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HOW CAN THE U.S. MAKE DEVELOPMENT 

BANKS MORE ACCOUNTABLE? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON MONETARY 

POLICY AND TRADE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

APRIL 27, 2016 

Printed for the use of the Committee on Financial Services 

Serial No. 114–85 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON MONETARY POLICY AND TRADE

BILL HUIZENGA, Michigan, Chairman 

MICK MULVANEY, South Carolina, Vice 

Chairman 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

MARLIN A. STUTZMAN, Indiana 

ROBERT PITTENGER, North Carolina 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

MIA LOVE, Utah 

TOM EMMER, Minnesota 

GWEN MOORE, Wisconsin, Ranking Member 

BILL FOSTER, Illinois 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

PATRICK MURPHY, Florida 

DANIEL T. KILDEE, Michigan 

DENNY HECK, Washington 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

April 27, 2016 ................................................................................................... 1 

Appendix: 

April 27, 2016 ................................................................................................... 33 

WITNESSES 

WEDNESDAY, APRIL 27, 2016 

Sheets, Hon. Nathan, Under Secretary for International Affairs, U.S. Department of the Treasury ........................................................................................... 3 

APPENDIX 

Prepared statements: 

Sheets, Hon. Nathan ........................................................................................ 34 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Heck, Hon. Denny: 

Written responses to questions for the record submitted to Under Secretary Sheets ................................................................................................. 39 

Hinojosa, Hon. Ruben: 

Moody’s Investors Service Credit Analysis of the North American Development Bank, dated May 20, 2015 .............................................................. 41 

2014 Annual Report of the North American Development Bank ................. 60 

(1) 

HOW CAN THE U.S. MAKE DEVELOPMENT 

BANKS MORE ACCOUNTABLE? 

Wednesday, April 27, 2016 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MONETARY

POLICY AND TRADE, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 10 a.m., in room 

2128, Rayburn House Office Building, Hon. Bill Huizenga [chairman of the subcommittee] presiding. 

Members present: Representatives Huizenga, Mulvaney, Pearce, 

Pittenger, Schweikert, Guinta, Love; Moore, Foster, Himes, Kildee, 

and Heck. 

Ex officio present: Representative Hensarling. 

Also present: Representatives Meeks and Hinojosa. 

Chairman HUIZENGA. The Subcommittee on Monetary Policy and 

Trade will come to order. Without objection, the Chair is authorized to declare a recess of the subcommittee at any time. 

Today’s hearing is entitled, ‘‘How Can the U.S. Make Development Banks More Accountable?’’ I now recognize myself for 5 minutes to give an opening statement. 

The origins of multilateral development banks, or MDBs, lie 

within the creation of the World Bank at Bretton Woods in 1944. 

Today, the MDBs include not only the World Bank and its other 

lending arms—the IBRD and the International Development Association (IDA)—but also four regional banks: the African Development Bank; the European Bank for Reconstruction and Development; the Inter-American Development Bank; and the Asian Development Bank. Their core mission is to provide financial assistance 

such as loans and grants to developing countries to promote economic and social development. 

The multilateral development banks, or MDBs, can provide the 

capital to sustain MDB operations. Member countries are awarded 

shares in MDBs in proportion to the amount of capital that they 

provide. Because member nations provide the MDBs with a large 

capital base, the MDBs have a AAA credit rating, which allows 

them to borrow at favorable rates from private lenders. Because 

the United States is a member of each of these institutions, Congress plays a very important role in determining U.S. funding for 

those MDBs and engaging in the oversight of the Administration’s 

participation in the MDBs. 

Although the Treasury Department represents the United States 

at the MDBs, and negotiates the amounts committed to them for 

2 

general capital increases and the replenishment of concessional 

loan windows, only Congress has the constitutional authority to authorize and appropriate the funds required to fulfill these commitments. 

The U.S. Constitution details the power as well as the limitations 

of each Branch of Government. As the Legislative Branch of Government, Congress is the one to make laws of the United States of 

America. Additionally, it is Congress and Congress alone, not the 

President or any other Branch, that controls appropriations funding. 

On previous occasions, the Treasury has pledged money to an 

MDB without consulting Congress to the degree I believe it should, 

and then criticized this very body for not appropriating the full 

amount and failing to meet those commitments. In fact, Treasury 

has falsely claimed that Congress damaged U.S. credibility by failing to deliver on policy commitments made by Treasury that they 

didn’t have the authority to make. 

It is important to note that some have said that the cost of funding the U.S. commitment to MDBs outweighs the benefits derived 

from them. This is because those MDBs have not necessarily supported U.S. interests, failed to meet their development goals, and 

failed to sufficiently combat corruption and abuses of individual 

rights in the nations which receive that MDB support. This is one 

of particular interest for me. Others have called for MDBs to focus 

more on public goods in order to minimize the risk of crowding out 

private lenders in that same space. 

Currently, the Obama Administration is undertaking negotiations for a 3-year replenishment of the World Bank’s and African 

Development Bank’s concessional loan windows, and is also in discussions of to how to alter the other institutions, including the 

Inter-American Development Bank, to finance future initiatives. 

Lastly, the Administration has proposed a doubling of the North 

American Development Bank, also known as NAD Bank, doubling 

their capital, the first such increase since its inception around the 

time of NAFTA. 

Today’s hearing will examine the Administration’s plans regarding these matters, many of which are contingent on congressional 

authorization, while addressing whether development banks are 

improving outcomes for low-income beneficiaries in a cost-effective 

manner. 

And with that, I will yield back the yield back the balance of my 

time. 

The Chair now recognizes the ranking member of the subcommittee, the gentlelady from Wisconsin, Ms. Moore, for 5 minutes for an opening statement. 

Ms. MOORE. Thank you so much, Mr. Chairman. 

Mr. Sheets, I want to welcome you again to the committee. I 

have read your testimony and I think you make some really powerful points on the utility and power of these development banks. 

I am a card-carrying liberal with an incredibly deep and personal 

connection to the least, the last, and the lost in this country and 

around the world. So I don’t think that I am going to shock anyone 

when I say that I believe the United States has a moral obligation 

to help poor people anywhere they are. 

3 

But I am also a realist. The United States can’t do this alone. 

We must leverage our commitment with other countries in the 

world and with private capital. And I think America is helping 

Americans when we support the work of development banks. It is 

just amazing to think about the close nexus of providing assistance 

and aid to people who are marginalized and maintaining our national security interests. 

We have talked about the importance of opening global markets 

around here a lot. We don’t do that by waiving some sort of wand. 

We do that by supporting these development banks. These development banks can play an expanding role in helping business operate 

in some of these markets. 

Now, I don’t want to rehash all of your points that you make in 

your written testimony, but I do want to make one point related 

to our development bank policy. As great a tool as this can be, we 

have to do it the right way. 

So I want to emphasize the need for a strong, enforceable safeguard regimen. I also want to flag for you a letter I wrote to the 

IFC about its conflict policy. I get it that we want to be creative 

and leverage private capital in these projects and I am all for it, 

but this letter is about how to do it the right way. And I consider 

this to be an ongoing dialogue, so I am not going to belabor the 

point, but I do want to make sure that we are looking at these programs and these moneys and we do it the right way. 

Thank you so much, and I yield back. 

Chairman HUIZENGA. The gentlelady yields back. 

With that, today we welcome the testimony of Dr. Nathan 

Sheets, who is the Under Secretary for International Affairs at the 

U.S. Treasury. Dr. Sheets was confirmed by the U.S. Senate on 

September 8, 2014, to serve as the U.S. Department of the Treasury’s Under Secretary for International Affairs. 

Prior to joining Treasury, he was the global head of international 

economics at Citigroup, a position he held since September of 2011. 

And prior to joining Citigroup, Dr. Sheets worked at the Board of 

Governors of the Federal Reserve System for 18 years where he 

worked closely with his international counterparts, including as Director of the Board’s Division of International Finance, and Economist to the Federal Open Market Committee (FOMC). So he has 

a deep background in this. 

And I am looking forward to hearing from you. You will be recognized for 5 minutes to give your oral presentation, Dr. Sheets. 

Without objection, your written statement will be made a part of 

the record. So, Mr. Under Secretary, you are now recognized for 5 

minutes. 

STATEMENT OF THE HONORABLE NATHAN SHEETS, UNDER 

SECRETARY FOR INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY 

Mr. SHEETS. Chairman Huizenga, Ranking Member Moore, and 

members of the subcommittee, thank you for the invitation to testify today. I appreciate the opportunity to discuss Treasury’s role 

working with the multilateral development banks, or MDBs. 

Through our leadership in the World Bank, the regional development banks, and the International Monetary Fund, the United 

4 

States effectively influences global economic events, promotes 

American values, supports our allies, and helps drive inclusive 

growth and poverty reduction at home and around the world. The 

MDBs, in particular, play a vital role in the international system 

and in advancing American interests. 

First, the MDBs support development through investments that 

are not possible with private capital and domestic resources alone. 

They provide grants and highly concessional loans to low-income 

countries and loans to middle-income countries. Without such support, even countries with access to capital markets may not be able 

to attract sufficient capital in terms consistent with the sustainability of their debt. MDBs also catalyze private sector investment 

and provide technical assistance, research, and data. 

Second, the MDBs are important contributors to U.S. national security by playing a leading role in assisting key strategic partners 

such as Afghanistan, Iraq, Ukraine, and Mali. 

Third, the MDBs support countries undertaking valuable reforms 

including strengthening governance, building accountable institutions, mobilizing domestic resources, and fighting money laundering and the financing of terrorism. 

Fourth, by supporting long-term development, the MDBs help 

foster economic growth and fiscal sustainability, which reduces the 

likelihood of macroeconomic crises and countries’ potential need for 

IMF financing. 

