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THE ROLE OF THE U.S. IN THE WORLD 

BANK AND MULTILATERAL DEVELOPMENT 

BANKS: BANK OVERSIGHT AND REQUESTED 

CAPITAL INCREASES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INTERNATIONAL MONETARY 

POLICY AND TRADE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

JUNE 14, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–38 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

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 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON INTERNATIONAL MONETARY POLICY AND TRADE

GARY G. MILLER, California, Chairman 

ROBERT J. DOLD, Illinois, Vice Chairman 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

BILL HUIZENGA, Michigan 

CAROLYN MCCARTHY, New York, Ranking 

Member 

GWEN MOORE, Wisconsin 

ANDRE ́ CARSON, Indiana 

DAVID SCOTT, Georgia 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

June 14, 2011 .................................................................................................... 1 

Appendix: 

June 14, 2011 .................................................................................................... 25 

WITNESSES 

TUESDAY, JUNE 14, 2011 

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

APPENDIX 

Prepared statements: 

Miller, Hon. Gary G. ........................................................................................ 26 

Brainard, Hon. Lael ......................................................................................... 29 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Dold, Hon. Robert J.: 

Letter from the Business Roundtable et al. ................................................... 35 

Memorandum from the United States Transportation Command to the 

Secretary of the Treasury ............................................................................. 36 

(1) 

THE ROLE OF THE U.S. IN THE WORLD 

BANK AND MULTILATERAL DEVELOPMENT 

BANKS: BANK OVERSIGHT AND REQUESTED 

CAPITAL INCREASES 

Tuesday, June 14, 2011 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON INTERNATIONAL

MONETARY POLICY AND TRADE, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:35 p.m., in room 

2128, Rayburn House Office Building, Hon. Gary Miller [chairman 

of the subcommittee] presiding. 

Members present: Representatives Miller of California, Dold, 

Manzullo, Campbell, Huizenga; McCarthy of New York, and Carson. 

Chairman MILLER OF CALIFORNIA. This hearing will come to 

order. Without objection, all members’ opening statements will be 

made a part of the record. With the agreement of the minority 

ranking member, we are going to allow 10 minutes for opening 

statements for each side. 

Today’s hearing is focused on the United States’ role in the 

World Bank and the multilateral development banks (MDBs). 

The United States is a lead shareholder in the World Bank and 

regional multilateral development banks. The Administration has 

requested contributions to the capital at these institutions. It has 

argued that such contributions are important to retaining our leadership position. 

Today, we begin the process of considering the Administration’s 

request for capital increases for the MDBs. I look forward to hearing from Under Secretary Brainard—welcome; it is good to have 

you here again today—on how these banks are supporting many 

activities that are consistent with American interests and American values. 

For example, fragile and broken states represent opportunities 

for terrorist actors to operate and threaten the United States and 

its interests. MDBs can bring development and stability to these 

areas, filling the vacuum that allows terrorist actors free rein. 

The MDBs are hard at work in Afghanistan supporting the U.S. 

mission. General Petraeus has spoken about the importance of the 

Asian Development Bank’s work to develop much-needed infrastructure across Afghanistan. 

2 

As North Africa and the Middle East undergo tumultuous transitions, the MDBs are able to provide technical assistance and capital to nations enacting democratic reforms and moving forward in 

a sustainable and positive manner. 

In addition, the MDBs are making progress on regional integration in Africa, which holds promise for improving commerce and 

addressing many of the long-term issues that have exacerbated 

famine and poverty across the continent. The MDBs provide poor 

countries across Africa an alternative to China for development finance and natural resource development. 

MDBs allow the United States to leverage its resources alongside 

those of other member nations to achieve U.S. interests. As part of 

that model, MDBs must adopt necessary controls to ensure MDB 

actions achieve desired outcomes, and the borrowing nations must 

move toward the ability to borrow from private markets. 

Our subcommittee’s goal is to ensure the World Bank and regional multilateral development banks are using U.S. resources in 

a transparent, corruption-free, and effective manner before committing U.S. taxpayers’ funds to these institutions. The United States 

must use its leadership position at the banks to fight for the end 

of corruption and to make sure that all lending is conducted 

through transparent and accountable processes. 

We cannot lose sight of the fact that these requests are coming 

at a time when our country must focus on getting our own massive 

debt under control. While the United States has a vital interest in 

continuing to assist emerging economies to implement economic, 

political, and social reforms, we cannot overlook the costs. During 

these economically challenging times, Congress must continue to 

make the difficult choices necessary to reduce the debt and grow 

our economy, while also furthering U.S. strategic interests around 

the world. 

The American people are demanding that their government learn 

to live within its means and stop spending borrowed money. The 

fact is, we cannot continue to borrow 40 cents on the dollar and 

pass on the debt to future generations to repay. We must prioritize 

Federal dollars to ensure essential needs are provided for, and do 

more with less, just as American families and small businesses 

have had to do during these lean economic times. 

It is with these financial constraints at the forefront of our minds 

that the subcommittee will assess the Administration’s request for 

funding. Today’s hearing will give Members the opportunity to hear 

from the Administration about their rationale for the specific funding requests made for each MDB. 

Before we act, we want to understand clearly the consequences 

to global and U.S. economic and security interests from any delay 

or reduction in the amount requested by the Administration. Specifically, it is our hope that today’s hearing will: highlight the role 

of the MDBs and their relevance in today’s world; discuss the benefits to the United States of its membership in the MDBs, including 

the impact of the MDBs on the U.S. economy and U.S. strategic interests around the world; examine how the current role of the 

United States at the MDBs allows for the influence of day-to-day 

operations at these institutions and shapes their medium- and 

long-term goals; detail the reforms that the MDBs have agreed to 

3 

implement as part of their general capital increases; and explore 

what additional reforms are needed at each MDB to improve their 

operations and combat fraud and corruption. 

In conclusion, since I accepted the gavel of this subcommittee, I 

have said that the agenda will be focused on four things: one, job 

creation; two, global competitiveness; three, economic growth and 

stability; and four, protecting taxpayers. 

This is the lens under which we will review the Administration’s 

request for funding for the MDBs. Our ultimate goal is to promote 

favorable conditions around the world for American companies in 

order to increase U.S. exports, and thereby create jobs in the 

United States. 

Through development activities, the MDBs help contribute to stability around the world, opening markets for our companies to engage. By ensuring the global environment is stable, American companies can thrive and contribute to robust economic growth. 

I yield 5 minutes to Ranking Member McCarthy. 

Mrs. MCCARTHY OF NEW YORK. Thank you, Chairman Miller, for 

holding this important hearing. And I also would like to welcome 

Under Secretary Brainard here this afternoon to discuss the role 

and the operation of the multilateral development banks and the 

role of the United States in these institutions. 

Development banks are owned by member countries and provide 

financial and technical assistance through loans and grants to 

emerging markets in developing countries for investment projects 

and policy-based loans. For even the poorest countries that are too 

unstable to borrow from the private markets, development banks 

provide assistance for fundamental projects such as health services, 

clean water, sanitation, and agriculture through low-interest loans 

with longer repayment options. 

The United States has played a leading role in developing a policy agenda to ensure our financial contributions will be leveraged 

by other donors and borrowers, and that investments made by the 

institutions directly support our priorities. 

We receive a great deal of value from our contributions to these 

institutions, such as increased markets for U.S. exports and enhanced national security through investments in industries that 

promote long-term stability for a conflict country. 

A long-term member of the various development institutions, the 

United States is the largest shareholder in the World Bank and in 

the Inter-American Development Bank. By fulfilling our contributions and maintaining shareholder position, we create economical 

growth opportunities in emerging markets and maintain global 

competition. 

