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THE IMPACT OF THE INTERNATIONAL 

MONETARY FUND: ECONOMIC STABILITY 

OR MORAL HAZARD? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON MONETARY 

POLICY AND TRADE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

JUNE 17, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–35 

( 

(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 

BILL POSEY, Florida 

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: 

June 17, 2015 .................................................................................................... 1 

Appendix: 

June 17, 2015 .................................................................................................... 33 

WITNESSES 

WEDNESDAY, JUNE 17, 2015 

Lowery, Clay, Vice President, Rock Creek Global Advisors LLC ........................ 3 

Lundsager, Meg, Public Policy Fellow, Woodrow Wilson International Center 

for Scholars ........................................................................................................... 5 

Taylor, John B., Mary and Robert Raymond Professor of Economics, Stanford 

University ............................................................................................................. 7 

APPENDIX 

Prepared statements: 

Lowery, Clay ..................................................................................................... 34 

Lundsager, Meg ................................................................................................ 40 

Taylor, John B. ................................................................................................. 45 

(1) 

THE IMPACT OF THE INTERNATIONAL 

MONETARY FUND: ECONOMIC STABILITY 

OR MORAL HAZARD? 

Wednesday, June 17, 2015 

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 2:04 p.m., in room 

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

Members present: Representatives Huizenga, Mulvaney, Lucas, 

Pearce, Pittenger, Emmer; Moore, Kildee, and Heck. 

Chairman HUIZENGA. This hearing of 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. And I will note that we have been 

told to expect votes sometime between 3:15 and 3:45. 

Today’s hearing is entitled, ‘‘The Impact of the International 

Monetary Fund: Economic Stability or Moral Hazard?’’ 

And I now recognize myself for as much time as I may consume 

to give an opening statement. 

Today, we will examine closely U.S. contributions to the International Monetary Fund (IMF), and the role that the IMF plays in 

terms of global financial surveillance, technical assistance, and, of 

course, lending. 

Although the IMF membership is comprised of 188 countries, 

today the United States is the biggest contributor to the IMF, accounting for more than 17 percent of its quota resources. If a major 

default were to occur, it could put U.S. taxpayers on the hook for 

billions of dollars. 

Since the global financial crisis of 2008, there has been an increased attention on the IMF’s activities and the role in the global 

economy. In recent years, the IMF has bent the rules multiple 

times as it relates to exceptional access. 

The most egregious was the loan to Greece, which was 3,212 percent of Greece’s quota, I will note, well above any of those quota 

norms. We wouldn’t let a bank in this country make a loan this exorbitant in nature. So why does the IMF believe American taxpayers should back a loan that, by our Nation’s standards, should 

not have been made in the first place? 

2 

The 2009 Congress authorized a $100 billion commitment to the 

IMF in an account called, ‘‘New Arrangements to Borrow (NAB).’’ 

For the past 5 years, the Obama Administration has requested $63 

billion of that authorization to be transferred to a permanent paidin capital account. This would still leave billions in the NAB account, even though the NAB account is supposed to only be temporary. 

Now, why should hardworking taxpayers’ dollars be used to bail 

out other countries, especially after suffering from bailout fatigue 

in our own backyard? If you will recall, the American taxpayers 

were forced to bail out such entities as Fannie Mae, Freddie Mac, 

and the Federal Housing Authority. 

Instead of furthering the bailout culture, wouldn’t it make more 

sense for the United States to encourage advanced nations receiving loans from the IMF to better manage their spending and borrowing? 

Currently, every dollar that Congress sends to the IMF implicitly 

condones the IMF sending money from countries struggling to find 

their economic footing to nations in danger of squandering their inheritance. 

To be more direct, the use of the IMF as a backstop for advanced 

European countries calls into question, in my mind, whether this 

institution has become an enabling crutch instead of a helping 

hand. 

As we know from our experiences in this country, guarantees in 

bailouts can create moral hazards. Even for the most advanced nations, the freedom to succeed requires the freedom to fall and get 

back up again. 

I look forward to a meaningful discussion on the International 

Monetary Fund, and I look forward to hearing from our witnesses 

today. 

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

I will now recognize my ranking member, Ms. Moore from Wisconsin. 

Ms. MOORE. Thank you so much, Mr. Chairman. And I want to 

thank you for calling this hearing. It is a very important hearing, 

and it is a subject that certainly deserves congressional attention. 

We are increasingly in a global world, for all that means, good 

and bad. And so I think the importance of the mission of the IMF 

has only been elevated. From the onset, let me say that I think 

that the United States Congress needs to immediately move to ratify the new IMF quota system. There is broad agreement that it 

is the rational move, and it has been agreed to. 

U.S. leadership and engagement in economic policy is vital in the 

long-term interest of our country. Global economic stability is, as 

we all know, smart geopolitics. Our borders are no longer a guarantee that what happens in far-off lands does not impact our 

shores economically or otherwise. Congress’ lack of action has hurt 

U.S. standing internationally. 

Further delay makes even less sense as China moves to fill the 

vacuum created by the lack of action by this Congress. I know that 

one of our witnesses wants to tie approval of the quota system to 

other IMF reforms, and I respectfully disagree on that point and 

welcome the engagement on that, while being entirely open to conVerDate Nov 24 2008 18:20 Feb 10, 2016 Jkt 096996 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\96996.TXT TERI
3 

sidering the case for IMF reforms, but not necessarily to making 

approval of the quota system contingent on acceptance of these yetto-be-debated reforms. 

First, time is of the essence, given the delay we have already 

seen. And, second, I think it would be an act of bad faith to hold 

this agreed-to quota realignment hostage to unspecified secondary 

demands. 

Finally, I want to say that I think that the U.S. Federal Reserve, 

the Treasury, and the Financial Stability Oversight Council are 

great, but I think that the IMF remains an important second set 

of eyes in global stability. And I think that the advice and stability 

role that they fill provides a valuable service to the United States 

and to the world. 

And, Mr. Chairman, I yield back. 

Chairman HUIZENGA. The gentlelady yields back. 

With that, we are going to start with our testimony. The order 

here will be Mr. Lowery, Ms. Lundsager, and then Mr. Taylor. 

Clay Lowery, who is the vice president of Rock Creek Global Advisors, joins us today. He had served as the Assistant Secretary for 

International Affairs at the Treasury Department from 2005 to 

2009. 

And currently, with Rock Creek Global Advisors, he consults on 

sovereign debt, exchange rates, investment policy, and financial 

regulation. He is currently advising multi-national companies and 

financial institutions and trade associations on these matters. 

So with that, Mr. Lowery, we appreciate you being here and recognize you for 5 minutes. 

STATEMENT OF CLAY LOWERY, VICE PRESIDENT, ROCK 

CREEK GLOBAL ADVISORS LLC 

Mr. LOWERY. Thank you very much, Chairman Huizenga and 

Ranking Member Moore, as well as the other members of the subcommittee. I want to thank you for this opportunity to testify on 

the IMF. 

I am honored to be testifying alongside John Taylor, who is not 

only my former boss, but he is one of the most important macroeconomic thinkers in the United States, as well as with Meg 

Lundsager, who is a long-term colleague who is very deeply knowledgeable about the IMF. 

The IMF promotes three objectives—macroeconomic stability, financial stability, and economic growth—using three basic tools: 

technical assistance; surveillance; or basically, evaluation of a 

country’s financial policies and economic policies and lending. 

When the IMF lends money, the country is usually in very deep 

financial trouble. To protect itself from this highly risky form of 

lending, the IMF relies on two things: one, a presumption that its 

credits are senior to other credits: and two, a requirement that the 

borrowing country undertake reforms to alleviate the concerns of 

throwing good money after bad. As you can imagine, these things 

can be controversial, as we are currently seeing in Greece. 

The IMF finances itself through contributions by member countries, which are called quota. That takes into account a country’s 

relative economic size. So, for instance, instead of being one country, one vote, as is the case in many international institutions, the 

4 

United States has roughly 17 percent of the voting share. No other 

country is even close. Japan is second, with around 6 percent. 

The IMF has evolved over the last 70 years, but one area that 

has harmed it in its legitimacy and its relevance is a representation structure that no longer fit the international economy. 

And so from 2005 through 2010, both in the Bush Administration 

and the Obama Administration, the United States led an effort to 

try to fix this problem. The 2010 agreement is the culmination of 

these efforts. 

First, it alters the voting wage to make adjustments so that 

countries such as China and Mexico and Korea will see their votes 

increase noticeably while others will fall. The United States will 

basically stay the same. 

Second, it alters how voting shares are translated into board 

seats. There are 188 members in the IMF, but only 24 board seats. 

Europe disproportionately holds too many seats. After the reform 

package is put together, we will see that dynamic emerging market 

countries will have more seats, Europe will have less seats, and the 

United States will still have its seat. 

The quota reform also doubles IMF quota resources, as the chairman noted. It does this by reallocating money from an emergency 

pot of money called the ‘‘New Arrangements to Borrow’’ to the normal IMF pool of money based on quota allocation. 

For the United States, we will not increase our total contribution 

to the IMF, but instead will transfer a portion of our NAB contribution to quota resources. This allocation requires authorization 

and appropriations from Congress. To date, every major country 

has ratified this reform package except for the United States. 

So there are many economic and financial reasons for why we 

should support the United States, and it is probably not surprising 

to you that every Secretary of the Treasury, most U.S. Trade Representatives, and the Federal Reserve Chairmen since the Carter 

Administration have supported this IMF reform package. 

But maybe, just as importantly, the IMF is a foreign policy tool 

that the United States has called upon many times to provide finance and advice, whether it was South Korea in the 1990s, Afghanistan and Iraq in the 2000 period, or Ukraine today. But I can 

provide you a more personal example of this. 

In 2008, I worked for many hours with the Prime Minister of 

Georgia after his country was invaded by Russia. He was worried 

about a banking crisis, and he was looking for liquidity. 

