[Congressional Record Volume 144, Number 114 (Wednesday, September 2, 1998)]
[Senate]
[Pages S9825-S9834]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FOREIGN OPERATIONS, EXPORT FINANCING AND RELATED AGENCIES
APPROPRIATIONS ACT, 1999
The PRESIDING OFFICER (Mr. Burns). The clerk will report the pending
bill.
The assistant legislative clerk read as follows:
A bill (S. 2334) making appropriations for foreign
operations, export financing, and related programs for the
fiscal year ending September 30, 1999, and for other
purposes.
The Senate resumed consideration of the bill.
Pending:
McConnell/Leahy amendment No. 3491, to provide that the
Export Import Bank shall not disburse direct loans, loan
guarantees, insurance, or tied aid grants or credits for
enterprises or programs in the new Independent States which
are majority owned or managed by state entities.
Inhofe amendment No. 3366, to require a certification that
the signing of the landmine convention is consistent with the
combat requirements and safety of the armed forces of the
United States.
Kyl amendment No. 3522, to establish conditions for the use
of quota resources of the International Monetary Fund.
Coats amendment No. 3523, to reallocate funds provided to
the Korean Peninsula Energy Development Organization to be
available only for antiterrorism assistance.
McCain modified amendment No. 3500, to restrict the
availability of certain funds for the Korean Peninsula Energy
Development Organization unless an additional condition is
met.
Mr. McCONNELL. Mr. President, I ask unanimous consent that when the
Senate resumes consideration of the Kyl amendment No. 3522 that there
be 40 minutes for debate prior to a motion to table, with the time
equally divided and controlled in the usual form, with no intervening
amendments in order prior to a tabling vote.
The PRESIDING OFFICER. Is there objection? Without objection, it is
so ordered.
Mr. McCONNELL. Mr. President, the distinguished Senator from Texas
has patiently been waiting to offer an amendment.
The PRESIDING OFFICER. The Senator from Texas.
Amendment No. 3500
Mrs. HUTCHISON. Mr. President, I call up amendment No. 3500.
The PRESIDING OFFICER. If there is no objection, the pending
amendment is set aside. If there is no objection, the pending amendment
will be the McCain amendment No. 3500.
Amendment No. 3526 to Amendment No. 3500
(Purpose: To condition the use of appropriated funds to the Korean
Peninsula Energy Development Organization)
Mrs. HUTCHISON. Mr. President, I send a second-degree amendment to
amendment No. 3500 to the desk.
The PRESIDING OFFICER. The clerk will report.
The assistant legislative clerk read as follows:
The Senator from Texas [Mrs. Hutchison], for herself and
Mr. McConnell, proposes an amendment numbered 3526 to
amendment No. 3500.
Mrs. HUTCHISON. Mr. President, I ask unanimous consent that the
reading of the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
Add the following proviso: (5) North Korea is not providing
ballistic missiles or ballistic missile technology to a
country the government of which the Secretary of State has
determined is a terrorist government for the purposes of
section 40(d) of the Arms Export Control Act or any other
comparable provision of law.
Mrs. HUTCHISON. Mr. President, I will speak briefly about what
Senator McCain and I are trying to do.
My amendment says that no funds will be contributed to North Korea
until the President has certified that North Korea is not providing
ballistic missiles or ballistic missile technology to a country, the
government of which the Secretary of State has determined is a
terrorist government.
This adds to Senator McCain's amendment which has the same
prohibition of funding for North Korea if they are continuing to build
a nuclear weapon.
Senator McCain and I are clearly saying that the United States will
not continue to fund an agreement with North Korea that we know is
being violated. The McCain amendment deals with the nuclear capability
North Korea appears to be building. It would restrict the use of funds
for the Korean Peninsula Energy Development Organization pending a
Presidential certification that North Korea has stopped its nuclear
weapons program as it has promised to do. My amendment adds the
requirement that North Korea is not transferring ballistic missile
technology to other terrorist countries.
Mr. President, this week, we saw what trying to coerce and reward a
totalitarian dictatorship will achieve. North Korea launched a two-
stage ballistic missile toward Japan, a country which has provided
emergency food relief to North Korea and wound up having a ballistic
missile pass through their air space as thanks.
North Korea has admitted selling ballistic missiles to raise hard
currency. It has made repeated threats to restart its nuclear program,
claiming that the United States has not honored its obligations.
Recently we learned of evidence that the North Koreans are ignoring
their part of the agreement and building a new underground site for
nuclear weapons development.
I raised concerns 4 years ago when the Clinton administration
proposed this framework agreement. It seemed to be an all-carrot-no-
stick approach to North Korea. The agreement was to help develop a
peaceful nuclear program giving them 500,000 tons of heavy fuel oil. I
was concerned that the nuclear weapons program would continue and that
the fuel oil that we promised would be diverted to military use. I am
sorry to say both seem to have occurred. The fuel was diverted almost
immediately for military use.
Since signing the agreement, the North Koreans have also continued to
conduct military operations against South Korea, sending spy submarines
into South Korean waters and discharging commandos on to South Korean
territory. This is hardly the behavior of a partner to an agreement,
and sending them a no-strings gift of 35 million American taxpayer
dollars is hardly a responsible act for the U.S. Congress to make.
The North Korean launch this week of the ballistic missile over the
airspace of Japan was truly a shot across the bow of the civilized
world. North Korea was warned beforehand that testing this type of
missile would have a direct impact on our negotiations. They ignored
the warning. We must make it clear to the North Koreans that we cannot
and will not disconnect North Korean conventional military activity
from the nuclear issue. Their failure to meet their obligations not to
build nuclear weapons, nor to sell the technology to rogue nations,
cannot be disassociated from our contribution to their country. We must
stop rewarding dangerous North Korean provocations. This amendment will
ensure that we do just that.
Mr. President, I urge adoption of the second-degree amendment to the
McCain amendment.
Mr. McCONNELL addressed the Chair.
The PRESIDING OFFICER. The Senator from Kentucky.
Mr. McCONNELL. Mr. President, I support the amendment by Senator
Hutchison modifying the bill's language on funding for the Korean
Energy Development Organization, which we refer to as KEDO.
I would like to step back for a moment to 1995, shortly after the
agreed framework was signed in October of 1994. By March of 1995, there
was the first evidence that the North Koreans were cheating. In
hearings before this subcommittee and in writing, I challenged the
administration's assertions that the North was in full compliance and
that no U.S. oil was being diverted. Eventually, it became clear that
the North was cheating and diverting oil. Although new monitoring
procedures were established, there was no suspension of oil or a threat
to cut off the program. I am convinced that this is when the North
learned that they could engage in a pattern of challenge, deception and
noncompliance without any penalty at all.
In fiscal year 1997, the Senate had an extensive debate about
providing U.S. assistance to provide fuel oil to North Korea and to
support administrative expenses for KEDO. The bill my subcommittee
reported to the Senate capped funds at $13 million, half the
administration's request, and provided the funds in three stages,
requiring certification that the fuel was not--I repeat, not--being
diverted for military purposes.
At that time, many of us were uncomfortable continuing any aid to
this
[[Page S9826]]
terrorist regime, let alone doubling the amount available which the
administration had requested. In its statement of policy, this is what
the administration had to say at that time about any curbs, cuts or
conditions:
Among our most serious concerns are the restrictions placed
on the U.S. contributions to KEDO, especially the funding cap
that reduces the request by nearly half. This funding is
inadequate to meet our commitment to support the North Korea
framework agreement and is unacceptable to the Secretaries of
State and Defense. KEDO is one of the pillars of U.S.
nonproliferation policy which seeks to ensure strategic
stability in the Pacific. Our very modest $25 million request
for funds helps continue the reduction of North Korea's
nuclear weapons capacity, while leveraging strong
burdensharing contributions from South Korea, Japan and other
countries. The administration strongly urges the committee to
remove the cap . . . and drop the needlessly restrictive
certification language.
Again, that is what they had to say.
Regrettably, the administration prevailed on this floor in a 73-to-27
vote allowing full funding for KEDO. So I lost that one, I say to my
friend from Texas.
Mr. President, I think it is now safe to say that on both the
nonproliferation and burden-sharing front, KEDO is a bust.
All last week, the administration was too busy with bilateral talks
in New York to brief the committee on the status of negotiations over
allegations disclosed in the press that the North is building a secret
facility to house a nuclear reactor replacing the one sealed under the
Agreed Framework.
