[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                  INTERNATIONAL FINANCIAL INSTITUTIONS
                  IN AN ERA OF GREAT POWER COMPETITION

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

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON NATIONAL SECURITY,
                          ILLICIT FINANCE, AND
                  INTERNATIONAL FINANCIAL INSTITUTIONS


                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 25, 2023

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-27
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                               __________
 
                                
                    U.S. GOVERNMENT PUBLISHING OFFICE                    
52-939 PDF                 WASHINGTON : 2023                    
          
-----------------------------------------------------------------------------------     

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas                EMANUEL CLEAVER, Missouri
TOM EMMER, Minnesota                 JIM A. HIMES, Connecticut
BARRY LOUDERMILK, Georgia            BILL FOSTER, Illinois
ALEXANDER X. MOONEY, West Virginia   JOYCE BEATTY, Ohio
WARREN DAVIDSON, Ohio                JUAN VARGAS, California
JOHN ROSE, Tennessee                 JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin               VICENTE GONZALEZ, Texas
WILLIAM TIMMONS, South Carolina      SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina         AYANNA PRESSLEY, Massachusetts
DAN MEUSER, Pennsylvania             STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin          RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York           RITCHIE TORRES, New York
YOUNG KIM, California                SYLVIA GARCIA, Texas
BYRON DONALDS, Florida               NIKEMA WILLIAMS, Georgia
MIKE FLOOD, Nebraska                 WILEY NICKEL, North Carolina
MIKE LAWLER, New York                BRITTANY PETTERSEN, Colorado
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
          Subcommittee on National Security, Illicit Finance, 
                and International Financial Institutions

                 BLAINE LUETKEMEYER, Missouri, Chairman

ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio, Ranking Member
ROGER WILLIAMS, Texas                VICENTE GONZALEZ, Texas
BARRY LOUDERMILK, Georgia            WILEY NICKEL, North Carolina
DAN MEUSER, Pennsylvania             BRITTANY PETTERSEN, Colorado
YOUNG KIM, California, Vice          BILL FOSTER, Illinois
    Chairwoman                       JUAN VARGAS, California
ZACH NUNN, Iowa                      JOSH GOTTHEIMER, New Jersey
MONICA DE LA CRUZ, Texas
ANDY OGLES, Tennessee
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 25, 2023.................................................     1
Appendix:
    May 25, 2023.................................................    35

                               WITNESSES
                         Thursday, May 25, 2023

Powell, Richard J., Chief Executive Officer, ClearPath, Inc......    11
Rosen, Mark, Partner, Advection Growth Capital, and former Acting 
  United States Executive Director, International Monetary Fund 
  (IMF)..........................................................     7
Runde, Daniel F., Senior Vice President, Center for Strategic & 
  International Studies (CSIS)...................................     9
Schreger, Jesse M., Class of 1967 Associate Professor, Columbia 
  Business School, and Founding Co-Director, Global Capital 
  Allocation Project.............................................     5
Sembene, Daouda, Distinguished Nonresident Fellow, Center for 
  Global Development (CGD), and Chief Executive Officer, 
  AfriCatalyst Global Development Advisory.......................    13

                                APPENDIX

Prepared statements:
    Powell, Richard J............................................    36
    Rosen, Mark..................................................    48
    Runde, Daniel F..............................................    51
    Schreger, Jesse M............................................    61
    Sembene, Daouda..............................................    69

              Additional Material Submitted for the Record

Luetkemeyer, Hon. Blaine:
    GAO Report, ``World Bank, Borrower Countries' Contracts to 
      Businesses in the U.S. and to Entities Potentially on U.S. 
      Sanctions or Other Lists of Concern,'' May 2023............    75
Hill, Hon. French:
    ``China is using the World Bank as its piggybank,'' The Hill, 
      May 17, 2023...............................................   139
Loudermilk, Hon. Barry:
    Written responses to questions for the record submitted to 
      Richard J. Powell..........................................   142
    Written responses to questions for the record submitted to 
      Daniel F. Runde............................................   143

 
                        INTERNATIONAL FINANCIAL
                       INSTITUTIONS IN AN ERA OF
                        GREAT POWER COMPETITION

                              ----------                              


                         Thursday, May 25, 2023

             U.S. House of Representatives,
                 Subcommittee on National Security,
                               Illicit Finance, and
              International Financial Institutions,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 9:01 a.m., in 
room 2128, Rayburn House Office Building, Hon. Blaine 
Luetkemeyer [chairman of the subcommittee] presiding.
    Members present: Representatives Luetkemeyer, Barr, 
Williams of Texas, Loudermillk, Meuser, Kim, Nunn, De La Cruz; 
Beatty, Nickel, Foster, and Gottheimer.
    Ex officio present: Representative Waters.
    Also present: Representative Hill.
    Chairman Luetkemeyer. The Subcommittee on National 
Security, Illicit Finance, and International Financial 
Institutions will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time.
    Today's hearing is entitled, ``International Financial 
Institutions in an Era of Great Power Competition.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    First, thank you to our witnesses for being here today. You 
offer a wide and deep expertise in international financial 
institutions (IFIs) and global economics, and we look forward 
to your insights.
    Over the past year, in an effort to rein in the decades-
high levels of inflation sparked by reckless government 
spending, central banks shifted from a prolonged period of 
extraordinary monetary policy ease to one of aggressive 
monetary tightening.
    The Federal Reserve, the European Central Bank, and the 
Bank of England all increased interest rates at the fastest 
pace in decades, while also withdrawing liquidity by not 
rolling over a meaningful part of their large bond portfolios. 
One consequence has been that 60 percent of low-income 
countries now face debt distress, meaning that there is a risk 
they may be unable to meet their financial obligations without 
debt restructuring or debt forgiveness, especially as global 
economic growth slows.
    This perilous international economic situation makes 
today's hearing especially timely and relevant. The 
international financial institutions were established after the 
Second World War to address global economic challenges, both to 
help cultivate economic growth and, in the case of the IMF, to 
be the world's financial crisis firefighter. However, many now 
question whether these organizations remain up to or even 
focused on these, their core responsibilities.
    There are two major reasons for this. First, China is 
playing a growing and uncoordinated role of providing funding 
far beyond what could be provided by traditional sources for 
white elephant projects that sink countries into debt traps. At 
least 65 countries owe Chinese lenders more than 10 percent of 
their external debt.
    When countries enter financial distress, these large levels 
of opaque Chinese debt impede restructuring attempts, as the 
Chinese refusal to cooperate in the process leads to fears that 
any support will just flow to Chinese creditors rather than 
helping to resolve the borrowing nation's economic crisis.
    Ironically, at the same time, the World Bank continues to 
loan China more than $1 billion annually, and China remains one 
of the Bank's largest debtors. China is also, by far, the 
largest beneficiary of World Bank spending.
    The GAO recently released a study entitled, ``World Bank 
Borrower Countries' Contracts to Businesses in the U.S. and to 
Entities Potentially on U.S. Sanctions or Other Lists of 
Concern''--that is a mouthful--which I would like to ask 
unanimous consent to submit for the record.
    Without objection, it is so ordered.
    The study found that between 2017 and 2021, Chinese 
companies won about 29 percent of all World Bank contract 
dollars.
    The second reason for concern about the IFIs' fitness is 
that these institutions are increasingly diverging from their 
traditional development agenda to impose Western elites' green 
agenda on the developing global south.
    Nowhere was that neocolonial effort more clear than in the 
vital area of energy, where institutions like the World Bank 
will fund neither nuclear power, the cleanest, most-productive 
zero-emissions source, nor natural gas, the incremental 
improvement from coal or wood, to allow that country to reduce 
emissions more than any other country in the world, this even 
as European nations scour the African Continent for 
alternatives to Russian gas for themselves, while 
hypocritically denying these very countries financing for 
natural gas projects.
    In the meantime, because developing nations are demanding 
nuclear, gas, and mining projects that the Bank sanctimoniously 
refuses to consider, Russia and China fill the gap, setting 
standards and establishing long-term relationships, even as the 
European countries and the Biden Administration pat themselves 
on the back for their own green purity.
    In the budget request for Fiscal Year 2024, the Biden 
Administration sought a 70-percent increase for IFIs, largely 
to fund this counterproductive green agenda. This Congress 
needs to take a hard look at how such an investment would 
possibly help hardworking American taxpayers or whether it 
would instead help Russia or China.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentlewoman from Ohio, Mrs. Beatty, for 4 
minutes for an opening statement.
    Mrs. Beatty. Thank you, Mr. Chairman.
    And thank you to the witnesses.
    Today, we are here to discuss the critical role of 
international financial institutions in the global economy and 
the increasingly large role that China is playing as a global 
lender to supplant U.S. leadership. And certainly, we know that 
IFIs are in an era of great power competition.
    IFIs, including the International Monetary Fund, the World 
Bank, and Multilateral Development Banks (MDBs), are essential 
in providing financial assistance to countries in crises, 
supporting social and economic development around the world, 
and promoting the United States' economic and foreign policy 
goals.
    In recent years, IFIs have been particularly instrumental 
in helping developing countries respond to the global pandemic, 
COVID-19, providing vital aid to Ukraine in the face of its war 
with Russia, and addressing the economic implications of 
climate change. Whether the United States remains a strong 
leader in the IFIs, other countries, particularly China and 
Russia, seek to supplant U.S. leadership and reshape 
international order.
    China's Belt and Road Initiative, designed to craft a 
China-controlled global infrastructure, strategically seeks to 
lend and invest in developing countries to spread Chinese 
influence. To this end, China launched its own Multilateral 
Development Bank, the Asian Infrastructure Investment Bank 
(AIIB).
    These loans and investments come with strings and 
conditions that allow Chinese influence to become entrenched in 
the borrowing country, from adoption of Chinese labor practices 
to the use of China's central bank digital currency (CBDC).
    Through its obscure lending practices and unwillingness to 
restructure loans in line with global norms, China has been 
pushing countries into unsustainable debt.
    Now more than ever, it is critical for the IMF and other 
IFIs to have the resources they need to support low-income, at-
risk countries so they don't turn to China for funding. That is 
why I can't fathom efforts by my colleagues across the aisle to 
hamstring and weaken the IMF, when this institution is 
essential to countering China's influence around the world.
    To make matters worse, the United States may default on its 
debt for the first time in history, in as soon as a few days. 
There is no doubt that such an unpredicted blow to the United 
States economy would deliver a decisive victory to China, 
collapsing the U.S. Treasuries market and catastrophically 
damaging our creditworthiness and credibility as a global 
leader.
    My colleagues on the other side claim to prioritize the 
economic threat posed by China, which I agree should be a 
priority, and, yet, their actions on default undermine that 
very goal. Destroying the American economy and Americans' 
credit by holding the payment of past bills hostage to railroad 
future spending cuts unquestionably weakens America's ability 
to compete and continue as a great power.
    Meanwhile, Committee Democrats and the Biden Administration 
have led the charge in funding the IFIs and enacting 
legislative measures to protect and promote United States' 
competition on the global stage, for example, from the CHIPS 
and Science Act to the America COMPETES Act.
    So, I remain committed to continuing this vital work, 
preserving the United States' standing as a great power in the 
global economy. I want to thank our witnesses for appearing 
today to discuss this important matter.
    And I am hoping that my voice holds up, so please excuse 
it. And I look forward to your testimony today.
    Thank you, and I yield back.
    Chairman Luetkemeyer. We have 1 minute reserved for the 
chairman and the ranking member of the full Financial Services 
Committee.
    Chairman McHenry doesn't appear to be here at this time, so 
we will now recognize the ranking member of the Full Committee, 
the gentlelady from California, Ms. Waters.
    Ms. Waters. Thank you very much, Chairman Luetkemeyer, and 
Ranking Member Beatty. I thank you for holding this hearing on 
international financial institutions, the great power 
competition, and how to best manage international programs to 
counter China's global ambitions.
    It is shockingly hypocritical, then, that we sit here on 
the last day that the House was supposed to be in session for 
the month, just days before Republicans run America's economy 
off the debt cliff, and why? At least one stated reason is so 
they can cut programs and institutions like the World Bank and 
other institutions. I don't know if the IMF is included in 
that.
    However, I hope this discussion today will focus on not 
cutting anything in this government that has to do with us 
dealing with China and other concerns that we may have about 
how they are undermining not only our economy, but absolutely 
causing disaster in the world.
    I yield back the balance of my time.
    Chairman Luetkemeyer. The gentlelady yields back what time 
she didn't have.
    With that, we need to get a couple of housekeeping things 
out of the way.
    First, without objection, Representative French Hill, who 
is a member of the Full Committee but not a member of this 
Subcommittee, is going to join us shortly and will be able to 
ask questions at the end of the discussion.
    Second, we are going to have votes today right in the 
middle of our discussion here, sometime between 9:45 and 10 
o'clock, so we will adjourn for a short period of time to go do 
our Constitutional duty and vote on a bunch of bills this 
morning. We will return and finish after that. So, you 
gentlemen will be able to go to the restroom, find something to 
drink, get a little nap, or whatever it takes to keep you going 
for the rest of the morning.
    Also, with regards to your microphones, those things move, 
so please pull them as close to you as you can. Some of them 
are very sensitive, or not sensitive from the standpoint you 
need to get it close to you to be able to hear.
    When you are at my advanced age, it is difficult to hear a 
lot of things, so I would like to be able to hear everything 
you've said and you are going to tell us today. So, please get 
those microphones close to you.
    Okay. With that, we will welcome our witnesses this 
morning.
    First, Dr. Jesse Schreger is an associate professor of 
macroeconomics in the Economics Division at Columbia Business 
School.
    Second, Mr. Mark Rosen is a partner at Advection Growth 
Capital, and the former acting executive director of the IMF.
    Third, Mr. Daniel Runde is the senior vice president of the 
Center for Strategic & International Studies.
    Fourth, Mr. Rich Powell is the chief executive officer of 
ClearPath and ClearPath Action.
    And, finally, Dr. Sembene--I am sure we will all get his 
name wrong, so I will apologize beforehand, but hopefully that 
is pretty close, and with a name like, ``Luetkemeyer,'' I am 
used to being called all sorts of things, so it doesn't bother 
me, and I hope it doesn't bother you--is a distinguished 
nonresident fellow and chief executive officer at AfriCatalyst.
    We thank each of you taking the time to be here today. Each 
of you will be recognized for 5 minutes to give an oral 
presentation of your testimony. And without objection, each of 
your written statements will be made a part of the record.
    I control the time with my gavel, so, if you start to hear 
it, that means it is close to the time that you are to stop.
    On your desk in front of you, you should have a timer. When 
you see the yellow button, kind of wrap it up. When you see the 
red button, it means you are going to get gaveled out.
    With that, Dr. Schreger, you are now recognized for 5 
minutes.