While the United States was very supportive of Georgia, we were 

in the midst of our own financial crisis in 2008 and were not in a 

position to provide emergency liquidity. Instead, we worked with 

the IMF, which stepped up very quickly to provide the financing 

Georgia needed to preserve confidence in its banking system and 

save its economy. 

In other words, the IMF is an important tool to conduct strong 

foreign policy and to provide the conditions that assist in keeping 

our troops out of harm’s way. Don’t take my word for it. 

Most of the Secretaries of Defense, National Security Advisors, 

and Secretaries of State from President Nixon through President 

Obama have supported the legislative request of this Administration. They recognize that U.S. leadership in the IMF is not only 

5 

vital to the institution, but also important to our own national security interests. 

The IMF is far from perfect and will continue to need U.S. leadership to reform and evolve. However, U.S. leadership cannot occur 

from the sidelines and must come in the form of strong legislation 

with appropriate conditions. 

Therefore, I ask that Congress work with the Administration and 

join what I believe is a strong bipartisan consensus and demonstrate this leadership. 

Thank you. I am happy to answer any questions. 

[The prepared statement of Mr. Lowery can be found on page 34 

of the appendix.] 

Chairman HUIZENGA. Thank you, Mr. Lowery. 

With that, we will go to Ms. Meg Lundsager. She is a public policy fellow at the Woodrow Wilson International Center for Scholars, 

and she currently consults on international economic, financial, 

and regulatory issues. 

And while the United States Executive Director on the IMF executive board from 2007 through 2014, she focused on achieving effective IMF input into lending programs in Europe, securing adequate IMF resources, supporting low-income countries, and 

strengthening IMM oversight of exchange rate policies. 

And with that, Ms. Lundsager, we appreciate you being here and 

recognize you for 5 minutes. 

STATEMENT OF MEG LUNDSAGER, PUBLIC POLICY FELLOW, 

WOODROW WILSON INTERNATIONAL CENTER FOR SCHOLARS 

Ms. LUNDSAGER. Thank you, Chairman Huizenga, Ranking Member Moore, and members of the subcommittee for inviting me 

today. 

During my 14 years with the IMF, I represented three Presidents. I was nominated first by President Clinton, then by President Bush, and I continued to serve under President Obama. I am 

currently a public policy fellow, and I should just note that my 

views today are my own and not those of the Wilson Center. 

During the global financial crisis, the IMF was instrumental in 

helping many countries recover and return to private market financing. The IMF draws on many members to provide financing, 

keeping the U.S. share a little bit above 20 percent, as Mr. Lowery 

was just describing. 

Nonetheless, U.S. leadership was crucial to bringing together all 

the elements needed for the IMF’s international response, but that 

leadership is eroding as the United States delays approving the 

2010 quota and governance reforms. 

The United States has the largest single country vote in the IMF 

with a veto over key decisions, such as amending the articles and 

increasing IMF financing. This current voting structure, though, 

doesn’t really represent the rapid growth and emerging markets in 

developing countries. So we have Belgium with a larger vote in 

South Korea, Mexico, or Turkey. That is quite anomalous. 

The United States recognizes distribution of voting power threatens to undermine the legitimacy of the International Monetary 

Fund, and beginning in 2006 the Bush Administration proposed 

6 

steps to realign quotas. And in 2010, IMF members reached a 

broader agreement, which now awaits U.S. approval. 

Today’s hearing presents an opportunity to clarify the elements 

of the 2010 package, and I have provided many details in my written statement. 

First, the U.S. share will remain comfortably above the 15 percent veto threshold. And, as you, Mr. Chairman, and Mr. Lowery 

explained, there is no change in the U.S. financial commitment 

with the shift coming from the New Arrangements to Borrow and 

being shifted to the quota. 

But Europe’s voting share will decline and dynamic emerging 

market share will increase. These changes should help keep global 

economic policymaking centered in the IMF, and key U.S. allies 

will gain, including Mexico, South Korea, Poland, and the Baltic 

nations. 

Second, some claim the IMF should not have rescued Eurozone 

countries. But without the IMF as the crisis manager in Europe, 

I believe we risked a dissolution of the Eurozone, which would have 

reduced U.S. exports and increased the risk of European bank failures, ultimately affecting U.S. financial institutions and corporations as well as our stock and bond markets. The U.S. economic recovery would have been undercut. 

Did the IMF’s ability to lend large amounts incentivize Eurozone 

countries to mismanage their finances and slide into crisis? That 

hardly seems likely, as evidenced by the very demanding policy adjustment programs they have had to implement. Countries avoid 

turning to the IMF until no other option remains. And while some 

investors might seek high returns in higher-risk countries, thinking that IMF will finance their exit, those illusions should be dissipating as some countries resort to capital controls and others 

turn to debt restructurings. 

Third, over the many decades of the IMF’s existence, U.S. leadership and ideas has persuaded others to join in promoting reforms. 

The United States has been a leading voice for accountability, 

transparency, and change both at the institution itself and within 

member countries. 

U.S. initiatives at the IMF have led to much more openness in 

government accounts, sounder financial institutions as countries 

improve regulatory oversight, reductions in the financing channels 

for money launderers and terrorists, and improved economic 

growth and stability in low-income countries. 

Furthermore, important U.S. national security priorities were 

supported by IMF lending programs and technical assistance for 

Iraq, Afghanistan, Tunisia, and Jordan, among others. 

More recently, the IMF responded to U.S. calls to increase support for the Ebola-affected countries in Western Africa and to underpin economic reforms in Ukraine with vital financing in the face 

of internal conflict and Russian economic pressure. 

Sadly, U.S. leadership continues to erode as the United States 

delays approval of these reforms. In my last months at the IMF, 

it became increasingly clear that other countries had little enthusiasm for U.S. proposals such as extending the zero percent interest on low-income country loans. 

7 

Let me just turn to a key financing issue. The IMF has a backstop of numerous bilateral loan agreements with a subset of nations. I fear that, if the United States does not ratify the 2010 reform, strengthening the IMF core capital, the IMF will continue to 

seek bilateral loans negotiated with less transparency and without 

U.S. involvement. These decisions should be made around the 

board table with all of us there. 

Thank you very much, Mr. Chairman. And I look forward to your 

questions. 

[The prepared statement of Ms. Lundsager can be found on page 

40 of the appendix.] 

Chairman HUIZENGA. Thank you. 

And, with that, we turn to Professor John Taylor. Professor Taylor has a very long and impressive career, including authoring 

many books and articles. He is currently the Mary and Robert Raymond Professor of Economics at Sanford University and the George 

P. Shultz Senior Fellow in Economics at the Hoover Institute. 

He is known for his research on foundations on monetary theory 

and policy, which is applied by central banks and financial market 

analysts around the world. 

And specifically related to this, for 4 years, between 2001 and 

2005, Professor Taylor served as the Under Secretary of Treasury 

for International Affairs, where he was responsible for currency 

markets, trades and financial services, foreign investment, and also 

the IMF and the World Bank. 

We welcome you, Dr. Taylor, again to this committee. You are 

recognized for 5 minutes for your opening statement. 

STATEMENT OF JOHN B. TAYLOR, MARY AND ROBERT RAYMOND PROFESSOR OF ECONOMICS, STANFORD UNIVERSITY 

Mr. TAYLOR. Thank you, Mr. Chairman, Ranking Member Moore, 

and members of the subcommittee. 

For the IMF to achieve the goals that Clay Lowery mentioned, 

such as economic stability, it really has to have a clear and predictable framework or strategy for carrying out its goal. Otherwise, decisions become highly uncertain. They lead to excessive risk taking 

and international spillovers. I think a framework like that also provides for transparency and accountability. 

A number of years ago, such a framework, called the ‘‘exceptional 

access framework,’’ was adopted by the IMF. It set forth criteria 

that had to be met before the IMF could lend exceptionally large 

amounts to countries. The most important criterion said that the 

IMF could not make new loans to countries with unsustainable 

debts. 

The expectation was that this way of limiting loans would reduce 

bailouts of the private sector, contain moral hazard, lower uncertainty, reduce the recipient country’s debt burden, encourage more 

responsible fiscal and monetary policy, reduce spillovers, improve 

accountability, and, therefore, create more economic stability. 

And, in fact, the introduction of this framework was accompanied 

by many such changes. Compared with the 1980s and 1990s, there 

were a few crises emanating from the emerging markets in the 

years that followed and emerging market countries weathered the 

8 

global financial crisis remarkably well and economic policy in those 

countries generally improved. 

Unfortunately, this exceptional access framework is no longer in 

place. It was abandoned in 2010, when the Greek sovereign debt 

crisis emerged, and the IMF staff could not establish that the 

Greek debt was sustainable with high probability. 

So the IMF simply changed the rule. It wrote in an exemption 

saying that new loans could be made in unsustainable situations 

so long as there was a ‘‘high risk of international systemic spillover.’’ That exemption is still in place. 

As is well known, events in Greece following the 2010 decision 

have not been pleasant. And it is time, in my view, to reform and 

strengthen that exceptional access framework. A starting place 

would simply be to repeal the exemption for systemic risk. That exemption is the problem, not the solution. I have found much support for this kind of reform in the international community, including at the IMF. 

Importantly for the Congress, this reform is closely related to the 

quota and voting reallocation agreement that Meg and Clay just 

mentioned, which was negotiated way back in 2010. 

This agreement would sensibly reallocate voting shares to give 

more votes to countries that have grown more rapidly. It would 

also increase the total quota commitment to the IMF. The main rationale for that increase is that the global economy and capital 

flows have expanded. 

Of course, the increase in the quota must be scored by the CBO 

and may need offsets elsewhere in the budget. Legislation to approve the increased quotas and voting reallocation should, therefore, be tied to the exceptional access framework, which will also 

provide additional transparency and accountability. 