With those talks still underway, as the Senator from Texas pointed
out, Monday--this week--for the first time in more than 5 years, North
Korea carried out a flight test of a ballistic missile which the South
Korean Government estimates has a range of over 1,200 miles. The first
stage of the missile landed in waters between Russia and Japan, with
the second stage flying over Japanese territory and falling into the
Pacific. Understandably, the Japanese have withdrawn their pledge of
billions of dollars for the construction of an alternative reactor--a
perfectly logical response to what happened Monday.
Mr. President, if U.S. funding for KEDO is the pillar of our
nonproliferation policy and the key to burden sharing, I think it is
time we start building a new foundation for our policy. Secret nuclear
facilities, flight testing, ballistic missiles, and who knows what
other activities are not a nonproliferation policy, they are simply a
nonpolicy.
Today, I say to the Senator from Texas, I think her amendment is
excellent and is exactly the direction in which we should go. The
administration will complain that these new conditions are not
consistent with the Agreed Framework, that the North did not agree to
suspend its nuclear weapons program in return for $30 million, they
only agreed to freeze part of it.
Mr. President, it makes no sense for the United States to continue to
pay for an agreement which fails to protect our allies and our
interests in the Pacific. Monday's tests, along with the past pattern
of deception and diversion, should convince all of us we should not
spend millions more from our limited foreign aid coffers to prop up a
government determined to acquire and to sell nuclear weapons.
As I mentioned previously, this is hardly the first time we have
debated the administration's flawed policy on the peninsula. We have
had years of compromise, capitulation, and concessions from the
administration. The North blusters and blackmails; there is tough talk
followed by no action or, worse still, concessions for more fuel and
food.
Thirty-six thousand American troops standing guard in the South
deserve more than that. Once and for all, it should be absolutely clear
to the North, we will not pay their way to test, deploy, or sell
nuclear weapons. We will not pay for the appearance or possibility of
compliance with the Agreed Framework.
Again, I commend the Senator from Texas. I think her amendment is
right on the mark and I congratulate her for it.
Mrs. HUTCHISON addressed the Chair.
The PRESIDING OFFICER. The Senator from Texas.
Mrs. HUTCHISON. I want to thank the Senator from Kentucky, who is a
cosponsor of this second-degree amendment, for helping us with it
because obviously, when the committee was putting together its bill, we
did not know of North Korea's provocative actions of last week.
I think it is imperative that the Senate act very decisively to say
that we are not going to continue to appease a country that is clearly
selling technology to rogue nations that would harm our own allies and,
furthermore, is breaking an agreement they made with us in return for
which we would have assisted the people of North Korea in developing
peaceful energy sources.
I hope, with all my heart, that North Korea will back up, that it
will keep its commitment to stop building a nuclear weapon. I hope that
it will step back and stop selling ballistic missile technology to
rogue nations. Then it would be eligible for the money that has been
fenced in this bill.
But until they do, it would be highly irresponsible for the U.S.
Senate to go forward with a no-strings-attached gift of 35 million
taxpayer dollars that are against the interests of the United States
and all of our allies.
Thank you, Mr. President. And I thank the Senator from Kentucky for
his leadership on this issue.
Mr. McCONNELL. Mr. President, I thank again the Senator from Texas
and ask unanimous consent that her amendment be temporarily laid aside.
I see the Senator from Arizona is here. We have a time agreement on
his amendment. I yield the floor.
The PRESIDING OFFICER. Without objection, the pending amendment is
laid aside. The Senator from Arizona is recognized.
Mr. KYL. Thank you.
Amendment No. 3522
Mr. KYL. Mr. President, I call up amendment No. 3522. I inquire of
the Chair as to what the time agreement is.
The PRESIDING OFFICER. The Senator has that right. The time limit is
40 minutes equally divided.
Mr. KYL. Thank you, Mr. President.
Mr. President, the Senate passed the supplemental appropriations bill
last March. Included in that bill was a provision to provide $18
billion in additional budget authority for the International Monetary
Fund. That funding, as we all know, was eventually stripped out of the
supplemental conference report because Members could not come to an
agreement on the funding or on reforms for the IMF.
Today, of course, we are back debating the foreign operations bill.
Obviously, we are trying to develop some kind of consensus in going
forward for the funding of the IMF. Unfortunately, in my view, this
bill that we are debating right now does not go far enough to move the
IMF toward reform, including in the areas of transparency and
bankruptcy reform. It includes conditions much less restrictive than
those voted out of the Appropriations Committee earlier this year.
I support the restrictions that were developed by the Appropriations
Committee. As a result, I am offering this amendment today which, while
not going as far as I would like, would move the IMF closer to reform
than the current provisions of the fiscal year 1999 foreign operations
bill will do.
As I said, when the Senate debated IMF reform in March, the full
Senate Appropriations Committee approved, by a vote of 26-2, a series
of reforms affecting IMF funding. They were not as strong as some of us
would have liked. But instead of strengthening the provisions on the
Senate floor, an amendment was offered to weaken them, and that
amendment passed 84-16.
Those of us who voted against the weakening amendment in March are
here today again to request that the Senate vote for this amendment and
require the IMF and its recipients to use the $18 billion in U.S.
taxpayer-contributed funds in more open and responsible ways.
The Kyl amendment changes only one of the reform sections included in
the foreign operations bill. It does not prevent the United States from
releasing funding to the IMF. The current IMF language requires the G-7
nations to publicly agree to seek policies that provide for new
conditions. But seeking policies is not the same as requiring policies.
So my provision simply returns to the Senate Appropriations
Committee-passed language and states that:
[[Page S9827]]
None of the funds appropriated in this Act under the
heading ``United States Quota, International Monetary Fund''
may be obligated, transferred or made available to the
International Monetary Fund until 30 days after the Secretary
of the Treasury certifies that the Board of Executive
Directors of the Fund have agreed by resolution that stand-by
agreements or other arrangements regarding the use of Fund
resources shall include provisions requiring the borrower [to
agree to a set of conditions].
Passing an amendment that requires a commitment from the board of
directors of the Fund to pass such a resolution makes more sense than
just asking for a public commitment to such reforms. The IMF, by its
nature, is often the antithesis of free market reform. IMF intervention
often rewards negligent bankers or corrupt or incompetent governments
and often does not reward individual countries that work through the
private sector to get through tough times.
So my amendment, which does not cut off funding for the IMF, would
nevertheless return to a stricter version of reforms than is currently
included in this bill. There is a case that some have made that IMF
funding should be eliminated altogether. I will not try to make that
case today, although people like Lawrence Lindsay and Allan Metzer of
AEI, for example, have made a strong argument that much of the money we
have contributed to the IMF has been wasted. It is true that no money
has been lost yet, although Lindsay suggests that the IMF is like the
FDIC in the late 1970s or early 1980s. At that time, the taxpayers had
not lost any money in the FDIC either.
If the world is ready to topple into an economic abyss, there
probably is not much the IMF could do about it in any event. Its $23
billion in lending in 1997 was about a tenth of the private capital
flow into developing countries alone. And in any event, there is
evidence that suggests that the IMF has actually been a barrier to
economic growth in poorer countries.
According to Johns Hopkins University economist Steve Hanke, few
nations actually graduate from IMF emergency loans. Many stay on the
dole for years on end. One study found of 137 mostly developing
countries from 1965 to 1995, less than a third graduated from IMF loan
programs. The Heritage Foundation found that of IMF borrowers from 1965
to 1995, no more than half were better off than when they started the
loan programs. Almost all were actually poorer. Almost all were deeper
in debt.
So what we are trying to do with this amendment is to restore some of
the conditions that will ensure that the money American taxpayers have
worked hard to earn will actually serve a useful and productive purpose
if contributed to the IMF.
Clearly, the policies promoted by the IMF are important. Whether debt
incurred by other nations as a result of IMF intervention is good or
bad depends on the uses to which that debt is put. If it increases
productive capital, income increases and the debt can be serviced from
the increased wealth that is generated. If, however, borrowing is used
to hold the exchange rate steady so private lenders can flee, there are
no productive assets from which later interest payments can be made.
Unfortunately, it is the latter type of policies that are typically
promoted by the IMF. The IMF promotes trade barriers in order to cut
current account deficits. The IMF promotes tax increases to reduce
budget deficits, and currency devaluations to adjust exchange rates.
The IMF long ago admitted it was not committed to free markets,
explaining that ``programs have accommodated such nonmarket devices as
production controls, administered prices, and subsidies.'' These are
the kind of policies that often bring economies to a halt.