    STATEMENT OF JESSE M. SCHREGER, CLASS OF 1967 ASSOCIATE 
PROFESSOR, COLUMBIA BUSINESS SCHOOL, AND FOUNDING CO-DIRECTOR, 
               GLOBAL CAPITAL ALLOCATION PROJECT

    Mr. Schreger. Chairman Luetkemeyer, Ranking Member Beatty, 
and members of the subcommittee, thank you very much for the 
opportunity to testify today.
    I am Jesse Schreger, the class of 1967 associate professor 
at Columbia Business School, and a founding co-director of the 
Global Capital Allocation Project.
    The international financial institutions currently face a 
significant challenge in the form of ongoing sovereign debt 
restructurings in countries on the verge of debt crises. 
Addressing sovereign debt crises and many other issues in the 
international financial system starts with an understanding of 
who owns what and owes what to whom.
    At its core, a sovereign debt crisis arises when a debtor 
country is unable or possibly unwilling to meet the contractual 
value of its obligations. In such a crisis, the task at hand is 
to figure out how much a debtor is willing and able to repay 
its creditors and then coordinate an agreement among the 
creditors to split the losses.
    This has always been a challenging problem, since sovereign 
debt lacks the type of seniority structures or bankruptcy 
procedures that facilitate the resolution of corporate 
defaults. The difficulty of resolving a sovereign debt crisis 
is further compounded when creditors have differing objectives, 
especially when we lack a clear understanding of who the 
creditors even are.
    Today's debt challenges have many parallels with those of 
recent decades. In particular, the countries currently facing 
debt distress have largely borrowed from foreign creditors in 
U.S. dollars and other foreign currencies that they do not 
control. This has left them vulnerable to external shocks, such 
as the rise in commodity and energy prices following Russia's 
invasion of Ukraine, and the recent sharp increase in U.S. 
interest rates. As their currencies lost value, these countries 
found it increasingly more difficult to repay their debt.
    As in previous sovereign debt crises, a successful 
resolution today will involve significant write-downs and 
losses by creditors, as well as additional lending from the 
International Monetary Fund. So, in this sense, what is 
happening today looks like the past. But let me now turn to 
what is different about the world's debt situation.
    One key difference is that the largest emerging markets are 
generally not included among the list of countries in debt 
distress. Instead, debt problems are primarily concentrated in 
lower-income countries. One important reason why is that major 
emerging markets now largely borrow from foreign private 
investors in their own local currency. This means that, even if 
their currencies lose value against the dollar, they don't see 
their required repayments increase nearly as much. This is a 
major improvement in the resilience of the international 
financial system.
    So, as the U.S. and the other G7 countries consider scaling 
up lending from the Multilateral Development Banks for 
infrastructure and other projects, it is important to do so in 
a way that helps low-income borrowers avoid dangerous currency 
mismatch as much as possible.
    The second difference today is the role of China as a 
global creditor to low-income countries. China is now the 
largest bilateral creditor in the world. And, for some 
countries, debt from China alone can exceed a quarter or even 
half of their GDP. I want to highlight some challenges this 
raises.
    First, and related to my previous point, almost all of this 
lending from China is in foreign currency, and it is actually 
overwhelmingly in U.S. dollars.
    Second, China's style of lending via its state-controlled 
policy banks positions it between conventional international 
private creditors, like bond investors, and other official 
bilateral government lenders. This has led to significant 
disagreement about how China should be treated in sovereign 
debt restructurings and is leading to costly delays.
    Third, there is uncertainty about just how much money is 
owed to China. China does not participate in traditional 
creditor reporting systems, and it tends to include 
nondisclosure clauses in its loans that prevent borrowers from 
revealing the terms.
    Fourth, some of the Chinese loans require borrowers to keep 
cash in offshore escrow accounts as collateral. This makes 
other creditors worry that China will be treated as the senior 
creditor in default if they can seize assets before formal debt 
restructuring negotiations even begin. Adapting the world of 
sovereign debt to reflect China's new role begins with a 
systematic understanding of the true nature of these exposures.
    The final challenge to the international financial 
institutions that I want to highlight is how tax havens and 
other offshore financial centers make it harder to know who 
owns what around the world. Because global financial statistics 
are according to the immediate location of an investor or 
borrower, countries around the world don't even know where 
their money goes to or comes from.
    Let me give you an example. In 2019 and 2020, nearly $3 
trillion of investment in stocks and bonds which was recorded 
as officially going to tax havens like the Cayman Islands and 
the British Virgin Islands was actually going to Chinese firms.
    Closer to home, our official statistics report that our 
third- and fourth-largest portfolio investors are the Cayman 
Islands and Luxembourg. This means that we really don't even 
know who our ultimate creditors are.
    The problem is even worse around the world, where 
investment statistics lag behind what we have in the United 
States. The international financial institutions can play an 
unique role in coordinating global efforts to look through tax 
havens and uncover the true pattern of global capital 
allocation. Knowing who owns what will allow the world to 
resolve future debt crises more effectively and efficiently.
    Thank you very much for the opportunity, and I look forward 
to your questions.
    [The prepared statement of Dr. Schreger can be found on 
page 61 of the appendix.]
    Chairman Luetkemeyer. Thank you, Dr. Schreger.
    Mr. Rosen, you are now recognized for 5 minutes.

STATEMENT OF MARK ROSEN, PARTNER, ADVECTION GROWTH CAPITAL, AND 
 FORMER ACTING UNITED STATES EXECUTIVE DIRECTOR, INTERNATIONAL 
                      MONETARY FUND (IMF)

    Mr. Rosen. Good morning, Chairman Luetkemeyer, Ranking 
Member Beatty, and members of the subcommittee. Thank you for 
inviting me to speak with you today.
    I am here to testify on matters relating to the IMF, where 
I served as acting United States executive director between 
2019 and 2021. Prior to being nominated by President Trump as 
his representative to the IMF, I was an investment banker for 
nearly 4 decades, most recently as head of Latin American 
investment banking, and later chairman, of that division at 
Bank of America.
    First, a quick summary of the IMF's core mission. The IMF 
is the global lender of last resort to countries that are in 
economic distress. IMF borrowers usually have a balance of 
payments problem, a running out of foreign exchange reserves, 
and so cannot meet their obligations.
    The IMF negotiates a set of economic policies with the 
borrowing government to alleviate the crisis and, conditional 
on the government implementing the agreed-upon policies, 
provides a loan in tranches, normally over a 3-year period. 
Along with providing capacity development to countries and 
monitoring their economic performance, these are the key 
functions of the IMF.
    I would strongly recommend that this committee press the 
IMF to stick to these core functions and not to move into 
ancillary areas such as development lending or climate change 
lending or policies which have long-time horizons far beyond 
the crisis focus of the IMF. It is up to the development banks 
and, most importantly, the private sector to invest in these 
longer-term issues and challenges, not the IMF.
    Second, the biggest challenge that the IMF faces today is 
China, which, as we have heard, has loaned vast sums to 
emerging-market and low-income countries in a non-transparent 
and irresponsible manner.
    Many IMF members are now struggling to repay China. The 
Paris Club countries, of which the U.S. is a member, acts 
responsibly in providing debt relief to these countries. But 
China has refused to join the Paris Club and, as we have heard 
earlier, has on numerous occasions also blocked or delayed debt 
restructurings among its debtors.
    The U.S. and its allies need to continue to call out China 
and insist that it provide debt relief to these poorest 
countries in the same way the U.S. and other members of the 
Paris Club agree to do so. And a stronger application of the 
IMF's lending into arrears policies in cases where China 
refuses to operate could be helpful in this regard.
    Another issue facing the IMF is the question of its 
ownership or quota. The United States is the largest 
shareholder in the IMF, and has veto power over certain key 
decisions, and it is critical that the U.S. continue to 
maintain its ownership of more than 15 percent, which enables 
it to have this veto power.
    China, for some time, has been pressing for an increased 
quota share at the IMF. However, given its irresponsible 
lending and unwillingness to provide debt relief to developing 
countries, this is not the time to reward China with increased 
ownership of the IMF.
    Two other issues that I would like to focus on are 
anticorruption and the catalytic role of the private sector in 
the work of the IMF. Corruption is a severe problem for many 
emerging-market countries, which do not have strong 
institutions that can confront and root out corruption.
    The IMF is certainly doing a much better job than it did 
historically on anticorruption, but I believe it is critical 
that it continues to make anticorruption laws and policies 
front and center in the conditions of its lending programs, as 
well as a focus of its technical assistance.
    Only by reducing corruption will many of these countries be 
able to attract the vast amount of private-sector investment 
which is potentially available and remains the ultimate key to 
reducing poverty.
    Establishing a rule of law, including laws to protect 
private property, is key to unlocking this investment, and it 
should be a focus of the IMF and the World Bank to encourage 
these countries to improve the rule of law and to fight 
corruption. If they do that, emerging-market countries can 
attract private capital and grow rapidly, as many countries 
that have followed that path have already done successfully.
    In conclusion, Mr. Chairman, my recommendations to this 
committee are for the IMF to stick to its core mandate and not 
stray into areas which require long-term solutions where other 
institutions are better suited to tackling these challenges; 
for the U.S. to retain its veto at the Fund; for the IMF and 
its member countries, led by the U.S., to insist that China 
provides debt relief to poor countries where it has 
overburdened them with irresponsible lending; and that the IMF 
makes anticorruption and the catalytic role of the private 
sector in growth key parts of its conditionality in lending and 
technical assistance.
    Thank you, Mr. Chairman. I look forward to any questions 
the committee may have.
    [The prepared statement of Mr. Rosen can be found on page 
48 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Rosen.
    Mr. Runde, you are now recognized for 5 minutes.

