- THE ROLE OF THE U.S. IN THE WORLD BANK AND MULTILATERAL DEVELOPMENT BANKS: BANK OVERSIGHT AND REQUESTED CAPITAL INCREASES

[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

THE ROLE OF THE U.S. IN THE WORLD
BANK AND MULTILATERAL DEVELOPMENT
BANKS: BANK OVERSIGHT AND REQUESTED
CAPITAL INCREASES

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HEARING

BEFORE THE

SUBCOMMITTEE ON

INTERNATIONAL MONETARY

POLICY AND TRADE

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

JUNE 14, 2011

__________

Printed for the use of the Committee on Financial Services

Serial No. 112-38

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67-933 WASHINGTON : 2011
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HOUSE COMMITTEE ON FINANCIAL SERVICES

SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

Larry C. Lavender, Chief of Staff
Subcommittee on International Monetary Policy and Trade

GARY G. MILLER, California, Chairman

ROBERT J. DOLD, Illinois, Vice CAROLYN McCARTHY, New York,
Chairman Ranking Member
RON PAUL, Texas GWEN MOORE, Wisconsin
DONALD A. MANZULLO, Illinois ANDRE CARSON, Indiana
JOHN CAMPBELL, California DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota ED PERLMUTTER, Colorado
THADDEUS G. McCOTTER, Michigan JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan

C O N T E N T S

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Page
Hearing held on:
June 14, 2011................................................ 1
Appendix:
June 14, 2011................................................ 25

WITNESSES
Tuesday, June 14, 2011

Brainard, Hon. Lael, Under Secretary for International Affairs,
U.S. Department of the Treasury................................ 5

APPENDIX

Prepared statements:
Miller, Hon. Gary G.......................................... 26
Brainard, Hon. Lael.......................................... 29

Additional Material Submitted for the Record

Dold, Hon. Robert J.:
Letter from the Business Roundtable et al.................... 35
Memorandum from the United States Transportation Command to
the Secretary of the Treasury.............................. 36

THE ROLE OF THE U.S. IN THE WORLD
BANK AND MULTILATERAL DEVELOPMENT
BANKS: BANK OVERSIGHT AND REQUESTED
CAPITAL INCREASES

----------

Tuesday, June 14, 2011

U.S. House of Representatives,
Subcommittee on International
Monetary Policy and Trade,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:35 p.m., in
room 2128, Rayburn House Office Building, Hon. Gary Miller
[chairman of the subcommittee] presiding.
Members present: Representatives Miller of California,
Dold, Manzullo, Campbell, Huizenga; McCarthy of New York, and
Carson.
Chairman Miller of California. This hearing will come to
order. Without objection, all members' opening statements will
be made a part of the record. With the agreement of the
minority ranking member, we are going to allow 10 minutes for
opening statements for each side.
Today's hearing is focused on the United States' role in
the World Bank and the multilateral development banks (MDBs).
The United States is a lead shareholder in the World Bank
and regional multilateral development banks. The Administration
has requested contributions to the capital at these
institutions. It has argued that such contributions are
important to retaining our leadership position.
Today, we begin the process of considering the
Administration's request for capital increases for the MDBs. I
look forward to hearing from Under Secretary Brainard--welcome;
it is good to have you here again today--on how these banks are
supporting many activities that are consistent with American
interests and American values.
For example, fragile and broken states represent
opportunities for terrorist actors to operate and threaten the
United States and its interests. MDBs can bring development and
stability to these areas, filling the vacuum that allows
terrorist actors free rein.
The MDBs are hard at work in Afghanistan supporting the
U.S. mission. General Petraeus has spoken about the importance
of the Asian Development Bank's work to develop much-needed
infrastructure across Afghanistan.
As North Africa and the Middle East undergo tumultuous
transitions, the MDBs are able to provide technical assistance
and capital to nations enacting democratic reforms and moving
forward in a sustainable and positive manner.
In addition, the MDBs are making progress on regional
integration in Africa, which holds promise for improving
commerce and addressing many of the long-term issues that have
exacerbated famine and poverty across the continent. The MDBs
provide poor countries across Africa an alternative to China
for development finance and natural resource development.
MDBs allow the United States to leverage its resources
alongside those of other member nations to achieve U.S.
interests. As part of that model, MDBs must adopt necessary
controls to ensure MDB actions achieve desired outcomes, and
the borrowing nations must move toward the ability to borrow
from private markets.
Our subcommittee's goal is to ensure the World Bank and
regional multilateral development banks are using U.S.
resources in a transparent, corruption-free, and effective
manner before committing U.S. taxpayers' funds to these
institutions. The United States must use its leadership
position at the banks to fight for the end of corruption and to
make sure that all lending is conducted through transparent and
accountable processes.
We cannot lose sight of the fact that these requests are
coming at a time when our country must focus on getting our own
massive debt under control. While the United States has a vital
interest in continuing to assist emerging economies to
implement economic, political, and social reforms, we cannot
overlook the costs. During these economically challenging
times, Congress must continue to make the difficult choices
necessary to reduce the debt and grow our economy, while also
furthering U.S. strategic interests around the world.
The American people are demanding that their government
learn to live within its means and stop spending borrowed
money. The fact is, we cannot continue to borrow 40 cents on
the dollar and pass on the debt to future generations to repay.
We must prioritize Federal dollars to ensure essential needs
are provided for, and do more with less, just as American
families and small businesses have had to do during these lean
economic times.
It is with these financial constraints at the forefront of
our minds that the subcommittee will assess the
Administration's request for funding. Today's hearing will give
Members the opportunity to hear from the Administration about
their rationale for the specific funding requests made for each
MDB.
Before we act, we want to understand clearly the
consequences to global and U.S. economic and security interests
from any delay or reduction in the amount requested by the
Administration. Specifically, it is our hope that today's
hearing will: highlight the role of the MDBs and their
relevance in today's world; discuss the benefits to the United
States of its membership in the MDBs, including the impact of
the MDBs on the U.S. economy and U.S. strategic interests
around the world; examine how the current role of the United
States at the MDBs allows for the influence of day-to-day
operations at these institutions and shapes their medium- and
long-term goals; detail the reforms that the MDBs have agreed
to implement as part of their general capital increases; and
explore what additional reforms are needed at each MDB to
improve their operations and combat fraud and corruption.
