperity. As a preface, I 
want to make clear the distinction between isolationism, which 
we oppose, and our view that globalism and multilateralism have 
gone substantially too far to the point that they are hurting 
U.S. and global growth.
    In his remarks to the United Nations General Assembly in 
September, President Trump articulated a vision of 
international affairs in which each country's government has a 
responsibility, first and foremost, to its own people. Out of 
this self-interest emerges a constructive international order 
in which nations and their people are enriched through trade, 
cooperation, and innovation.
    The President is traveling in Asia this week promoting 
growth, investment, security in the Indo-Pacific, and trading 
relationships that are fair and reciprocal. It is very clear 
that the U.S. benefits from freer, more prosperous neighbors, 
trading partners, and like-minded societies around the world. 
We recognize that successful international relationships 
include multilateral institutions. But the challenge for them 
is to have a clear, focused mission, and deliver results 
effectively, and with accountability to the participants.
    Three important transformations have occurred in 
international finance since I was last at Treasury. The 
securitization of sovereigns, the lengthening of maturities for 
local currency debt, and the decline in the structure of 
interest rates. These foster market-based capital flows that 
should add materially to global growth and prosperity. As a 
result, the role of the MDBs (multilateral development banks) 
has to change dramatically so that they focus less on the 
volume of finance that they provide and more on the goal of 
providing high-quality services that are not available 
elsewhere.
    The World Bank has asked the current Administration to work 
toward large capital increases for the IBRD and the IFC. 
Treasury believes that the World Bank currently has the 
resources it needs to fulfill its mission and that the bank 
should develop proposals in which the bank's organic capital 
accumulation alone could be sufficient to support future 
lending targets.
    The state of the world, that of capital markets, and that 
of countries is vastly different today than when the World 
Bank's capital structure was developed. We think now is an 
opportune time to rethink the structure and mission.
    In the interest of time, I want to mention the other topic, 
the IMF. It operates in the same global context as the World 
Bank. It is an improving global outlook with an unusually high 
availability of private sector capital. It faces the challenge 
of redefining its role at a time when it currently has ample 
resources, but faces unknown future challenges.
    So, in conclusion, the uptick in global growth and the 
relative calm in international markets has presented us with an 
opportunity to advance policies to further stimulate both 
domestic and global growth. Notably, we included new language 
in recent communiques citing exchange rate stability as a goal 
of sound policies and as a contributor to strong and 
sustainable growth and investment. Exchange rate instability 
has been a major cause of investment uncertainty and the cost 
of cross-border investments. Currency stability supported by 
strong fundamentals should encourage investment and growth 
worldwide.
    I look forward to working with you to improve the growth 
trajectory for the global economy and for the benefit of all 
Americans. Thank you. I am pleased to take any questions, Mr. 
Chairman.
    [The prepared statement of Mr. Malpass can be found on page 
26 of the appendix.]
    Chairman Barr. Thank you, Mr. Under Secretary.
    The Chair will recognize himself for an initial round of 
questioning for 5 minutes.
    You just touched on this but, Mr. Malpass, I do want to 
revisit this issue of capital for the World Bank. As you know 
and as you just said, the World Bank is considering a request 
for a general capital increase, or GCI, in the amount of up to 
tens of billions of dollars. But the bank has just had a 
capital increase in 2010. Prior to the 2010 increase, it had 
been 21 years since the previous GCI. So let me repeat that. 
Twenty-one years.
    Mr. Malpass, why should Congress even entertain the idea of 
a World Bank capital increase just 7 years after the last one?
    Mr. Malpass. So the World Bank has asked members to comment 
to them, and so at this point it is not before your committee. 
We have notified the committee last week, I think, that it 
qualifies under the law as the potential for a negotiation with 
the World Bank.
    My view is that there needs to be substantial amount of 
information from the World Bank on what they are thinking. 
Specifically, there was the mention of the graduation policy. 
You know, the World Bank has 25 countries now above the per 
capita limit or trigger point for their lending. China itself 
was the biggest borrower in 2017. It has a per capita income of 
nearly $12,000 versus the trigger point of under $7,000 for the 
World Bank.
    So I think the World Bank has a lot of work to do before we 
are at the point of discussing with the committee an actual 
capital increase.
    Chairman Barr. To that point, the subcommittee has 
examined, in addition to the China issue, management failures 
of the World Bank that really are unacceptable to any 
development organization, and that is why this committee marked 
up, out of this committee, the World Bank Accountability Act by 
a unanimous vote of 60 to 0.
    One of the problems we found was that, for decades, the 
bank faced criticism for incentivizing staff to generate loans 
as opposed to actually evaluating the results of reducing 
poverty. These aren't even external critiques, they come from 
the bank's own management reviews and internal evaluations.
    So why should Congress put more money into the World Bank 
if it doesn't even evaluate staff according to its impact on 
poverty?
    Mr. Malpass. Yes. The metrics--these are, I think, areas 
that need to be discussed firmly with the World Bank. One 
metric that they should be looking at is how many countries 
actually graduate from borrowing status at the bank. Instead, 
their track record has been to try to keep countries borrowing 
as long as possible as part of the effort to raise the loan 
totals.
    Getting that mindset changed, that success at the World 
Bank means countries do well enough to not need borrowing from 
the World Bank, that change alone would be huge and I think is 
necessary.
    Chairman Barr. Final question, and this is shifting to a 
different topic related to the Administration's efforts to 
advance U.S. interest in international negotiations. Two 
distinguished former members of this committee, Scott Garrett 
and Spencer Bachus, have been nominated by the President to the 
board of the Export-Import Bank. As you know, many supporters 
of EXIM state that foreign export subsidies make the United 
States export credit agency a necessary evil. On the other 
hand, the Obama Administration showed no interest in taking a 
hard line to negotiate these subsidies down.
    So what are your priorities as the new under secretary for 
global export subsidy negotiations, and how will the 
Administration go about advancing the interests of U.S. 
businesses?
    Mr. Malpass. In the ideal, and to Ms. Moore's well-
articulated points, if we are going to get to a situation where 
there is a higher real median income for people around the 
world, which is a way to address income inequality, if you can 
bring up the median, that usually means you have brought up 
most of the people in a society, and that is very important. I 
think the best way to do that is to have markets functioning. A 
challenge here is governments like to function even when 
markets are functioning.