STATEMENT OF DANIEL F. RUNDE, SENIOR VICE PRESIDENT, CENTER FOR 
            STRATEGIC & INTERNATIONAL STUDIES (CSIS)

    Mr. Runde. Chairman Luetkemeyer, Ranking Member Beatty, and 
distinguished members of the subcommittee, thank you.
    My main message is this: In this era of great power 
competition, if we do not meet the hopes and aspirations of 
developing countries, they are going to take their business to 
Russia, China, and others.
    We can't fight something with nothing. Multilateral 
Development Banks (MDBs), under U.S. and Western leadership are 
one way that we can respond with something. The United States 
built and strengthened the MDB system. MDBs provide money, 
advice, and data, and convene power to help developing 
countries solve problems.
    If the U.S. exerts its influence over these institutions, 
they are force multipliers of a U.S.-led global system. If we 
disregard our leadership role, then other actors, including 
China, can exert influence over them.
    The World Bank Group is a series of institutions. It lends 
money to national governments. It has a private-sector arm. It 
has an insurance arm.
    There are a series of other regional development banks, 
including the Inter-American Development Bank; the Asian 
Development Bank--Taiwan is a member of the Asian Development 
Bank--; the African Development Bank; and the European Bank for 
Reconstruction and Development (EBRD), focused mainly on 
countries that used to be behind the Iron Curtain.
    The United States has been instrumental in creating the 
majority of these institutions and remains the largest or one 
of the largest shareholders of every aforementioned MDB. Since 
the founding of these institutions, the U.S. has used its 
shareholding power to shape the policies and activities of MDBs 
in indirect support of American foreign policy. The United 
States Executive and Legislative Branches share control and 
responsibility for the United States policy towards the MDBs.
    There has been some talk about potential capital increases 
for some regional development banks. A capital increase is when 
an MDB increases the amount that it can lend through an 
increase in the bank's capital through one-time additional 
contributions from the U.S. and other shareholders. Congress 
has a voice and a vote in capital increases.
    The IDB and the EBRD may need capital increases. I am in 
favor of that under certain circumstances. In the case of the 
EBRD, the Congress should only consider a capital increase if 
the EBRD agrees to use all additional moneys generated to help 
finance the reconstruction of Ukraine.
    How should we think about these institutions in the context 
of emerging market debt crises? The MDBs play a number of 
roles: they are a convener; they are a data collector; and they 
have a role to play in terms of any future debt deals.
    China is now a big part of the emerging markets debt 
problem. What role does China play in the MDBs? They are a 
shareholder. China continues to borrow from the World Bank and 
the Asian Development Bank. That is crazy. It needs to stop.
    China, as a shareholder, also has--Chinese firms can bid on 
MDB projects. China wins a lot of--in terms of dollar value, a 
lot of the dollar value of World Bank contracts, something to 
take a look at.
    How does the Belt and Road Initiative (BRI) figure into the 
MDBs? Infrastructure is now a strategic issue. China's Belt and 
Road Initiative is a combination of construction and financing 
projects for roads, airports, and energy around the world.
    Unfortunately for us, BRI is an ambitious project that 
speaks to the hopes of China's friends and potential friends. 
To counter the BRI, the U.S. needs a positive alternative that 
says more than, ``Don't work with China,'' right? That is not a 
strategy. We have to have an alternative.
    What is the role of MDBs as stewards of environmental 
protection? Under the Paris Agreement of 2015, each signatory 
had to file a national climate action plan. If these plans 
include oil and gas infrastructure, then the MDBs should 
support oil and gas infrastructure. MDBs also need to do more 
in mining and minerals. To achieve a carbon transition, we are 
going to have to produce 40 times the amount of cobalt and 
lithium.
    MDBs would rather have a root canal than work on mining and 
minerals. They would rather not deal with it.
    If the Administration comes to Congress for a capital 
increase for the MDBs, Congress should condition new capital 
increases on the revision to U.S. policy opposing support for 
oil and gas projects.
    I have several recommendations.
    First, the U.S. needs to ensure these institutions remain a 
force multiplier of a Western form of development.
    Second, mobilizing private investment should be a central 
focus of the MDBs.
    Third, MDBs should largely respond to client-driven 
demands.
    Fourth, the World Bank needs a much closer alignment with 
regional development banks.
    Fifth, these institutions need a more-credible graduation 
policy for middle-income countries.
    And, finally, any future capital increase for regional 
development banks should consider Taiwan joining as an economy.
    [The prepared statement of Mr. Runde can be found on page 
51 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Runde.
    Mr. Powell, you are now recognized for 5 minutes.

   STATEMENT OF RICHARD J. POWELL, CHIEF EXECUTIVE OFFICER, 
                        CLEARPATH, INC.

    Mr. Powell. Good morning, Chairman Luetkemeyer, Ranking 
Members Beatty and Waters, and members of the committee.
    I lead ClearPath. We advance policies that reduce and 
remove global energy emissions.
    When I last spoke with this committee in 2019, the world's 
energy and climate landscape looked very different. Since then, 
COVID disruptions, Russia's savage invasion of Ukraine, growing 
tensions with China, unprecedented energy investments, and 
waves of extreme weather have shown that the dual challenge we 
face is ever more urgent. The world needs more energy, and 
emissions know no borders.
    This committee can ensure financing to the developing world 
for clean technologies, like advanced nuclear, particularly 
through the IFIs.
    I will cover four topics today. First, the importance of 
nuclear energy and the latest American innovations. Second, our 
global competitors, particularly China and Russia. Third, the 
potential and challenges for IFIs in nuclear projects. And, 
fourth, the importance of a parallel U.S. Ex-Im Bank and U.S. 
International Development Finance Corporation (DFC) strategy 
for nuclear exports.
    An increase in demand for reliable, clean electricity has 
U.S. utilities calling for doubling our nuclear fleet by 2050. 
Military, Big Tech, and heavy industrial users are exploring a 
variety of advanced designs. There are 15 reactor concepts 
applying to the U.S. Nuclear Regulatory Commission. And, today, 
at least eight U.S.-based companies have publicly announced 
international partnerships to explore deployment in more than 
10 countries. These partnerships could last a century, from 
construction through decommissioning.
    That said, the U.S. has lost market leadership to intense 
global competition for nuclear projects. In the last 5 years, 
Russian and Chinese state-owned firms captured 87 percent of 
all new construction starts globally.
    Today, China is building more than anyone, with 55 operable 
reactors, 23 under construction, dozens more in the pipeline, 
and a policy to go global through the Belt and Road Initiative.
    And it is not just the reactors. The U.S. is also 
vulnerable in nuclear fuel. By 2030, China and Russia could 
control 63 percent of global uranium enrichment capacity.
    There is more. From 2016 to 2021, China provided more 
energy project financing globally than all major Multilateral 
Development Banks combined.
    Rapidly-developing countries are looking for reliable, low-
emissions power, but mainly, they are going with what is cheap. 
IFIs can and should play a bigger role in providing an 
alternative, yet institutions like the World Bank have been 
slow to respond to the needs of these countries, and even have 
a self-imposed ban on supporting nuclear projects, having not 
supported a single nuclear project in the past 60 years.
    As two of ClearPath's advisers noted in a recent foreign 
affairs piece, an Egyptian presidential adviser told us and a 
group of U.S. Republican lawmakers at the 27th Conference of 
the Parties (COP27) last year that countries like hers want 
dependable energy and supportive financing. They would welcome 
U.S. investments, but we haven't been showing up to meet that 
demand. That is why Egypt instead took a loan from Rosatom in 
Russia for its new nuclear plant and is now locked into that 
relationship for the foreseeable future.
    Chairman McHenry's International Nuclear Energy Financing 
Act would direct leadership at the World Bank and U.S. 
representatives at other IFIs to push for nuclear projects. 
Even if the Bank and other IFIs remove their ban on nuclear 
financing tomorrow, it is not guaranteed that we would see more 
U.S. nuclear projects abroad.
    For instance, a recent study by the GAO found that Chinese-
based companies received one-third of World Bank-funded 
international contracts over the past decade. Still, China 
remains eligible to borrow from the Bank for its own 
development programs.
    Russia also remains the eighth largest shareholder for one 
of the Bank's key lending facilities. As we consider pressing 
the Bank and other IFIs to be more proactive on clean energy, 
particularly nuclear, we need to improve America's own export 
financing.
    One example: Our recent successes in Poland. The Trump 
Administration began these negotiations, and, in 2022, this 
Administration proposed a financing package. Poland chose 
Westinghouse's AP1000 in a deal worth roughly $40 billion.
    This year, Ex-Im and the DFC also signed an agreement to 
finance up to $4 billion for another Polish project that could 
support the U.S. export of GE Hitachi's SMR. A similar 
expression of interest for financing Romania's adoption of 
NuScale's advanced nuclear reactors was put forward at this 
past weekend's G7 leaders meeting.
    Unfortunately, this type of coordinated effort across U.S. 
Federal agencies is the exception, not the rule.
    Representatives Donalds and Clyburn have introduced their 
International Nuclear Energy Act to enhance our competitiveness 
via a comprehensive civil nuclear export strategy.
    If we better leverage existing tools, and enact these new 
policies, our all-of-the-above clean energy strategy will 
reduce global emissions. If the World Bank and other IFIs 
reassess their nuclear energy policies rather than simply 
defaulting to, ``no,'' we will be on a clear path.
    Thank you, again, for the opportunity to testify. We are 
eager to assist the committee in ensuring that the U.S. regains 
its leadership in international clean energy.
    [The prepared statement of Mr. Powell can be found on page 
36 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Powell.
    And Dr. Sembene, you are recognized for 5 minutes.