The better policy is to promote fair and reliable bankruptcy laws,
transparent and internationally accepted accounting procedures, minimal
government interference in the allocation of credit, prudent oversight
of banking systems, and competition among foreign and domestic banking
organizations. All of these are the kind of reforms that we all agree
should be pursued.
But that is as far as the foreign operations bill before us goes.
Basically, it just says this is what we ought to be doing. It does not
require the implementation of these reforms in the countries that are
going to receive the IMF loans. As a result, it does nothing to assure
that that money will not be wasted. By contrast, my amendment would
ensure that reforms are accomplished before taxpayer dollars are
allocated.
Why is it important to ensure that reform is accomplished first? In
some cases, IMF programs have effectively subsidized very inefficient
and even corrupt political systems. Former Secretary of State George
Shultz suggested in testimony before the Joint Economic Committee
earlier this year that creditors must be held accountable for their
mistakes. Taxpayers should not assume the risk of bad decisions or
those bad decisions will continue to be made.
That is the sad record, unfortunately, of many of the countries that
have received these IMF loans in the past.
Bailouts effectively shield investors and politicians from the
consequences of their poor economic decisions by ``socializing'' the
risks and reducing the cost to failure associated with investment.
Risks are socialized because everyone ends up paying for an individual
investors' errors; the costs of failure are reduced because either
directly or indirectly the IMF can compensate investors when their
investments fail. IMF bailouts, as they are currently constructed,
encourage investors to engage in activity they would likely avoid if
there were no IMF to shield them from actions. Investors, not people or
countries, are being bailed out. We should understand that when we talk
about bailing out a country, that is really inaccurate. We are talking
about bailing out investors. In the so-called Mexican bailout in 1995,
the Mexican people suffered a sharp decline in the standard of living
there, and there were large increases in unemployment and an overnight
erosion of the savings. Investors, however, escaped with minimal
losses.
Lawrence Lindsay contends IMF bailouts probably make systematic
contagion more likely in the long run and suggests that the best
protection we have against bankers overextending themselves to
imprudent borrowers is the bankers' fear of losing money.
The amendment I am presenting today is an effort to ensure that these
poor lending practices are not continuing. Virtually all of us have
agreed that the IMF needs reform. In fact, we put that reform in the
amendment that was adopted earlier this year to the supplemental
appropriations bill. But that amendment rejected the Senate
appropriations decision, which was made on a 26-2 vote, to have really
meaningful reforms required--not simply pursued. That is the
difference--do you try to pursue it or do you guarantee it before you
give this taxpayer money.
Let me close with the final thought about what is not at issue
because of our very real concern about the state of the Russian economy
now. All of the experts agree that assistance to Russia will only work
if Russia makes fundamental reforms, the kind of things that would be
required under my amendment.
For example, the President in Moscow yesterday urged the Russians--
quoting from a Washington Times story of today--to follow free market
principles.
Here is what the President said:
Investors move in the direction of openness, fairness and
freedom . . . you have to play by the rules.
That is precisely what would be required by my amendment.
The President said he would not give ``any fresh money unless it
moves decisively toward reform.''
The article points out that IMF detractors are not proposing to
withdraw money that has already been committed. I want to make that
point crystal clear. We are not talking about not loaning money to the
Russians, money that has already been committed. We are saying the same
thing the President of the United States is telling them: You have to
make a commitment to the fundamental reforms, otherwise the money is
wasted and we both lose.
Mr. President, the same thing could be said of other countries in the
world. These countries are not going to be denied loans if they
establish the kind of rules of law required for a functioning
[[Page S9828]]
economy. If they don't, all the money in the world will not help them
anyway. That is true for Russia, as well as it is for the other
countries that might be receiving IMF loans.
In conclusion, my amendment simply restores the original committee
language setting forth reasonable conditions for IMF loans. If we are
unwilling to do this, then some will suggest that we are simply
committing $18 billion in taxpayer funds to feel good about having done
something to help countries having economic difficulties. Let's ensure
that in approving our contributions to the IMF, that that money will be
effectively spent.
I reserve the balance of my time.
The PRESIDING OFFICER. The Senator from Nebraska.
Mr. HAGEL. Mr. President, who controls time on the Kyl amendment?
The PRESIDING OFFICER. Senator Kyl is in charge of 20 minutes. Do you
rise in opposition or in support?
Mr. McCONNELL. Maybe it was not clear in the unanimous consent
agreement, but it was my understanding that Senator Hagel would control
the time in opposition to the amendment.
If not, I ask unanimous consent that Senator Hagel control the time.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Nebraska is recognized in opposition.
Mr. HAGEL. Mr. President, I yield myself such time that I will need
to complete my statement.
Mr. President, I rise in opposition to the amendment of my friend,
Senator Kyl. Six months ago this body spoke very clearly and strongly
on IMF. We voted 84-16 to approve a strong IMF package that has two
parts: Strong and achievable IMF reforms and the full $17.9 billion
funding for America's IMF contribution.
The IMF reform and funding language in the foreign operations bill
today is identical to the reform package of the Senate-passed bill 6
months ago. We should not now start second-guessing ourselves and
undoing what we have done. We should stand by the solid reforms and the
funding package that won 84 votes in March.
The Kyl amendment would replace that carefully crafted language with
a different and untested mechanism for reform, a mechanism that we
considered but abandoned on the Senate floor early in our negotiation 6
months ago. I might add, Mr. President, this was after very long and
detailed consultations with the Federal Reserve Chairman, Alan
Greenspan, the Treasury Secretary, Bob Rubin, and many others.
Along with Senator McConnell, Appropriations Chairman Stevens,
Senator Gramm, Senator Biden and others, I helped craft the reforms
that passed the Senate. We negotiated the reforms carefully, with the
involvement of many Senators. It took weeks, many weeks. We worked word
by word, line by line to present something to this body that was
achievable, workable. The package we passed in March and includes
meaningful IMF reforms that are also achievable.
We recognize that America alone cannot shape the world economy. So we
required in our reform language the G-7 countries to come together to
help reform the IMF. These reforms consist of the following: Reforms so
IMF will require recipient countries to live up to their international
trade obligations; reform so IMF will require recipient countries to
eliminate crony capitalism and clean up corruption; reforms that will
improve transparency of IMF operations, and to encourage bankruptcy law
reforms in recipient countries.
Mr. President, these are not funny reforms. These are not patsy, weak
reforms. The new IMF funding will go forward, but not until the
Treasury Department succeeds in getting these reforms accomplished at
the IMF. This is written into the reform legislation. These reforms are
real and they will make a real difference at the IMF.
It would be absolutely irresponsible for Congress to shrug off the
IMF as economies around the globe falter. We should not go backwards.
America must continue to lead. The Senate must continue to lead. Global
events, such as we have talked about today, yesterday, and will
continue to talk about, have demonstrated even more forcefully the need
for the U.S. to support the IMF.
Mr. President, the IMF is not perfect. It is not without flaws. It
needs reform; indeed it needs reform. But, my goodness, at a time when
we have economic chaos around the globe, we need many confidence
builders, and the IMF institution in itself will not change this, but
it will help. If we didn't have an IMF, what would we have? Would the
United States want to step up to this alone? Would France or Germany?
The second largest economy in the world--Japan--is in economic chaos,
with no banking structure. We need some type of a mechanism to help
address these issues. Asia was burning when the Senate acted 6 months
ago. Now that fire has engulfed Russia and is spreading to Latin
America. Our own economy is feeling this heat.
Mr. President, markets respond to confidence. Markets respond to
confidence. Our debates today about IMF and other economic issues are
not just about numbers, or about the arcane comparisons of one reform
versus another reform. No, these debates are real and they are about
sending a signal around the world. Is America engaged? Will we continue
to lead? Or will America pull back? America's interests require us to
help shore up confidence around the world.
This debate is about America's interests. This is not esoteric. This
is about America's interests, America's economic stability and global
stability. The U.S. suffered a record trade deficit in May, the fourth
consecutive month. Exports hit their lowest point in 15 months. Over
the first 5 months of this year, America's trade deficit increased
nearly 40 percent from the same period last year. Why is that? Many
parts of America's economy are already feeling the pain of the
spreading Asian ``flu.'' Wall Street is on a roller coaster ride. The
farm economy is suffering, largely due to the loss of overseas markets.
Corn and soybean exports are down more than 50 percent from 2 years
ago. Wheat exports are down more than 30 percent.