    So for the World Bank, we want it to be very careful not to 
be crowding out the private sector. One could say the same 
about the Export-Import Bank. Just this week, the African 
Development Bank is considering equipment financing for the 
purchase of airlines--of airplanes in Africa. That raises very 
real concerns, because equipment financing, which is at the 
shorter end of the curve, is available in plentiful capacity 
around the world.
    So you have a government organization, in effect, moving 
into an area where private sector could operate. So I will make 
the same point on EXIM Bank. It is going to be a real challenge 
to have it provide financing where financing would not 
otherwise be available. I have questions whether that can 
really be done effectively.
    Chairman Barr. Thank you for your answers.
    The Chair now recognizes the gentlelady from Wisconsin, the 
Ranking Member, Ms. Moore.
    Ms. Moore. Thank you so much, Mr. Chairman.
    Sir, I want to start at the United States before I go 
globally here. I was looking at your testimony, and you said 
that the IMF forecast that was released earlier this week 
talked about the growth in the global economy that is gaining 
momentum. But the outlook for the United States' economy has 
weakened.
    Back to some of the comments that I made on opening, I am 
just asking, what occurs to me is that what might help our 
growth is a comprehensive immigration policy where people are 
not working undercover, but they are actually openly 
contributing. Maybe a trillion dollars over the next decade 
from immigration reform. Infrastructure, which I understand the 
World Bank has been advising the Trump Administration on how to 
go forward with that. Certainly, taking these students out of 
debt as opposed to giving the wealthiest people in our country 
a tax cut that they don't need. What about helping people get 
out of debt so that they can buy homes, so that they can use 
money in other ways, so that we can incentivize kids to go into 
physics and create the next generation of whatever, instead of 
being--not being able to do it?
    Why don't you see investing in people as being the number 
one method of growing our economy?
    Mr. Malpass. Thank you. Well, I do see investing in people 
as being very important for countries to grow, and that can be 
done in many ways. That is done at the home, that is done in 
schools, in primary schools, in secondary schools, and so on. I 
think some countries around the world are making good progress 
in that area. I met--
    Ms. Moore. Do you think it would help the U.S. economy, for 
us to do that?
    Mr. Malpass. Well, we invest, in dollar terms, probably 
more than almost anyone in the world. So a challenge also is 
making it effective, making it effective so that literacy is 
higher, so that people have skills that can be used in the 
current economy. That is one of the--
    So as we think about where the Administration is trying to 
get reforms, these include reforms in the education area that 
would allow skills to be added to.
    But I want to go back to your original point of the IMF's 
forecast for global growth accelerating, which is good, and 
looking at the U.S. not accelerating in their forecast view. 
That gets right to the core of where economics is. There is, at 
the IMF, sometimes, the view that taxes don't matter so much in 
how people allocate capital or how they choose their education, 
how they interact with companies. My view is that tax systems 
matter a lot.
    So the IMF has explicitly said that the tax reform being 
considered in the U.S. won't be that instrumental. I think that 
goes--
    Ms. Moore. All right. Let me move on. I have 1 minute, 30 
seconds.
    Mr. Malpass. Yes.
    Ms. Moore. Trickle down historically has not worked, so if 
it works this time, I will be happy to say we are wrong, but it 
hasn't worked. It has just created deficits.
    I was here in 2008 when Lehman Brothers collapsed. What are 
the most serious risks facing the global economy today, and 
what should we do to ensure stability in the global economy?
    Mr. Malpass. Yes. Thank you. So that was a terrible period 
for the world that hurt not only financial markets, but they 
had hurt real people, and so I share that concern. That is part 
of what government does and should do in terms of looking for 
vulnerabilities in the world economy.
    I guess one that is relevant to us today is 
overindebtedness by countries around the world.
    Ms. Moore. We are overindebted in the United States. So is 
this a time to give tax breaks to rich people, considering that 
we are in debt, $1.5 trillion?
    Mr. Malpass. So I think it is time to push for faster 
growth than what we have been experiencing. So the U.S. has 
been in a very slow--
    Ms. Moore. Faster growth. Maybe infrastructure instead of 
tax cuts?
    Mr. Malpass. I think the biggest obstacle to faster growth 
right now is the corporate tax rate is 35 percent.
    Ms. Moore. People don't pay that. Some corporations pay 
nothing.
    Mr. Malpass. Yes. But even if their effective rate is below 
the 35 percent, they are often employing rafts of lawyers in 
order to reduce that effective rate. The statutory rate of 35 
percent blocks investment in the U.S. and job creation in the 
U.S., and it is a powerful deterrent.
    Chairman Barr. The gentlelady's time has expired.
    The Chair now recognizes the Vice Chair of the 
subcommittee, the gentleman from Texas, Mr. Williams.
    Mr. Williams. Mr. Secretary, thank you for being here this 
morning and for your testimony on the Administration's 
priorities for international financial institutions. We 
appreciate your service.
    The International Monetary Fund's bailout in the aftermath 
of the Greek debt crisis has left Greece in a predictable 
situation. They are still hundreds of billions of euros in 
debt, and there is an unlikely repayment for the IMF and the 
European partners. As you are well aware, when a country joins 
the International Monetary Fund, they are assigned a quota, 
which dictates the percentage of their GDP that they can borrow 
annually or cumulatively. The rates allow for a country to 
borrow 145 percent of their quota each year and up to 435 
percent of their GDP. These guardrails are in place to protect 
a country from being overcome with debt and foreseeably an 
inability to repay. However, in Greece, the IMF authorized over 
3,000 percent in the wake of the government debt crisis.
    So, Mr. Secretary, using Greece as an example, what are the 
lessons learned in terms of the IMF lending to a member nation 
during a financial crisis? How might the United States use its 
voting power within the IMF to ensure that a similar bailout 
never occurs again?
    Mr. Malpass. Yes. Thank you, Mr. Williams. That was an 
exceptional period for Europe, and the IMF provided what they 
call exceptional financing. Those rules, to some extent, have 
changed since then. If we look back on that period, my concern 
and criticism was that the program that was prescribed for 
Greece wasn't focused and wasn't implemented very well. So you 
ended up in this very difficult situation of people lending 
huge amounts of money, new money, to Greece, without the growth 
reforms that would actually make it worthwhile.
    I guess a good response is, I don't expect that to happen 
again under the current rules that are at play in the IMF. 
There has been a change in the IMF's thinking about whether 
that would be a good idea. So we can look back on 2010 and say, 
mistakes were made, but one of those was the amount of money 
lent. But I think, very importantly, the structural reforms 
simply were not focused and were not implemented in Greece. So 
that we can do a better job into the future if there is another 
crisis.
