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THE IMPACT OF THE WORLD BANK 

AND MULTILATERAL DEVELOPMENT 

BANKS ON NATIONAL SECURITY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INTERNATIONAL MONETARY 

POLICY AND TRADE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

SEPTEMBER 21, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–64 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON INTERNATIONAL MONETARY POLICY AND TRADE

GARY G. MILLER, California, Chairman 

ROBERT J. DOLD, Illinois, Vice Chairman 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

BILL HUIZENGA, Michigan 

CAROLYN MCCARTHY, New York, Ranking 

Member 

GWEN MOORE, Wisconsin 

ANDRE ́ CARSON, Indiana 

DAVID SCOTT, Georgia 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

September 21, 2011 .......................................................................................... 1 

Appendix: 

September 21, 2011 .......................................................................................... 21 

WITNESSES 

WEDNESDAY, SEPTEMBER 21, 2011 

Lago, Hon. Marisa, Assistant Secretary for International Markets and Development, U.S. Department of the Treasury ........................................................ 7 

Howard, Rear Admiral Michelle, Chief of Staff to the Director, Strategic 

Plans and Policy, J5, The Joint StafF ................................................................ 9 

APPENDIX 

Prepared statements: 

Lago, Hon. Marisa ............................................................................................ 22 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Miller, Hon, Gary: 

Written statement of Daniel F. Runde, Center for Strategic and International Studies (CSIS) ................................................................................ 26 

Written statement of Ambassador Mark Green (Ret.), U.S. Global Leadership Coalition ................................................................................................ 33 

Written statement of Alan Larson, Covington & Burling LLP .................... 40 

Joint Treasury/Department of Defense letter dated September 21, 2011 ... 48 

Memo to the Secretary of the Treasury from the United States European 

Command, dated July 25, 2011 ................................................................... 50 

Memo to the Secretary of the Treasury from the United States Transportation Command, dated May 10, 2010 ........................................................ 52 

(1) 

THE IMPACT OF THE WORLD BANK 

AND MULTILATERAL DEVELOPMENT 

BANKS ON NATIONAL SECURITY 

Wednesday, September 21, 2011 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON INTERNATIONAL

MONETARY POLICY AND TRADE, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:05 p.m., in room 

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

of the subcommittee] presiding. 

Members present: Representatives Miller of California, Dold, 

Huizenga; McCarthy of New York, Carson, and Scott. 

Ex officio present: Representative Frank. 

Chairman MILLER OF CALIFORNIA. Today’s hearing is entitled, 

‘‘The Impact of the World Bank and Multilateral Development 

Banks on National Security.’’ The hearing will come to order. 

Without objection, all members’ opening statements will be made 

a part of the record. 

We are going to limit the opening statements to 10 minutes per 

side as previously agreed to by the ranking member and myself. 

I recognize myself for an opening statement. 

Today’s hearing is focused on the impact of the World Bank and 

the multilateral development banks (MDBs) on U.S. national security. The Treasury Department has requested authorization for the 

United States to make a payment for a capital increase at the 

World Bank, the Inter-American Development Bank, and the African Development Bank. The Administration also requests authorization for callable capital at these institutions and for the European Bank for Reconstruction and Development. 

This is the third hearing in our subcommittee’s consideration of 

these authorization requests. Our first hearing looked at the leadership role of the United States at the MDBs. Under Secretary 

Brainard testified that the leadership position the United States 

currently has at these institutions brings great influence and, in 

some cases, veto power over decisions. If we do not authorize and 

fund these requests, the U.S. share will diminish, impacting our 

leadership and influence at these institutions. Our second hearing 

focused on the impact of MDBs on U.S. job creation. The hearing 

focused on how the MDBs helped open markets and spur privatesector-led economic growth and employment in the United States. 

The hearing today will focus on how World Bank and MDB assistVerDate Nov 24 2008 16:28 Feb 28, 2012 Jkt 072605 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\72605.TXT TERRIE
2 

ance to middle-income and poor countries around the world contributes to U.S. national security. 

Our hearing comes as we mark the 10th anniversary of the September 11th attack on our Nation. This sober anniversary reminds 

us of how critical it is to do what we can to guard our national security. Today, we are focused on the effect of lending and grantprovidings at MDBs in middle-income and poor countries on the 

U.S. national security. We want to understand how MDB assistance helps developing countries become stable nations that can 

counteract the proliferation of terrorism and other threats to the 

United States. 

We hope the hearing will focus on the following: the role of the 

MDBs and their relevance in today’s world, specifically the impact 

the MDBs have on U.S. national security; how the MDBs’ support 

for vulnerable nations around the world has helped to foster U.S. 

partnerships in addressing global threats; an example of MDBs creating the conditions for long-term stability and economic development in vulnerable nations that are important to our U.S. national 

security; how the impact of U.S. leadership in the MDBs is ensuring that projects help to address urgent global threats and safeguard national security; and the consequences for global and U.S. 

national security of any reduction in the amount requested by the 

Administration for the MDBs or any delay in meeting the U.S. 

commitment to the MDBs. 

We hope to hear more about MDB support in the Middle East, 

including Afghanistan and Iraq, and in North Africa, particularly 

how the MDBs support stability and help prevent emerging threats 

and conflicts. And we are quite pleased to have the Rear Admiral 

with us today to discuss how the MDBs complement military operations to promote regional stability, which contributes to U.S. national security. 

These funding requests to capitalize the MDBs come at a time 

when our country is focused on getting our own massive debt under 

control. While the United States has national security interests in 

continuing to assist emerging economies implement economic, political, and social reforms, it is important to understand the costs and 

benefits of doing so. This is the purpose of this hearing. 

Our series of hearings on the Administration’s request are intended to help us assess the benefit of MDBs, given the current fiscal challenge that we are facing today. 

Before we begin, we would like to point out that our hearing was 

originally scheduled for last week. Unfortunately, a meeting of the 

full committee caused our hearing to be bumped to today. We had 

an excellent second panel, who unfortunately are not able to join 

us today. We really appreciate the time they spent preparing for 

the hearing and the insight they offered to us in their written remarks. I plan to invite them back at our next hearing on this matter, which we anticipate to be held later this month. 

Without objection, I would like to insert their written testimony 

into the record. First, the Honorable Mark Green, former U.S. Ambassador to Tanzania and a Member of the U.S. House until 

2008—he was part of my class. In fact, he served right here on the 

Financial Services Committee. Mr. Green currently is the senior director of the U.S. Global Leadership Coalition. 