The financial crisis brought an increased demand in support for 

the multilateral development banks, requiring them to seek additional resources from their member countries to allow for substantial lending. Under these general capital increases, member countries agreed to increase support to the development banks by purchasing additional shares in the institution. 

I recognize that our Nation is faced with serious fiscal challenges 

that must be addressed. Fulfilling our funding commitment to the 

multilateral development banks and pledge for general capital increases enables us to strengthen our domestic economy and enVerDate Nov 24 2008 16:59 Sep 06, 2011 Jkt 067933 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\67933.TXT TERRIE
4 

hance national security, as well as promote economical development, good governance, and stability in developing countries. 

I do look forward to hearing your testimony, and I yield back the 

balance of my time 

Chairman MILLER OF CALIFORNIA. Thank you. Vice Chairman 

Dold is now recognized for 3 minutes. 

Mr. DOLD. Thank you, Mr. Chairman. And I want to thank you 

for calling this important hearing. And I certainly want to thank 

the Under Secretary for your time and for your testimony today. 

It is to our benefit and the entire world’s benefit that America 

has been and remains the world’s economic, military, political and, 

I would argue, cultural leader. We did not achieve our world leadership position through fearful isolation. We achieved our world 

leadership position by energetically engaging with the world 

through trade, investment, security arrangements, diplomacy, and 

foreign aid. 

While we can always do better, and while we will always have 

problems, our world leadership position has made America and the 

world more open, more prosperous, more secure, and more free. 

And for many decades, the World Bank has been one of the most 

important and most effective instruments of American leadership. 

Through the World Bank, America has been able to influence corrupt and tyrannical governments to become more open, more transparent, more peaceful, and more humane. Through the World 

Bank, America has been able to influence foreign nations to open 

their markets to American exports and to American investment. 

We have seen the World Bank have great success in places such 

as Indonesia, Korea, Africa, and Eastern Europe, which has helped 

create more security and more economic prosperity right here at 

home. Now, we see this great promise of a rapidly reforming Middle East where people are demanding more political freedom, government transparency, and economic opportunity. I expect that, as 

in the past, the World Bank will play an important role, which will 

in turn make the rest of the world more secure and more prosperous. 

Our military leaders recognize how important these multilateral 

development banks are to our own national security. General 

Petraeus and Commander Duncan McNabb have written a letter 

emphasizing the importance of the multilateral development banks 

to our own strategic interests, and I would ask the chairman for 

unanimous consent to submit this letter for the record. 

Chairman MILLER OF CALIFORNIA. Without objection, it is so ordered. 

Mr. DOLD. Our business leaders through various business organizations have recently written to the United States Congress to emphasize the vital importance of the MDBs in promoting our own export markets, economic development, and American leadership. I 

am convinced that the relatively small amount that we spend on 

the World Bank funding pays huge dividends in money we don’t 

need to spend on military action and money that we don’t need to 

spend on increased security measures and on economic prosperity 

that we receive through new markets for our businesses all across 

the land. 

5 

We all benefit greatly in both tangible and intangible ways from 

America’s great influence in the world, and the World Bank is one 

of our best assets for maintaining this influence, all at a relatively 

low cost. 

I realize that Federal spending is dramatically out of control and 

must be dramatically reduced. However, we must fund our priorities, and these programs provide significant value. 

With that, I yield back the balance of my time. 

Chairman MILLER OF CALIFORNIA. Thank you. I now have the 

honor of introducing the Honorable Dr. Lael Brainard, who is the 

Under Secretary of Treasury for International Affairs. Dr. Brainard 

has spent most of her professional life as a devoted public servant, 

working to further understanding of competitiveness, trade, international economics, foreign assistance, and global poverty. 

During her tenure at Treasury, Dr. Brainard heads the Administration’s agenda of strengthening U.S. leadership in global economies to foster growth, create economic opportunities for Americans, 

and address transitional economic challenges, including development, climate change, food security, and financial inclusion. 

I love this next part. Dr. Brainard is the highest ranking female 

Treasury official in American history—kudos to you—and plays a 

critical role as the most important financial diplomat in the Administration’s efforts to sustain recovery from the financial crisis and 

strengthen global growth. 

The Honorable Dr. Brainard is recognized for 5 minutes. 

STATEMENT OF THE HONORABLE LAEL BRAINARD, UNDER 

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

Ms. BRAINARD. Thank you very much. I want to just express my 

appreciation to Chairman Miller, to Ranking Member McCarthy, 

and to the distinguished members of this subcommittee for holding 

this hearing on this very important topic. 

The Administration’s pending requests to recapitalize and replenish the multilateral development banks come at a moment of extraordinary importance. New powers, such as China, are expanding 

their global influence and investments. Historic transformations 

are sweeping the Middle East and North Africa. And as we witnessed during the recent financial crisis, in today’s highly interconnected global economy, currents can shift suddenly, leaving the 

world’s poorest even more vulnerable. 

At this critical time, America’s leadership and investment in 

these institutions yields significant returns. The numbers speak for 

themselves. For each $1 that the United States contributes to replenish IDA and the African Development Fund, we leverage $25 

of multilateral development investments. Our investments in Fiscal 

Year 2012 alone will leverage over $95 billion of MDB financing off 

a base that is below 3. But the most important reason for our engagement is the people who are helped by these investments. 

In Zambia, U.S. investments have helped reduce malaria deaths 

by 50 percent. In Moldova, mother-to-child HIV transmission has 

decreased by 90 percent. And in Benin, more than 2 million insecticide-treated nets have been provided by the MDBs. 

6 

Let me briefly touch on four reasons why we are seeking authorizations from this committee for our MDB commitments. 

First, these institutions have long advanced U.S. global leadership and provided unrivaled leverage. If we do not secure congressional authorization for recapitalization and replenishment, U.S. 

leadership will surely wane. At the World Bank, we would risk our 

unique veto over changes to the Articles of Agreement, which protect our prerogatives on bank membership and leadership. At the 

African Development Bank, the United States would miss our next 

payment, reducing U.S. shareholding by two-thirds, and putting 

our seat on the board of directors in jeopardy. And at the InterAmerican Development Bank, no contributions can be made by any 

member unless the United States contributes. 

So being unable to participate for lack of authorization would 

deny the IDB of any funding. This would be interpreted as a retreat on the part of the United States from Latin America at the 

very time that China and others are deliberately increasing their 

presence in this institution and in this resource-rich region. 

These are once-in-a-generation investments. In 1988, President 

Reagan secured authorization for the last recapitalization of the 

World Bank. The U.S. capital contribution at that time of $420 billion supported $325 billion in key investments over the next quarter century, a multiplier of 800 to 1. We are all familiar with the 

record of achievements secured by those investments: transition to 

democracy and to market economies throughout Central and Eastern Europe, South Korea, and Indonesia; the growth of stable democracies following the Cold War; and stronger national security 

for the United States. 

Second, today we see a similar opportunity in the Middle East 

and North Africa. The success of the historic transformations now 

under way in countries like Egypt and Tunisia will depend on 

whether democracy delivers on its promise of freedom and opportunity. By investing again today in the multilateral development 

banks, we will secure brighter futures for the generation gaining 

a voice in those countries and for Americans as we strengthen our 

foreign security and economic partners. 

The MDBs are already at work to support Egypt and Tunisia. At 

the recent G–8 summit, they committed to providing $20 billion of 

investments to stabilize economies, invest in private sector growth, 

and promote greater accountability, transparency, and the fair rule 

of law, an investment many times larger than we would be able to 

make ourselves. 