    Mr. Williams. Thank you. Mr. Secretary, in your testimony 
you state that the U.S. benefits from freer, more prosperous 
neighbors, trading partners, and like-minded societies around 
the world. I fully agree with your statement that highlights 
the importance of acting in the self-interest of the United 
States to unlock all of these benefits.
    So the previous Administration did not prioritize the 
reform and modernization of things like NAFTA or World Bank. So 
as we begin to do so under the Trump Administration, can you 
briefly summarize why negotiating these agreements are so 
important to the American taxpayer and business?
    Mr. Malpass. Yes, sir. As I mentioned in the testimony, 
there is a place for multilateralism. So as we think about 
cooperation on a world basis, it is vital that the U.S. play a 
leadership role and be involved, and that is what we plan to 
do. The question is, how do you keep those organizations 
focused? That is a tough challenge that their tendency is to 
grow as much as it can, and that ends up costing money to the 
U.S. taxpayer and diluting their mission so they are not 
actually accomplishing what they were set out to do.
    So the way I can try to influence that is in the work of 
Treasury. My group in Treasury alone has nearly 100 
organizations and workstreams that we have staffed that travel 
to, spend time on, work on--and so one of our goals is to 
downsize the sprawl, the sprawl that has occurred in this 
particular area of government. That allows us then to focus 
harder on the things that really matter.
    One of them that is important to me is that programs, 
country programs, focus on how do you bring up the median 
income. You know, these organizations have often prescribed 
programs to countries, and you could look at the program and 
say, if the country does that program, the median income, the 
average guy in the country is going to go downhill, not uphill. 
Why would you want to do that?
    We can look at actual programs and try to have them focus 
on raising real median income. That is one of my goals.
    Mr. Williams. Thank you for your response. I yield my time.
    Chairman Barr. The gentleman yields back.
    The Chair recognizes the gentleman from California, Mr. 
Sherman.
    Mr. Sherman. Mr. Under Secretary, we do have a stake in 
economic growth worldwide. On the other hand, the World Bank 
can cost us money, at least we have to put money into it. One 
way we can promote economic growth worldwide is for us to sign 
tax treaties with countries that stand ready to do that with 
us.
    I realize this is an inch outside your portfolio, but I 
hope you will go back to the Treasury Department and reiterate 
that the Republic of Armenia is ready to sit down now and sign 
pretty much our model tax treaty. The fact that we can't get a 
tax lawyer to take a meeting is hurting the very efforts you 
are here to promote, which--and, by the way, would not only 
cost us nothing, but would actually add to the U.S. economy.
    As the Export-Import Bank was mentioned, and I will point 
out that the Export-Import Bank has a different mission; it is 
promoting American exports. Very often it will make a loan 
where the buyer could get a loan somewhere else, just the lower 
rate on the Export-Import loan is designed to get them to buy 
the American goods.
    I am disturbed that China is borrowing from the World Bank. 
Are these loans to the sovereign government or do they tend to 
be to entities? Because I have seen U.S. businesses do business 
in China, and once an entity owes you money, it goes out of 
business, and then you go bankrupt--so is there this credit 
risk from lending to shell entities or what could become shell 
entities in China? Do you know?
    Mr. Malpass. Mr. Sherman, those are all very good points. 
So, in China, my understanding is quite a bit of the bank's 
lending now is below the sovereign level. That means to what in 
the U.S. would be State and local governments, in China it is 
different terminology, but some--
    Mr. Sherman. Does the national government guarantee these 
loans? If they are not willing to take the risk, why should the 
World Bank?
    Mr. Malpass. Yes. So--China has been through waves of, call 
them bailouts or crises at the sub-Federal level. In the 1980's 
and 1990's there was a big one called the IDIX. There was a 
JEDIC failure, and there was a partial bailout by the Federal 
Government. In terms of the loans that are now being made by 
the World Bank, they are often guaranteed by a big enough 
entity that the credit risk is bought down in effect. But then 
that gets into the point of what benefits is there--
    Mr. Sherman. If these--
    Mr. Malpass. --If you have a good borrower, right?
    Mr. Sherman. If these are good projects, the national 
government of China can borrow an awful lot of money on the 
U.S. markets and lend it to its own local entities.
    Mr. Malpass. To take the World Bank's side just for a 
moment, they would say, yes, but think of all that they learn 
at the local level by having us come and visit them. Our role 
and your role and the committee's role is to say, wait a 
minute, can the U.S. taxpayer really do that, and why does that 
country need?
    Mr. Sherman. If the Chinese want the World Bank to visit 
them, they will pay for the airplane ticket and listen to the 
advice. If the visit is imposed upon them--I have had a lot of 
clients where the banker needed to talk to them before they 
made the loan, but they weren't listening, they just took the 
loan.
    Currency manipulation. One of our objectives in 
renegotiating NAFTA deals with currency manipulation. Has 
Canada or China in recent memory manipulated the currencies?
    Mr. Malpass. I am sorry, sir, what is the question?
    Mr. Sherman. Has either Canada or Mexico manipulated its 
currency in recent memory?
    Mr. Malpass. So the Treasury does a twice-a-year report on 
currency manipulation and did not find that either had 
manipulated their currency. But the point is part of trade 
promotion authority. Congress passed authority to the Federal 
Government--to the Executive Branch, and that includes a 
requirement that we look at currency manipulation.
    Mr. Sherman. Well, one country that does manipulate its 
currency, according to many, is China. Is that the same report 
that says that China isn't manipulating its currency and hasn't 
recently?
    Mr. Malpass. Yes, sir, same report.
    Mr. Sherman. We are paying money for that report?
    Mr. Malpass. That report is generated by Treasury, and, 
yes, the taxpayer is paying money for people to generate that. 
But to your--
    Mr. Sherman. You know, with Amazon, I can download fiction 
for like a buck or two a book. A report from the Department of 
Treasury saying that China is not and has not recently 
manipulated its currency would be in the fantasy section of the 
fiction offerings of any bookstore online or brick and mortar.
    Mr. Malpass. So in the past, China did manipulate its 
currency. It becomes important in your question of what is 
recently. So the report that comes out from Treasury is within 
this last year. Our finding is, under the way that report is 
set up, China did not manipulate its currency. I--
    Mr. Sherman. That is slightly less fanciful than perhaps 
some other reports, but it is still in the fiction section.