3 

Second, Mr. Daniel F. Runde, the chair of global analysis and the 

co-director of the Project on U.S. Leadership and Development at 

the Center for Strategic and International Studies. Mr. Runde was 

the head of the foundation unit at the International Finance Corporation of the World Bank Group. Before that, he served at 

USAID as the director of the U.S. Office of Global Development Alliances. 

And third, Ambassador Alan Larson, senior international policy 

advisor at Covington & Burling. Ambassador Larson served for 32 

years as a career diplomat in the U.S. Foreign Service Office. He 

was Under Secretary of State for Economic and Business Affairs 

for 3 different Presidential Administrations: Bush 41, Clinton 42, 

and Bush 43. He also served as the alternate governor of the 

United States to the World Bank and to several regional development banks. 

I honestly regret that these witnesses are not here today. Their 

insight was very, very good, and we would love to have had that 

made a part of the testimony. But we will have them at a future 

hearing. 

And I yield to the ranking member, Mrs. McCarthy. 

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

holding this extremely important hearing on the role of the World 

Bank and the multilateral development banks with respect to the 

United States’ national security. 

With the remembrance of the 10th anniversary of the 9/11 attacks still fresh in our minds, it is fitting that we are holding a 

hearing to learn more about the role of the MDBs as it pertains 

to our national security agenda. The multilateral development 

banks play a vital role in combating global poverty and providing 

basic infrastructure needs for developing countries that are vulnerable to the spread of terrorism. 

The President’s May 2010 National Security Strategy Report 

supports renewal of U.S. leadership in the multilateral development banks and the IMF, recognizing that engagement investments in these institutions is a means to strengthen the global 

economy, lifting people out of poverty and securing fragile states. 

Creating conditions within developing countries that foster longterm security and economic development will enhance the United 

States’ national security initiatives and renew our commitment to 

human dignity, enabling people all over the world to access the 

basic necessities so many of us take for granted. 

Maintaining our commitment to the MDBs, as well as coordinating holistic government support, will further our mission to rid 

fragile nations across the globe of corruption and violence and 

bring principles of good governance and democracy. 

I recognize that we are faced with extremely difficult financial 

challenges in this country. As we work to address those challenges, 

we must remain committed to our national security. The United 

States commitment to the MDBs provides us the tools to promote 

peace and stability throughout the world and combat conflict 

through development and diplomatic investments. No doubt, the resources we use to honor our commitment today will bring far greater cost savings in the future and buy American security and economic prosperity. 

4 

I thank the witnesses for coming today, and I look forward to 

your testimony. 

Chairman MILLER OF CALIFORNIA. Vice Chairman Dold is recognized for 4 minutes. 

Mr. DOLD. Thank you, Mr. Chairman. 

Secretary Lago, Rear Admiral Howard, I certainly want to thank 

you for taking the time to come and speak with us today about a 

very important topic. 

And, Mr. Chairman, I want to thank you for holding this hearing 

on how multilateral development banks impact our national security interests. 

This past summer, Chairman Miller held hearings that focused 

on the domestic economic benefits of fully funding our MDB commitments and thereby maintaining our leadership in the multilateral development banks. As we learned at those earlier hearings 

and as our business leaders have repeatedly emphasized, maintaining American MDB leadership is vital to promoting American exports, job growth, and economic prosperity. 

I am confident that we have broad bipartisan agreement that 

fully funding our MDB leadership commitments will cost-effectively 

promote meaningful domestic job growth and economic expansion. 

But MDB participation and leadership also promotes our equally 

important national security interest, which is the focus of today’s 

hearing. 

General David Petraeus and Commander Duncan McNabb, as 

well as Admiral James Stavridis, have previously written letters 

emphasizing the importance of American MDB leadership to the 

national security interests of our Nation. I am pleased that Rear 

Admiral Howard and Assistant Secretary Lago are here in person 

to elaborate more fully on this topic. 

But any time we discuss MDB funding, or any other spending for 

that matter, we should expressly acknowledge that we are now facing very difficult economic fiscal realities. And especially with this 

economic and budgetary environment, every dollar counts, and 

Americans are entitled to understand the economic and national 

security benefits that they receive for these MDB contributions. 

It is very important that we accurately and clearly communicate 

how much we actually spend on MDB contributions in exchange for 

these benefits. As I have mentioned before, these actual MDB funding costs are far less than widely believed. A recent poll indicated 

that Americans believe that the Federal Government spends close 

to 25 percent of its budget on foreign aid. When asked how much 

we should actually be spending, they said, maybe about 10 percent. 

In actuality, we only spend approximately 1 percent of the Federal 

budget on all foreign aid. And only a small fraction of that 1 percent would fully fund our MDB commitments and maintain the 

MDB leadership. 

All of us—the Administration, Congressional Democrats and Republicans—must more effectively communicate the actual amount 

that we spend on foreign aid generally and on the MDBs in particular. Fully funding our MDB commitments will actually cost far 

less than we have led many Americans to believe. 

We simply cannot have any meaningful impact on our deficits 

and national debt by relinquishing American MDB world leaderVerDate Nov 24 2008 16:28 Feb 28, 2012 Jkt 072605 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\72605.TXT TERRIE
5 

ship to China and other emerging nations. But relinquishing that 

leadership will diminish our economic prosperity and, I would 

argue, our national security interests as well. 

At the same time, for countries that receive MDB funding, we 

should have some basic standards, like cooperating with national 

and international security efforts, honoring valid U.S. court judgments and international arbitration orders. 

With all of that in mind, I look forward to hearing our witnesses 

elaborate on how we can effectively utilize our MDB dollars, not 

only for economic benefits but, more specifically today, for our national security interests. 

With that, Mr. Chairman, I yield back. 

Chairman MILLER OF CALIFORNIA. I would like to recognize the 

ranking member and former chairman of the full committee, Mr. 

Frank, for 3 minutes. 

Mr. FRANK. Thank you. 

To begin, I want to note that the chairman of this subcommittee 

and the ranking member of this subcommittee, Mr. Miller and Ms. 

McCarthy, have worked very constructively together in a bipartisan way, which is why the media has paid no attention, of course, 

to what they do, because good news is no news. 

But these are topics that could be contentious. This subcommittee has jurisdiction over these international financial institutions and has jurisdiction also over the Export-Import Bank. 