STATEMENT OF DAOUDA SEMBENE, DISTINGUISHED NONRESIDENT FELLOW, 
   CENTER FOR GLOBAL DEVELOPMENT (CGD), AND CHIEF EXECUTIVE 
            OFFICER, AFRICATALYST GLOBAL DEVELOPMENT

    Mr. Sembene. Thank you very much, Mr. Chairman.
    Good morning, Chairman Luetkemeyer, Ranking Member Beatty, 
and distinguished members of the Financial Services Committee's 
Subcommittee on National Security, Illicit Finance, and 
International Financial Institutions.
    I thank you for inviting me today to testify at this 
hearing on, ``International Financial Institutions in an Era of 
Great Power Competition.''
    Before I begin my testimony, Mr. Chairman, allow me to pay 
tribute to the memory of music legend Tina Turner. We in Africa 
mourn her loss, together with America.
    My name is Daouda Sembene, and I am a distinguished 
nonresident fellow at the Center for Global Development, and 
the founder and CEO of AfriCatalyst, a global development 
advisory based in Dakar, Senegal.
    I am also a former executive director of the International 
Monetary Fund, where I represented 23 African countries on 
their executive board. And, during my tenure, I chaired the 
statutory IMF Executive Board Committee, which is responsible 
for strengthening collaboration between the IMF and other 
multilateral organizations, most notably the World Bank, the 
United Nations, and the World Trade Organization.
    Today, I would like to focus my testimony on the potential 
implication of the relationship between the United States and 
China at the World Bank and the International Monetary Fund.
    In addition to my written testimony, here are the key 
messages I would like to convey.
    First, I agree that the United States should constructively 
engage with major shareholders of the World Bank and the IMF 
and other IFIs, including China. This is important to enhance 
the ability of the these multilateral organizations to help 
formulate and advance an ambitious shared agenda for supporting 
demands from their members and the global community.
    Second, when playing out within IFIs, great power 
competition runs the risk of undermining the performance and 
effectiveness of these institutions, including by weakening 
their governance framework, complicating the consensual 
identification of their priorities, and reducing their resource 
mobilization potential.
    Therefore, I believe that the U.S. policy on IFIs may have 
significant negative implications for these institutions, the 
world community, and the developing world, if shaped by a non-
cooperative stance with China.
    Third, there is a strong case, in my opinion, for the 
United States to use its leverage and influence to enlist IFIs 
in implementing U.S.-led infrastructure development 
initiatives. This is in the best interests of both the United 
States and its African partners.
    Closing the infrastructure gap is critical to fostering 
growth, reducing poverty, and enhancing the delivery of social 
services in Africa, but it may also be quite effective at 
advancing U.S. foreign policy objectives, creating 
opportunities for U.S. private businesses, and strengthening 
economic and commercial engagement with the continent.
    Finally, I will conclude by emphasizing the unique 
responsibility of the United States for ensuring that 
Multilateral Development Banks such as the World Bank are 
adequately endowed with necessary resources to fulfill their 
mandate. This includes providing timely and adequate funding to 
IFIs and contributing to capital increases.
    In this connection, I certainly agree with Ranking Member 
Beatty on the need for significant U.S. funding to IFIs. I also 
believe that capital increases for MDBs should be motivated by 
efficiency considerations and the need to optimize their 
ability to meet demands from countries and the international 
community.
    Thank you for your attention, Mr. Chairman.
    [The prepared statement of Dr. Sembene can be found on page 
69 of the appendix.]
    Chairman Luetkemeyer. Thank you, Dr. Sembene.
    This is a fascinating discussion. Thank you all for being 
here this morning. Excellent testimony.
    With that, we will turn to Member questions, and I will 
recognize myself for 5 minutes.
    In my opening statement, I referred to the GAO report which 
was issued earlier this month, and it reveals staggering 
inequity in the values of contracts that the World Bank has 
awarded. All of you, or most of you have referenced that report 
this morning with what you have been telling us. And despite 
the U.S. being the largest shareholder and contributing member 
to the World Bank, U.S. businesses saw a measly 2.4 percent of 
overall contract awards, while Chinese companies were awarded 
over 92 percent of all contracts.
    It is very disconcerting to see some of this money going to 
Chinese companies that are on our U.S. entity list or sanctions 
list, because they pose a significant risk to our national 
security, but there is also the discussion about whether they 
give the quality of construction, and where the dollars are 
actually going, that are of concern as well.
    So, any of you who would like to take this question, where 
do you see this going? How do we keep our funds going from 
these international financing organizations to the Chinese to 
then be able to go out and loan the money at a higher rate of 
interest to other developing countries when they really don't 
even qualify for some of these dollars themselves? I know 
several of you started to talk about this.
    Dr. Schreger, do you want to start out the discussion on 
this?
    Mr. Schreger. Sure. Thank you very much for the question.
    In my view, the most important part of allocating contracts 
is to go to the most-efficient producer because, fundamentally, 
the challenge with Multilateral Development Bank lending 
regarding procurement is, if a project is produced over budget 
or inefficiently, it becomes harder and harder for the 
recipient country to return the funds.
    I can't speak specifically to the procurement process that 
led to selecting China or the United States, but, 
fundamentally, allocating projects the most-efficient 
contractors is an important part of fostering the repayment 
ability and the efficiency of many of the MDB projects.
    Chairman Luetkemeyer. Mr. Runde?
    Mr. Runde. Thank you, sir.
    I think one issue is, there has been a change in moving 
away from the concept of a low bid to concept of quality and 
lifecycle cost. I think that is something we want to have 
across the developing world.
    Chairman Luetkemeyer. You say there is a movement to do 
that?
    Mr. Runde. There has been a shift. The World Bank Group is 
sort of the standard-maker in developing countries in terms of 
how countries buy things. And, historically, the standard 
playbook was by low bid. In the last several years, there has 
been a movement to attempt to move to quality and lifecycle 
costs, and the World Bank changed the rules to allow that as a 
concept.
    We ought to be investing in training procurement officials 
in developing countries to have the concept of quality and 
lifecycle cost as an approach to buying things. I know this 
seems a little bit obscure, but it is a really important issue.
    I think the other thing for us is, as the United States, we 
need to show up in a lot of developing countries, and 
sometimes--I am not excusing the fact that China is winning all 
of these contracts, but it may also be a function of, we need 
to encourage American business to go abroad in different ways, 
whether through foreign and commercial service, or we can do 
certain things through the executive director's office at these 
regional development banks to encourage American businesses to 
look at opportunities through the MDBs.
    Chairman Luetkemeyer. Mr. Powell, please follow up on that.
    It is concerning to me, because a lot of the money going to 
these Chinese companies--they are nothing but shell companies. 
I serve on the China Select Committee, and we had a whole bunch 
of them--over 1,000 of them on the exchange for a while. We put 
some qualifications in place, and suddenly, a bunch of them 
dropped off. It is down to around 257 now.
    So basically, they were shell companies that allowed the 
money to flow through them to the Chinese Communist Party 
(CCP). These companies that are getting access to these dollars 
at the World Bank, are they the shell companies, or are they 
for-real companies that are there in China? Or are they just 
another extension of the Chinese Communist Party?
    Mr. Powell. I will say at the top, we just need to get a 
lot tighter on the requirements around these bids, both to Dr. 
Schreger's point that there is much more transparency about who 
actually is bidding into this, and how the financial flows are 
going.
    We also need to be much clearer about whether, by 
frequently going with the lowest bid--we are always 
preferential to heavily-subsidized bids, right? We shouldn't be 
looking to always go with things that are then heavily-
subsidized by Chinese state-owned enterprises.
    The one other thing I would note is, in the instances where 
we do compete in these bids, we have a great track record of 
winning. American companies have a great track record of 
winning. But some of the areas where we are most competitive--I 
will just go back to our energy exports, our advanced nuclear 
technologies, or our clean fossil technologies. Those are just 
off the table at the Bank and many of the other IFIs. And so, 
we are effectively saying we can't compete for many of the most 
interesting things.
    Chairman Luetkemeyer. Thank you, Mr. Powell.
    With that, I will recognize the ranking member of the 
subcommittee, Mrs. Beatty from Ohio, for 5 minutes. Thank you.
    Mrs. Beatty. Thank you, Mr. Chairman.
    And to the witnesses, thank you for bringing your expert 
information to us.
    All of you have basically mentioned how the United States 
needs to strengthen our role or how we should try to maintain 
and not let others like China have a larger percentage of 
interest with IFIs.
    Also, I want to thank you, Dr. Sembene, for recognizing and 
saying that we need to strengthen social services and how 
important our infrastructure is--I agree with you--as we look 
internationally, the same as we are trying to do here in the 
United States, because infrastructure plays a major role in 
what we are discussing today.
    Let me start with you, Dr. Sembene. And I would like to 
start with the implications of the United States defaulting on 
its debt. I have a difficult time trying to separate where we 
are now and what we should be doing. We know that such a 
disaster would have catastrophic consequences on the U.S. 
economy, which would spread throughout our global financial 
system.
    Is there any advice you can give us on how a default would 
affect other countries around the world and the international 
financial institutions' abilities to help countries in need?
    Mr. Sembene. Thank you very much for your question, Ranking 
Member Beatty.
    I do fully agree with you that the potential debt default 
of the U.S. would have dramatic consequences not only for the 
U.S., but certainly also for many developing countries.
    As far as I know, for African countries that are borrowing 
from the markets, such an event might actually worsen the 
difficult tightening of financial conditions that they are 
facing right now, which would actually contribute to sort of 
actually undermining their access to markets, but, most 
importantly, also increasing debt servicing, which is already a 
problem in many countries that are facing high levels of debt. 
That is for one.
    I think another issue also is that event would, according 
to the IMF, actually have major consequences on the stability 
of the international financial system. If that was to ever 
happen, I think that would be actually quite catastrophic for 
not only the global economy in general, but economies in 
emerging markets in developing countries.
    And certainly, this is something that might end up actually 
having a lot of consequences, including not only on the 
weakening growth prospects but also having an impact on 
poverty, having an impact on the ability of international 
financial institutions to support those countries, and I 
believe that would not necessarily be the ideal situation.
    Thank you.
    Mrs. Beatty. Thank you so much.
    Mr. Powell, all of you all have talked about the value of 
our stability in different ways and the impact that the United 
States should have on staying strong and fighting against 
China.
    Can you comment on the impact of a United States' debt 
default on great power competition, particularly focused on the 
United States' ability to compete with China on the global 
stage and preserve its current standing in the global economy?
    Mr. Powell. Obviously, the United States should not default 
on its debt obligations. There has to be a short-term strategy 
and a long-term strategy for that, which also needs to bring 
