[Congressional Record Volume 144, Number 39 (Tuesday, March 31, 1998)]
[House]
[Pages H1835-H1836]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               REFORM OF THE INTERNATIONAL MONETARY FUND

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from New Jersey (Mr. Saxton) is recognized for 5 minutes.
  Mr. SAXTON. Mr. Speaker, as chair of the Joint Economic Committee, 
sometime ago I began or the Joint Economic Committee began a review of 
a proposal which came to us from the International Monetary Fund 
through the Treasury of the United States. Secretary Rubin, in essence, 
passed along the request of the International Monetary Fund, the IMF, 
for an appropriation of $18 billion to, in their words, permit the IMF 
to continue their work.
  It is interesting, Mr. Speaker. The IMF, which was established in 
1945, over the years since 1945 has had a total, a quota appropriated 
to it, of about 36 billion U.S. dollars. So one might ask why it would 
be that the IMF would come to us today and in one lump sum request the 
appropriation of $18 billion, a 50 percent increase in 1 year over what 
they have had over the past 50-some odd years?
  So we began to look at this as a very serious matter. This is $18 
billion of U.S. taxpayers' money that would be used for purposes around 
the world; for perhaps good purposes, in some instances, and perhaps 
for questionable purposes in other instances; but $18 billion, billion 
with a B, of U.S. taxpayers' funds.
  So when we began to look at the operations of the IMF, we noticed 
that something was quite peculiar. That was that, after a great deal of 
study, we determined that the average amount of interest that the IMF 
obtains in making its loans to risky creditors in other countries is 
about 4.7 percent; that is right, 4.7 percent.
  By today's standards, or by any standards in the modern world, 4.7 
percent is a fairly low interest rate. Americans who buy homes pay in 
the neighborhood of 7 percent. Americans in this day and age who buy 
cars pay an interest of 9 or 9\1/2\ percent. Americans who use credit 
cards pay interest rates from 18 to 24 percent. So 4.7 percent interest 
is a relatively low interest rate.
  After we determined that this was the case, we drafted some 
legislation to try to change the way the IMF does business. Mr. 
Speaker, we did not suggest that the $18 billion of American taxpayers' 
money should be forwarded, appropriated and forwarded to the 
International Monetary Fund. We said, before we even consider sending 
them another dime, that we ought to change the rules as we see them, as 
we participate in the IMF, as to how it operates. They would be some 
fairly simple and straightforward changes.
  The first change would involve our ability to find out what the IMF 
is

[[Page H1836]]

doing, why they make their decisions and how they make them. Because 
today they do it in secret, Mr. Speaker. They do it in secret. And, as 
a matter of fact, even when Members of Congress ask why the decisions 
were made that were made, we cannot see their minutes, we cannot see 
their reports, we cannot see the studies of the results of what they 
obtained. So we are requesting to be able to see into their procedures: 
transparency, we call that.
  We also introduced in the same bill, which happens to be H.R. 3331, a 
provision that would require them to use American dollars, both in the 
case of the $36 billion they already have and in the case of whatever 
we may appropriate in the future, and that they loan at market interest 
rates, adjusted for risk.
  That is an important factor, because, Mr. Speaker, if you have the 
opportunity to go out and borrow some money, if you are a lender and 
you start loaning at 4.7 percent, believe me, you have lots of 
customers. So we would require that they loan at market rates, and we 
would also require that they establish an independent advisory board 
that would report to the public periodically about their activities.
  The reason for me taking the floor to explain this tonight, because I 
have done this before, is that a very prestigious organization in 
Washington, the Heritage Foundation, will soon release a report, a 
draft of which I have here. They support the notions and the concepts 
contained in H.R. 3331.
  They say, for example, that with regard to the issue of being able to 
see what the IMF does, they say, ``Demands for greater transparency are 
a part of nearly every piece of legislation involving the IMF.''
  Mr. Speaker, I include for the Record an article by Brett Schaefer on 
this subject.
  The material referred to is as follows:

       How Congress Should Reform the International Monetary Fund

                          (Brett D. Schaefer)

       Recent weeks have seen vigorous debate in Congress over 
     America's participation in and funding of the International 
     Monetary Fund (IMF). Both the Senate and the House of 
     Representatives have passed supplemental appropriations bills 
     containing the $17.9 billion requested by the Administration 
     for the IMF. Both bills request specific reforms in IMF 
     operations or policy. Unfortunately, either these reforms 
     would have little impact on the current operations of the 
     IMF, or they are completely unenforceable.
       Congress should utilize the rare opportunity offered by 
     this legislation to reform the economically harmful 
     activities of the IMF.\1\ Short of denying funding for or 
     eliminating the IMF, the best way for Congress to correct its 
     failings would be by enacting legislation like The IMF 
     Transparency and Efficiency Act of 1998 (H.R. 3331), 
     sponsored by Representatives Jim Saxton (R-NJ), Richard K. 
     Armey (R-TX), and Tom Campbell (R-CA). This bill attempts to 
     shine a bright light on the internal workings of the IMF, 
     which have been all too often closed to outside scrutiny. In 
     addition, it would mitigate the market distortion caused by 
     IMF loans. It requires the IMF to charge market interest 
     rates on its loans, and establish an independent review board 
     to examine its policies, practices, and results. Finally, 
     H.R. 3331 contains the most stringent enforcement measures of 
     any current reform proposal.
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     \1\ For detailed criticism of the IMF and the detrimental 
     effects of its policies on developing countries and the 
     global economy see: Bryan T. Johnson and Brett D. Schaefer, 
     ``Congress Should Give No More Funds to the IMF,'' Heritage 
     Foundation Backgrounder No. 1157, February 12, 1998; ``No New 
     Funding for the IMF,'' Heritage Foundation Backgrounder 
     Update No. 287, September 23, 1997; and ``The International 
     Monetary Fund: Outdated, Ineffective, and Unnecessary,'' 
     Heritage Foundation Backgrounder No. 1113, May 6, 1997; Bryan 
     T. Johnson, and John Sweeney, ``Down the Drain: Why the IMF 
     Bailout in Asia is Wasteful and Won't Work,'' Heritage 
     Foundation Backgrounder No. 1150, December 5, 1997.
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                          current legislation