Regional development banks complement the World Bank’s reach 

through expertise in areas of importance to their respective regions, which developing countries strongly value. For instance, the 

African Development Bank focuses on infrastructure, regional integration, and food security. The Inter-American Development Bank 

has expertise in social protection and the development of small and 

medium-sized enterprises. Notably, the North American Development Bank plays a unique role through its mandate to finance environmental infrastructure on both sides of the U.S.-Mexican border. 

Treasury is working to ensure that the MDBs continue to deliver 

on these important roles while improving their financial and operational efficiency and further strengthening their accountability 

and governance. As the largest shareholder in all but the African 

Development Bank, the United States is well-positioned to encourage the MDBs to implement such reforms. 

Treasury is pushing the MDBs to improve their financial efficiency. The MDBs offer the United States significant financial leverage. The $1.8 billion request for the MDBs in the President’s 

proposed budget should support more than $100 billion in MDB investments in developing countries. 

And the MDBs are taking steps to make their resources go further. The Asian Development Bank’s reforms here are particularly 

compelling. We will see an increase in lending capacity while allowing donors to significantly reduce contributions. 

To complement efforts to boost financial efficiency, Treasury is 

advocating for the MDBs to enhance their operational efficiency, including streamlining project-approval processes and improving 

project preparation. The MDBs should take such steps without 

compromising high social, environmental, and fiduciary standards. 

5 

Treasury continues to work to improve accountability and good 

governance at these institutions. The MDBs must measure success 

by project outcomes rather than by the amount of financing provided. And the MDBs must reform their governance structures to 

reflect the changing economic realities of shareholders in fair and 

transparent ways. 

As emerging markets seek greater influence in the MDBs, Treasury asks these countries to assume greater responsibilities, including increasing their role as donors and gradually moving away 

from MDB borrowing. 

As we push for continued improvements at the MDBs, the United 

States must also fulfill its responsibilities as a leader of these institutions. The MDBs will continue to need strong financial support 

from the United States and other shareholders, in particular for 

the poorest countries. Treasury asks that Congress support the Administration’s request for the Fiscal Year 2017 budget so that 

MDBs can provide financing to the poorest. 

For the past 70 years, U.S. leadership has ensured that the 

MDBs and the IMF have remained critical partners in supporting 

U.S. strategic and economic priorities. It is crucial that the United 

States and these institutions, working together, continue to deliver 

on those priorities, including supporting peace, security, and sustainable economic growth. 

Thank you, and I very much welcome your questions. 

[The prepared statement of Under Secretary Sheets can be found 

on page 34 of the appendix.] 

Chairman HUIZENGA. Thank you, Mr. Under Secretary. 

At this point, I will recognize myself for 5 minutes for questioning. 

I want to touch on a number of issues. Before I get into sort of 

the IMF negotiations with the Eurogroup and Greece and some 

other things, I want to talk a little bit about structure. I understand that the Asian Development Bank has, by a vote of its board, 

combined both its hard and its soft loan portfolios as they are dealing with it. Can you give us a quick update, very quickly, as to how 

that is working? And is that the model, one of the things that is 

being used in some of the other reforms for the other development 

banks? 

Mr. SHEETS. That is right. The consolidation of these two windows at the Asian Development Bank we see indeed as being a 

model or a template for the other MDBs going forward. And specifically as a result of this consolidation, the capacity of the bank to 

lend both concessionally and nonconcessionally has been increased 

by about 40 percent. And at the same time, the necessary replenishments to its concessional window have been reduced by more 

than 40 percent. 

Chairman HUIZENGA. So less paid in— 

Mr. SHEETS. Exactly. 

Chairman HUIZENGA. —direct dollars because— 

Mr. SHEETS. We are paying in less and we are getting more out 

on the other side. 

Chairman HUIZENGA. Yes, okay. That makes a ton of sense to 

me, so I want to encourage it. 

6 

And then who actually negotiates the numbers and the increases 

with the various MDBs and with the other member nations? Is 

that you specifically or is that Secretary Lew? Who is involved in 

that negotiation process? 

Mr. SHEETS. Broadly speaking, it would be the leadership at the 

Treasury. We have a Deputy Assistant Secretary who would be the 

point person, who would be attending the meetings, but then it 

would be approved all the way up the line. 

Chairman HUIZENGA. By you? 

Mr. SHEETS. Including myself and the Secretary approving that. 

Chairman HUIZENGA. And Secretary Lew. 

All right. As I had said in my opening statement, there had been 

some concern from Congress—both House and Senate—and from 

the public comments from the Administration about a lack of willingness to support what they had negotiated. It seems to me a critical function to that would be getting us on board from the very 

beginning, which necessitates communication. And I hope that you 

will be committed to working with me, and working with the appropriations folks here in the House so that we won’t have this conflict on that. 

Mr. SHEETS. Indeed, we are very much open to that. We try to 

do our best. And we will continue to engage as necessary. 

Chairman HUIZENGA. So in the 21⁄2 minutes that I have left, I 

want to talk a little bit about progress on corruption and human 

rights and whether the MDBs have had that. And I think I am 

going to actually follow that up with a written question, because 

I do want you to clarify the current state of the IMF negotiations 

with the Eurogroup and Greece. 

According to IMF rules, any country whose debt is found to be 

unsustainable, a so-called red zone country, cannot receive exceptional access assistance unless its debt is restructured to make it 

sustainable with high probability. 

Yesterday, I believe it was, or maybe the day before, there was 

an article in The Wall Street Journal about negotiations stalled between Greece and the international creditors. I expressed this to 

Managing Director Legarde earlier, I guess the end of last week. 

I expressed this to Secretary Lew when I last saw him. I want to 

make sure that we are not setting ourselves up even for an appearance of another Greek bailout when the Greeks aren’t willing to do 

what is necessary to right the ship. So if you would please comment on that. 

Mr. SHEETS. The status of these negotiations between the Greeks 

and their European partners in the IMF is an issue that we follow 

very closely on at least a day-to-day basis. 

I think the fundamental point that I would make is very consistent with the point that you were making, that the IMF has 

made clear that it will be involved in a Greek program in the sense 

of providing resources only if they are convinced that the reform 

program that is being put forward is a significant one and it is one 

where the Greek authorities themselves have significant ownership. That is a first condition that the IMF has made very clear, 

that this is the significant reform program. The Greeks have made 

progress over the last 5 years, but they still have work to do and 

it is imperative that— 

7 

Chairman HUIZENGA. So can you assure us today that Greece 

will not have access to that exceptional lending— 

Mr. SHEETS. Yes. 

Chairman HUIZENGA. —mechanism? 

Mr. SHEETS. Yes. And then the second— 

Chairman HUIZENGA. That was a ‘‘yes’’ acknowledging the question or a ‘‘yes’’ to the question? 

Mr. SHEETS. I would say ‘‘yes’’ to both. 

Chairman HUIZENGA. Okay. 

Mr. SHEETS. Let me say, the second condition, which bears specifically on what you are saying, is that the IMF has made clear 

it will only provide resources to the Greeks if the program is accompanied by significant debt relief from Greece’s European partners to ensure that condition of debt sustainability that you articulated is satisfied. 

And let me further say that the IMF’s position on requiring a 

strong program and only joining the program if there is significant 

debt relief is very much supported by the Treasury. 

Chairman HUIZENGA. My time has expired. With that, I recognize the ranking member for 5 minutes. 

Ms. MOORE. Thank you so much, Mr. Chairman. 

And again, thank you, Secretary Sheets, for coming to speak with 

us today. 

As I mentioned in my opening comments, I am very interested 

in some of the complexities of providing support and leveraging private capital with conflicts of interest that are raised. I did send a 

letter regarding, in particular, water policy. And I know that there 

have been some complaints at local levels, I am thinking in Manila 

and Nigeria, about these water policies. 

I have come up with an astronomical figure. In Manila, for example, when the IFC, the development arm, took an equity position 

in the water company, water rates were raised up to 845 percent. 

That seems sort of unaffordable in any sort of monetary system, 

whatever your economy is, 845 percent seems unaffordable. And I 

am just wondering how that is helpful. In Nigeria, we have seen 

massive demonstrations regarding the equity investments in water. 

So I guess, how do we bridge the gap between the notion somehow that water is a human right? In Nigeria, they talk about an 

old African proverb that says that water has no enemies. But it 

seems like water is getting to be quite a bit of an enemy as we see 

its unavailability to people. 

There is a notion that at some level, based on it being a human 

right, there ought to be in place sort of a fixed subsidy that recognizes water as a human right and then a charge for usage beyond 

this point. 

So question one, have you heard this? Can you comment on this? 

And what can we do to reduce the conflicts of interest? 

Mr. SHEETS. Thank you. 

The issues that you point to are very rich and diverse and I 

think really cut to the heart of the mission of the multilateral development banks. Let me just give you a few reactions to your 

question and a few thoughts in response, and I would be happy to 

talk to you directly or have my team talk to your team. 

8 

But I think that the issues you highlight, first of all, underscore 

the point of the necessity of there being safeguards. And the safeguards really boil down to, how do we implement the best practices 

and the lessons learned from development bank lending over the 

last 70 years? How do we implement that into the ongoing processes and lending approaches of the MDBs? And it is imperative 

that there be appropriate firewalls and that there be appropriate 

development impact assessments to think about the implications of 

various projects on the populations that will be experiencing that. 

It is also important that the safeguards have adequate resources 

to ensure that they are implemented fully and that there is monitoring of projects afterwards. 

I think that there is a very set rich set of issues regarding safeguards. I also think there is a very rich set of issues regarding 

what is a global public good, what is the global commons here that 

the MDBs are protecting. And I think protecting the health of populations and providing the infrastructure to support that through 

water or otherwise is very much at the heart and center of their 

mission. And I think, how do we deliver those public goods in a 

way that is on the one hand economically feasible, but on the other 

hand actually meets the real needs of the people who are being affected is a crucial question that we should be focused on and do 

more work on. 