It seems to me that with the global financial system in an uncertain state of flux right now, it is an important time, a good time 

for such reforms. Approving the international quota agreement in 

a way that helps ensure that these new resources are used strategically, effectively, and with accountability, as I show in more detail in my written testimony, would be an important pillar of any 

such reform movement. 

Thank you, Mr. Chairman. 

[The prepared statement of Dr. Taylor can be found on page 45 

of the appendix.] 

Chairman HUIZENGA. The gentleman yields back. 

And, with that, we are going to go into our question period. I am 

going to recognize myself for 5 minutes. 

Ms. Lundsager, when you were our Executive Director at the 

Fund—and I don’t want to put words in your mouth—I assume you 

advised Treasury that a systemic exemption for Greece was a good 

idea. Is that accurate? 

Ms. LUNDSAGER. Thank you, Mr. Chairman. 

As you may be aware, the systemic exemption was inserted in 

the Greek program that we approved in May 2010. And there was 

no advance discussion of that. 

So, at that point, I recall we were all very concerned about the 

situation in Greece. And, of course, any country has the right to 

ask for assistance from the IMF and the IMF responds. And, at 

9 

that point, Greece was committing to a number of adjustment 

measures that would start to address some of their problems. 

And to be perfectly frank, at that time we were very worried 

about the rest of Europe. And my concern was that if contagion 

spread to a number of other countries, not just the smaller ones 

such as Portugal and Ireland who eventually needed IMF programs, but the larger ones, Italy or Spain—you remember the references to the GIIPS or the PIIGS years ago—that the IMF would 

not be able to handle, for instance, an Italy without great difficulty 

and that it would be very difficult for the Europeans to hold the 

Eurozone together, given that they had not built their own firewalls at that time. 

So the systemic exemption in the end was inserted by the staff. 

The board approved it, although many of us just became aware of 

it at the meeting itself, since the change was buried in this long 

document. 

I was dismayed that staff used that approach, but in the end, my 

concerns about Greece and about Europe overrode that dismay and 

I supported the program. 

Chairman HUIZENGA. In retrospect, do you think it was a good 

idea? This is something I asked Secretary Lew earlier today. 

And after a rather lengthy sidestep, he came out with yes, he felt 

it was still a good idea, at which point I was asking him, just as 

Professor Taylor was talking about, about the potential return of 

that language to that. And, as I have been having some conversations, I, too, am finding that support within the IMF and other 

countries that are involved with the IMF. 

So do you still think it was a good idea? And what is your take 

on whether we should return that language and return to that policy? 

Ms. LUNDSAGER. Whether or not we have that particular language, I still feel that the IMF needs an ability to exercise judgment. And by the IMF, I mean the executive board, the membership itself. 

My concern with rigid rules is that, first of all, it is very difficult 

to know what the next crisis is going to be. And what we found 

when we had the exceptional access criteria, first set, each case 

ended up being different and didn’t quite meet the criteria. 

And so I am not comfortable with being able to predict what a 

future crisis might be and how a country might or might not meet 

particularly rigid rules. 

I am also a little bit worried that these criteria are based on IMF 

calculations of debt sustainability, and these numbers are very difficult to pin down and very dependent on numerous assumptions, 

as I am sure you know, you are aware as you look at a number 

of these issues just in terms of the United States itself. 

So I am a bit worried that it could end up being very arbitrary. 

And if it is a key U.S. ally and the fund says, ‘‘Well, we are not 

ready to do exceptional access. Okay, United States. You are going 

to have to do it all bilaterally,’’ we are back to the very place that 

we did not want to be or else we are forcing that country into a 

debt restructuring immediately. 

Chairman HUIZENGA. I have a little over a minute. 

10 

Dr. Taylor, you were there and helped developed the exceptional 

access framework at Treasury. 

How do you respond to Ms. Lundsager, and what is sort of your 

take on the world right now? 

Mr. TAYLOR. I think there is quite a bit of flexibility in the way 

the original access rules or framework was put in place. So I don’t 

think you need any more. And I think, ideally, you could go back 

to something like that. 

I think the experience has also shown that too much flexibility 

is a disadvantage. You think about the danger of lending to an 

unsustainable debt situation, you end up bailing out the private 

sector. That is basic. You think now, ‘‘Who owns most of the Greek 

debt?’’ It is the public sector. So it enabled the private sector to get 

out. 

Chairman HUIZENGA. Between the IMF and the EU, are these— 

Mr. TAYLOR. Yes. So that is the concern. I also think it creates 

an enormous amount of uncertainty. In talking to many in the private sector, they would prefer to go back to where we were because 

they recognize the current situation creates uncertainty. So for all 

the reasons you want to have a framework. 

Also, I would say, for accountability and transparency, this is 

money that you are going to have to authorize and appropriate. I 

think it is part and parcel the institution describes as best it can 

its framework for allocating these large sums of money. It is not 

rocket science, to be sure, but I think it is quite workable. 

Chairman HUIZENGA. All right. With that, my time has expired. 

And I recognize my ranking member, Ms. Moore, for 5 minutes. 

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

And I want to thank all of the witnesses for joining us today. 

This is truly an opportunity, I think, for the committee to get a 

tremendous education with the aggregation of experience that you 

all have. 

I want to continue to pursue the discussion, maybe starting with 

Professor Taylor. I can truly identify with your notion, perhaps, 

that there is some moral answer in abandoning a framework where 

riskier loans, countries like Greece, were enabled to access the 

lending facility. 

But I hearken back—I was here when Secretary Paulson came 

and said, ‘‘Give us $700 billion or else the United States’ economy 

is going to collapse.’’ And my first reaction was not a very ladylike 

response. It was like, ‘‘blank, no.’’ 

But as I listened to experts such as yourself, I concluded that it 

just had to be done. And there was moral hazard. I think we are 

still experiencing it. I think we sort of bailed out the private sector 

more so than we did homeowners. 

And so I guess my question to you, sir, and to Ms. Lundsager, 

and perhaps to Mr. Lowery would be, what do you make of the 

‘‘high risk of international spillover’’—the exception being the high 

risk of international spillover? 

Do you honestly believe that if the IMF is not in a space like 

Greece or the Eurozone or other things, that there will be no impact on our economy here? 

Mr. TAYLOR. What will happen in a situation like that is the IMF 

will say, ‘‘Your debt is unsustainable, with high probability. There 

11 

is no exemption for a systemic spillover. So, therefore, unless your 

debt is restructured, unless the private sector comes in and says, 

’We are writing down or reprofiling that debt,’ you don’t get a 

loan.’’ 

But the result most likely will be that the private sector will get 

involved in that. And so that is really what—to have a clear rule 

in advance, a clear process in advance, that is basically what you 

hope will happen. 

I would add a few things based on my own experience. It is nearly impossible to determine about the systemic spillover risk. Therefore, it is very susceptible to political maneuvering and for people 

to claim there is this risk, systemically, of spillover, when nobody 

really knows. 

We discussed the difficulty of doing a sustainability analysis, 

what the likelihood is of the debt being sustainable. That does require numbers. But that is far easier than trying to determine the 

systemic risk. 

Ms. MOORE. Ms. Lundsager, do you have a comment? 

Ms. LUNDSAGER. Thank you. 

It is very difficult, first of all, to determine insolvency versus 

illiquidity for a particular country. 

But contagion can be a very real risk as deposits leave a country, 

leave the banking system, which causes problems as our banking 

systems are based on deposits not all being withdrawn at one time. 

This can then spread to other countries that have similar characteristics. 

We saw this in 2010. We saw more of this in 2011 in Europe. 

And you have all seen the market jitters right now as all this uncertainty about Greece remains in the market as Europe’s leaders 

debate the next step. 

So, yes, I was bothered about contagion then, and I still think 

that is the main reason that we have the International Monetary 

Fund. Thank you. 

Ms. MOORE. Mr. Lowery, just very briefly, I think at least you 

and Ms. Lundsager have talked about the lack of leadership from 

the United States, given its veto power and so forth in the IMF. 

If we don’t sort of adopt the framework, pay our dues, be the leader, what could ultimately be the impact? 

I am thinking of the formation of BRICS, for example. Could any 

of you sort of share with us what you think the consequences are 

of a diminishing influence of the IMF and the rise of something 

like the BRICS? 

Mr. LOWERY. That is a good question. 

I think that—look, my own view is that the United States should 

be taking a leading role. We help formed the IMF. We are the leading country in the IMF. 

If that means that we need to pursue some of the reforms that 

John Taylor is talking about, I think we should probably be looking 

at doing that. If it means to do some other reforms, we should be 

looking at doing that. 

But that does not mean we should be holding up going forward 

on an agreement that everybody in the world has agreed to years 

ago that—I think that most people in the United States, people 

12 

who have sat in the Executive Branch, actually think that this is 

a helpful institution for us to support. 

As to whether or not it means that the Asian Infrastructure Investment Bank or the BRICS bank is going to be created and those 

are the reasons it got created, I can’t answer that because I don’t 

know the mindset of the Chinese. 

I do know this, that there is concern that the United States is 

not stepping up as an international leader in a number of areas 

that are not just about the IMF, and this is an area where I think 

that we can come to an agreement if we worked hard together. 

Ms. MOORE. Thank you. My time has expired. 

Chairman HUIZENGA. The gentlelady’s time has expired. 

With that, we go to our Vice Chair, Mr. Mulvaney, for 5 minutes. 

Mr. MULVANEY. Before we come back to Greece, I want to follow 

up very briefly on what Mr. Lowery just said to speak to the issue 

raised by the gentlelady from Wisconsin, which is, on the 2010 reforms, we have had some hearings on that before, back when John 

Campbell was the subcommittee Chair here. And, if I remember 

correctly, one of the fundamental principles of the reform was that 

we were going to move money out the New Agreements to Borrow 

into the quota. 