There has been a great deal of constructive work done. And this 

hearing is an example. 

I was pleased to hear the previous member talk about our national security interest here. Frankly, I and some others are critical 

of some of the money we are spending currently—for instance, in 

Afghanistan. A very small percentage of that money made available for the multilateral development banks could do more, I think, 

to protect our security. 

And I also want to say that one of the things that is very helpful 

is that, when I began working on these institutions earlier, there 

was a great deal of contention because they were seen as having 

a very rigid ideological view about the countries they dealt with. 

I congratulate the leaders of the World Bank and the International 

Monetary Fund and the other banks; they have gotten much more 

flexible. I think things have worked much better. No more pictures 

of international financial institutions standing, arms crossed, over 

a foreign leader, as we saw, although it was with the IMF and not 

one of these. 

And I am particularly pleased that we had comments from General Petraeus, and that we have comments today again from people 

in the military. This does protect our national security in a very, 

very real way. And it is also something about which we can feel 

good. It is the most efficient use, I believe, of our dollars to alleviate misery in the world. And if you are going to alleviate misery 

while at the same time protecting security, advance human 

progress while making the world more stable, that is a pretty good 

bargain. 

So I close as I began, Mr. Chairman, by thanking you and the 

ranking member for the very thoughtful and constructive way in 

which you have worked together. 

6 

Chairman MILLER OF CALIFORNIA. Thank you, Mr. Frank. 

And expanding on that, I think we probably set a record on the 

Ex-Im Bank markup, between Mr. Frank and Ms. McCarthy. We 

worked very well together and turned out a very good bill. I hope 

we win in the Senate on our version. And I want to thank you for 

that. 

I recognize Mr. Scott for 2 minutes. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Developing countries represent a unique challenge to multilateral development banks due to the fact that they often are severely 

lagging in several statistical indexes—namely, gross domestic product, life expectancy, and the rate of adult literacy. And each of 

these factors contributes to the nation’s economic development and 

to its long-term stability. For these reasons, investment in MDBs 

in developing countries can yield benefits for the nations receiving 

aid and for those providing the assistance. Progress in these areas 

better allows for rule of law and for stability in developing countries’ economies.. 

National security is also a consequence of increased aid to these 

nations when targeted toward a country’s specific challenges. One 

example of this is a $40 million equity participation in the African 

Agriculture Fund (AAF), approved by the African Development 

Bank. AAF is designed to respond to the food crisis that severely 

impacted the continent of Africa in 2008 in the wake of escalating 

food prices and stable export bans. The increased support to AAF 

is part of a coordinated reaction in preventing the crisis from reversing decades of progress, of growth, and investment in Africa. 

This increase of support for the AAF targets one of the most important issues for Africa today, and that is food security. 

I believe that MBDs’ support for developing countries can be 

highly effective, and their ability to do so is paramount. So I look 

forward to finding out how Congress may continue to support the 

work, particularly in the AAF. Thank you again to the witnesses 

for your testimony today and for answering our questions. 

And thank you, Madam Ranking Member and Mr. Chairman. 

Chairman MILLER OF CALIFORNIA. Mr. Carson, you are recognized for 2 minutes. 

Mr. CARSON. Thank you, Mr. Chairman. 

I want to first thank the chairman again for this hearing. Strategies and tactics employed by the World Bank and multilateral development banks and their approach to implementation of programs are of utmost importance, especially as they relate to national security. I am indeed interested in learning more about the 

impact the World Bank and MDBs have on national security. I believe it remains in the interest of the United States to continue to 

promote international peace and democracy. 

I agree with many of my colleagues that we need to cut our deficits and carefully examine our budget needs. However, this should 

not be carried out in an irrational manner, particularly as international aid is often linked closely with our national security. 

International aid gives the U.S. political and diplomatic leverage, 

as well as leverage over the formation of democratic institutions. 

By continuing to provide funding, the United States can continue 

7 

to have a major role in increasing democratic ideals abroad and 

create an environment that strengthens democratic principles. 

Although I do agree that investments in MDBs help to advance 

the national security and economic interests of the United States, 

I want to ensure the money is actually going to the promotion of 

national security initiatives, while preventing financial instability. 

I applaud the Bank for its work over the years. The World Bank 

holds an important role over many aspects of the global economy 

and U.S. relations in general and around the world. 

Again, I am pleased the chairman has chosen to hold this hearing, and I look forward to the testimony of the distinguished 

guests. 

Thank you, and I yield back. 

Chairman MILLER OF CALIFORNIA. Thank you. 

I would like to welcome our witnesses today. 

The Honorable Marisa Lago is the U.S. Department of the Treasury’s Assistant Secretary for International Markets and Development. Secretary Lago directs Treasury’s portfolio on trade and development policy, exercising financial and policy oversight of the 

multilateral development banks to ensure that U.S. contributions 

are used effectively to deliver development results and technical assistance. 

Welcome. It is good to have you here today. 

We are honored to have Rear Admiral Michelle Howard with us 

today. Rear Admiral Howard is the Chief of Staff for the Director 

of Strategic Plans and Policy for the Joint Staff. Admiral Howard 

supports the Director of Strategic Plans and Policy, enabling the 

Chairman of the Joint Chiefs of Staff to provide military advice to 

the President, the Secretary of Defense, and the National Security 

Council. 

Admiral Howard is a graduate of the Naval Academy and holds 

the distinction of being the first African-American woman to command a naval ship. 

Congratulations. That is quite a distinction. 

I understand it is extremely rare for a senior military officer to 

appear before this committee. We very much appreciate your willingness to testify today so that we can understand the national security benefits of development assistance. Please know that we will 

strive to keep the dialogue focused narrowly on the intersection of 

development assistance and national security. 

Rear Admiral Howard, I know you don’t have a written statement today. 

Without objection, Secretary Lago’s written statement will be 

made a part of the record. 

You are recognized for 5 minutes each, but I am going to be very 

generous in the 5 minutes because we only have two witnesses. 

And, Honorable Ms. Lago, you are recognized first. 

STATEMENT OF THE HONORABLE MARISA LAGO, ASSISTANT 

SECRETARY FOR INTERNATIONAL MARKETS AND DEVELOPMENT, U.S. DEPARTMENT OF THE TREASURY 

Ms. LAGO. Thank you so much, Chairman Miller, Ranking Member McCarthy, and distinguished members of the committee. It 

truly is a pleasure to be able to testify here before you today. 