Ms. MOORE. And just as an extension of that, protections for 

women, LGBT clients, those people who are very poor. We have 

heard that water can reach some of the more opulent areas and the 

people who are very poor don’t get it. So we have to make sure we 

get those safeguards in place and have more than just monitoring. 

Mr. SHEETS. Protecting those diverse communities and ensuring 

human rights broadly is one of the aspects of the safeguards, and 

the social protections that have been put in place are important. 

Ms. MOORE. Thank you for your indulgence, Mr. Chairman. 

Chairman HUIZENGA. The gentlelady’s time has expired. 

The Chair recognizes the vice chairman of the subcommittee, Mr. 

Mulvaney of South Carolina, for 5 minutes. 

Mr. MULVANEY. I thank the chairman and the ranking member. 

And I thank Mr. Sheets for being here. 

I want to follow up and stay on a topic that the chairman started 

with towards the end of his questions, which is Greece. Did I hear 

you correctly, at the end you were asked two questions and you 

said ‘‘yes’’ to both, but I just want to go back in and make it even 

more clear, regarding Greece’s potential use of the exceptional access funds. You are saying that simply is not going to happen, correct? Did we hear that correctly? 

Mr. SHEETS. What was repealed by the IMF, and will not happen, is the systemic exemption. So that in 2010, the IMF was looking at the situation in Greece and there were legitimate questions 

about the sustainability of the debt, but there was a judgment 

made that at that point in time making the Greeks restructure 

their debt would pose significant risks to the rest of Europe, and 

that was the systemic exemption. 

In January of this year, the IMF removed the systemic exemption. So now debt sustainability and whether or not a program is 

improving the sustainability of a country’s debt is very much at the 

9 

heart and center of every judgment that the IMF and the IMF 

board has to make. 

Mr. MULVANEY. And the removal of the systemic exemption was 

something that Congress required of the IMF in the omnibus 

spending bill at the end of last year, correct? 

Mr. SHEETS. The Congress made the phasing out of the systemic 

exemption a requirement in order for the quota payment to be 

made. So it was conditional on the quota payment; it wasn’t actually a requirement of the IMF. The IMF voted independently of 

that, but it was necessary for the United States to pay the quota. 

Mr. MULVANEY. All right. I have just been handed a note to ask 

you to clarify between the new language and the way you are going 

to handle this and the systemic exemption. Is there something that 

is taking the place of that? Are we just saying now that the only 

consideration is going to be the debt restructuring and the sustainability of the debt? Is that the only issue that enters into the IMF’s 

mind? 

Mr. SHEETS. So, you have debt sustainability and whether or not 

the program is significantly improving that debt sustainability. Of 

course, there are important governance issues. Will the country follow the program as written? And is it credible in the commitments? 

And, frankly, those are the two prongs of what the IMF is now requiring for Greece: one, a solid program that the fund is comfortable will achieve the objectives and the Greeks will follow 

through on; and two, debt relief to ensure that the debt is sustainable. 

Mr. MULVANEY. Correct. Now, you mentioned the relationship 

with the Greeks and whether or not they will be able to carry out 

this program. There is some tension between the IMF right now 

and Greece—and, by the way, rightly so. And I am surprised that 

the ranking member didn’t recognize—hasn’t raised this issue. In 

fact, I don’t think many folks on the other side of the aisle have. 

One of the questions that we have about the IMF’s role in Greece 

is that it is a developed country, and whether or not you like the 

IMF, it is supposed to be helping the underdeveloped countries of 

the world, not Greece, and that every dollar we spend helping 

Greece is not going to help sub-Saharan Africa. So that is sort of 

one of the rare bipartisan things that we agree on here. 

But let me ask you this. I am going to go into the relationship 

and I want to ask you about the leaked conversation earlier this 

month. It was the leaked conversation between the various IMF officials—one in Washington, and two, I think, in Geneva, about the 

Greek situation. Are you familiar with that situation, Mr. Sheets? 

Mr. SHEETS. I have read the news reports, absolutely. 

Mr. MULVANEY. Do you know if the IMF has done any investigation as to how that happened? 

Mr. SHEETS. I don’t know how the IMF has responded internally. 

Mr. MULVANEY. Okay. Do we care? We are the largest funder of 

this. Does the United States Government care how an IMF internal 

phone conversation got tapped and then leaked? I care. 

Mr. SHEETS. That was a confidential conversation between senior 

people at the IMF. Absolutely, it should have been confidential. As 

you say, as a shareholder worried about the governance of the institution, we care. 

10 

Mr. MULVANEY. Have we done anything to find out how it happened? And here is why I wonder, because the substance of the 

leaked conversation—someone tapped somebody’s phone. and then 

leaked the transcripts; actually the audio—is that the IMF may 

have been trying to promote some type of event in Greece prior to 

the July debt payments that are due in order to spur action. So I 

am curious as to what— 

Mr. SHEETS. The interpretation in the press of the leak, and I 

think would share this, is that the source of it certainly wasn’t the 

IMF. 

Mr. MULVANEY. The source of the leak wasn’t the IMF? 

Mr. SHEETS. Was not. 

Mr. MULVANEY. Okay, that is fine. 

Mr. SHEETS. The IMF was underscoring the importance there of, 

one, the Greeks following through on the program, and two, in 

order to get the debt relief, the German authorities have been the 

ones who have been the most reluctant to put that on the table. 

Mr. MULVANEY. And you have mentioned that, about— 

Mr. SHEETS. Those are the two parties, in some sense, the IMF 

is negotiating with. 

Mr. MULVANEY. And I hope we get a chance to continue this later 

because you have mentioned that a couple of times, about the importance of debt restructuring. And of course one of the biggest impediments to that is the German intervention, the discussion is 

they don’t want them. But we will maybe continue that a second 

time. 

Mr. SHEETS. I will be happy to speak with you bilaterally about 

that. 

Chairman HUIZENGA. The gentleman’s time has expired. 

With that, the Chair recognizes Mr. Foster of Illinois for 5 minutes. 

Okay, we will, at your discretion. 

The Chair recognizes Mr. Himes of Connecticut for 5 minutes. 

Mr. HIMES. Thank you, Mr. Chairman. I think we will come back 

to Mr. Foster. 

Mr. Sheets, thanks for being with us. I just wanted to use a little 

bit of my time or most of my time to go slightly off topic and give 

you a little bit of time to talk about the Asian Infrastructure Investment Bank. Obviously, we have had something of a stutter-step 

policy with respect to that bank, and how we have talked about it 

with our allies, several of whom obviously joined. 

I wonder if you could talk a little bit about, from your perspective, what you see that bank doing. In particular, obviously, the 

criticism and the concern is that it has become an instrument for 

Chinese policy and strategy. I am wondering if we are seeing that. 

I am wondering if that is causing tensions within the bank. 

And then I wonder if you could comment on how you see it interacting with or perhaps competing with other MDBs in which we 

have an interest? 

Mr. SHEETS. Our view is and has been through the discussion, 

since the idea of an AIIB was launched, is that the Asian Infrastructure Investment Bank can be a constructive addition to the 

global infrastructure and to the global community if it adequately 

incorporates these lessons, these safeguard-like things that I have 

11 

alluded to, these lessons of development bank lending over the last 

70 years. So appropriate governance structures, awareness of debt 

sustainability, strong procurement policies, policies on environment 

and social safeguards, and so on and so forth. 

There is certainly a marked infrastructure need in Asia. So to 

the extent that it is implementing those projects in a way that is 

consistent with best practice and safe and responsible, it can be a 

constructive addition. 

Mr. HIMES. Do we have any early returns on whether that is occurring? 

Mr. SHEETS. We have been very vigorous in our advocacy with 

that position both with the Chinese directly and with countries 

that are members. And what we have seen so far is that the documents, the articles of agreement and the documents that have been 

produced to support the AIIB, are broadly in line with international best practice. So I would say that has been reasonably encouraging. 

But I think it is very important that we see how this institution 

actually operates and we need to see its track record. And one way 

to achieve that is for the AIIB to do whole co-financing with the 

Asian Development Bank and the World Bank, and I believe that 

both of those institutions are exploring options in that regard. 

So the AIIB has the potential to be constructive, and we are 

working through every dimension that we know of exerting leverage to try to ensure that actually is achieved. 

Mr. HIMES. Is the Administration giving any consideration to potentially ultimately becoming a shareholder in the bank as a mechanism for achieving that leverage? 

Mr. SHEETS. For now, we are focused on meeting the commitments we have to existing institutions. And before any decision like 

that could be considered, we would need to see a track record, and 

that still is quite a ways down the road, I think. 

Mr. HIMES. Thank you. 

I yield back, Mr. Chairman. Thank you. 

Chairman HUIZENGA. The gentleman yields back. 

With that, the Chair recognizes Mr. Pearce of New Mexico for 5 

minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. 

And thank you, Mr. Sheets, for being here. 

Following on the line of the questions of the chairman and the 

vice chairman, I would redirect attention to Argentina. The United 

States, at the beginning of this year, reversed its stance on making 

loans in Argentina. Could you explain why that was? 

Mr. SHEETS. In December, Argentina had a watershed election 

where they elected a new government, President Macri. President 

Macri has made clear that economic reforms are a very important 

objective. They have taken significant steps to reform their economy, including freeing up the exchange rate and making that more 

market-determined. Recently, they have concluded a 15-year period 

of very protracted negotiations with creditors. So the tone of the 

policy in Argentina has shifted significantly. 

In addition, another factor that has been in play is that we had 

asked Argentina to take steps to normalize its relationship with 

Paris Club creditors, which we have seen it do. 

12 

Mr. PEARCE. One of the key elements appeared to be repayment 

of loans that they defaulted on. Are they beginning to repay those 

loans to U.S. investors? 