In conclusion, since I accepted the gavel of this
subcommittee, I have said that the agenda will be focused on
four things: one, job creation; two, global competitiveness;
three, economic growth and stability; and four, protecting
taxpayers.
This is the lens under which we will review the
Administration's request for funding for the MDBs. Our ultimate
goal is to promote favorable conditions around the world for
American companies in order to increase U.S. exports, and
thereby create jobs in the United States.
Through development activities, the MDBs help contribute to
stability around the world, opening markets for our companies
to engage. By ensuring the global environment is stable,
American companies can thrive and contribute to robust economic
growth.
I yield 5 minutes to Ranking Member McCarthy.
Mrs. McCarthy of New York. Thank you, Chairman Miller, for
holding this important hearing. And I also would like to
welcome Under Secretary Brainard here this afternoon to discuss
the role and the operation of the multilateral development
banks and the role of the United States in these institutions.
Development banks are owned by member countries and provide
financial and technical assistance through loans and grants to
emerging markets in developing countries for investment
projects and policy-based loans. For even the poorest countries
that are too unstable to borrow from the private markets,
development banks provide assistance for fundamental projects
such as health services, clean water, sanitation, and
agriculture through low-interest loans with longer repayment
options.
The United States has played a leading role in developing a
policy agenda to ensure our financial contributions will be
leveraged by other donors and borrowers, and that investments
made by the institutions directly support our priorities.
We receive a great deal of value from our contributions to
these institutions, such as increased markets for U.S. exports
and enhanced national security through investments in
industries that promote long-term stability for a conflict
country.
A long-term member of the various development institutions,
the United States is the largest shareholder in the World Bank
and in the Inter-American Development Bank. By fulfilling our
contributions and maintaining shareholder position, we create
economical growth opportunities in emerging markets and
maintain global competition.
The financial crisis brought an increased demand in support
for the multilateral development banks, requiring them to seek
additional resources from their member countries to allow for
substantial lending. Under these general capital increases,
member countries agreed to increase support to the development
banks by purchasing additional shares in the institution.
I recognize that our Nation is faced with serious fiscal
challenges that must be addressed. Fulfilling our funding
commitment to the multilateral development banks and pledge for
general capital increases enables us to strengthen our domestic
economy and enhance national security, as well as promote
economical development, good governance, and stability in
developing countries.
I do look forward to hearing your testimony, and I yield
back the balance of my time
Chairman Miller of California. Thank you. Vice Chairman
Dold is now recognized for 3 minutes.
Mr. Dold. Thank you, Mr. Chairman. And I want to thank you
for calling this important hearing. And I certainly want to
thank the Under Secretary for your time and for your testimony
today.
It is to our benefit and the entire world's benefit that
America has been and remains the world's economic, military,
political and, I would argue, cultural leader. We did not
achieve our world leadership position through fearful
isolation. We achieved our world leadership position by
energetically engaging with the world through trade,
investment, security arrangements, diplomacy, and foreign aid.
While we can always do better, and while we will always
have problems, our world leadership position has made America
and the world more open, more prosperous, more secure, and more
free. And for many decades, the World Bank has been one of the
most important and most effective instruments of American
leadership.
Through the World Bank, America has been able to influence
corrupt and tyrannical governments to become more open, more
transparent, more peaceful, and more humane. Through the World
Bank, America has been able to influence foreign nations to
open their markets to American exports and to American
investment.
We have seen the World Bank have great success in places
such as Indonesia, Korea, Africa, and Eastern Europe, which has
helped create more security and more economic prosperity right
here at home. Now, we see this great promise of a rapidly
reforming Middle East where people are demanding more political
freedom, government transparency, and economic opportunity. I
expect that, as in the past, the World Bank will play an
important role, which will in turn make the rest of the world
more secure and more prosperous.
Our military leaders recognize how important these
multilateral development banks are to our own national
security. General Petraeus and Commander Duncan McNabb have
written a letter emphasizing the importance of the multilateral
development banks to our own strategic interests, and I would
ask the chairman for unanimous consent to submit this letter
for the record.
Chairman Miller of California. Without objection, it is so
ordered.
Mr. Dold. Our business leaders through various business
organizations have recently written to the United States
Congress to emphasize the vital importance of the MDBs in
promoting our own export markets, economic development, and
American leadership. I am convinced that the relatively small
amount that we spend on the World Bank funding pays huge
dividends in money we don't need to spend on military action
and money that we don't need to spend on increased security
measures and on economic prosperity that we receive through new
markets for our businesses all across the land.
We all benefit greatly in both tangible and intangible ways
from America's great influence in the world, and the World Bank
is one of our best assets for maintaining this influence, all
at a relatively low cost.
I realize that Federal spending is dramatically out of
control and must be dramatically reduced. However, we must fund
our priorities, and these programs provide significant value.
With that, I yield back the balance of my time.
Chairman Miller of California. Thank you. I now have the
honor of introducing the Honorable Dr. Lael Brainard, who is
the Under Secretary of Treasury for International Affairs. Dr.
Brainard has spent most of her professional life as a devoted
public servant, working to further understanding of
competitiveness, trade, international economics, foreign
assistance, and global poverty.
During her tenure at Treasury, Dr. Brainard heads the
Administration's agenda of strengthening U.S. leadership in
global economies to foster growth, create economic
opportunities for Americans, and address transitional economic
challenges, including development, climate change, food
security, and financial inclusion.
I love this next part. Dr. Brainard is the highest ranking
female Treasury official in American history--kudos to you--and
plays a critical role as the most important financial diplomat
in the Administration's efforts to sustain recovery from the
financial crisis and strengthen global growth.
The Honorable Dr. Brainard is recognized for 5 minutes.

