A new study released today shows that the debt owed by poor nations to the international financial institutions (IFIs) can and should be written off immediately, Chairman Jim Saxton said. The study demonstrates that existing financial reserves of the International Monetary Fund (IMF) and the other major IFIs are already more than sufficient to write off in full the multilateral debt owed by poor countries. The study, The Debt of the Poorest Nations: A Gold Mine for Development Aid, was written by Adam Lerrick of the Gailliot Center for Public Policy at Carnegie Mellon University and the American Enterprise Institute.

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    China should take steps to revalue its currency, according to a new Joint Economic Committee (JEC) study released today by Chairman Jim Saxton, and fellow JEC members Congressman Phil English and Congressman Thaddeus McCotter. The new JEC study, PRC's Pegged Exchange Rate Contributes to Global Imbalances, examines the operation of the Chinese currency peg, its economic effects, and its relationship to economic distortions in China as well as other countries.

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    Recent headlines reporting that the U.S. dollar fell to an all-time low against the euro prompted fears about the economic consequences of the declining value of the U.S. dollar in terms of foreign currencies. A review of the facts shows that fluctuations in the value of the U.S. dollar are not unusual and its current value is well within historical norms.

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    Argentina's depression of 1998 to 2002, whose effects linger today, was not a failure of free markets, as some observers have claimed. Rather, it resulted from blunders in economic policy that impeded economic growth, explains a new Joint Economic Committee study titled Argentina's Crisis: Causes and Cures.

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    With the outlook for expanded donor funding dim and its own debt restructuring plan essentially dead, the International Monetary Fund (IMF) could play a constructive role by promoting collective action clauses in bonds offered by sovereign borrowers, Vice Chairman Jim Saxton said today. Saxton made his remarks in connection with the release of a study from the Gailliot Center for Public Policy of Carnegie Mellon University, A Simple Means to Defuse Sovereign Default, by Adam Lerrick.

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    The discredited and wasteful approach used by the World Bank in its attempts to promote economic development would be eclipsed by President Bush's Millennium Challenge Account proposal, Congressman Jim Saxton said today. Saxton's comments accompanied the release of a new analysis, Real Relief for the World's Poor: The Millennium Challenge Corporation, by Adam Lerrick of The Gailliot Center for Public Policy at Carnegie Mellon University.

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    There is body of research and analysis, which began in the 17th and 18th centuries and continues to today, that has examined the benefits of international trade and investment. At the government level, faith in these benefits has encouraged many countries to adopt international economic policies that promote greater trade and investment. This paper examines these benefits. A key feature of government policies that promote greater international trade and investment is a commitment to reducing global barriers to trade and investment. This paper will also examine the benefits from reducing these barriers.

    The organization of the paper is as follows. Section I outlines the scope of the paper. Section II provides a brief history of international trade relations in the last century. The section introduces some key terms used later and records the motives of U.S. officials instrumental in furthering international trade and investment after World War II. Section III reviews economic research that has established various correlations between international trade and investment and increases in economic growth and income. Section IV considers four ways international trade and investment can increase economic growth and income. These four consist of the following:   

An independent review of World Bank performance is urgently needed, according to a new analysis released today by Chairman Jim Saxton of the Joint Economic Committee (JEC). According to the new report, the World Bank's own evaluation of its improving performance lacks credibility, noting "when the auditors are captive, when the timing of judgment is premature, when the criteria are faulty and when the numbers are selectively chosen - then the conclusions are worthless." In recent years questions about the effectiveness of the World Bank have generated much controversy, including within the World Bank itself.

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The World Bank should move toward providing international development aid in the form of performance-based grants instead of loans, according to a new analysis released today by Joint Economic Committee (JEC) Chairman Jim Saxton. The analysis, Grants: A Better Way To Deliver Aid, demonstrates that performance-based grants, "would cost the same as traditional loans, but would deliver more benefits to the global poor."

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    In the Trade Act of 1974, Congress sought to create a mechanism that would allow the President to negotiate meaningful reductions in non-tariff barriers while preserving the pre-eminent role of Congress in domestic legislation. This mechanism is called Trade Promotion Authority (TPA). TPA was used to negotiate the Free Trade Agreement with Canada, the North American Free Trade Agreement (NAFTA), and the Uruguay Round Agreements (URA). However, TPA lapsed in 1994 and has not subsequently been renewed.

    Since TPA is an authorization to negotiate trade agreements rather than a trade agreement, the economic benefits of TPA are dependent upon what agreements the President may use TPA to negotiate. To overcome this problem, economists must look forward and project possible outcomes of future trade negotiations.

    Using a variety of statistical models and data sets, economists have consistently found large GDP gains from international trade liberalization. A survey of relevant empirical studies of possible outcomes suggests that a conservative estimate for the maximum potential benefits from full international trade liberalization under TPA would be a $750 billion increase in global GDP. Of course, the actual benefits from TPA will depend upon the precise terms of any international trade liberalization agreements negotiated under TPA.

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    Major currency crises have been frequent in the last ten years. This report describes what currency crises are, why they are imprtant, what features recent major currency crises have shared, and what the implications are for U.S. participation in international monetary affairs.