These economic problems will not be limited to American farmers and
ranchers, and not even to America's investors. They will ripple through
the economies of the Midwest and the rest of this Nation. Events around
the world will continue to affect our economy here at home and global
stability. When you have global instability, Mr. President, it goes far
beyond economic instability. Global instability affects everything--our
national defense, our interests and our economy. The situation in Japan
is very dangerous. Many economies in Asia are clinging to Japan for
support. Japan was a direct contributor to the financial package to
Russia. I don't think I need to spell out to colleagues the disastrous
effect of a significant downturn in the Japanese economy. Let me point
out a headline from today's Washington Times: ``Tokyo's Troubles
Overshadow Russia's: With Bad Economic Decisions, Japan Could Start a
Worldwide Recession.''
This is not the time to lose our perspective and diddle and dawdle--
reform versus technicality and reform versus technicality. This is the
time for America to do the right thing, to step up and lead the world,
help the IMF and insert the reforms that we passed by 84 votes last
March.
I want to close, Mr. President, by quoting the last paragraph of a
letter from the U.S. Treasury Secretary, Bob Rubin, which he sent to
the congressional leadership yesterday. He talks about the IMF. He
talks about how broadly the IMF plays a role across the global economic
scene:
More broadly, a fully equipped IMF is in the economic
interest of our important trading partners throughout the
world. While we agree that the IMF needs reform, and are
committed to continuing our strong efforts to achieve
meaningful change, it remains an effective and indispensable
tool in the management of the international economy. I
respectfully urge you and your colleagues to act with the
utmost dispatch to pass this legislation.
Mr. President, the Senate should stand by the leadership that we
provided on this issue in March. I respectfully suggest that my
colleagues look at this Kyl amendment and defeat this Kyl amendment.
Mr. President, I end by saying that when the time on the debate on this
issue expires, I intend to make a motion to table the Kyl amendment.
I yield the floor.
The PRESIDING OFFICER. Who yields time?
[[Page S9829]]
Mr. HAGEL. Mr. President, I yield 3 minutes to the distinguished
chairman of the Senate Appropriations Committee, the Senator from
Alaska.
The PRESIDING OFFICER. The Senator from Alaska is recognized.
Mr. STEVENS. I thank the Chair. I came, as a matter of fact, to read
the letter he has just read. So I will just be very brief.
I ask unanimous consent that that letter be printed in the Record
following my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See Exhibit 1.)
Mr. STEVENS. Mr. President, very clearly, this is a matter of the
image of the United States in the total global economics of today. If
we retreat from the vote that we achieved last spring, I think we will
send a terrible message to the world at a time when we should be viewed
as a leader in trying to restore the economies of the world.
So I hope this Senate will vote once again to support, providing the
additional funding for the IMF that it needs, and that we will insist
that we achieve the agreement of the House on this provision that is in
the bill.
This is not the time for us to change our minds. This is a time to
show the strong will of the Senate, that the United States remains
clear in its objectives to assure that there are mechanisms to deal
with international crises such as so many of our global trading
partners face today.
I thank the Senator from Nebraska for his leadership. As a matter of
fact, I thank all of those who come from the Agriculture Committee;
they have been very forthright and direct in supporting the proper
position on the IMF. I thank the Chair and the Senator from Nebraska.
Exhibit 1
Department of the Treasury,
Washington, DC, September 1, 1998.
Hon. Trent Lott,
Majority Leader, U.S. Senate, Washington, DC.
Dear Mr. Leader: As the 105th Congress returns to complete
its business in the few weeks remaining before adjournment, I
am writing to urge once again that Congress immediately
consider and pass the Administration's request for $18
billion in critical funding for the International Monetary
Fund (IMF).
Since late last year, we have been urging action on this
priority legislation. Events over the last eight months--not
to mention the last few days and weeks--underscore the impact
on the U.S. economy of developments abroad, including in Asia
and Russia. We simply cannot afford any further delay in
providing the IMF with the resources it requires to help
contain the threat of further financial and political
instability around the world.
Let me be clear, the fundamentals of the American economy
remain sound, with continuing good prospects for strong
growth with low inflation, but recent developments testify
clearly to the impact of global uncertainty on U.S. financial
markets and, ultimately, on our economy. While there has been
progress in stabilizing economies in countries such as Korea
and Thailand, which are implementing strong IMF programs, we
have already seen a decline in US exports to key markets in
Asia by over 20 percent through June of this year, amounting
to over $22 billion worth of exports to key markets in Asia
by over 20 percent through June of this year, amounting to
over $22 billion worth of exports on an annualized basis.
Against this backdrop, it is critical that the United
States takes the steps necessary to protect the interests of
American workers, businesses, and farmers. More broadly, a
fully equipped IMF is in the economic interest of our
important trade partners throughout Latin America. While we
agree that the IMF needs reform, and are committed to
continuing our strong efforts to achieve meaningful change,
it remains an effective and indispensable tool in the
management of the international economy. I respectfully urge
you and your colleagues to act with the utmost dispatch to
pass this legislation.
Sincerely,
Robert E. Rubin.
The PRESIDING OFFICER. Who yields time?
Mr. KYL. Mr. President, I inquire how much time I have?
The PRESIDING OFFICER. The Senator from Arizona has 9 minutes. The
Senator from Nebraska has 9 minutes 3 seconds.
Mr. KYL. Thank you. I doubt that we have to take the full amount of
time in completing this debate. I want to make one critical point. The
Senator from Alaska, the chairman of the Appropriations Committee, has
just made the point that the United States cannot retreat from our
international obligations or we will be sending a terrible message. I
want to make it very clear that the Kyl amendment doesn't retreat at
all. In fact, it moves forward.
The Kyl amendment simply institutes the language that the chairman of
the Appropriations Committee supported when the committee voted 21-1 to
ensure that the money lent by the United States would be effectively
spent by requiring some conditions that will work.
Now, what the bill before us does is erase those conditions and put
in some good-sounding language that isn't going to do the trick. As a
matter of fact, both the lead editorial in the Wall Street Journal
today, and a lead op-ed piece by David Malpass, the chief international
economist at Bear Stearns, make the point that this money will not be
spent effectively if we continue to follow current practices. As a
matter of fact, from the latter op-ed piece, ``To avoid accountability,
the U.S. maintains the facade that the IMF is dealing with the crisis
and that Japan is to blame for much of it.''
Are we really going to do something about this crisis? I totally
agree with my friend from Nebraska, Senator Hagel, on the nature of the
problem, and I believe that we essentially agree on the solution.
The only difference is how serious we are about implementing the
solution. Here is the crux of the debate. Under the bill before us,
there are two key phrases about how we are going to implement the
funding, how we are going to spend the money and implement the reforms
that we all agree to.
One, we are going to seek to implement these reforms--the language is
on line 2 of page 120: ``and will seek to implement.'' And then down on
line 19, ``The United States shall exert its influence with the Fund
and its members to encourage'' these reforms. We are going to ``seek''
and we are going to try to ``encourage.''
That is not going to work. It is the same old thing.
What the Appropriations Committee voted 26 to 2 to do was to actually
include the reforms. The language in my amendment says ``shall
include.''
Those are the two operative phrases. That is the difference we are
debating about the reforms we all agree to. The question is, Are we
going to encourage these other countries that we lend the money to, to
effect the reforms, or are we going to require that they shall be
included in the agreement that we enter into with these countries?
All of us agree about the nature of the problem. We are all just as
committed to an international economy. We all agree on the solution--
the bankruptcy reforms, the transparency. There is no disagreement
about that. The only disagreement is, are we going to require it--the
Kyl amendment that the Appropriations Committee voted 26 to 2 to do--or
are we going to seek to encourage people to do these things?
I submit that if all we are going to do is seek to encourage, we are
going to end up in the same place as we have been, with countries
spiraling downward and downward and downward.
The President of the United States had it right when he said in
Russia yesterday, to get your fair share of investment, you have to
play by the rules. If that is his opinion--and I know it is, and I
agree with it--``have to play by the rules'' is a requirement. It is
not something we are just asking them to do; it is something we are
going to require them to do. It is our money we are lending to them for
the good of us all. U.S. taxpayers have some right to insist that it is
going to be spent wisely. We all agree that it hasn't worked in the
past. The President is saying to the Russians: What you have been doing
has not worked. You have to play by the rules.
The Kyl amendment says that the agreements shall require that the
reforms be included. The current bill says we will seek to implement
and will exert our influence to encourage.