8 

As both Chairman Miller and Ranking Member McCarthy mentioned, the 10th anniversary of September 11th reminds us that 

our safety and security rests on the dual objectives of defeating the 

dangers that we face today while preventing and deterring the 

threats of tomorrow. 

I will briefly discuss three reasons why the multilateral development banks are fundamentally important for our national security 

and why we should meet our commitments to these institutions. 

First, the multilateral development banks, which we call the 

MDBs, support stability operations in weak states that are central 

to American security. Afghanistan is a prominent example. In Afghanistan, the World Bank and the Asian Development Bank are 

the second- and fourth-largest donors, and they work closely with 

the United States and other donor nations to build critical infrastructure, like the Ring Road and the Uzbek-Afghanistan railroad. 

MDB investments in Afghanistan are rebuilding nearly 2,000 

miles of roads so that our security forces can access remote regions 

of the country. The MDBs are rehabilitating irrigation systems that 

serve more than 1.6 million acres of land so that staple crops like 

wheat, maize, and barley can compete against the lucrative lure of 

crops like opium. And MDBs are expanding the rail transport network so that Afghanis can access routes for national and for international trade. 

These investments by the MDBs in Afghanistan’s stability and 

reconstruction have already generated 2 million days of employment for unskilled laborers in Afghanistan. They have markedly increased the crop yields for poor farmers. These actions help us to 

undermine the recruitment efforts of the opium cartels and of the 

terrorist organizations. 

The MDBs are also supporting the economic transition that we 

now see unfolding across the Middle East and North Africa. They 

are also helping to build stronger countries in fragile places, like 

Haiti and Sudan, which could otherwise spawn terrorism, violence, 

drug trafficking, and refugee flows were these countries, these fragile states, to collapse. 

The second way in which the MDBs contribute to our national 

security is by providing the most powerful financial leverage of our 

entire foreign aid portfolio. The multiplier effect of our capital contributions, which take place every 10 to 20 years, is a great example. The last time that the United States contributed capital to the 

World Bank was a vote by Congress during the Reagan Administration in 1988. That $420 million contribution catalyzed $383 billion in the next 20-plus years. This is an 800-to-1 leverage ratio. 

And while the number itself is dramatic, we believe that the results on the ground are even more powerful. That 1988 investment 

helped underwrite the successful transition of the former Eastern 

bloc countries from communism to open democracies and to open 

markets. 

Finally, our international leadership, which is a key component 

of national security, is at stake if we don’t meet our commitments 

to the multilateral development banks. At the World Bank, we are 

at risk of losing our unique veto power over changes to the Articles 

of Agreement. These Articles of Agreement govern critical issues 

9 

such as membership in the bank, the leadership of the bank, and 

the composition of the board. 

Were we to miss our payment deadline at the African Development Bank, we would effectively forfeit our single seat on the board 

of directors. We would need to be sharing it as part of a constituency with other countries. 

At the European Bank for Reconstruction and Development, we 

would fall from the single largest shareholder to number six. And 

this would be occurring at the time that this institution, at the urging of the United States, is poised to play a vital role in the Arab 

Spring. 

And across all of these institutions, were the United States to 

cede its shareholding by not meeting our commitments, we know 

that China and other emerging donors stand ready to purchase our 

shares. And they would be strengthening their influence at the 

same time that ours would be waning. 

We believe that these pending requests to recapitalize and replenish the multilateral development banks are of the highest priority and serve as a cornerstone of America’s national security 

strategy. 

Thank you. 

[The prepared statement of Assistant Secretary Lago can be 

found on page 22 of the appendix.] 

Chairman MILLER OF CALIFORNIA. Rear Admiral Howard, you 

are recognized for 5 minutes. 

STATEMENT OF REAR ADMIRAL MICHELLE HOWARD, CHIEF 

OF STAFF TO THE DIRECTOR, STRATEGIC PLANS AND POLICY, J5, THE JOINT STAFF 

Admiral HOWARD. Thank you, Chairman Miller, Ranking Member McCarthy, and distinguished members of the committee for allowing me the opportunity to appear before you today. 

Our combatant Commanders and the Chairman of the Joint 

Chiefs of Staff have been united in stressing the vital role of the 

multilateral development banks, the role that they play in the 

whole-of-government approach to ensuring our Nation’s security. 

The former Commander of Central Command, General Petraeus, 

and the Commander of Transportation Command, General 

McNabb, highlighted the importance of the Asian Development 

Bank and its efforts in Afghanistan. They stated that their support, 

the Asian Development Bank’s support, to ongoing projects is vital 

to the success of U.S. strategy in the theater and across the region. 

Admiral Stavridis, the current European Command Commander 

and former Commander of SOUTHCOM, outlined the importance 

of the role of the Inter-American Development Bank in Latin 

America, the Caribbean, and across the region during his time at 

Southern Command. As one example, the Admiral emphasized the 

IADB’s central role in mobilizing international support for proven 

poverty-alleviation programs that directly contribute to local and 

regional stability by assisting more than 6 million families in need. 

The Department of Defense sees a clear linkage between the four 

pillars of our national security strategy—security, values, prosperity, and international order—and the assistance provided by the 

multilateral development banks. The U.S. Government’s security 

10 

cooperation efforts rest on a stable, prosperous, and coherent partner nation to enable engagement across the elements of our national power. 

In our military/security role, we view these instruments as force 

multipliers for the Department of Defense across the full spectrum 

of operations, whether it is recovering from humanitarian and foreign disaster relief efforts such as those following last year’s earthquake in Haiti or severe flooding in Pakistan, to major combat operations in the stability phases, such as those in Iraq and Afghanistan. 

As we carefully shift our major combat engagements toward longterm partnership and cooperation efforts across the whole of government, the multilateral development banks can play an even 

greater role helping to restore stability, prosperity, rule of law, and 

good order to these nations. 

From my perspective, there are two things that the banks bring, 

that our whole-of-government effort brings. In the Department of 

Defense, we are here to fight and win our Nation’s wars. I am sure 

you have heard many leaders say the best war is the one you never 

fight. And so when you have stable and secure countries, they are 

less likely to go into conflict. And when you have secure and stable 

countries, you often don’t have to deal with transnational crime. 

And that allows the Department of Defense to focus on its core mission. 

But also, then, when we have to fight and then you want to help 

rebuild that country, our role is to help set the security so that we 

can help the country reconstruct. We have great expertise in terms 

of doing fundamentals like training police and securing the locals. 