    I yield back.
    Mr. Malpass. Thank you, sir.
    Chairman Barr. Thank you. The gentleman's time has expired. 
I appreciate members' indulgence in allowing me to allow that 
exchange to continue a little bit longer.
    The Chair now recognizes the gentleman from Michigan, 
Chairman Huizenga.
    Mr. Huizenga. Mr. Malpass, good to see you again.
    Mr. Malpass. Very good to see you, sir.
    Mr. Huizenga. Yes. Actually, if you want to take 30 
seconds, if you want to finish that thought out. I think there 
is bipartisan concern about China's past, certainly attempts at 
currency manipulation and the charges that they have been out 
there. So if you wanted to finish that thought, we can take a 
few moments here.
    Mr. Malpass. I think relevant to us now is President Trump 
is very aware of the past problems that burdened our trading 
relationship with China, and that's a subject of his visit to 
China, which is coming up later this week.
    To Mr. Sherman's point, I think we could all agree that 
there are problems that were occurring. Our goal now is to 
avoid that kind of problem going forward. China, I think their 
currency practices have changed a lot in recent years.
    Mr. Huizenga. I am going to move on to a couple of other 
things here in the remaining few moments. In a report on the 
European Stability Mechanism earlier this year by Transparency 
International, a report that the ESM welcomed, one should add, 
the ESM is twice described as a lender of last resort. The 
report concludes that during its interventions, and this is a 
quote from the report, ``The ESM emerged as a lender of last 
resort for euro area sovereigns facing serious bond market 
pressures.''
    So if the ESM is truly the lender of last resort in Greece 
or other places, then presumably the IMF wasn't. In addition, 
the fund's involvement in the country over the course of 7 
years showed it is not in the business of quickly resolving 
balance of payments crises.
    So my question is this. How does the Trump Administration 
get the IMF back to its core mission ensuring that its programs 
are independent, effective, and, maybe more importantly, 
temporary?
    Mr. Malpass. Yes. Good point. So at the peak in 2011, the 
IMF had committed 70 percent of its quota, and that included 
the exceptional access that we discussed to Greece. Now, that 
number today is under 25 percent. So the IMF is much more 
liquid, because Greece has repaid a lot of those loans. So I 
think our challenge is--
    Mr. Huizenga. But they were not the intended target, 
correct? European nations like that were not the intended 
target of the IMF?
    Mr. Malpass. That is correct. So that was done in 2010, and 
we can look back and say, maybe that wasn't the way to go. So 
our challenge today is, going forward, would we do that again? 
I think the answer is no. Then, do we have the capability to 
help the IMF figure out that decision properly this time 
around? I think the answer is yes.
    Mr. Huizenga. I know that there is a reluctance. I know 
that there is a reluctance with the IMF. They did not feel 
good, or many within the organization didn't feel good about 
that.
    But I am kind of curious also, I want to talk very briefly 
about the regional financing arrangements. You know, the latest 
entry is the contingent reserve arrangement, which is China, 
Russia, India, South Africa. What kind of rules or principles 
do you think that the IMF should follow and put in place as it 
determines limits of future cooperation with these regional 
groups?
    Mr. Malpass. The IMF is trying to think about what its role 
is with those regional groups, and so we can help them think 
about that. As you think about a global crisis, and we 
discussed earlier, I think we want to look for vulnerabilities 
in the world system. We can wonder what order--if there were a 
crisis, in what order would people tap their emergency reserve?
    So, a first reserve, often is a central bank, a second 
reserve is international reserves of a country, and then in 
these regional relationships, they can tap that fund that has 
been set up. This gets into your point, the lender of last 
resort is the ESM, the European Stability Mechanism, truly the 
lender of last resort in Europe. Well, it is a finite fund. It 
is not large, compared to the debt of Europe. In reality, I 
think there are more lenders of last resort in Europe.
    So as we look at each of the individual regional 
relationships, I think we want to look at what is in U.S. 
National interest and our role in the IMF in seeing inside 
those regional groupings.
    Mr. Huizenga. Mr. Chairman, with your indulgence, I just--
maybe we can follow up in writing on a few of those sort of 
rules and principles. I would love to learn more where Treasury 
is headed with that.
    So, with that, I yield back.
    Mr. Malpass. Thank you, sir.
    Chairman Barr. The gentleman's time has expired.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Pittenger.
    Mr. Pittenger. Thank you, Chairman Barr. Thank you Under 
Secretary Malpass for being with us today and providing your 
testimony before the committee.
    Mr. Under Secretary, according to remarks given by the 
World Bank president, Jim Yong Kim, quote: ``The World Bank 
group very proudly supports the Government of China's 
ambitious, unprecedented effort to light up that night sky,'' 
end of quote.
    Referring to the Chinese efforts to the One Belt, One Road 
initiative.
    The One Belt, One Road initiative connects China with over 
60 nations on a transcontinental scale that collectively 
accounts for 62 percent of the world's population and 30 
percent of global GDP. This initiative, if completed, will 
result in the expansion of China's trade and global influence 
at, frankly, an alarming rate.
    Does the Administration support President Kim's praise of 
the One Belt, One Road initiative?
    Mr. Malpass. No, sir. So the problems with One Belt, One 
Road are several fold. One is that a lot of the financing that 
China is providing is coming from its State-owned institutions 
and is not provided at terms that are reasonable to the 
borrower, and that will be arms-length in terms of the 
relationship. An even bigger problem is many of the contracts 
that come out of those projects are not--not market-based 
contracts, meaning, you are often going to see Chinese 
suppliers putting the money in for excessive government money, 
Chinese Government money that is setting up the contracts. So 
you end up with projects that are not in the best interest of 
the countries that are the borrowers.
    What we would rather see the World Bank talking about is 
creating good quality projects. I think Mr. Barr, in his 
opening statement, made the point that the quality of the 
development finance and the projects has to be improved. That 
is where I would put that.
    Mr. Pittenger. Yes. Back in the 1990's, as you would well 
recall, we granted China most-favored nation trading status. 
Looking back, do you believe that this was the right response, 
the right initiative? It was a bipartisan effort. It was 
something that was initiated by Jimmy Carter many years ago, 
and advocated by many Presidents, and finally with President 
Clinton and the Republican House, they consummated that.
    At the end of the day, we took a fledgling country and that 
was basically a garden snake and made it into a boa 
constrictor. We have a $350 billion annual deficit with them, 
at least in 2016 that was the number.
