[Congressional Record Volume 144, Number 96 (Friday, July 17, 1998)]
[Extensions of Remarks]
[Pages E1346-E1347]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS ACT, 1999

                                 ______
                                 

                               speech of

                          HON. JAMES A. LEACH

                                of iowa

                    in the house of representatives

                        Thursday, July 16, 1998

       The House in Committee of the Whole House on the State of 
     the Union had under consideration the bill (H.R. 4104) making 
     appropriations for the Treasury Department, the United States 
     Postal Service, the Executive Office of the President, and 
     certain Independent Agencies, for the fiscal year ending 
     September 30, 1999, and for other purposes:


  Mr. LEACH. Mr. Chairman, the Exchange Stabilization Fund has been an 
essential tool for the management of international monetary policy for 
over 60 years, having served as every Administration's chief weapon in 
defending the dollar.
  The ESF is the U.S. Government's only instrument providing the means 
for a rapid and flexible response to international financial disruption 
which can impact adversely on the U.S. economy. The ESF provides a 
powerful and flexible means for the Secretary of the Treasury to 
support our obligations in the IMF, especially those concerning orderly 
exchange arrangements and a stable system of exchange rates.
  Any attempt to cripple the ability of the U.S. to use the ESF to 
respond to fast-moving financial crises, as this amendment does, would 
pose a very serious threat to the U.S. economy and our ability to 
maintain a strong and stable dollar--with all of the benefits that 
affords us.
  Consequently, this amendment is strongly opposed by the Department of 
the Treasury as well as the Federal Reserve. According to Secretary 
Rubin, by severely restricting the use of the ESF, this amendment 
constitutes an unacceptable limitation on the executive branch's 
ability to protect critical U.S. interests. The Secretary would be 
forced to recommend a Presidential veto if the final bill contains 
these restrictions.
  Likewise, Fed Chairman Greenspan has testified that ``it is important 
to have mechanisms, such as the Treasury Department's Exchange 
Stabilization Fund, that permit the U.S. in exceptional circumstances 
to provide temporary bilateral financial support, often on short 
notice, under appropriate conditions and on occasion in cooperation 
with other countries.''
  For over 60 years, the ESF has been a vital American tool, used most 
often by the last three Administration's, for defending the dollar, 
curbing destructive currency fluctuations, and protecting essential 
U.S. economic and security interests.
  Counterproductive restrictions on the ESF could lead to severe 
foreign exchange market instability--and hence, dollar volatility--that 
would harm American businesses, raise U.S. interest rates, and weaken 
our economic prospects. Such volatility could also threaten the 
dollar's ability to serve as the world's reserve currency--a source of 
tremendous advantage for the United States.
  Direct market intervention is one way the ESF has been used to curb 
exchange market volatility. The use of ESF resources to stabilize 
foreign currencies has played just as essential a role in accomplishing 
U.S. economic objectives.
  The ESF has been used more than 50 times in the past 60 years to 
stabilize currencies in key U.S. export markets--such as Great Britain 
in the 1960s--to anchor reforms in transitional countries--such as 
Poland in 1989--and to protect against the effects of short-term 
instability or currency crises, such as Mexico in 1995. Every single 
one of these extensions of support through the ESF has been promptly 
repaid. No U.S. money has ever been lost in accomplishing these 
critical objectives through the ESF. In fact, by utilizing an 
innovative investment banking approach, the U.S. actually made over 
$500 million in interest on ESF loans to Mexico.
  This amendment would prohibit the U.S. from keeping its commitment to 
our allies in South Korea to provide backstop financial assistance, if 
necessary. It would greatly restrict the ability of the U.S. to provide 
emergency liquidity to assist any future transition to a post-Castro 
Cuba. Similarly, it would prevent the U.S. from coming to the financial 
assistance of Taiwan (not an IMF member), if the Asian financial crisis 
or renewed tensions across the Taiwan strait caused a run on the New 
Taiwan dollar.
  As a trade and exports become more important to the health of the 
American economy,

[[Page E1347]]

and as emerging markets play a growing role in our prosperity, it is 
essential that the U.S. retain the tools necessary to defend the 
dollar, safeguard stable exchange market conditions, and help deal with 
crises elsewhere when it is in our interests to do so.
  In this unstable financial environment, it would be a profound 
mistake for Congress to leave the U.S. without the ability to use the 
ESF to respond quickly to a developing economic crisis where American 
interests are at stake. By passing this amendment Congress will 
severely hobble the ability of the U.S. to fulfill its responsibilities 
and exercise leadership in world financial affairs, and at a most 
inopportune juncture when American economic leadership could not be 
needed more.


                               Background

  The Gold Reserve Act of 1934 gives the Secretary of the Treasury 
exclusive control of ESF operations, subject to the approval of the 
President, to enable the U.S. to intervene in the foreign exchange 
market and undertake other monetary transactions consistent with U.S. 
obligations in the International Monetary Fund. Most ESF transactions 
are short-term. If any ESF loan or credit exceeds six months, the 
statute requires that the President provide Congress with a written 
statement that unique or emergency circumstances exist.
  In addition, Treasury provides Congress detailed monthly reports on 
ESF finances and operations, quarterly reports on Treasury and Federal 
Reserve foreign exchange operations, and an annual audit report on the 
ESF