[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
THE ROLE OF THE INTERNATIONAL
MONETARY FUND IN A CHANGING
GLOBAL LANDSCAPE
=======================================================================
VIRTUAL HEARING
BEFORE THE
SUBCOMMITTEE ON NATIONAL SECURITY,
INTERNATIONAL DEVELOPMENT
AND MONETARY POLICY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 17, 2022
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-70
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
47-129PDF WASHINGTON : 2022
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
Subcommittee on National Security, International
Development and Monetary Policy
JIM A. HIMES, Connecticut, Chairman
JOSH GOTTHEIMER, New Jersey, Vice ANDY BARR, Kentucky, Ranking
Chair Member
MICHAEL SAN NICOLAS, Guam FRENCH HILL, Arkansas
RITCHIE TORRES, New York ROGER WILLIAMS, Texas
STEPHEN F. LYNCH, Massachusetts LEE M. ZELDIN, New York
MADELEINE DEAN, Pennsylvania WARREN DAVIDSON, Ohio
ALEXANDRIA OCASIO-CORTEZ, New York ANTHONY GONZALEZ, Ohio
JESUS ``CHUY'' GARCIA, Illinois PETE SESSIONS, Texas
JAKE AUCHINCLOSS, Massachusetts
C O N T E N T S
----------
Page
Hearing held on:
February 17, 2022............................................ 1
Appendix:
February 17, 2022............................................ 43
WITNESSES
Thursday, February 17, 2022
Ghosh, Jayati, Professor of Economics, University of
Massachusetts at Amherst....................................... 8
Rogoff, Kenneth, Thomas D. Cabot Professor of Public Policy,
Harvard University............................................. 11
Segal, Stephanie, Senior Associate, Economics Program, Center for
Strategic and International Studies............................ 6
Sembene, Daouda, Distinguished Nonresident Fellow, Center for
Global Development............................................. 5
Stiglitz, Joseph E., University Professor, Columbia University... 10
APPENDIX
Prepared statements:
Ghosh, Jayati................................................ 44
Rogoff, Kenneth.............................................. 53
Segal, Stephanie............................................. 55
Sembene, Daouda.............................................. 61
Stiglitz, Joseph E........................................... 69
Additional Material Submitted for the Record
Sembene, Daouda:
Written responses to questions for the record from
Representative Himes....................................... 73
Stiglitz, Joseph E.:
Written responses to questions for the record from
Representative Himes....................................... 76
Written responses to questions for the record from Chairwoman
Waters..................................................... 79
THE ROLE OF THE INTERNATIONAL
MONETARY FUND IN A CHANGING
GLOBAL LANDSCAPE
----------
Thursday, February 17, 2022
U.S. House of Representatives,
Subcommittee on National Security,
International Development
and Monetary Policy,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 12:05 p.m.,
via Webex, Hon. Jim A. Himes [chairman of the subcommittee]
presiding.
Members present: Representatives Himes, Gottheimer, San
Nicolas, Lynch, Garcia of Illinois; Barr, Hill, Williams of
Texas, Zeldin, Davidson, and Sessions.
Ex officio present: Representative Waters.
Also present: Representative Pressley.
Chairman Himes. The Subcommittee on National Security,
International Development and Monetary Policy will come to
order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time. Also, without
objection, members of the full Financial Services Committee who
are not members of the subcommittee are authorized to
participate in today's hearing.
Today's hearing is entitled, ``The Role of the
International Monetary Fund in a Changing Global Landscape.''
I now recognize myself for 4 minutes to give an opening
statement.
The International Monetary Fund (IMF or the Fund) plays an
essential role in the modern global monetary system. When a
financial crisis hits, the IMF is essential to ensuring the
system does not collapse, by stepping in to calm markets and to
prevent chaos. This work, however, has never been without
controversy.
The IMF does and should play a critical role both as a
policy advisor and as a lender of last resort. Some, however,
rightly in my mind, criticize the IMF for demanding that
countries apply what may be overly-tough policy reforms in
times of intense stress, requiring governments to cut social
spending and wages.
Debates about the proper role of the IMF resurfaced when
the COVID-19 pandemic triggered a sweeping global recession.
The IMF's COVID response suggests that it has shifted
strategies somewhat away from the traditional policies of
austerity. Instead, this time around, the Fund encouraged
governments to spend liberally, in order to bolster struggling
economies to address the pandemic and to not withdraw support
too early.
But, now, nearly 2 years removed from the start of the
pandemic, the IMF has urged countries to prepare for a return
to normalcy. As governments beat back the virus and distribute
more vaccines, the IMF will be monitoring infection rates to
ensure that recovery strategies are fair, inclusive, and
sustainable. And with the pandemic pushing nearly 100 million
people worldwide into poverty, the IMF will use its research
skills and technical assistance to help build and rebuild
equitable societies.
Now, other challenges exist. Dozens of countries are
nearing unsustainable levels of sovereign debt, requiring IMF
involvement to coordinate with creditors, assess risk, and work
with international partners to restructure payment plans in a
way that is consistent with the well-being of their people.
Likewise, climate change and its associated costs and risks
will require the IMF to help identify macroeconomic risks
related to that, to offer technical assistance, and to leverage
its financing tools to assist countries in tackling these
systemic and structural issues.
The United States is the IMF's largest financial
contributor, and we have a deep interest in ensuring that the
Fund is prepared to confront these challenges head-on. A well-
prepared IMF can work closely with policymakers to enact
reforms that stimulate inclusive growth, adapt to macroeconomic
threats, and overcome unexpected obstacles.
And, of course, Congress, and this subcommittee in
particular, plays a vital oversight role in tracking the IMF's
progress, and boosting resources when they are needed.
One issue which I hope we will deal with a bit today is the
issue of the special drawing rights (SDRs).
Last August, when the Fund deployed $650 billion of special
drawing rights, or SDRs, several of my colleagues argued that
the SDRs could provide unconditional liquidity to countries who
act against broadly-shared international values, such as
China's activity with respect to its Uighurs, the activities by
the despot in Syria, and, of course, Russia now sits poised to
invade a vulnerable sovereign country.
Since last August's SDR allocation, however, none of those
countries have converted their SDRs into hard currency, and the
IMF has blocked SDR access to countries with unrecognized
governments, like Afghanistan, Venezuela, and Burma.
Nevertheless, we should continue discussing these arguments
on their merits. After a worldwide pandemic, a global financial
crisis, and many other fiscal emergencies, the Fund is no
stranger to tough decisions. Now with the world's economy
facing new and evolving challenges, the IMF must be ready to
adapt as well.
With that, I would like to welcome our panel of witnesses
and thank them for helping us continue this important
discussion.
I now recognize the ranking member of the subcommittee, the
gentleman from Kentucky, Mr. Barr, for 5 minutes for an opening
statement.
Mr. Barr. Thank you, Mr. Chairman, for holding today's
hearing.
And thank you to our witnesses for joining us today.
The International Monetary Fund serves an important role of
promoting international macroeconomic stability. I recently had
the pleasure of visiting Bretton Woods, New Hampshire, the site
of the 1944 meeting where representatives from 45 nations
gathered to discuss post-war economic recovery, which
ultimately resulted in the creation of the IMF.
Over the decades, the IMF has grown, adapted, and changed.
Our hearing today will examine the appropriate role of the IMF
and how it has functioned through crises, including the global
financial crisis, the eurozone crisis, and, most recently, the
economic crisis brought on by the COVID-19 pandemic.
We will also examine how the IMF has evolved, including how
recent developments in the Fund's objectives may stray from its
core mission as a lender of last resort and a catalyst for
reform in struggling economies.
As the COVID-19 pandemic raged across the world, many
developing nations struggled, and turned to the IMF for
assistance. The IMF abandoned the traditional and longstanding
requirements--as the chairman noted--associated with its loans,
offering no-strings-attached assistance.
As the COVID crisis subsides, we must face reality: The IMF
is a lending agency and must be repaid.
Unfortunately, what began as an attempt to help struggling
nations navigate the challenges from the pandemic has further
fueled the IMF's mission creep away from its traditional role
as lender of last resort into a politicized development
organization.
As we have seen with other lenders of last resort, such as
the Federal Reserve, activist organizations and/or vocal
policymakers are intent on using the COVID-19 pandemic as a
smokescreen to corrupt the IMF into a no-strings-attached
checkbook or to focus it on matters outside of its narrow
mandate.
Last summer, the IMF approved a $650 billion disbursement
of its special drawing rights so that developing economies
could obtain hard currency and import medical supplies and
personal protective equipment to combat the pandemic. While
potentially well-intentioned, this allocation was troubling
because it strayed from the core purpose of SDRs, and awarded
handouts to U.S. adversaries. SDRs are intended to address a
long-term need in world reserves, not to hand governments
unconditional aid to boost emergency spending.
Based on the SDR allocation formula, only 3 percent of SDRs
end up going to the poorest nations. Meanwhile, other
countries, such as Mexico and Argentina, admitted their money
may not be spent to tackle COVID-19 as intended but, rather, be
used to pay off old loans or to prop up struggling state-owned
enterprises. Even more unsettling is the fact that these SDRs
will go to countries like Syria, Iran, China, and Belarus,
whose brutal dictators are certainly not using them to purchase
PPE for their citizens.
Despite the misgivings by some Biden Administration
Treasury Department officials about the $650-billion SDR
allocation, some of my colleagues on the other side of the
aisle have called on the IMF to triple-down, with an additional
$2.1-trillion no-strings-attached handout to countries like
Russia and China.
A portion of those SDRs is also being funneled into a new
Resilience and Sustainability Trust at the IMF intended for
climate change and public health loans, showing a complete lack
of understanding or perhaps a blatant disregard for the true
purpose of the IMF.
This attempt to redefine the core mission of the IMF comes
at a time when its leadership is mired in scandal. Last year, a
bombshell investigation revealed how Kristalina Georgieva,
former CEO of the World Bank, pressured her staff to manipulate
data after Chinese officials complained that their economy
hadn't ranked highly enough in the Bank's widely-read and
regarded, ``Doing Business'' report. An independent report by
law firm WilmerHale detailed the episode. And Ms. Georgieva now
leads the IMF.
Members of this committee from both parties expressed
concern about the leadership at the IMF following these
revelations. Republicans and Democrats can agree that strong,
credible leadership at the IMF is necessary to ensure that the
Fund is able to sustainably navigate the future and to operate
squarely within its mandate.
While we are at the crossroads in global competitiveness,
as China seeks to usurp the U.S. as the preeminent economic
power, China's debt-trap diplomacy has left many developing
economies at the mercy of the Chinese Communist Party (CCP).
There is little debt transparency about loans from China. I am
concerned that no-strings-attached funds from the IMF will be
used to satisfy the usurious terms of Chinese loans to
struggling economies, including through the Belt and Road
Initiative. Congress should demand reform and accountability to
ensure that this is not the case.
I fear, Mr. Chairman, that the IMF has lost its way. I hope
the hearing today will inform us on how best to return the IMF
to its core mission and ensure that it remains a tool for
macroeconomic stability well into the future.
Thank you, Mr. Chairman, and I yield back.
Chairman Himes. I thank the ranking member.
And I now have the privilege of recognizing the Chair of
the full Financial Services Committee, the gentlewoman from
California, Chairwoman Waters, for 1 minute.
Chairwoman Waters. Thank you, Chairman Himes.
The International Monetary Fund has long been criticized
for its willingness to impose painful reforms on countries in
crisis with little concern for how the burden of these painful
economic adjustments were distributed in society. In many
cases, the effect was to undermine democracy itself, as the
people who were made to bear the short-term pain began to
associate the IMF's imposed austerity with their democratic
government.
While there has been some improvement recently, I look
forward to hearing from our witnesses today not only on the
issue of conditionality, but also on the increasing levels of
debt distress many countries now face, and how we should best
address these challenges.
I yield back, and thank you very much.
Chairman Himes. I thank the chairwoman.
And now, we welcome the testimony of our distinguished
witnesses: Dr. Daouda Sembene, a distinguished nonresident
fellow with the Center for Global Development; Ms. Stephanie
Segal, a senior associate with the Economics Program at the
Center for Strategic and International Studies; Professor
Jayati Ghosh, a professor of economics with the University of
Massachusetts at Amherst; Dr. Joseph Stiglitz, a university
professor at Columbia University; and Professor Kenneth Rogoff,
the Thomas D. Cabot Professor of Public Policy at Harvard
University.
Witnesses are reminded that your oral testimony will be
limited to 5 minutes. You should be able to see a timer on the
screen in front of you that will indicate how much time you
have left. I would ask that you be mindful of the timer, and
quickly wrap up your testimony once your 5 minutes have
expired, so that we can be respectful of both the witnesses'
and the subcommittee members' time.
And without objection, your written statements will be made
a part of the record.