Mr. SHEETS. They are through the Paris Club and, my understanding is, another bit of it was the ICSID awards, which there 

were outstanding, including to El Paso Energy. And my understanding is that they have taken or are taking steps to clear those 

arrears as well. 

Mr. PEARCE. Are they actually paying those or they are taking 

steps that might someday lead them to pay them? 

Mr. SHEETS. My understanding is that it is happening. It has either happened or is happening. 

Mr. PEARCE. It is happening? 

Mr. SHEETS. Yes. 

Mr. PEARCE. So, again, I think Mr. Mulvaney asked the question 

properly, for 100 years Argentina was the leading economy in this 

hemisphere. The United States was second to them. Why are we, 

when we are supposed to be helping underdeveloped countries, 

going into countries that have squandered their position, for whatever reasons? Why are we doing that? 

Mr. SHEETS. To the extent that the World Bank is involved in 

Argentina, it would be first of all making loans on a 

nonconcessional basis. And in general, our thinking is that the 

World Bank and the MDBs are best placed in middle-income countries to be focused on supporting and helping the poorest. 

Mr. PEARCE. So have you rewritten your underlying goals and 

standards? Because much of your documentation says that you are 

here to help emerging countries. And if you feel like the best rate 

of return is on countries, it seems like you out of transparency 

should realign your goals and realign your mission statement. 

Mr. SHEETS. But it is not a one-size-fits-all approach. So what it 

means to help a middle-income country like Argentina is significantly different than what it means to help a poor country. 

Mr. PEARCE. I don’t want to get into the nuances of it. I would 

just say that what your documents say is one thing and what you 

are describing to me here is completely different. It seems like as 

a matter of transparency you would want to realign what you tell 

the taxpayers or us or whoever that you are investing in. 

I recently had a conversation—or I didn’t have a conversation directly, but a friend of a friend was in the Peace Corps, he is my 

age and spent his early years in the Peace Corps making investments. So he had a chance to go back after 50 years and look. And 

he stayed with the Peace Corps, it wasn’t like the 2-year stint; he 

stayed and became one of the managers. And so he went back and 

he looked 50 years afterwards and he said the projects that we invested in are laying in ruins now. 

Do you all ever do, for instance, a 20-year look at where you 

stuck the world’s money, I mean, $100 billion, your budget here, 

that is a lot of money. Do you ever look 3, 4, 10 years in the past? 

If we were to take a look at the top 20 projects of 20 years ago, 

what would we find? Would we find successful, prosperous ventures 

or would we find those rusting hulks that my friend from the Peace 

Corps talked about? 

13 

Mr. SHEETS. Speaking bluntly, I think we would find a mix. 

Some projects have been quite successful and others much less successful. And that is very much, it is kind of learning from the past, 

is what we are trying to do, in thinking about updating, modernizing, and making the governance of these institutions more efficient and to always be drawing on— 

Mr. PEARCE. You talk about more efficiency, if you were to compare—and I know I am about out of time—but if you were to compare your investments in renewable energy and oil and gas, would 

the renewables be more or the oil and gas investments be more? 

Mr. SHEETS. I am not sure. I am not sure we have enough track 

record. 

But let me also just say that I think the last 15 years in Argentina have been particularly difficult, that the country has struggled 

severely. And what you might see in Argentina could be more problematic given their choices, the governance choices they have made, 

than in other middle-income countries. 

Mr. PEARCE. Mr. Chairman, as I close here, I would just make 

the observation that based on your report, I would guess that the 

investments in wind energy are probably significantly greater than 

oil and gas, for instance, and wind energy has about 12 percent effectiveness per dollar. So when you talk about efficiencies, it seems 

like you would want to be looking at those sorts of rates of return 

on the investment. 

Thank you. I yield back. 

Chairman HUIZENGA. The gentleman’s time has expired. 

Before we go any further, I have a couple of items of business. 

And in case we have some other Members who are not a part of 

this subcommittee, without objection, Members of the full Financial 

Services Committee who are not Members of the subcommittee 

may participate in today’s hearing for the purpose of asking questions of the witness. Without objection, it is so ordered. 

And then, I believe the ranking member has a question. 

Ms. MOORE. Thank you, Mr. Chairman. I have a unanimous consent request to insert into the record correspondence referenced 

here at this hearing, April 12, 2016, to Dr. Kim regarding the letter 

I wrote to the IFC about its conflict policy. 

Chairman HUIZENGA. Without objection, it is so ordered. 

With that, we will return back to Mr. Foster of Illinois for 5 minutes. 

Mr. FOSTER. Thank you, Under Secretary Sheets, and Mr. Chairman. 

Let’s see, I have a couple of questions. The first has to do with 

the attitude you take toward transfer unions. A lot of observers 

have said that the EU is more and more becoming a transfer union 

where the wealthy economies of Northern Europe, Germany and so 

on, are being asked to systemically bail out Greece, and other, 

more southern countries. 

I think observers have also mentioned that the United States is 

becoming much of a transfer union. I know in my State of Illinois, 

about $40 billion a year leaves the State every year because we pay 

a lot more in Federal taxes than we get back in Federal spending. 

The net present value of all the money that has been—wealth that 

has been transferred out of Illinois in the last 30 years is north of 

14 

$1.5 trillion, much larger than the Greek debt, and is a large contributor to the fiscal woes of Illinois. 

All of that aside, you face a variety of transfer unions, everything 

from northern Italy to southern Italy to the different countries in 

the EU. So how do you handle this and what is your attitude when 

you are determining need? 

Mr. SHEETS. This issue is really at the heart of what it means 

to be a union in that when you put together a set of somewhat heterogeneous economies, like those in Europe, invariably they are 

going to be at different places in their business cycles and be experiencing different kinds of economic developments. And it is imperative, if you are only going to have one monetary policy and one 

exchange rate, that there be some kinds of flows that go from those 

who are doing relatively well to those that are struggling. 

And with the United States, we have very flexible labor markets, 

and that is one of the key adjustment mechanisms that we have. 

In Europe, the labor markets are not as flexible, and the way you 

kind of equilibrate these different parts of the European economy 

is through transfers from one part to the other. 

Where it gets tricky and difficult is if there is a sense that there 

is a structural notion to it. So it is not just during the business 

cycle and sometimes one is doing well and sometimes the other is, 

but that structurally one part of the union is subsidizing the other 

part of the union. And I think there is that perception in Germany, 

and that is a true political economy challenge that the Germans 

face. 

On the other hand, if Germany had its own exchange rate, my 

sense is it would be valued at a different place than the euro is 

today. 

So there are a number of offsetting macroeconomic considerations. But these transfers that you highlight and their sustainability is really linked to the sustainability of a union. 

Mr. FOSTER. Well, thank you. 

Another effort where you have considerable leverage is just in reducing corruption. I think the Economist magazine is a big fan of 

the single most effective intervention we can do is just to discourage corruption wherever we can. 

So when you look at the distribution of your efforts, how do you 

rank that? And do you think you spend enough of your time trying 

to fix the corruption problem in developing countries? 

Mr. SHEETS. I very much agree that if there is corruption—and 

this may be one the lessons of development lending over the last 

70 years—where there is corruption it becomes essentially impossible for development policy to work. The resources don’t get to 

those who need them the most. 

And so I would say not only would it be high, it would be an indispensable ingredient of a successful development strategy. I know 

that it is one that the multilateral development banks and the IMF 

put a very, very high weight on. 

Mr. FOSTER. Are there initiatives, specific initiatives that would 

really improve the effectiveness that have been identified or just 

successful experiments in making the finances of all of the players 

who are involved in corruption more transparent? 

15 

Mr. SHEETS. There are various case studies and approaches that 

have been used, some to address low-level kind of petty sorts of 

‘‘petty corruption issues,’’ others from a more high level. I think 

that the more high-level stuff is probably more legal, and legal enforcement and toughening that up. The petty stuff is more systemic 

and you have to think about what incentives and wages and so on 

and forth are being paid to the civil service. 

And then there is a related issue of tax compliance and making 

sure that the people who owe tax actually pay tax, and there are 

a number of countries around the world where that is an issue. 

So those are some of the things that I reflect on when you raise 

the issue of corruption. And all of them are necessary. 

I guess another one that is particularly important for the Treasury is that we are engaged all over the world on AML/CFT technical assistance and ensuring that the financial sector is free of 

abuse— 

Mr. FOSTER. I guess my time is up. I will yield back. 

Mr. SHEETS. Yes, that is also another important thing. It manifests itself in many different ways and must be fought in all those 

different dimensions. 

Chairman HUIZENGA. The gentleman’s time has expired. 

The Chair recognizes Mr. Pittenger of North Carolina for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Mr. Sheets, I appreciate this dialogue. I would like to follow up 

on Mr. Foster’s inquiries. 

In reference to operation in countries that are complicit relative 

to human rights and corruption, last year the Financing for Development Conference took place in Ethiopia, which ranks 103rd on 

the Transparency International corruption index and is also rated 

by Freedom House as not free. How do you make the connection 

between that and your reference that it would not make good judgment to be providing this type of resource to the country that was 

complicit with corruption? 

Mr. SHEETS. This is an important and a challenging endeavor in 

that there are 185 countries in the world, all of them at different 

places. And I think that the important thing is that we engage 

with these countries and do what we can to help, wherever they 

rank on that, that we are doing what we can to help move them 

up, at least in terms of their practices. I guess everyone can’t move 

up simultaneously in a relative ranking, but everyone can move up 

simultaneously in terms of absolute standards and their expectations in fighting corruption. 

Mr. PITTENGER. Mr. Sheets, with all due respect, aren’t you really setting this country up as a qualified country, as one that would 

be acceptable by coming and honoring them in the presence of having your meeting there? I think to me it says to the rest of the 

world that those standards are highly flexible. 