On the one hand, you have a requirement; on the other hand, you have
the same loose language that will allow these countries to continue to
slide into economic despair because they don't have the courage or the
ability to adopt the reforms, and they are not being required to do so
by the Fund that is lending them the money.
That is why I urge the adoption of the original committee language
which will be much stronger and will guarantee that this money will be
spent wisely.
I reserve the remainder of my time.
[[Page S9830]]
Mr. BIDEN addressed the Chair.
The PRESIDING OFFICER. The Senator from Delaware.
Mr. BIDEN. I ask my friend if he would be willing--does he have any
time to yield?
Mr. HAGEL. We have 9 minutes. I would be very happy to yield time.
How much time?
Mr. BIDEN. I didn't want to take all that time. Will the Senator
yield me 4 minutes?
Mr. HAGEL. All right. Thank you. I yield the distinguished Senator
from Delaware 4 minutes.
Mr. BIDEN. Mr. President, the Senate has already spoken on the
important question of U.S. support for a stronger International
Monetary Fund.
Following the essential leadership of Senator Stevens, along with my
colleague on the foreign relations committee, Senator Hagel, we went on
record in March, by vote of 84 to 16, to provide full funding for U.S.
participation in the IMF.
At that time, we also declined to place unworkable conditions on that
funding.
As international lender of last resort, the IMF is right now part of
our last line of defense against an economic chain reaction that could
turn the financial turmoil on the front pages of today's newspapers
into a real global crisis.
Mr. President, as I have said before, the IMF is certainly not a
perfect institution. But I have not stopped going to my doctor because
I think the health care system needs reform.
The Kyl amendment guarantees indefinite delay in the availability of
the U.S. contribution to the basic reserves of the IMF, and in turn
throws into doubt the participation of other nations who look to us for
leadership.
This amendment would require that the IMF change its basic rules for
providing emergency financial support--essentially a change in its
bylaws--before the U.S. contribution can go forward.
Those rule changes themselves may well make sense--in fact, the IMF
already makes such conditions part of the requirements for its loans.
But the requirement that the IMF must first formally adopt reforms in
the conditions on countries that receive its funds--conditions, I might
add, that we here in the United States could not meet in every case
outselves--is a formula for deadlock and indefinite delay.
This is the opposite what is required of us at this crucial period.
As the leading economy in the world, we have a special obligation to
support this international instutution--that we created, I might add--
charged with maintaining stability in international financial markets.
The amendment now before us is a formula for delay, at the very time
when we must act to restore confidence so lacking those markets.
I urge my colleagues to vote against the Kyl amendment.
Mr. President, one of the most able Senators in terms of his
willingness to reason on this floor is the Senator from Arizona,
Senator Kyl.
I listened to what he just said about his amendment. He says: Look,
all we are doing is going to require the IMF to do what the President
says they should have to do anyway before we lend money. By
implication, don't throw good money after bad, and so on and so forth.
What we are doing here is, if we adopt the Kyl amendment, it
guarantees, in my view, an indefinite delay in the ability of the U.S.
contribution to the basic reserve of the IMF and throws in doubt the
participation of other nations who look to us for leadership. Right now
it is a really simple deal. If we come up with our $18 billion
commitment in total, roughly, what happens is, we control the outcome.
No loan can be made. It needs an 85 percent vote. I think we have 18
percent control.
Why go ahead and throw sand in the gears here now knowing that we are
going to, by fiat, in the minds of other nations, amend the way in
which the IMF runs now without consultation or agreement by the other
participants who make up 82 percent of the Fund, guaranteeing that this
thing comes to a screeching halt?
If in fact the Senator believes the President is right, then he has
to assume the President is not going to instruct the U.S.
representative at the IMF to vote for releasing dollars without the
commitments being met. But what you do now if you adopt the Kyl
amendment is as good as not coming up with the $18 billion, because the
other nations say: Hey, look, you once again are unilaterally changing
the basic rule for providing emergency support, essentially a change in
the bylaws of the IMF. Where I come from, that is not how you usually
get cooperation. You don't unilaterally tell the French and the Brits
and everyone else this is the way it is going to be. You already have
that power. You have the power. Without the U.S. vote, nothing goes.
Bingo. Nothing goes.
It seems to me the way to do this is, let's deal, as my friend from
Nebraska has been often the lone voice in pointing out with this
international financial crisis, and still have a little bit of
confidence. This isn't going to fix the thing. This is just going to do
in a shot--like a shot of adrenaline, a shot of confidence, we are
stepping up to the plate. We are not backing away from an international
obligation, as we see it, for our own safety's sake.
Then, if we want to sit down with our partners in the IMF and say,
``Look, it is time to change the bylaws,'' that is a different deal.
But let's not do unilaterally what is going to, in my view, in my
opinion, get a response from the other 82 percent of the voting block
out there saying, ``Hey, U.S., you don't call it. You don't
unilaterally change the rules.'' You can in effect unilaterally change
the rules by voting no. You can sit in those meetings and say, ``Look,
we ain't voting for this deal unless the following conditions are
met.''
I respectfully suggest--and I realize my time is probably up--that we
should oppose the Kyl amendment.
I yield the floor.
Mr. HAGEL. Mr. President, I yield to the Senator from Minnesota 1\1/
2\ minutes.
The PRESIDING OFFICER. The Senator from Minnesota is recognized for
1\1/2\ minutes.
Mr. GRAMS. Thank you very much.
Mr. President, I rise to respectively oppose the amendment by my
colleague, Senator Kyl. As has been noted before, this amendment would
reverse all of the progress made on the conditions package negotiated
among many of us when we supported the $18 billion replenishment for
the IMF on the Supplemental earlier this year. Senator Kyl's amendment
includes a negotiating position that was debated, and rejected by
members of this body. It would, in effect, result in the U.S. share of
the replenishment being delayed or withheld at a time when IMF
assistance is needed to help us shore up economies in crisis, now
expanding well beyond Asia. We need to stabilize and improve these
markets for our farmers and exporters, whose losses have begun to
resonate, most recently in our own stock market. As was noted before,
our agriculture exports are down 30 percent since the beginning of the
year. This is not the time to play games with IMF funding.
I believe few of us want to reopen these sensitive negotiations. I
urge my colleagues to stick to the agreement we passed earlier. It was
a good one that will result in progress toward improving the way the
IMF operates. This is not the time for the Senate to reverse its
leadership on IMF funding. We should stay the course--and urge our
colleagues in the House and in the White House to do the same.
I urge my colleagues to oppose the Kyl amendment.
I yield the remaining time.
Mr. MACK. Mr. President, I rise to support the proposed amendment and
urge my colleagues to vote against tabling it.
The current world economic crises and the International Monetary
Fund's request for financial replenishment offer us a chance to re-
examine the United States' role in the world economy. If the U.S. is
going to participate in institutions that influence economic policy
around the world, then we must exert our influence in strong support of
sound economic policies, not just rubber-stamp whatever plans
international bureaucrats cook up. It does us no good to stand idly by
and let the IMF squander our resources on ill-conceived rescue plans,
such as the tax-hike package recently foisted on Russia.
What should the IMF be promoting? The same policies that we support
here
[[Page S9831]]
in the United States. To name just a few, these include: a monetary
policy dedicated to long-term price stability, a sensible tax system
that encourages people to work, save and invest, free and open markets
and sound banking systems that use consistent accounting methods, have
transparent balance sheets and lend based on market forces, not
political pressure.
The best way to start down this path is to set strong conditions on
the IMF. This amendment moves us in this direction. In particular, it
would promote free trade, market-based lending and the fair treatment
of international investors. I urge my colleagues to vote against
tabling it.
Mr. HAGEL. Mr. President, how much time do I have remaining?
The PRESIDING OFFICER. The Senator from Nebraska has 3 minutes 12
seconds.
Mr. HAGEL. Mr. President, I yield to my colleague from Kansas 2\1/2\
minutes.
The PRESIDING OFFICER. The Senator from Kansas is recognized for 2\1/
2\ minutes.
Mr. ROBERTS. Mr. President, I want to refer to the statement made by
my distinguished colleague and friend from Arizona about the 21-1 vote
that happened in committee. I must say that it is my observation over a
weekend of deliberations things were changed in that particular bill
that we needed to address, and we did. And so the Senate spoke 84 to 16
to endorse the reforms, and they are not passive reforms, that were
worked on by a whole group of Senators--Senator Grams, myself, Senator
Hagel, Senator Biden, Senator McConnell, and Senator Stevens.