Dr. Sembene, you are now recognized for 5 minutes for an
oral presentation of your testimony.
STATEMENT OF DAOUDA SEMBENE, DISTINGUISHED NON-RESIDENT FELLOW,
CENTER FOR GLOBAL DEVELOPMENT
Mr. Sembene. Thank you. Thank you very much, Chairman
Himes. I am grateful to you, Mr. Chairman, Ranking Member Barr,
Chairwoman Waters, and the distinguished members of the House
Financial Services Subcommittee on National Security,
International Development and Monetary Policy, for inviting me
to speak today at this hearing on the role of the International
Monetary Fund in this changing global landscape.
My name is Daouda Sembene, and I am a distinguished
nonresident fellow at the Center for Global Development.
Until 2018, I was an executive director of the
International Monetary Fund, where I represented 23 African
countries on the executive board. During my tenure, I chaired
the Statutory Board Committee, which is responsible for
strengthening collaboration between the IMF and other
international institutions, notably the World Bank, the United
Nations, and the World Trade Organization (WTO).
After my IMF support tenure, I served in my home country of
Senegal as senior economic advisor to President Macky Sall. I
now run a global development advisory focused on Africa, called
AFRICATALYST.
In the written testimony I submitted for your consideration
yesterday, I made a number of detailed suggestions about the
future role of the IMF. Now, I would like to take this
opportunity to emphasize some key messages I wanted to convey
in my testimony.
My first message is that the IMF should continue to play a
central role in efforts by the international community to
address global challenges such as climate change and pandemics,
including by advising countries on appropriate macroeconomic
policy responses. This would be in line with its mandate,
especially in view of the enormous potential of this calamity
to shake global financial stability and derail global recovery.
At the same time, I believe that the IMF should place a
special focus on the world's most-vulnerable countries, where
it can make the most difference. In addition to policy advice,
the institution should be well-equipped to deploy on a timely
and needed basis adequate levels of financial and technical
assistance.
At this time, an urgent role for the IMF to play is to
sustain its support for countries around the world that still
face daunting challenges exacerbated by the COVID-19 crisis,
including rising poverty, significant financing gaps, growing
debt vulnerabilities, and weak social protections.
My second message is that, to be more effective, the IMF
needs to adapt its business model and policies to the evolving
global landscape, while better leveraging partnerships with
other multilateral institutions. For instance, it is critical
to ensure that the access of developing countries and fragile
states to IMF's resources during this time, crisis time, but
also in the post-pandemic era, is more determined by the scope
of their financing needs rather than the size of their quota.
The IMF also needs to make progress toward full country
ownership of macroeconomic adjustment in countries that request
its financial assistance.
Let me now conclude with my final message. Successful IMF
engagement with member countries hinges on timely support from
its major shareholders, particularly the United States. But it
also requires holding IMF leadership accountable for
institutional performance.
Under existing decision-making processes prevailing at the
IMF, no major initiative can be approved by the executive board
without the U.S.'s consent. And then, without U.S. leadership
and support, the IMF's ability to fulfill its mandate and
provide timely and adequate support for the countries in most
need will therefore be very limited.
Thank you, Mr. Chairman.
[The prepared statement of Dr. Sembene can be found on page
61 of the appendix.]
Chairman Himes. Thank you, Dr. Sembene.
Ms. Segal, you are now recognized for 5 minutes.
STEPHANIE SEGAL, SENIOR ASSOCIATE, ECONOMICS PROGRAM, CENTER
FOR STRATEGIC AND INTERNATIONAL STUDIES
Ms. Segal. Thank you. Thank you, Chairman Himes, Ranking
Member Barr, Chairwoman Waters, and distinguished members of
the subcommittee. Thank you all for the opportunity to testify
before you today.
The IMF's Articles of Agreement lists six purposes that
guide the institution in all of its policies and decisions,
including the promotion of international monetary cooperation
and temporary financing to help countries correct macroeconomic
imbalances.
In practice, the IMF focuses on three principal activities.
It monitors economic and financial developments through IMF
surveillance. It provides financial support to facilitate
adjustment and shorten crises through IMF lending. And it
builds capacity with training and technical assistance through
capacity development.
Over the years, these activities have evolved along with
the international system. That evolution is often prompted by
crisis and the recognition that existing tools may not be
adequate to deal with current challenges.
Given the backdrop of the past 2 years, unprecedented in so
many ways, it is not surprising that we are again seeing
further evolution. On the one hand, we have a greater
appreciation of the risks to growth and stability posed by
threats such as climate change and pandemics. And on the other
hand, there is concern that an overly-expansive list of items
deemed, ``macrocritical,'' will dilute the IMF's effectiveness
and steer the institution away from its founding purpose. The
IMF and its members need to strike a balance between these
competing considerations.
I will focus my remaining time on two challenges facing the
global economy: climate change; and debt.
First, on climate change, one of the world's largest
insurers recently called climate change the, ``biggest long-
term threat to the global economy.'' A report from the
Financial Stability Board highlights that, ``physical risks as
well as a disorderly transition to a low-carbon economy could
have destabilizing effects on the financial system ... in the
relatively short term.''
Given these realities, failure to engage on climate would
be at odds with the IMF's mandate. The question is how, and
whether the IMF's tools are up to the task?
IMF surveillance is the most immediate and consequential
way in which the institution can engage its members on climate.
The IMF's board supports coverage of climate-relatedissues in
Article IV country reports whenever macrocritical. The board
also supports including climate in the financial-sector
assessment programs where climate change may pose financial
stability risks.
IMF surveillance entails a bilateral component which
applies to all 190 members, and a multilateral component which
covers regional and global conditions. This structure enables
the Fund to engage on climate at the country level, where
policy is typically set, and multilaterally, reflecting
climate-change mitigation as a global public good.
Unlike surveillance, IMF lending programs are active in
only a subset of IMF members. Many of the largest carbon
emitters have not had an IMF program in decades, if ever,
meaning the IMF's ability to gain traction on climate issues
through lending activities is more limited.
That said, there can be a role for climate-related issues
in IMF lending. Climate issues can impact budgets and the
health of financial systems, areas covered in standard IMF
programs.
Also, the proposed Resilience and Sustainability Trust, or
RST, provides another template for such engagement. If
approved, and pending donor financing, the RST would be
available to vulnerable members to target macrocritical
structural challenges such as climate change and pandemic
preparedness.
Financial support for the RST could come from rechanneling
SDRs to the most-vulnerable members. This would also address
one of the common critiques of the recent allocation as not
sufficiently benefiting the poorest countries.
Turning to debt, the subcommittee rightly calls out rising
levels of unsustainable sovereign debt as a challenge facing
the IMF. The IMF alone cannot resolve debt vulnerabilities.
Such resolution requires agreement between the debtor country
and its public and private creditors to reschedule or
restructure the debt. But the IMF plays an essential role in
developing the macroeconomic framework and financing envelope
that serves as the basis for such an agreement. The IMF, with
G20 support, can drive this process and call for more
predictable and time-bound targets for negotiations.
Further, the IMF should bolster its concessional
instruments. Additional donor support for the Poverty Reduction
and Growth Trust (PRGT), along with the RST, is needed. The
Fiscal Year 2022 budget request includes funding to cover
grants to the PRGT and subsidy cost of rechanneling SDRs and
would demonstrate U.S. leadership in supporting the IMF's most-
vulnerable members.
In conclusion, I just want to thank the subcommittee for
the chance to share my views, and I look forward to your
questions.
[The prepared statement of Ms. Segal can be found on page
55 of the appendix.]
Chairman Himes. Thank you, Ms. Segal.
Professor Ghosh, you are now recognized for 5 minutes.
JAYATI GHOSH, PROFESSOR OF ECONOMICS, UNIVERSITY OF
MASSACHUSETTS AT AMHERST
Ms. Ghosh. Thank you very much for this opportunity. I feel
deeply grateful to be allowed to address this subcommittee.
And I want to emphasize the crucial role that has already
been talked about of the IMF, not just in maintaining financial
stability, but in reviving the global economy.
This is particularly important because there has been such
inequality in fiscal stance over the course of the pandemic,
with the advanced countries spending on average more than 16
percent of gross domestic product (GDP) in additional COVID-19-
related spending, emerging markets spending only 5 percent, and
low-income countries spending around 2 percent of their GDP.
And this has obviously hindered their possibilities of
recovery.
In this context, the release of new SDRs has been
absolutely crucial, even though they are unequally-distributed,
because SDRs are automatic. They are debt-free. And we have
heard already about the problems of sovereign debt in much of
the developing world. They do not require fiscal
conditionalities, which can be countercyclical, like so much
other IMF lending. And it is effectively costless, which is a
huge thing. There is no cost for other countries that do not
use the SDRs.
What is important to remember is that these are effective
even when they are not used. Because the additional SDRs add to
reserves, they reduce the borrowing costs of the recipient
country, and they provide some kind of a cushion for the very
volatile capital movements that we have seen and we are likely
to see more of as U.S. and other interest rates are raised.
But we also see that at least 80 countries have already
used these SDRs in various ways: to add to their imports; to
pay back the IMF, which is a very useful thing, going forward;
and for their own budget increases.
What is worth noting is that this has added, to some
degree, to helping the world economy revive, but it has also
helped the United States economy. There has been a very big
increase in exports, monthly exports of the U.S. after August
2021 when the SDRs were allocated.
And I have provided in my written testimony some data on
this. If you look at specific countries, like Ukraine, which is
very important nowadays, Philippines, Congo, you find that
there is a very significant increase after they have used the
SDR allocation for additional imports.
It is also worth noting that, in fact, the countries that
many members of this committee are concerned about cannot
access these SDRs. And it is not just that they have not.
Russia, Iran, Syria, et cetera, cannot access it because the
international banking system does not enable them to get ahold
of it. Even though formally, they have gotten these SDR
reserves, they will not be able to use them.
And other governments which are not recognized by the IMF--
Afghanistan, Myanmar, Sudan, Venezuela--cannot access the SDRs,
even though it is in the countries' reserve formally, but the
governments cannot access it. China does not needs SDRs. China
already has $3.5 trillion of reserves, and it really is
unlikely to make any difference to China whether it gets SDRs
or not.
In addition, it is very important to enable the
rechanneling of SDRs, as Ms. Segal has already pointed out, and
I do believe that there are many important and imaginative ways
in which the United States Government can use its own SDR
allocation in this way.
I believe that the RST, the sustainability trust set up by
the IMF, is not the ideal mechanism. It is too small; it is
only $50 billion. It involves debt, which is an additional
problem, with associated conditions. It is only meant for low-
income countries or the countries that are IMF program
countries, which really means that it is so limited that it is
unlikely to have much impact.
Instead, we should actually think of other ways of using
the SDRs, including the U.S. allocation, the additional
allocation, which it will never otherwise use. It could be used
to improve the capital base of regional development banks,
which could actually then lend out more to meet sustainable
development goals, to provide climate finance, and so on.
It can be provided in a trust that auctions the resources
not on the basis of the ability to repay, but as grants for the
best climate investments for both mitigation and adaptation,
which is absolutely crucial. This is important, because we find
that IMF programming still contains some austerity. Even though
the most-recent loans did not involve it, most of the
programming contains measures to reduce government spending.
We know that this kind of inequality has sociopolitical
consequences, and it has global consequences. And, therefore,
it is important for the United States, which has such an
ability to influence IMF positions and still holds such large
SDR reserves, to assist in a global institution meeting global
challenges.
It is important not to be stuck in a mandate that was
created 70 years ago, to allow a multinational, international
financial institution to meet the global challenges that we
face today, because otherwise we are unlikely to face them.
Thank you.
[The prepared statement of Dr. Ghosh can be found on page
44 of the appendix.]
Chairman Himes. Thank you, Professor Ghosh.
Dr. Stiglitz, you are now recognized for 5 minutes.
JOSEPH E. STIGLITZ, UNIVERSITY PROFESSOR, COLUMBIA UNIVERSITY
Mr. Stiglitz. It is a pleasure to be here to address you on
a set of issues that are so critical.
We all know the importance of global financial stability.
We cannot have a robust American economy in a world of
financial instability. Enhancing stability can best be
addressed multilaterally through the IMF.
This is especially important as the world faces a
multiplicity of risks. The pandemic, its economic aftermath,
the climate crisis, the inequality crisis--all of these touch
directly on the core mission of the IMF. It would be a
dereliction of its responsibility if the IMF paid insufficient
attention to any of these.
Let me emphasize, this is not an issue of mission creep.
The SDRs have long been a part of the IMF's toolkit and part of
its architecture. Again, this is not a departure from its core
mandate.
The consequences of the pandemic should be obvious. Debts
in most countries have increased significantly, and there is a
growing concern that rising interest rates, combined with high
levels of debt, could precipitate debt as well as balance-of-
payments crises. Such a crisis could be much harder to manage
than earlier crises.
