18 November 2009
The Senate Foreign Relations Committee today addressed the role the G-20 will play in the changing global economy, including as leaders in the World Bank.
Opening Statement of Ranking Member Richard Lugar
I join the Chairman in welcoming Secretary Geithner and thank him for appearing before the Foreign Relations Committee.
As we seek to emerge from the worst economic crisis since the Great Depression, we need to consider how the United States maintains its influence, addresses national security deficiencies, and provides global leadership in an era when the American economy may not be the overwhelming source of power it once was.
Increasingly, national influence will be determined by whether countries can contribute to solving global problems, or at least, whether they are making themselves indispensible to other nations. China and other developing economies are demanding a greater say in the management of the world economy through the G-20 and other mechanisms. China’s global leverage has increased as it has deliberately positioned itself as a creditor nation with more than 20 percent of the world’s current account balance surplus. We cannot depend indefinitely on China investing heavily in U.S. government debt. Some thought must be given to how we work with China and other nations to establish a more sensible global balance that depends less on demand by American consumers.
The United States and the G-20 also must rethink the role of the international financial institutions that provide crisis support and assistance to developing countries and emerging markets. As one of the largest shareholders in these institutions, the United States enjoys an opportunity to influence their policies and programs and to ensure that hundreds of billions of dollars are managed effectively and transparently.
Are the IMF, the World Bank, the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank achieving their missions of fighting poverty, encouraging growth, and promoting democracy? What could the international financial institutions have done differently to help mitigate the current global financial crisis?
Six years ago, I began an examination of the Multi-lateral Development Banks, focused on ensuring that their financing reached the intended people and projects. I chaired six hearings on the topic that included examinations of individual projects and policies of the respective banks.
In the months to come, the Administration is likely to seek substantial capital increases for the banks. It is important for the success of any such request that the Administration fully engage Congress. The Administration’s $100 billion loan request for the IMF last September came very late in the process of the Supplemental Appropriations Act of 2009. There was no opportunity in the House or the Senate for hearings or authorizing legislation addressing whether the money should have been conditioned on reforms. After the Supplemental passed, the President signed the bill with a statement asserting the Administration’s discretion to disregard the few provisions added by Congress that promoted reform at the IMF.
The United States has strong national security and humanitarian interests in alleviating poverty and promoting progress around the world. That is why the Congress regularly supports appropriations for subsidized loan and grant programs through the multilateral development banks.
But the American people must have confidence that our funds will be managed effectively, efficiently, and transparently. Given our domestic budget and employment situation, it is all the more critical that we ensure that our contributions promote U.S. interests.
It also is imperative that our government examine capital increases for each bank as a unique request. Each financial institution has its own distinct management challenges. For example, capital increases for the European Bank for Reconstruction and Development must be accompanied by much more information concerning whether wealthy Russia business interests are benefiting from the 41% of bank funds that flow to that country. Similarly, capital increases for the Inter-American Development Bank must address how that Bank is reforming its practices after its unrealized loss of $1.9 billion in 2008 from its liquid portfolio of cash management instruments. The World Bank, for its part, has been a leader in addressing concerns about corruption and governance. Among other steps, it regularly publishes the names of contracting companies that have violated World Bank policies.
Given the linkages between our financial sector and that of other countries, we cannot achieve economic recovery in isolation from the rest of the world. In the face of job losses, wealth evaporation, homelessness, hunger and other outcomes, the fabric of many nations will be tested. We have to expect additional political, economic, or even national security shocks. The global crisis is likely to reduce enthusiasm within the United States and beyond for liberalized trade measures that would greatly benefit our country. The United States must continue to offer a clear leadership that ensures the major economies will cooperate on financial restructuring and resist protectionism.
I thank the Chairman for calling this hearing and look forward to Secretary Geithner’s testimony.
Click here to read Secretary Geithner's testimony