STATEMENT OF THE HONORABLE LAEL BRAINARD, UNDER SECRETARY FOR
INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY

Ms. Brainard. Thank you very much. I want to just express
my appreciation to Chairman Miller, to Ranking Member McCarthy,
and to the distinguished members of this subcommittee for
holding this hearing on this very important topic.
The Administration's pending requests to recapitalize and
replenish the multilateral development banks come at a moment
of extraordinary importance. New powers, such as China, are
expanding their global influence and investments. Historic
transformations are sweeping the Middle East and North Africa.
And as we witnessed during the recent financial crisis, in
today's highly interconnected global economy, currents can
shift suddenly, leaving the world's poorest even more
vulnerable.
At this critical time, America's leadership and investment
in these institutions yields significant returns. The numbers
speak for themselves. For each $1 that the United States
contributes to replenish IDA and the African Development Fund,
we leverage $25 of multilateral development investments. Our
investments in Fiscal Year 2012 alone will leverage over $95
billion of MDB financing off a base that is below 3. But the
most important reason for our engagement is the people who are
helped by these investments.
In Zambia, U.S. investments have helped reduce malaria
deaths by 50 percent. In Moldova, mother-to-child HIV
transmission has decreased by 90 percent. And in Benin, more
than 2 million insecticide-treated nets have been provided by
the MDBs.
Let me briefly touch on four reasons why we are seeking
authorizations from this committee for our MDB commitments.
First, these institutions have long advanced U.S. global
leadership and provided unrivaled leverage. If we do not secure
congressional authorization for recapitalization and
replenishment, U.S. leadership will surely wane. At the World
Bank, we would risk our unique veto over changes to the
Articles of Agreement, which protect our prerogatives on bank
membership and leadership. At the African Development Bank, the
United States would miss our next payment, reducing U.S.
shareholding by two-thirds, and putting our seat on the board
of directors in jeopardy. And at the Inter-American Development
Bank, no contributions can be made by any member unless the
United States contributes.
So being unable to participate for lack of authorization
would deny the IDB of any funding. This would be interpreted as
a retreat on the part of the United States from Latin America
at the very time that China and others are deliberately
increasing their presence in this institution and in this
resource-rich region.
These are once-in-a-generation investments. In 1988,
President Reagan secured authorization for the last
recapitalization of the World Bank. The U.S. capital
contribution at that time of $420 billion supported $325
billion in key investments over the next quarter century, a
multiplier of 800 to 1. We are all familiar with the record of
achievements secured by those investments: transition to
democracy and to market economies throughout Central and
Eastern Europe, South Korea, and Indonesia; the growth of
stable democracies following the Cold War; and stronger
national security for the United States.
Second, today we see a similar opportunity in the Middle
East and North Africa. The success of the historic
transformations now under way in countries like Egypt and
Tunisia will depend on whether democracy delivers on its
promise of freedom and opportunity. By investing again today in
the multilateral development banks, we will secure brighter
futures for the generation gaining a voice in those countries
and for Americans as we strengthen our foreign security and
economic partners.
The MDBs are already at work to support Egypt and Tunisia.
At the recent G-8 summit, they committed to providing $20
billion of investments to stabilize economies, invest in
private sector growth, and promote greater accountability,
transparency, and the fair rule of law, an investment many
times larger than we would be able to make ourselves.
Third, over the past 3 decades, investments by these
important development banks have helped foster peace,
stability, and growth in countries emerging from conflict,
including Bosnia, Rwanda, and Liberia. In Afghanistan today,
the World Bank and the Asian Development Bank are the second
and third largest donors after the United States, building
critical infrastructure like the Ring Road and the Uzbek-Afghan
railroad. And as was noted here, both General Petraeus and
General McNabb have noted that these projects are vital to the
success of the U.S. strategy in both Afghanistan and the
region.
The MDBs are also on the front lines with us when disasters
and conflicts leave countries weak and vulnerable. Today, the
World Bank is assisting refugees fleeing repression in Libya.
When the devastating tsunami hit Aceh in 2004, the MDBs
immediately formed a new recovery and reconstruction fund to
address urgent health crises, feed school children, and rebuild
canals and bridges. And again, they did the same following the
devastating earthquake in Haiti.
Fourth, the multilateral development banks play a vital
role in advancing our commercial and economic interests. They
build the roads and ports to get our products to new markets.
They build the soft infrastructure that makes markets work,
reducing trade barriers, improving property rights, and
slashing red tape.
In infrastructure, the multilateral banks help to level the
playing field for U.S. companies to compete. The alternative to
multilateral development bank financing for infrastructure in
too many of these countries is borrowing from countries like
China.
In contrast, the development banks, due to our leadership,
have rigorous safeguards to protect the environment, uphold the
rights of vulnerable populations, and combat corruption. They
establish fair and consistent rules that create opportunities
for U.S. companies to invest.
And finally, we have consulted closely with Congress
throughout the negotiations over the recapitalization and
replenishment of these institutions, and the reforms in these
institutions show the results of those consultations. We have
made disclosure of significant policy documents the norm. We
have put in place procurement rules to ensure companies have a
fair chance to compete, and secured more effective internal
audits to prevent and deter corruption.
We have achieved higher standards for results. Indeed, a
recent study by the Center for Global Development ranked IDA at
the very top in development effectiveness among a large field
of bilateral and multilateral development agencies.
As our key partners in alleviating poverty, strengthening
national security, and fostering economic growth and
prosperity, we seek your support in reaffirming U.S. leadership
in the multilateral development banks.
Thank you.
[The prepared statement of Under Secretary Brainard can be
found on page 29 of the appendix.]
Chairman Miller of California. Thank you, Under Secretary.
I want to thank you for your candidness on the process. You
have been forthright in providing the information we have
needed. Ex-Im was a great example of that. You have expressed
the concerns you have, the benefits you saw. There seems to be
a nexus between MDBs and Ex-Im, as I listen to your testimony.
I guess my concern would be, what consequences would there
be for the United States if we didn't authorize your requests?
And are there consequences the institution would suffer in the
ability they have to do their business? Can you explain the
importance of the United States maintaining a leadership
position?
Ms. Brainard. I think there are very direct and measurable
consequences. As was noted earlier, we have built up our
position of leadership in these institutions over decades, and
it would be a terrible cost to us to forfeit that leadership at
a time when it seems more important than ever.
At the World Bank, if we were not able to support our
capital contribution, we would have the risk of forfeiting our
veto. We are the largest shareholder, and we are the only
country that has a veto at the World Bank at present. And of
course, with that, goes a long history of having an ability to
provide leadership in direct policy directions in that
institution.
At the African Development Bank, if we fall behind, we risk
our seat on the board of directors. We are the largest
nonregional shareholder in the African Development Bank. And as
you know, that institution sits in a region of the world where
poverty is greater than in any other region, but so too we
believe the opportunities for infrastructure, for food
security, for a whole host of things in poverty alleviation and
post-conflict development that are critical to the United
States and have the greatest potential to be realized.
At the Inter-American Development Bank, we are again the
largest single shareholder. And in that institution, if we were
unable to move forward with our share on the recapitalization,
we would actually hold up the entire institution from moving
forward, jeopardizing our investments in our own neighborhood,
and very importantly an important agreement that we secured to
have $2 billion worth of grant financing directed to Haiti.
So in all of these cases, we secured very important reforms
that will lead to loan pricing to middle-income countries that
will allow greater resources to be transferred over to the
facilities for the poorest countries. We secured very important
reforms on measuring development effectiveness and achieving
results, on transparency, on procurement that is very important
to our companies.
And so all the things that we all mentioned earlier,
whether it be on economic advancement for our companies around
the world in these very fast-growing markets, whether it be on
ensuring stability in fragile states, responding to natural