    How do you relate to our role and our responsibility 
relative to China and concerns that many of us have regarding 
human rights, religious liberties, freedoms of conscience, 
things that we believe are an anathema to our society and our 
culture, and yet we have allowed that to go unabated, in 
essence, in our continual support for them?
    Mr. Malpass. So if we roll the dial back into the 1970's 
and 1980's as that process started it was called most favored 
nation, but what it often meant was normal trading relations. I 
think, as the U.S. was--
    Mr. Pittenger. They applied for it every year until they 
were granted that.
    Mr. Malpass. Until they were granted. We were in the midst 
of the cold war. There was the idea that China could be an 
offset, and so there was a process toward MFN that was set out.
    I guess what I would--if we look back, I think mistakes 
were made at many points in the relationship with China. One of 
the focuses now is, as it entered the World Trade Organization, 
which that was done in the 1990's, and we ended up with a 
relationship that is not reciprocal.
    The President will be discussing that this week a lot; that 
we have ended up in a situation, in part, due to their entry 
into the Word Trade Organization and how that was done, that is 
unbalanced. That ends up with them having better access to the 
U.S. Market and better ability to invest in the U.S. than we 
have.
    Mr. Pittenger. I think this gets back to the point that I 
made at the beginning, that their ability to launch this major 
initiative that connects 60 countries, frankly, was generated 
by our support and our efforts on their behalf.
    Mr. Malpass. Yes. It is troubling that the multilateral 
development banks or the heads of them, and it is not just Mr. 
Kim, but some of the others have made similar statements 
currying favor with China, and that is troubling. Because I 
think there are better ways to do development than that.
    Mr. Pittenger. Thank you. My time has expired.
    Chairman Barr. The gentleman's time has expired.
    The Chair recognizes the gentleman from Washington, Mr. 
Heck.
    Mr. Heck. Thank you, Mr. Chairman.
    Under Secretary Malpass, thanks for coming today. Although 
I believe the international financial institutions are 
tremendously important, I want to use my time today to discuss 
the Committee on Foreign Investment in the United States, or 
CFIUS.
    I raised this issue when Secretary Mnuchin came to talk to 
us in July, and I was pleased to see him agree that CFIUS 
reform was a pressing issue, and that he was prepared to work 
in a bipartisan manner to fix it. When I met with Assistant 
Secretary Tarbert a few weeks ago to discuss this issue, he 
affirmed your intention to work in a bipartisan way on CFIUS.
    So I have heard a lot of commitments thus far for 
bipartisanship, but so far, I have been extremely disappointed 
in you. You have not followed through on those commitments. I 
have offered constructive suggestions and asked technical 
questions about Treasury's position on a number of CFIUS-
related issues for the last 2 months, and never received a 
single substantive response. Not one.
    If Treasury wants to move forward with this issue in a 
bipartisan way, you need to do a better job of following 
through on your commitments. I plan to file several CFIUS-
related questions for the record after today's hearings, as I 
want to be sure any future committee action is informed by 
Treasury's views.
    So, Mr. Assistant Secretary, will you commit to providing a 
response to my questions by December 8th, 1 month from today?
    Mr. Malpass. Hello and good morning, Mr. Heck. So with 
regard to the process that is going on, as I understand it, 
Senator Cornyn and Senator Feinstein have--
    Mr. Heck. Again, completely unresponsive to my question. 
Will you answer my questions in a substantive fashion within 1 
month, or just admit for the public record you are not 
interested in working in a bipartisan way?
    Mr. Malpass. We are interested in working in--
    Mr. Heck. Will you provide substantive answers within 1 
month?
    Mr. Malpass. You know, there will be a full committee 
process with the Banking Committee on the Senate side and the 
Financial Services Committee on the House side.
    As far as the 1-month deadline, I haven't seen how many 
questions you are going to do, and that is my--I will commit to 
doing our best efforts with the questions that you provide, 
yes, sir.
    Mr. Heck. I think it is urgent that we address this issue, 
and I hope we can move forward in a bipartisan way. You have 
not performed to date. Full stop. Period.
    I believe we should stay laser-focused on passing 
legislation, which addresses our core national security 
vulnerabilities, before we talk about or if ever we talk about 
asking CFIUS to weigh economic questions.
    I believe both Congress and the Administration have a 
responsibility to make sure that CFIUS is adequately resourced, 
both to make sure we can identify a risk with particular 
transactions, but also to ensure that transactions, which are 
not problematic, can flow smoothly.
    Given the tremendous power the CFIUS statute vests in the 
President and the Executive Branch, and the bipartisan concerns 
which have been raised about how that discretion has been used 
in the past, I believe it is important that any CFIUS 
legislation ensure accountability and transparency to Congress, 
and to the greatest extent possible, by extension, to the 
public, for how that power is actually being used.
    At the same time, while I am concerned about giving the 
Executive Branch too much discretion on a transaction-by-
transaction basis, at the strategic level, I do recognize that 
the Executive Branch can move more quickly in reacting to new 
tactics used to evade CFIUS review. I want to make sure you 
have the appropriate tools to do that because, frankly, I see a 
disturbing trend in the use of those tools to evade CFIUS 
evasion--or review, rather.
    This issue is only going to get bigger going forward. I 
would caution you that, if we want to adopt the reforms 
necessary in order to most safeguard or best safeguard our 
country, the sturdiest way to do that is by working in a 
bipartisan way, and you haven't.
    So I believe that the principles provide a strong basis for 
us to work together, which is, frankly, why I find it 
inexplicable that your department has not engaged in any 
substantive way. I hope you will do better. I think the country 
needs for you to do better. This isn't about partisanship. This 
is about doing the best by the people of this country to help 
keep us secure. You have a role in that.
    Thank you, Mr. Chair. With that, I yield back the balance 
of my time.
    Mr. Malpass. Thank you, sir.
    Chairman Barr. The gentleman yields back.
    The Chair recognizes the gentleman from Minnesota, Mr. 
Emmer.
    Mr. Emmer. Welcome, Mr. Under Secretary.
    I want to take a little different approach. I want to go 
back to your written testimony. Just to put it in context, I am 
a big supporter of foreign assistance, and I recognize the 
humanitarian and national security benefits. However, when we 
have more than $20 trillion in debt, the assistance that we 
provide must be smart and effective. I think that is what you 
were trying to outline, or at least that is what I got from 
your written testimony.