Over the intermediate term, the consequences of the climate
crisis could be even greater; 2008 showed what could happen to
global financial markets as a result of the mispricing of the
U.S. mortgage market. There is a significant risk of a
mispricing of a much greater part of the global asset base,
both fossil fuels and real estate. The COVID risk would be hard
to contain.
What the IMF can and should do for international financial
stability is vital. In the remaining time, I would like to call
attention to a few areas of concern.
First, the $650-billion issuance of special drawing rights
was of extraordinary importance. Several of the advanced
countries have agreed to recycle these funds to those that need
them.
There is also a need for more issuances of special drawing
rights. SDRs can be an important tool for sustaining global
aggregate demand during periods when global demand is
insufficient. And the international community has made a
commitment to help developing countries make the green
transition. An annual emission of SDRs would be a reliable way
to achieve our climate commitments.
The issuance of SDRs does not cost the U.S. Government
anything, either in present or future costs.
Second, many countries will need to restructure their debt,
as we have already said. If we are to avoid the too-little-too-
late syndrome that has proven so costly, all creditors need to
cooperate. Programs need to be designed to incentivize this.
The debt sustainability analyses, which are the cornerstone
of debt restructurings, have to be improved. For instance,
there are analyses that don't recognize that making excessive
demands on a country reduces growth.
Third, for many countries facing debt crises, IMF programs
can play a helpful role, which requires that they be structured
appropriately. The question is not whether conditions should be
imposed, but what conditions, and how they should be
determined. Countries shouldn't be stifled by unnecessary and
counterproductive fiscal tightening or inappropriate structural
reforms.
Fourth, the Fund needs to go further in its new
institutional view of capital account management techniques.
These should not be viewed only as a last resort. They are
among the instruments that many countries will need to draw
upon in this world of financial instability.
Fifth, the IMF has come to increasingly rely on surcharges
on borrowing countries to finance its operations. This is
inappropriate and counterproductive. The IMF was supposed to
help countries dealing with foreign exchange problems. It is
now contributing to their foreign exchange problems through the
surcharges.
I have focused my remarks on global economic and financial
risks. These could compound the political turmoil around the
world that is so evident.
The U.S. plays a critical role with the IMF. We are the
only country with veto power. We will be held accountable for
the successes and failures of the IMF. What I shall call for
shorthand the, ``old IMF,'' won few friends and made many
enemies. It was marked by hypocrisy, with advanced countries
employing countercyclical policies as it demanded that others
engage in procyclical policies.
We live in a different world than we did 2 decades ago. It
is imperative that multilateral institutions adapt to these new
realities. I hope my brief remarks will point the way to how
that might best be done.
Thank you.
[The prepared statement of Dr. Stiglitz can be found on
page 69 of the appendix.]
Chairman Himes. Thank you, Dr. Stiglitz.
Professor Rogoff, you are now recognized for 5 minutes.
KENNETH ROGOFF, THOMAS D. CABOT PROFESSOR OF PUBLIC POLICY,
HARVARD UNIVERSITY
Mr. Rogoff. Thank you very much for the honor of speaking
to the subcommittee. And I am following a number of excellent
remarks and excellent points.
As the only truly global multilateral financial
institution, the International Monetary Fund is needed today as
much as ever.
The Fund's activities have multiple facets. These include
its essential surveillance activities, including macroeconomic
and financial forecasts for the entire world. Unlike private-
sector forecasts, the Fund's work is distributed for free, and
it is highly valued, especially in poorer countries where there
are few alternatives.
The Fund is also a reservoir of global macroeconomic and
financial data, again, made widely available. They have made
major steps forward--also the World Bank--in work on debt-
reporting transparency, which had been a weakness in the run-up
to 2008, and is now a growing strength. This includes,
importantly, increased transparency over China's massive
lending activities.
The Fund's single-most important and unique activity is its
role in lending to debt-distressed economies. Although best
known for programs in emerging markets and lower-income
countries, the Fund played a large role in the European debt
crisis over the last decade. Not as new as one might think, the
U.K. alone had 11 IMF programs from 1950 to 1970.
Today, the focus is shifting again, as the search for yield
has allowed many lower- and middle-income countries and
developing economies that once relied exclusively on official
and concessional lending to access private markets.
Unfortunately, the situation has now become dire for these
newer borrowers, with over 60 percent of lower-income countries
in debt distress, and a handful of emerging markets, including
Argentina and Lebanon, already in default. If U.S. interest
rates were to rise more sharply then markets, perhaps naively,
think: This could cause problems in many more emerging markets.
Turkey is going to be a problem regardless.
True, many emerging markets will become more resilient,
thanks to more foreign exchange reserves and a marked shift to
borrowing in the local currency and, more importantly, under
domestic debtor-country legal jurisdiction. This gives
governments considerably more agency over debt workouts, should
they be needed, with foreign creditors. I have been arguing for
this change for over 3 decades.
Nevertheless, a sufficient rise in global interest rates
will place stress even on many of these borrowers, as well,
because there is still massive emerging-market corporate
borrowing in dollars or euros under New York and London law.
Let me conclude with four points.
First, the Fund is a revolving credit agency with loans
that typically need to be repaid within 2 to 4 years. It can
forgive loans, but only if its main hard currency shareholders
stand ready to replenish its resources.
Second, the Fund is at its best when it plays the role of
the honest broker, whether in its routine forecasts and policy
advice or its design of bailout programs.
Sometimes, however, the most realistic advice is that a
country needs to restructure its private debts, but the Fund is
not legally allowed to specify that. Its only tool is to avoid
lending in the situations it deems unsustainable. But it often
gets gamed into making excessively-optimistic forecasts about
growth and compliance. This happened yet again in Argentina,
and it is a serious risk going forward in trying to exit
pandemic-era loans.
In general, advanced countries must be prepared to make
vastly larger aid programs--outright grants, not loans--than
currently envisioned. And here, I certainly agree with many of
the other speakers. The two emergency SDR issuances, during the
global financial crisis and again during the pandemic, on
balance made sense. Plans to reallocate a large share to poor
countries, or some share, if successful, is welcome.
But SDR allocations are far too crude an instrument to be
used as a routine aid instrument. And one of their main
advantages, lack of transparency to shareholder taxpayers, will
inevitably get stripped away if used too routinely.
Lastly, the problem of helping developing countries control
their carbon footprint as they develop is probably beyond the
scale and expertise of either the IMF or the World Bank, but
they can play a supporting role. I believe there is a case for
creating and funding a world carbon bank to help countries, for
example, phase out coal plants and facilitate transfer of
technology.
Thank you very much for the opportunity to address the
subcommittee.
[The prepared statement of Dr. Rogoff can be found on page
53 of the appendix.]
Chairman Himes. Thank you very much, Dr. Rogoff.
I now recognize myself for 5 minutes for questions.
I want to devote my 5 minutes to an issue where I find I
part company with my Republican friends. And I usually agree
with my Republican friends on all sorts of things; it might be
the balance between austerity and sustainability, SDRs. I am
just so puzzled, though, by the fact that every hearing of this
committee begins with an indictment of those financial
institutions which are addressing what, as Ms. Segal pointed
out, Swiss Re deemed to be the, ``biggest long-term threat to
the global economy.''
It particularly surprises me because when we are talking
about the National Flood Insurance Program, when it is taxpayer
dollars that are on the hook, my Republican friends urge
caution and a very, very thoughtful evaluation of risk so that
we are not underwriting projects that don't make sense from a
coastal risk standpoint.
I want to explore that a little bit.
Ms. Segal, you brought forward Swiss Re--Swiss Re, of
course, is a global insurance company. And I will say it again:
They say that climate change is the biggest long-term threat to
the global economy.
Ms. Segal, in a minute or two, make the case and give an
example of how the IMF might--were it to completely ignore the
risks associated with climate change, where it could take risk
that would ultimately damage both the lender, the IMF here, and
the borrower?
Ms. Segal. Thank you, Mr. Chairman, for the question.
And I appreciate that you pulled out the reference that I
made to Swiss Re, because I think the important point here is
that it is a private-sector entity making that claim. And I
also included in there the Financial Stability Board.
The point being that the world is taking on climate change
as an economic risk in their operations. There is basically no
escape from the fact that there are economic consequences to
climate change. And the actors in the global economy are making
those adjustments.
So, for the IMF to not be paying attention to climate as a
macrocritical issue, and to not reflect that in its
surveillance activities, and to not, kind of, move in the same
direction, where appropriate, in its lending activities, would
basically make the institution irrelevant in this issue.
Chairman Himes. Ms. Segal, bring this home for the
layperson watching. Give us an example--if my Republican
friends' philosophy prevailed and the IMF made loans and
undertook its activities without any consideration of what
Swiss Re is calling the biggest long-term risk to the economy,
what would be something that the IMF might do that could
ultimately prove catastrophic? Just give us a real-world
example.
Ms. Segal. It is precisely the case that Professor Rogoff
made, that it is a lending institution with revolving
resources; it has to be repaid.
So, if it is in the business of making loans to countries
whose economic stability is undermined because of climate
change--let's take a large carbon-energy-source exporter. If
the financial viability of that economy is dependent on a
resource that is suddenly unviable, nobody is wanting to buy
those carbon-intensive resources, that actually leaves the Fund
on the hook with very bad credit.
That is kind of a single example, but to the extent climate
change is just a pervasive issue--
Chairman Himes. I am sorry to interrupt, Ms. Segal, but
thank you for that specific example.
But, yes, not just the Fund--and, at the end of the day, 17
percent of that is our money--but also the country that
borrowed the money. The country that borrowed the money is now
in a terrible place because they have built an asset without
any consideration of what that asset might look like 20 years
down the road, which can cause an immense amount of pain to the
borrower as well, correct?
Ms. Segal. Yes. And that is probably a more concise and a
better example to give.
But it is the fact that these risks are, kind of, impacting
every economic actor. To ignore them would actually be at our
own peril.
Chairman Himes. Thank you.
Dr. Rogoff, I read carefully what you said here in your
testimony, that the problem of helping developing countries
control their carbon footprint is beyond the scale and
expertise of the IMF.
I hope that is not true, but let's stipulate that it is
true. If Swiss Re is right and this is the single biggest long-
term threat to the global economy, at a minimum, don't you
believe--I will ask you to sort of think of yourself as a board
member of the IMF or of a financial institution--don't you
believe that it should be at the very core of the IMF or any
financial risk institution to take into account projections of
risk associated with climate change?
Mr. Rogoff. As far as I know, the IMF has made a big point
of saying they don't see an end game to this without a global
carbon tax, by the way, as being really the number-one thing
that needs to be done.
But, yes, the question is, do they have the expertise? Do
you give them the funding? And I think it is an interesting
question about the SDR. That question has been raised. How do
you give aid? There needs to be massive amounts of aid.
I don't really think the IMF and the World Bank are ideally
tuned to do that. But, yes, it is certainly good to shame Japan
if they--
Chairman Himes. Dr. Rogoff, I am out of time. My question
was actually whether they should incorporate future risk
associated into their underwriting decisions. That was all I
was asking.
Mr. Rogoff. I think that is questionable, whether that
should be--40 years from now, they are not going to be able to
repay it, and then they will keep rolling over the debt.
I am totally on board for fighting climate change, but I
find that argument a bit of a stretch.
Chairman Himes. Okay. Thank you.
I am well over time, so I now recognize the distinguished
ranking member, Mr. Barr, for 5 minutes of questions.
Mr. Barr. I thank the chairman.
And I wish I had time to get into this climate change issue
at the IMF. I would just say one thing, one editorial comment.
I appreciate the chairman's focus on that. I just would say
that it is difficult to just make the assumption that lending
into a carbon-intensive industry is actually counterproductive
to the fight on climate change, when lending could, in fact,
provide capital to companies that have the expertise to make
investments in technology and innovation that actually could
fight climate change, harness the carbon cycle, and innovate in
carbon capture and things like that.
So, starving energy companies of capital or starving
countries of capital that are engaging in investments in fossil
energy could actually have a counterproductive effect in terms
of fighting climate change. But I don't have time to go into
that.
Let me talk about economic reforms and conditionality,
because I think that is very important when we talk about the
role of the IMF.
And one of the primary roles of the IMF is to drive
meaningful, pro-growth, economic reform. These economic reforms
associated with IMF lending help struggling economies prosper
in the long run, not just because of the funds loaned
directly--
[Audio interruption.]
Chairman Himes. Mr. Barr, let me ask you to suspend. Your
last 20 seconds did not--I could not hear you.
Could the other members of the committee hear Mr. Barr?
Okay, I am seeing shaking heads.
I am going to ask the staff to run the timer back 20, 25
seconds or so.