disasters, supporting the historic transformations now under
way in the Middle East, all of those things we believe could be
put at some risk if we are not able to move forward on these
authorizations.
Chairman Miller of California. How did the Treasury come to
the conclusion that capital increases were necessary? And the
levels you prepared for Congress for the capital increases and
for replenishment, how did you arrive at those?
Ms. Brainard. In all cases, the institutions came to us as
shareholders only after they had undertaken a great deal of
analysis internally. As you know, these institutions very
rarely get recapitalized. The last time we put additional
capital into the World Bank was in 1988. So these are often
once-in-a-generation investments. And I can't think of a time
when all of the institutions needed capital, or most of them,
at the same time.
In the wake of the financial crisis, when these
institutions responded as we prioritized them to do, which was
to support trade flows--as you may recall, there was a collapse
in trade financing that threatened our exports as much as any
country's, as well as threatened to throw a whole generation
back into poverty in many countries--these institutions really
stepped up and disbursed and made a measurable difference in
these economies. And as a result, their lending levels rose,
putting into jeopardy their ability to continue lending in
future years.
So if you look at the African Development Bank, if we had
not approved an increase in their capital, their lending in
that critically important region would have fallen below $1
billion, which would have been a huge step backwards. And I
think you can tell the same story in each institution.
The one thing I will note is that in almost every case, we
pushed very hard to ensure that the capital increases would get
us maximum value for each dollar invested. And they are in most
cases much smaller than was originally requested, in part
because we encouraged the institutions to push their own
internal financial transfer mechanisms very hard, to raise
their pricing on loans in some cases, and to transfer more
money to the facilities for the poorest countries.
So if you take the Inter-American Development Bank for
instance, they had originally envisaged a 200 percent capital
increase. And after spending a lot of time with them and with
you on the numbers, I think they recognized that they could
accomplish the same with a much smaller increase in their
capital of 70 percent. And in each case, in the EBRD, the
European Bank for Reconstruction Development, which will now be
reorienting its operations to make room for Egypt and Tunisia
and play the same role there that they played in Central and
Eastern Europe, we actually called on them to use their
existing capital more effectively. So that while we need an
authorization, there won't actually be a need for additional
U.S. dollars going into that institution.
So we tried to stretch our dollars as much as we possibly
could in each case, and I think the results will multiply our
leverage and accomplish our goals in a smart way.
Chairman Miller of California. I think it is important that
we allow Dr. Brainard time to respond adequately to our
questions. I think we easily have time for two rounds of
questions. That is why I didn't try to cut her off. I think it
is important to hear what she has to say. So I would encourage
you to get your responses, because you will have a second
opportunity.
Ranking Member McCarthy, you are recognized for 5 minutes.
Mrs. McCarthy of New York. Thank you. I appreciate it. I
appreciate the testimony. And certainly, great minds must think
alike, because I was going to ask the question that Chairman
Miller asked you in the beginning, what would happen if we
defaulted on not putting our share of money up. And I think it
is important, certainly for the Members of Congress, but also
people who actually watch this show--I can't tell you how many
times when we go home as Members and people are saying, yes, we
are having tough times here in this country. Why are we giving
money to the World Bank? Why are we giving money to other
nations? And it is our job to be able to explain that to them
on how it does have an effect on our folks back home.
But I think I would like to--you have provided in your
testimony some good examples of the opportunities that
multilateral development bank lending provides for the United
States businesses growth through procurement context. But I
think if you could go into a little bit more with the general
capital increase providing increased lending by the
multilateral development banks, how much more of an opportunity
do you anticipate for United States business growth? And just
if you could touch on, because I can come back to it later,
when we talk about global threats and how the World Bank does
play in protecting this country, because I think again that is
something that people back home need to know.
Ms. Brainard. Let me just respond first by saying I think
we all are struggling to find the best, smartest way to
leverage U.S. taxpayer dollars at a period of belt tightening
around the country. And I believe that in part because of the
agreements that we have reached with each of these
institutions, and in part because of the lending model that
they employ, these are some of the smartest investments of U.S.
taxpayer money that we can think of. They are investments in
expanded economic opportunities for our firms. They are
investments in prevention. It is much cheaper to be helping
countries to develop and grow and address poverty than it is to
have to send in troops when they descend into conflict because
of poverty and stresses over resources.
With regard to some of the leverage numbers, again, because
we invest in these institutions rarely, and they use their
capital in very smart ways, a dollar invested in 1988 in the
World Bank leveraged over $800 in investments over the
subsequent 2 decades. And we think that the same kinds of
results will come from our investments today.
With regard to the commercial opportunities that these
institutions foster for our companies, I think the support that
we see from the business community and that was referenced
earlier really speaks for itself. The U.S. business community
is very supportive of these institutions because they benefit
our economic interests both directly and indirectly, indirectly
by building those bridges and roads and railroads and ports
that enable us to get our products into these countries. And by
creating the rules, lowering the trade barriers, getting rid of
the red tape makes it much easier for our exporters to sell to
consumers in Brazil or in India, around the world.
If you look at direct opportunities that are provided by
these institutions, the procurement rules that they put into
place are rules that often govern not only the procurements
that are directly associated with development banks, but also
lead to more transparent and open bidding processes for
projects more generally in those countries. And it really gives
our companies a chance to compete on the strength of their
products.
If you look in the most direct way, I am just going to cite
a few companies because you mentioned that, if you look at the
procurements that have been made, TCI International of
California won a contract to equip Malawi's utilities. Learning
Resources of Illinois supplies educational materials to
education projects in Honduras. Abbott Laboratories in Illinois
won a contract to provide antiretroviral drugs to rural
Cambodia. And the list goes on.
So there are also direct procurement contracts. And we are
going to keep working to ensure that these institutions promote
U.S. economic opportunities.
Chairman Miller of California. Vice Chairman Dold is
recognized for 5 minutes.
Mr. Dold. Thank you very much, Ms. Brainard. My
understanding is that the Argentinian Government has recently
become the first country in the 30-year history of the
International Center for Settlement of Investment Disputes,
which is the most widely used international arbital body in the
world, and they refused voluntary payment of the awards that
came out of that body. And I am sure you would agree that
Argentina's actions are not only harmful to the United States
businesses that have invested in Argentina, but that the
Argentinian Government is establishing what I would call a very
dangerous precedent that other countries, particularly those in
Latin America, may follow suit. Although the World Bank can
take unilateral action to help preserve the integrity of the
ICSID process through the bank's operational policies, it has
thus far not done so.
Therefore, what actions can the United States Government
take to compel Argentina to comply with its international
treaty obligations? And if government-to-government measures
are not successful, do you agree that it is appropriate to
prohibit financing from multilateral institutions to countries
that refuse to comply with their treaty obligations?
Ms. Brainard. We think it is very important for countries
to abide by the international obligations that they have taken
on and to enter into dispute settlement proceedings through
ICSID in a way that they actually respect the process. We are
engaged through the MDBs as well as the IMF, and will continue
to try to engage bilaterally with Argentina to address the
various international discussions and decisions where they have
not so far been in compliance. And we are happy to consult with
you closely as those processes continue.
Mr. Dold. Great. The Administration has requested increases
for all of the MDBs. I certainly know that they stretch the
dollar. And I know it is good for exports and for business. Mr.
Chairman, I would like to, if I may, submit for the record a
letter that we received from the Business Roundtable and the
Coalition for Employment Through Exports and other business