Basically, what are we talking about here? We require consensus in
regard to achieving these reforms not only with the G-7 nations but the
37 other nations involved. This isn't just a U.S. IMF program. Under
the Kyl amendment, he says that we have to micromanage basically from
Congress, from the U.S. standpoint something called a board of
executive directors. That process is very slow. We don't have the time
in regard to that, with the global contagion, maybe the global
pneumonia, that is occurring right now. So the Senate has spoken 84 to
16.
I would point out that the seriousness of this is extremely critical.
The Senator from Nebraska has talked about what is happening in
agriculture. It is happening in every segment in regard to the economy,
not only in this country but all over the world.
We have a package. We have been meeting here with other Senators
across the aisle for normal trading status with China, with fast-track
legislation, with sanctions reform and now IMF. If this amendment
passes, it is a killer amendment. I don't mean to perjure the
amendment, but it is a killer amendment. A, it will kill IMF, and, B,
IMF cannot work under the circumstances of this amendment. And the
testimony to that certainly comes from Chairman Greenspan and many
others.
And so I urge the Senate to stick by that early vote. Again, I would
mention it was, what, 86 to 14? No, 84 to 16. Well, there were two that
were off base, but we will get it back.
I yield back the remainder of my time.
Mr. HAGEL. Mr. President, how much time do I have remaining?
The PRESIDING OFFICER. The Senator has 45 seconds.
Mr. HAGEL. I ask that the remainder of my time be allotted to the
distinguished Senator from Maryland.
The PRESIDING OFFICER. The Senator from Maryland is recognized for 45
seconds.
Mr. SARBANES. I thank the Senator.
Mr. President, I just want to follow along with what the able Senator
from Kansas has said. Adoption of this amendment would prevent the
United States from consenting to a quota increase until all of these
conditions had been met. These conditions cannot be met immediately.
That is a guaranteed thing. It means that the United States would, in
effect, not be carrying through a quota increase.
We are facing a very serious financial crisis worldwide. One of the
instruments we have to deal with that is the IMF. We need to pass this
quota increase, and we need to do it immediately, and we need to
address this situation. If the IMF is perceived, as it now is, not to
have the resources with which to deal with the international crisis, it
will only worsen and intensify the crisis. If anyone wants to ask what
is the one thing we can do to try to address this crisis, it is to pass
this legislation without this amendment. I urge my colleagues to oppose
the amendment.
The PRESIDING OFFICER. The time has expired for the Senator from
Nebraska, and the Senator from Arizona has 3 minutes 48 seconds.
Mr. KYL. I thank the Chair. I won't use all of that time. In my
remaining time, I, first of all, ask unanimous consent to have printed
in the Record the two articles from the Wall Street Journal to which I
alluded earlier.
There being no objection, the articles were ordered to be printed in
the Record, as follows:
[From the Wall Street Journal, Sept. 2, 1998]
U.S. Needs to Promote Currency Stability
(By David Malpass)
The ruble devaluation has plunged Russia into political and
economic upheaval. Already the financial fallout has spread
beyond its borders, helping to knock $1 trillion off the
value of U.S. equities alone and worsening the now-global
currency crisis. Expressed in U.S. dollars, world output will
fall more than 2% in 1998, pressuring debtors and hurting
corporate earnings world-wide. As we enter the second year of
the ``Asian'' crisis, the risk is clear: Countries everywhere
that borrowed dollars or produced commodities could collapse.
The U.S. has the power to stop the contagion and start the
recovery, but has not used it. The International Monetary
Fund has only added to the problem. Working in tandem, the
U.S. and the IMF have lurched from one bad policy idea to
another, with no vision, not even any apparent comprehension
of the severity of the crisis.
Russia Beware
Their initial approach to Thailand's crisis last year was
to promote a limited devaluation, advise Bangkok to raise
taxes, and hope for the best--a strategy that had disastrous
results in Mexico in 1994. Thailand's per capita income has
fallen to $1,800 this year from $3,000 in 1996, and the
country is now on its fifth IMF program revision.
During South Korea's December crisis, the policy evolved
into a massive bailout by the U.S., the IMF and international
banks that had lent Korea too much money. The Korea approach
included a devaluation, a floating exchange rate backed by
impossibly high interest rates, rosy IMF economic forecasts,
the false hope of export-led growth and a heavy dose of
patience. Result: South Korea's economy will shrink to $280
billion this year from $485 billion in 1996, a 42%
contraction. The IMF has revised its forecast for Korea's
1998 growth rate, down to minus 4% in July from plus 2.5% in
January. These figures quantify the failure of its floating
exchange rate austerity policies. Russia beware.
By the time the devaluation scythe pointed toward Russia
this June, a third U.S. policy had emerged. In a telephone
conversation on July 10, Presidents Boris Yeltsin and Bill
Clinton agreed on a plan to bail Russia out, this time before
the devaluation. However, no measures were included to anchor
the ruble. All Russia got was another IMF austerity program--
a Russian commitment to shrink the economy further by
squeezing taxes out of the energy companies, the country's
lifeblood. Result: capital flight, a devastating betrayal of
the ruble, a standstill on debt payments, and the likelihood
of a cold winter for Russians as energy companies prepare to
cut off cities and provinces that can't pay their bills.
Throughout it all, the U.S. has had no policy that would
deal with the heart of the global currency problem: a strong
dollar and a cycle of devaluations. The current Band-Aid
approach includes the following elements: Until further
notice, all developing countries are to keep interest rates
dramatically higher than they can afford, spreading recession
across the developing world. Economies that link their
currencies to the U.S. dollar--important ones such as
Argentina, Brazil, China and Hong Kong--get no clear guidance
on the future value of the greenback. To avoid
accountability, the U.S. maintains the facade that the IMF is
dealing with the crisis and that Japan is to blame for much
of it. The U.S. encourages countries to enact vague and
painful ``reforms,'' never mentioning or forcing the one
reform that matters most--a policy of currency stability.
[[Page S9832]]
What, if anything, can the U.S. government do to stop the
contagion? First, even if it won't cut interest rates, it can
state unequivocally that Washington wants the value of the
dollar to be stable and will place a high priority on this
responsibility. Simply changing from the current ``strong
dollar'' policy to a ``stable dollar'' policy would allow
gold and commodity prices to recover moderately from their
current deflation-spooked levels and end the talk of world
deflation.
The U.S. should then begin to promote stable money for
developing countries at the Group of Seven, the IMF, the
World Bank and elsewhere. Consideration should be given to
transparent price-rule monetary policies, currency boards,
dollarization, currency unions and other techniques that have
dependably created growth. Such an effort alone would lift
financial markets in many developing countries by 30% or more
in a matter of days. Public statements and actions on
currencies matter a lot. Across most of the world, financial
markets bottomed on June 17 at the exact minute the U.S.
intervened to stop the Japanese yen's free-fall. Over the
next four weeks, equity markets across the industrialized
world hit record highs on the hope that the U.S. cared about
currencies and wanted the yen, the Chinese renminbi and the
Russian ruble to be stable.
The correction in world financial markets began in mid-July
when it became clear that America didn't intend to follow
through. The U.S. gave no sign that the dollar would stop
strengthening, further driving down the dollar price of gold
and oil. Washington also offered no supportive comments on
the renminbi or the yen, contributing to speculative selling.
The U.S. declined to make even a simple statement of the
obvious--that a Hong Kong devaluation would destroy Hong Kong
as a world financial center and was unthinkable. And by July
21, details on Russia's IMF program came out showing just
another failed austerity package.
As for Russia, now that it has embarked on the road of
devaluation, Moscow should think of how to lessen the blow.
There are ways to do this.
First, Russia should announce a monetary program aimed
explicitly at limiting the devaluation and providing future
stability for the ruble. It should also use its leverage with
the U.S. to fight the IMF penchant for free-floating exchange
rates and private-sector austerity. Russia's formal Aug. 17
statement was an IMF recipe for disaster. It promised a
policy of balanced budgets (meaningless during a recession),
high interest rates to fight inflation (inflation is a
currency phenomenon, not an interest-rate one) and a floating
ruble defined by market prices (meaning it will sink due to
neglect). The IMF statement after the devaluation made not
one mention of the ruble, complimented Russia on its
satisfactory economic progress and promised more funds if
Russia carried out its IMF program. These are the same IMF
policies that caused the depression in Asia, and prolonged
the lost decade in Latin America in the 1980s.