Third, over the past 3 decades, investments by these important 

development banks have helped foster peace, stability, and growth 

in countries emerging from conflict, including Bosnia, Rwanda, and 

Liberia. In Afghanistan today, the World Bank and the Asian Development Bank are the second and third largest donors after the 

United States, building critical infrastructure like the Ring Road 

and the Uzbek-Afghan railroad. And as was noted here, both General Petraeus and General McNabb have noted that these projects 

are vital to the success of the U.S. strategy in both Afghanistan 

and the region. 

The MDBs are also on the front lines with us when disasters and 

conflicts leave countries weak and vulnerable. Today, the World 

7 

Bank is assisting refugees fleeing repression in Libya. When the 

devastating tsunami hit Aceh in 2004, the MDBs immediately 

formed a new recovery and reconstruction fund to address urgent 

health crises, feed school children, and rebuild canals and bridges. 

And again, they did the same following the devastating earthquake 

in Haiti. 

Fourth, the multilateral development banks play a vital role in 

advancing our commercial and economic interests. They build the 

roads and ports to get our products to new markets. They build the 

soft infrastructure that makes markets work, reducing trade barriers, improving property rights, and slashing red tape. 

In infrastructure, the multilateral banks help to level the playing 

field for U.S. companies to compete. The alternative to multilateral 

development bank financing for infrastructure in too many of these 

countries is borrowing from countries like China. 

In contrast, the development banks, due to our leadership, have 

rigorous safeguards to protect the environment, uphold the rights 

of vulnerable populations, and combat corruption. They establish 

fair and consistent rules that create opportunities for U.S. companies to invest. 

And finally, we have consulted closely with Congress throughout 

the negotiations over the recapitalization and replenishment of 

these institutions, and the reforms in these institutions show the 

results of those consultations. We have made disclosure of significant policy documents the norm. We have put in place procurement 

rules to ensure companies have a fair chance to compete, and secured more effective internal audits to prevent and deter corruption. 

We have achieved higher standards for results. Indeed, a recent 

study by the Center for Global Development ranked IDA at the 

very top in development effectiveness among a large field of bilateral and multilateral development agencies. 

As our key partners in alleviating poverty, strengthening national security, and fostering economic growth and prosperity, we 

seek your support in reaffirming U.S. leadership in the multilateral 

development banks. 

Thank you. 

[The prepared statement of Under Secretary Brainard can be 

found on page 29 of the appendix.] 

Chairman MILLER OF CALIFORNIA. Thank you, Under Secretary. 

I want to thank you for your candidness on the process. You have 

been forthright in providing the information we have needed. ExIm was a great example of that. You have expressed the concerns 

you have, the benefits you saw. There seems to be a nexus between 

MDBs and Ex-Im, as I listen to your testimony. 

I guess my concern would be, what consequences would there be 

for the United States if we didn’t authorize your requests? And are 

there consequences the institution would suffer in the ability they 

have to do their business? Can you explain the importance of the 

United States maintaining a leadership position? 

Ms. BRAINARD. I think there are very direct and measurable consequences. As was noted earlier, we have built up our position of 

leadership in these institutions over decades, and it would be a terVerDate Nov 24 2008 16:59 Sep 06, 2011 Jkt 067933 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\67933.TXT TERRIE
8 

rible cost to us to forfeit that leadership at a time when it seems 

more important than ever. 

At the World Bank, if we were not able to support our capital 

contribution, we would have the risk of forfeiting our veto. We are 

the largest shareholder, and we are the only country that has a 

veto at the World Bank at present. And of course, with that, goes 

a long history of having an ability to provide leadership in direct 

policy directions in that institution. 

At the African Development Bank, if we fall behind, we risk our 

seat on the board of directors. We are the largest nonregional 

shareholder in the African Development Bank. And as you know, 

that institution sits in a region of the world where poverty is greater than in any other region, but so too we believe the opportunities 

for infrastructure, for food security, for a whole host of things in 

poverty alleviation and post-conflict development that are critical 

to the United States and have the greatest potential to be realized. 

At the Inter-American Development Bank, we are again the largest single shareholder. And in that institution, if we were unable 

to move forward with our share on the recapitalization, we would 

actually hold up the entire institution from moving forward, jeopardizing our investments in our own neighborhood, and very importantly an important agreement that we secured to have $2 billion 

worth of grant financing directed to Haiti. 

So in all of these cases, we secured very important reforms that 

will lead to loan pricing to middle-income countries that will allow 

greater resources to be transferred over to the facilities for the 

poorest countries. We secured very important reforms on measuring development effectiveness and achieving results, on transparency, on procurement that is very important to our companies. 

And so all the things that we all mentioned earlier, whether it 

be on economic advancement for our companies around the world 

in these very fast-growing markets, whether it be on ensuring stability in fragile states, responding to natural disasters, supporting 

the historic transformations now under way in the Middle East, all 

of those things we believe could be put at some risk if we are not 

able to move forward on these authorizations. 

Chairman MILLER OF CALIFORNIA. How did the Treasury come to 

the conclusion that capital increases were necessary? And the levels you prepared for Congress for the capital increases and for replenishment, how did you arrive at those? 

Ms. BRAINARD. In all cases, the institutions came to us as shareholders only after they had undertaken a great deal of analysis internally. As you know, these institutions very rarely get recapitalized. The last time we put additional capital into the World Bank 

was in 1988. So these are often once-in-a-generation investments. 

And I can’t think of a time when all of the institutions needed capital, or most of them, at the same time. 

In the wake of the financial crisis, when these institutions responded as we prioritized them to do, which was to support trade 

flows—as you may recall, there was a collapse in trade financing 

that threatened our exports as much as any country’s, as well as 

threatened to throw a whole generation back into poverty in many 

countries—these institutions really stepped up and disbursed and 

made a measurable difference in these economies. And as a result, 

9 

their lending levels rose, putting into jeopardy their ability to continue lending in future years. 

So if you look at the African Development Bank, if we had not 

approved an increase in their capital, their lending in that critically important region would have fallen below $1 billion, which 

would have been a huge step backwards. And I think you can tell 

the same story in each institution. 

The one thing I will note is that in almost every case, we pushed 

very hard to ensure that the capital increases would get us maximum value for each dollar invested. And they are in most cases 

much smaller than was originally requested, in part because we encouraged the institutions to push their own internal financial 

transfer mechanisms very hard, to raise their pricing on loans in 

some cases, and to transfer more money to the facilities for the 

poorest countries. 

So if you take the Inter-American Development Bank for instance, they had originally envisaged a 200 percent capital increase. And after spending a lot of time with them and with you 

on the numbers, I think they recognized that they could accomplish 

the same with a much smaller increase in their capital of 70 percent. And in each case, in the EBRD, the European Bank for Reconstruction Development, which will now be reorienting its operations to make room for Egypt and Tunisia and play the same role 

there that they played in Central and Eastern Europe, we actually 

called on them to use their existing capital more effectively. So that 

while we need an authorization, there won’t actually be a need for 

additional U.S. dollars going into that institution. 

So we tried to stretch our dollars as much as we possibly could 

in each case, and I think the results will multiply our leverage and 

accomplish our goals in a smart way. 

Chairman MILLER OF CALIFORNIA. I think it is important that we 

allow Dr. Brainard time to respond adequately to our questions. I 

think we easily have time for two rounds of questions. That is why 

I didn’t try to cut her off. I think it is important to hear what she 

has to say. So I would encourage you to get your responses, because you will have a second opportunity. 

Ranking Member McCarthy, you are recognized for 5 minutes. 