Mr. SHEETS. Yes, I think it is—and certainly this would be true 

for Ethiopia—that we think of this as a process of hiking and working with them to press forward— 

Mr. PITTENGER. I think the higher you keep your standards in— 

Mr. SHEETS. —I am not saying that anybody’s perfect where they 

are today. 

16 

Mr. PITTENGER. —you are giving a visual to the rest of the world 

of what you believe is acceptable. And it seems to me if what you 

are saying is correct, that you want to support countries that do 

not tolerate corruption, that don’t tolerate human rights abuses, 

that we should honor those who are doing it the right way. 

As you look at—on another issue—given the turbulent economic 

trends and issues that we see in China and Russia and Brazil, do 

you believe that they are sustainable in terms of their engagement 

with AIIB and also with the BRICS? Are they going to be a valid 

player in the market? 

Mr. SHEETS. When we think of the BRICS, this is a period of 

greater economic uncertainty, I would say, for the BRICS than was 

the case, say, a decade ago. Brazil’s economy is facing some significant challenges. Russia’s economy, clearly, for a number of reasons 

is facing significant challenges. South Africa is feeling the effects 

of much lower commodity prices. And the Chinese economy is 

gradually slowing, which I would say is a moderation and not unexpected. No economy is going to grow as fast as China was growing. But it is a slower pace of growth. Of those BRICS, I would say 

the one notable exception is India, where it continues to grow at 

something over 7 percent. 

In terms of the specific association amongst them, they are five 

of the leading developing, emerging markets economies of the 

world. And I think from that perspective, they have some common 

interests, but more broadly, they also are very heterogeneous. 

Mr. PITTENGER. I appreciate your perspective. 

One more question. I am short on time. A follow-up to Mr. 

Pearce. The data that I received shows that 65 percent of NADR’s 

portfolio went to wind and solar energy efforts. So there seems to 

be some data out there to support that. 

What process is used to decide which projects deserve financing 

over others? And I can also look at what you have done in terms 

of the border States. Texas has gotten—area has gotten a substantial amount, where Arizona has not, neither has New Mexico. 

So what standards do you use to provide these types of outcomes? 

Mr. SHEETS. And which portfolio was 65 percent wind and solar? 

Mr. PITTENGER. The NADR’s portfolio. 

Mr. SHEETS. Got it. 

So the NAD Bank’s mandate is to invest in environmental infrastructure. And the question that would be asked of the projects, be 

they wind, solar energy, or waste management, roads, sanitary, et 

cetera, et cetera, is what is their development impact, what is the 

bang for the buck, so to speak. 

Mr. PITTENGER. Thank you. My time has expired. 

Chairman HUIZENGA. The gentleman’s time has expired. 

The Chair recognizes Mr. Heck of Washington for 5 minutes. 

Mr. HECK. Thank you, Mr. Chairman. 

Under Secretary Sheets, thank you so much for being here. 

One of my favorite adages is as follows: Not everything that 

counts can be measured and not everything that can be measured 

counts. 

Despite the fact that is one of my favorite adages, I, in fact, conduct my life in a way that seeks to do exactly that. Informed mostVerDate Nov 24 2008 14:56 Jun 27, 2017 Jkt 024065 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\24065.TXT TERI
17 

ly by my time in the business sector, I think it is important to be 

intentional, to decide what success looks like, and to attempt to 

measure it. And accordingly, I was heartened to see you say in 

your testimony that the MDBs must measure success by the outcomes of projects, rather than the amount of financing provided. 

So, Under Secretary Sheets, could you give a little color to what 

outcomes you seek to measure, what success looks like, what are 

you trying to incentivize, and what the metrics are? 

Mr. SHEETS. I also very much like that quote, and as an economist argue I have spent my life in other pursuits as well. 

Mr. HECK. My second favorite adage is, if you could take all the 

economists of the world and lay them end to end, it would be a 

good thing. 

Mr. SHEETS. And one of my great frustrations is I only have two 

hands. Often, I wish I had three. 

But in terms of what we are measuring, again, it is development 

impact. So what is the implication of these projects in the lives of 

real people? And that can be some of these disadvantaged populations that Representative Moore has highlighted. 

It is also the business communities. How are they helping to facilitate small and medium-sized enterprise development and a business climate in these countries that is supportive and helpful? 

And then, there is a whole set of issues about the global commons that I mentioned. Are we delivering global public goods? 

And as you think about that on a country level, then it aggregates up into, what are the implications of these policies for the 

global economy, for global growth, for the global environment, for 

global poverty reduction, and then ultimately to the United States, 

in U.S. growth and U.S. employment? 

So I think of it as in some sense an escalating set of issues of 

rising generality. But in the first instance we have to say what 

does this mean for individual people inside the countries where the 

project is being done? 

Mr. HECK. GDP growth, small business growth, income growth, 

business climate as measured. 

Mr. SHEETS. Poverty reduction. 

Mr. HIMES. Poverty alleviation. 

So, Under Secretary, you have often warned about the potential 

negative impacts on U.S. global leadership if we don’t stay in the 

game, if we don’t meet our obligations or our commitments to participate in the international financial institutions. 

Putting this in a broader context, I think about the seeds of the 

MDBs being sown at Bretton Woods, and especially when combined 

with the Marshall Plan. We were hugely motivated just in part by 

altruism, but also we were seeking to avoid warfare. And I think 

that was one of the hard lessons between World War I and World 

War II. We were also seeking to do all the things you just talked 

about in order to create markets for our own goods. 

And I guess what I want you to talk about is why it is in our 

self-interest—leave altruism aside for the time being—why is it in 

our self-interest to pursue participation, robust participation in 

international financing institutions? 

Mr. SHEETS. I think you made many of the arguments quite candidly there. Ultimately, what the international financial instituVerDate Nov 24 2008 14:56 Jun 27, 2017 Jkt 024065 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\24065.TXT TERI
18 

tions are about, is developing strong, stable, economically and militarily, economically stable and secure, countries around the world. 

And as we see that achieved, that means more opportunities for 

U.S. exporters. It means more U.S. jobs. It means stronger global 

growth. It means more opportunities for U.S. investment. 

I think the MDBs’ track record over the last 70 years is that they 

have contributed to these kinds of things, global stability, global 

growth, and rising opportunity for people around the world, which 

in turn, creates rising opportunities, rising demand, and opportunities in the United States. 

Mr. HECK. And it is, therefore, in our self-interest, sir? 

Mr. SHEETS. Strongly. And let me, consistent with that, just say, 

that since the IMF quota money was paid to the IMF, our ability 

to be able to influence that institution in a way that is consistent 

with U.S. objectives has been greatly enhanced. So it is a concrete 

example of what you are speaking about. 

Mr. HECK. Sure. 

Chairman HUIZENGA. The gentleman’s time has expired. 

The Chair recognizes Mrs. Love of Utah for 5 minutes. 

Mrs. LOVE. Mr. Sheets, thank you for being here. 

Many assume that the MDBs are poverty-fighting institutions. 

And even though their nonconcessional lending to middle-income 

countries can equal or exceed loans to poor governments, it was reported this month that the IBRD, the World Bank lending arm to 

the middle-income countries, is expected to have a banner year, 

pushing $25 to $30 billion out the door at levels unseen since the 

financial crisis. 

So by definition, a nonconcessional borrower at the MDBs is 

more creditworthy than poor countries borrowing from a soft loan 

window. Mr. Sheets, in your thoughts, why should taxpayers guarantee loans to countries that have access to capital markets anyway? 

Mr. SHEETS. This is a very, very important question. First of all, 

let me emphasize that the terms that are extended to middle-income countries by the MDBs are different than those that are extended to poor countries by the MDBs. The MDBs’ interactions 

with the poor countries are more likely to have a significant grant 

element to them, so just an outright passing of resources, and 

would be given at a lower interest rate than would be the case for 

middle-income countries. 

In terms of the case for lending to middle-income countries, my 

sense is that even in these middle-income countries, they have significant fractions of those who are still in poverty. And focusing 

lending on the poorest in these countries is something that is of 

great importance. 

Mrs. LOVE. Okay. So first of all, to the first point you were making, we are still pushing $25 to $30 billion out the door. 

Mr. SHEETS. Yes. 

Mrs. LOVE. In terms of sheer numbers, that is one. 

Mr. SHEETS. Yes. Yes, substantially. 

Mrs. LOVE. But also, I have heard the argument already that— 

I have heard this argument about the different areas in some of 

these larger countries that— 

Mr. SHEETS. Yes. 

19 

Mrs. LOVE. —that are experiencing extreme poverty. But it essentially means that China, India, and other large countries that 

still have many citizens who are living in extreme poverty, you 

have to understand that, to us, we understand what is going on 

there. China and India have ample resources that can benefit their 

own citizens. 

For instance, China still has over $3 trillion in reserves and has 

itself established not just one but two development banks. So 

again, I have heard that—I need to have some sort of other reason, 

because like my colleague said, every dollar that we spend in some 

of these countries is a dollar that we are not spending in countries 

that may need those resources. 

Mr. SHEETS. Specifically, with the case of China, but others as 

well, as I indicated in my remarks, we are vigorously engaged with 

these countries, emphasizing to them what their responsibilities 

are in the global system. And last summer, as we were negotiating 

with the Chinese in the run up to the summit between President 

Xi and President Obama, one of the key deliverables that we 

achieved with the Chinese was them making a commitment that 

over time they would increasingly be contributors to these institutions and decreasingly be using them. 

But you know, by the same token, as I said, my sense is there 

are tens of millions of poor people in China. When the MDBs come, 

that they bring international best practice, there is learning by 

doing in a number of different dimensions. So I think there is a 

case for the MDBs being in the middle-income countries, but it is 

also important, as they have resources, that they become contributors and that they taper off their borrowing. 

Mrs. LOVE. Do you have a specific matrix or any set criteria for 

evaluating when a middle-income country no longer needs multilateral development assistance? 