our spending into long-term, much more sustainable alignment so 
that this does not remain a perennial issue.
    Mrs. Beatty. Thank you. And I certainly agree that we 
should not be held hostage and have a ransom note of being able 
to turn our backs on those who also need our assistance.
    Let me move on and say, first, thank you to Dr. Sembene for 
also recognizing the great talent of Tina Turner. That is very 
much appreciated, and I know, in many countries in Africa, what 
she meant to all of us.
    I'm probably not going to have time to have you answer this 
question, but being very impressed with your work and what you 
have done with the IFI, I also have an interest in some of our 
close countries, like the Caribbean, after being at CARICOM 
with then-Chair Waters. We heard a lot about those lower-income 
countries, and I will follow up offline with you, because my 
time is up.
    I yield back.
    Chairman Luetkemeyer. The gentlelady yields back.
    They have called votes. We do have a stream here of where 
we are with our votes. We are going to try and get at least two 
more people in, Mr. Barr and Ms. Waters, before we adjourn. 
And, if they are a little slow getting to the Floor, we may get 
in another one, but we appreciate your indulgence.
    With that, we recognize the gentleman from Kentucky, Mr. 
Barr.
    Mr. Barr. Thank you. Thank you, Mr. Chairman. Thanks for 
the hearing.
    And thanks for the excellent testimony from our witnesses.
    Let me just quote from Mr. Powell and Mr. Runde, our 
excellent witnesses here. ``Since 2000, China has become a 
dominant power in global energy finance, issuing more than 234 
billion in loans for energy projects to some 68 strategically 
significant nations. For perspective, from 2016 to 2021, China 
provided more energy project financing around the world than 
all major Western-backed development banks combined.''
    That is stunning.
    What I would like to know is--so the World Bank has this 
green agenda, and they are refusing to fund some of the most-
productive and lowest-cost zero-carbon energy sources like 
nuclear energy or by supporting the mining of critical minerals 
necessary for these so-called green technologies. It seems as 
though, for every World Bank fossil project turned down, China 
comes in with a bilateral loan, including for coal.
    So, Mr. Powell and Mr. Runde, can you touch on how the 
World Bank's green energy policies promote China's reach into 
the energy space?
    Mr. Powell. I will go quickly, just to reiterate a few 
points on this.
    First, by the World Bank and IFIs effectively refusing to 
finance both nuclear projects and clean fossil projects, like 
import of Liquefied Natural Gas (LNG) technology or carbon 
capture technologies in places like South Africa that could 
desperately use them, we are opening a huge window to Chinese 
competition and, frankly, to Russian competition, particularly 
in the nuclear space as well, and we are holding back the 
export of U.S. clean technologies.
    And I will totally reiterate Mr. Runde's point about 
critical minerals being an urgent priority as well and very 
much off the table for many of these institutions.
    Mr. Runde. Thank you, Mr. Barr.
    I think the MDBs should have an all-of-the-above energy 
policy. I disagree with the Biden Administration on holding 
back on supporting oil and gas projects. I think it is a 
mistake.
    Unfortunately, even when the Trump Administration pushed 
for supporting oil and gas projects, the Europeans would vote 
against us at the board at the MDBs. So, we are going to need 
to create a new coalition to support a diversification of 
energy.
    It is hypocritical of us, when we have oil and gas and coal 
in this country, and then we turn around and tell developing 
countries they can't develop their own energy sources.
    Mr. Barr. And we are playing right into China's strategy.
    Mr. Runde. Absolutely.
    Mr. Barr. So, we have to use all of our influence to alter 
these policies at these international financial institutions.
    How do we end China's eligibility to borrow from the World 
Bank?
    Mr. Runde. The Asian Development Bank has said they are 
going to end their eligibility by 2025. We should absolutely 
hold them to that.
    There is a temptation for the World Bank and the Asian 
Development Bank to continue to loan for a couple of reasons. 
One is they say, well, this is a window into how we can 
understand China better--there are lots of other ways to 
understand China better--and/or, this is a way for us to--for a 
bunch of lending reasons that they do it.
    You all have the power of the purse. You have the ability, 
and I think you should have blunt conversations with the 
Administration about this. I suspect it is an open door, but it 
is going to require, I think, some pushing from Congress. I 
would encourage this committee to push the Administration on 
ending lending to China.
    Mr. Barr. We need to do that.
    I don't know which witness is the right person to answer 
this question, but jump in, whomever.
    The U.S. dollar remains the dominant reserve currency, with 
about half of all international trade invoiced in U.S. dollars, 
half of all international loans, and global debt securities 
denominated in dollars. At the end of 2022, the dollar 
accounted for 58 percent of all allocated reserves globally.
    But we hear a whole lot about China's pursuit of a digital 
yuan. We hear a lot about the rise of crypto. We hear a lot 
about BRICS, a new potential multilateral currency developing. 
We hear about the Saudi deal with China denominated in the sale 
of oil in the yuan.
    Can someone talk about the threat to the dollar's reserve 
currency status?
    Mr. Schreger. Sure. I am happy to start on this.
    Fundamentally, right now, the renminbi is not yet 
positioned to compete with the U.S. dollar for a number of 
reasons. First and foremost, the reason that the dollar plays 
the role it does in the international financial system is it 
provides the global safe asset. You are confident, except for 
the upcoming debt ceiling, that you will always be paid back if 
you own U.S. dollars. That is fundamentally what you know.
    When you contemplate investing in China and holding Chinese 
renminbi as reserves, you are not necessarily sure that you are 
going to be able to turn that piece of paper into the goods and 
services that you need or intervening in FX markets.
    Chairman Luetkemeyer. This is a fascinating discussion. I 
hope that another Member will ask a follow-up question on that. 
And, Mr. Rosen, you will have a chance at that point to make a 
comment, okay? We need to continue on.
    The gentleman yields back.
    I now recognize the ranking member of the full Financial 
Services Committee, Ms. Waters from California, for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I will direct this question to Mr. Sembene. You were 
previously executive director at the IMF, representing 23 
countries in Africa, so you are keenly aware of how China has 
been making significant investments into the infrastructure of 
several countries in Africa. And of course, they have been 
doing this in the Caribbean.
    But I would like you to continue to elaborate on the 
growing presence in Africa. It is profound. Could you help us 
to understand what is going on in these countries?
    Mr. Sembene. Thank you very much, Congresswoman.
    On this issue, I would fully agree with what Mr. Daniel 
Runde stated that at some point, if the U.S. doesn't meet the 
hopes and aspirations for developing countries, they will 
certainly look for alternatives, an alternative not only 
provided by China, of course--they actually have great ones--
but they also are provided by the private sector.
    And what is happening is, unfortunately, they have to do 
that, and then, I guess, face a very expensive cost in the 
sense that commercial going is very, very high.
    So what, in my sense, China has been doing is to respond to 
a critical need from Africa, which is the need for developing 
infrastructure. Infrastructure is found to be extremely 
important for first doing economic growth. It is extremely 
important for also improving the daily lives of the African 
people, whether we are talking about energy infrastructure or 
water or airports. All of that is critical, and Africa needs 
that.
    Unfortunately, they could not get those infrastructure 
loans from IFIs, or, actually, a retail outfit, so of course 
they had to go and look for other alternatives. And China has 
provided that opportunity for many African countries.
    Ms. Waters. Would you agree that our presence in Africa is 
less now than it was some years ago, when we had Andrew Young 
as our Ambassador to Africa? Do you agree that we don't have 
much of a presence there anymore?
    Mr. Sembene. I would not say that you don't have a presence 
there, because I am not going to comment on the diplomatic 
side. But on the economic front, what I can tell you is of 
course, countries like China have been actually gaining a lot 
of influence in Africa because, as I said earlier, there was a 
void, a gap to be closed, and they actually jumped on it.
    And now, of course, the U.S., in my opinion, has been 
leading some very important infrastructure development 
initiatives. We are just hoping that they are going to deliver 
on those initiatives. If they do, I believe there is room for 
the U.S. to gain more from the African side.
    Ms. Waters. Thank you. I would like to say a word about the 
Caribbean. The Chinese are absolutely taking over the entire 
Caribbean.
    I know a little something about it. Mrs. Beatty just 
mentioned that we were there not too long ago. And my husband 
served as Ambassador to the Commonwealth of the Bahamas. Let me 
tell you, I just put together a few things that we have paid 
attention to. Over a dozen years, they paid $30 million for a 
stadium, $3 billion for a port, $40 million for another port, 
$54 million for a highway, $3 billion for a hotel, and another 
$250 million for another hotel. The whole footprint has changed 
in the Bahamas.
    Now, I want you to know that they have some needs. They 
have these hurricanes. And, each year, they are trying to pay 
to restore their infrastructure, and so they get way behind.
    In 2019, in the Grand Bahamas, they lost their only 
hospital, and they are trying to build a hospital. We are not 
paying attention. The Chinese said, ``We will build it for 
you.''
    And, when we were there, they were making a plea to us, 
``We don't want to be indebted because we are already indebted. 
Can't you help us?''
    I am so pleased for this panel today, because you are 
absolutely identifying the growing strength of China and its 
influence. And those people who love us and want to be friends 
with us, are losing the ability to do it because we are not 
paying attention.
    So, I thank this panel very much for what you are sharing 
today, because these Multilateral Development Banks must be 
supported so that we can use our influence and keep our friends 
by helping them out and dissuade them from taking all of this 
from China because they will be indebted forever.
    I yield back.
    Chairman Luetkemeyer. The gentlelady yields back.
    As you see over here on the left, there is a screen that 
tells you where the votes are; the magic number is 100. So, it 
looks like we have about 5 minutes to go with one more 
questioner. That would be Mr. Williams from Texas. After that, 
we will probably take a short recess.
    Mr. Williams from Texas, you are recognized for 5 minutes.
    Mr. Williams of Texas. Thank you, Mr. Chairman.
    And thank you all for being here today.
    I want to follow up a little bit on what my colleague, 
Congressman Barr, was asking, Mr. Schreger, what is China doing 
to undermine the dollar's dominance as the world's reserve 
currency? And what should we in Congress and the Administration 
do to combat it?
    Mr. Schreger. Thank you for the question.
    First and foremost, what China is trying to do is 
essentially convince countries around the world that the 
renminbi is an alternative asset to invoice your trade and to 
invest in. And so, on the investment side, they have been 
working very hard to actually allow in foreign capital, so 
encouraging foreign central banks to hold renminbi-denominated 
bonds as their reserves. And, on the trade side, they are 
encouraging firms to invoice, basically price their goods, in 
renminbi.
    There are a few areas in which they have had challenges 
there. First, we actually don't know who is holding most of 
these renminbi-denominated assets. What you can see is, after 
the U.S. sanctioned Russia back in 2014, it was the Russian 
central bank that effectively announced they were moving out of 
U.S.-dollar-denominated assets and into renminbi. They did that 
publicly.
    And China has effectively been trying to attract foreign 
capital of that form, and a lot of the reasons for that is that 
China finds itself vulnerable in the dollar-based financial 
system.