Mrs. MCCARTHY OF NEW YORK. Thank you. I appreciate it. I appreciate the testimony. And certainly, great minds must think 

alike, because I was going to ask the question that Chairman Miller asked you in the beginning, what would happen if we defaulted 

on not putting our share of money up. And I think it is important, 

certainly for the Members of Congress, but also people who actually 

watch this show—I can’t tell you how many times when we go 

home as Members and people are saying, yes, we are having tough 

times here in this country. Why are we giving money to the World 

Bank? Why are we giving money to other nations? And it is our 

job to be able to explain that to them on how it does have an effect 

on our folks back home. 

But I think I would like to—you have provided in your testimony 

some good examples of the opportunities that multilateral development bank lending provides for the United States businesses 

growth through procurement context. But I think if you could go 

into a little bit more with the general capital increase providing inVerDate Nov 24 2008 16:59 Sep 06, 2011 Jkt 067933 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\67933.TXT TERRIE
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creased lending by the multilateral development banks, how much 

more of an opportunity do you anticipate for United States business growth? And just if you could touch on, because I can come 

back to it later, when we talk about global threats and how the 

World Bank does play in protecting this country, because I think 

again that is something that people back home need to know. 

Ms. BRAINARD. Let me just respond first by saying I think we all 

are struggling to find the best, smartest way to leverage U.S. taxpayer dollars at a period of belt tightening around the country. And 

I believe that in part because of the agreements that we have 

reached with each of these institutions, and in part because of the 

lending model that they employ, these are some of the smartest investments of U.S. taxpayer money that we can think of. They are 

investments in expanded economic opportunities for our firms. 

They are investments in prevention. It is much cheaper to be helping countries to develop and grow and address poverty than it is 

to have to send in troops when they descend into conflict because 

of poverty and stresses over resources. 

With regard to some of the leverage numbers, again, because we 

invest in these institutions rarely, and they use their capital in 

very smart ways, a dollar invested in 1988 in the World Bank leveraged over $800 in investments over the subsequent 2 decades. 

And we think that the same kinds of results will come from our 

investments today. 

With regard to the commercial opportunities that these institutions foster for our companies, I think the support that we see from 

the business community and that was referenced earlier really 

speaks for itself. The U.S. business community is very supportive 

of these institutions because they benefit our economic interests 

both directly and indirectly, indirectly by building those bridges 

and roads and railroads and ports that enable us to get our products into these countries. And by creating the rules, lowering the 

trade barriers, getting rid of the red tape makes it much easier for 

our exporters to sell to consumers in Brazil or in India, around the 

world. 

If you look at direct opportunities that are provided by these institutions, the procurement rules that they put into place are rules 

that often govern not only the procurements that are directly associated with development banks, but also lead to more transparent 

and open bidding processes for projects more generally in those 

countries. And it really gives our companies a chance to compete 

on the strength of their products. 

If you look in the most direct way, I am just going to cite a few 

companies because you mentioned that, if you look at the procurements that have been made, TCI International of California won a 

contract to equip Malawi’s utilities. Learning Resources of Illinois 

supplies educational materials to education projects in Honduras. 

Abbott Laboratories in Illinois won a contract to provide 

antiretroviral drugs to rural Cambodia. And the list goes on. 

So there are also direct procurement contracts. And we are going 

to keep working to ensure that these institutions promote U.S. economic opportunities. 

Chairman MILLER OF CALIFORNIA. Vice Chairman Dold is recognized for 5 minutes. 

11 

Mr. DOLD. Thank you very much, Ms. Brainard. My understanding is that the Argentinian Government has recently become 

the first country in the 30-year history of the International Center 

for Settlement of Investment Disputes, which is the most widely 

used international arbital body in the world, and they refused voluntary payment of the awards that came out of that body. And I 

am sure you would agree that Argentina’s actions are not only 

harmful to the United States businesses that have invested in Argentina, but that the Argentinian Government is establishing what 

I would call a very dangerous precedent that other countries, particularly those in Latin America, may follow suit. Although the 

World Bank can take unilateral action to help preserve the integrity of the ICSID process through the bank’s operational policies, 

it has thus far not done so. 

Therefore, what actions can the United States Government take 

to compel Argentina to comply with its international treaty obligations? And if government-to-government measures are not successful, do you agree that it is appropriate to prohibit financing from 

multilateral institutions to countries that refuse to comply with 

their treaty obligations? 

Ms. BRAINARD. We think it is very important for countries to 

abide by the international obligations that they have taken on and 

to enter into dispute settlement proceedings through ICSID in a 

way that they actually respect the process. We are engaged 

through the MDBs as well as the IMF, and will continue to try to 

engage bilaterally with Argentina to address the various international discussions and decisions where they have not so far been 

in compliance. And we are happy to consult with you closely as 

those processes continue. 

Mr. DOLD. Great. The Administration has requested increases for 

all of the MDBs. I certainly know that they stretch the dollar. And 

I know it is good for exports and for business. Mr. Chairman, I 

would like to, if I may, submit for the record a letter that we received from the Business Roundtable and the Coalition for Employment Through Exports and other business organizations, if I may. 

Chairman MILLER OF CALIFORNIA. Without objection, it is so ordered. 

Mr. DOLD. Also, there was a poll that was recently done not too 

long ago, I think by the University of Maryland, that polled the 

American public about the amount of money that we are spending 

on foreign aid. They came back and said they thought it was about 

25 percent. And then when asked how much should we be spending, they said, well, maybe only 10 percent. In actuality, it is only 

about 1 percent is what we are actually spending on foreign aid. 

And a fraction of that is actually being spent on the World Bank 

and the other MDBs. 

But just from your perspective, how can the Administration, how 

can the Federal Government do a better job of getting that information out to the American public to let them know indeed what 

are relatively minor outlays? And yet we do face a significant deficit and debt issue that the Federal Government is spending more 

money than we should. But how do we get that message out that 

our priorities still need to be funded? And this is what I would consider to be an outstanding way for the United States to be able to 

12 

be spending these resources, and spreading our influence across the 

globe. 

Ms. BRAINARD. I share the priority you put on that. I think 

American citizens, when they understand, and even better when 

they have the opportunity to witness firsthand the work in the field 

of these institutions, as well as, of course, as USAID and the work 

that we do bilaterally, they become extremely supportive of these 

institutions. And we also know from talking to Americans around 

the country, and also from polling, that the kinds of values and 

goals that these institutions support, rebuilding economies in the 

wake of disasters, in the wake of conflict, addressing deprivations 

associated with poverty, addressing food security, all of these 

things are things that Americans care about, and in their own volunteer time and with their own voluntary contributions they themselves directly support. 

So what we try to do is to connect with some of the organizations, whether they be faith-based or nongovernmental organizations, where Americans come together to express support for the 

goals of these institutions. The President talks a lot about these 

issues. He has talked a lot about food security, which is something 

that we have been working very hard to promote through all the 

multilateral development banks, where they are doing really terrific work. And he talked about it just a few weeks ago when he 

talked about the incredible work that the multilateral development 

banks are going to do in supporting the historic transformations 

now under way in Egypt, in Tunisia, and elsewhere in the Middle 

East, where these institutions really uniquely have both the scale 

and the staying power to help underwrite the many years that will 

be required to transform these economies to be able to give the 

young people who ushered in these historic transformations brighter futures. 

Mr. DOLD. Thank you, Under Secretary Brainard. 

Chairman MILLER OF CALIFORNIA. The gentleman from California, Mr. Campbell, is recognized for 5 minutes. 

