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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                                               Contact: David Runkel
Wednesday, September 16, 1998   226-0471

Opening Statement
Of Representative James A. Leach
Chairman, Committee on Banking and Financial Services
Hearing on International Economic Turmoil

The Committee meets this afternoon to complete three days of hearings on the exceptional volatility in international financial markets and heightened risks to the health of the U.S. and world economy. Today, the Committee will hear from Secretary Rubin and Chairman Greenspan. We also welcome Deputy Secretary Summers. In these hearings, we are dealing with issues of great gravity. At the same time, the Congress is also confronted with another issue of great gravity which everyone is aware of. As these hearings demonstrate for the American people and those around the world, the Congress and the Executive Branch are not distracted and are able to deal with the grave international situation.

As all Americans are beginning to understand, the global economy is in serious crisis. The issue now is the magnitude of that crisis, its potential effects on the U.S. economy and American national interests, as well as the response of policymakers in Washington and elsewhere around the globe.

The testimony before this Committee earlier this week, the comments of senior Group of Seven officials in London and the President's speech in New York on Monday, all indicate that it is far easier to identify the vexing economic problems facing the world than to fashion credible and sustainable pro-growth solutions that will reverse deteriorating standards of living in many places around the world.

This a defining moment for the United State. Earlier this week, the Committee heard from Barry Eichengreen, a distinguished economic historian, who expressed the view that the current set of economic problems is potentially as menacing as any in the last fifty years. It is fair to say that despite the best efforts of this Administration and the IMF, authorities are groping for solutions. Nonetheless, if global confidence is to be restored, and the wrenching experience of our parents' (or for some of my younger colleagues their grandparents') generation not repeated, the United States must lead.

Maintaining global financial stability and economic growth is self-evidently a vital U.S. national interest. In my view, the best means for accomplishing that objective are leadership through the international financial institutions and cooperation with our friends and allies on strategies to advance sustainable economic growth. Accordingly, I welcome the President's initiative to convene a meeting of finance ministers. Credible approaches to international economic problem-solving need to be developed now before the global trend toward democracy and open markets is placed at risk.

While the U.S. has the option simply to ignore the issue entirely -- to go it alone in protecting our national interests as some in Congress have myopically suggested -- that would place a much greater potential risk on the American taxpayer, than reliance on the IMF does. Few in America or abroad would want the U.S. government to bear the burden of being the lender of last resort to the world. Reliance on the IMF implies not only shared global responsibility, but greater likelihood of repayment and reform.

Accordingly, I am convinced it is in America's national interest to promptly approve replenishing the financial resources of the International Monetary Fund. The IMF is running on empty. As the General Accounting Office (GAO) recently confirmed in a report to Congress, the IMF's liquidity is an historic low of between $20-25 billion. It is self-evidently in the U.S. national interest to replenish the IMF's coffers now. At issue is not only the stability of the international financial system and the ability of the IMF to respond to future crises, but the broader question of whether the U.S. intends to be an engaged leader in global economic policy and multilateral diplomacy in general.

By the same token, the IMF is an imperfect institution. Recognizing this fact, the Banking Committee insisted on credible, realistic IMF reforms, when it overwhelmingly authorized U.S. contributions to the Fund last spring. These reforms were designed to ensure that the IMF become less secretive and more accountable. Likewise, we required the U.S. to lead efforts to ensure that IMF borrowers follow market-oriented reforms, adopt sound banking practices, reduce opportunities for corruption and bribery, support workers' rights, reduce ethnic strife and promote sound environmental policies.

But the Committee was also acutely sensitive to the fact, as the President acknowledged Monday, that funding and reforming the IMF alone will not result in international financial stability. If the world is to avoid ever more expensive IMF programs and their attendant moral hazard problems, we must develop a new consensus on reforming the international economy, particularly on ways to strengthen banking standards and systems.

The reform issues before the G-7 and other countries were identified with great in our IMF bill. The Committee strongly urged Treasury and the Fed to work with their counterparts abroad to establish more stringent international standards for accounting and disclosure; to promote better data collection on cross-border financial flows; to raise the level banking supervision and the establishment of international and domestic bankruptcy standards.

A review of origins of the Asian crisis suggests that those countries with prudential and transparent regulation have done well, while those without it have found public treasuries jeopardized and economies in peril. With regard to the issue of corruption, the lessons are writ large: the best antidote to cultural corruption is a legal system where economic enterprise is decentralized and subject to as little control of the government as possible. The general level of corruption decreases as the degree of market competition increases. Free market systems are not only more efficient than statist models, but more honest.

What Russia and some countries in Asia need is a good does of Teddy Roosevelt trust-busting, the privatization of state enterprises, and the elimination of cronyism, as well as nepo-capitalism.

Analogously, what American politicians needs is a deeper understanding that we cannot isolate ourselves from global problems. Just as this crisis has produced a leadership test for governments in developing as well as industrialized economies, with the question of whether or not they have the will to address controversial problems in their societies, it has provided a leadership test for the United States, with the question of whether we can remain a global leader.

In this context, I am hopeful that Congress, in addition to the replenishment of the IMF, will reconsider and approve "fast track" trade authority this fall. It is obviously in America's national interest to be able to continue to open markets and shape international trade patterns to the advantage of our farmers and workers. It is also high time for Congress to reassess its lack of support for the United Nations, by meeting our treaty obligations and helping to put the UN on credible financial footing, thereby facilitating serious efforts to revitalize that institution and advance realistic reform.

The economic and political history of this century should teach Congress that the combination of "beggar thy neighbor" currency policies, hostility to balanced trade, and a collapse of the international financial system, profoundly jeopardizes our national security as well as economic interests.

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