    In your written testimony at page 4, you have a paragraph 
that begins with a statement that: The role of the multilateral 
development banks has to change dramatically so that they focus 
less on the volume of finance they provide and more on the goal 
of providing high-quality services that are not available 
elsewhere.
    Then you continue that the MDBs must improve the tools and 
methods they use to analyze additionally, guard against 
crowding out, maximize development impact, and you have some 
other suggestions there.
    When I went to the next page of your testimony, it looked 
to me like what you were suggesting really was they should 
provide, in an efficient and smart method, assistance to allow 
customer countries in need to develop projects that are going 
to improve their economic position. But the policies that the 
Trump Administration is trying to put in place would wean them 
off, hopefully, of the public assistance so that they could 
start to not only become self-sufficient, but access private 
capital. Do I have that correct?
    Mr. Malpass. Exactly right, sir. That was better put than I 
included in my testimony. The difficulty with that--so as we 
talk about the quality of the services provided by the MDBs, 
one thing is they are often very expensive. So you are hiring 
people from around the world and paying them very high 
salaries, and then trying to have them interface with countries 
that are far away, that are very different from their own 
countries, and that proves to just be a difficult task. How do 
you add value?
    That gets into this idea, especially as more and more of 
the value that they are doing is not infrastructure finance, 
the way it was in the old days, but it is actual technical 
services on how they can do a better job with their accounting 
system for their pension, for their social safety net. Those 
are plain hard to do. It raises the question, can you really 
have a government--if my government advises your government, 
are you really going to get the value that you are charging?
    Mr. Emmer. So how would you fix that?
    Mr. Malpass. One is the graduation policy. So one of the 
things that we have to get the World Bank to do is let 
countries stop borrowing so that those resources are more 
available to the countries that actually are in need. It has 
resisted doing that.
    You know, from their standpoint, they are trying to get 
their lending totals up, so they want to lend to China and to 
big borrowers. Brazil is a big brother. Getting them to break 
that circle is one of our goals.
    Then another is simply the pipeline of loans. You know, 
right now, it is not very transparent, and there was some 
discussion of that. So I think actually getting people to dig 
into the loans and say this kind of loan isn't actually going 
to help the country.
    I mentioned earlier the IMF role--they work together, IMF 
and World Bank--and having it be focused. If you look at a 
country, what are the two or three things that are most 
important for them to do, and then let's see a program that 
actually operates on them.
    Because, for example, the World Bank recently made a $400 
million loan to Turkey. When you look--and we opposed the loan, 
but it goes forward anyway. When you look at the loan, it was 
diffused. They doled out money to a lot of different government 
agencies in Turkey, and you can just imagine what happened to 
that money.
    Mr. Emmer. Not necessarily for infrastructure?
    Mr. Malpass. That was not infrastructure. That was what 
they call assistance--government assistance loans. So then you 
wonder, from the taxpayer--U.S. taxpayer standpoint, how is 
that in our national interest, and how do we create an 
organization that won't bring forward that kind of loan?
    Mr. Emmer. Well, I see my time is running out. We look 
forward to your recommendations as you go forward, and we look 
forward to working with you on trying to put them into effect. 
Thank you.
    Chairman Barr. The gentleman's time has expired.
    The Chair recognizes the gentleman from Ohio, Mr. Davidson.
    Mr. Davidson. Thank you, Chairman.
    Mr. Malpass, thank you for being here. Thanks for your 
expertise. It is good to know you are onboard there at 
Treasury, and I look forward to the work that you guys can 
accomplish, particularly with our international relationships 
with IMF and the World Bank.
    As we put capital into this--and we continually hear calls 
for more capital, from donor nations, like the United States, 
to help others. So at some form it is redistributive across the 
global system.
    We have talked a little bit about--our Ranking Member 
talked about income distribution around the world. Have you had 
a chance to assess how effective the World Bank and the IMF 
have been doing at improving things?
    You just mentioned Turkey distributed capital, but really 
fundamentally promoting capitalism versus socialism. At some 
point, are we subsidizing failed economic models in some of the 
developing economies we are helping?
    Mr. Malpass. I think the answer is yes to that, and so then 
a question is how do we change that. The problem is--now, not 
to get too ideological, but we can think of a spectrum from 
capitalism to socialism and say different types of loans would 
fall in different spots along that.
    If we define socialism as the idea of either ownership or 
operation by a government of various services, a lot of the 
lending is going in that direction. My analysis of that or the 
way you can quantify that is real median income doesn't go up 
under those circumstances. Real median income is the middle--
the amount earned by the middle of the society.
    A primary goal should be getting that to go up, as opposed 
to the rich going up, as opposed to--so getting that to go up. 
A lot of these loans are simply not doing that, and so we see, 
I think, a lag.
    Now, to be self-critical of the U.S., we saw the odd 
situation in the 2009, 2010, and 2011. We had an economic 
recovery going here, but real median income was actually 
falling in the U.S. So we had programs in place that are high 
tax rates that the rich can avoid better than average people 
can avoid. So you end up having a bias in the system that 
caused real median income to actually go down in the U.S., 
which is the first time in history that we have seen a recovery 
where the average guy did worse. So we can work to avoid that 
in other countries.
    Mr. Davidson. So in 2012, the IMF's charter expanded to 
take into account all issues, all financial sector issues that 
bear on global stability of the financial system, originally 
more focused on a system of exchange rates, international 
payments. Do you see any issues with that shift in focus, or 
what are the implications as that shift has occurred?
    Mr. Malpass. Sir, I am not as familiar with that shift. One 
of the things going on often is the institutions often say what 
they think the donors want to hear in--and then that was part 
of--if that was an IMF shift, you remembered they were trying 
to get the U.S. to put money in. At that time, there was a 
major quota increase that had been negotiated. I think it may 
be--have related to that. But then, as soon as the money comes 
in, which it did in 2016 from the U.S., the quota increase was 
concluded, then the institution loses its focus. So maybe we 
can discuss that.
    Mr. Davidson. Right. When you look at the effectiveness of 
some of the things they are doing, whether it is the type of 
capital system they are supporting or the scope of the other 
metrics they are trying to apply--I guess, one of the big 
things that is at the center of this balance of payments that 
the International Monetary Fund helps facilitate is flow of 
goods and services, flow of capital, intellectual property, via 
a common means of exchange. Working capital is one of those 
things that is facilitated. Frankly, it is one of the things 
that countries do that distort behavior as well and the fact 
that they--in their trade relationships subsidize some of that 
trade.