Mr. CAMPBELL. Thank you, Mr. Chairman. I have a couple of 

questions. Just following up on that Argentina discussion, the 

World Bank is loaning money to Argentina. I thought that we were 

supposed to be loaning to underdeveloped countries. Argentina is 

obviously a developed, established country. Is the World Bank 

making loans like that as well? 

Ms. BRAINARD. Just to step back for a second, the issue for Argentina really is settling outstanding claims, as opposed to moving 

forward on new loans. But more generally, the World Bank and 

each of the multilateral development banks have a set of activities 

that they do with countries which are middle-income countries and 

a set of activities they do with the poorest countries. Those two sets 

of activities reinforce each other. 

So, for instance, if you look at Egypt and Tunisia, those are middle-income countries. But they have tremendous needs to develop 

infrastructure to support growth, to develop better financing models so that small businesses can flourish, and young people can 

start businesses and get jobs and build futures. So when we look 

to supporting the economic transformations that have to take place 

to support democratic transition in Egypt and Tunisia, what the 

13 

World Bank and the African Development Bank uniquely will bring 

is a set of policy changes that will go hand-in-hand with the medium-term reforms these economies are undertaking. So just as 

Egypt may be investing in small or medium-sized enterprise creation, so too the World Bank and the African Development Bank 

will encourage them to undertake reforms that make it easier for 

fruit vendors to register their businesses. As you remember, that 

was one of the issues that touched off the uprisings in Tunisia, that 

make it easier for entrepreneurs who may be young or who don’t 

have a lot of capital to register businesses and to raise capital, to 

put in place more mechanisms to combat corruption. 

Mr. CAMPBELL. Okay. Let me just get to a couple of other things. 

You mentioned the consequences if we didn’t do this, and that our 

percentage of the multilateral banks, etc., and so forth would be 

recused. What is the problem with that? Why not say that in the 

G–20, the other 19 ought to carry more of the load? Maybe they 

ought to carry more of the share, and maybe we shouldn’t be dominant? Maybe we shouldn’t be controlling all this. We are not the 

only country that exports to these places. Germany does, as well 

as Britain, France, China, Japan, and others. Why not let them 

carry more of the load? 

Ms. BRAINARD. I think what you will see is that to some degree 

we are seeing a shift in shareholding in these institutions. But the 

countries that want to share that load, the countries, China for instance, would like to expand its share in the World Bank, they 

would like to be represented in the Inter-American Development 

Bank. They would like to have greater participation in the African 

Development Bank. Why? Because they see tremendous opportunities in these regions for their businesses and also to exercise leadership positions. 

I think for us, we have traditionally been able to wield disproportionate influence in these institutions because of our leadership position. We have, uniquely, a veto at the World Bank. We are the 

only non-regional shareholder, the largest that has its own seat at 

the African Development Bank. These are investments that we 

have made over time because we think it is important to our companies, we think it is very important to our national security in 

places like Afghanistan, and we believe that by exercising leadership in these institutions, we advance our national goals. 

Mr. CAMPBELL. Let me ask you one more, because I could follow 

up with that, but we will come back, and then Mr. Manzullo may 

follow up on this. But you mentioned, you said that a dollar invested had been turned over 800 times or whatever. If that is the 

case, why don’t we get paid back? In other words, why do we need 

to invest more? Why doesn’t the World Bank generate its own capital to continue forward? 

Ms. BRAINARD. The World Bank actually has an internal funding 

model that we have helped to encourage, which does actually take 

the reflows from some of the lending to the emerging markets, 

those economies that started out much poorer and are now growing 

in wealth because of these investments in many respects, and are 

also growing as our consumer markets, and takes those reflows and 

uses them to provide financing to the poorest countries. So the way 

that we have structured our investments in these institutions has 

14 

been to try to get greater contributions from the lending that we 

do to middle-income countries so we actually do essentially make 

our contributions to the poorest countries smaller by transferring 

those reflows to the poorest countries. 

Mr. CAMPBELL. Okay. Thank you. 

Chairman MILLER OF CALIFORNIA. The gentleman from Indiana, 

Mr. Carson, is recognized for 5 minutes. 

Mr. CARSON. Thank you, Mr. Chairman. Madam Secretary, I 

have a question. Does the World Bank plan to implement improved 

strategies to reduce poverty in countries by aiming a set of metrics 

only on boosting overall growth? It is evident that this strategy 

may miss opportunities to reduce poverty. I understand the reasoning behind focusing on sectors with growth potential, allowing 

for relatively quick payoffs. However, do these strategies really impact poverty reduction in the most efficient way? 

Ms. BRAINARD. I think at least with regard to the lending facility 

and the grant making facility for the poorest countries, IDA, we 

have seen that they are ranked very highly. There was a study 

done by the Center for Global Development which saw IDA as 

among the most effective on promoting development and addressing poverty among about 150 agencies that they looked at. 

So I think the answer is yes, we push them very hard. And we 

know this is something that Members of Congress care a great deal 

about, to be very focused on poverty reduction and on food security, 

where they have a lot of their resources devoted, as does the African Development Bank, and in coming up with programs that not 

just address food security today, but put smallholder farms in a 

much better position to grow more and earn more for their families 

and allow their kids to go to school and get themselves out of poverty traps over time. 

Mr. CARSON. Are you worried that if the United States cuts funding for MDBs that it is tantamount to allowing China, for example, 

to expand influence in Africa and other developing nations, as was 

recently explained by Secretary Geithner? 

Ms. BRAINARD. I am worried. I would note simply that there is 

a huge interest on the part of many of the emerging markets to expand their share at these institutions, again because I think they 

see them, as we do, as very important for influencing the policy 

frameworks in these countries, for influencing the infrastructure 

investment plans, and for influencing how easy it is for our exporters to do business in these countries. 

So our leadership matters. And I think if we allow it to wane, 

there will be other countries that are only too happy to take up our 

shares. 

Mr. CARSON. Thank you, Madam Secretary. Thank you, Mr. 

Chairman. I yield back my time. 

Chairman MILLER OF CALIFORNIA. The gentleman from Illinois, 

Mr. Manzullo, is recognized for 5 minutes. 

Mr. MANZULLO. Thank you, Madam Secretary. It is good to see 

you again. I have some real problems with regard to the practice 

of the World Bank talking about helping out other countries with 

loans to medium-sized and small businesses, and yet the regulatory 

environment that we have in this country, I have constituents back 

home who can’t get loans—they are collateralized and everything— 

15 

based upon the harsh regulatory environment of the OCC, the 

FDIC, etc., and the examiners classifying loans at banks that 

should not be classified. And I find it very difficult to vote for 

money to give to the World Bank, especially on the premise, and 

I know you didn’t mean it in your statement, that the man who 

torched himself in Tunisia, if he had had access to World Bank 

money, would be alive today. You called that an act of courage and 

quest for dignity. 

I am having problems with the whole approach here, especially 

when you throw in with what Mr. Dold said about Argentina. 

Courts of jurisdiction, recognized in the legal system, applying the 

rule of law, have ordered Argentina to pay these debts not only to 

bondholders, U.S. bondholders, but to taxpayers who have invested 

our certificates with them. And as recently as April 28th of this 

year, long after Members of Congress had bitterly complained to 

the World Bank to cut off Argentina, the World Bank notwithstanding gave another $400 million to Argentina. This could be the 

demise of the World Bank unless something happens with Argentina. It is not just one country. 

How do you address my constituents who can’t get money to run their businesses and tell them, by the way, let’s give $3.5 billion 

to the multilateral development banks, especially when President 

Obama said he wants another $40 billion to give to these Arab 

countries so they can be taught democracy, ostensibly with the African Development Bank and the World Bank? 