organizations, if I may.
Chairman Miller of California. Without objection, it is so
ordered.
Mr. Dold. Also, there was a poll that was recently done not
too long ago, I think by the University of Maryland, that
polled the American public about the amount of money that we
are spending on foreign aid. They came back and said they
thought it was about 25 percent. And then when asked how much
should we be spending, they said, well, maybe only 10 percent.
In actuality, it is only about 1 percent is what we are
actually spending on foreign aid. And a fraction of that is
actually being spent on the World Bank and the other MDBs.
But just from your perspective, how can the Administration,
how can the Federal Government do a better job of getting that
information out to the American public to let them know indeed
what are relatively minor outlays? And yet we do face a
significant deficit and debt issue that the Federal Government
is spending more money than we should. But how do we get that
message out that our priorities still need to be funded? And
this is what I would consider to be an outstanding way for the
United States to be able to be spending these resources, and
spreading our influence across the globe.
Ms. Brainard. I share the priority you put on that. I think
American citizens, when they understand, and even better when
they have the opportunity to witness firsthand the work in the
field of these institutions, as well as, of course, as USAID
and the work that we do bilaterally, they become extremely
supportive of these institutions. And we also know from talking
to Americans around the country, and also from polling, that
the kinds of values and goals that these institutions support,
rebuilding economies in the wake of disasters, in the wake of
conflict, addressing deprivations associated with poverty,
addressing food security, all of these things are things that
Americans care about, and in their own volunteer time and with
their own voluntary contributions they themselves directly
support.
So what we try to do is to connect with some of the
organizations, whether they be faith-based or nongovernmental
organizations, where Americans come together to express support
for the goals of these institutions. The President talks a lot
about these issues. He has talked a lot about food security,
which is something that we have been working very hard to
promote through all the multilateral development banks, where
they are doing really terrific work. And he talked about it
just a few weeks ago when he talked about the incredible work
that the multilateral development banks are going to do in
supporting the historic transformations now under way in Egypt,
in Tunisia, and elsewhere in the Middle East, where these
institutions really uniquely have both the scale and the
staying power to help underwrite the many years that will be
required to transform these economies to be able to give the
young people who ushered in these historic transformations
brighter futures.
Mr. Dold. Thank you, Under Secretary Brainard.
Chairman Miller of California. The gentleman from
California, Mr. Campbell, is recognized for 5 minutes.
Mr. Campbell. Thank you, Mr. Chairman. I have a couple of
questions. Just following up on that Argentina discussion, the
World Bank is loaning money to Argentina. I thought that we
were supposed to be loaning to underdeveloped countries.
Argentina is obviously a developed, established country. Is the
World Bank making loans like that as well?
Ms. Brainard. Just to step back for a second, the issue for
Argentina really is settling outstanding claims, as opposed to
moving forward on new loans. But more generally, the World Bank
and each of the multilateral development banks have a set of
activities that they do with countries which are middle-income
countries and a set of activities they do with the poorest
countries. Those two sets of activities reinforce each other.
So, for instance, if you look at Egypt and Tunisia, those
are middle-income countries. But they have tremendous needs to
develop infrastructure to support growth, to develop better
financing models so that small businesses can flourish, and
young people can start businesses and get jobs and build
futures. So when we look to supporting the economic
transformations that have to take place to support democratic
transition in Egypt and Tunisia, what the World Bank and the
African Development Bank uniquely will bring is a set of policy
changes that will go hand-in-hand with the medium-term reforms
these economies are undertaking. So just as Egypt may be
investing in small or medium-sized enterprise creation, so too
the World Bank and the African Development Bank will encourage
them to undertake reforms that make it easier for fruit vendors
to register their businesses. As you remember, that was one of
the issues that touched off the uprisings in Tunisia, that make
it easier for entrepreneurs who may be young or who don't have
a lot of capital to register businesses and to raise capital,
to put in place more mechanisms to combat corruption.
Mr. Campbell. Okay. Let me just get to a couple of other
things. You mentioned the consequences if we didn't do this,
and that our percentage of the multilateral banks, etc., and so
forth would be recused. What is the problem with that? Why not
say that in the G-20, the other 19 ought to carry more of the
load? Maybe they ought to carry more of the share, and maybe we
shouldn't be dominant? Maybe we shouldn't be controlling all
this. We are not the only country that exports to these places.
Germany does, as well as Britain, France, China, Japan, and
others. Why not let them carry more of the load?
Ms. Brainard. I think what you will see is that to some
degree we are seeing a shift in shareholding in these
institutions. But the countries that want to share that load,
the countries, China for instance, would like to expand its
share in the World Bank, they would like to be represented in
the Inter-American Development Bank. They would like to have
greater participation in the African Development Bank. Why?
Because they see tremendous opportunities in these regions for
their businesses and also to exercise leadership positions.
I think for us, we have traditionally been able to wield
disproportionate influence in these institutions because of our
leadership position. We have, uniquely, a veto at the World
Bank. We are the only non-regional shareholder, the largest
that has its own seat at the African Development Bank. These
are investments that we have made over time because we think it
is important to our companies, we think it is very important to
our national security in places like Afghanistan, and we
believe that by exercising leadership in these institutions, we
advance our national goals.
Mr. Campbell. Let me ask you one more, because I could
follow up with that, but we will come back, and then Mr.
Manzullo may follow up on this. But you mentioned, you said
that a dollar invested had been turned over 800 times or
whatever. If that is the case, why don't we get paid back? In
other words, why do we need to invest more? Why doesn't the
World Bank generate its own capital to continue forward?
Ms. Brainard. The World Bank actually has an internal
funding model that we have helped to encourage, which does
actually take the reflows from some of the lending to the
emerging markets, those economies that started out much poorer
and are now growing in wealth because of these investments in
many respects, and are also growing as our consumer markets,
and takes those reflows and uses them to provide financing to
the poorest countries. So the way that we have structured our
investments in these institutions has been to try to get
greater contributions from the lending that we do to middle-
income countries so we actually do essentially make our
contributions to the poorest countries smaller by transferring
those reflows to the poorest countries.
Mr. Campbell. Okay. Thank you.
Chairman Miller of California. The gentleman from Indiana,
Mr. Carson, is recognized for 5 minutes.
Mr. Carson. Thank you, Mr. Chairman. Madam Secretary, I
have a question. Does the World Bank plan to implement improved
strategies to reduce poverty in countries by aiming a set of
metrics only on boosting overall growth? It is evident that
this strategy may miss opportunities to reduce poverty. I
understand the reasoning behind focusing on sectors with growth
potential, allowing for relatively quick payoffs. However, do
these strategies really impact poverty reduction in the most
efficient way?
Ms. Brainard. I think at least with regard to the lending
facility and the grant making facility for the poorest
countries, IDA, we have seen that they are ranked very highly.
There was a study done by the Center for Global Development
which saw IDA as among the most effective on promoting
development and addressing poverty among about 150 agencies
that they looked at.
So I think the answer is yes, we push them very hard. And
we know this is something that Members of Congress care a great
deal about, to be very focused on poverty reduction and on food
security, where they have a lot of their resources devoted, as
does the African Development Bank, and in coming up with
programs that not just address food security today, but put
smallholder farms in a much better position to grow more and
earn more for their families and allow their kids to go to
school and get themselves out of poverty traps over time.
Mr. Carson. Are you worried that if the United States cuts
funding for MDBs that it is tantamount to allowing China, for
example, to expand influence in Africa and other developing
nations, as was recently explained by Secretary Geithner?
Ms. Brainard. I am worried. I would note simply that there
is a huge interest on the part of many of the emerging markets
to expand their share at these institutions, again because I