And I remember an issue coming up at the hearing, Mr. Chairman, which was, essentially, those two pots of money, for lack of 

a better word, are subject to different rules, different governance. 

And my understanding—correct me if I am wrong—is that, while 

the quota system is subject to rules essentially by consensus, the 

NAB, the New Agreements to Borrow, is subject heavily to our 

veto. 

That is my understanding. Am I wrong about that? 

Mr. LOWERY. I think the rule for the NAB is that it is activated 

every 6 months. So, on that, the United States has a veto right. 

However, if there is a loan provided by the NAB, it is done on a 

majority decision. 

Mr. MULVANEY. Yes. That is my recollection. We can shut it off 

every 6 months. 

And I guess, Mr. Lowery, to your point, and Ms. Moore, to your 

point, that was one of the hang-ups we had, was that we were effectively moving money out of an area where we had considerable 

control and into an area where we had less control. That concern 

remains. 

And then I look at that concern against the backdrop of what we 

are talking about today in Greece and the difficulties that some of 

us have with the changes that were made regarding contagion, regarding systemic risk. 

Now, Ms. Lundsager, you said something—I am not interested in 

debating what happened with Greece several years back. But you 

did say something that I thought was relevant to the discussion 

about whether or not we should go back to the old rules as we go 

forward. 

You said that the Europeans did not have firewalls in place at 

the time and that, in part, justified changing the rules in the IMF 

in order to allow the IMF to participate. 

Those firewalls exist today, don’t they? 

13 

Ms. LUNDSAGER. Yes, Congressman. They have built firewalls, 

and the European Central Bank is taking a number of actions. 

With that said, each country is still entitled to seek help from the 

IMF, to seek advice and to seek a program. 

Mr. MULVANEY. I am fine with all that. I am not trying to change 

the underlying rules. I am just trying to talk about whether or not 

that special exception—we are not going to look at whether or not 

they can pay the debt back, for example, if we fear contagion. 

And my point to you, I think, is that the firewalls that you said 

did not exist, accurately so, several years back do exist. So the 

need, perhaps, for the special exceptions for contagion have gone 

down. 

I also think that we need to recognize the fact that, while the Europeans were not ready at the beginning of the Greek crisis, they 

have loaned them, like, 8 times more money than the IMF has in 

the last couple of years. So, while the IMF’s $25 billion to $30 billion was critical at the 

time, it pales in comparison to the couple hundred billion dollars 

that the Europeans have loaned them. This seems to be their problem. The contagion was the countries that you mentioned, all European countries. So it seems like it might be more appropriate to let 

them take the lead. 

Mr. Taylor, you have had some thoughts—and I want to get some 

more input from you in my last 2 minutes—on why you think we 

should make the changes and how you think we should go about 

the changes. 

So the rest of my time, sir, I will open up to you to help the committee understand why you think it is critical that we go back to 

the old rules and get rid of these special considerations for contagion. 

Mr. TAYLOR. I think the old rules worked. We thought about 

them a lot in advance. Other people thought about them. They 

were put in place to address exactly these problems, which was 

spillover, emerging market crises, which were very common in the 

1990s and continued into the early 2000s. 

So it was part of a reform to really provide some guidelines or 

limits to what the IMF would do in these circumstances. It was essential, in my view, because, otherwise it was very ad hoc, very uncertain, and, in fact, causing the problems. 

So it worked well as far as we thought in advance, and in practice it worked well. Moreover, when we violated it, it has been a 

disaster. So a lot of evidence, it seems— 

Mr. MULVANEY. Examples of where we violated it in the past? 

Mr. TAYLOR. Greece. 

Mr. MULVANEY. Okay. So that is where we are today. 

And I guess, to the extent we are still talking about it, it doesn’t 

seem to have solved the problem. I think Ms. Lundsager admits 

that the contagion risk is still there as of today. 

And I would suggest that the $30 billion that the IMF put in 

probably didn’t make the difference one way or the other, but they 

were always charged with the problem of proving a negative. I 

hope we get a chance to get a second round. 

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

Chairman HUIZENGA. The gentleman yields back. 

14 

And, with that, the Chair recognizes Mr. Heck of Washington for 

5 minutes. 

Mr. HECK. Thank you, Mr. Chairman. And thanks very much for 

holding this hearing. 

My gratitude as well to the panel. You possess an amazing depth 

and breadth of expertise in this area, and I am genuinely grateful 

that you would share your time here. 

I just have two questions, if I can get to the second one even, 

however. I would like each of you to answer the following, beginning with you, Mr. Lowery: Given that the United States’ attempt 

to dissuade other major economies from joining the Asian Infrastructure Investment Bank led by China failed somewhat miserably, what strategy would you recommend that we pursue as a result of that? 

And I would like each of you to answer that question, if you 

would, please. 

Mr. LOWERY. In terms of the IMF, I think that I actually—I 

agree with most of what John Taylor said in terms of some of the 

reforms. 

I think that my own view is that the legislation should be written with conditionality into it, but I don’t think that I would hold 

back the authorization appropriations while we try to solve the 

problem that John is trying to get at. 

I think that should be part of the conditionality of the legislation 

and that the Treasury Department should work on behalf of Congress within the IMF to actually make the types of changes that 

John is talking about. 

So I think that is the way that I would try to approach it as opposed to taking two unilateral stands, which, obviously, in the 

Asian Infrastructure Investment Bank we did and failed. 

Mr. HECK. So if I heard you correctly, you would have Congress 

pursue that particular avenue of action. I guess the question, given 

that we haven’t been able to do that very well, is: Absent that, 

what should we do? 

Mr. LOWERY. I am here to say that I think that we, the United 

States, through the Congress, should be pursuing an action of supporting the IMF. I believe that strongly. I believe that can be done 

in a way that is conditioned. 

I remember sitting in the Executive Branch going through many 

conditions on the IMF, the World Bank, and many other different 

institutions in which we were able to meet the obligations that 

Congress set upon us. They were not easy, but that doesn’t mean 

we couldn’t do it. I think it can be done here. 

Mr. HECK. Professor Taylor? 

Mr. TAYLOR. I think the reform of the exceptional access framework—the United States would not be unilateral here. There is a 

lot of interest in doing this. 

As I mentioned in my testimony, the staff and the management 

of the IMF seem comfortable with it. So, in a way, it is—the expression is it is almost a slam dunk for the Administration to say, 

‘‘This is fine.’’ 

I don’t know what the members will do. I am not part of any negotiation. But this is something that several members seem interested in. It seems to me the Administration knows that they have 

15 

allies. The United States is influential, anyway, in these discussions. I think it could move very quickly. 

Mr. HECK. Ms. Lundsager? 

Ms. LUNDSAGER. Thank you. 

I would agree with what Mr. Lowery said, but I would hope Congress could move forward and approve these 2010 reforms and, at 

the same time, continue to work with the Administration as they 

work with the IMF to pursue reforms. I think it will be a challenge 

among the membership to come up with an agreement on how to 

deal with this going forward. 

And I think one of the difficulties will be, under this new framework the IMF is talking about, that the IMF, by standing back a 

bit and limiting its participation, will either be forcing the country 

into an immediate debt action when it may not be clear if it is insolvency or illiquidity and, at the same time, then looking to bilateral creditors to step up to the plate to fill up the remaining gap. 

And then I fear that the next crisis country that comes along 

would be a key U.S. ally and then the IMF will be turning to the 

United States. The United States Administration would have to 

come to Congress and seek the authorization and appropriation for 

bilateral support, which, as I recall, has been very difficult even for 

the very low-income countries such as Liberia or Haiti that we seek 

to support. Coming up with concessional resources for middle-income countries would be a real challenge. 

So I fear that the United States, as an official bilateral creditor, 

might be turned to in a bigger way and more frequently at a time 

when we have our own budget considerations and we are focusing 

on our other priorities. So I am not so sure this new framework is 

going to work out quite so smoothly. Thank you. 

Mr. HECK. To you, again, ma’am. I hope it is an easy yes or no— 

it is not, but I am going to do it anyway. 

Is there a point at which failure to enact reforms renders it all 

irrelevant because the fact of the matter is, other institutions will 

have developed over that period of time? How long before we are 

really in the pinch here because we haven’t acted? 

Ms. LUNDSAGER. I can’t really put a timeframe on it, but it is 

clear the BRICS, China, are moving ahead in a number of areas, 

whether it is balance of payments backstops for each other or the 

infrastructure and BRICS bank. The Chinese are asserting their 

global leadership. 

And I really think it would be terrible if the United States conceded that, when over the years, I found over my many years in 

government—that countries valued United States’ leadership and 

valued our participation in the international system and our engagement and our listening and our working out what the solution 

should be to different problems. And I think we should reassert 

that leadership by getting these reforms done. Thank you. 

Mr. HECK. Thank you for your forbearance, Mr. Chairman. 

Chairman HUIZENGA. The Chair has been rather generous, yes, 

with those, but I am happy to do so. 

With that, I would like to recognize Mr. Pittenger of North Carolina for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

And thank you to the witnesses for being here with us today. 

16 

I was troubled and really amazed last week, I guess it was, when 

I picked up the Journal and there was an article by the President 

of Greece rebuffing the European Bank for the reform demands 

that were being required of him. And I thought, how pompous: ‘‘I 

owe you money,’’ and yet, he had the ability to go back to them and 

say, ‘‘How dare you make those requirements.’’ I just imagine myself going to my banker to whom I owe money, and challenging my 

banker, ‘‘How dare you make these demands.’’ 

But it brought me to more a clear focus of a different person, 

Margaret Thatcher. She was in Charlotte some 20 years ago for a 

dinner to speak of the challenges that she met in Great Britain 

when she was Prime Minister and all the enormous amount of rebuff that she received and, really, difficulty in trying to bring restructure and reform to her government. Well, go 20 years further, 

nearly. 