Ms. BRAINARD. Let me just say I know your passion for small 

business and ensuring they get access to credit. I certainly share 

it. It is something that I know people at Treasury on the domestic 

finance side care a great deal about and are working very hard to 

address. We also think it is important around the world to make 

sure that credit flows to small businesses in part because that is 

key to development, and in part because it creates great opportunities for our exporters, as consumers and their business customers 

in developing countries grow and are able to purchase their goods. 

Mr. MANZULLO. If the World Bank is lending money, you mentioned some Fortune 500 company, if the money is being loaned, 

why isn’t it being repaid back? 

Ms. BRAINARD. Let me just be a little bit clearer in terms of the 

authorization for the World Bank, let’s just take that for example. 

It is approximately $190 million for 1 year, and that takes place 

over 5 years. And then, we essentially don’t fund it again for probably 2 decades. During that time, the United States retains its paid 

in capital during the World Bank, but that money is put to work 

as it would be in any well-run financial institution. 

Mr. MANZULLO. Then why do you keep on coming back for more? 

Ms. BRAINARD. And what that money does is it invests in peace 

and prosperity and stability around the world. 

Mr. MANZULLO. I understand. I am asking— 

Ms. BRAINARD. Which I think takes the burden off of— 

Mr. MANZULLO. I am not talking about peace and prosperity. I 

am talking about people who are broke and can’t get money from 

banks. If these investments are working, then why isn’t the World 

Bank working like a bank, as opposed to doling out or losing $190 

million a year? 

16 

Ms. BRAINARD. The World Bank is not losing any money. 

Mr. MANZULLO. Then why are you seeking— 

Ms. BRAINARD. The contribution—let me go back to 1988, when 

President Reagan requested a capital infusion for the World Bank. 

This was the last time, 1988. We have not had a request like this 

for nearly a quarter of a century. He got approval from Congress 

for an investment of $420 million at the time. It is a very comparable number in many respects to today’s number. 

Mr. MANZULLO. I understand that. 

Ms. BRAINARD. And those institutions did not need to expand 

their lending beyond that over the subsequent 23 years. They came 

back to their shareholders at this time both because it is a period 

of extraordinary opportunity, and because they had stepped up and 

supported trade financing and financing to shield poor populations 

during the financial crisis. 

Mr. MANZULLO. I know my time has run out. What I am trying 

to emphasize to you is you may not get any money. It is very possible you are not going to get $190 million for 5 years. And my 

question is, if the bank is so successful, why can’t you run it like 

a bank and not depend upon taxpayers for a subsidy? That was my 

question. 

And my time has run out, so I don’t know if I am going to get 

an answer on that. 

Chairman MILLER OF CALIFORNIA. You are welcome to answer if 

you have time. 

Ms. BRAINARD. The way that we think about these investments 

is they are investments. And essentially, we provide—the U.S. Government puts a capital investment into the World Bank, and then 

that money works for the United States over 2-plus decades in expanding markets in places around the world. 

If you think about the growth of countries like Brazil, India, 

Vietnam, all of those countries were very poor beneficiaries of multilateral development banks. They are now huge customers for our 

products, and they are also in many cases supporters and partners 

in our endeavors in building market economies around the world 

and in supporting peace and stability around the world. So these 

are very good investments for the United States, and we hope that 

there will be a lot of support for them. 

Chairman MILLER OF CALIFORNIA. The gentleman from Illinois, 

Mr. Huizenga, is recognized for 5 minutes. 

Mr. HUIZENGA. Thank you, Mr. Chairman. I have a quick question. Along this path, what do you believe are the consequences if 

we do not put this funding out there, if there are any? And elaborate on that a little bit. 

Ms. BRAINARD. I think the consequences across-the-board in the 

institutions is that we will lose ground. We will signal to the world 

that we are shifting our posture, that we no longer are going to exercise leadership in these institutions. And again— 

Mr. HUIZENGA. Lose ground to whom? And lose ground in what? 

Ms. BRAINARD. In the case of the World Bank, if we are not able 

to secure authorization, we will lose our veto. We are the only 

country that has a veto on fundamental governance changes at the 

World Bank. And we will jeopardize our leadership position. This 

is the flagship institution of the global system. 

17 

In the case of the African Development Bank, we will put in jeopardy our seat on the board, which allows us to vote on very important issues. 

Mr. HUIZENGA. I am sorry, and this is just if we don’t increase 

our standing. We are not talking about removing ourselves, right? 

This is talking about an increase? 

Ms. BRAINARD. What will happen is because the other countries, 

and you asked who will be interested in expanding their share, 

China is very interested in expanding their share for obvious reasons. In fact, most emerging markets and many European countries would be very happy to expand their shares if we decided to 

forfeit ours at all of these institutions, at the World Bank, at the 

African Development Bank, at the Inter-American Development 

Bank, and at the European Bank for Reconstruction and Development. So by simply standing still we will jeopardize our veto at the 

World Bank, we will jeopardize our board seat at the African Development Bank, and in the case of the Inter-American Development Bank, we will simply paralyze the institution’s ability to get 

funding from other countries, which will jeopardize the $2 billion 

in grant financing that we secured from all of the countries in the 

region for Haiti. 

Mr. HUIZENGA. So are we the front end of this, or the back end 

of this, or in the middle of this? Have other countries made commitments, or are they waiting for us to make this commitment? 

Ms. BRAINARD. Countries are moving very quickly. For instance 

in the Asian Development Bank, we have already fallen to I think 

the 8th position just by virtue of being a little slow off the mark 

relative to some of the other countries. Other countries like China 

are paying in their full amount in a single year rather than doing 

it over the course of 5 years. And so, we will inevitably fall behind 

if we are aren’t able to start paying in on the capital replenishment 

to these institutions. 

Mr. HUIZENGA. So in the last remaining 2 minutes, in your opinion, the most important reason why we need to authorize would be 

what? 

Ms. BRAINARD. The most important reason is because we will 

lose our leadership of institutions that advance stability, American 

foreign policy, and our economic interests as well as fighting poverty which Americans care a great deal about. 

Mr. HUIZENGA. I appreciate that. And, Mr. Chairman, if it is all 

right, in my last minute-and-a-half, I would like to yield to my 

friend from Illinois to continue his line of questioning. 

Chairman MILLER OF CALIFORNIA. Without objection, yes. 

Mr. MANZULLO. I want to return to Argentina. Courts have held 

that Argentina owes United States taxpayers through U.S. obligations and U.S. bondholders $7 billion. You are asking for about a 

half billion. I don’t know the extent of these that are held by the 

Federal Government, but I would suggest that the World Bank better do something very quickly with Argentina if you want to get 

any support in this committee or this Congress. 

That is not a suggestion. You have to do it. Don’t talk to me 

about eliminating poverty in Argentina. Don’t talk about what is 

going to happen. The United States is complicit with Argentina in 

disobeying the international rule of law. 

18 

I don’t think you realize how serious that is and what it means 

to this body and to the taxpayers to sit there and see this country 

stiff all the people, $7 billion to U.S. people, and then you turn 

right around and give them another $400 million. 

Ms. BRAINARD. I would just say that we agree very much with 

your position on Argentina. We will continue to pursue— 

Mr. MANZULLO. Then don’t give them any more money. 

Ms. BRAINARD. —honoring their obligations, and we will also continue to think it is very important. We have interests around the 

world, in Egypt, Tunisia, and Cote D’Ivoire and every region of the 

world that we think are very important that would be compromised 

if we were not able to continue to support our leadership position 

in these institutions. 