think they see them, as we do, as very important for
influencing the policy frameworks in these countries, for
influencing the infrastructure investment plans, and for
influencing how easy it is for our exporters to do business in
these countries.
So our leadership matters. And I think if we allow it to
wane, there will be other countries that are only too happy to
take up our shares.
Mr. Carson. Thank you, Madam Secretary. Thank you, Mr.
Chairman. I yield back my time.
Chairman Miller of California. The gentleman from Illinois,
Mr. Manzullo, is recognized for 5 minutes.
Mr. Manzullo. Thank you, Madam Secretary. It is good to see
you again. I have some real problems with regard to the
practice of the World Bank talking about helping out other
countries with loans to medium-sized and small businesses, and
yet the regulatory environment that we have in this country, I
have constituents back home who can't get loans--they are
collateralized and everything--based upon the harsh regulatory
environment of the OCC, the FDIC, etc., and the examiners
classifying loans at banks that should not be classified. And I
find it very difficult to vote for money to give to the World
Bank, especially on the premise, and I know you didn't mean it
in your statement, that the man who torched himself in Tunisia,
if he had had access to World Bank money, would be alive today.
You called that an act of courage and quest for dignity.
I am having problems with the whole approach here,
especially when you throw in with what Mr. Dold said about
Argentina. Courts of jurisdiction, recognized in the legal
system, applying the rule of law, have ordered Argentina to pay
these debts not only to bondholders, U.S. bondholders, but to
taxpayers who have invested our certificates with them. And as
recently as April 28th of this year, long after Members of
Congress had bitterly complained to the World Bank to cut off
Argentina, the World Bank notwithstanding gave another $400
million to Argentina. This could be the demise of the World
Bank unless something happens with Argentina. It is not just
one country.
How do you address my constituents who can't get money to
run their businesses and tell them, by the way, let's give $3.5
billion to the multilateral development banks, especially when
President Obama said he wants another $40 billion to give to
these Arab countries so they can be taught democracy,
ostensibly with the African Development Bank and the World
Bank?
Ms. Brainard. Let me just say I know your passion for small
business and ensuring they get access to credit. I certainly
share it. It is something that I know people at Treasury on the
domestic finance side care a great deal about and are working
very hard to address. We also think it is important around the
world to make sure that credit flows to small businesses in
part because that is key to development, and in part because it
creates great opportunities for our exporters, as consumers and
their business customers in developing countries grow and are
able to purchase their goods.
Mr. Manzullo. If the World Bank is lending money, you
mentioned some Fortune 500 company, if the money is being
loaned, why isn't it being repaid back?
Ms. Brainard. Let me just be a little bit clearer in terms
of the authorization for the World Bank, let's just take that
for example. It is approximately $190 million for 1 year, and
that takes place over 5 years. And then, we essentially don't
fund it again for probably 2 decades. During that time, the
United States retains its paid in capital during the World
Bank, but that money is put to work as it would be in any well-
run financial institution.
Mr. Manzullo. Then why do you keep on coming back for more?
Ms. Brainard. And what that money does is it invests in
peace and prosperity and stability around the world.
Mr. Manzullo. I understand. I am asking--
Ms. Brainard. Which I think takes the burden off of--
Mr. Manzullo. I am not talking about peace and prosperity.
I am talking about people who are broke and can't get money
from banks. If these investments are working, then why isn't
the World Bank working like a bank, as opposed to doling out or
losing $190 million a year?
Ms. Brainard. The World Bank is not losing any money.
Mr. Manzullo. Then why are you seeking--
Ms. Brainard. The contribution--let me go back to 1988,
when President Reagan requested a capital infusion for the
World Bank. This was the last time, 1988. We have not had a
request like this for nearly a quarter of a century. He got
approval from Congress for an investment of $420 million at the
time. It is a very comparable number in many respects to
today's number.
Mr. Manzullo. I understand that.
Ms. Brainard. And those institutions did not need to expand
their lending beyond that over the subsequent 23 years. They
came back to their shareholders at this time both because it is
a period of extraordinary opportunity, and because they had
stepped up and supported trade financing and financing to
shield poor populations during the financial crisis.
Mr. Manzullo. I know my time has run out. What I am trying
to emphasize to you is you may not get any money. It is very
possible you are not going to get $190 million for 5 years. And
my question is, if the bank is so successful, why can't you run
it like a bank and not depend upon taxpayers for a subsidy?
That was my question.
And my time has run out, so I don't know if I am going to
get an answer on that.
Chairman Miller of California. You are welcome to answer if
you have time.
Ms. Brainard. The way that we think about these investments
is they are investments. And essentially, we provide--the U.S.
Government puts a capital investment into the World Bank, and
then that money works for the United States over 2-plus decades
in expanding markets in places around the world.
If you think about the growth of countries like Brazil,
India, Vietnam, all of those countries were very poor
beneficiaries of multilateral development banks. They are now
huge customers for our products, and they are also in many
cases supporters and partners in our endeavors in building
market economies around the world and in supporting peace and
stability around the world. So these are very good investments
for the United States, and we hope that there will be a lot of
support for them.
Chairman Miller of California. The gentleman from Illinois,
Mr. Huizenga, is recognized for 5 minutes.
Mr. Huizenga. Thank you, Mr. Chairman. I have a quick
question. Along this path, what do you believe are the
consequences if we do not put this funding out there, if there
are any? And elaborate on that a little bit.
Ms. Brainard. I think the consequences across-the-board in
the institutions is that we will lose ground. We will signal to
the world that we are shifting our posture, that we no longer
are going to exercise leadership in these institutions. And
again--
Mr. Huizenga. Lose ground to whom? And lose ground in what?
Ms. Brainard. In the case of the World Bank, if we are not
able to secure authorization, we will lose our veto. We are the
only country that has a veto on fundamental governance changes
at the World Bank. And we will jeopardize our leadership
position. This is the flagship institution of the global
system.
In the case of the African Development Bank, we will put in
jeopardy our seat on the board, which allows us to vote on very
important issues.
Mr. Huizenga. I am sorry, and this is just if we don't
increase our standing. We are not talking about removing
ourselves, right? This is talking about an increase?
Ms. Brainard. What will happen is because the other
countries, and you asked who will be interested in expanding
their share, China is very interested in expanding their share
for obvious reasons. In fact, most emerging markets and many
European countries would be very happy to expand their shares
if we decided to forfeit ours at all of these institutions, at
the World Bank, at the African Development Bank, at the Inter-
American Development Bank, and at the European Bank for
Reconstruction and Development. So by simply standing still we
will jeopardize our veto at the World Bank, we will jeopardize
our board seat at the African Development Bank, and in the case
of the Inter-American Development Bank, we will simply paralyze
the institution's ability to get funding from other countries,
which will jeopardize the $2 billion in grant financing that we
secured from all of the countries in the region for Haiti.
Mr. Huizenga. So are we the front end of this, or the back
end of this, or in the middle of this? Have other countries
made commitments, or are they waiting for us to make this
commitment?
Ms. Brainard. Countries are moving very quickly. For
instance in the Asian Development Bank, we have already fallen
to I think the 8th position just by virtue of being a little
slow off the mark relative to some of the other countries.
Other countries like China are paying in their full amount in a
single year rather than doing it over the course of 5 years.
And so, we will inevitably fall behind if we are aren't able to
start paying in on the capital replenishment to these
institutions.
Mr. Huizenga. So in the last remaining 2 minutes, in your
opinion, the most important reason why we need to authorize
would be what?
Ms. Brainard. The most important reason is because we will
lose our leadership of institutions that advance stability,
American foreign policy, and our economic interests as well as
fighting poverty which Americans care a great deal about.
Mr. Huizenga. I appreciate that. And, Mr. Chairman, if it
is all right, in my last minute-and-a-half, I would like to
yield to my friend from Illinois to continue his line of
questioning.
Chairman Miller of California. Without objection, yes.
Mr. Manzullo. I want to return to Argentina. Courts have
held that Argentina owes United States taxpayers through U.S.
obligations and U.S. bondholders $7 billion. You are asking for