    What I would say is the fundamental area in which the 
United States can assure the dominance of the dollar is making 
everyone understand that U.S. Treasuries are the world's safe 
asset, that there is no state of the world in which the United 
States can or will default.
    Mr. Williams of Texas. It all gets down to selling, doesn't 
it?
    Mr. Schreger. I'm sorry?
    Mr. Williams of Texas. Well, just promoting yourself. I am 
talking about, we need to our job to make sure the world 
understands that we--
    Mr. Schreger. I would say so.
    Mr. Williams of Texas. Right.
    Next, I would like to ask, global interest rates have risen 
at the fastest pace in decades in response to high inflation. 
As rates rise and the global economy slows, countries with poor 
creditworthiness face significant debt distress. And China has 
been unwilling to work with the IMF to restructure debts owed 
to them because of their desire to protect their country's 
credit rating, meaning that these emerging-market economies are 
in serious jeopardy.
    So, because the IMF has not been able to rein in China and 
their abusive lending practices, the Chinese have increased 
their own emergency lending and they pose a great threat to the 
world economy.
    Mr. Rosen, how could the IMF address the pressure from 
rising interest rates? And how can the U.S. and the IMF better 
hold China accountable?
    Mr. Rosen. Thank you, Congressman. I think that is an 
important question.
    China is basically holding up the business of the IMF right 
now by not permitting these debt restructurings. They are 
basically--sometimes, they indicate they will agree to the debt 
restructuring. When you get into the details, they refuse to do 
so, as they have done in the case of Zambia.
    And then, they ask the IMF and the World Bank to take 
write-offs, which the multilateral institutions have never 
done. And it is completely wrong for China to ask these 
institutions to do so, because they are already providing 
concessional lending--lending at much lower interest rates than 
market rates.
    So, it would be completely undermining and threatening the 
future of these institutions if they were to take debt write-
offs. And I think the Chinese understand that, but they 
continue to push for it.
    I think what we need to consider is, first of all, we need 
to put enormous pressure on China, with our European allies and 
others, all of our allies, to agree to debt restructuring.
    But if they refuse to do so, then we need to look at a 
policy that the IMF does have in its toolkit which is called 
the, ``lending into arrears,'' policy, which I referred to 
earlier, which basically means that we go ahead and the IMF 
agrees to lend to a country in debt distress on the condition 
that it does not repay China with any debt or lending they get.
    Now, that is not a perfect solution, because, 
unfortunately, in the case of Suriname last year, my 
understanding is that we agreed to that--that Suriname agreed 
not to pay China--but they went ahead and, by mistake, 
apparently, did pay China, twice.
    So, we need to work on mechanisms to prevent these 
countries, if they agree to it, to not pay China going forward, 
but I think that is one way that we can put more pressure on 
China in these situations.
    Mr. Williams of Texas. Okay.
    I yield back. Thank you very much.
    Chairman Luetkemeyer. The gentleman yields back.
    We are getting close to the number over here. What we are 
going to do is recess. We have two votes. It should take about 
a half-hour, roughly, for us to walk over to the Capitol, cast 
a vote or two, and then come back.
    With that, we will have a short recess.
    [brief recess]
    Chairman Luetkemeyer. I now call the subcommittee back into 
session.
    And, with that, we will begin our questioning.
    I thank all of you, our witnesses, for indulging us in 
conversations both to, from, and on the Floor. You all have 
been very impressive. Lots of folks have really, really enjoyed 
your testimony. So, thank you very much. Keep up the good work.
    And, with that, I now recognize the gentleman from North 
Carolina, Mr. Nickel, for 5 minutes.
    Mr. Nickel. Thank you, Chairman Luetkemeyer.
    And thank you to our witnesses for joining us today.
    Dr. Sembene, Ukrainians have worked tirelessly to repel the 
unprovoked Russian invasion that Vladimir Putin started over a 
year ago. As they continue to fight to keep their country free, 
we need to support them, which is why Congressional Democrats 
passed legislation that directed the U.S. Department of the 
Treasury to use the voice, vote, and influence of the U.S. at 
the IMF, the World Bank, and other relevant MDBs to advocate 
for the immediate suspension of all debt service payments owed 
to these institutions by Ukraine.
    Dr. Sembene, how else can the U.S. best support Ukraine 
during this time, leveraging its role at the World Bank and the 
IMF?
    Mr. Sembene. Thank you very much, Congressman Nickel.
    My sense is, the best way for the United States to support 
Ukraine and other allies is to empower IFIs by giving them the 
necessary resources they need to extend support to those 
countries.
    And I would certainly think that there are at least a 
couple of ways to do it. Whether we are talking about the World 
Bank, it would be for the U.S. to really be ambitious in 
providing financial contribution to that institution, so, in 
turn, it can be actually in a position to support Ukraine, 
African countries, and other developing countries. This is 
critical. If we don't have that, the World Bank would be in 
very serious difficulty to deliver that mandate.
    The second way to do it is for the U.S. to also support 
potential capital increases when they are needed. I am not 
saying it is needed now at the World Bank, but whenever it is 
needed, it is the responsibility of the U.S. to really make 
sure that those capital increases happen. And certainly, that 
would be helpful to Ukraine, and not only to Ukraine, but also 
to other developing countries that this institution is 
supporting.
    Mr. Nickel. Thank you.
    And, Dr. Sembene, again to you, Russia has historically 
exported various goods and commodities to developing countries 
around the world. Ukraine, too, was a contributor to the global 
food supply. Russia is still exporting grain and fertilizer 
worldwide, including grain and fertilizer stolen from Ukraine.
    How might the international financial institutions help 
countries to diversify away from Russian commodities such as 
grain and fertilizer? And what else is needed to support the 
IFIs in these critical endeavors?
    Mr. Sembene. Thank you, Congressman Nickel. I am glad that 
you are asking these questions.
    I think one fundamental way that the U.S. and IFIs can 
really help developing countries in general have the 
opportunity to access grains and other agricultural commodities 
is to really help those countries in their efforts to promote 
agricultural transformations.
    That requires making a lot of investment in this area. And 
the U.S. has announced a partnership on food security with 
Africa last December, on the margins of the Africa-U.S. summit.
    It is very important that the U.S. implement those types of 
partnerships by making sure that they support those countries 
in mobilizing the necessary resources they need to invest in 
agricultural transformation. That would be a very good way to 
provide alternative sources of grain consumption for those 
countries.
    Mr. Nickel. Thank you so much for your answers.
    Mr. Chairman, I yield back.
    Chairman Luetkemeyer. The gentleman yields back.
    We now go to the distinguished gentleman from Georgia, Mr. 
Loudermilk, for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman.
    And thank you all for being here. It is a very interesting 
conversation we are having here.
    Professor Schreger, one of my colleagues earlier asked you 
about the effects of a U.S. default, what effect it would have 
on emerging markets. And I think you answered that 
appropriately. As everybody agrees, it would have a devastating 
effect on the U.S. economy, and it would have an effect in 
other markets as well.
    I just want to say for the record that we are taking that 
very seriously. It is interesting that my colleague from the 
other side of the aisle asked about something that we have 
already taken action on here in the House weeks ago, and we are 
still waiting on the White House and the Senate to actually 
move forward with it, too.
    I just want to mention for the record, that it was 
interesting that that question was asked from the other side, 
when we are actually taking this very seriously.
    But there is another issue that wasn't asked that is sort 
of relative, and I want to get your opinion on it, regarding 
the record-high inflation that we have seen, driven by this 
spending that we have had over the past 3 years.
    How has this record-high inflation affected other 
countries' borrowing costs?
    Mr. Schreger. Sure. Thank you very much for the question.
    The way in which U.S. inflation has primarily affected 
other countries' borrowing costs is actually in the Federal 
Reserve's reaction to it.
    Fundamentally, every country around the world that borrows 
in U.S. dollars is always going to have their bonds priced as a 
spread to the risk-free rate in dollars, which are U.S. 
Treasuries. And so, as the Federal Reserve moved to raise 
interest rates to combat inflation, you can think of countries 
around the world that not only have to pay the U.S. Treasury 
rate, which is going to go up with interest rates, they are 
still going to have to continue to pay that spread above U.S. 
borrowing costs.
    So, as the U.S. moved to combat our own inflation problem, 
it has led countries around the world to also have to pay a 
higher interest rate on U.S. dollars.
    Mr. Loudermilk. Does this create a risk for us that may 
push other markets to, let's say, the Chinese renminbi? Is that 
something that we could be facing, that pushes these emerging 
markets to another lender?
    Mr. Schreger. I think that the challenge there is, most 
countries still--actually, one of the things you see is, other 
countries are very reluctant to denominate their debt in 
Chinese renminbi, primarily because there isn't a large liquid 
investor base that will purchase the bonds.
    So even though, hypothetically, Chinese government bonds 
are going to pay a lower interest rate than U.S. Treasuries, 
Chinese government bonds in renminbi than U.S. Treasuries in 
dollars--there still is not really a large market for 
governments to issue their bonds in renminbi the way that there 
is for U.S. dollars.
    Mr. Loudermilk. Is there a critical point as far as an 
interest rate that would overcome that--in other words, that 
would force them to go?
    Mr. Schreger. In some sense, I think the real way in which 
people start being able to issue and borrow in renminbi is when 
people start thinking in terms of the goods that they need to 
buy and consume are in renminbi.
    Fundamentally, if you issue--most countries around the 
world, if they issue a bond in renminbi, the calculation they 
have to do is then, okay, I am going to take my renminbi and 
convert it into U.S. dollars to buy the thing which I need.
    Mr. Loudermilk. Right. Okay.
    Mr. Schreger. And while actions in the U.S. financial 
system are certainly going to affect other countries' decisions 
to borrow in renminbi, the kind of underlying challenge is in 
Chinese financial markets. And, fundamentally, the lack of 
goods priced and sold in renminbi are going to continue to hold 
back, kind of, a growth of this market for a while.
    And, in particular, the fact that many countries are 
reluctant to try to raise money inside of China's liquid 
onshore capital markets for, effectively, fear of capital 
controls.
    Mr. Loudermilk. Right.
    Mr. Schreger. If you have raised renminbi in China, you 
can't get that out into your projects the way you can if you 
raise money in the U.S. in dollars.
    Mr. Loudermilk. But it would be safe to say that, if the 
Treasury Department were to reverse its path and start lowering 
interest rates, it would reduce any risk of using China over 
the United States?
    Mr. Schreger. I wouldn't recommend that the Federal Reserve 
stop trying to combat inflation in order to think of other 
countries' borrowing costs. I do think there is going to be 
interaction, but I don't have a strong view on that now.
    Mr. Loudermilk. Okay. Thank you.
    With my time quickly running out, I will submit the rest of 
my questions for the record.
    Thank you, Mr. Chairman. I yield back.
    Chairman Luetkemeyer. The gentleman yields back.
    I now recognize the gentlelady from Texas, Ms. De La Cruz, 
for 5 minutes.
    Ms. De La Cruz. Thank you, Chairman Luetkemeyer, for 
holding this hearing today.
    While I appreciate my colleagues' many concerns over 
China's role in international debt challenges that are 
currently faced, and its attempts to reshape the international 