A couple of years ago I was with a member of Labor, and we 

were riding in a bus out to Fenway Park. Joe Kennedy had invited 

us to come out there for dinner one night. And I just reluctantly 

brought up the name of Margaret Thatcher and wondering what 

she would say, knowing the darts would fly. And her comment was, 

‘‘God bless her. She saved our country. Without Margaret Thatcher, 

we wouldn’t be where we are today.’’ 

So I think my question is, the flexibility of exceptional access, 

has it created the lack of commitment to austerity reform? Has 

that flexibility created the lack of commitment or interest to pursue 

that, that they feel like, ‘‘Well, they gave me one time. They will 

be lenient again’’ and not make that full commitment internally to 

do what is necessary? Was that part of the case with Greece? 

You can each respond. 

Mr. TAYLOR. I think, briefly, the concern—it is sometimes called 

moral hazard—is that, if countries and their people recognize that 

there is going to be an increased chance to bail out, they will be 

more reluctant to make the reforms or the things that they need 

to do. 

I have always wondered how you prove that kind of thing, but 

I emphasize more the uncertainty that is caused by the lack of 

framework. 

I would say, in addition, it is not simply the exceptional access 

framework or not that is the situation in Greece now. There are a 

lot of other things happening. If you look at sort of the structural 

things the IMF wanted them to do, they make so much sense. They 

are really just moving towards more markets and less intervention 

by the government. 

And, of course, this government in Greece is not interested in 

that. And so I think that is really the problem. The structural reforms they have to do are clear, but they just don’t want to do it. 

Mr. LOWERY. If you don’t mind, I will weigh in for just 1 second. 

I think it depends on the case. Portugal and Ireland were in, not 

a similar situation, but a pretty bad situation just a few years ago. 

They have actually taken on very tough economic reforms in 

their countries and, frankly, if it wasn’t for Greece dragging down 

sort of the rest of Europe, people would be celebrating how far and 

how much progress Ireland and Portugal have made during that 

time. 

17 

So it is a tough argument. I think it is a good point that you are 

making about whether or not—if you put so much money on the 

table, do governments have a tough time taking those tough steps. 

I think it depends on the government. 

Mr. PITTENGER. Sure. Thank you. 

Ms. LUNDSAGER. Thank you. 

I would agree with what Mr. Lowery just said. And, frankly, I 

would also look to the countries that didn’t seek IMF programs, but 

undertook very strong reforms, such as Estonia & Lithuania, Poland & Slovakia, and some of the others in Europe who have really—look at Poland over the years without seeking IMF support, 

and they have done it because they think it is in their own interest 

and that it is important for their unity with the European Union. 

Mr. PITTENGER. Thank you. I yield back. 

Chairman HUIZENGA. The gentleman yields back. 

Mr. Kildee of Michigan has decided to pass. But I will recognize 

the ranking member again for 5 minutes. And we are going to start 

a second round as well. We still have a few more on our side. 

But, with that, Ms. Moore. 

Ms. MOORE. Thank you, Mr. Chairman. 

And, again, I thank the witnesses for sitting through a second 

round of questioning. 

Professor Taylor, I want to go back to you. You spoke in the first 

round about—we were finishing our discussion; I didn’t go any further—how Greece should restructure its debt, that is what they 

should have been required to do. 

And in the Wall Street Journal, you had an article talking about 

sovereign debt collective action clauses. And I guess I wanted you 

to expand a bit on these clauses. 

Let me tell you what the thrust of my question is. I am concerned that taking the board’s discretion away, not having any 

flexibility, will impede the operations, just is not workable. 

So under what circumstances should the IMF require restructuring versus kind of reprofiling a country’s debt? You say it should 

be part of a preset requirement. But what would be wrong with 

sort of a case-by-case basis within some framework? 

Mr. TAYLOR. A framework, in its own sense, has less case-by-case 

to it. There is a treatment of, ‘‘This is how we are going to treat 

people or countries in different circumstances.’’ It sort of lays out 

your strategy to do it. 

There are different cases. And whether that is sustainable or not 

sustainable, for example, that creates different cases. But you ask, 

‘‘How you are going to treat those different cases?’’ 

So there is flexibility in the sense you have laid out your strategy, but that is laid out in advance as much as you can so people 

can understand it and so we can assess whether it is working or 

not and see when there is exceptions to it. I think that is the way 

to think about it. 

There is always a sense in which, especially if you are in public 

policy, you would like to have—you would like to get around that 

framework, you would like to, for some reason, do it differently. I 

have been there myself. I know what happens. Somebody gets a 

call from somebody who says, ‘‘Look, something is wrong here. Our 

bank is in trouble. Could you help us out?’’ 

18 

And you want to be able to resist that because, no, you have your 

principles, you have your rules, you have your strategy in place. If 

it becomes all tactics, it becomes hopeless. So I think that is the— 

Ms. MOORE. But the whole point of this hearing is to talk about 

moral hazard versus contagion. And I guess I am concerned that 

completely abandoning the new regime that is being proposed 

would, of course, help us avoid more moral hazard, just to say, ‘‘We 

are not going to lend to you.’’ 

But I guess, Ms. Lundsager, Mr. Lowery, do you think that 

would increase the contagion? 

Ms. LUNDSAGER. Thank you. 

I would be a little bit worried because I fear that, if they set this 

in place, there is going to have to be some sense to the market and 

everyone what is the number, what is the debt-to-GDP number 

that is going to be the cutoff. 

We have the Maastricht numbers in Europe of 60 percent, and 

we have seen how well that has worked. But we don’t know, really, 

what is sustainable in countries. 

And so, in Ukraine, they have set a goal of 70 percent of GDP. 

In Greece, the goal was set at 120 percent of GDP. How do we 

know what exactly is sustainable and what is unsustainable? 

And my fear is that U.S. authorities would be faced with the situation of a country saying, ‘‘No. I am going to take the measures. 

I am going to adjust. I want to honor my debt.’’ 

Brazil did this in the early 2000s. They were not going to restructure, even though market commentators all over the place 

were saying Brazil would have to restructure. They did not restructure. They had a fund program. They drew on it. They adjusted 

and turned things around. 

And so it is very hard, if you have someone like that calling the 

White House and saying, ‘‘No. I am not going to restructure my 

debt. The fund is pushing me into something that is not needed,’’ 

for the United States bilaterally to resist that—right?—if it is a key 

U.S. ally. So I think we need to keep the flexibility. Thank you. 

Mr. LOWERY. On my part, I—you are talking about a very, very 

tricky issue, which is the nuances of moral hazard and the nuances 

of contagion. 

I am not a humongous believer that there is moral hazard to 

countries. I am a believer that there is moral hazard to lenders and 

to investors. But could there be contagion? I think the answer is 

yes. 

But that does not mean that we should have the exceptional access—or systemic exemption for the exceptional access does strike 

me as a loophole that is extremely large. 

And so I would want to tighten it up, whether it is going back 

to the proposal that John Taylor is talking about, going to the proposal IMF staff is pushing. I would want to close it up a bit because of that worry. 

Chairman HUIZENGA. All right. The gentlelady’s time has expired. 

And, with that, I need to correct a slight misstep on my part. We 

are supposed to go through an entire round first before we recognize Members a second time. 

Ms. MOORE. You are so kind, Mr. Chairman. 

19 

Chairman HUIZENGA. I am here for you, Ms. Moore. 

So, with that, I would like to recognize the new member of the 

committee and the subcommittee from Minnesota, Mr. Emmer, for 

5 minutes. 

Mr. EMMER. Thank you Mr. Chairman. And thank you to the 

ranking member and the panel. Thank you for being here. 

I think I will be brief. It is interesting getting up to speed. And 

I appreciate the information and all the background materials. 

The IMF, along with the World Bank and the World Trade Organization, have all been around for 70-some years. The IMF had a 

different initial purpose that changed in 1973, primarily, when we 

adopted a new system of floating exchange rates. And I think today 

this institution plays a major role in monitoring the economic and 

financial policies of member countries. 

I think, Mr. Lowery, you started off by saying there are three 

specific tools: technical assistance; surveillance; and lending when 

necessary. It caused me to wonder about the surveillance piece. 

Where are we at today? And this is for all of you. 

But if surveillance has been a tool of the IMF since the 1970s, 

maybe even before, since the beginning, why wasn’t the alarm bell 

sounded well in advance of the Asian crisis? Why weren’t we given 

warnings through the IMF about the crisis in 2008? 

We have talked plenty about Greece. But could you just, amongst 

the three of you, whomever wants to address where is the surveillance at, why didn’t it work back then, or maybe it did work and 

we just didn’t hear about it, and what needs to happen in the future? 

Mr. LOWERY. My own view is the surveillance piece of what the 

IMF does is probably the most important piece. It is the least 

talked about in some respects because there is not really money involved. 

But in terms of getting it right and understanding exactly whether or not a country is on the verge of catastrophe financially, it is 

a hard thing to do. Markets don’t get it right. And there is, obviously, people making a lot of money out there thinking about this. 

And official sector actors don’t get it right. 

But I think that the IMF does a pretty good job of looking at a 

number of countries as to why they didn’t get this right or that 

right. I think that, one, sometimes their advice is not listened to, 

so that can’t be on the IMF; and two, sometimes they just get it 

wrong. 

There are good economists there, but at the same time, it is hard 

to see, sometimes, where the crisis is going to come from. We look 

at our own country. We have how many people surveil, analyze, 

think about the U.S. economy? Only a handful got it right back in 

2006 and 2007. 

Mr. EMMER. Which I appreciate. 

Professor Taylor and Ms. Lundsager, please take the next step. 

But you had two major ones in the late 1990s and then 2008. We 

weren’t just talking about one country. We were talking about a 

whole bunch. 

The question is, why? And what has been done to, hopefully, improve that so it doesn’t happen in the future? 