about a half billion. I don't know the extent of these that are
held by the Federal Government, but I would suggest that the
World Bank better do something very quickly with Argentina if
you want to get any support in this committee or this Congress.
That is not a suggestion. You have to do it. Don't talk to
me about eliminating poverty in Argentina. Don't talk about
what is going to happen. The United States is complicit with
Argentina in disobeying the international rule of law.
I don't think you realize how serious that is and what it
means to this body and to the taxpayers to sit there and see
this country stiff all the people, $7 billion to U.S. people,
and then you turn right around and give them another $400
million.
Ms. Brainard. I would just say that we agree very much with
your position on Argentina. We will continue to pursue--
Mr. Manzullo. Then don't give them any more money.
Ms. Brainard. --honoring their obligations, and we will
also continue to think it is very important. We have interests
around the world, in Egypt, Tunisia, and Cote D'Ivoire and
every region of the world that we think are very important that
would be compromised if we were not able to continue to support
our leadership position in these institutions.
So we will continue to work on both fronts very
assiduously.
Chairman Miller of California. The reapportionment is
taking place, but I didn't mean to move Mr. Huizenga from
Michigan to Illinois in the process. I move you back to
Michigan.
Mr. Huizenga. Thank you, Mr. Chairman. That was going to be
an interesting gerrymandering across Lake Michigan.
Chairman Miller of California. In California, I could be in
Mexico the way I am going. So you never know.
Madam Secretary, I know you have a busy schedule. I think
there is a desire to go through another round of questioning if
you have time.
Do the members request it?
Many questions have been asked and it raises some concerns
and issues. If you had to prioritize funding between general
capital increases and a concessional window replenishment, what
would you consider most critical and, since we are in tough
times, what organizational funding do you consider to be a top
priority?
I know you like them all.
Ms. Brainard. I would no sooner choose among my daughters.
We have already prioritized in the requests that we are
submitting to you today, and we have done it in full
consultation with members of this committee and more broadly,
so that when we presented you with these requests it was
following quite hard fought negotiations to ensure that within
each institution, the recapitalization of the hard loan windows
was done in a manner that would support the replenishment of
the facilities for the poorest countries.
In the case of IDA, which is the World Bank facility for
the poorest countries, which again has very high marks for
effectiveness, we were able to mobilize 75 percent of the
additional funding from IDA from internal resources from the
middle-income arms of the World Bank. And so, these
negotiations have been carefully balanced packages, if you
will, that have tried to the greatest extent possible to price
loans in a way that we could transfer income to the facilities
for the poorest, which then reduces the amount that we have to
pay in for the replenishments every year.
And similarly across the institutions, we were pretty hard
headed in trying to reduce the overall size of the capital
replenishments and push the institutions to make their capital
work harder.
And we told them as we undertook these negotiations that
because we were doing the negotiations all in one go, we were
able to be a little more hardheaded about the actual size each
institution needed because we expect them to work better
together. And they have done that. They, for instance in the
case of Egypt and Tunisia, have developed a joint action plan
and they are developing their lending programs with the other
institutions in the room so that we use the money most
effectively not only with within each institution but across
institutions.
So the request that we have presented to you is one where
we have already tried to squeeze down the size of the request
to the greatest extent possible and make U.S. taxpayer money
work as effectively as possible.
Chairman Miller of California. That is a good answer
because you eliminated my second question, which was if you had
top priorities over some that weren't, why were you asking for
the ones that were not a top priority? But it seems that you
thought the process through very well.
In your testimony, you mentioned a series of policy
accomplishments the United States has been a major player in
implementing at the MDBs. What are your top policy initiatives
you are pushing at them now? Have they changed in any way?
Ms. Brainard. I think they have probably evolved over time,
although I will say that a perennial strategic priority for the
United States is to keep the institutions focused on poverty,
fighting poverty in a way that allows countries to grow
permanently out of poverty and move from the more concessional
financing to becoming countries that borrow from the middle-
income windows. And we have seen very successful transitions
over time. Again if you look at the Vietnams, the Indias, the
Indonesias, these have become booming markets for our exports.
They were very poor countries not too long ago. So we will
continue to emphasize poverty.
We are very focused on U.S. national security priorities.
Afghanistan is a huge priority in the Asian Development Fund
and in the World Bank. And similarly, Egypt and Tunisia are
going to be huge priorities right now going forward because we
know how important these democratic transitions are.
We also have asked these institutions--and they are very
forward leaning on--focused on global health, focused on
education and, very importantly right now with food prices
skyrocketing, on addressing challenges such as food security
and climate.
Chairman Miller of California. I hope somehow through the
process, countries like Brazil and Vietnam, we get a message
across that some of their tariffs are very excessive on some of
the American products we are sending to them, that it is not a
fair return for what America is trying to do for them in the
process. Hopefully, that message can get to them.
Ranking Member McCarthy, I recognize you for 5 minutes.
Mrs. McCarthy of New York. Thank you. I just want to go
back to and follow up, building up off of Mr. Campbell's
question earlier, if another country takes leadership, wouldn't
that allow them to basically change an awful lot of important
U.S.-led accountabilities, transparencies, anti-corruption? So
without naming a country, but there are one or two countries
out there that have the possibility of taking the lead, and I
would say the majority of people sitting here would probably
not agree with an awful lot of their policies. They could then
put their own policies in place.
I think that is probably what a lot of people don't
understand of what we are trying to survive--to get to, which
came off the beginning of my question, that the American people
have to understand why this so important. Because we are the
leaders. And I also think it is worth mentioning again because
we hear it all the time on decisions that should be made; let's
leave it to the generals.
We have General Petraeus talking about why the World Bank
is so important and we have Joint Chief of Staff Admiral Mullen
also saying the same thing. So maybe you could clarify that a
little bit more so that people understand this isn't just
giving money to a bank. Yes, many of us agree we want to help
poor countries. We want to build them up. I am one of those who
happens to believe that by doing that, hopefully we are
preventing future terrorists from coming over here to injure
us. When people live in terror, they will believe anything. We
are trying to give them a different way of life. If you could,
lead off on those questions.
Ms. Brainard. Mrs. McCarthy, I think the way you have
framed it is exactly right. And the areas where we have been at
the forefront are areas that Americans care a great deal about:
transparency; full disclosure of lending programs; and ensuring
that infrastructure projects undergo full environmental impact
assessments and social impact assessments. These are areas,
anti-corruption, where by virtue of having a leading share in
all these institutions the United States has pushed these
institutions to reflect American values. And I think that your
fear is well founded that if we forfeit and appear to be less
committed to these institutions, that other countries with
different values will promote different agendas, which will be,
I think, a step backwards on the development of these countries
that they are lending to because we promote these values
because we think they are good for the countries themselves.
They are critically important to the functioning of our
economy, but also because they create huge opportunities for
us.
I think you are also right that these are preventative
investments. In many cases, they allow us to put small
investments on the ground now and to avoid much larger and more
costly entanglements later if indeed they are successful, and
that is why I think our military speaks so strongly in support
of these institutions as does our business community.
The final thing I would simply say is that just going back
to this question about prioritization, we did actually push
back altogether on capital replenishments for both the EBRD and
for the IFC because we asked them to work harder at making
their capital go further, and so we need authorizations but we
actually don't have to make additional contributions to those.
So we really did work hard to try to get the maximum in terms
of development impact, national security impact for the least
amount of U.S. investment dollars.
Mrs. McCarthy of New York. Thank you.
Chairman Miller of California. The gentleman from Illinois,