But when it comes to governance, when it comes to infrastructure, 

it is not the Department of Defense that is going to put power grids 

in place or build roads. And it is that permanent infrastructure 

that allows a country to become stable, that facilitates the economy, that facilitates trade, that facilitates education of the people. 

And it is that infrastructure that allows for the people to have a 

decent life, to feel secure, and to have good governance. And so 

there is this complementary effort, working with our interagency 

partners, that has to go on in order for us to come out of that security role and return home. 

I hope my participation today will provide the information and 

insight that the committee seeks, and I hope it will be helpful in 

determining its course of action regarding these institutions. So 

thank you again for allowing me this opportunity to appear. 

Chairman MILLER OF CALIFORNIA. Thank you, Rear Admiral 

Howard. 

There is a lot of debate around Congress about downsizing government and avoiding spending dollars in areas we don’t really 

need to spend them. And one question that is asked of me is, since 

we are in tough economic times, why is it important for the United 

States to remain in a leadership role in the MDBs; why can’t we 

just be another member country? I would like to hear your opinion 

on that question. 

Ms. LAGO. Gladly. 

Obviously, we are very aware of the challenge of these economic 

times. And we actually think that needing to stretch every dollar 

11 

further argues in favor of supporting the multilateral development 

banks. 

As I mentioned, they leverage our dollars in two different ways. 

One is that each dollar that we contribute brings in dollars from 

other donor nations, so our dollars are combined with those from 

the other major donors. In addition, these are banks, and so they 

lend out funds for development-oriented projects, but, as the funds 

are repaid, they are then available to be lent out again. 

And so we think that, as an economic proposition, the MDBs are 

the most highly leveraged form, the most cost-effective form of foreign financial assistance that we can provide. 

Chairman MILLER OF CALIFORNIA. We have seen a lot of unrest 

in Libya, for example. Other countries, such as China, would like 

to take our position in many areas. 

Rear Admiral, have you seen much of an influence of China in 

Libya, for an example? 

Admiral HOWARD. Particularly in this job, where I have had a 

global perspective, it has become clear to me that just as we are 

globally dispersed, China is globally dispersed. And I have come to 

believe that where we are, there is China; where we are not, there 

is China. And as we were monitoring the collapse of Libya, it was 

striking to discover that the Chinese had to evacuate 30,000 citizens, because they are ubiquitous throughout particularly Africa. 

They will go in and provide projects on their own terms, where 

they—for example, we visited the African Union. They were building the African Union a new headquarters. But when they come in, 

they bring in their own labor, they bring in their own materials, 

and they completely control all the construction, which means 

there is no benefit to the local economy when they do something 

like that. 

And then, often, when they come in to do something like mining 

in a country, they will make sure that it is on terms where they 

are able to extract the natural resources, and the country no longer 

has the benefit of those natural resources. 

So they come in and use their influence differently, and not necessarily always to the benefit of the country. 

Chairman MILLER OF CALIFORNIA. If we decided not to contribute 

our full share, and Russia and China decided to, how would you 

think that would impact our long-term national security? 

That is a tough question, I know, but it is a real— 

Admiral HOWARD. It is a fair question, yes. 

Chairman MILLER OF CALIFORNIA. —issue that could occur. 

Admiral HOWARD. As our interagency partner, whatever DOD 

needs to do, wherever we are, and if we are in an area like Afghanistan or Iraq and we need to help stabilize, as our interagency partner, we in that agency can go to Treasury. Then there is this voice 

in the multilateral banks that says, ‘‘We need to help bring roads 

and infrastructure, and we need focus on this country.’’ So their 

ability to support us is there. 

If there is no U.S. voice, I don’t know, as a member of DOD, that 

their ability to support us is there. They have the ability to say, 

‘‘This is important, this country is in need, and it aligns with the 

work that DOD does.’’ If Russia or China have a greater say, as 

I have watched even in the last year in this job, how U.N. voting 

12 

goes, it is clear we have different desires and outcomes for what 

goes on in a country. 

Chairman MILLER OF CALIFORNIA. Thank you. 

Ms. Lago, would you like to expand on that? 

Ms. LAGO. Yes. If I could build on the Admiral’s comments, it is 

impossible to travel in Africa without seeing the presence of China. 

During my travels to Ethiopia, to Tanzania, to Ghana, one sees the 

Chinese road projects with Chinese labor on them. 

And, as the Admiral mentioned, the approach to development is 

different. In many of the countries in which the MDBs—and I will 

focus particularly now on the African Development Bank—in many 

of the countries in which it operates, the African Development 

Bank’s projects are the high-water mark of transparency, of good 

governance, of accountability, of anti-corruption measures. This is 

important for the projects themselves, but also for the countries 

themselves, that they see this example of how development should 

occur. 

I will use a very, very current example of South Sudan. One 

looks at this new country that has its entire development future 

ahead of it. It is a country that is rich in a natural resource. And 

as we, as the African Development Bank, as the World Bank looks 

at how we would assist this nation, there will be a focus on public 

financial management, on transparent accounting for the oil revenues. 

And so, were we to cede our voice in the MDBs, we would lose 

our ability to influence the direction of development in countries 

that are so important to our national security, both for the promise 

that they hold going forward, but also, as the Admiral mentioned, 

if these countries decay, it then becomes a problem for the United 

States and, in particular, for our military. 

Chairman MILLER OF CALIFORNIA. Thank you. 

Ranking Member McCarthy, you are recognized for 5 minutes. 

Mrs. MCCARTHY OF NEW YORK. Thank you, Mr. Chairman. 

And I thank the witnesses for your testimony. 

Listening to you—I was going to ask Admiral Howard to follow 

up on—but I think now this question that I am formulating actually would go to both of you. 

As we are withdrawing our troops in Afghanistan—I have been 

to Afghanistan several times. And from what I saw on my first trip, 

which was many years ago, up to more recent trips, the infrastructure of the country, in my opinion, was amazing, but we still have 

a long way to go. 

I guess the question I am asking is, if we do not get the money 

that is needed for the World Bank, and if we cannot do the work 

that the security and the Department of Defense needs to do, 

where do you think this country will go in the future? 

Because I have been following it, and you are absolutely right 

that people don’t understand that China is sometimes right behind 

us, and sometimes they are in front of us. And they have a strategy 

to go in, take the minerals, take the resources, and the country will 

be left with nothing. 