Sorry, Mr. Barr. You just cut out. I think you may want to
try again. You might want to back it up about 20 seconds or so.
Mr. Barr. Thank you, Mr. Chairman. I apologize. There was a
call coming into my phone, and I am using my phone because I
was having technical problems. So, thanks for the additional
time. I will restate my question.
One of the primary roles of the IMF is to drive meaningful,
pro-growth, economic reform. The economic reforms associated
with IMF lending help struggling economies prosper in the long
run, not just because of the funds loaned directly from the
IMF, but because they have a catalytic effect that provides
private creditors the confidence to lend into a particular
economy. This private credit, in turn, amplifies the capital
pledged by the IMF. Put another way, absent concrete economic
reforms, private lenders will be hesitant to invest in
struggling economies.
Professor Rogoff, do you agree? And can you elaborate on
why economic reforms and this idea of conditionality is
important when the IMF is negotiating these loans, especially
as it relates to the long-term growth and recovery of
struggling economies?
Mr. Rogoff. Thank you.
Look, for starters, when we are talking about the really
poor countries of the world and the ones that are most-
distressed, they need aid. They don't need any sort of loans.
Although, they also need technical assistance and help.
But if you get into the larger emerging markets, there is a
lot of Chinese money, there is a lot of private money. And when
the IMF comes in, it is often because these other lenders have
dried up, and they are not giving money.
The, ``austerity,'' of many IMF programs--and I don't argue
that they can be designed better in some cases, but it is
coming with or without the IMF. That seems to be little
understood. The IMF, in these cases, mitigates austerity.
But I think a big problem--and many speakers have alluded
to this; Professor Stiglitz did and others--is that the IMF is
legally restricted from saying, ``This isn't going to work. We
could give you money, but it is not going to work. It is not
realistic in the growth. It is not realistic in the compliance.
You need to get rid of some of this debt first.'' And they are
not allowed to say that. That is sort of a problem with the
current structure.
Thank you.
Mr. Barr. Thank you for that.
Let me talk about surcharges. Some of my colleagues on the
other side, including several on this committee, sent a letter
last month to Treasury Secretary Yellen that labeled IMF's
surcharge policy, ``unfair and counterproductive.'' They called
for these surcharges to be abolished.
However, according to media reports, the Biden
Administration has rejected these Democrats' request, citing
the importance of surcharges for the IMF's precautionary
balances.
To any of the witnesses: Why are surcharges important for
the IMF, and why might the Treasury Department have opposed
their elimination?
Professor Rogoff, can you comment on that?
Mr. Rogoff. I think, after the pandemic, there is a real
question of, if they should have done something different with
the surcharges. I am not talking about Argentina, but some of
the other countries. Because the idea is not just to help the
IMF's balances but to encourage countries to repay, because it
is revolving credit.
But the pandemic was truly an extraordinary situation, and
to the extent it affected some of the poorest countries, I
think there is an issue there.
But as a routine matter, believe me, the surcharges that
China is charging and that the private creditors are charging
are far greater.
Mr. Barr. Speaking of China--
Ms. Ghosh. If I could just to add to that, the IMF's own
economic model specifies that they do not need the surcharges
for their precautionary balances. And it is a really tiny
amount relative to the capital base and the lending program of
the--
Mr. Barr. Let me shift back to China.
In the past, some have argued that China needed greater
importance at places like the IMF so that it would commit
itself to international norms. But in 2015, for example,
China's shareholding at the Fund was increased, and the IMF
decided to include the renminbi in the Fund's elite currency
basket, but Beijing went on to wage genocide in Xinjiang, tore
up its treaty obligations in Hong Kong, and tightened its grip
on the central bank, all while continuing its opaque Belt and
Road lending.
Professor Rogoff, given these facts, why should Congress
listen the next time someone argues that China needs a stronger
voice at the IMF? How can we better hold China accountable?
Mr. Rogoff. This is a very difficult question. I think,
back in 2015, they sort of hoped for another trajectory. We
depend on China to be a big lender. We had hoped they would
give more money. We wanted to bring them in. But this is a very
complex issue. I don't think the IMF can necessarily take the
lead on this, but things are rapidly moving if you look at the
governance in China.
Chairman Himes. The gentleman's time has expired.
Mr. Barr. Thank you, Mr. Chairman.
Chairman Himes. The Chair of the Full Committee, Chairwoman
Waters, is now recognized for 5 minutes of questions.
Chairwoman Waters. Thank you very much.
I would like to direct my question to any of the witnesses
who would like to respond to it.
This is where the IMF draws the line on the question of
respecting a country's sovereignty: ``The IMF has adopted a
policy by means of a legal opinion that it not will not take
political considerations into account in determining a
country's eligibility for assistance.''
The IMF, as well as the World Bank, has used this political
clause as justification, for example, for not insisting that a
country adopt internationally-recognized poor labor standards,
as the Fund views these standards, such as freedom of
association, as an interference in the political affairs of a
country.
On the other hand, both the IMF and the World Bank have
consistently intervened in a country's labor market policies by
encouraging, ``labor market flexibility,'' a euphemism for
policies that make it easier for firms to fire workers and
dilute the power of unions to negotiate on behalf of workers.
But people like Stanley Fischer, the former first deputy
managing director at the IMF, has candidly acknowledged that
there are limits to political tolerance, noting that a country
such as Nazi Germany would not, on political grounds, have been
eligible for IMF assistance.
I would appreciate hearing the views of any of our
witnesses on this issue. Where is the line drawn between a
government's sovereignty and the Fund's macroeconomic and
fiscal mandate, with respect to labor rights, human rights, or
crimes against humanity?
Mr. Sembene. If you allow me, Chairman Himes, I would like
to respond to this question by Chairwoman Waters.
I certainly agree with you that the IMF needs to be
respectful of countries' sovereignty. I think it is clear that
the institution should not be interfering politically in
sovereign countries.
The IMF has--and as a former board member, I can say this--
the obligation to advise whenever there is a decision, whether
it is political or any type of decision, that has some effect
on the macro stability of the country. If, for instance, there
was an issue about labor standards that have a macroeconomic
effect that may actually jeopardize macroeconomic stability,
the IMF has a duty to intervene.
But, certainly, there is something that is important that
we need to keep in mind: The institution, to be effective, has
to be rules-based. And I think this is also, actually, a
response to the previous question by Ranking Member Barr.
If China has received and enjoys its quota share, it is
because, according to the IMF rules, there is a need whenever a
country actually has an increasing economic [inaudible] in the
global economy to benefit from additional quota shares. And
even regardless of that, at the IMF, of course, China is still
underrepresented.
It is to say that it is important to make sure that the IMF
is rules-based and to be respectful of the countries'
sovereignty.
Chairwoman Waters. Would anyone else like to weigh in on
that?
Mr. Stiglitz. Yes. I want to second the point about the
importance of a rules-based international order. And part of
that rules-based international order is we have a set of
international conventions, agreements, and the like, against
child labor, the core labor standards, and I think adherence to
those core standards is actually part of the safeguards that
are put into most of the lending of the multilateral financial
institutions.
They sometimes have not implemented them effectively. And
there have been particular problems at the International
Finance Corporation (IFC) and in some of the more private-
sector-oriented, where they have not adequately respected labor
standards and the right to collective bargaining. And,
obviously, I think they should be more forceful in recognizing
those international standards.
Chairwoman Waters. Can we agree that the IMF does respect
sovereignty, but there are some conditions that should be
adhered to, and this may be considered interference, but it is
not absolute that there is no interference based on the
criteria that has been developed to be eligible? Is that
something that maybe we can conclude?
Mr. Stiglitz. I hope so. The framework that Dr. Sembene
reported--we are trying to create a rules-based rule of law
internationally, both with respect to raising funds, voting
rights, and for labor standards.
Chairwoman Waters. Thank you, Mr. Himes.
Chairman Himes. The gentlelady's time has expired.
Just so the committee and the witnesses know, it looks like
we have time, and a number of Members are interested in a
second round of questioning. I think I will have to be a little
sharper on the gavel if we are going to do that. I have been
pretty lax in these last couple of questions. So, I am going to
be a little sharper on the gavel around the 5 minute-mark, with
the intention of doing a second round of questioning.
With that, the gentleman from Texas, Mr. Sessions, is
recognized for 5 minutes.
Mr. Sessions. Mr. Chairman, thank you very much.
And to our witnesses, I find each of your testimonies very
instructive to us as Members to hear your ideas, and I
appreciate and respect those.
My questions essentially revolve around exactly where our
ranking member, the gentleman from Kentucky, was coming from. I
have a bit of association and knowledge about the Millennium
Challenge Corporation, which is also a billion-dollar
organization, although not as large as the IMF.
They have characteristics about them, much like the IMF
does, to make sure that there are people who qualify and under
what circumstances, and we look at that, up to and including
corruption indicators, values related to gender
nondiscrimination, as well as how they look up to people to
build women and women's rights.
I think what I see and hear from this is a similar question
but would be really related to--and I don't know how many of
our witnesses--I don't know that this is a fair question, is
what I am saying.
How much money is really going out directly related to what
I might call climate change, or other circumstances? I don't
think it is appropriate for us to look at the IMF as
necessarily--I think they could include a thought process, when
we engage a particular country, for them to include their
needs-based answers in their applications.
But I wonder how much money is really going out in other
funds that are asking the same questions that we are, as
opposed to us looking at the IMF and what our characteristics
and models should be.
This is a question to any of the participants who are our
witnesses today. How big are all of these funds that are going,
and is there someone else who really should be doing
necessarily related to global changes with economics and
related to climate change?
Ms. Segal. If I could take that question first--
Mr. Sessions. Yes, ma'am. Thank you.
Ms. Segal. In my written testimony, and also in my oral
comments, I really put the focus on the Fund's role with regard
to climate on its surveillance activities. And so the short
answer is, I believe surveillance is where the Fund can
actually be most effective. Its ability to monitor both at the
country level, and then tie it back to how it affects the
multilateral system, that is where I think the Fund can add the
most value.
There are efforts to kind of experiment, and the RST is one
of them, to recognize climate as a macrocritical issue and see
where the Fund can help mobilize funding from institutions and
the private sector toward climate ends. I think that is an
additional role that the Fund can play. But per your question,
I would really put the focus on the Fund's work here in the
surveillance area.
Mr. Sessions. Anyone else?
Mr. Sembene. May I add something to this question?
Mr. Sessions. Yes, sir.
Mr. Sembene. Thank you, Congressman.
I would remind you that the IMF is in the process of
putting in place what it calls the Resilience and
Sustainability Trust, but this is going to be a $50 billion
trust based on the SDRs that will be rechanneled to the IMF.
And let me tell you: If you want to look at the impact on
climate change at the global level, I would believe that would
be minimal because of the amount that we are talking about,
because of the size of this trust.
But it is going to be important for those eligible
countries, whether they are low-income countries or middle-
income countries, to benefit from those resources. And I will
tell you why quickly, because most of those countries--and I am
actually from one of those countries--are facing calamities
that are actually extraordinary and that are having a large
impact on their budgets. There is coastal erosion. There are
droughts. There is flooding. There is, I guess, everything that
you can imagine that is actually a ramification of climate
change. So, by receiving some support from the IMF and whatever
other funds that take care of climate change, they certainly
would have some sort of relief.
But at the global level, of course, this will be quite
limited, the impact would be quite limited, because these
countries, low-income countries and middle-income countries,
actually are little and small polluters and they certainly do
not contribute much to global pollution.
Mr. Sessions. Dr. Rogoff?
Ms. Ghosh. If I could--
Mr. Rogoff. Indeed, I--
Ms. Ghosh. --just add very briefly--
Mr. Rogoff. Sorry. Go ahead.
Mr. Sessions. I'm sorry. Professor Rogoff--
Ms. Ghosh. Yes, if I could just add very briefly, just to
repeat--
Mr. Sessions. Yes, ma'am.
Ms. Ghosh. --the RST fund, it is too small. It is limited
to debt, which is a mistake; it should be grants. And it should
be available to all countries. And it should be much, much
larger, based on the climate adaptation and mitigation needs.
Mr. Rogoff. I would just second the point that we need much
more money. I don't think it should go through the SDR, myself.
And I would point out that if we want to stop pollution,
look at the coal-burning plants in Asia and try to figure out
how to phase those out faster, and share technology.
I think the funds involved in coaxing countries and helping
them do this are vast, much bigger than we have been talking
about, but I think we need to start talking about it.
Mr. Sessions. Mr. Chairman, once again, you have seen to it
that the witnesses that you and Mr. Barr put together have
provided, I think, positive references and indications. And I
appreciate this hearing, and I appreciate the witnesses and
your making this such an available hearing.
I yield back my time, Mr. Chairman.
Chairman Himes. Thank you, Mr. Sessions.
The gentleman's time has expired.