A new, credible monetary policy would entice capital back
into Russia, and the country could then begin to treat its
debt crisis with economic growth rather than default, Russia
and the world should agree that a free-floating exchange rate
is an unworkable policy for the ruble and would lead Russia
down the path Indonesia followed.
devaluation damage
When exchange rates float after a devaluation, interest
rates have to stay impossibly high to compensate for currency
uncertainty. Russia should establish a monetary-policy
mechanism in which the amount of liquidity in the economy is
regulated by the central bank for the primary purpose of
keeping the currency stable. Russia could anchor the value of
the ruble against gold, the dollar or the euro, and could use
a currency board or an automatic price-rule monetary policy.
It should immediately legalize the use of foreign currency,
as economist Steve Hanke argued on this page last week. At
this point in the ruble's collapse, the key aim is to make a
dramatic policy change at the central bank to allow the
people of Russia a stable currency as they work to salvage
the economy.
Time and again, the U.S. and the IMF have underestimated
the importance of currency stability and the damage caused by
devaluations. The devaluationists' promise of a quick
recovery in Asia has been dashed, but no constructive policy
has emerged. Russia now heads down the same path, dragging
others with it. The American farm belt feels the consequences
when the dollar appreciates and people in Asia buy less
wheat. U.S. towns on the Canadian border feel it when
Canadians get priced out of U.S. stores. Yet 18 months into
the global currency crisis, the world's biggest economic and
military power has no whiff of a policy to address it.
____
Interdependence, After All
(By Michael Camdessus and Lawrence Summers)
So U.S. stocks could not go ever upward while the rest of
the world falls apart. We have interdependence after all, and
what the markets' remarkable voltality--plunging 500 one day,
rising 288 the next--is telling us is that the world economy
has been terribly mismanaged.
Secretary Robert Rubin dropped by the Treasury press room
after the 512-point drop Monday to say that the fundamentals
``are strong due in part to the sound policies we've been
following.'' The market is telling us that the market was too
high, he suggests, neither he nor the Federal Reserve feels
the need to do anything about it, fishing in Alaska was fun,
and Congress should pony up the next installment of funding
for the International Monetary Fund.
There is of course a lot to be said for refusing to panic
because of a market drop. Stocks will fluctuate as we've seen
in recent days and several hundred points aren't what they
used to be. But the Dow Jones industrials are still off
nearly 16% from their July high. Historically, a plunge in
the stock market predicts recession in the real economy only
about half the time. In the other half, economic policy
makers get the message in time.
The last market crash in 1987 reflected disturbances in the
world financial mechanism, as is so often the case, arguably
as far back as 1929, when the issues were international
liquidity and impending protectionism. In 1987, the market
crashed when Treasury Secretary Baker went on television to
argue with the Bundesbank about which side should adjust to
keep the mark and dollar in reasonable alignment. The markets
stayed sick through year-end, but recovered when the world
central banks staged a huge joint intervention showing that
international cooperation had been restored. With this timely
demonstration, the real economy escaped without damage.
This time around the international influences are even more
palpable. The Russian devaluation, coming as President
Yeltsin was losing power and President Clinton was self-
destructing, was clearly the immediate spark. In and of
itself, neither the value of the ruble nor the output of
Russia is important to world commerce. But the message was
that we are not yet out of the round of competitive
devaluation that started a year ago in Thailand. A continuing
worldwide cycle of devaluation and a world-wide collapse in
liquidity would be a big event indeed, from which the real
economy in the U.S. could not be immune.
The most likely form of panic right now would be for the
Congress to yield to Secretary Rubin's entreaties on the IMF
funding. The IMF and what it represents is the problem, not
the solution. If we were the Congress, there would be no
funding for the IMF without a change in management. IMF head
Michel Camdessus should be replaced, along with Deputy
Treasury Secretary Lawrence Summers, the U.S. point man in
international finance. The needed rethinking is impossible so
long as they are there to defend the errors that caused the
present world-wide mess.
It is, of course, always true that economies around the
world have their own share of mismanagement. Indonesia has
been an exemplar of crony capitalism, and Russia has its
tycoonocrats instead of the rule of law. Japan ``pricked the
bubble'' into its current deflationary impasse--an example
U.S. policy makers should heed well. But such problems have
persisted for decades; they were pushed over the brink and
into crisis by specific policy errors.
The first of these was the Mexican bailout masterminded by
Mr. Summers. The 1994 devaluation was a disaster for Mexico,
where workers still have not reclaimed their share of world
purchasing power, especially with the peso just now on
another sharp decline. Yet the Wall Street lenders and
Mexican billionaires did just fine with their tesobonos--
short-term dollar-denominated Mexican government paper--
because Mr. Summers arranged to have them bailed out,
including interest at risk-screaming rates like 14%. The
lesson the markets had to draw was: Wheee! Crossborder loans
are a one-way bet. Throw money at the world. Russia, even.
This enormous escalation in moral hazard was compounded by
sheer intellectual error at the IMF, which persisted against
all evidence in believing that devaluations can rebalance
economies. Devaluations cause inflation, with all of its
economic and social dislocation. What's more, devaluations
tend to spread as each country feels it has to ``remain
competitive'' in international markets. Mr. Camdessus is on
record as repeatedly having advised Thailand not to get its
banks and property companies under control, but to devalue
the baht. When he got his way, the current crisis dawned.
What is to be done, now that we see even the U.S. cannot
escape unscathed? The first priority is to stop the cycle of
devaluation somewhere. Unhappily, Hong Kong authorities have
been behaving foolishly, pouring monetary reserves into the
stock market. But central bank purchases of shares, like
purchases of any other asset, inject Hong Kong dollars into
the markets; you defend a currency by restricting domestic
liquidity, not creating it. Brazil, the key to whether the
cycle will spread to Latin America, seems to understand
better.
The Federal Reserve could ease much of this pressure by
creating more American dollars. It is certainly true that the
Fed should
[[Page S9833]]
not be using monetary policy to support the stock market at
current levels, any more than it should use monetary policy
to combat ``irrational exuberance.'' But the case for easing
rests on nothing more or less than a commitment to price
stability, since Alan Greenspan's own advance indicators of
the price level--foreign exchange, gold and the yield curve--
are all signaling deflation ahead. The demand for dollars is
clearly on the rise, and Mr. Greenspan should accommodate it,
rather than restricting the supply of dollars to keep short-
term interest rates from falling as the market drives long
rates down.
The saving grace of market drops is that they provide time
for policy to adjust before the real economy is affected. But
around the world ordinary producers and consumers are already
suffering, and trouble lies ahead in the U.S. as well if the
Treasury, Fed and IMF fail to use this time to get
international financial management back on an even keel.
Mr. KYL. Secondly, Mr. President, I was just advised of an error, and
I appreciate being advised of that, on line 1 of my amendment. Instead
of ``line 1,'' it should read ``line 19''--beginning on page 119, line
19 of the bill. I ask unanimous consent to make that change in my
amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. KYL. I also ask for the yeas and nays on the amendment, Mr.
President.
The PRESIDING OFFICER. Is there a sufficient second?
There appears to be a sufficient second.
The yeas and nays were ordered.
Mr. KYL. I thank the Chair. I will just conclude with this point.
The distinguished Senator from Delaware, for whom I have great
admiration, made the point that the President may instruct our
delegates to seek these reforms and, indeed, he may but we do not
currently have the means to insist on them. My amendment would change
that.
The distinguished Senator from Kansas made the point that the reforms
in the current bill are not patsy reforms, and, indeed, he is correct
in that. As I said, we essentially all agree on the reforms. The only
difference is whether they are going to be urged upon the nations to
which the money is lent or they are going to be imposed as requirements
on the lending of the money. That is what this amendment boils down to.
Do we ensure that the reforms are included by requiring it, or do we
simply seek to include them and merely encourage the borrowers to
engage in the reforms that we all support?
I think the debate is clear. I urge my colleagues to support the
amendment and yield back the remainder of my time, Mr. President.
Mr. HAGEL addressed the Chair.
The PRESIDING OFFICER. The Senator from Nebraska.
Mr. HAGEL. I move to table the Kyl amendment and ask for the yeas and
nays.
The PRESIDING OFFICER. Is there a sufficient second?
There appears to be a sufficient second.
The yeas and nays were ordered.
The PRESIDING OFFICER. The question is on agreeing to the motion to
table the Kyl amendment. The yeas and nays have been ordered. The clerk
will call the roll.