Mr. Dold, is recognized for 5 minutes.
Mr. Dold. Thank you, Mr. Chairman.
Under Secretary Brainard, what is the Administration's
position on the importance of ensuring that the World Bank
presidency remains with an American?
Ms. Brainard. I think we believe that the benefit, the
World Bank has benefited tremendously from American leadership
over the past several decades. And we also believe that the
current president, Bob Zoellick, is doing an excellent job of
steering the World Bank and advancing the goals of that
institution.
We have stated that for all of the international financial
institutions we support an open and transparent and merit-based
process. And again, we feel that the actual leadership of the
World Bank has served the institution very well over many
years.
Mr. Dold. So that means it is important, we hope? You want
an open process but you--the Administration is just supporting
an open process or do you believe that it is important that an
American sit at the head of the bank?
Ms. Brainard. We believe that the institution has been very
well served by having an American heading it over many years.
But we also are very supportive at all the international
financial institutions of ensuring an open, transparent, and
merit-based process so that we will have the best leadership
possible.
Mr. Dold. I appreciate that.
One of the big responsibilities we have here in the United
States Congress is to ensure that taxpayer dollars are
protected from corruption, and certainly I would say a
conservative estimate of bribery annually is about $1 trillion.
And before we agree to sign on to give the banks additional
taxpayer funds, we need to know that they are serious about
fighting corruption. I think a World Bank analyst estimates
that there is a 400 percent governance dividend of corruption
control; in other words, countries that crack down on
corruption and improve the rule of law can expect on average
about a 400 increase in per capita income over the long run.
This means that a country with a per capita income of $2,000
can, over the long haul, see that increased to $8,000 by
addressing corruption. So especially at this time of cutting
back here in the United States Congress, we need to protect our
investments and ensure that they are directed.
The real question is, what are the banks doing to ensure
that they are cracking down on corruption? And what is the U.S.
Government doing to put pressure on the banks to make sure that
they are following through on that?
Ms. Brainard. I would say that fighting corruption and
ensuring that countries put in place strong anti-corruption
policies is something that is now a deeply held value at all of
the institutions; among the senior management of all the
institutions, this is something that they really, I think, have
taken to heart. As you said, the World Bank has come up with
the most compelling research on why corruption is a scourge on
development for countries who allow it to flourish themselves.
They pursue initiatives against corruption in a host of
ways. First of all, through the reforms that we have worked so
hard to secure, they fight against the space for corruption to
penetrate into their own operations. So between inspection
panels and publication of documents, they have a whole host of
internal controls.
Secondly, they are not banks, as was said earlier. They are
policy institutions that bring technical assistance and policy
conditionality to bear when they lend into countries. And one
of the very important policy areas that they push is to ensure
countries have very strong legal and enforcement frameworks to
combat corruption.
Mr. Dold. The banks I know have the ability to debar
people, companies, nongovernmental organizations, if they are
found guilty of fraud and corruption. And I would say that some
of these corrupt actors also have the ability to be prosecuted
criminally.
What are the banks doing? Do they have a mechanism to make
sure that those are reported to the different entities so that
they can be prosecuted?
Ms. Brainard. I can speak to the debarment process. They
have, each institution has now agreed to cross debarment so
that the information is shared among the institutions, and when
a company is debarred from one institution, that debarment also
affects the other institutions. So I think they are trying to
become more effective as a group on working against corruption.
Mr. Dold. Are they being transferred though? The debarment
process which I appreciate is a good one so that they are not
getting engaged in the other MDBs, but are they sending that
other information to the different countries so that they can
be prosecuted?
Ms. Brainard. In each case, they have offices that can
develop investigative materials for purposes of pursuing
debarment proceedings and investigations of those entities.
Mr. Dold. Thank you so much.
Chairman Miller of California. The gentleman from Michigan,
Mr. Huizenga, is recognized for 5 minutes.
Mr. Huizenga. Thank you, Mr. Chairman. And I hope you enjoy
Reno in your new district.
I do appreciate you coming here, and this is some tough
questioning. We are all in a spot here where we are trying to
make sure that we use every dollar that is entrusted to us, and
quite honestly most people, including this one, don't believe
that we have used those dollars to their highest and most
efficient use and that it has been problematic in the past, and
whether it is Argentina or some of these other issues, we need
to make sure that we can look our constituents in the eye and
say those dollars that you are sending to Washington, those
dollars that you entrust to us, we are using them properly.
And that is, I think, a legitimate spot for them to be in
and much like my friend from Illinois, Mr. Dold, was talking
about, the corruption element is something that is concerning.
I am also concerned or curious I guess, maybe not concerned as
much as curious, about your view as to what makes this
particularly more effective or is it more effective than direct
aid that may be going to some of these developing countries?
And why is this an important element that the U.S. Government
should be even really engaged in?
Ms. Brainard. Let me just say that we obviously across the
Administration support both our bilateral funding mechanisms as
well as our multilateral funding mechanisms and we see them
working in complementary ways to each other. The multilateral
development bank investments that we are talking about today
have unrivaled leverage.
So again, first, for an investment today of $1, or take the
investment that President Reagan made in 1988, $1 into the
World Bank at that time has leveraged $800 million of
development and investments. We simply cannot get that kind of
leverage by our direct bilateral funding.
Second, these institutions have tremendous scale advantages
and staying power so that they have unique capacities to
undertake multi-year infrastructure projects. They have very
strong criteria for evaluating those infrastructure
investments, so that for a country in Africa, for instance,
that has very few alternatives on how to finance a port or a
railroad or a bridge, the multilateral development banks come
with funding that ensures there is transparency and corruption
safeguards, that environmental assessments and social impact
assessments are done.
The alternative investment comes with different kinds of
strings attached and ones that I think serve our national
interest much more poorly.
Mr. Huizenga. I am assuming you would acknowledge that
there have been issues or problems with whether it is
corruption or whether it is some sort of ill-gotten gain that
people had. What are we doing to ensure that that doesn't
continue and diminishes?
Ms. Brainard. We are using and have used our leadership
position in these institutions to ensure that they to the
greatest extent possible reflect best practice and reflect our
values. So they publish all of their lending now. That is very
important to enable a civil society to exercise some
accountability over it. They have very strong internal controls
against corruption, and they have inspection panels which allow
members of any community in which they are operating to raise
questions and to get a hearing about the operations of the
institutions.
We have very strong procurement safeguards which ensure
that on these projects, procurement processes are open and
transparent and awarded to the most cost-effective, highest-
value bidder. So there is a whole host of things that we have
put in place that reflect how the United States likes to see
business being done. We think it is the best practice globally.
But I can assure you that if we did not have a leadership
position at these institutions it is likely that other
countries would perhaps push in other directions.
Mr. Huizenga. I appreciate your input, Under Secretary
Brainard, and your time as well, and I think it is just our
responsibility to make sure that we can look our constituents
in the eye and say, we are using your dollars in the most
responsible way that we possibly can. So I appreciate that.
Thank you.
Thank you, Mr. Chairman.
Chairman Miller of California. Dr. Brainard, I want to
thank you for your testimony. You were very informative and
very candid and you were very generous with your time, and I
look forward to working with you as the process continues.
Ms. Brainard. I appreciate the opportunity. Thank you.
Chairman Miller of California. The Chair notes that some
members may have additional questions for this witness which
they may wish to submit in writing. Without objection, the
hearing record will remain open for 30 days for members to
submit written questions to this witness and to place her
responses in the record.
The hearing is adjourned.
[Whereupon, at 4:00 p.m., the hearing was adjourned.]

A P P E N D I X

June 14, 2011

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