The gentleman from Guam, Mr. San Nicolas, is recognized for
5 minutes.
Mr. San Nicolas. Thank you, Mr. Chairman.
Greetings, Chairwoman Waters, and hello to my colleagues.
And thank you to the witnesses who are testifying before us
today.
I really appreciate the big-picture approach and the
conversations that we are having. I am particularly keen on the
conversation about climate change. And I would like to focus my
lens a little bit more on the impact of climate change with
respect to the region that I represent in the South Pacific.
To the south of Guam, we have several small island
countries--the Republic of Palau, the Federated States of
Micronesia, and the Republic of the Marshall Islands. And these
small countries enjoy a unique relationship with the United
States through the Compact of Free Association and the treaty
that represents.
These small countries would not have a dramatic effect on
the overall economy as they suffer through climate change. That
is just the reality. They don't play big roles in international
trade or international finance.
But the reality of climate change in those types of
communities is catastrophic when you look at what they are
going through. The Republic of the Marshall Islands, for
example, the recent king tides that swept through there
literally had water washing over entire atolls of that
particular country.
The IMF, of course, focuses on big-picture issues and big-
picture solutions, but when we have climate change impacting
these smaller nations and the access of resources or to
resources to address the climate change impact is far more
limited for these smaller nations, I really sit back and ask
myself, what more can we be doing to help them mitigate the
impacts of climate change, whether or not we are going to be
able to actually offset it by attacking the issue and the much
larger contributors to the problem?
So, I wanted to ask the witnesses present, do you believe
that the IMF should tailor specific climate change resiliency
support to these smaller nations? And, if so, how do you think
we should structure those types of support?
I will go ahead and start with Mr. Sembene.
Mr. Sembene. Thank you very much, Congressman.
I fully agree with my co-panelists that the $50 billion
that is going to be channeled to the IMF to help fight climate
change and, of course, the pandemic, will be quite small. But I
actually think that there are two things that we can do to make
sure that the work of the IMF is effective in helping the
global community fight climate change.
First of all, we have, especially the U.S. has, and other
large shareholders have to make sure that the IMF handles and
manages these resources in the most effective way by partnering
with other multilateral development banks, starting with the
World Bank, to make sure that they can take advantage of their
expertise to fight climate change.
The second issue is, we are talking about $50 billion, but
don't forget that the G20 members have accumulated more than
$440 billion out of the SDR allocation of $650 billion. So, we
are talking about money that is sitting there at the IMF not
serving any purpose. Why wouldn't the G20 accept on top of the
$100 billion that it has pledged to recycle to add actually all
of that and use SDRs in the IMF to allocate it to the fight of
climate change? I think that would be the best way and the most
effective way to mobilize more resources.
And not necessarily through the IMF. It can go through the
World Bank. It can go through regional development banks like
the Inter-American Development Bank (IDB) or the African
Development Bank. But I think that would be the most effective
way to mobilize more meaningful resources toward the fight
against climate change.
Thank you.
Mr. Stiglitz. Can I add one more thing to that?
I think the point that has just been made, that while a
little money to these small countries can make a very big
difference to those countries, from a global point of view, it
is not a lot of money.
I want to make two other comments very briefly. The SDRs
are not a perfect instrument, but they are an instrument that
we have. And there is an urgency, particularly in some of these
islands, for taking actions very quickly.
Mr. San Nicolas. Yes.
Mr. Stiglitz. That is why I support this annual issuance of
SDRs in the amount of $200 billion or $300 billion a year that
would make a very big difference, even if it is not perfectly
targeted.
Over the long run, I really strongly agree with my
colleague, Ken Rogoff, that we need a global institution to
focus on climate change, but that is not going to happen
overnight. We need to have more grants, not loans. But until we
get these better-designed institutions, let's use the
institutions, the instruments that we have to make sure that
these countries are not devastated.
Mr. San Nicolas. Thank you, Mr. Chairman. My time has
expired. I yield back.
Chairman Himes. The gentleman's time has expired.
The gentleman from Texas, Mr. Williams, is recognized for 5
minutes.
Mr. Williams of Texas. Thank you, Mr. Chairman.
China isn't transparent. It cannot be trusted with much of
the information it shares with the world. We saw this with
COVID-19 and their reluctance to allow any international body
to come in and get to the bottom of the origins of the
pandemic. They take a similar posture to the world with some of
their lending practices, which are also often hidden and
obscured.
If China is willing to offer money to troubled economies
and trap them into debt with little transparency to the outside
world, then the IMF really is no longer the true lender of last
resort.
So, Professor Rogoff, what pressure points do we have at
our disposal so that we can get greater transparency into
China's lending practices?
Mr. Rogoff. There really has been some significant progress
on that in the last couple of years, in getting more
transparency about the Chinese loans, particularly in work from
the World Bank.
That said, now that we have the greater transparency, we
see that they are lending at private-sector terms. They are not
writing down debt when they lend into a really poor country and
it is in deep distress. They just roll it over. You pay a
penalty, interest, and it is not really resolved. This is a
huge, unresolved problem.
Certainly, in the IMF, in designing aid, loans, anything, a
big concern is to make sure that it is not used to give the
Chinese more favorable conditions than, certainly, the Fund is
getting, and the World Bank and other official creditors. And
you can start by providing transparency.
But I think where the Chinese will run into trouble, and we
have over the years is, yes, everybody is your friend when you
are lending the money, and you are building the Belt and Road
project and giving loans--often, with a lot of corruption mixed
in, by the way--but then, when you want to get it back, you
find your leverage is much less.
Mr. Williams of Texas. That is right. And, of course, China
invests to get these people indebted to them.
The more the IMF involves itself in the politics of climate
change, the less credibility I believe it gives them around the
globe. We saw how they adjusted the economic forecasts of
Brazil and Japan for climate-related measures while turning a
blind eye to some of the worst polluters in the world, like
China. We have mentioned some others today. Now, their actions
are obviously not driven by the facts on the ground but,
rather, to carry out a political agenda.
So, again, Professor Rogoff, can you talk about some of the
negative consequences if the IMF continues to operate outside
of its mission and it gets involved in this unrelated task
called climate change?
Mr. Rogoff. I don't have any problem with the IMF keeping a
scorecard of the way it provides other data. I think the
International Energy Agency (IEA) has much more expertise
generally in the area, although they are not really a global
institution the way that the IMF is. The IMF can use it. I
think they can do that.
I don't want to apologize, exactly, for the IMF, but I
would say that, since this is new, it is not exactly easy to
decide exactly how to calibrate the advice and what they should
say. There is not a lot of precedent. So, I hesitate to destroy
the whole idea of saying something about climate because maybe
they fumbled in a couple of cases.
Mr. Williams of Texas. Okay.
Elizabeth Warren and Bernie Sanders--we have all heard of
them--have called for an additional $2 trillion of special
drawing rights for the IMF to deal with poverty, hunger, and
disease across the world. This massive increase in funding
would seem to be outside of the normal bounds of the IMF and
more in line with some other international institutions'
purview.
So, Professor Rogoff, can you elaborate on why the IMF
would not be the appropriate institution to try to deal with
some of these broad humanitarian goals?
Can you hear me?
Mr. Rogoff. I just think the World Bank, for starters, has
more in this area. The SDR is housed in the IMF. I think it is
possible, as has been mentioned by one of the other speakers,
that you could issue the money through the IMF and have it
dispensed by the World Bank.
But I think it is a very crude instrument, and I think we
need to do something now about having something more focused.
And I do worry it is a distraction from the IMF's central
focus. It is hard to be both an aid agency and the revolving
lender. People say, well, they can do both. I think that is
actually very hard.
Mr. Williams of Texas. Okay.
I yield my time back, Mr. Chairman. Thank you.
Chairman Himes. The gentleman's time has expired.
The gentleman from Massachusetts, Mr. Lynch, is recognized
for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman. And you and the ranking
member have really put together a distinguished panel here, and
I am grateful for the testimony of all of our witnesses, and
for your willingness to lend your considerable talents to
helping the committee do its work.
I want to try to address something that I think might be--
and I may be wrong--more workable in the near term.
Professor Ghosh, we got into this issue about surcharges on
so-called middle-income countries. And, just to be clear, we
are talking about Ukraine, we are talking about Egypt,
Argentina, Brazil. There hasn't been any relief for those
countries in terms of the surcharges that have been applied by
the IMF. And I am told that during the period of this pandemic,
there will be about $4 billion paid by these countries to the
IMF in terms of surcharge fees.
Forgive me, but it would seem that it would be reasonable,
just during this period that we are dealing with the pandemic--
and all of these countries, I think, have about 25 to 30
percent of their population vaccinated, so two-thirds of the
country is not. They are struggling. And they are asking, in
many cases, just for a pause in the application of these
surcharges.
Would it not be reasonable to ask the IMF--and I know about
the revolving-fund nature of this. I understand that, and I
appreciate that. But, given the circumstances, would this not
be an opportunity for us to show a little bit of reasonableness
and sensitivity to these situations, to suspend for the short
term? We seem to be coming out of this pandemic eventually,
hopefully. Couldn't we suspend that without upsetting the
balance of the IMF?
Ms. Ghosh. Thank you for this question. And you are
absolutely right. I absolutely agree with you. I would argue
that there is really no logical reason for the surcharges.
The ostensible reason is that it is to prevent countries
from taking on too much debt or holding onto IMF loans for too
long. But both are of these are in the hands of the IMF. The
IMF decides how much they are going to lend to a country, and
then it punishes that country for taking too large a loan.
This has nothing to do with the revolving fund. This is an
additional charge, which really even for its own operational
balances is not necessary.
And it punishes countries precisely when they least need
it. At the moment, Argentina spends more on surcharges than it
would to vaccinate its entire population. And this is true of a
number of other countries.
It is a completely unnecessary kind of imposition on
countries that are very distressed and cannot afford it. So, I
completely agree with you.
Furthermore--
Mr. Rogoff. Can I--
Ms. Ghosh. --it is, yes, this pandemic, but we are facing
major climate challenges as well. So, there is really no
justification for surcharges which are punishment for decisions
made by the IMF itself. And I believe they should actually be
abolished.
Mr. Stiglitz. Can I have one more point, which is that they
are not--
Mr. Lynch. Please do.
Mr. Stiglitz. --based on any actuarial basis. So, they are
not part of a precautionary basis. They are not a repayment in
anticipation of nonpayment.
Ms. Segal. If I could--
Mr. Lynch. Thank you, Professor Stiglitz, and it's good to
see you again.
Please, Ms. Segal, go ahead. I'm sorry.
Ms. Segal. Thank you. I'm sorry to cut you off.
I just wanted to say, on surcharges, they do serve a
purpose for IMF operations, first to build precautionary
balances. The IMF has a plan for achieving a precautionary
balance, and surcharges are what goes to fund that, so there is
a purpose there. That should be part of the analysis.
And the second purpose, actually, is to maintain the Fund
as a lender of last resort. And that means that it is not, kind
of, the cheapest source of financing there, and you wouldn't
want to be in the business of encouraging countries that
otherwise don't need to go to the Fund, to go to the Fund. So,
there is a purpose behind the surcharges.
I would say, if the issue that we are really concerned
about is debt--and that has been kind of the theme throughout
the hearing--that is what should be dealt with in a
comprehensive nature, knowing that whatever policy is decided
should be, kind of, across the membership.
I think the discussion needs to be on how Argentina and
others need to deal with their debt issue, and not, kind of,
pick off surcharges as the issue to be dealt with.
Ms. Ghosh. If I could very quickly respond?
Chairman Himes. Very, very quickly. The gentleman's time
has expired. Professor Ghosh, very quickly.
Ms. Ghosh. Yes. The IMF's own model in the World Economic
Outlook specifies that surcharges are not required for its
operational balances. It is actually meeting it without the
surcharges.
And the other issue is that the reason China is successful
in lending to so many countries and making itself attractive is
because the IMF and others are becoming so expensive in many
ways, in terms of the surcharges, in terms of conditions that
make it very difficult to do countercyclical policies.
So, if you really want to make China less important as a
global lender, we have to make these sources of multilateral
lending more available and attractive.
Mr. Lynch. Thank you.
Thank you, Mr. Chairman.
Chairman Himes. The gentleman's time has expired.
The gentleman from Arkansas, Mr. Hill, is recognized for 5
minutes.
Mr. Hill. Thank you, Mr. Chairman. Thanks for having this
hearing, and the witnesses are outstanding. I enjoyed very much
reading their testimony.
Two weeks ago, Senate Democrats sent a letter to Majority
Leader Schumer calling on him to support the $900 billion
equivalent of special drawing rights to be included in this
year's appropriations bill. That passed the House on a party-
line vote last July. I said this when I voted against the bill
last summer, and I will say it again: In my view, using SDRs in
this manner is a mistake.