20 

Mr. TAYLOR. I think the surveillance with respect to other countries is important to think about, not just the major countries. And, 

also, that verges into this third role of technical assistance, which 

I think is very important. 

There are a lot of countries that just don’t know about even 

budgeting or about monetary policy. And so there is actually good 

advice that can be conveyed. 

I actually think that, in a way, maybe there should be a fourth 

category. It is possible to have programs without loans. It is something called a program support instrument, I believe. 

But it is effectively like an IMF program where you lay out, 

‘‘Here is our’’—it may be like a debt reduction strategy. It may be 

a way to get inflation down, whatever it happens to be. But the 

IMF works with a country. But it doesn’t have to be a loan. 

Frequently the loan is the way they engage, but there are other 

ways to do it, which I would prefer. You engage with them and you 

help them. And there are people who haven’t really haven’t done 

much before. And the IMF does have expertise on that. 

Ms. LUNDSAGER. Thank you, John, for mentioning the policy support instrument. I agree that has been very important and countries have liked that. 

In terms of the IMF engaging in surveillance, what has been 

really important is that the IMF has conversations with officials, 

the annual article IV review, and will raise its frank concerns. 

So, in 2008 and 2007, it was raising concerns in the United 

States about the subprime loans, even though the broad view 

across the Federal Reserve System, across many commentators, 

was that, ‘‘Oh, we can handle this. These loans are a small part 

of our mortgage side.’’ 

Well, it turns out it wasn’t such a small part, and it was a problem. But at that point, there wasn’t agreement that it was going 

to blow up the way it did. 

So the strength of the IMF is to bring issues to the fore and to 

raise them with the country authorities and to say, ‘‘You really 

ought to be worried. We see imbalances emerging here that—perhaps you are seeing your debt having to be more and more short 

term. You are not able to issue longer term debt in an emergency.’’ 

So I think the IMF has done a very good job on that. But sometimes that is more private than public because the IMF, of course, 

doesn’t want to be the cause of a crisis by saying, ‘‘Oh, it is headed 

your way.’’ 

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

Chairman HUIZENGA. The gentleman’s time has expired. 

With that, we recognize the gentleman from Arizona, Mr. 

Schweikert, for 5 minutes. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

In a small attempt to sort of go on the theme of the hearing, the 

moral hazard, I would like to do this slightly more conversationally, because I want to sort of do the ‘‘Wayback Machine,’’ for the 

last 25 or 30 years. 

From the 1980s to the 1990s, being someone who was very interested in the Tequila Crisis, when the Asian tigers—having been in 

Thailand, visited it on my way to India, when all hell was breaking 

loose. 

21 

What countries through IMF and other bilateral agreements kept 

their promises, demonstrated a level of discipline? And where did 

we create almost a cycle where, once again, we see Argentina unavailable for comment or constantly—so walk me through this. 

And then, as we are doing this, I have always had a concern 

about some of the debt swap mechanisms, particularly when it is 

private capital being swapped out, and making sure that it does 

not become sort of a bailout mechanism for either bad credit decisions or large industries or large banking institutions that are ultimately swapping their debt position for what eventually is taxpayer money from around the world. 

Mr. Lowery, could you start with this, what has worked and 

what hasn’t and debt swaps? 

Mr. LOWERY. I think that what works usually is when the countries themselves make the reforms. It is not about the IMF imposing those reforms. The IMF will try to impose those reforms as part 

of its conditionality. 

But when the countries start adapting those reforms—you pointed to Mexico back in the Tequila Crisis. The Mexican authorities 

took very, very difficult steps over the next few years after the crisis, in 1994 and 1995, to the point where the ruling party lost its 

power in 2000 for the first time in 70 years. 

Mr. SCHWEIKERT. But that also had an additional—was it $50 

billion through U.S. taxpayers? 

Mr. LOWERY. Yes. 

Mr. SCHWEIKERT. Managed by the IMF, but— 

Mr. LOWERY. No. No. The IMF did not manage. The taxpayer 

money— 

Mr. SCHWEIKERT. I thought that the $50 billion came from a special— 

Mr. LOWERY. The exchange stabilization fund within the Treasury Department. 

Mr. SCHWEIKERT. But those dollars were managed through the 

IMF, I thought. 

Mr. LOWERY. No. That was actually managed through the Treasury Department. 

Mr. SCHWEIKERT. Okay. 

Mr. LOWERY. It is one of the few times that the Treasury Department actually kind of worked almost like the IMF during a crisis. 

Another example would be Korea back in 1997. An example I 

know that John worked on very closely, which would have been 

Uruguay. So during the Argentina crisis, which you mentioned, 

Uruguay also went through a crisis. 

Mr. SCHWEIKERT. Because of the limits of time, your model basically is, when the countries produce the list of reforms themselves, 

we have better outcomes? 

Mr. LOWERY. Yes. When they are very serious about— 

Mr. SCHWEIKERT. Professor Taylor, tell me, what has worked out 

there, what hasn’t, and your vision of what— 

Mr. TAYLOR. I agree with that part for sure. 

I think there are other things. That is the nature of the engagement. I like to compare Russia in 1998, where there was contagion. 

That decision was a shock, not to continue funding. It had to do 

with politics, a concern about the nuclear arsenal, et cetera. It 

22 

wasn’t really an economic decision. And there seemed to be a lot 

of contagion. 

Then you move 3 years later. And while Argentina was a problem, there wasn’t contagion when it defaulted. It was really zero. 

And that is, I think, because the nature of our engagement was 

very clear, what we were going to do, when we were going to do 

it. 

And, also, there was the sense of trying to help Uruguay and 

Brazil nearby. So you had another way rather than just to do the 

bailout. So I think the nature of the program matters, too. 

Mr. SCHWEIKERT. Ms. Lundsager? 

Ms. LUNDSAGER. Thank you. 

I think the ultimate goal or the immediate goal to fund programs 

is for countries to adjust enough, restore confidence, and resume 

borrowing from private markets. 

And I think we have had a number of successes in that case. And 

we have seen it in Europe, successes in terms of Ireland and Portugal turning things around. 

Mr. SCHWEIKERT. If I were to look at our last 25 years of history 

of participation, what would you consider our greatest failure and 

our greatest success? And what was the difference? 

Ms. LUNDSAGER. I would say our greatest success is managing to 

convince the world that we still believe that being multilateral is 

important, that the United States is deeply engaged. 

Mr. SCHWEIKERT. I was trying to get it down to a country level. 

I know that is more uncomfortable. I am trying to understand— 

Ms. LUNDSAGER. I would say Mexico. 

Mr. SCHWEIKERT. So Mexico post-1994? 

Ms. LUNDSAGER. Yes. 

Mr. SCHWEIKERT. And what do you believe is our greatest failure? 

Ms. LUNDSAGER. What is going on in Greece right now is a failure on the part of Greece and a failure on the part of everyone else 

as well to be able to put this together. 

Mr. SCHWEIKERT. Any quick comment in my last couple of seconds on my debt swap concern? 

Ms. LUNDSAGER. I’m sorry. I didn’t quite understand what you 

meant by debt swaps. 

Mr. SCHWEIKERT. The IMF comes in, provides a bilateral loan, 

and it is often used to pay off or move money around to pay off 

other obligations that are privately held. 

Ms. LUNDSAGER. Yes. At times, the Fund does help countries 

honor their current obligations, and that can include paying off 

some of the private debts. 

But, as I said, the goal is to restore enough confidence that in 

a very short amount of time those private creditors do come back 

to the country. 

Mr. SCHWEIKERT. I yield back, Mr. Chairman. 

Within that, should be a conversation of what haircuts should be 

required by all participants. 

Thank you, Mr. Chairman. 

Chairman HUIZENGA. The gentleman yields back. 

23 

I will note that you have definitely gotten the attention of every 

intern on Capitol Hill, talking about haircuts and tequila crises. 

There is great worry happening here on Capitol Hill. 

With that, the Chair recognizes the gentleman from New Mexico, 

Mr. Pearce, for 5 minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. 

I appreciate each of you being here. 

The Wall Street Journal said earlier this year, I think it was, 

that the IMF departed from its own regulatory rules and limits in 

order to make loans to Greece. 

Is that a fair characterization, Ms. Lundsager? 

Ms. LUNDSAGER. Thank you. 

That was what we have been talking about in terms of the IMF 

changing the exceptional access rules when the staff and management asked the board to approve the program in May 2010. 

Mr. PEARCE. I found that amazing. Earlier this year, I asked Secretary Lew that same question, and he said that he didn’t believe 

they had changed anything, that they were acting with the same 

rules as before. I found that to be an amazing statement. 

What impact is the failure of Greece to pay earlier this week or 

whenever it was they didn’t make their payment—what impact is 

that going to have? Mr. Taylor, I would look at you on that. What 

is the impact going to have worldwide on the confidence in the system? 

Mr. TAYLOR. It is very unusual to do this, although, technically, 

they can bundle, as I understand it. If they really completely go 

into arrears, then that is really damaging to the IMF. And I hope 

that doesn’t happen, but it is on its way. 

It is actually, I think, for me, in our discussion an illustration of 

some of the problems I think you get into when loans are made to 

countries whose debt is just not sustainable. I wouldn’t say I want 

to blame all this on that. There are obviously many other things. 

But I look back at what if, in 2010, there was then a serious restructuring of Greece as part of that loan. It would have made it 

much easier for Greece to start making the adjustments. 

But it was delayed, and then they had a restructuring. And it 

was sort of part of—people hoped that would be enough, and they 

said it wasn’t enough. 

So I think addressing the problem at the time would have made 

a difference. And it is a counterfactual. You don’t really know. 

But I think, to me, it is an example of why you need those frameworks and why changing them, especially at the same time you 

make the deal—that is probably the most disturbing. 

Mr. PEARCE. Thank you, sir. 