Mr. SHEETS. That is actually a vigorous debate inside of these institutions that is under the rubric of graduation: When should 

countries graduate from being borrowers at the MDBs? And there 

is a whole— 

Mrs. LOVE. I would think that would actually be a priority, especially because— 

Mr. SHEETS. Absolutely. 

Mrs. LOVE. —like I said, we have taxpayer dollars going into— 

Mr. SHEETS. Absolutely. 

Mrs. LOVE. We have to be able justify. 

Mr. SHEETS. Yes, we have been strong advocates of graduation 

when that is appropriate. 

Mrs. LOVE. Thank you. 

Chairman HUIZENGA. The gentlelady yields back. 

Mrs. LOVE. All 4 seconds. 

Chairman HUIZENGA. All 4 seconds, yes. Very generous of you. 

We appreciate your efficiency. 

With that, we recognize the gentleman from Michigan, Mr. Kildee, for 5 minutes. 

Mr. KILDEE. Thank you, Mr. Chairman. And Mr. Sheets, thank 

you for your testimony, and I apologize. I just came in. If some of 

these questions—I really have only two areas I want to explore, if 

they have already covered them. 

20 

But if I could ask you to comment on some research that we have 

seen which shows that investing in the education of young women 

and girls has an incredible rate of return. Talk to me about the extent to which MDBs are focused on that particular question, especially in light of real questions about economic growth actually 

being dragged down by the lack of full participation of populations 

in local economies, especially in developing parts of the world, and 

what levers, what tools can be used to ensure gender equality when 

it comes to access first to education but then to other aspects of a 

nation’s economy. 

Mr. SHEETS. I very much share your view, and I think that institutionally, the Treasury shares the view that education and encouraging strong education around the world is absolutely crucial. It is 

a key part of the development process, raising the expertise in the 

human capital of the public. 

We would further categorically agree with you that bringing 

women and girls into the education system and in the labor force 

is absolutely essential. We can look around the world and see countries that are quite advanced, as well as countries that are not advanced at all economically, that are not adequately using the capacities and the employment capabilities of women. And it is imperative, especially as we think about an aging global demographic, 

that women have opportunities in the labor force completely and 

fully. 

Now, consistent with what I am saying, education, particularly 

education of women and girls, is a key priority of the MDBs. It was 

one of the key priorities of the Financing for Development conference that was held last summer. It is at the center of the work 

programs in all of the MDBs. It is something that all of them are 

committed to achieving. Maintaining adequate resources for that is 

important. 

There is also another aspect of it, and that is a safeguards aspect 

of making sure that as projects are implemented, this objective of 

bringing in and allowing a fair participation, regardless of gender 

in projects, and that people are protected, that is also an important 

aspect of it as well. 

Mr. KILDEE. Thank you. And just switching gears, I wonder if 

you could make any comments on the challenges, particularly in 

developing countries, regarding clean drinking water? 

I have a particular interest in the subject. I represent Flint, 

Michigan. I am often looking for some corollaries between the global challenges we face, and sadly, some of the unique challenges 

that we face in really distressed communities in our own country. 

But could you comment on the extent to which MDBs have been 

able to focus on the development of drinking water systems that 

don’t absolutely have to have a market basis in order to be sustained? That is one of the big challenges, particularly in areas of 

high poverty. 

Mr. SHEETS. This is also of great importance. I think that Representative Moore referred to access to water as being a human 

right, and I very much share that view. 

Water projects, sanitation projects, et cetera, et cetera, are core 

to the MDBs, and in fact, when I think about the restructuring 

that Jim Kim did at the World Bank where he reorganized the 

21 

bank from focusing on regions to focusing on practice areas and 

areas of emphasis, one of those core areas that he is focused on is 

water and ensuring access and management and sanitation, and so 

on and so forth. 

The other point that I would make is I think the North American 

Development Bank, its mission of environmental infrastructure 

along the U.S.-Mexican border is also very relevant here of ensuring adequate access to water and sanitation and so forth in all 

parts of the United States. 

So I think there are a number of different dimensions here, and 

they are very important. 

Mr. KILDEE. Thank you very much. I see my time has expired. 

I thank the chairman and the ranking member for this hearing and 

I yield back my time. 

Chairman HUIZENGA. The chairman appreciates your just self-policing there on your time. 

The Chair recognizes Mr. Schweikert of Arizona for 5 minutes. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

Dr. Sheets, I have a whole series of quick questions just for education dialogue. 

What is the most successful practice you believe that you have 

seen different development banks engage in to deal with corruption? 

Mr. SHEETS. I think what we are seeing in the AML/CFT space 

right now is quite extraordinary, and the MDBs are working on it. 

We at Treasury have taken at look at this. 

Mr. SCHWEIKERT. Describe to me what the practice is. 

Mr. SHEETS. The MDBs have technical assistance that is similar. 

Let me describe what we are doing in the space; it is similar. We 

have projects in 17 countries, and many other countries have requested it, where we send in teams of specialists who know bank 

supervision and how to root out unsavory transactions and sit 

down with their counterparts in developing countries and teach 

them how to do it, so it is really a hands-on technology transfer. 

Mr. SCHWEIKERT. Okay. 

Mr. SHEETS. And I think that is the key, and you need to be 

hands on. You can’t just pass a handbook. It has to be— 

Mr. SCHWEIKERT. And with that, going in the right direction, 

would you oppose, as we are getting ready to recapitalize and try 

to make sure we are doing things the right way, to also put in sort 

of the bad actor provisions, that these individuals cannot touch the 

money? 

Mr. SHEETS. That bad actors, along with the AML/CFT, that bad 

actors— 

Mr. SCHWEIKERT. We have our classic examples of some of the 

assistance to Ukraine, and we know that certain folks managing 

the money are the very people whom we are also investigating for 

having done something dodgy. 

Mr. SHEETS. Absolutely. In the Ukraine, as we have interacted 

with them in the contexts of the IMF program and also the loan 

guarantee— 

Mr. SCHWEIKERT. And I was just using them as an example. 

Mr. SHEETS. Yes. 

Mr. SCHWEIKERT. It has been— 

22 

Mr. SHEETS. We have been emphatic about— 

Mr. SCHWEIKERT. —a worldwide phenomena. 

Mr. SHEETS. —fighting corruption and making sure the bad actors aren’t the ones who are in the position of applying the rules. 

Mr. SCHWEIKERT. In some of the literature, there is discussion 

about also trying to design the system so it is direct payments to 

contractors instead of it flowing through the partner country, that 

payment goes directly to the concrete company that delivered the 

concrete, all those sorts of things. Almost like if you were doing a 

development—let’s say you were building some condos here or 

something of that nature, your bank, on occasion, would pay directly to your individual trades or contractors. 

Mr. SHEETS. Yes. 

Mr. SCHWEIKERT. Is that comfortable? 

Mr. SHEETS. I think the empirical literature on this suggests that 

to the extent you can make the payment directly to the source and 

cut out various administrative layers, unsurprisingly, that gives 

you much better results. 

Mr. SCHWEIKERT. Okay. So we have already come up with like 

two or three— 

Mr. SHEETS. Yes. 

Mr. SCHWEIKERT. —at least conceptual reforms that we both like. 

Last one, and this one is a little more ethereal, but I think has 

a much grander scheme. There are a number of us here who have 

been talking about, for a couple of years, and—the idea of one of 

the most powerful things we could ever do in development aid is 

actually how do you get the money down to the population who is 

in most need of—is most in the categories of poverty? 

Okay. We have all seen the—we all grew up hearing the stories 

of the micro-lending in Bangladesh and those things. I am talking 

the next level where I have, even some of my poorest populations, 

walking around with some versions of smartphones where the 

smartphone is also their bank. How I do basically—I will use the 

term ‘‘eBay’’ or trade, and how do we use both the combination of 

technology and our resources to build that platform? 

So if I am here in North America and I go online and there is 

a small village in the middle of Myanmar that carves tables, that 

I can buy that directly from them, use this technology to send the 

money directly to them without the graft, baksheesh, whatever you 

want to call it, being skimmed off the top or huge portions of it disappearing, and that sort of bilateral trade with the folks in most 

need of it using our current technology. What do you believe your 

agency and organization would be willing to do to help us bring 

that about? 

Mr. SHEETS. One frame on that is how to build micro-nationals 

around the world. One place where we have seen this happening, 

and where the Treasury and the MDBs have been involved, is in 

India where the population has hundreds of millions of cellphones, 

and they are using those cellphones to connect into the financial 

system and to enhance financial inclusion. 

Mr. SCHWEIKERT. Mr. Chairman, I know I am out of time, but 

those four things, the three about corruption and the one about 

sort of the resources also going directly to the folks we intend to 

help by trading with them, and building a platform to do that, 

23 

those are all ideas I would like to present to you in writing at some 

point. Thank you, Mr. Chairman. 

Chairman HUIZENGA. We appreciate that. And if it is all right 

with you, Secretary Sheets, the ranking member and I have discussed doing a brief second round as well, which may just consist 

of a couple of us, but I had a couple of follow-up questions, and we 

want to be mindful of your time as well. 

But with that, pursuant to our rules when we don’t have anybody on the other side of the aisle present, we will go to the next 

person on the Majority side, Mr. Emmer from Minnesota. 

Mr. EMMER. Thank you, Mr. Chairman. Thanks for holding this 

hearing, and thank you to the Under Secretary for joining us this 

morning. 

We are here today, as I understand it, to discuss the World Bank 

and the four regional MDBs because the Treasury is currently negotiating a replenishment of the World Bank and the African Development Bank. And the term ‘‘replenishment’’ is really another 

way of saying what Americans are being asked to contribute. Isn’t 

that correct? 

Mr. SHEETS. Yes. 

Mr. EMMER. And there is a paid-in amount and then there is an 

overall commitment, correct? 