Just last August, the IMF sent half-a-billion dollars to
the Taliban in Afghanistan as a part of its general allocation
of last year's $650 billion equivalent allocation. Thanks to
the efforts of Republicans on this committee, while no SDR has
made it to the Taliban, $42 billion was allocated to the
corrupt Chinese Communist Party; $18 billion, as you noted, Mr.
Chairman, to menacing Russia, poised on another invasion; $5
billion to Iran, the state sponsor of terror; $1 billion to
Belarus, Putin's co-conspirator; and $400 million to Assad in
Syria, the mass murderer. Only in Washington can this be
considered common sense.
And as we have talked about today, some who advocate for
SDRs as a foreign development aid tool or turning SDRs into a
climate bank--again, in my view, this is not the right way to
strengthen global economic recovery and reduce global poverty.
SDRs really do neither of these things. They are too blunt an
instrument.
SDR allocations are not targeted, tailored, or tied to
COVID injury. There are no conditions for how a government can
use SDRs, no accountability. They never have to be repaid. They
are a blank check, as Mr. Sembene said, to wealthy nations. As
he noted, $440 billion of the $650 billion goes to the
wealthiest countries.
Secondly, it is due to this allocation based solely on
shareholding that I think does not help the poorest countries.
Last summer, I warned Secretary Yellen of all these issues.
That advice and counsel fell on deaf ears. I suggested: Do a
special allocation of SDRs to the poor for COVID. Get the board
to agree to that, not a general allocation. Insist on
concessions and guardrails in advance of the allocation. Insist
that countries belong to the Paris Club, as Ms. Segal
suggested. Put up transparency guardrails. Make sure you can't
use SDRs for debt repayment. Make sure they can't be traded
with rogue nations for hard currency. Exact these technical
commitments for rechanneling SDRs in advance of that
allocation. None of those things were done in writing in a
committed way.
And for all these reasons, that is why I have introduced
the Special Drawing Rights Oversight Act, which would limit the
Executive Branch's ability to bypass Congress to authorize SDR
allocations by limiting the size and frequency of allocations
unless Congress authorizes them by law.
Treasury has broad authority to circumvent Congress and
unilaterally approve SDR allocations. My bill would ensure that
there is a proper check on the Executive Branch, and provide
greater accountability to Congress.
It is time to stop providing a blank check to our
adversaries, and a non-rules-based approach to SDRs that are
unaccountable and untargeted. Let's be strategic and smart in
the use of this very valuable reserve asset.
And, as has been noted by Ranking Member Barr, SDRs are
just one of the challenges with the Fund. Because I agree with
this conversation that Ken Rogoff highlighted in his written
testimony, that the SDRs are just one small issue. What is the
role of the IMF in 2022 and beyond?
Historically, we are seeing the IMF use its surveillance to
monitor the stability of the international financial system,
while the World Bank is focused on poverty reduction and
sustainable development, along with the regional development
banks, not the IMF. So, the IMF in this hearing is facing an
identity crisis.
The role as traditional lender of last resort, as you
noted, Mr. Chairman, in your opening statement, has been
somewhat replaced, as central banks have pumped trillions of
dollars into the economy and wealthy countries' quantitative
easing has made the IMF loans functionally obsolete.
Really, we are seeing recommended today the IMF become a
donor of first resort rather than its traditional role. In my
view, we should use the U.S. position to make sure that the
Fund sticks to its core message.
I look forward to our continued discussion, and I yield
back.
Chairman Himes. The gentleman's time has expired.
The gentleman from Illinois, Mr. Garcia, is recognized for
5 minutes.
Mr. Garcia of Illinois. Thank you, Chairman Himes, and
Ranking Member Barr, for this lively and timely hearing.
The IMF's role in the world is at a turning point. If we
are going to take on the pandemic, climate change, and hunger
successfully, we can't be stuck on the same policies of
austerity that got us here because of the fact that our world
has gotten more unequal during the COVID-19 pandemic.
Here in the U.S., President Biden led a remarkable economic
recovery based on economic stimulus. I think it could go
further. But if the IMF is stuck on its old policies of
austerity, the rest of the world will never recover.
Professor Ghosh, last year's issuance of SDRs was a
tremendous success. Dozens of countries have used them to
finance their response to the pandemic. My bill supporting the
issuance of $2 trillion in SDRs passed the House, and I hope we
see more soon.
But, meanwhile, there is the IMF. Unfortunately, the IMF
plans to attach conditionality to these recycled SDRs. What
does the IMF conditionality actually mean for the world's
ability to recover from this pandemic? And will it undermine
our ability to get SDRs to countries that need them most?
Ms. Ghosh. Thank you so much for this question.
And, yes, I do agree with you that the last year's issuance
was a success, but necessarily limited, because the amounts
were not sufficient for the needs.
What is wonderful about the SDRs is that they are costless
for the countries that receive them. And the countries that
don't need them, don't use them, so they do not actually have--
they don't matter for the countries that don't need them. So,
when we say that so much is going to those countries, it
doesn't matter. It doesn't really affect global liquidity in
any meaningful sense. And it is a very small part of the huge
quantitative easing of $25 trillion that advanced countries
have engaged in over the last decade.
So, if we issue $2 trillion in SDRs, still, a small
proportion of it will go to middle-income and low-income
countries that really do need it, but it will provide a huge
buffer. The critical point is that it is not debt. And
currently, the RST will actually give you debt. And,
necessarily, with debt, there will be conditions, because that
debt will have to be repaid.
It is now important, given the massive climate challenges,
and given all of the other challenges that we have in meeting
sustainable development goals, to provide this debt-free money
to countries that don't need it. Those who don't need it, will
not use it, so that is fine.
If we can provide this, it is debt-free, it is costless,
and it provides a massive buffer even for the reserves in terms
of other capital flows coming in. It enables countries to meet
the challenges that are most important for them. It could be a
climate adaptation challenge. It could be a health challenge.
It could be whichever is currently the most important challenge
that they need.
Mr. Garcia of Illinois. Thank you.
Ms. Ghosh. And, therefore, a large allocation would
actually play a huge role in determining a future recovery in
the global economy.
Mr. Garcia of Illinois. Thank you very much.
And to Professor Stiglitz, countries around the world owe
billions of dollars to the IMF in surcharge fees, all because
they have too much debt or take too long to repay. To me, this
looks like the business model of payday lenders here in
Chicago, not an economic development agency.
We all know Ukraine is currently at risk of attack from
Russia. What's more, it has only vaccinated about a third of
its population. But Ukraine has to pay surcharge fees to the
IMF.
Professor Stiglitz, why does Ukraine, one of the poorest
countries in Eastern Europe, owe surcharge fees to the IMF? And
do surcharges threaten economic growth in countries like
Ukraine and undermine the legitimacy of the IMF in an unstable
world?
Mr. Stiglitz. You are absolutely right; the surcharges are
procyclical. They go exactly against the objective of good
economic policy. As I pointed out in my written testimony, the
IMF is supposed to help countries with foreign exchange
problems, but the surcharges are making things worse.
And our earlier discussion pointed out very forcefully that
the arguments that have been put forth for the surcharges make
absolutely no sense. They are not based on actuarial risk. They
are not needed for building up the precautionary balances. They
are not needed for the operations of the IMF. And they are not
needed to stop countries from borrowing from the IMF, because
the IMF has control over who borrows from the IMF.
So, all of the arguments that have been put forward for the
surcharges make absolutely no sense, and they are
counterproductive.
Mr. Garcia of Illinois. Thank you, sir.
With that, thank you, Mr. Chairman, and I yield back.
Chairman Himes. The gentleman's time has expired.
The gentleman from Ohio, Mr. Davidson, is recognized for 5
minutes.
Mr. Davidson. Thank you, Mr. Chairman. And I appreciate you
putting together this interesting cast of characters to cover a
really important topic.
And I will say, we have spent a lot more energy on climate
than I had expected. Let me just address up front something
that wasn't really in my plan to spend as much time on.
But when we look at--Professor Rogoff, maybe you could
address this. What is the normal timeframe for an IMF loan? And
I emphasize the, ``loan,'' something that is expected to be
repaid.
Mr. Rogoff. Yes. The normal timeframe, outside of a few
very small programs for the lowest-income countries, is on the
order of 2 to 4 years.
Mr. Davidson. My base question is, then, in 2 to 4 years--
when I look at the really, really aggressive climate change
models, we are talking about sea levels rising at less than a
centimeter a year. So, do you really think that in 2 to 4
years, we are going to see something so catastrophic that the
risk can't possibly be conceptualized or underwritten?
Mr. Rogoff. Certainly, the private sector looks at that.
If I could just make one other point. There have been
complaints about the IMF putting in conditionality. The Chinese
lend at much higher rates than the IMF does. Why does everyone
love the Chinese lending? Because there is no conditionality on
corruption and things like that. They have not been party to
the Paris Club agreements. And I think you cannot look at what
the IMF is doing without looking at what China is doing at the
same time.
Mr. Davidson. Yes. Thank you for that. And that is a nice
pivot to the core topic.
The reality is, of course, people can understand and assess
risk in that short time horizon, even if you take the most
aggressive models. I think we could just focus on the loans
being what they are; they are loans. And the idea, to the
chairman's point, that somehow this poses some systemic risk to
the IMF is a fallacy.
You may say that climate change does pose a systemic risk
to the planet if you believe the most aggressive models, but
the idea that the IMF or anyone else lending in a 2- to 4-year
time horizon couldn't take that into account, to me, is a
fallacious argument.
But Mr. Rogoff, last year, I introduced my bill, the
Chinese Currency Accountability Act. And this bill would make
any increase in the Chinese RMBs' weighting in the IMF's
special drawing rights currency basket conditional on Treasury
certifying that China is complying with key provisions of the
IMF's Articles of Agreement, the Paris Club, and the OECD
Arrangement on Officially Supported Export Credits.
I think it is essential for the United States to do more to
combat the Belt and Road Initiative by taking actions such as
this and features that you highlight that are important in IMF
that aren't embedded in the way the Chinese lend.
Do you believe this approach could be effective in forcing
China to become more transparent or to maybe alter their terms
in their own lending programs?
Mr. Rogoff. I think Dr. Sembene said very well--and
Professor Stiglitz as well--that we are trying to have rules of
the international system, and China has gotten really big for
its share in the IMF. It kind of doesn't even make any sense.
It is still way too small.
So, I'm not sure how we say no--we have been begging them
to increase their quota, actually. The Chinese have been
resisting it, because they don't want to be responsible for
what the IMF is doing. They like keeping a low profile and
doing their own thing. We are trying to bring them into the
tent and our rules in this situation.
Mr. Davidson. Yes. Thanks for highlighting that.
And I think that is it. They are working on an entirely
different, alternative architecture that is rife with
corruption, and it purely pursues China's national interests.
In fact, China has flaunted their agreement with many of the
same countries that are part of the IMF, and the World Trade
Organization. They have never become an actual market economy.
They are a state-sponsored economy.
And I want to highlight, Professor Ghosh, at least you are
transparent in essentially wanting to turn the IMF into a big
global charity. And I think you also touched on something that
is really important in saying, look at the rate of quantitative
easing, which is a word for debasing the currency. Look at the
global West. How dare we put such vigorous terms and conditions
on people who are essentially doing the same things that the
wealthiest countries in the world are doing.
So, far from austerity, we have debased our currencies
globally to the tune of $25 trillion to $30 trillion. Shame on
us.
And I yield back.
Chairman Himes. The gentleman's time has expired.
The gentlewoman from Massachusetts, Ms. Pressley, is
recognized for 5 minutes.
Ms. Pressley. Thank you, Mr. Chairman.
And thank you to our witnesses for appearing before this
subcommittee today.
We find ourselves in the third year of this pandemic that
has laid bare the deadly consequences of weak investments in
our global public health infrastructure and so much more. Over
5 million people have died globally from COVID-19, including
nearly 1 million people here in the United States.
Our country may be on track towards recovery, but many
developing countries are still struggling due to the long
legacy of colonialism, unsustainable debt, and IMF surcharges.
The IMF surcharges policy, which imposes extra, often hidden
fees onto countries with high levels of debt, has been widely
denounced as an unjust burden and a hindrance to our global
economic recovery by development experts and civil society
organizations.
Dr. Ghosh, what are the impacts of surcharges on developing
countries that are already burdened by unsustainable debt?
Ms. Ghosh. Thank you so much for this question.
And, yes, you are absolutely right; these are surcharges
that are imposed on countries that are already in distress,
that already do not have the foreign exchange that they need
for basic imports, that are unable to meet the critical health
spending that they need in the pandemic.
And now, they are forced to pay more than they would
normally or that other debtors are repaying the IMF simply
because the IMF has this particular rule. It is deeply unjust,
and unjustified as well, as Professor Stiglitz has already
pointed out.