The assistant legislative clerk called the roll.
Mr. NICKLES. I announce that the Senator from Georgia (Mr.
Coverdell), the Senator from New Mexico (Mr. Domenici), and the Senator
from Alaska (Mr. Murkowski) are necessarily absent.
I also announce that the Senator from North Carolina (Mr. Helms) is
absent because of illness.
I further announce that, if present and voting, the Senator from
North Carolina (Mr. Helms) would vote ``no.''
Mr. FORD. I announce that the Senator from New Mexico (Mr. Bingaman),
the Senator from Ohio (Mr. Glenn), and the Senator from Hawaii (Mr.
Inouye) are necessarily absent.
The result was announced--yeas 74, nays 19, as follows:
[Rollcall Vote No. 256 Leg.]
YEAS--74
Akaka
Baucus
Bennett
Biden
Bond
Boxer
Breaux
Brownback
Bryan
Bumpers
Burns
Chafee
Cleland
Coats
Cochran
Collins
Conrad
Craig
D'Amato
Daschle
DeWine
Dodd
Dorgan
Durbin
Feingold
Feinstein
Ford
Frist
Gorton
Graham
Gramm
Grams
Gregg
Hagel
Harkin
Hatch
Hollings
Jeffords
Johnson
Kempthorne
Kennedy
Kerrey
Kerry
Kohl
Landrieu
Lautenberg
Leahy
Levin
Lieberman
Lott
Lugar
McCain
Mikulski
Moseley-Braun
Moynihan
Murray
Reed
Reid
Robb
Roberts
Rockefeller
Roth
Sarbanes
Shelby
Smith (OR)
Snowe
Specter
Stevens
Thomas
Thurmond
Torricelli
Warner
Wellstone
Wyden
NAYS--19
Abraham
Allard
Ashcroft
Byrd
Campbell
Enzi
Faircloth
Grassley
Hutchinson
Hutchison
Inhofe
Kyl
Mack
McConnell
Nickles
Santorum
Sessions
Smith (NH)
Thompson
NOT VOTING--7
Bingaman
Coverdell
Domenici
Glenn
Helms
Inouye
Murkowski
The motion to lay on the table the amendment (No. 3522) was agreed
to.
Mr. WARNER addressed the Chair.
The PRESIDING OFFICER (Mr. Smith of Oregon). The Senator from
Virginia.
Baltic States and NATO Expansion
Mr. WARNER. Mr. President, I am joined here by my distinguished
colleague from New York. We would like to bring to the attention of the
Senate certain language in the report accompanying the bill. And I
refer to page 40. It is entitled ``Baltic States and NATO Expansion.''
The Committee has provided $15,300,000 in FMF grant
assistance to accelerate the Baltic States integration into
NATO.
This action comes following similar action in last year's statement
of managers. I ask unanimous consent to have printed in the Record
excerpts from the text of last year's language.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Baltic States and NATO Expansion
The Committee has provided $15,300,000 in FMF grant
assistance to accelerate the Baltic States integration into
NATO. The Committee regrets that budget constraints prevent
matching last year's levels but remains supportive of this
initiative. This assistance supports these democracies as
they enhance their military capacities and adopt NATO
standards. The Committee believes that FMF should be
allocated among the three nations on a proportional basis.
The Committee has not continued the prior limitations on
the international military education and training program for
Indonesia. However, the Committee expects the Defense
Security Assistance Agency to consult with the Committee
regarding any plans to provide IMET to Indonesia, given past
human rights concerns and the continued influence of the
Armed Forces in Indonesian political and economic affairs.
Any participants should be carefully vetted and courses
should emphasize civilian control of the armed services.
* * * * *
The Baltic Nations
The conference agreement provides that $18,300,000 should
be made available to Estonia, Latvia and Lithuania. These
funds are provided to enhance programs aimed at improving the
military capabilities of these nations and to strengthen
their interoperability and standardization with NATO,
including the development of a regional airspace control
system. Given progress in economic reform and meeting
military guidelines for prospective NATO members, the
conferees believe the Baltic nations will make an important
contribution to enhancing stability and peace in Europe and
are strong candidates for NATO membership.
The conference agreement retains House language which
provides that the obligation of funds for any non-NATO
country participating in the Partnership for Peace shall be
subject to notification.
Mr. WARNER. Here the language says:
These funds [$18,300,000] are provided to enhance programs
aimed at improving the military capabilities of these nations
and to strengthen their interoperability and standardization
with NATO. . . .
Mr. President, Partnership for Peace, is, I presume, the primary
means by which these countries could work within the NATO framework.
But I must say that I regret that this language is so specific as to
use the word ``grant assistance to accelerate the Baltic States
integration into NATO.''
The Senate considered NATO expansion very thoroughly earlier this
year, at which time I, together with my distinguished colleague from
New York, expressed our strongest reservations, particularly as it
related to a timetable of any nature, for further admission of nations
into NATO.
This does not spell out a timetable, but it certainly gives them, in
this language, together with the funds, a recognition which in my
judgment is inappropriate, certainly at this time when
[[Page S9834]]
the situation in Russia is so tenuous, as explained in the previous
debate on NATO expansion, and in the context of the Baltic States. I
will leave it to my colleague further details on that. But it is the
judgment of the military planners in NATO that providing NATO
assistance to these countries, should it be necessary, could well
involve the use of nuclear weapons. I say that because inclusion of
these nations in NATO at some future date is a matter that will have to
be considered with great care and thoroughness by all NATO nations.
I just think at this time to incorporate the language in an act of
the Congress of the United States, presumably to be signed by the
President, would send an improper signal into the community of nations
who are desiring to join NATO at some future date.
So I basically stated my views on it. I yield the floor, Mr.
President.
Mr. MOYNIHAN addressed the Chair.
The PRESIDING OFFICER (Mr. Hagel). The Senator from New York.
Mr. MOYNIHAN. I join my revered friend the senior Senator from
Virginia in this matter and would begin by reminding the Senate that in
the debate on expanding NATO to include Poland, Hungary and the Czech
Republic, he forcefully made the point that the administration was
already talking about a further expansion to the Baltic States. That
would be a thumb in the eye of the Russians. The language from the
Committee report which Senator Warner has just read implies that the
Senate has come to agreement on the matter when it clearly has not.
Estonia and Latvia have large Russian minority populations and all
three have tenuous relationships with Russia. Yet it seems to be
working, considering these three independent nations were held
``captive''--subsumed by the Soviet Union--for three-quarters of a
century. Latvia recently dismantled a Soviet radar station, and there
are some accommodations being made for minorities in these nations.
Expanding NATO to include the Baltics would be provocative in the
extreme, as the Russians have made so clear. The Russians who would
like to continue to make reforms in their troubled country have said:
``Don't do this.'' Those leaders who seek the greatest liberalization
of Russian society have said ``Heavens, don't give this weapon to the
enemies of democracy and market enterprise. Don't put us in a situation
where nuclear war in Central Europe is not to be dismissed as an
outlandish improbability.''
I remarked yesterday, in a statement supporting the International
Monetary Fund replenishment that the situation of the Soviet military
is alarming to the point of despair. In Krasnoyarsk, General Alexander
Lebed, who is now governor there, has, by reports published in Moscow,
undertaken to pay the Soviet strategic forces located in his Krai. The
people with their hands on the triggers of the nuclear missiles are not
being paid. I suggest the first rule of government is: Pay the Army. In
a situation that is unstable, to take this posture regarding Nato
expansion is to invite misunderstanding and worse.
Mr. President, there is nothing we can do to change the report
language, but I would like to make the point that it has not been
decided that any of the Baltic states should join Nato. I do not think
that the term ``accelerate the Baltic States integration into NATO''--
accelerate: faster than planned--such a term is not appropriate.
If it were possible in conference for the distinguished chairman and
the ranking member to see that this does not become part of the
conference report itself or the accompanying statement of managers, I
think that would serve stability in Central Europe and the security of
the United States.
I will make no accusations. The Senator from Virginia and I simply
say: Do not casually get into a situation that will be thoroughly
misread and deeply resented by the people we most want to have as our
friends in Moscow. And particularly not on a day when the President
himself is there.
With that, Mr. President, I yield the floor. I see no other Senator
seeking recognition, so I respectfully suggest the absence of a quorum.
The PRESIDING OFFICER (Mr. Roberts). The clerk will call the roll.
The bill clerk proceeded to call the roll.
Mr. HARKIN. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Iowa is recognized.
____________________