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Committee on Financial Services

United States House of Representatives

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CURRENCY

The Committee on Banking and Financial Services
U.S House of Representatives, 105th Congress
James A. Leach, Chairman

Phone: (202) 226-0471 Fax: (202) 226-6052 Internet: http://www.house.gov/banking

For Immediate Release                                              
Tuesday, February 3, 1998   Andrew Biggs 226-0471

 

Opening Statement of
Representative James A. Leach
Chairman, Committee on Banking and Financial Services
At Committee Hearing on East Asian Economic Crisis

This is the Committee’s third hearing on economic conditions in East Asia. Last Friday, Fed Chairman Alan Greenspan, Secretary of the Treasury Robert Rubin, Secretary of Defense William Cohen, Deputy Treasury Secretary Summers, and a panel of distinguished economists, testified, with the Administration making a powerful case for Congressional approval of additional resources for the International Monetary Fund.

It was pointed out that the benefits of an IMF stabilization package for Asia do not flow in only one direction. As Secretary Rubin said some forty percent of America’s exports are purchased by people in Asia. American-made products from agricultural goods to information technology are sold there and create jobs here at home.

But our capacity to sell these products depends upon their ability to pay for them. Those who question the wisdom of the IMF programs in Asia must keep in mind that these rescue efforts are basically designed to reduce the impact of the spread of a debilitating economic virus to other parts of the world, including the United States. Thousands of American workers who jobs could well be lost if Asian economies are not stabilized.

The challenge is to develop an approach that prevents economic free-fall, competitive currency devaluations and retaliatory tariff increases in Asia without providing a bailout to investors that would encourage these circumstances to reoccur.

The bill I have introduced, HR 3114, attempts to address numerous issues which have been raised recently. It authorizes additional funding for the IMF, but also calls for reforms to provide for increased transparency of IMF programs, while encouraging recipient countries to institute market-based reforms, adopt sound banking practices, reduce corruption and bribery, support workers’ rights, reduce ethnic strife and promote environmental protection.

In this regard, I would note that three years ago this Committee reviewed the prospect of assisting the government of Mexico in what might be described as the first crisis of the new economic order, with this Asian contagion being the second. As chairman of the Committee of jurisdiction, I was asked to attempt to put together an approach that would obtain bi-partisan support. Partly because a contentious election had just occurred which resulted in a change in control in Congress, partly because the issue itself was controversial, it quickly became apparent that majority support would be difficult to obtain in either party for a vote on the House floor.

Accordingly, in conjunction with the development of a legislative initiative, I submitted a memorandum to Treasury on January 20, 1995, proposing a comprehensive back-up approach utilizing Treasury discretion with the Exchange Stabilization Fund be reviewed and made ready in the event Congress could not reach a consensus. Six weeks later, after consulting with leadership of the House, I informed Treasury that consensus had not materialized and I accordingly urged implementation of the back-up model. Within 48 hours Treasury so opted.

I raise this historical point because this committee should be made aware that because of precise legal restrictions the Administration cannot use the Exchange Stabilization Fund or any other resources to contribute to the IMF without specific Congressional approval. It can, of course, use the ESF to act on its own, but such actions are unilateral and have the disadvantage of not bringing other countries along to share the risk burden as reliance on the IMF entails.

What this means is that the Congressional cop-out option which existed with Mexico is not with us today. The only alternative to reliance on the IMF if intervention is required is more exclusive reliance on U.S. Government resources. Such an approach would put the stabilizer of last resort risk burden directly on the shoulders of the American people, rather than the international community.

Here, I would stress again the importance in the Mexico model of having put together an economic package which exceeded the need. By making it clear that the international commitment potentially exceeded $50 billion, of which less than one-half has was ever drawn upon, any incentive to those who might negatively speculate on Mexico was eliminated. The effect of delivering an economic package larger than the contingency required is similar to the military strategy of overwhelming force—the doctrine that the greater the power committed, the less the likelihood of significant casualties or policy failures. Ironically this "Powell Doctrine" for economic intervention emanated in l995 from the newly installed Republican Congress which doubted that the Administration’s initial projection of required support levels was adequate. Subsequently Administration requests were doubled, but at any level Congress could not reach a bi-partisan consensus to act. Antagonism to such a prospect was particularly intense among Senate Republicans and House Democrats.

At this junction in our history, it would seem that Congress has a tendency to transfer to the Executive branch discretion on controversial foreign policy issues when Congress does not want to leave voter-liability fingerprints. Clearly, it would have been preferable for Congress to act to underscore bipartisan and, more importantly, bi-institutional support for a significant foreign policy initiative. In the end, however, the Executive Branch acted without formal Congressional concurrence, but in consonance with the alternative approach suggested to the Treasury early in the negotiating process. The approach of utilizing Treasury’s Exchange Stabilization Fund - which Treasury had initially balked at - involved viable legal authority although it had no precedent in interventions of the magnitude contemplated.

In the wake of what proved to be a successful intervention in Mexico in which an investment banking rather than an aid giving model was employed - - one in which the U.S taxpayer eventually earned over half a billion dollars - - it had been my hope that in a time frame in which no crisis was at hand the international community would have moved in the direction of developing new multilateral approaches to international financial crisis prevention and management. In this regard, I strongly urged a strengthening of the International Monetary Fund to ensure that it maintain adequate liquidity, as well as consideration of bankruptcy laws for and within nation-states in order to prevent public treasuries from being placed disproportionately in financial jeopardy during similar large-scale financial crises. Certain international discussions have occurred related to bankruptcy approaches, but partly because of European concerns, little progress has been made.

Having heard from the executive branch and academe, the committee today will hear testimony from two panels of witnesses. The first consists of Members of the House: Mssrs. Visclosky, Stearns, Crapo, Paul, and Sanders. Following will be a panel from the private sector, with witnesses representing manufacturing, agriculture, high-tech industries and organized labor. Both panels will, I am sure, provide a variety of perspectives on the issue.

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