But the economic impact is actually quite brutal. It
requires the budget to be set aside for this repayment. It
requires a further drain on very, very limited foreign exchange
resources that prevent you from importing essential goods, that
prevent you from doing anything for poverty alleviation and for
just coping with the pandemic and all of the livelihood losses.
And it is deeply procyclical, as Professor Stiglitz has
already mentioned, so it can make a downturn even worse. There
is--
Ms. Pressley. Thank you.
Ms. Ghosh. --absolutely no justification for the
surcharges, and they really are a big damage to the developing
countries that have to pay them.
Mr. Sembene. May I add something to this?
Ms. Pressley. Yes, please.
Mr. Sembene. hank you very much, Congresswoman.
We can agree or disagree on whether surcharges are good
from an ethical and moral standpoint. We can agree and
disagree. But I think what matters, also, is actually from a
fiscal standpoint, if surcharges actually compound and
aggravate the liquidity issues that countries are facing, so
that they are having issues servicing their debt, that is
actually where the problem lies.
I am saying that because we just had the Debt Service
Suspension Initiative that was put in place by the G20 expire
last month, in December, and so far we don't have an
alternative mechanism--
Ms. Pressley. Thank you. I am going to run out of time
here, but I appreciate those answers.
And there was a recent report which reported that Argentina
will spend more than $3 billion covering surcharges through
2023. I want us to sit with that. That is 9 times the amount it
would cost to vaccinate every single Argentinian against COVID-
19.
Dr. Ghosh, several governments have called for the
suspension of these surcharges for the duration of the
pandemic. Yes or no, given the urgency, do you agree that there
should be an immediate review of surcharge policy?
Ms. Ghosh. Absolutely. I believe that right now in the
continuing pandemic, there should absolutely be a review. I
believe the IMF should actually cancel this program altogether
because it really does not make sense--
Ms. Pressley. Thank you.
Ms. Ghosh. --and it is not justified, but I believe the
U.S. Government should actively propose this.
Ms. Pressley. And, Dr. Stiglitz, do you agree with
arguments in support of the IMF surcharge policy, claiming they
offset the risk of non-repayment? Why or why not?
Mr. Stiglitz. The risk of non-repayment is miniscule. The
number of loans that have not been repaid is very small,
because the IMF has what is called, ``preferred creditor
status.'' They almost always get repaid. And so, the idea that
these are important for precautionary balances or based on
actuarial risk is nonsense.
So, especially in the midst of this pandemic, they ought to
be suspended, but, as Professor Ghosh pointed out, there is no
basis for them as part of the long-term framework, because they
are procyclical and they contravene the basic role of the IMF
in helping countries with foreign exchange problems.
Ms. Pressley. Thank you.
And, Dr. Stiglitz, what is standing in the way of the
elimination of this onerous surcharge policy? And how can
Congress work towards achieving that goal?
Mr. Stiglitz. I think there is a lot of support among many
other countries. The United States is one of the countries
standing in the way right now, unfortunately.
Ms. Pressley. Indeed, surcharges are an obstacle to our
global economic recovery and our efforts to end this pandemic.
And I agree, they should be abolished.
It is also alarming to see the IMF continuing to support
austerity measures in many of its lending programs during the
pandemic. The consequences have been deadly. In Ecuador, we saw
how IMF-backed austerity cuts contributed to one of the
deadliest outbreaks of COVID-19 worldwide.
Dr. Ghosh, how might the IMF--
Chairman Himes. I'm sorry. The gentlelady's time has
expired.
Ms. Pressley. I yield back. Thank you.
Chairman Himes. And we will go immediately into the second
round. We have reduced the number of Members. We do have an
administrative hard stop in just over half an hour, so just a
fair warning to my colleagues that I will be particularly
aggressive with the gavel at the 5-minute mark, so that we can
get to everybody in the second round.
With that, I will very quickly recognize myself for 5
minutes of questions.
And I just want to cap off this surcharge debate. It has
been really interesting, very good. What I haven't heard is an
affirmative defense of surcharges.
Dr. Rogoff, I did hear you say that they were lower--the
surcharges are considerably lower than one would experience in
the private sector. That is not a ringing affirmative defense.
But just in the interest of analytical rigor, does anybody
want to mount an affirmative defense for the existence of
surcharges?
Mr. Rogoff. I first want to say that I didn't get a chance
to speak up, but I really second everything Ms. Segal said in
her last remarks about how you just have to look at the whole
picture.
As I understand it--and Professor Stiglitz is probably much
more involved in discussing with the Argentines than I am, but
they have arrived at a program where they are not actually
making payments on any of this stuff. It is being re-lent. And
there is going to be some big negotiation, possibly not coming,
I think, until 2026 when all the loans are coming due, about
who gets paid what. And I suspect these surcharges are going to
come out of some private-sector pocket or Chinese pocket, not
necessarily from the IMF.
But, as I said in my opening remarks, I think the pandemic
clearly is a very exceptional situation, and in many cases, I
could understand suspending them.
In the case of Ukraine and Argentina, these are countries
that are--they are different, but Argentina has a profound
willingness-to-repay problem. It would have been much better if
the IMF did not give it a loan in 2018, probably better if it
hadn't given a loan 17 years before that. This is a piece of
that, but it is not the whole picture.
Chairman Himes. Thank you, Dr. Rogoff.
Ms. Segal, you were cut off earlier. Again, it has made an
impression on me that even Dr. Rogoff's comments just now were
hardly a ringing affirmative endorsement of surcharges. Do you
have anything to add?
Ms. Segal. I would just say, on the debt front, I would
like for all of us to keep in mind that when the official
sector steps up and provides debt relief but doesn't insist
that the private sector and other creditors do as well, it
actually doesn't help the country or address the problem. It
leaves the lenders of last resort, kind of, holding the bag
without fundamentally addressing the problem.
And I think we saw that with the Debt Service Suspension
Initiative (DSSI), which was an excellent initiative. It was
quick. It had to be done in the face of crisis. But the
official sector stepped up, provided debt relief, strongly
suggested to the private sector that they do the same, and they
didn't.
So I really think we need to think in terms of, kind of,
what is the additionality here? And if the official sector is
providing relief, it should be because private creditors are as
well and that the countries themselves are basically taking
steps to go ahead and address the imbalances that led to the
problem in the first place. That is kind of the tie-in to
conditionality.
Chairman Himes. Thank you, Ms. Segal.
I am going to, in the interest of discipline, yield back
the balance of my time. But I am also going to get with the
ranking member and see if we can find, given what we have all
heard today, some proposal that would at least make the
situation around surcharges better.
With that, I will yield back the balance of my time, and
recognize the ranking member for 5 minutes.
Mr. Barr. Thanks, Mr. Chairman.
And I will jump into this discussion on surcharges and
maybe try to mount a defense of some of the surcharges but
invite other ideas and feedback on it.
Obviously, the purpose of the surcharges is risk management
and contributions to the Fund's precautionary balances. And I
invite the witnesses to tell me why surcharges aren't part and
parcel to conditionality and the need for conditionality to
actually produce the catalytic effect we want.
We want these loans to be repaid. We want to invite private
capital investment. And if we simply transform the IMF into a
global charity, as Mr. Davidson described, what incentive
exists for private lenders to get into some of these distressed
countries?
I did find Professor Ghosh's argument to be interesting,
something that I think we ought to consider, that maybe Chinese
lending is more attractive when surcharges are in place. But
what I would offer as a counterpoint, perhaps, is: Shouldn't
the goal not be to just waive surcharges but, rather, to get
more aggressive, have the IMF--or demand of the IMF to be more
aggressive in calling out China's opaque lending practices and
its non-adherence to international credit standards?
That, in my judgement, is what threatens the Fund's work by
saddling countries with unsustainable debt. If China's opaque
lending standards in Belt and Road gets these countries into
trouble, it will place greater pressure on the IMF.
So, rather than waiving the surcharges, wouldn't it be
better if the United States and other members of the governance
of the IMF demand greater accountability of China and greater
debt transparency as a means of holding China accountable and
also helping these countries that are the victims of Chinese
debt-trap diplomacy?
And with that comment, I would invite feedback from
Professor Ghosh or any of our witnesses.
Ms. Ghosh. Thank you so much, and I would be very happy to
respond to that.
It is very difficult for the IMF to tell China who they can
or cannot lend to or to tell countries whether or not to accept
Chinese loans. So what it has to do, really, is to say, well,
we are offering you loans that are more acceptable, et cetera.
And it is not only corruption, because, let's face it, the
IMF has also lent to so-called corrupt countries and
governments, and China also lends to non-corrupt countries and
governments.
I think the Chinese lending pattern, yes, it is coming into
problems of its own. The Belt and Road Initiative definitely is
entering a morass. But it is of its own making.
By imposing surcharges, you are not necessarily helping
this at all. If anything, the fact that Pakistan has to pay all
these surcharges to the IMF is causing Pakistan to approach the
Chinese even more, saying, ``Please help me. I have such a
shortage of foreign exchange, and now, in addition to
everything else, I have to pay these surcharges.''
I do believe that the surcharges are counterproductive even
from that point of view, from the geopolitical point of view,
because they are adding a burden which is unnecessary,
unjustified, illogical, and does not prevent countries that
have been in--Pakistan has been under the IMF's control for
almost 4 decades now.
Mr. Barr. Thank you for that, but can I reclaim my time?
If we don't require anything, even of these distressed
countries, in the way of conditions or economic reforms or
paying a surcharge, why would private capital flow into these
distressed countries?
Ms. Ghosh. Pakistan has been following IMF conditionality
for 40 years, and it doesn't have the growth conditions because
the IMF's own review suggests that their own strategies are
such that they are overly optimistic about the growth outcomes.
They impose fiscal austerity, and then they are very surprised
when that gives you declining growth.
Mr. Barr. If any of the witnesses have a--
Ms. Ghosh. It is the nature of the conditionalities. It is
not conditionalities per se; it is the nature of the
conditionalities.
Mr. Barr. Do any of the witnesses have a different
viewpoint?
Mr. Rogoff. Another viewpoint would be that Pakistan has
had--the military has been incredibly powerful and corrupted
the system in many ways. And many studies suggest that is why
they haven't been growing. To blame it on the IMF, I think, may
be a very small issue here.
Mr. Stiglitz. Can I add one--
Mr. Barr. Just in the remaining time, for any witness: What
can we do to improve debt transparency? What can we do to
support making IMF lending conditional on a country's
comprehensive disclosure of Chinese debt?
Mr. Stiglitz. Can I make--
Chairman Himes. I'm sorry. The gentleman's time has
expired, and I do have to be disciplined. So I will, on behalf
of the ranking member, invite each of our witnesses to respond
for the record. I, for one, would be very interested in hearing
the answers to those questions. But I do need to be disciplined
about the time, so let's take that for the record.
And I now recognize the gentleman from Guam, Mr. San
Nicolas, for 5 minutes.
Mr. San Nicolas. Thank you, Mr. Chairman.
I wanted to use my time to kind of circle back on my
initial line of questioning and the point that I was trying to
make.
I listened throughout the hearing about hundreds of
billions of dollars in SDRs being out there. And then, I go
back and I look at the data on the Republic of the Marshall
Islands, the Republic of Palau, and the Federated States of
Micronesia: The Marshall Islands accessed $7 million in SDRs;
the same for the Federated States of Micronesia; and the
Republic of Palau accessed $12 million in SDRs.
Mr. Chairman, that is not even enough to pave a road in
these island communities, much less build seawalls, much less
harden water infrastructure, much less mitigate the impact on
housing and the availability of housing in these particular
areas that are becoming inundated with water as a result of the
climate change that is materially happening and directly
affecting these countries and presenting an existential risk.
I would like to emphasize in my role here and in my time in
this hearing the need for us to really press home the point
that the stability of our global financial system is not unlike
the stability of our domestic financial system. We can't just
provide robust funding and robust opportunities for the biggest
players while we ignore rural communities here in this country,
and while we ignore those people who are trying to take
advantage of what we are able to make available and are just
not able to do so because they don't have the same means as
some of the other bigger players.
And that is the situation right now in our international
financial situation. We have these island nations that are
literally suffering directly as a result of these things, and
they are not able to access the resources that we make
available on a global scale.
So, I really would like to encourage the IMF to take some
kind of different approach and really factor in the real-time
risk profiles that are being affected by climate change and
provide the financial support to these areas that are already
being dramatically impacted.
We can try and address the big picture, and of course, that
is always going to be important, but we have real-world
consequences happening right now. And for us to have hundreds
of billions in SDRs out there while these island communities
are receiving $7 million in SDR support is really just a
failure of the system with respect to the problem.
And so, I want to just emphasize that. I will make time for
any witnesses who may want to chime in, but, if not, Mr.
Chairman, then I will yield back.