Ms. Lundsager, I have read reports. I don’t know if it is accurate 

myself. But in the surveillance of country policies, one of the reports is that Greece is having trouble because up to 40 percent of 

their population just refuses to pay the taxes that they owe. In 

other words, it is well-characterized. 

Is that report somewhat accurate? 

Ms. LUNDSAGER. IMF staff reports have highlighted the problems 

with revenue collection, and that has been an element of the program from the beginning. 

24 

So the Greek authorities are working on making the revenue administration more independent and doing a better job to have their 

own citizens— 

Mr. PEARCE. And my quandary is that the average pay in my dis- trict is probably $31,000 to $35,000, and I have to go back to that 

district and explain to them why I should use their money to pay 

for people who refuse to pay their own taxes to bail them out. 

And I understand what you are saying, that the entire world system is kind of on thin ice and, if we don’t do anything in the 

Eurozone, then we have spreading problems. But, to tell you the 

truth, people just barely making ends meet in New Mexico, they 

could hardly care, and I am not sure I am willing to make the case 

to them. 

So I just— 

Ms. LUNDSAGER. I insisted on improving tax collection in every 

statement I have made on the Greek programs. Absolutely. 

Mr. PEARCE. I appreciate it. 

Mr. Lowery, one of the things that I see a lot in the press about 

is that the IMF has recast itself, that they were facing the 

irrelevancy, or whatever words that one of you used in your testimony, and that one of the things they are doing in this reinventing 

is placing themselves where they can become the world’s reserve 

currency with the SDRs and getting some gold to back that up. 

Is that a real possibility, in your opinion, that becoming the 

world’s reserve currency— 

Mr. LOWERY. No. 

Mr. PEARCE. Ms. Lundsager? 

Ms. LUNDSAGER. No. 

Mr. PEARCE. Mr. Taylor, how about you? 

Mr. TAYLOR. No. 

Mr. PEARCE. You don’t think it is a possibility? 

Mr. TAYLOR. The SDR is a different— 

Mr. LOWERY. The SDR is a reserve asset for how the IMF moves 

money among its members. It has nothing do with how you and I 

go buy a candy bar. We are not using an SDR. 

Mr. PEARCE. Have you seen those reports that are saying that 

they are positioning themselves to take the place of the United 

States when people lose confidence in our currency? 

Mr. LOWERY. I haven’t seen those reports, and I wouldn’t put 

much stock in them. 

Mr. PEARCE. Okay. All right. I see my time has elapsed, Mr. 

Chairman. I yield back. 

Chairman HUIZENGA. The gentleman yields back. 

And still seeing no additional new Members on the Democrat 

side, we will continue with our side for our first round. 

Mr. Guinta from New Hampshire is recognized for 5 minutes. 

Mr. GUINTA. Thank you very much, Mr. Chairman. 

Professor Taylor, you touched on something a little bit earlier 

that I am interested in. When I go back and look at the categories 

of focus of the IMF—lending, technical assistance, and surveillance—you touched on what I think you referred to as possibly a 

fourth area, what you called program support. 

That is something I am very interested in because I subscribe to 

the notion that—as Mr. Pearce was saying, this concern that conVerDate Nov 24 2008 18:20 Feb 10, 2016 Jkt 096996 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 K:\DOCS\96996.TXT TERI
25 

stituents have about utilizing taxpayer money to bail out people in 

foreign countries. 

So it lends to the argument or the discussion of, how do we 

change the mission or modify the mission of the IMF? So you 

touched on it a little bit. 

But could you talk about, in the context of trying to keep balance 

within the financial world, what program support without a loan 

program could look like and how that would differ from what we 

are doing relative to, say, Greece: when we bail out, they fail to 

make a payment and you see front page news as a result of it? 

Mr. TAYLOR. Actually, it has been done, a policy support instrument. I guess the word is policy, not program, support instrument. 

And the goal is to have the same kind of program you would 

have as if you gave a loan to a country, with payments and 

tranches and all that, except you wouldn’t have that. You would 

engage—you could think of it in our context. 

I just testified at the Budget Committee this morning. As you 

know, the resolution has a 10-year program to reduce the deficit to 

zero in 10 years. So that is like a policy. 

And so now you consider another country wants to implement 

such a policy and the IMF helps them with it. And they don’t have 

to give them a loan to do it. They just help them with it. They 

maybe have meetings at certain dates. They have benchmarks to 

make. And it can work very well. 

Traditionally, that has been done in the context of a loan. But 

you really don’t need a loan in many cases. And the loan kind of 

screws things up. So often debt becomes a major problem in our engagement. 

So I think it is a great idea. I hope they do more of it. 

Mr. GUINTA. Should we be considering what the debt-to-GDP 

ratio is in how we—and I want to ask this of Mr. Lowery—how we 

consider the countries to which the IMF loans? 

Mr. LOWERY. Yes. I think that is a helpful statistic in terms of 

trying to figure out the debt sustainability of a country. 

And this goes towards kind of the aspect of, if a country gets into 

a balance-of-payments problem—so not the policy support instrument you guys were just talking about, but an actual balance-ofpayments problem—one of the measurement tools that the IMF 

will be looking at is: What is their debt-to-GDP? What does their 

debt profile look like going forward? What is their stock-to-debt 

going forward? They are trying to make a judgment: Is this a liquidity problem or do they have a solvency problem? 

And that, I think, should help you make an argument as to what 

could the IMF do to help in that situation and do you need to go 

to a situation where the IMF can do something, but they can’t do 

all of it. And so there needs to be some debt reprofiling or debt restructuring or what have you. 

Mr. GUINTA. So in the circumstance of Greece, would you identify 

Greece as more of a solvency problem than a liquidity problem? 

Mr. LOWERY. Yes. And I think the IMF would say that, too. And, 

remember, Greece has gone through two sections of—in 2010, it 

was IMF money plus European money on the table. In 2012, it was 

more IMF and European money, but also they restructured and 

26 

took a big haircut, to use the words that were used earlier, on private sector creditors. 

And now we are in a situation where the only creditors left, pretty much—I think it is about 80 percent—are official sector creditors. And you do see reports out of the IMF that they think European members are going to have to potentially take a haircut themselves going forward. 

Mr. GUINTA. What is the debt-to-GDP ratio for Greece? Do you 

know? Rough guess. 

Mr. LOWERY. I am guessing it is about 175 percent. 

Mr. GUINTA. Okay. So I think I heard Ms. Lundsager say earlier—I don’t want to put words in your mouth, but I thought you 

said something like it is sort of difficult to specifically pinpoint 

what that ratio should be. 

But I think it is probably fair to say, logically, people would 

argue that kind of ratio is excessive and it is not liquidity, it is solvency. So it would stand to reason that a program support approach, in my view, would make more sense in the context of 

Greece, at least at that level. 

Is that fair to say, Ms. Lundsager? 

Ms. LUNDSAGER. I think that is a possibility, where the IMF 

could be there providing advice and helping put the overall economic policy program together. 

And then the Europeans and the private sector, through a debt 

operation, would provide the financing. That certainly is a possibility. 

Mr. GUINTA. Thank you. 

Chairman HUIZENGA. The gentleman’s time has expired. 

We are going to go into round two. And as I have been consulting 

with my good ranking member, she has slid into that round two 

before we were supposed to. Mr. Heck is choosing to pass at this 

point. 

So going into round two, I am going to take my 5 minutes. I may 

not use it all. But I wanted to touch on a couple of quick things. 

Just as I have been listening through all this, I am curious, Dr. 

Taylor, in your view, returning to Greece and sort of the systematic 

exemption here, what would have happened had the IMF not 

stepped in? Would the EU and the ECB have really picked up that 

slack, in your opinion? 

Mr. TAYLOR. I think it is quite possible. Early on, the Europeans 

said they didn’t want the IMF in. The president of the European 

Central Bank, Jean-Claude Trichet, originally had that position. 

So at the time of 2010, I wasn’t in the room, but my sense is the 

Europeans could very well have started providing loan support. It 

may have been that they would have asked the IMF to monitor. 

It wouldn’t have been called a policy support instrument, but the 

IMF could certainly have monitored the framework and the conditions. But I think that is one possibility. 

The Europeans talk most about the spillovers. I think a lot of 

their banks were holding the Greek debt at the time. So they would 

be talking their banks’ books, so to speak. I wasn’t in the room. I 

don’t know for sure how that worked. 

But another possibility would be very straightforward, saying, 

‘‘Look, the debt is not sustainable. There are a lot of people in the 

27 

private sector who are holding this debt. If we are going to put 

some new money in, the private sector has to think about 

reprofiling or more, restructuring.’’ 

And that is kind of the ideal, really. That is really what the exceptional access framework—if it is working well, that is what you 

would want to have happen, because you don’t want the public sector just to bail out. 

In the banking area, we call this bail-in. Right? The Europeans 

call it bail-in now. We want some bail-in in these cases as well. So 

I think that is the ideal. 

Chairman HUIZENGA. Do you believe that it was maybe more of 

an intent that the Europeans had a belief that, with the IMF getting involved, that they would come in and sort of play bad cop to 

their good cop with Greece? 

Mr. TAYLOR. I don’t know. I’m sorry. 

Chairman HUIZENGA. All right. I want to touch a little bit on 

Ukraine and support of the IMF that they have. 

Last week IMF stepped in and said it may go ahead with a $1.7 

billion payment to backstop the country, even though the Fund has 

been wary about lending to countries that are in arrears with private creditors. 

And, obviously, Ukraine has a certain strategic importance to us 

and to Europe and the Europeans. And I am curious, any of the 

three of you, how you view the IMF’s involvement in Ukraine so 

far? Any of the three of you feel free to jump in. 

Mr. TAYLOR. Let me say this is part of a broader context, and 

Ms. Lundsager also referred to this. There is always a strategic aspect of our engagements with countries. And sometimes there will 

be a strategic aspect of another country’s engagement, maybe an 

African case for Europe. 