Mr. SHEETS. There are two modalities through which these contributions are made. One is through capital increase, which would 

be the called in, but there are also in the concessional windows 

that are used to support the poor. 

Mr. EMMER. If I can interrupt, Mr. Sheets. I understand— 

Mr. SHEETS. Though we make contributions directly. 

Mr. EMMER. That is not where I am going. I am just asking, if 

it is not true that we have a paid-in amount that the United States 

will actually deliver in cash— 

Mr. SHEETS. Right. 

Mr. EMMER. Where it goes, I am not concerned right now. And 

then there is an overall commitment, the number that we have 

capital-on-call, if you will, correct? 

Mr. SHEETS. Yes. I was just saying, particularly at the World 

Bank, I think of it as two accounts. The GCI, the paid-in capital 

requirement to the balance sheet, that is not on the table now. Now 

we have the IDA, which will go to support the poorest through 

concessional lending and grants. 

Mr. EMMER. And I appreciate the clarification. For the past 3 

years, because my understanding is now every 3 years we have to 

do this, and let’s just talk about the World Bank, what was the 

overall amount paid in by the United States as opposed to what 

was the overall commitment? 

Mr. SHEETS. So my recollection—do we have that number? Okay. 

So the overall replenishment for IDA 3 years ago was $52 billion. 

Mr. EMMER. Okay. 

Mr. SHEETS. And the United States paid in $3.9 billion, and 

these were payments to the concessional window for the poorest. 

Mr. EMMER. Got it. So now we are talking about the next 3 

years. Treasury is proposing what for the paid-in amount, the overall commitment? Let’s do it the other way. 

24 

Mr. SHEETS. We are now in vigorous negotiations with foreign 

counterparts as to where this thing might land. My instinct is that 

the next replenishment is going to look broadly similar in terms of 

size to where we were before. 

Mr. EMMER. All right. Now two of the goals of the World Bank 

are: one, end extreme poverty; and two, push for greater equity. I 

think that as part of the goal of ending poverty in underdeveloped 

and developing countries, to lift their standard of living around the 

globe, the World Bank, the idea is, it facilitates the availability of 

capital to deploy on projects that these underdeveloped and developing countries can use to develop, for instance, their transportation infrastructure, correct? 

Mr. SHEETS. Absolutely. 

Mr. EMMER. And their water and sewer infrastructure, their energy infrastructure, their communication infrastructure, all of 

these things, right? 

Mr. SHEETS. All of the above. 

Mr. EMMER. And as I was reading it conceptually, my colleague 

from Michigan earlier talked about the important foreign policy 

considerations of making sure that we have stable countries around 

the globe, that their standard of living is rising not only so that 

they can trade with the United States and others but so we can 

develop a relationship that perhaps doesn’t lead to conflict down 

the road. That is one of the purposes. 

Mr. SHEETS. Yes, exactly. 

Mr. EMMER. But it is also to an advance, isn’t it—it is also a part 

of what the Administration, whomever is in charge, uses to advance their global agenda, isn’t it? 

Mr. SHEETS. There are policy judgments that are made. 

Mr. EMMER. And let’s talk about that quickly because in the time 

I have left, the loans that are being made, whether they are to middle-income countries or to those that need the help in the 

concessional window, the loans aren’t just based on an ability to 

pay and a plan as to how to pay. The World Bank makes a decision 

as to whether or not this project is worthy based on social considerations as well as an ability to pay? 

Mr. SHEETS. Yes. I will say, inevitably, there is a prioritization— 

Mr. EMMER. Let me— 

Mr. SHEETS. —of the project. 

Mr. EMMER. I will be very specific. My understanding is that the 

World Bank will not facilitate financing for a hydro-electric development in a developing nation at this point. 

Mr. SHEETS. I have no basis to—as far as I know, that it can. 

Mr. EMMER. It can. 

Mr. SHEETS. Yes. Why I— 

Mr. EMMER. That isn’t the point. It can. They can do a lot of 

things. 

Mr. SHEETS. They can. 

Mr. EMMER. But my point is, there has been a decision made 

somewhere that it will not facilitate loans for hydro-electric development. 

Mr. SHEETS. The Power Africa is about bringing all various kinds 

of power into Africa. 

25 

Mr. EMMER. I see my time has expired. If we can just do this, 

Mr. Under Secretary— 

Mr. SHEETS. Yes. 

Mr. EMMER. —going forward, can I get with your office and get 

a list? 

Mr. SHEETS. Yes. 

Mr. EMMER. Somewhere, it has to be written down. 

Mr. SHEETS. Yes. 

Mr. EMMER. What is appropriate, what is not. 

Mr. SHEETS. Yes. And I would be happy to chat with you offline 

as well. 

Mr. EMMER. Thank you. 

Mr. SHEETS. Thanks for your questions. 

Mr. EMMER. Thank you. 

Chairman HUIZENGA. The gentleman’s time has expired. I will 

remind the gentleman that he can also submit written questions to 

the Chair, and we will forward those on and be able to get some 

of those answers on the record that would probably be illuminating 

for everybody. 

Mr. EMMER. Thank you, Mr. Chairman. 

Chairman HUIZENGA. Without objection, we are going to move to 

a second round of questioning. And with that, the Chair recognizes 

the ranking member for 5 minutes. 

Ms. MOORE. Thank you so much, Mr. Chairman. And thank you 

for your indulgence and patience with us, Under Secretary Sheets. 

I don’t want to belabor the point here, but we have talked a lot 

about accountability and transparency at these institutions, and I 

am wondering—and I know that I am very impressed with the fact 

that we have been able to get some sort of cooperation among and 

between these multi-development banks. 

But I am wondering, are we able to sort of export our concerns 

about corruption and so on to these other banks? To the extent that 

they are independent but they have carved out their separate roles 

for development in their regions, to what extent are we able to enforce safeguards and transparency among the banks? What is that 

mechanism? 

Mr. SHEETS. We are the largest shareholder in the World Bank, 

but we are also the largest shareholder in all of the regional development banks, with the exception of the African Development Bank 

where Nigeria is number one and we are number two. 

Ms. MOORE. What about the Asian Development Bank? 

Mr. SHEETS. In the Asian Development Bank, we and the Japanese have the same share, so we are co-largest in that institution. 

So we are a very significant voice in the boards of all of those institutions, and in all of those institutions, we vigorously advocate for 

the kinds of things that we talked about today. 

And as a result of our advocacy and through the choice of leadership of the institutions, I think we have been quite effective in raising this as a key goal for these institutions to achieve. Of course, 

there is always work to be done to achieve the goal more effectively, but— 

Ms. MOORE. What about BRICS? 

Mr. SHEETS. What is that? 

Ms. MOORE. The BRICS. 

26 

Mr. SHEETS. The BRICS bank. 

Ms. MOORE. The BRICS multi-development bank across countries. 

Mr. SHEETS. With the BRICS bank, the key shareholders are 

Brazil, Russia, India, China, and South Africa, and that is a new 

institution that they have recently established. There our influence 

has to be more indirect, and it is a matter of engaging with that 

institution and with those countries and encouraging them to pursue these policies. 

The BRICS bank hasn’t made any loans yet, so it is too early to 

say whether or not they will follow these practices, but my sense 

is that these practices are good policy and the case for them is very 

strong, so we will continue to persuade them to follow it. 

Ms. MOORE. Good. Are we anticipating participating in loans 

with BRICS funds? 

Mr. SHEETS. As the BRICS banks have acceptable loans, I think 

that the MDBs would consider that. But I would say, given the 

more limited shareholdership in that institution, that is somewhat 

less likely than co-financing with the AIIB where many more countries around the world are actually members. 

Ms. MOORE. We should watch this very carefully. 

Mr. SHEETS. Indeed, yes, we are. 

Ms. MOORE. Okay. Thank you. I yield back. 

Chairman HUIZENGA. The gentlelady yields back. The Chair now 

recognizes himself for 5 minutes as we wrap this up. 

Under Secretary Sheets, on page two of your written testimony, 

you talk about the NADB bank and how it is unique, and at the 

end of that first paragraph say that, ‘‘The NADB bank’s financing 

of projects in areas like wastewater collection and treatment, solid 

waste management, and air quality improvement enhance the 

quality of life and protect the environment and communities on 

both sides of the border.’’ 

There is, however, evidence in a chart in front of me here that 

two-thirds of the financing of the NADB bank is in wind and solar, 

and I think that goes back to my colleague, Mr. Pittenger’s, question, and being from Michigan as well, and my mother being from 

Flint originally, I am very concerned about what has been happening with Flint, and what Mr. Kildee was talking about, and it 

seems to me that maybe NADB bank has really pulled itself off of 

its core intent, wastewater collection and treatment, solid waste 

management, air quality improvement. 

And as I recall with NAFTA passing early in the Clinton Administration, that was a major, major concern, that you were going to 

have companies shifting across the border and then having all of 

their environmental regulations taken off, a shared watershed 

along the Rio Grande, that things were just going to be dumped in 

there, and the idea of the NADB bank was to be going in and making sure that there was the infrastructure, whether it is drinking 

water or sanitation, roads, all of those different things, not twothirds of its portfolio in solar and wind power. 

And so I think it begs the question now, aren’t they pulling those 

dollars away from some of that vital infrastructure that Mr. Kildee 

was talking about? 

27 

Mr. SHEETS. My understanding is that they are operating consistent with their mandate, which is environmental infrastructure. 

Part of that is ensuring reliable power sources. 

Chairman HUIZENGA. Would you acknowledge that is maybe a 

little broader definition of what environmental infrastructure 

might be than it was in 1993, I guess it was, when this was 

passed? We didn’t have massive wind farms envisioned at that 

point. 

Mr. SHEETS. Right. But I would think that it would include, on 

the one hand, ensuring sustainable energy for the region and also 

ensuring reliable energy for the region. But as you said, these other 

functions of water and sanitation and roads and so on and so forth 

are also of great importance. 