So please go into a little bit more detail on why, with our leadership, we need to pay our dues and why it is so important that the 

American people understand that this is something that we can’t 

13 

really fool around with. This is about our values, this is about our 

leadership, and it is at stake. And it is something that we need to 

do. 

Admiral HOWARD. Thank you, ma’am. 

Both of you—Chairman Miller and you—both talked about 9/11. 

And you have to think about Afghanistan and the way the country 

was in order for al Qaeda to go in there and have a safe haven. 

So when you don’t have good governance, when you don’t have respect for rule of law, when you have ungoverned territories, those 

areas have a tendency to become safe havens for people who would 

do ill against this country. 

My job is to protect this homeland. During my career time, many 

of the threats for this homeland come from far away. And now we 

live in an era where people are willing to travel and do many 

amazing things to attack this country. And so, every time you have 

a country that is not stable, it is going to be a breeding ground. 

The worst case is terrorists, but what about transnational crime? 

And when you have a country where criminality forms because 

there is not good governance, that, too, ends up drawing in DOD, 

even when we are not pulled into conflict. In 2009, I was the 

counter-piracy task force commander. Somalia is a failed state. 

This is not about—we are not fighting a war in Somalia, but we 

sure are off the shores fighting crime. And we have to be there. I 

was the task force commander during Maersk Alabama. That is an 

American citizen that we rescued. 

But think about it. We are now committing ships to fight pirates 

because of a failed state and because the piracy is a criminal endeavor. How much better, then, if we didn’t have to commit those 

ships and they could be doing other missions—ballistic missile defense? 

So, in either case, whether that area becomes a haven for terrorists or a breeding ground for criminals, in many ways it either becomes a threat to this country or it pulls DOD away from a more 

focused area in protecting this country. 

Thank you. 

Ms. LAGO. If I could build on the Admiral’s comments by focusing 

specifically on Afghanistan, in my opening remarks, I mentioned 

the Ring Road and the Afghan-Uzbek railroad. Those are two connections that are critically important for military purposes and also 

for the civilian population to have an alternative to the opium 

trade. 

But there are other initiatives that are under way that go toward 

this longer-term building of a state. One that I would highlight is 

the power rehabilitation project. People in Kabul can now take for 

granted that they have reliable electrical power—something that 

we just take for granted in the United States, that we take for 

granted in developed nations. 

A second project is focusing on the rural areas of Afghanistan, 

which is the largest part of the country, and it is called the National Solidarity Project. This touches 70 percent of the rural communities and sets up local community councils, which then focus on 

very small-scale, very local infrastructure projects, many of them 

having to do with access to drinking water. Through this National 

Solidarity Project, we are putting in place the roots of a governVerDate Nov 24 2008 16:28 Feb 28, 2012 Jkt 072605 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\72605.TXT TERRIE
14 

ment in a country that didn’t have just this basic system of community organizing. 

So those are two examples in which we are preparing the country, in which the MDBs are preparing the country for life after 

military engagement. 

And, again, as I had mentioned in my opening statement, the 

World Bank is the second-largest donor in Afghanistan after the 

United States. The Asian Development Bank is the fourth-largest. 

And we are able, the United States is able, because of our large 

ownership share, because of our influence in these organizations, 

to direct their resources to Afghanistan and also to Pakistan— 

areas that are of key importance to us from a national security perspective. 

Mrs. MCCARTHY OF NEW YORK. Thank you. 

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

Mr. DOLD. Thank you, Mr. Chairman. 

Secretary Lago, I would like to, if I could, spend some time on 

Argentina. I know that certainly some of my colleagues—Mr. Manzullo, Mr. Carnahan, Mr. Mack, and many other Members—as well 

as many Americans across the land share my concerns about Argentina and any similarly situated countries receiving MDB funding. 

Many of us believe that MDB funding recipients should have 

some respect for the rule of law—Admiral, you talked about that 

a little built earlier in some other testimony—and should be cooperating in our national and international security efforts. 

My understanding is that the Financial Action Task Force has 

routinely given Argentina very poor operations for any anti-moneylaundering controls and terrorism-financing controls, to the point 

that task-force member governments have argued that Argentina 

should be blacklisted, along the lines of Iran and North Korea. 

And after intentionally defaulting on its sovereign debt, my understanding is that Argentina is now contesting roughly 170 related lawsuits and refuses to honor over 100 related U.S. court 

judgments. Finally, I understand that Argentina has ignored valid 

international arbitration awards that were rendered by the World 

Bank’s dispute resolution panel, even though Argentina had previously agreed to comply with those arbitration orders. Meanwhile, Argentina holds well over $50 billion in reserves and 

has also received many billions in MDB funding. Clearly, this Argentina situation just doesn’t make sense to many Members of 

Congress and, I would argue, doesn’t make sense to many Americans who understand what is going on. 

So could you please let us know what the Administration is doing 

to help prevent MDB funding for countries like Argentina who repeatedly ignore the security obligations, who have defaulted on sovereign debt, even though they have the ability to pay, or who have 

refused to honor U.S. court judgments and valid arbitration 

awards? 

Ms. LAGO. Thank you, Congressman, for raising the issue of Argentina. We share the very serious concerns that you raised about 

Argentina’s actions in a variety of areas, including its failure to 

honor its ICSID awards—that is, the World Bank arbitration procVerDate Nov 24 2008 16:28 Feb 28, 2012 Jkt 072605 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\72605.TXT TERRIE
15 

ess that you had mentioned. But we also share concerns about the 

country’s unwillingness to engage with its creditors, its unwillingness to engage with international institutions. We find Argentina’s 

approach particularly troubling because, if you look at Argentina’s 

per capita income, it falls squarely within the ranks of middle-income countries. 

In light of these concerns, the United States will oppose lending 

to Argentina in the two MDBs in which Argentina participates— 

that is, the World Bank and the Inter-American Development 

Bank. We will make exceptions in those rare circumstances when 

the proposed loan would be targeted very effectively and very narrowly on very poor and vulnerable populations, because we don’t 

believe that they should be suffering because of their country’s activities. 

We already put this policy into practice. On the 14th of September, a proposal came before the Inter-American Development 

Bank. It was a proposal for a $230 million loan. It was called the 

Provincial Agricultural Services Program, a pretty traditional type 

of loan program for the IDB. It would have been focused on boosting productivity in the agricultural sector. We voted ‘‘no’’ to send 

a message of our concerns about this. 