    So how do you view our role in influencing a more market-
oriented behavior?
    Mr. Malpass. I mentioned in my written statement that China 
has--is a critical factor in this. They used to be liberalizing 
in that they have--that has--that seems to have stalled or 
reversed.
    That gets very much into the question of how do you have 
the world move in a market-based way that allows the payment 
systems to allow the little guy in countries to actually get 
access to credit? I think the IFIs, in general, could do a much 
better job on that, despite the--I am not as familiar with the 
reform that you are talking about.
    They do look at the payment system. They are kind of aware 
of this issue, but my impression is it is not the highest 
priority. We should make it a much higher priority to find a 
way that small businesses and average individuals, even in poor 
countries, can find access to credit or to be part of the 
financial system.
    Chairman Barr. The gentleman's time has expired. The 
gentleman's time has expired.
    The Chair now recognizes the gentleman from Indiana, Mr. 
Hollingsworth.
    Mr. Hollingsworth. Good morning. Thank you so much for 
being here. I won't take my full 5 minutes.
    I appreciate very much what you have said. A lot of what 
you have said this morning, I couldn't agree with you more, 
both on your responses with regard to potential tax reform, as 
well as the continued conversation about how we ensure that 
these bureaucracies around the world focus on the mission by 
which they have been handed from their members and not their 
own mission.
    I especially love what you talked about in the sprawl of 
bureaucracy. It is the duty of members and especially large 
donor countries to ensure that the mission of that bureaucracy 
isn't just its own expansion of power, its own expansion of 
resources, but instead, the mission of ensuring, as you put it, 
that median incomes around the world, and specifically in 
countries that are being targeted, continue to go up in a 
meaningful way. I certainly appreciate that.
    I also like what you said about how, if we fail to do that 
and we enable mission creep to where then we look at the World 
Bank and the IMF to do a whole host of functions, the primary 
function for which they are each responsible will be eroded 
because we have resources that are now diversified over very 
many functions or very many missions.
    I certainly appreciate your work and effort toward that end 
and ensuring, what I know Hoosiers back home are concerned 
about domestically, regulatory bureaucracy that continues to 
push forward its own expansion of power into the everyday lives 
of Hoosiers back home and the businesses that they own, 
operate, or work in, but also internationally how challenging 
your environment in work, I am sure, is.
    One of the reasons you, I am sure, mentioned median income 
versus average is because you're trying to exclude outliers, 
right?
    Mr. Malpass. Yes.
    Mr. Hollingsworth. You want to push back against some of 
what Ms. Moore talked about with regard to inequality and focus 
on the very middle individual in the income distribution in 
pushing their income up.
    I like what you said as well about making sure we do it in 
a sustainable way. You can certainly ensure government gives 
dollars to those individuals and their income will go up, but 
it won't in a sustainable way, and focusing on those projects.
    Is there anything else that I haven't covered that you 
wanted to add that you have really pushed in your testimony 
today?
    Mr. Malpass. Thank you, sir. With regard to median income 
versus average, you stated it exactly right. The importance of 
that is, if we look at income inequality, the way it is often 
done, you won't actually get--it is very complicated to 
calculate. So allowing the IMF, the World Bank to actually 
calculate median income and see if it is going up--
    Mr. Hollingsworth. Right.
    Mr. Malpass. --That helps us a lot.
    The one other point I would put is the importance of 
dependable currencies, which I mentioned in my statement. For 
too long, we have had the view and the IFIs allowed the view 
that you could gain competitiveness by weakening your currency. 
So the central bank got in the habit of printing money--
    Mr. Hollingsworth. Right.
    Mr. Malpass. --That hurts, desperately hurts the median 
income--
    Mr. Hollingsworth. Right.
    Mr. Malpass. --Because your--the value of the money--so--
and we can see today, Venezuela, for example, is moving toward 
hyperinflation.
    Mr. Hollingsworth. Yes.
    Mr. Malpass. Median incomes crashing because they don't 
have money that average people can get to. Only rich people can 
get to U.S. dollars--
    Mr. Hollingsworth. Right.
    Mr. Malpass. --Preserve their capital.
    Mr. Hollingsworth. Agreed.
    I really applaud the work that you are doing and really 
love the fact that you have a clear metric for success, I 
think, in managing bureaucracies and in managing mission creep, 
ensuring that you have a clear metric by which you are going to 
determine every project, right, by which you are going to 
determine success or failure for that bureaucracy. I think it 
is hugely important and a very big step in the right direction. 
So I appreciate your work.
    With that, Mr. Chairman, I will yield back.
    Mr. Malpass. Thank you, sir.
    Chairman Barr. The gentleman yields back.
    The Chair now recognizes the distinguished Ranking Member 
of the full committee, the gentlelady from California, Ms. 
Waters.
    Ms. Waters. Thank you very much.
    I have a question for the Honorable David Malpass, Under 
Secretary for International Affairs, and I thought I would come 
and share with you my concern.
    I am concerned by the statement in your testimony that the 
United States is not expecting to make any future contributions 
to the Global Agriculture and Food Security Program, and that 
this program should be wound down with future reflows returned 
to donors.
    This program is a unique fund with a clear value added, and 
is on target to reach 12 million farmers in the poorest 
countries. I am struck by your claim that the MDBs could 
continue these projects without separate donor support at the 
same time that the Administration has proposed cuts across the 
board at nearly every MDB, as well as massive proposed cuts in 
our bilateral aid programs.
    So this brings me to one strong disagreement I have with 
your reform agenda, and, in particular, with the statement you 
made in your testimony that reflects the Administration's 
approach to international economic cooperation. You said that, 
quote, ``Globalism and multilateralism have gone substantially 
too far, to the point that they are hurting U.S. and global 
growth,'' end quote.
    Of course, I disagree with this. I don't think we have gone 
too far at the international financial institutions. I don't 
think we have done too much to help feed people in the world 
who are starving, who are experiencing food insecurity. We have 
not done too much to help alleviate desperate poverty and 
suffering in other parts of the world, including that of 
millions of children and other vulnerable people in Africa, 
Latin America, and Asia who continue to go without food.
    What do you know about the lack of a need for this kind of 
assistance and that this assistance can be eliminated without 
causing great harm?