So we will continue to work on both fronts very assiduously. 

Chairman MILLER OF CALIFORNIA. The reapportionment is taking 

place, but I didn’t mean to move Mr. Huizenga from Michigan to 

Illinois in the process. I move you back to Michigan. 

Mr. HUIZENGA. Thank you, Mr. Chairman. That was going to be 

an interesting gerrymandering across Lake Michigan. 

Chairman MILLER OF CALIFORNIA. In California, I could be in 

Mexico the way I am going. So you never know. 

Madam Secretary, I know you have a busy schedule. I think 

there is a desire to go through another round of questioning if you 

have time. 

Do the members request it? 

Many questions have been asked and it raises some concerns and 

issues. If you had to prioritize funding between general capital increases and a concessional window replenishment, what would you 

consider most critical and, since we are in tough times, what organizational funding do you consider to be a top priority? 

I know you like them all. 

Ms. BRAINARD. I would no sooner choose among my daughters. 

We have already prioritized in the requests that we are submitting 

to you today, and we have done it in full consultation with members of this committee and more broadly, so that when we presented you with these requests it was following quite hard fought 

negotiations to ensure that within each institution, the recapitalization of the hard loan windows was done in a manner that would 

support the replenishment of the facilities for the poorest countries. 

In the case of IDA, which is the World Bank facility for the poorest countries, which again has very high marks for effectiveness, 

we were able to mobilize 75 percent of the additional funding from 

IDA from internal resources from the middle-income arms of the 

World Bank. And so, these negotiations have been carefully balanced packages, if you will, that have tried to the greatest extent 

possible to price loans in a way that we could transfer income to 

the facilities for the poorest, which then reduces the amount that 

we have to pay in for the replenishments every year. 

And similarly across the institutions, we were pretty hard headed in trying to reduce the overall size of the capital replenishments 

and push the institutions to make their capital work harder. 

And we told them as we undertook these negotiations that because we were doing the negotiations all in one go, we were able 

to be a little more hardheaded about the actual size each instituVerDate Nov 24 2008 16:59 Sep 06, 2011 Jkt 067933 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\67933.TXT TERRIE
19 

tion needed because we expect them to work better together. And 

they have done that. They, for instance in the case of Egypt and 

Tunisia, have developed a joint action plan and they are developing 

their lending programs with the other institutions in the room so 

that we use the money most effectively not only with within each 

institution but across institutions. 

So the request that we have presented to you is one where we 

have already tried to squeeze down the size of the request to the 

greatest extent possible and make U.S. taxpayer money work as effectively as possible. 

Chairman MILLER OF CALIFORNIA. That is a good answer because 

you eliminated my second question, which was if you had top priorities over some that weren’t, why were you asking for the ones that 

were not a top priority? But it seems that you thought the process 

through very well. 

In your testimony, you mentioned a series of policy accomplishments the United States has been a major player in implementing 

at the MDBs. What are your top policy initiatives you are pushing 

at them now? Have they changed in any way? 

Ms. BRAINARD. I think they have probably evolved over time, although I will say that a perennial strategic priority for the United 

States is to keep the institutions focused on poverty, fighting poverty in a way that allows countries to grow permanently out of poverty and move from the more concessional financing to becoming 

countries that borrow from the middle-income windows. And we 

have seen very successful transitions over time. Again if you look 

at the Vietnams, the Indias, the Indonesias, these have become 

booming markets for our exports. They were very poor countries 

not too long ago. So we will continue to emphasize poverty. 

We are very focused on U.S. national security priorities. Afghanistan is a huge priority in the Asian Development Fund and in the 

World Bank. And similarly, Egypt and Tunisia are going to be huge 

priorities right now going forward because we know how important 

these democratic transitions are. 

We also have asked these institutions—and they are very forward leaning on—focused on global health, focused on education 

and, very importantly right now with food prices skyrocketing, on 

addressing challenges such as food security and climate. 

Chairman MILLER OF CALIFORNIA. I hope somehow through the 

process, countries like Brazil and Vietnam, we get a message 

across that some of their tariffs are very excessive on some of the 

American products we are sending to them, that it is not a fair return for what America is trying to do for them in the process. 

Hopefully, that message can get to them. 

Ranking Member McCarthy, I recognize you for 5 minutes. 

Mrs. MCCARTHY OF NEW YORK. Thank you. I just want to go 

back to and follow up, building up off of Mr. Campbell’s question 

earlier, if another country takes leadership, wouldn’t that allow 

them to basically change an awful lot of important U.S.-led accountabilities, transparencies, anti-corruption? So without naming 

a country, but there are one or two countries out there that have 

the possibility of taking the lead, and I would say the majority of 

people sitting here would probably not agree with an awful lot of 

their policies. They could then put their own policies in place. 

20 

I think that is probably what a lot of people don’t understand of 

what we are trying to survive—to get to, which came off the beginning of my question, that the American people have to understand 

why this so important. Because we are the leaders. And I also 

think it is worth mentioning again because we hear it all the time 

on decisions that should be made; let’s leave it to the generals. 

We have General Petraeus talking about why the World Bank is 

so important and we have Joint Chief of Staff Admiral Mullen also 

saying the same thing. So maybe you could clarify that a little bit 

more so that people understand this isn’t just giving money to a 

bank. Yes, many of us agree we want to help poor countries. We 

want to build them up. I am one of those who happens to believe 

that by doing that, hopefully we are preventing future terrorists 

from coming over here to injure us. When people live in terror, they 

will believe anything. We are trying to give them a different way 

of life. If you could, lead off on those questions. 

Ms. BRAINARD. Mrs. McCarthy, I think the way you have framed 

it is exactly right. And the areas where we have been at the forefront are areas that Americans care a great deal about: transparency; full disclosure of lending programs; and ensuring that infrastructure projects undergo full environmental impact assessments and social impact assessments. These are areas, anti-corruption, where by virtue of having a leading share in all these institutions the United States has pushed these institutions to reflect 

American values. And I think that your fear is well founded that 

if we forfeit and appear to be less committed to these institutions, 

that other countries with different values will promote different 

agendas, which will be, I think, a step backwards on the development of these countries that they are lending to because we promote these values because we think they are good for the countries 

themselves. They are critically important to the functioning of our 

economy, but also because they create huge opportunities for us. 

I think you are also right that these are preventative investments. In many cases, they allow us to put small investments on 

the ground now and to avoid much larger and more costly entanglements later if indeed they are successful, and that is why I 

think our military speaks so strongly in support of these institutions as does our business community. 

The final thing I would simply say is that just going back to this 

question about prioritization, we did actually push back altogether 

on capital replenishments for both the EBRD and for the IFC because we asked them to work harder at making their capital go 

further, and so we need authorizations but we actually don’t have 

to make additional contributions to those. So we really did work 

hard to try to get the maximum in terms of development impact, 

national security impact for the least amount of U.S. investment 

dollars. 

Mrs. MCCARTHY OF NEW YORK. Thank you. 

Chairman MILLER OF CALIFORNIA. The gentleman from Illinois, 

Mr. Dold, is recognized for 5 minutes. 

Mr. DOLD. Thank you, Mr. Chairman. 

Under Secretary Brainard, what is the Administration’s position 

on the importance of ensuring that the World Bank presidency remains with an American? 

21 

Ms. BRAINARD. I think we believe that the benefit, the World 

Bank has benefited tremendously from American leadership over 

the past several decades. And we also believe that the current 

president, Bob Zoellick, is doing an excellent job of steering the 

World Bank and advancing the goals of that institution. 