We will continue to vote ‘‘no’’ for loans to Argentina in the MDBs. 

And we will look forward to engaging with other donors who may 

share our concerns to send a message that we value ICSID, and we 

believe that countries need to live up to their international obligations. 

Mr. DOLD. I thank you, Madam Secretary. And I certainly hope 

that message is getting through loud and clear to Argentina and 

other nations that are not standing up to their obligations. 

I would like to, if possible, kind of change the direction to just 

a different region of the world right now. My understanding is that 

the MDBs are poised to approve about $2 billion in new infrastructure lending to Egypt in the next year. 

Obviously, with what has been going on in Egypt as of late, the 

situation in the Middle East, certainly with one of our—I would say 

our one true ally in the Middle East, with the State of Israel, and 

the idea that Egypt potentially is rattling its saber, saying it might 

not hold the treaties that it has held for the last 3 decades with 

the State of Israel, what role can the MDBs play and the United 

States influence in the ability for infrastructure lending to make 

sure that they are obligated to or encouraged to hold their end of 

the bargain on those treaties and help, I believe, keep peace in the 

Middle East? 

Ms. LAGO. As you mentioned, both the United States and the 

MDBs are very focused on the emerging Arab Spring, with Egypt 

and Tunisia obviously being the first two of the countries. 

The MDBs have pledged significant amounts, far in excess of 

what the United States bilaterally could, to these countries. But we 

are working very closely to assure that the funds are part of a 

transition within these countries, that the funds will lead to 

growth, sustainable growth, and economic opportunity across the 

spectrum. The funds are not going out all at once. We recognize 

that in both countries we are currently dealing with transitional 

16 

governments. And so the MDBs will continue to engage, as the 

United States is bilaterally. 

A key part of what the MDBs bring to a region like the Middle 

East, like Egypt in particular, is expertise. It is not just the dollars, 

it is the know-how—the know-how with respect to governance, the 

know-how with respect to public financial management. And they 

also bring an approach to development that relies on, or is based 

on, anti-corruption measures, transparency in how funds are spent, 

accountability for development impact. And I believe that all of 

these will be sending the right message to the Egyptian authorities 

and, ultimately, to the elected Egyptian Government. 

Mr. DOLD. Thank you. 

My time has expired, Mr. Chairman. 

Chairman MILLER OF CALIFORNIA. It looks like we have a vote 

coming up, but we have a little more time. I will give myself a few 

minutes, and we will try to give each of us a couple of minutes and 

see if we can get another round of questions in. 

Country-specific questions: If we, let’s say Egypt, we are dealing 

with infrastructure lending in the next year. Tunisia, fast disbursing budget support to assist the government reform. In Libya, 

the World Bank recognized the Transitional National Council, 

Libya’s interim anti-Qadhafi government, as the Libyan Government authority under the World Bank’s de facto government policy. 

In Haiti, we are promoting development of an international relationship based on the natural disaster they have incurred. And in 

Africa, humanitarian aid in Africa that is going on. 

How, specifically, do you believe in the long run that benefits this 

country? And you can hit lightly, if you want to, on each. But those 

are five different areas; I don’t have time to take 2 minutes on 

each. 

Admiral HOWARD. This gets back to my earlier statement that 

when countries develop down a path where they become secure and 

stable, it prevents them from becoming havens for criminals or for 

terrorists. And you have hit every part of the world where we see 

some countries that aren’t doing as well that are dealing with 

transnational crime or with terrorists. 

So our ability—for example, in Africa, the Department of Defense 

has been focusing on providing security assistance but training, for 

example, in West African nations like Nigeria. Our role, then, 

would be to help them develop something like their coast guard 

and do training, and then go visit them and reinforce that military 

relationship. 

In the same area, the multinational banks’ role would be to help 

build up the port systems so that commerce can thrive, so that 

those countries develop revenue and people have jobs, and so that 

the country is on a firm standing and people have other choices 

than turning to crime. 

So those types of efforts can be very complementary to what we 

do in DOD in making sure that nations are secure. 

Chairman MILLER OF CALIFORNIA. Ms. Lago, would you like to 

respond? 

Ms. LAGO. I would focus on two very different countries that you 

had mentioned—the first being Libya. 

17 

In Libya, we are confronting a country that has no government 

mechanisms and also has tremendous wealth in its oil wealth. And 

so the way the MDBs are approaching Libya is, how can we send 

the technical assistance that is needed to create the basics of government, to create a public financial management system that will 

allow the Government of Libya to operate in a transparent way so 

that the country, with its wealth, will not need to be dependent 

over the long term on development assistance. 

Libya is also another example of what the Admiral had mentioned, that instability in one country can lead to regional instability. So, the importance of quickly putting in place government 

structures, allowing the people to have respect for their government and the expectation that their government will provide them 

water, sewage treatment, electricity. And that is where the MDBs, 

with their expertise both in public financial management and governance and in infrastructure development, can be invaluable. 

Haiti: In Haiti, what the IDB, in particular, has done is remarkable. The IDB was able to cancel all of its debt to Haiti. It was the 

single largest creditor of the nation. It also agreed that, through 

the fees that are generated by the countries borrowing from the 

IDB, they would direct $200 million a year for 10 years, a total of 

$2 billion, to Haiti. This was a remarkable internal redirection of 

resources, which was driven by the United States. As the largest 

shareholder, we were instrumental in developing this mechanism 

and in gaining the support of the board of directors. Without funding for the GCI, this is what would be put at risk. 

With respect to what would happen on the ground were resources not to continue to float to Haiti, we would see the risk of 

significant displaced populations. The original place, or the initial 

place, that the displaced population could be expected to go is the 

Dominican Republic, which shares the same land mass. But we 

would run the risk of large waves of refugees looking to resettle 

within the Caribbean to the United States, creating a humanitarian crisis and also the possibility of a national security crisis. 

Chairman MILLER OF CALIFORNIA. Thank you. 

Ranking Member McCarthy, you are recognized for 2 minutes 

and however long the response takes. 

Mrs. MCCARTHY OF NEW YORK. Thank you. 

Number one, before we end this hearing, I want to just say thank 

you to both of you. I happen to think that the answers were very 

concise and very easy for the American people. Believe it or not, 

sometime around 2 o’clock this morning, this will be on TV, and 

there are actually people who do watch it, besides Members of Congress. 

Chairman MILLER OF CALIFORNIA. We are sleeping. 