Chairman HUIZENGA. Okay. And I want to, in the last remaining 

2 minutes here, hit on the BRICS banks and the AIIB as well. And 

I am very concerned and curious, will the Asian Infrastructure Investment Bank and BRICS bank hold borrowers to the same standards that these other MDBs, and transparency? Give me a comment on that. 

And then, given the turbulent economic state of China, Brazil, 

Russia, you name it, with what is happening there, what is their 

impact at this point? 

Mr. SHEETS. On the AIIB and holding borrowers to the same 

standards, that is the core, the crux of our engagement with the 

Chinese on this issue is pressing for approaches and lender modalities that are consistent with these best practices that we have discussed in this hearing. 

Chairman HUIZENGA. Is there any reason to believe, though, that 

they are going to follow through on that? Much like they don’t adhere to our standards on their own air pollution standards, for example. 

Mr. SHEETS. The written documents that have been produced are 

broadly consistent with international best practice, so I would say 

that is a positive. And there were countries, and we are working 

with them as well, who are members of the AIIB who are pushing. 

So we are pushing the Chinese directly. We are also working with 

those that are members to push on the board. 

And then a third modality to achieve this outcome is for them 

to co-finance with the MDBs in the sense that, as they are getting 

coming together and doing projects jointly, they inherit all of these 

safeguards and practices that we described. But this is a key issue. 

We are watching it very closely, and we will continue to emphasize 

to the Chinese the necessity of following through. 

I guess one other point here that is material to your question is 

during the summit in September between President Xi and President Obama, the Chinese committed to ensure that the practices 

of the AIIB would be consistent with best standards. 

Chairman HUIZENGA. With that, my time has expired. 

And we would like to welcome Mr. Meeks of New York here for 

round two, and I think he will be our final questioner. So with 

that, the Chair recognizes Mr. Meeks from New York for 5 minutes. 

Mr. MEEKS. I thank the chairman and the ranking member. 

28 

Mr. Sheets, good morning to you. I have been watching and 

working with, and following the work of the MDBs for awhile, 

being on this committee for a long period of time, longer than I 

care to think about. And I have no doubt in my mind that their 

mission is absolutely essential for combating poverty and for the 

most vulnerable regions, and that is absolutely essential for our 

own national interests, both economically and for our security. 

But I am not sure if they are doing enough and that institutions 

like the IMF and the World Bank have the capacity to do enough 

to drastically reduce poverty. The World Bank and other MDBs are 

currently looking for ways to leverage the equity from their concession window so they can do more in terms of grants and 

concessional loans, and I support these initiatives. But I want to 

make sure that greater concessional support would be accompanied 

by better governance. 

I think that not just at the project level but also at the country 

level. And what I want to do is so that we can set an example so 

that if they—you see better governance happening, other countries 

can see that if you do better, then the likelihood of them getting 

the support would be great. 

And that will help and have a huge impact in reducing poverty. 

So I was wondering if you could give me a comment on that? 

Mr. SHEETS. I broadly agree with your assessment. First, it is 

important for us to continue to think of ways to better utilize and 

leverage the resources of these institutions, particularly with an 

eye to continuing to meet the needs of the poorest countries. 

As we discussed earlier, we have seen that achieved with some 

success at the Asian Development Bank, and there is now a process 

ongoing at the World Bank thinking about how to better to deploy 

the IDA resources and how those resources might be better used 

to meet the needs of both developing and other countries. 

The other part of your question, I think, very much cuts to the 

importance of safeguards and ensuring that the lending processes 

are high quality and incorporating the experience of the past. And 

not only that we articulate that up front as being important but 

that actually, once these projects are in place and completed, that 

resources be allocated to ensure that the safeguards have been followed so that there is a focus not only on articulating good safeguards but on implementing them and monitoring them after the 

fact, and make sure that the countries that are involved, the companies that are involved, the workers and so on and so forth that 

are involved, are following through on those best practices. 

Because as you say, the countries that are following through and 

implementing are the ones that should be rewarded with additional 

financing and should be given priority. I have talked about this 

prioritization process. And in some sense you have to prioritize 

across sectors. You also have to prioritize across countries. And 

those countries that are following through and engaged are the 

ones that should be given priority for more funding going forward. 

Mr. MEEKS. All right. I concur with you. 

Let me also add, Director Lagarde has recently been very clear 

that her institution at the IMF lacks the resources to respond to 

potential emerging market debt crises, which is now an emerging 

29 

risk in the face of the commodities prices slump and currencies devaluations that we have seen across many of the regions. 

She has called, for example, for currency swap lines with central 

banks, and for credit lines with the MDB, so that developing countries can reallocate some of their foreign reserves to local investments. And I was just wondering, has the Treasury looked into this 

request at all? 

Mr. SHEETS. Our sense is that with the passage of the quota reforms, and they were agreed to in 2010 and then recently completed this year, the IMF is well-resourced and is in a position 

where it is able and should be able respond to the challenges that 

emerging markets in developing countries face. 

Now, in addition to the discussion of the size of the IMF’s balance sheet, there is also a discussion of what is being called ‘‘global 

financial safety nets,’’ so is there some way to provide an additional 

kind of backstop for emerging market economies to, or in developing countries, to give them liquidity during a time of stress? The 

IMF provides some of that through its flexible credit lines or FCL, 

but is there some way, working together, the international community can provide additional support? 

My sense is that, to date, those discussions are very preliminary, 

and we haven’t yet seen a way forward that makes sense. 

Mr. MEEKS. Thank you. 

Chairman HUIZENGA. The gentleman’s time has expired, and we 

welcome an additional member of the committee here, Mr. Hinojosa 

of Texas, for 5 minutes. 

Mr. HINOJOSA. Thank you, Chairman Huizenga, and Ranking 

Member Moore. Forgive me. 

Chairman HUIZENGA. Please proceed. 

Mr. HINOJOSA. I want to thank you and Ranking Member Moore 

for holding this hearing on development banks. I can say that today’s schedule is extremely packed, and I have been at two other 

hearings where I just had to speak because I had some bills there. 

I want to take this opportunity to ask a question that is on a 

subject that involves the bank that I am so interested in, so I could 

say that over the history of the NADB bank located in San Antonio 

and serving Mexico and the United States has financed 218 

projects, with only 26 in the area of renewable energy, including 

wind and solar, which is a slight 11 percent. 

In fact, over the last 5 years, 41 of those projects have been completed in the area of water and wastewater, while only 18 clean 

and renewable projects have been completed. Few, if any, have that 

record that I just read to you, but the benefits that are being received by the constituents on my side of the Texas congressional 

district, and then of course the people from Mexico where these 

projects were done, have improved quality of life in a way that is 

easy to see and appreciate. 

My question is, how does NADB bank financing renewable 

projects help the bank accomplish its mission, as well as produce 

economic development and opportunity for the impoverished communities along the United States-Mexico border? 

Mr. SHEETS. We very much share the assessment of the NADB 

bank that you articulated, that it has been a powerful source of development along both sides of the border and that there is clear 

30 

additionality here with this institution that is able to do projects 

in the United States as well as in Mexico and work directly with 

municipalities and so forth in ways that the other MDBs would not 

be able to do. 

Now, consistent with the mandate for environmental infrastructure, it is, as you indicate, very important to focus on water and 

sanitation and roads and so on and so forth along the border, but 

also sustainable, reliable sources of energy are a very important objective in the economic development of that region. So that is how 

we would see that fitting into that broader mandate. 

Mr. HINOJOSA. Dr. Sheets, how is the NADB bank accountable 

to the United States for our portion? 

Mr. SHEETS. We, along with the Mexican Government—the U.S. 

Government and the Mexican Government are the shareholders, so 

we would be on the board of those institutions and manage them. 

Mr. HINOJOSA. The monies that are used at NADB bank are put 

in, half from the United States, and half from the Mexican government? 

Mr. SHEETS. Correct. 

Mr. HINOJOSA. I have been talking to friends on both sides of the 

aisle, and they seem to be very impressed with the quality of the 

projects and the success that they have had, how they have benefitted, and so we have asked for an increase so that it will be $6 

million, half and half, both governments. 

Do you support that? 

Mr. SHEETS. Very much so. This capital increase would allow the NADB bank to continue to lend at a pace of $200 to $250 million 

a year, which is essentially where it has been in recent years. Our 

sense is that the demand along the border is quite substantial, and 

the need there is significant. 

Also, as you indicate, our counterparts in Mexico look at this as 

a very important signal of our bilateral commitment and the capacity of the two governments to work together, which is something 

that we see as being very important. 

Mr. HINOJOSA. I appreciate that kind of support. 

Mr. Chairman, I would like to ask unanimous consent to enter 

the NADB bank’s 2014 annual report and Moody’s 2015 rating of 

the NADB bank into the record for today’s hearing. 

Chairman HUIZENGA. Without objection, it is so ordered. And you 

actually beat me to the punch. 

Mr. HINOJOSA. With that, I yield back. 

Chairman HUIZENGA. The gentleman yields back. I was going to 

request the same to point out the charts that NADB bank itself 

had submitted for 2013 and 2014. As far as their total dollar infrastructure spent, 36.6 percent in wind energy and 26.5 percent in 

solar energy in 2013; and 36.3 percent in wind energy and 28.8 

percent in solar energy in 2014. 

Those were their own numbers, which we are comparing apples 

and oranges when 26 of those projects accounted for two-thirds of 

the total funding that they utilized. 

So without objection, the NADB bank 2014 annual report will be 

submitted. 

And I would like to thank our witness today for his testimony, 

the Honorable Dr. Nathan Sheets. 

31 

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 5 legislative days for Members to submit written questions to this witness 

and to place his responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

This hearing is adjourned. 

[Whereupon, at 11:45 a.m., the hearing was adjourned.] 

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