We have stated that for all of the international financial institutions we support an open and transparent and merit-based process. 

And again, we feel that the actual leadership of the World Bank 

has served the institution very well over many years. 

Mr. DOLD. So that means it is important, we hope? You want an 

open process but you—the Administration is just supporting an 

open process or do you believe that it is important that an American sit at the head of the bank? 

Ms. BRAINARD. We believe that the institution has been very well 

served by having an American heading it over many years. But we 

also are very supportive at all the international financial institutions of ensuring an open, transparent, and merit-based process so 

that we will have the best leadership possible. 

Mr. DOLD. I appreciate that. 

One of the big responsibilities we have here in the United States 

Congress is to ensure that taxpayer dollars are protected from corruption, and certainly I would say a conservative estimate of bribery annually is about $1 trillion. And before we agree to sign on 

to give the banks additional taxpayer funds, we need to know that 

they are serious about fighting corruption. I think a World Bank 

analyst estimates that there is a 400 percent governance dividend 

of corruption control; in other words, countries that crack down on 

corruption and improve the rule of law can expect on average about 

a 400 increase in per capita income over the long run. This means 

that a country with a per capita income of $2,000 can, over the 

long haul, see that increased to $8,000 by addressing corruption. So 

especially at this time of cutting back here in the United States 

Congress, we need to protect our investments and ensure that they 

are directed. 

The real question is, what are the banks doing to ensure that 

they are cracking down on corruption? And what is the U.S. Government doing to put pressure on the banks to make sure that they 

are following through on that? 

Ms. BRAINARD. I would say that fighting corruption and ensuring 

that countries put in place strong anti-corruption policies is something that is now a deeply held value at all of the institutions; 

among the senior management of all the institutions, this is something that they really, I think, have taken to heart. As you said, 

the World Bank has come up with the most compelling research on 

why corruption is a scourge on development for countries who allow 

it to flourish themselves. 

They pursue initiatives against corruption in a host of ways. 

First of all, through the reforms that we have worked so hard to 

secure, they fight against the space for corruption to penetrate into 

their own operations. So between inspection panels and publication 

of documents, they have a whole host of internal controls. 

Secondly, they are not banks, as was said earlier. They are policy 

institutions that bring technical assistance and policy conditionality to bear when they lend into countries. And one of the very imVerDate Nov 24 2008 16:59 Sep 06, 2011 Jkt 067933 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\67933.TXT TERRIE
22 

portant policy areas that they push is to ensure countries have 

very strong legal and enforcement frameworks to combat corruption. 

Mr. DOLD. The banks I know have the ability to debar people, 

companies, nongovernmental organizations, if they are found guilty 

of fraud and corruption. And I would say that some of these corrupt actors also have the ability to be prosecuted criminally. 

What are the banks doing? Do they have a mechanism to make 

sure that those are reported to the different entities so that they 

can be prosecuted? 

Ms. BRAINARD. I can speak to the debarment process. They have, 

each institution has now agreed to cross debarment so that the information is shared among the institutions, and when a company 

is debarred from one institution, that debarment also affects the 

other institutions. So I think they are trying to become more effective as a group on working against corruption. 

Mr. DOLD. Are they being transferred though? The debarment 

process which I appreciate is a good one so that they are not getting engaged in the other MDBs, but are they sending that other 

information to the different countries so that they can be prosecuted? 

Ms. BRAINARD. In each case, they have offices that can develop 

investigative materials for purposes of pursuing debarment proceedings and investigations of those entities. 

Mr. DOLD. Thank you so much. 

Chairman MILLER OF CALIFORNIA. The gentleman from Michigan, Mr. Huizenga, is recognized for 5 minutes. 

Mr. HUIZENGA. Thank you, Mr. Chairman. And I hope you enjoy 

Reno in your new district. 

I do appreciate you coming here, and this is some tough questioning. We are all in a spot here where we are trying to make sure 

that we use every dollar that is entrusted to us, and quite honestly 

most people, including this one, don’t believe that we have used 

those dollars to their highest and most efficient use and that it has 

been problematic in the past, and whether it is Argentina or some 

of these other issues, we need to make sure that we can look our 

constituents in the eye and say those dollars that you are sending 

to Washington, those dollars that you entrust to us, we are using 

them properly. 

And that is, I think, a legitimate spot for them to be in and much 

like my friend from Illinois, Mr. Dold, was talking about, the corruption element is something that is concerning. I am also concerned or curious I guess, maybe not concerned as much as curious, 

about your view as to what makes this particularly more effective 

or is it more effective than direct aid that may be going to some 

of these developing countries? And why is this an important element that the U.S. Government should be even really engaged in? 

Ms. BRAINARD. Let me just say that we obviously across the Administration support both our bilateral funding mechanisms as 

well as our multilateral funding mechanisms and we see them 

working in complementary ways to each other. The multilateral development bank investments that we are talking about today have 

unrivaled leverage. 

23 

So again, first, for an investment today of $1, or take the invest- ment that President Reagan made in 1988, $1 into the World Bank 

at that time has leveraged $800 million of development and investments. We simply cannot get that kind of leverage by our direct bilateral funding. 

Second, these institutions have tremendous scale advantages and 

staying power so that they have unique capacities to undertake 

multi-year infrastructure projects. They have very strong criteria 

for evaluating those infrastructure investments, so that for a country in Africa, for instance, that has very few alternatives on how 

to finance a port or a railroad or a bridge, the multilateral development banks come with funding that ensures there is transparency 

and corruption safeguards, that environmental assessments and social impact assessments are done. 

The alternative investment comes with different kinds of strings 

attached and ones that I think serve our national interest much 

more poorly. 

Mr. HUIZENGA. I am assuming you would acknowledge that there 

have been issues or problems with whether it is corruption or 

whether it is some sort of ill-gotten gain that people had. What are 

we doing to ensure that that doesn’t continue and diminishes? 

Ms. BRAINARD. We are using and have used our leadership position in these institutions to ensure that they to the greatest extent 

possible reflect best practice and reflect our values. So they publish 

all of their lending now. That is very important to enable a civil 

society to exercise some accountability over it. They have very 

strong internal controls against corruption, and they have inspection panels which allow members of any community in which they 

are operating to raise questions and to get a hearing about the operations of the institutions. 

We have very strong procurement safeguards which ensure that 

on these projects, procurement processes are open and transparent 

and awarded to the most cost-effective, highest-value bidder. So 

there is a whole host of things that we have put in place that reflect how the United States likes to see business being done. We 

think it is the best practice globally. But I can assure you that if 

we did not have a leadership position at these institutions it is likely that other countries would perhaps push in other directions. 

Mr. HUIZENGA. I appreciate your input, Under Secretary 

Brainard, and your time as well, and I think it is just our responsibility to make sure that we can look our constituents in the eye 

and say, we are using your dollars in the most responsible way 

that we possibly can. So I appreciate that. Thank you. 

Thank you, Mr. Chairman. 

Chairman MILLER OF CALIFORNIA. Dr. Brainard, I want to thank 

you for your testimony. You were very informative and very candid 

and you were very generous with your time, and I look forward to 

working with you as the process continues. 

Ms. BRAINARD. I appreciate the opportunity. Thank you. 

Chairman MILLER OF CALIFORNIA. The Chair notes that some 

members may have additional questions for this witness which 

they may wish to submit in writing. Without objection, the hearing 

record will remain open for 30 days for members to submit written 

questions to this witness and to place her responses in the record. 

24 

The hearing is adjourned. 

[Whereupon, at 4:00 p.m., the hearing was adjourned.] 

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A P P E N D I X 

June 14, 2011 

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