       The Senate passed a supplemental appropriations bill on 
     March 26, 1998, to grant the Administration's request for 
     $17.9 billion for the IMF. Negotiations between the 
     Administration and the leadership in the Senate resulted in 
     changes that greatly weakened the reforms demanded by earlier 
     versions of the bill. For example, instead of demanding that 
     the IMF pass a resolution to change its loan policies, a 
     provision approved in the earlier version by the Senate 
     Appropriations Committee, the new agreement only requires the 
     Secretary of the Treasury to certify that the world's seven 
     largest economies--the so-called Group of 7 (G-7) nations--
     agree to use their influence to push two specific reforms in 
     IMF policies.\2\ These reforms would obligate recipients of 
     IMF assistance to: (1) end government subsidies and directed 
     lending and (2) comply with international trade agreements. 
     This deal removed the provision in the original legislation 
     that would punish the IMF for failing to enact 
     congressionally mandated reforms. Instead of demanding 
     concrete results on reform before granting money to the IMF, 
     the legislation recently passed by the Senate merely requests 
     a nebulous promise from the G-7 countries to pursue reform.
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     \2\ The G-7 includes Canada, France, German, Italy, Japan, 
     the United Kingdom, and the United States. It meets 
     periodically to coordinate economic policies, discuss 
     treaties or agreements, and issue policy statements. The G-7 
     are the seven largest contributors to the IMF and control 
     44.82 percent of its votes, according to the 1997 IMF Annual 
     Report.
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       The Appropriations Committee in the House of 
     Representatives passed two supplemental appropriations bills 
     on March 24, 1998. One contains appropriations for both the 
     IMF and the United States' arrears to the United Nations, and 
     the other provides funding for U.S. participation in the 
     Bosnia peacekeeping mission, military expenses in the Middle 
     East, and disaster relief. The reform provisions for the IMF 
     in the House bill are very similar to those originally 
     present in the Senate bill. Specifically, before the funds 
     appropriated in the bill could be dispersed, transferred, or 
     made available to the IMF, the Secretary of the Treasury must 
     certify that the IMF Board of Executive Directors had passed 
     a resolution requiring every user of IMF resources to: (1) 
     comply with all international trade agreements and 
     obligations to which the borrower is a party; (2) eliminate 
     government directed lending or subsidies; and (3) guarantee 
     that countries would not discriminate between domestic and 
     foreign creditors or debtors when resolving debt problems.
       In addition, the House bill includes three directives that 
     (1) the Treasury report on advances in financial 
     transparency, application of internationally accepted 
     accounting practices, elimination of subsidies, and improving 
     the effect of IMF assistance on worker's rights; (2) the 
     President ensure that no U.S. resources are ``made available, 
     directly or indirectly, to promote unfair competition against 
     the American semi-conductor industry''; and (3) the IMF 
     member countries establish an advisory commission on the 
     international financial system.
       Although the House bill is stricter than the Senate 
     legislation, it remains far from ideal. Both would give the 
     IMF $17.9 billion--the entire Administration request--with 
     ineffective or unenforceable conditions, and would result in 
     little change in how the IMF does business, which is the root 
     of the problem.


            the imf transparency and efficiency act of 1998

       As a lender of last resort, the IMF disrupts the global 
     market. Worse, the secretive nature of the IMF prevents any 
     accurate evaluation of the extent of this disruption. The 
     problem, therefore, is not that the IMF lacks sufficient 
     funds, but that its distribution of subsidized loans and its 
     secretive nature reward poor governance, encourage excessive 
     risk-taking by investors, and conceal information necessary 
     to counter these effects. The best way to avoid these 
     outcomes would be to shun these kinds of subsidized loans 
     altogether. Short of eliminating the IMF, which would be the 
     ideal solution, Congress can focus on mitigating the more 
     harmful consequences of IMF lending.
       The best vehicle for achieving this goal is The IMF 
     Transparency and Efficiency Act of 1998 (H.R. 3331), 
     sponsored by Representative Jim Saxton (R-NJ), Richard K. 
     Armey (R-TX), and Tom Campbell (R-CA). H.R. 3331 demands that 
     the Executive Directors of the IMF initiate specific reforms:
       Increase transparency. Demands for greater transparency are 
     a part of nearly every piece of legislation involving IMF 
     reform. Despite Congress's appropriation of $17.9 billion in 
     American taxpayer dollars to the IMF, the organization 
     refuses to grant Congress or the American public timely 
     access to the minutes of its board meetings, its loan 
     agreements, and its performance evaluations.

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