financial system, I want to start my time a little closer to 
home.
    I represent Congressional District 15 in Texas, and that is 
along the U.S.-Mexico border. It includes McAllen, Texas, the 
most-southern tip. It is also over 80-percent Hispanic, one of 
the most-Hispanic districts in the nation. For our community, 
the border presents its own challenges in our everyday life and 
plays a significant role in our life.
    That being said, I would like to talk about the most 
important international financial institution in my district, 
and that would be the North American Development Bank 
(NADBank). NADBank has supported nearly 300 infrastructure 
projects, benefiting nearly 20 million people along the 
southern border, providing basic yet critical services like 
clean water and waste disposal.
    The last time Congress addressed NADBank was in the North 
American Development Bank Improvement Act of 2019, which became 
law as part of the implementation of the United States-Mexico-
Canada Agreement (USMCA).
    Mr. Runde, you have advocated for updates to NADBank's 
mandate, including extending the current project radius limit 
beyond 62 miles. Do you still support extending the range of 
NADBank's operations? And what other steps should Congress take 
to consider enhancing NADBank's work along the U.S.-Mexico 
border?
    Mr. Runde. Congresswoman, thank you for that very important 
question. And I wholeheartedly agree; we have a shared future 
with the Western Hemisphere, and we need to offer a positive 
agenda for our friends to the south of us. And I think that the 
NADBank is an important instrument that could allow us to do 
many of the things that you are talking about.
    I would like to see us expand the range of activity of the 
NADBank to all of Mexico, especially southern Mexico, which is 
the poorest part. And I would like to see it expanded to the 
Northern Triangle of Guatemala, Honduras, and El Salvador, 
where we have a lot of folks who migrate.
    I think the NADBank could do a couple of things for us. I 
also think it ought to expand its activities beyond 
environmental and basic infrastructure improvement. It could be 
an infrastructure finance vehicle for Mexico and Central 
America, including energy.
    And, two things. One is, in the case of Mexico, we want our 
friends and neighbors in Mexico to have expanded options, other 
than options that aren't necessarily the most-constructive 
economic options. Let me put it that way.
    But, also, we want to find ways for people, especially in 
the Northern Triangle, to make lives where they were born and 
where they grew up. And when a country hits $8,000 per capita, 
Congresswoman, people stop migrating. People would rather stay 
where they grew up. They only leave because of, oftentimes, 
either violence or lack of jobs.
    So I think strengthening the NADBank, giving it a larger 
range, and giving it a larger set of activities that it could 
take on could be a really interesting instrument in responding 
to the challenges of migration and in responding to some of the 
challenges related to the violence that we are seeing in 
Mexico.
    Thank you very much.
    Ms. De La Cruz. Similarly, it is my understanding that the 
U.S. Border State Representative on NADBank's board of 
directors is currently vacant. Is that still correct?
    Mr. Runde. I do not know the answer to that.
    If it is vacant, that would be a problem. I think, across 
all of our multilateral institutions, including the NADBank, we 
need to have people minding the store. And it is part of our 
leadership. Part of our leadership is just minding the store 
and making sure that things are going the right way.
    So, if that has not been filled, it needs to be filled, 
Congresswoman.
    Ms. De La Cruz. Thank you.
    And, with that, I yield back.
    Chairman Luetkemeyer. The gentlelady yields back.
    I now recognize the distinguished gentleman from Iowa, Mr. 
Nunn, for 5 minutes.
    Mr. Nunn. Thank you, Mr. Chairman. And I appreciate you 
putting this hearing together.
    I think we all are familiar with the situation called the 
Coca Codo Sinclair Dam in Ecuador. We know that in 2019, 
Ecuador defaulted on its loan, and it received this loan from 
the China Development Corporation, forcing the country to 
renegotiate with the Communist Party in Beijing and making cuts 
to its budget, damaging Ecuador's credit rating and making it 
harder for the country to borrow money both in the future as 
well as putting it in a position where it is now beholden to 
Beijing.
    Mr. Rosen, when we are looking at unfair global financing 
protocols, can you please speak to ways that China is 
manipulating the international financial institutions and why 
they are continuously allowed to cheat the system?
    Mr. Rosen. That is a good question, Congressman.
    Partly, it is, I think they have these vast loans that they 
make to these countries, and I think there is definitely 
evidence of corruption in the way that they make these loans. 
Unfortunately, emerging-market countries, as I mentioned in my 
testimony, suffer a lot of corruption in their governments and 
elsewhere, and so they are easy prey for Chinese corrupt 
behavior.
    And I think a lot of the problem lies with the fact that 
these countries are not attractive places for the private 
sector to invest in, because they don't respect private 
property and they are corrupt. And that obviously makes them, 
in many cases, off-limits to U.S. private-sector investors who 
are--
    Mr. Nunn. But not off-limits--you are absolutely right--to 
the Chinese.
    Mr. Rosen. They are not off-limits to the Chinese.
    Mr. Nunn. And unfortunately, the Chinese, as you mentioned 
in your opening, the, Doing Business Reports (DBRs), in this 
case, China has largely manipulated their response back to it, 
providing a false sense. Is that correct?
    Mr. Rosen. That is correct. That is correct, and it is very 
concerning.
    Mr. Nunn. This is my concern as well, that China is 
exploiting the system, they are exploiting the countries, the 
IMF largely is backfilling the situation, and, at the end of 
the day, U.S. taxpayers end up on the hook for paying for a lot 
of this.
    The overall concern here is that Belt and Road, while good 
for China, really is, ``All roads lead to Beijing.'' And that 
should be a concerning situation for all of us.
    Dr. Schreger, I want to speak to you, then, on why China is 
allowed to borrow so heavily from the International Bank for 
Reconstruction and Development, when it clearly does not meet 
the borrowing criteria?
    Mr. Runde. Congressman, I am happy to take that.
    Mr. Nunn. Mr. Runde? Absolutely.
    Mr. Runde. As I mentioned in my testimony, I think there is 
a temptation, in the case of the Asian Development Bank and the 
World Bank, the IBRD, which is the technical term that you are 
using--and you are correctly using it, Congressman--for three 
reasons.
    The first is that they want to have a kindergarten office 
for their leaders so they kind of grow up in the system. It is 
like a starter director job. So, they keep the office open, 
just like in other bureaucracies; it is like, oh, well, we have 
a China office. It is a plum post. So, part of it is 
bureaucratic politics.
    Second is the issue of, ``I want to have a window into 
China,'' because they are so interested in China. Well, China 
can pay for a lot of the advice that they want from the World 
Bank Group. They don't need to borrow money from the World 
Bank.
    But the third reason is, the business model of the World 
Bank is, they lend money to richer countries with a pretty good 
credit rating, and then they cross-subsidize that by lending to 
poorer countries with a poorer credit rating.
    Mr. Nunn. Right.
    Mr. Runde. My view is, China can finance its own 
development. We should stop this practice, and I think the 
Asian Development Bank has sort of gotten the memo, but the 
World Bank has not fully gotten the memo. And they will give 
you, kind of, ``World Bank-y'' answers to this sort of thing. 
We have to stop it.
    Mr. Nunn. Mr. Runde, I could not agree with you more. And 
you highlighted earlier that by 2025, China should graduate 
from this program. I would offer that 2025 is 2 years too late. 
We can start funneling them off of it now.
    Mr. Runde. I agree, sir.
    Mr. Nunn. I think you are in the right spot. Thank you.
    With the time I have remaining, I do want to ask you, you 
brought up an interesting proposition of including Taiwan in 
this. It is because the United States is the largest 
contributor to the World Bank; we should have also a voice in 
where this goes.
    And I want to highlight here that the United States has 
issued sanction export controls against countries to which the 
World Bank has awarded over 28 contracts. As was highlighted 
earlier, these things include the Three Gorges Dam, the South 
China Sea, the Bushehr Nuclear Power Plant, and the Long March 
rocket family.
    Time after time, U.S. taxpayers are financing operations 
that the Chinese are taking for themselves. How do we get them 
off this?
    Mr. Runde, I will let you have the last word.
    Mr. Runde. Ultimately, we need to find ways to figure out 
the sanctions list. They will say, well, we use the U.N. 
Sanctions List, and we can't put them on the U.N. Sanctions 
List. And so I think--anyway, I will stop there.
    Mr. Nunn. I yield back my time, and I will submit the rest 
of my questions for the record.
    Thank you, Mr. Chairman.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we go to Mr. Meuser from Pennsylvania for 5 
minutes.
    Mr. Meuser. Thank you, Mr. Chairman.
    And, certainly, thank you to all of our witnesses. It is an 
extremely interesting and important hearing we are having here.
    So, the U.S. President just came back from the G7 summit. 
The G7, of course, wields enormous power on the IMF and the 
World Bank. And yet, we are seeing in this hearing that China 
is taking extreme advantage of both institutions. It is unclear 
if the Administration is asleep at the wheel, frankly, or--and 
it also seems very unlikely this subject was brought up at the 
G7 summit by the Biden Administration.
    So, Mr. Rosen, as the executive director of the IMF, you 
represented the United States. You said in your testimony that 
the IMF is straying from its core mission. The IMF is pursuing 
initiatives such as swapping debt for climate pledges and 
adding in climate reforms as part of their terms for financing 
loans.
    This is very troubling. What do you think we should be 
doing about it?
    Mr. Rosen. Congressman, I think we need to hold the IMF to 
account. They have a core mission, which is, as the chairman 
said, as a firefighter in crises situations, and not to be 
providing development lending, which is what they are doing 
with this climate trust that they have established, and dealing 
with long-term problems. Their role is to deal with short-term 
crises, not to deal with long-term development issues. That is 
the role of the development banks.
    Mr. Meuser. Right.
    Mr. Rosen. And, importantly, bringing in private-sector 
capitol. Without private-sector capital, these countries are 
never going to get out of their challenges and problems.
    So, we need to call the IMF to account and point out that 
it--
    Mr. Meuser. Absolutely. But who is making these decisions? 
It is certainly not responsible use of IMF member funds to 
condition loans or forgive loans based upon climate change.
    Mr. Rosen. When I was at the IMF, we opposed that, and we 
said we wouldn't support it, in the Administration of which I 
was a part. Now, this Administration, unfortunately, is 
supporting those policies. That is the problem.
    Mr. Meuser. Thank you.
    Mr. Powell, is this money being well spent, in your view? 
You have a background in clean energy.
    Mr. Powell. First, thank you for the question.
    This is very important. A country that is in deep financial 
distress, or a global financial order in deep distress, is very 
unlikely to be able to form the capital to build clean energy 
at scale.
    So the first and highest mission, the importance of the IMF 
is to serve this role as firefighter, preserve that role as 
firefighter. We have plenty of other institutions, plenty of 
other IFIs, with a significant role in financing clean energy 
and energy infrastructure investments of all kinds.
    I would say, keep IMF in its role, and that is its highest 
and best use, and take better advantage of the other IFIs as we 
develop clean energy around the world.
    Mr. Meuser. That makes a lot of sense. Thank you.
    Mr. Schreger, there is a lot of concern about how China is 
taking advantage of the loan forgiveness programs, from the G7 
to the Paris Club. These programs help countries, of course, 
trapped in debt to climb out of debt. Yet, my understanding is 
that many of these countries turn around and are paying that 
money to China, who is demanding payment.
    Your thoughts on that?
    Mr. Schreger. I think, right now, the situation China finds 
