[Congressional Record Volume 144, Number 140 (Thursday, October 8, 1998)]
[Senate]
[Pages S12018-S12019]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      INTERNATIONAL MONETARY FUND

 Mrs. BOXER. Mr. President, a little more than a year ago 
serious financial problems began to arise in Thailand. What began in 
Thailand, however, quickly spread to other Asian financial markets like 
Indonesia, South Korea, and even Hong Kong and Japan. In recent months, 
we have seen this financial crisis creep into other economies around 
the world, most notably, perhaps, Russia and Brazil. This crisis is not 
just about Asia, Russia or Latin America, however; it's about the U.S. 
as well.
  In today's increasingly intertwined global economy, the U.S. has an 
important national interest in working to stabilize the economies of 
its trading partners around the world. It is the U.S. that ultimately 
stands to lose if other economies fail--economies that are markets for 
our products. Reductions in Asian purchasing power or Latin American 
purchasing power mean lower profits for U.S. companies operating in 
those markets and fewer high-paying jobs in U.S. export industries.
  East Asian nations, for example, are important trading partners for 
the U.S. U.S. exports to East Asia accounted for 28 percent of all 
American merchandise exports in 1996. This number far exceeds the 9.2 
percent of exports that went to Mexico, and even the 21.4 percent that 
went to Canada.
  Brazil, Latin America's largest economy, is also an important market 
for the U.S. Brazil is the U.S.' 11th-largest export market with $16 
billion in sales last year. Moreover, and perhaps more important, 
Brazil is one of the few major trading partners with whom the U.S. has 
a positive balance of trade. U.S. companies' exports to Brazil grew 25% 
last year and are now roughly five times the value of Russia's before 
Russia's crash.
  I want to elaborate a little on the importance of the stability of 
the Brazilian economy to the U.S. And in do doing, I think it is 
important to remember that the U.S. is not an economic island unto 
itself. We are truly part of an interdependent global economy.
  Capital flows freely, without regard to geographical boundaries and 
to places we couldn't have imagined even 5 or 10 years ago. One of the 
places where a substantial amount of that capital has been flowing over 
the past 5 years or so is Brazil. In fact, U.S. investments in Brazil 
now exceed the U.S. investments in Mexico.
  Largely as a result of the reforms adopted during the administration 
of President Fernando Henrique Cardoso, Brazil has emerged from its so-
called ``Lost Decade'' of the eighties. During that decade, Brazil's 
economy languished in inflation and stagnation. That inflation and 
stagnation continued into the mid-nineties, and reached as high as 
2,700 percent in 1994.
  Since then, however, key infrastructure industries such as energy, 
telecommunications, and ports have begun modernizing and expanding. 
Moreover, state monopolies in oil, electricity, and telecommunications 
have ended, and many businesses have now been privatized. Such 
privatization can only mean good things for U.S. companies seeking to 
expand their markets.
  As the Brazilian Finance Minister in 1993 and 1994, Mr. Cardoso, 
along with other liberal economists, developed the ``Real Plan.'' This 
plan opened Brazil to foreign investment and pegged the Real--the 
Brazilian currency--to the U.S. dollar. This plan has been credited 
with lowering inflation from its high in 1994 to single digits this 
year.
  Yet, since mid-August, the economic debacles in Asia and Russia have 
pushed Brazil to the precipice of economic and financial collapse. The 
stakes for America and Americans are considerable. If the Brazilian 
economy fails, the financial crisis now gripping large parts of the 
rest of the world will be on America's doorstep.
  The huge Brazilian economy, the ninth largest in the world, is the 
backbone of Latin America. Economists warn that if Brazil's economy 
collapses, the economies of Argentina, Chile, and the rest of Latin 
America will be in serious peril.
  Almost twenty percent of our exports are purchased by Latin America 
and it is host to an increasing number of American-owned factories 
whose sales and profits are important contributors to the balance 
sheets of corporate America. A sharp reduction in the flow of this 
income, combined with the sharp reductions which have already occurred 
in Asia, would seriously imperil economic growth here in the U.S. As an 
economist at Salomon Smith Barney stated, ``there is just no way we can 
allow Brazil to fail.''
  The economic crises in Asia, Brazil and other parts of the world, are 
potentially particularly problematic for my home state of California. 
California is the world's seventh largest economy, it has a gross state 
product of more than $1 trillion, and is by far the nation's largest 
state market. It exports more than any other state in the country; and 
thus, not surprisingly sensitive to the financial crises faced by our 
trading partners.
  The Asian financial crisis is illustrative of this point. Because of 
California's geographical proximity to Asia, and what had been Asia's 
rapidly expanding economies, a growing number of California's exports 
were, and are, going to Asia.
  Of California's top 10 export markets, 6 are Asian. Moreover, forty-
four percent of all California exports are to Asia and approximately 
725,000 California jobs are supported by exports to Asia. During the 
first quarter of 1998, however, California's exports to Japan decreased 
by 12 percent, exports to Singapore decreased by 14 percent, to 
Indonesia by almost 25 percent, and to South Korea by 40 percent.
  Although Brazil ranked 17th among California's export markets in 
1997, Brazil's financial troubles do present added risks to 
California's ability to export goods and services. California's 
high technology companies have reportedly been building a presence in 
Brazil and a consumer class has emerged. Moreover, California's trade 
officials, and many California exporters, have said they had begun to 
look to the Latin American markets to offset the slowdown in Asia and 
help keep the state's exports growing--exports which are so vital to 
the California economy.