And I think it is really important to try to distinguish those as 

much as you can. Sometimes it is going to have to be there. But, 

ultimately, some of those things are going to have to be bilateral 

rather than use the international institution. 

I think the Uruguayan thing is very complicated because it has 

both strategic and serious economic issues. You just have to be 

wary of those circumstances. The exceptional access framework is 

a way in which you can bring the economic considerations in more 

rather than the political ones. I think that is generally healthy. 

You can’t do it all the time. 

Ms. LUNDSAGER. Thank you. 

I was just going to add that, on Ukraine—and I am not part of 

this decision-making, but I suspect the point is to indicate that the 

IMF and the community—the executive board representing all the 

countries wants to continue to support Ukraine so it can take the 

measures it is starting to take, reforms that are very much needed, 

and to keep the pressure on the private sector to come to the table 

and reach terms on finding a way to work and reduce the debt burden that Ukraine is facing. 

So I think that is why the IMF is going ahead, because Ukraine 

is still working with the creditors, consulting and negotiating, but 

the intent is to keep the country going, too. 

Mr. LOWERY. The only thing I was just going to add is I think 

Ukraine is a very difficult circumstance. IMF is putting money in. 

28 

They are actually taking a lot of the type of actions that John Taylor has talked about, which is they are actually saying, ‘‘We need 

you to do a debt restructuring with your private creditors,’’ which 

they are trying to do. And they are taking significant reforms, the 

Ukrainian Government. 

The biggest problem Ukraine has is Russia. That is creating 

huge, huge financial and economic pressure. So they can be taking 

lots of reforms, but they have this significant problem right next 

to them. 

Chairman HUIZENGA. Okay. My time has expired. 

With that, I will recognize our Vice Chair for a second round, Mr. 

Mulvaney. 

Mr. MULVANEY. Just a few things. 

Professor Taylor, to follow up on a question that the chairman 

asked you, you mentioned that when the Greek crisis originally 

started, the Europeans had expressed some concern about the IMF 

getting involved. 

Do you have any insights as to why they were apprehensive 

about that? 

Mr. TAYLOR. I really don’t. I think the issue was—remember, the 

IMF lending to these developed countries is quite unusual in recent 

years. Emerging markets have been the focus. 

In fact, the exceptional access framework had—so, in a sense, the 

Europeans I think originally were saying, ‘‘This is our problem. We 

don’t want the IMF here. The IMF is for those guys who are problem guys,’’ Latin America or something. 

I think that was the concept that they had. I don’t think I know 

for sure, but that is my sense, that, ‘‘We will handle this,’’ but then 

it just got too big. I’m not sure. 

Mr. MULVANEY. Ms. Lundsager, you were involved at that point. 

Correct? 

Ms. LUNDSAGER. Yes. In Greece, yes. 

Mr. MULVANEY. Any insight as to why the Europeans—same 

question to you. I am just trying to get a feel for the lay of the land 

in 2010, I guess. 

Ms. LUNDSAGER. Again, I wasn’t directly in the conversations 

with the European leaders. But I understood that, initially, they 

felt that, if it is the Eurozone, they should solve the problem themselves, which, of course, many of us fully supported. 

But I think, in the end, what happened was the Europeans realized they are going to need a real adjustment program in Greece 

and that it was very difficult for the Europeans to do that bilaterally, to impose that kind of conditionality. 

And, furthermore, for them to come up with the financing all on 

their own meant—and it did initially as well with the EFSF—they 

had to go back to each one of their individual Parliaments for approval. So it took a while to— 

Mr. MULVANEY. It took some time. 

Ms. LUNDSAGER. Yes. It took some time. 

So I think, in the end, they realized they needed the IMF because the IMF can move quickly and pull together the resources. 

Mr. MULVANEY. Coming forward to an issue that I think Ms. 

Moore raised regarding bailouts, you mentioned bail-in, Professor 

Taylor. The money ultimately ended up where? 

29 

At the beginning of the crisis, most, a majority—I don’t remember the percentage—of the Greek debt was held by private financial 

institutions, Ms. Moore. At the end, it had been socialized, held by 

governments and by the IMF. 

It strikes me that what the IMF did is bail out the private banks 

in Europe. Am I wrong about that? The money certainly didn’t go 

to the Greek people. And to the extent it went to the Greek government, it was immediately paid to the private money center banks. 

Correct? 

Mr. TAYLOR. I think that is a good way to describe it. It is not 

perfect. Bailout is an ambiguous term. But I think that is right. 

Originally, you had a lot of private sector holding debt, and now 

you have a lot of public sector holding debt. So it does look like— 

I think the word ‘‘swap’’ was used earlier. 

Mr. MULVANEY. And I know she has to leave. But I do hope that 

our Democrat colleagues understand that some of us have a problem with that and that, if we are looking to reform the IMF, it may 

be to prevent circumstances like that. 

That is a very different thing for the IMF to do. If they were 

lending money to a Third World country, to an undeveloped nation, 

that really wouldn’t be as much as an issue as they are when they 

are lending to either emerging economies or even more so to developed economies. 

So, anyway, I am starting to get a little sidetracked on various 

issues. Thank you very much for your time. 

I yield back. 

Mr. LOWERY. Can I just make—there is one slight amendment in 

that— 

Mr. MULVANEY. Sure. 

Mr. LOWERY. —in 2012, Greece did work with the IMF and there 

was a fairly significant haircut to a number of private creditors. So 

I don’t disagree with the premise of your question in the 2010. But, 

in 2012, there was actually—a lot of private creditors took a major 

haircut on their claims. 

Mr. MULVANEY. Thank you, Mr. Lowery. 

And thank you, Mr. Chairman. 

Chairman HUIZENGA. The gentleman yields back. 

And we have had votes called. We are going to try and quickly 

get in one or two more, if that is okay with the panel. 

And, with that, I would like to recognize Mr. Pearce from New 

Mexico for 5 minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. 

Kind of following along the same line—you may have already answered. I apologize. I have been in and out—there is generally a 

truism in business that when the bank loan gets big enough, they 

no longer have a loan. They have a partner. 

Was there a conversation like that in the IMF as we are going 

up to lending to Greece, that we are lending at 3,200 percent of 

their quota share? Was there any conversation in the room? 

Ms. Lundsager, I think you would be the one who might have 

been there. 

Ms. LUNDSAGER. Thank you. 

30 

We were all very aware that it was a large number in terms of 

percent of quota. In terms of Greece’s GDP, it was maybe around 

12 percent of Greece’s GDP. 

And, of course, earlier we had done some fairly large programs. 

The Uruguay program was about 18 percent of GDP. And I always 

preferred that metric because quotas could be very much out of line 

in terms of a country’s real economic situation. 

So, yes, all board members were very well aware of how big the 

program was. But it was the sense that—and I went back and 

looked at the discussion and what I said. But at every board meeting I insisted that the Europeans reconfirm their support for their 

Eurozone partner, which they did. 

Mr. PEARCE. They did give that support? 

Ms. LUNDSAGER. They did give that support. Of course, it is conditioned on the Greek authorities adhering to their program. 

But my bottom line is I still feel that it is very much the European responsibility to ensure that Greece honors its obligations to 

the IMF. 

The IMF has been a supremely valuable institution for Europe 

not just in the Eurozone, but in European engagement with countries around the world. So I do look to my former European colleagues, their governments, to make sure that this problem is resolved. Thank you. 

Mr. PEARCE. You had also mentioned that you had insisted that 

adjustments be made in the way that the Greek authorities collect 

their taxes. 

Ms. LUNDSAGER. Yes. 

Mr. PEARCE. You went ahead and voted for the transfer even 

though I don’t think they have made much progress in collecting 

those taxes. 

But you voted for the loan. 

Ms. LUNDSAGER. Yes. I voted for the loan, and I did support the 

reviews that came along the way, again, because the Greek authorities were committing to taking measures. They would have 

taken some parliamentary actions and were committing to take additional measures. 

We did start to see some improvements in some of the numbers, 

even though I think many of us were hoping that there would have 

been quite a bit better performance. 

Mr. PEARCE. Okay. If the performance stays roughly the same as 

it is and the question came up again and they maybe weren’t making their payments and asked for more money, would you still vote 

for it? 

Ms. LUNDSAGER. Well, no. If a country is not making its payments to the IMF, basically, it can’t draw on the IMF. And, frankly, Greece hasn’t been able to draw this past year while this program review has been under negotiation. But any country in arrears to the IMF cannot draw. 

Mr. PEARCE. Let’s say that they make the payment that was due. 

Let’s say they make that, but they have not made the internal adjustments. 

Because I asked the German Bundestag or Bundesrat, whichever 

was here, ‘‘How long will your people tax themselves more in order 

to pay for the people who refuse to pay their own taxes?’’ 

31 

They understand that is a ticking bomb that they are going to 

have to deal with at some point because the Germans appear, when 

I visited there last, that was getting to be softer ground, that total 

commitment to the idea that we are going to hold the Eurozone, 

no matter the pain, was being felt at the ballot box. And that was 

the ultimate test. 

So if they made their payments and they had not made significant changes in their internal collections, would you still vote then 

if they were asking for more? 

Ms. LUNDSAGER. It would depend on the constellation of what 

they were proposing they would do. 

Mr. PEARCE. Fair enough. 

I yield back, Mr. Chairman. 

I appreciate the input from all of the panelists. Thank you very 

much. 

Chairman HUIZENGA. The gentleman yields back. 

And, with that, we have about 8 minutes left to go in our vote, 

so I am going to call an end to this hearing. 

I just would like to say thank you to each of our witnesses for 

their testimony today. 

The Chair notes that some Members may have additional questions for this panel, 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 these witnesses and to place their 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. 

And with that, this hearing is adjourned. 

[Whereupon, at 3:37 p.m., the hearing was adjourned.] 

(33) 

A P P E N D I X 

June 17, 2015 

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