Ms. Segal. Could--
Mr. Sembene. I would add, Congressman, if you allow me,
that I fully agree with you. I think there are a lot of things
that can be done with those unused SDRs that are sitting in the
account of the IMF.
The main issue, in my mind, is we need to make sure that
borrowing costs are reduced for those countries that are facing
debt distress or that are under risk of high debt distress. If
you don't do that, they won't have any other choice but to go
to other alternative sources, be it China, be it the private
sector, unfortunately. Because they have to make sure that they
respond to the current pandemic properly. They also have to
make sure that they provide basic services to their population.
And they also have to make sure that there is social cohesion,
while also doing the war on terror.
So, we certainly need to use those SDR proceeds in what
might be an innovative way to make sure that the funds get used
not on borrowing costs of those countries. I think that would
be the best service that we would give to those countries.
Thank you.
Mr. San Nicolas. Ms. Segal?
Ms. Segal. I would just say, it sounds like the panel, and
the committee, for that matter, is unanimous in wanting to
channel more resources to deal with the issue of climate. I
think where there is perhaps a difference is how those
resources are channeled and through what institutions.
And I would just add, if you look at the budget request for
Fiscal Year 2022, it is in the nature of $100 million or so
from the U.S. that is dedicated to the IMF and the redirecting
of SDR resources, but more than 10 times that is dedicated to
other facilities that are directed at climate issues.
So, I don't think there is any argument about the need to
channel more resources. It is just how and to which
institutions.
Mr. Stiglitz. Can I add one--
Mr. San Nicolas. And just in closing--oh, go ahead, Mr.
Stiglitz.
Mr. Stiglitz. I think your comments highlight the
importance of recycling the SDRs, that more countries need to
do that recycling. And the institutional framework for doing
the recycling has to be improved, as I mention in my report and
Professor Ghosh mentioned in her written testimony, that the
current framework is not up to the task. It needs to be a much
better facility and much broader.
I think in the short run, we face a real urgency because of
the pandemic. In the long run, I think we ought to be thinking
of the kinds of institutions that Professor Rogoff talked
about, which is a new international institution, a green bank
of some kind.
But we know how long it takes to create those institutions,
and in the meantime, we have to act. And that is why the SDR
issuance and recycling of that is the intermediate solution
until we get the kind of institution that Professor Rogoff
talked about.
Chairman Himes. The gentleman's time has expired.
The gentleman from Texas, Mr. Sessions, is recognized for 5
minutes.
Mr. Sessions. Mr. Chairman, thank you very much.
At this time, I do not seek time, except I want to
reinforce my thanks to this witness panel and to the wisdom of
having this hearing.
I yield back my time.
Chairman Himes. The gentleman from Arkansas, Mr. Hill, is
recognized for 5 minutes.
Mr. Hill. Thank you, Mr. Chairman.
And, again, I want to add to the compliments for the panel,
their detailed answers, and for your engagement, and Mr. Barr
as well.
I do want to turn back to the role of who is in the right
position to handle things like long-term structural adaptation
for something as serious and long-range as climate. And I just
don't think it is a short-term-lending, foreign-exchange-based
financial intermediary like the IMF.
I continue to state that we shouldn't convert the IMF into
either an aid organization or into a global development
organization. It is an intermediate-term institution to aid
companies with foreign exchange and short-term debt management
challenges.
And I do agree with a couple of points. One was on the
surveillance work of the IMF. Clearly, long-term projections on
surveillance as it relates to a country's intermediate- and
medium-term financial risks associated with coping with
climate--that is certainly a worthy use of the macroeconomic
resources and analysis resources of the IMF.
But if climate is our real focus, then why do we treat
China like a developing nation at the World Bank? Why do we
keep funding no-strings-attached SDR issuances to giant carbon
emitters like India or China or many, many other countries?
That just doesn't make any sense. And that shows you the blunt
incoherence of an across-the-board SDR issuance.
And since it is based on shareholdings--my friend from
Guam, Mr. San Nicolas, makes many good points on Palau, and the
people of The Marshall Islands, and I concur with him. And it
says to me that that is, again, a long-term development risk
strategy, not a short-term financing risk, considering their
association and their financial position. So, again, it is more
of a development challenge. That is the World Bank; that is the
regional banks.
If we are concerned about climate, why aren't we pursuing
former Congressman Ed Royce's strategy of building smaller
nuclear reactors for Africa with a 150-year life, low-waste
reprocessing that generates power and gets people off of fossil
fuel?
I don't mean to be rhetorical, but I think that is how we
should be looking at this, and not burdening these sorts of
structural issues with an entity not created to cope with them.
I want to turn next to the issue of management at the IMF.
I have to say I was so pleased that Chairwoman Waters was very
aggressive last September in talking about her concerns and
describing them as, ``very troubling,'' where the current CEO
of the IMF, the former CEO of the World Bank, essentially
changed an economic forecast at China's request. I found that
troubling. I think the IMF board should have dismissed the
managing director over that. I think it was a bad move.
And that mismanagement of the Fund continues as recently as
in December, when the first deputy managing director, Geoff
Okamoto, was replaced by an academic whom I don't believe has
the Treasury resume or the operational experience to be in the
chief U.S. position at the IMF, the first deputy managing
director.
Also, Mr. Chairman, I have concerns about the management
and operations of the IMF. I hope you and Chairwoman Waters
will consider that as a possible oversight topic as this year
goes on in the Congress.
Turning to an additional key point I wanted to make--and I
am so grateful for the second round, sir--under the IMF's
rules, a member country of the Fund does not have to be a U.N.
member. For example, Kosovo is not a U.N. member state, but has
been an IMF member since 2009. Taiwan is not a U.N. member
state, but it belongs to the WTO and the Asian Development
Bank. And Taiwan, of course, is immensely larger than Kosovo.
The Biden Administration has called for Taiwan's meaningful
participation in all international organizations. And I ask
Professor Rogoff or others on the panel, shouldn't we support
Taiwan's membership at the IMF, just as the U.S. did with
Kosovo?
Mr. Rogoff. I will take that question briefly first.
Good luck trying to do that. I think if we did, that we
might be precipitating China to withdraw. And are we actually
prepared to do that?
Mr. Hill. Thank you, Mr. Chairman. I yield back the balance
of my time.
Chairman Himes. The gentleman yields back.
The gentleman from Illinois, Mr. Garcia, is recognized for
5 minutes.
Mr. Garcia of Illinois. Thank you, Mr. Chairman. I will be
brief, with just one question that I meant to ask Dr. Sembene.
The IMF told the U.N. High Commission on Human Rights that,
as a purely economic agency, it does not, ``directly engage in
the promotion of human rights.'' But we have seen the IMF work
for political reasons on many occasions, including the
disastrous 2018 loan to the Macri government in Argentina.
Mr. Sembene, do you agree that the IMF has played a
political role in the past? And should it incorporate human
rights into its work?
Chairman Himes. Mr. Sembene, I don't know if you heard the
question. That was directed, I think, at you by Mr. Garcia.
Mr. Stiglitz. Whom was it addressed to?
Chairman Himes. Mr. Garcia, do you want to repeat that? I
will give you the time back.
Mr. Garcia of Illinois. Yes. Thank you.
The IMF told the U.N. High Commission on Human Rights that,
as a purely economic agency, it does not, ``directly engage in
the promotion of human rights.'' But we have seen the IMF work
for political reasons on many occasions, including the
disastrous 2018 loan to the Macri government of Argentina.
My question to you is, do you agree that the IMF has played
a political role in the past? And should it incorporate human
rights into its work?
Mr. Stiglitz. Let me take that.
First, the boundary between economics and politics is
always going to be vague, and we try to separate them. When I
was at the World Bank, discussing corruption was viewed to be
political. And one of the things that President Wilkinson did
at the World Bank was to say, no, corruption is an economic
issue, it is not a political issue. And so, there was a change
in the boundary to say that corruption has economic
consequences.
My own view of the Macri loan, the 2018 loan, was that it
violated many of the standard rules of the IMF. It was
obviously a particularly foolish loan, because they did not put
on it a condition that would stop the money going into the
country and going out to finance private-sector outflow from
Argentina. The result of that very poorly-designed loan, which
was, many people think, intended to help the Macri government,
was that the country wound up $44 billion more in debt, with
nothing to show for it.
That was an example--in my earlier testimony, I pointed out
that the issue was not conditionality, but which condition. The
condition they should have imposed is that you cannot use that
money to finance capital outflow. And, unfortunately, they
didn't put that condition on it.
Mr. Rogoff. I just want to second that it is certainly very
awkward, the 2018 loan. And I don't know what they were
thinking exactly. The Fund was flush at the time, and had a
long relationship with Argentina and they were trying to patch
it, but it was a huge mistake.
But I will also say, if you are going to put conditions on
capital outflows, that has happened a lot with money made
during the pandemic, with money, and SDRs that went to
Argentina, and Lebanon, a lot went into capital flight.
It is tricky to put those conditions on, but they just
shouldn't have made the loan, not without a big write-down in
the private debt.
Mr. Garcia of Illinois. Thank you.
And, Mr. Sembene, it looks like you may be back. Did you
hear the question?
Well, maybe we didn't get you back.
Without further ado, Mr. Chairman, I yield back.
Chairman Himes. The gentleman yields back.
The gentleman from Ohio, Mr. Davidson, is recognized for 5
minutes.
Mr. Davidson. Thank you, Mr. Chairman.
And, Mr. Rogoff, I would like to pick up where I left off.
In your testimony, you stated that a number of larger emerging
markets have become more resilient due to the fact that they
have large reserves of foreign currency that provide them a
cushion from the need for the IMF.
And this makes me consider our own domestic policy and how
our overspending affects inflation. We are the world's reserve
currency. We are a substantial backer, the largest, of the IMF.
And, of course, we are no longer constrained even by the amount
of revenue that we can collect. We are no longer constrained
even by the amount of money someone will lend us. We are
monetizing--we are debasing our currency, frankly, to state it
more plainly. And as was highlighted by, I think, Professor
Ghosh's own testimony, about $25 trillion around IMF members.
So, if we are growing this inflation through our own
domestic policy and, frankly, through a lot of the leaders of
the IMF doing similar things, does this undermine those foreign
currency reserves held by those emerging-market countries?
Mr. Rogoff. The very last question you asked, yes, to the
extent that they are longer-term loans--they are holding
longer-term loans. To the extent it is short-term, they are
choosing to let it be undermined by accepting these really low
rates.
The inflation is a threat because if the Federal Reserve
decides they need to raise interest rates more--and my guess is
they may need to make the interest rate higher than the
inflation rate at some point--there really could be a lot of
blood in emerging markets. It is a huge concern.
The markets clearly don't think that at the moment, but
there is a lot of vulnerability. I think that is a big issue.
We are talking about these poorer countries where the sums are
not so large, and they really could be solved with aid. They
are just not that big. But when you get to the larger emerging
markets, getting agreement with China, for example, on what to
do and places where loans are much bigger, that is going to be
very hard. It already has been.
Mr. Davidson. Yes. Thanks. I think you did a nice breakdown
of the consequences for inflation, and I would just put it in
contrast to some of the other things.
The time horizon for our problem with our debt is very
short. We have trust funds for Social Security and Medicare
that are on a path to bankruptcy, which really highlights the
solvency problems that countries with an inverted debt-to-GDP
ratio, like America, really should pay a lot of attention to,
near-term attention. And as we feel the need to become generous
and give to this global charity that is envisioned by some
folks, we ought to make sure we take care of business in our
own countries--
Ms. Ghosh. Could I just add--
Mr. Davidson. --so that we don't default on our own debt.
Thank you, and I yield back.
Ms. Ghosh. Could I just add something?
Mr. Davidson. I have already yielded back, but I will leave
it up to the chairman.
Chairman Himes. Yes, very quickly, Professor Ghosh.
Ms. Ghosh. Yes, just because the $25 trillion was raised.
The $25 trillion of quantitative easing that I mentioned was
before the pandemic and before the recent Biden Administration
money. And we had that over a period since 2008 without any
inflation or any consequences globally, and particularly in the
advanced economies.
We had a period of 14 years of dramatic quantitative easing
without inflationary consequences. I'm just putting it on the
record.
Chairman Himes. Okay. I think the gentleman has yielded
back.
So, I am going to say a big thank you to all of our
witnesses. Really, my ambition for these hearings, which is
rarely met, is that we have a good give-and-take of ideas, that
we have dialogue, that we have an exchange of constructive
disagreement, and we really achieved that today. So, I really
want to thank all of our witnesses for participating.
The Chair notes that some Members may have additional
questions for these witnesses, 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.
With that, and with my gratitude to our witnesses, this
hearing is adjourned.
[Whereupon, at 2:16 p.m., the hearing was adjourned.]
A P P E N D I X
February 17, 2022
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