  Given this global economic interdependence, the question is--what can 
we, as legislators, do to help, aid, or assist in getting these 
distressed economies back on track?
  While there are some things we cannot do, like dictate or direct that 
countries follow economic practices and policies set forth by the U.S., 
there are things we can do. One of the things we can do, and I believe 
we must do, is provide technical and financial assistance to 
economically distressed countries through our participation in the 
International Monetary Fund--the IMF.
  Last September, while the Asian financial crisis was still unfolding, 
the IMF Executive Board agreed on quota increases for its members. The 
request for U.S. commitments to the IMF consists of: (1) $14.5 billion 
for our share of the increase in normal quota resources, and (2) $3.5 
billion for U.S. participation in the New Arrangements to Borrow, an 
addition to the Fund's emergency credit lines for use in systemic 
financial crises.
  In late March, the Senate, with strong bi-partisan support, voted to 
include the Administration's full IMF funding request, of approximately 
$18 billion, in its 1998 supplemental appropriations bill. The House, 
however, refused to include this funding in its supplemental 
appropriations bill.
  Although the House did agree to provide the IMF $3.4 billion in 
funding on September 17, that amount is far short of the $18 billion 
requested by the Administration, approved by the Senate and needed to 
help curb the economic crisis which threatens several regions around 
the globe. The House and Senate are now debating this important issue, 
and I support and encourage Chairman Stevens' steadfast insistence that 
the House recede to the Senate on the issue of full IMF funding.

[[Page S12019]]

  The IMF is the world's largest lender of last resort and is designed 
to foster trade and economic growth by helping maintain stability in 
the international monetary system. Countries join the Fund by agreeing 
to a capital subscription and abiding by rules set up in the Articles 
of Agreement.
  The 182 member countries may borrow money from the IMF to finance 
short-term balance of payment deficits and to help manage more serious 
longer-term financial imbalances. In return, borrowing countries must 
adopt economic policies negotiated with IMF economists, and approved by 
the Executive Board, designed to ensure the underlying problems which 
caused the crisis are corrected.
  These policies, or conditions, are market-oriented measures that vary 
depending on the situation, but often focus on reducing government 
spending, implementing banking and financial industry reforms, and 
taking often painful steps to control inflation. IMF loans to its 
members are repaid with interest. Although, the IMF has had to 
restructure some of the outstanding loan balances of the poorest 
countries, no country has ever defaulted on its IMF loan.
  It is important to note that in addition to U.S. economic interests, 
U.S. national security interests are also at risk as a result of the 
Asian economic crisis, as well as the economic crises in Russia and in 
other parts of the world. Many of the countries affected by the crisis 
are key strategic allies.
  The U.S. has 100,000 troops based in Asia, 37,000 on the Korean 
Peninsula alone. History has shown that economic distress and financial 
instability can threaten political stability and security.
  Mr. President, in closing I want to note my agreement with many of my 
colleagues who believe the IMF needs to make some reforms. I do not 
disagree. Chairman Greenspan said during his September 16 testimony 
before the House Banking Committee, ``I think that the IMF requires a 
fundamental review in all of its aspects, but not now, we need the 
structure of the IMF and its funding procedures and its conditionality, 
because that's all we've got.''
  I hope the House of Representatives will heed the words of Chairman 
Greenspan, and agree, as the Senate has already done, that it is in our 
national economic interest and our national security interest to 
provide full funding to the IMF.

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