Thank you to our witnesses for agreeing to participate today. I am pleased that Chairman Gramm may be joining us. He and I, both, have a longstanding and common interest in IMF reform issues. I am also very thankful for the help and support given by Subcommittee Chairman Mike Enzi of Wyoming.
As most of you know, the International Financial Institution Advisory Commission was mandated by Congress during the 105th Congress to examine the future role and responsibilities of the IMF and several other international institutions in which the U.S. participates. This hearing will focus on the IMF portion of the IFIAC Report. Subsequent hearings will be held to look at other aspects of the report, including recommendations regarding the World Bank Group.
While six of the Commission members were Republican nominees and five members were Democratic nominees, a bipartisan majority approved the report (with one member signing both the majority and minority views). This is significant – too often issues such as this one become politicized. The well-being of our global economy, financial markets throughout the world and the people of all nations, should not be about politics.
The findings of the bipartisan commission confirm what has been clear to me for some time – the time for reforming the IMF is now. I completely agree with Dr. Meltzer, who has stated that the keys to reform are transparency, accountability and effectiveness.
Towards the end of World War II, the IMF was formed as one of the Bretton Woods institutions. The IMF's primary goals were to assist in maintaining a stabilized system of fixed exchange rates and provide short-term lending to countries facing balance of payments problems.
Over half a century after its founding, the world is a different place and the IMF is a far different institution. The system of fixed, but adjustable exchange rates that once gave the IMF one of its primary missions, ended nearly 30 years ago...and short-term support for balance of payments lending has in large part been replaced by long-term support of developing countries. According to the Meltzer Commission, since 1949, 95 of the 124 borrowing countries have been indebted to the IMF for 10 years or more, and 70 of those have been borrowing for over 20 years.
Long-term lending to countries unable to repay their debts is a problem. In many instances, the continuous extension of credit suggests that economic recovery fails to occur in these countries. Significant structural reforms often aren't happening. If it was, these countries would likely no longer be dependent on IMF resources to prop them up.
Long-term lending also lessens the quantity of resources available for short-term crisis management -- this was one of its intended functions. Even when the IMF is serving as a short-term "crisis management" lender, the IMF does not abide by prudent crisis lending practices.
I have long maintained that the IMF's policies and practices hurt, not help, their intended beneficiaries. And all the while, U.S. taxpayer dollars are being used to support these faulty and failing programs and policies. The American public deserves better from our federal government.
Article I of the U.S. Constitution gives Congress the sole power to appropriate monies. This means that we have also been entrusted with the responsibility to monitor how these monies are being spent.
The Commission's recent report has only confirmed and solidified my thoughts on the need for significant change in how the IMF does business if the U.S. is going to continue to contribute its citizens' hard-earned dollars to support its efforts. I want to make clear – The U.S. has significant interest in assuring that our global economy flourishes, that people in countries, both rich and poor, have a chance to survive and succeed, and that the financial markets around the world thrive. There is no question that this is the case. I only want to ensure this is what we are really doing.
A key to assuring we meet these goals is bringing transparency and openness to the policies and practices of the IMF and other international institutions. There is no question that strides in the right direction have been made. But - we aren't there yet. The Meltzer Commission sums this issue up well when it quotes former IMF official Jacques Polak. In "Streamlining the Financial Structure of the International Monetary Fund," Polak states that
the "cumulative weight of the Fund's jerry-built structure of financial provisions has meant that almost nobody outside, and, indeed, few inside, the Fund understand how the organization works, because relatively simple economic relations are buries under increasingly opaque layers of language. To cite one example, the Fund must be the only financial organization in the world for which the balance sheet...contains no information whatever on the magnitudes of its outstanding credits or of its liquid liabilities. More seriously, the Fund's outdated financial structure has been a handicap in its financial operations."
This must be rectified.
I want to commend the Commission on its efforts. Its report has given many of us "food for thought." Hopefully, this opportunity to carefully review and improve the way the IMF and other international institutions conduct their business will not be lost in rhetoric.
There is considerable consensus between the Administration and the Meltzer Commission. We must capitalize on the common ground and work together to increase it. I look forward to hearing from our two panels of witnesses.