    Mr. Malpass. Yes. Thank you, Ms. Waters. Other parts of my 
statement emphasized and explained how important it is for the 
U.S. to be a leader in the world in finding ways to raise 
people's living standards. We do that in a number of ways: We 
do that by participating in organizations, by leading by 
example where we can, and by being engaged. The U.S., I think, 
remains--the U.S. is the world's largest economy and, in many 
ways, remains the world's strongest leader in the poorest 
countries, and will continue to do that.
    So the sections that you highlighted are ones where we have 
allowed multilateral organizations to take over that role, and 
they don't do it very well in a lot of cases. So they spend a 
lot of money. They are not very efficient. They are often 
corrupt in their lending practices, and they don't get the 
benefit to the actual people in the countries.
    They get the benefit to the people that fly in on a first-
class airplane ticket to give advice to the government 
officials in the country. That flow of money is large, but not 
so much the actual benefit to normal people within poor 
countries, and that is what I would like to see change.
    Ms. Waters. Do you have an example of that?
    Mr. Malpass. Well, for example, we have countries such as 
South Africa that are deteriorating rapidly as their government 
is unable to provide efficiency and effectiveness.
    We have, of course, Venezuela. That is not so much an issue 
for the international financial institutions in that they have 
basically blocked themselves off from advice from outside for 
years and years, which is unfortunate.
    In the poor parts of Africa, we just saw Gambia have a--
there are numerous examples where countries that were closely 
engaged with the multilateral financial institutions find 
themselves going downhill.
    Ms. Waters. I didn't understand the example of South 
Africa. What was that? What were you trying to tell me?
    Mr. Malpass. That South Africa is heavily indebted and not 
making progress and is not being well served by its 
relationships with the international financial institutions.
    Ms. Waters. Any other examples?
    Mr. Malpass. I mentioned a recent government turnover in 
Gambia, which just comes to mind, where the international 
community is trying to figure out what to do in a country that 
has severe problems.
    What is one--so we--so I work in countries around the 
world. I am just back from Vietnam where I met with people, 
with the Thai finance minister, and they are all engaged with 
the international financial institutions. I have to tell you 
that, in many cases, it is not benefiting the people of the 
countries.
    Ms. Waters. Thank you. I yield back.
    Chairman Barr. The gentlelady's time has expired.
    The Chair now recognizes the gentleman from Arkansas, Mr. 
Hill.
    Mr. Hill. Thank you, Mr. Chairman.
    David, it is good to see.
    Mr. Malpass. Hello, Mr. Hill.
    Mr. Hill. Welcome to the committee. It was a privilege to 
both be younger and more handsome many years ago as we were 
both deputy assistant secretaries for President Bush, 41, so it 
is good to have you back in government in this important 
position.
    Mr. Malpass. Nice to see you.
    Mr. Hill. I want to start out and talk a little bit about 
this comment on multilateralism. With your deep experience, I 
wondered if--what conversations you have had in the 
Administration about the future of something like TPP (Trans-
Pacific Partnership), as we have the President in China today, 
as a way to ring-fence and project American power in Asia. What 
thoughts do you have there? What do you see is the 
Administration's strategy on select use of multilateral trade 
aspects?
    Mr. Malpass. Thank you, sir. One challenge, as you get many 
players involved, as was done with TPP, it becomes a hugely 
difficult negotiation. I am giving you something on the 
agreement that you are giving Mr. Barr something, and then in 
TPP there were 11 countries each giving each other something, 
and it became abstract. Then in the end, you get a deal that is 
not going to benefit American workers.
    So what the President has pointed out is that a more likely 
way to get benefits for us is to have a bilateral--so two 
countries talking together about how they can improve their 
circumstances.
    That is where we stand today. We are looking for--the U.S. 
is looking for trading relationships that are fair and 
reciprocal where we get benefit and the other trading partner 
gets benefit for our workers and for their workers. That is 
hard, but it should be doable. There are a lot of areas where 
we can liberalize our markets if the other guy--if the other 
country liberalizes their market.
    Mr. Hill. Thank you.
    One of my assignments when I was at Treasury, in those dark 
ages, was in the area of technical assistance. This is an area 
that reports to you at the Treasury, but also is so critical in 
the development bank world we are talking about today. That 
responsibility of effectively providing multilateral 
assistance, development loans, or technical assistance has to 
be done with the very best people and with the very best 
accountability.
    This subcommittee has investigated, over the years, this 
horrible World Bank scandal in Uganda that really resulted in 
sexual abuse of children, as well as safety problems, and the 
World Bank's loan program there that resulted in five deaths. 
It uncovered a real cesspool of management challenges, 
personnel challenges in the World Bank.
    My question for you is, how can the Treasury, as lead 
director there, and America as a major contributor to the bank, 
ensure that the bank's employment processes are a meritocracy? 
What is your view on that?
    Mr. Malpass. As I recall, sir, you were--you ran a medium-
sized bank, right, and so those challenges are ones that--you 
are actually very well qualified to help give us thoughts on 
how to do that.
    So within these sprawling organizations, it really is very 
hard. Once they have set their direction on growth, it is very 
hard to keep the governance controls and the personnel controls 
and so on and do them effectively. So my view on it is, if we 
get the organizations to focus on the graduation policy, 
meaning have a beginning and an end of a relationship with a 
country that succeeds, if they get success, then they move on 
and try to share that experience elsewhere. That will help the 
focus of their mission.
    So that is one, meaning, if you can simply stop expanding 
for a moment, you can improve the quality of what you are 
doing. So I guess that is where I stand on that. I take your 
point well on--we don't know how deep the problems that you 
identified there go in other country programs.
    Mr. Hill. Well, there is strong bipartisan support, as 
evidenced by our votes on this committee, to withhold funding 
for our development banks if they don't cleanup their mission 
and deliver on what we expect. So we have high expectations. We 
appreciate your oversight, and thanks for being here today.
    Mr. Malpass. Yes. Thank you, sir.
    Chairman Barr. The gentleman yields back.
    I would like to thank our witness for his testimony here 
today. I appreciate your forthright answers. We certainly 
appreciate your testimony here today, that the Administration 
views successful international relationships that include 
multilateral institutions, but that in order to promote a more 
free and prosperous world, the international financial 
institutions must have clear focused missions and deliver 
results effectively and with accountability to participants.
    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.
    This hearing a now adjourned.
    [Whereupon, at 11:30 a.m., the subcommittee was adjourned.]


                            A P P E N D I X



                            November 8, 2017
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