itself in is that it has loaned a lot of money that it 
fundamentally expected to be paid back. And right now, it is 
basically trying to figure out how it can avoid recognizing the 
losses that the Ex-Import Bank of China and the China 
Development Bank actually face.
    And there is actually very recent work by Carmen Reinhart 
and Christoph Trebesch showing that what China is doing is 
actually operating as a global crisis lender to some of its own 
countries, to effectively roll over those existing loans in 
order to avoid recognizing the losses.
    I think that in terms of moving ahead on sovereign debt 
restructurings, it is important to make sure that negotiations 
with China doesn't keep countries in, kind of, long-term limbo 
as they wait in order to resolve their debt crises.
    Mr. Meuser. Great. Thank you.
    Mr. Rosen, we think that China is perhaps profiting from 
the IMF, and yet, at the same time, they want to increase their 
quota. We have a lot of evidence that there is manipulation 
taking place of their exchange rate, special drawing rights, 
and things of that nature.
    I have a bill called the China Exchange Rate Transparency 
Act, which will bring a lot of demands, common-sense reforms, 
if you will.
    Is our IMF director currently pursuing getting China to 
operate how other countries operate within the IMF?
    Mr. Rosen. It is difficult--I know the executive director; 
she worked for me as my deputy. She is a Treasury civil 
servant. And she is a good person, and she does understand the 
issues relating to China--
    Mr. Meuser. Okay. Thank you, Mr. Chairman. I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired.
    I now recognize the gentlelady from California, Mrs. Kim, 
for 5 minutes.
    Mrs. Kim. Thank you, Chairman Luetkemeyer and Ranking 
Member Beatty, for holding this very, very important hearing 
today.
    I would like to insert into the record a recent AP piece 
entitled, ``China's loans pushing world's poorest countries to 
brink of collapse.''
    Chairman Luetkemeyer. Without objection, it is so ordered.
    Mrs. Kim. The CCP is the world's biggest government lender 
to emerging economies and, at the same time, the biggest 
borrower and debtor of the World Bank. How can the CCP borrow 
at subsidized rates as a developing country and lend hundreds 
of billions of dollars to poor countries like a fully-developed 
country?
    The CCP taps into the IFI system, yet refuses to cooperate 
with the Paris Club to restructure the debt of poor countries. 
As the saying goes, the CCP can't have their cake and eat it 
too. If the CCP wishes to be a responsible member of the 
international community, Xi Jinping must abandon his debt 
diplomacy.
    Mr. Runde, in your view, what more can we do, in concert 
with our partners and allies, to ensure that the CCP graduates 
from being able to borrow from the World Bank at subsidized 
rates?
    Mr. Runde. Thank you. Thank you so much, Congresswoman, for 
that question.
    We have been perpetuating a fiction, and that fiction is 
that China is a developing country. And they have used that 
fiction and taken advantage of privileges they should not be 
taking.
    They are the second-largest economy in the world. They are 
a larger financier than the World Bank and the other MDBs. And 
they have been taking advantage through things like lower-than-
market interest rates, and they get other sorts of privileges 
that go to developing countries.
    We need to work with our partners around the world to get 
them to stop declaring themselves a developing country.
    Mrs. Kim. Right.
    Mr. Runde. It is going to require diplomacy, but also some 
honest conversations with our Chinese counterparts. They are 
perpetuating a lie.
    Mrs. Kim. Right. Which is why I am so pleased that we 
passed the PRC is Not a Developing Country Act, because they 
are gaming the system using that special status.
    As part of its debt diplomacy and as a creditor, the CCP is 
pressuring borrowers to sever ties with Taiwan. And so, I 
introduced H.R. 540, the Taiwan Non-Discrimination Act, to 
support Taiwan's participating in the International Monetary 
Fund.
    Mr. Runde, again, in your testimony, you stated that we 
should use the need for a capital increase at MDBs as a way to 
grant Taiwan membership to the IDB. Recognizing that Taiwan is 
a member of the Asian Development Bank, how would the 
international community benefit from greater participation of 
Taiwan in other MDBs?
    Mr. Runde. Thank you so much. This is an important 
question. And I want to thank you for your leadership on this 
issue of Taiwan, Congresswoman.
    It is true that Taiwan as an economy under the formula of 
Taipei, China has been a member of the Asian Development Bank 
since 1966. This is not a well-known fact. It is also a member 
as an economy of the WTO.
    Most of Taiwan's allies are in the Western Hemisphere. 
There is some talk about a capital increase for the Inter-
American Development Bank or the Inter-American Development 
Bank's private-sector arm. I am supportive of both, because I 
think it would be part of a new initiative to work in the 
Caribbean, and to work in Latin America. We ought to have a 
capital increase.
    But if that is a political deal and Congress has a seat at 
that table, we should demand that Taiwan get a chance to buy 
shares in the Inter-American Development Bank just as they do 
in the Asian Development Bank.
    In the case of the EBRD, Congresswoman, what happens in 
Ukraine is not going to stay in Ukraine. China is watching what 
is happening in Ukraine.
    Mrs. Kim. Right.
    Mr. Runde. So, we should hope that Ukraine delivers an 
historic victory against the Russians and against their illegal 
invasion.
    Mrs. Kim. Sure.
    Mr. Runde. But when the reconstruction begins, we are going 
to need a lot of people to carry the burden. And Taiwan ought 
to step up and carry a very significant burden on the 
reconstruction.
    There is also talk about a capital increase for the EBRD. 
Under certain circumstances, I would agree with that. One of 
the conditions I would make is to say, well, we would like 
Taiwan to be a significant burden-sharer in the reconstruction 
of Ukraine. One way to do that would be for them to buy in to 
shares of the EBRD.
    So thank you, Congresswoman, for that important question.
    Mrs. Kim. Sure.
    Let me open the next question to anyone on the panel who 
has an opinion on that. And please, make your comments brief.
    With the CCP unwilling to restructure the debt of its 
borrowers, the IMF has been unable to deploy much-needed 
capital to those countries. So, in your view, how can we get 
the IMF to utilize its, ``lending into arrears,'' policy to 
circumvent debt provided by the CCP?
    Mr. Rosen. Congresswoman, may I answer that question?
    The answer is that they have tried it, in the case of 
Suriname, and it didn't work very well. They need to review the 
mechanisms and impose true burdens on countries that breach 
that, ``lending into arrears,'' policy, and pay China even 
though they are not supposed to. There needs to be proper 
penalties against countries for doing that.
    Mrs. Kim. Thank you.
    My time is up. I yield back.
    Mr. Meuser. [presiding]. The gentlelady yields back.
    The gentleman from Arkansas, Mr. Hill, is now recognized 
for 5 minutes.
    Mr. Hill. I thank the chairman. And I appreciate the 
subcommittee letting me join today's important hearing.
    I thank the panel for being with us. This has been such a 
great discussion, and I concur with the questions of my 
preceding members.
    I looked at this recent GAO report which found that China 
is getting the lion's share of World Bank procurement, some 30 
percent, which is 10 times more than the United States. And 
some of those contracts went to companies on the U.S. Entity 
List, which seems just incongruent and insane to me. The Bank 
says it doesn't follow the U.S. Entity List, just the United 
Nations Entity List.
    And, Mr. Chairman, I would like to ask unanimous consent to 
enter into the record, ``China is using the World Bank as its 
piggybank.''
    Mr. Meuser. Without objection, it is so ordered.
    Mr. Hill. Mr. Runde, how can we ensure that blacklisted 
firms don't make money this way?
    Mr. Runde. Thank you, Congressman, for that important 
question. And I want to thank you for your leadership on 
multilateral institutions and on financial institutions in the 
Congress, Congressman.
    I would say a couple of things. First, we need to encourage 
getting Chinese firms onto U.N. blacklists.
    Second, we also ought to be encouraging the World Bank to 
revisit its policy about what kind of blacklist that it has 
used. It just seems to me it is deeply offensive that companies 
that are on our Entity List are somehow benefiting from World 
Bank contracts. It is deeply offensive.
    The other thing, Congressman, I would suggest is that we 
need to also encourage American businesses to do more and 
engage with the World Bank Group. It is not a cop-out in the 
sense that we should be encouraging American businesses, but we 
should absolutely be discouraging and preventing companies on 
the Entity List from getting--
    Mr. Hill. I appreciate that. I think you will find that a 
lot of American companies don't want to even go up and bid when 
they think the game is rigged. So, thank you for that.
    You mentioned the EBRD and the potential capital request. I 
have concerns about their lending programs. They prohibit loans 
at the European Bank for nuclear. And when Speaker McCarthy and 
I were in Poland and Romania, they were demanding help to 
develop a clean-energy nuclear plan.
    Do you think that we should hold up our support for a 
capital increase unless they change their lending parameters?
    Mr. Runde. They ought to be able to finance gas, they ought 
to be able to finance big hydro, and they ought to be able to 
finance nuclear at the EBRD. And the reconstruction of Ukraine 
is going to require all of that.
    Mr. Hill. Yes.
    Mr. Powell, I would like your view on that.
    Let me add that the World Bank has been more forthcoming on 
this topic, but that Brussels has just been absolutely against 
any all-of-the-above energy strategy, which is frustrating 
Central Europe but, I think, now, all of Europe, given the 
Russian invasion.
    Mr. Powell, what are your thoughts?
    Mr. Powell. First, I am very thankful for your attention to 
this, thankful that the U.S. Ex-Im and DFC have at least 
partially filled in on this and are now supporting exports of 
U.S. SMR technology to both Poland and Romania. But it's tragic 
that there is not a U.S.-backed IFI that is willing to 
participate in this.
    Mr. Hill. Right.
    Mr. Powell. I think using the moment of the capital 
increase is an interesting idea.
    Another idea that has been proposed to try to get around 
this blockade from Brussels is, what if we were to establish a 
trust fund at the Bank? This has been done in other instances, 
like for carbon capture and sequestration--a topic not popular 
with Brussels. But we could establish a trust fund with other 
like-minded countries that are interested in the Bank pursuing 
nuclear activities. And then, they could also invest in the 
trust fund, and we could end-run it that way.
    Mr. Hill. Thanks for that suggestion.
    Let me turn to the IMF. I completely agree, Mr. Rosen, with 
your comments that we need it as its strategic exchange 
stabilization approach for firefighting and not development. 
That is what the World Bank is for. I oppose the resiliency 
trust. I think it is a huge mistake by the current 
Administration and the current administration of the IMF.
    This year, I believe we are supposed to reassess the basket 
of currencies for special drawing rights.
    Mr. Rosen, should China get a higher percentage of the 
special drawing rights basket?
    Mr. Rosen. No, it should not, Congressman. I think it is 
not appropriate. The renminbi, as we have heard today, is not 
an international currency that is widely used, even though it 
is being more increasingly used, but certainly not widely used, 
and I don't think that basket should increase.
    Mr. Hill. Thank you.
    I introduced the Special Drawing Rights Oversight Act last 
January. I oppose these macro SDR allocations. I think it is a 
huge mistake. And I support Congress authorizing SDR 
allocations by the IMF, and I think the IMF ought to change its 
bylaws on that.
    I yield back, Mr. Chairman. Thank you.
    Mr. Meuser. The gentleman yields back.
    And that concludes our hearing.
    I would like to thank our witnesses for their testimony 
today, and thank you very much for continuing to be a resource 
to this committee.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing is now adjourned.
    [Whereupon, at 11:11 a.m., the hearing was adjourned.]

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                              May 25, 2023
                              
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