Mrs. MCCARTHY OF NEW YORK. Right, we are sleeping. 

But anyway, Secretary Lago, we talked about—again, I am going 

to go back to one of the things that I feel is so important—why we 

need to continue to take the lead. If you could talk about some of 

the reforms that we have been able to integrate into the Multilateral Development International Bank and what a difference that 

has made, or if we weren’t there, if you can answer that, if we 

weren’t there, which way it might have gone. 

18 

Ms. LAGO. Thank you, Congresswoman, for raising that, because 

in dealing with the multilateral development banks, obviously the 

focus is on the development that occurs on the ground. But the 

United States is extremely active in working with the banks in 

making sure that how the development occurs, in the ‘‘how’’ of the 

development. Because we believe that to be sustainable, development has to take place in an accountable way and a transparent 

way. 

We knew that these institutions needed more capital, and we 

took advantage of the negotiation process for the general capital increase to drive through a series of reforms. Many of these reforms 

came about as a result of our discussions with Members of Congress who had taken a long-term interest in the institutions. We 

also consulted extensively with civil society, with the national organizations, the nonprofits that have an interest in development to 

hear what concerns they saw. 

There are a couple of key changes that have come to the institutions. The first one that I would highlight is transparency about 

what the banks do. It used to be that, at the World Bank, they had 

a positive list: ‘‘We will post on our Web site only those documents 

that appear on this list.’’ They have now changed the presumption, 

and this is an instance where a negative list is better. The World 

Bank and the other regional development banks now say, ‘‘We will 

post on our Web site every document except for a narrow list’’— 

sensitive personnel items, things that are not appropriate to be 

posted. This is a revolutionary approach to transparency in how 

the banks operate. 

We also put in place stronger financial accountability. We wanted to be sure that the loans that were being made to the middleincome countries were properly priced so that the bank, when it got 

repaid, would have resources to be able to make more loans but 

also to redirect funds to the poorest countries. The example that I 

just gave of Haiti is one such example. 

Another reform that we put through was cross-debarment. If one 

of the banks has had problems with a contractor and has debarred 

the contractor, that information is shared across all of the multilateral development banks, and that contractor is debarred for all, so 

a bad actor can’t move from one bank to the other. 

Perhaps the most important is impact evaluation. Banks now 

have mechanisms to be able—are required to evaluate the impact 

on the ground of their projects. That is coupled with, in the banks, 

a complaint mechanism. If a community believes that they are seeing fraud, if they believe that the bank’s environmental and social 

safeguards aren’t being followed, there are independent complaint 

mechanisms. 

All of these are, for us Americans, the way we expect business 

to be done, but these banks in the countries in which they operate 

are beacons, because of the fact that we have been able—because 

of the fact that they operate so well. And through this GCI, we 

have been able to implement these even more recent reforms. 

Mrs. MCCARTHY OF NEW YORK. Thank you. 

Chairman MILLER OF CALIFORNIA. Vice Chair Dold, you are recognized for 2 minutes. 

Mr. DOLD. Thank you, Mr. Chairman. 

19 

Secretary Lago, going back to you, there is this sudden instability in the countries like Libya or Egypt, which have seen, obviously, with the Arab Spring and what has been going on. What 

mechanisms do the MDBs employ to reduce that instability? And 

on a follow-up right there, how quickly do the MDBs respond to 

sudden regional or national volatility? 

Ms. LAGO. If I could take the second question first— 

Mr. DOLD. Of course. 

Ms. LAGO. Thank you. The MDBs are not the humanitarian 

agencies, which go in as the initial relief workers, but there was 

a recognition that the MDBs needed a rapid response mechanism. 

And so, the World Bank and the African Development Bank have 

set up rapid response mechanisms. 

The strong suit of the MDBs, their comparative advantage, is on 

the governance building, the building up of the systems of government, and also on infrastructure. And infrastructure, by its very 

nature, is a longer-term proposition. 

How do the banks do it? They have a toolkit. One is, it is important to emphasize the staff of these institutions. They are the 

world’s leading experts on agricultural development, on building 

wastewater-treatment facilities in rural areas, on water projects, 

on basic transportation. And, frequently, countries are looking in 

the very short term for that type of expertise. The other things that 

the banks bring, as is evident in the fact that they are banks, is 

the financing, is the ability to finance these large projects, projects 

at a scale that no individual country, including the United States, 

would be able to finance. And so those are the tools that they bring 

to bear. 

The MDBs work very closely with the United States’ bilateral assistance efforts and with the humanitarian agencies. We will use 

Haiti as an example, where the MDBs were very quickly there, 

working on rubble removal, working on rebuilding schools, working 

on rural water systems—areas that have been their traditional 

areas of expertise. 

Mr. DOLD. I want to thank you both for taking the time to come. 

I have other questions, but we are out of time, so I am going to 

yield back. 

Thank you, Mr. Chairman. 

Chairman MILLER OF CALIFORNIA. I would like to thank the Honorable Marisa Lago for your testimony and Rear Admiral Michelle 

Howard for your time, talent, and your service to this great country. We really appreciate it. The testimony was invaluable and will 

go a long way to reauthorizing our efforts with the World Bank. 

I would like to submit three items for the record, without objection: first, a letter from Treasury Secretary Geithner and Secretary 

of Defense Panetta about the vital role the MDBs play in promoting U.S. national security, including deterring emerging 

threats, supporting foreign and national security goals, and fostering global economic growth. 

Second, a memorandum to the Secretary of the Treasury from 

General Petraeus when he was Commander of the United States 

Central Command and General McNabb, Commander of the United 

States Transportation Command. The memo states that, ‘‘The 

Asian Development Bank plays an important apolitical role in getVerDate Nov 24 2008 16:28 Feb 28, 2012 Jkt 072605 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\72605.TXT TERRIE
20 

ting countries to work together for common interests. United States 

engagement in the Asian Development Bank contributes to our 

strategic interest in the region.’’ 

And third, a memorandum to the Secretary of the Treasury from 

Admiral James Stavridis, Commander of the United States European Command. The memo states, ‘‘The Inter-American Development Bank plays an important role in the region, contributing directly to the U.S. strategic interest.’’ 

The Chair notes that some members may have additional questions for the panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their response in the record. 

This hearing is officially over. 

[Whereupon, at 3:10 p.m., the subcommittee was adjourned.] 

(21) 

A P P E N D I X 

September 21, 2011 

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