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    In October 1998 the Federal Reserve Bank of Chicago and the International Monetary Fund (IMF) co-sponsored a conference entitled "Asia: An Analysis of Financial Crisis." Karin Lissakers, one of 24 directors representing 182 IMF member countries, proffered "A View from the Executive Board." Noting that, while the IMF's annual surveillance reviews-or Article IV consultations-are "supposed to provide an early warning of trouble ahead", the board concluded that the pre-crisis "macroeconomic fundamentals in Asia by conventional definition looked strong." Moreover, Ms. Lissakers acknowledges that (Lissakers, 1999, p. 4):

As we discussed the Asian performance, some on the board questioned the sustainability of twenty-five to thirty percent or more rates of private credit expansion year after year and wondered about the soundness of the underlying investments....the weight of opinion was that this had worked well so far, and....seemed to be the norm for Asia, the standard for the 'Asian model'.

     While stipulating that "There were, nevertheless, warning signs in Thailand....", Ms. Lissakers suggests that the IMF "did not pay sufficient attention to other indicators...most notably the rapid build-up of foreign short-term obligations by banks and the nonbank private sector, especially in Korea and Thailand." And, finally, Ms. Lissakers acknowledges that (Lissakers, 1999, pp. 4-5):

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A new policy framework for the International Monetary Fund (IMF) to provide assistance in financial crises without bailing out private sector investors will be released May 10 by Majority Leader Dick Armey and Chairman Jim Saxton of the Joint Economic Committee (JEC). The proposal was designed by Adam Lerrick and Allan H. Meltzer, both of whom were previously associated with the Meltzer Commission.

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     Evidence of widespread corruption in several countries receiving IMF assistance raises questions about the relationship between such assistance and corruption. While some degree of corruption is present in all countries and is often "home-grown," there are a number of reasons to believe that under certain conditions, government-to-government assistance can actually promote corruption.

      Research suggests that the more pervasive is the public sector's role in the economy, the more likely is corruption to flourish. Foreign assistance, however well-intentioned, can promote the very conditions fostering corruption. Such aid can strengthen existing public sector bureaucracy, result in larger government spending and a larger public sector (relative to the private sector), entrench a corrupt status quo elite, and foster delay in reforming existing corruption.

      All of this is directly relevant to current IMF operations. IMF funds currently can be distributed to corrupt public bureaucracies and elites and are often (unwittingly) used to promote those conditions fostering additional corruption. Despite widespread evidence of corruption, IMF lending generally has not been associated with adequate safeguards, controls, or pre-conditions to prevent corrupt misuse of borrowed funds. This lapse suggests IMF lending may work to foster corruption. Reducing or reforming IMF lending, imposing strict conditionalities, and/or establishing reliable monitoring methods appear to be alternative remedies available at this time.

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     The finances of the IMF are relevant to U.S. taxpayers because of the prominent role of the U.S. in funding the IMF and guiding its decisions. Consequently, under U.S. law IMF quota increases, as well as significant IMF gold sales, are subject to Congressional approval. However, informed policy decisions by Congress require adequate IMF transparency to ensure the availability of necessary information. Only with adequate transparency can Congress, in consultation with academic and other experts, develop a thorough understanding of the IMF's financial structure and the costs of U.S. participation in the IMF.

      Over the last two years, the Joint Economic Committee (JEC) has promoted essential transparency through hearings, research papers and press statements. This paper reviews some of the key conclusions of JEC research concerning IMF financial structure and costs of U.S. IMF participation.

      The lack of IMF transparency makes many dimensions of the costs of U.S. participation in the IMF unclear to policymakers and the taxpaying public. These costs include a disproportionate U.S. burden in financing the IMF, subsidized interest rates, absorption of risk, and cost-shifting and other aspects of non-restituted IMF gold sales. Conservative estimates of the costs of U.S. participation in the IMF indicate that these costs are substantial. The evidence shows that the U.S. is shouldering a significantly greater proportion of the IMF's financial burden than the oft-cited 17.7 percent quota share suggests. Instead, the U.S. contributes about 26 percent of usable IMF resources.

      In addition to these costs, it is important to highlight the changing nature of the IMF financial structure. The IMF's portfolio has become riskier in a number of ways over the last two decades. Further, the IMF has evolved into an organization that relies on a narrow base of donors to provide the funds borrowed by a separate group of borrowers. More specifically, financial support is increasingly supplied by a small number of industrialized countries while borrowers are for the most part developing countries facing long-term structural problems. Furthermore, IMF lending is highly concentrated. The five largest borrowers from the IMF account for 70 percent of outstanding loans.

      This information, while essential for informed Congressional decisionmaking, has not been readily available to Congressional policymakers or the taxpaying public. Much of the reason policymakers and the public are not fully informed on these matters is a documented lack of transparency on the part of the IMF.

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This paper considers current problems in what is often termed the "global financial architecture" and proposes a set of solutions to those problems. The solutions take the form of redesigning (in combination) rules governing domestic bank safety net policies, lending by the International Monetary Fund (IMF), international competition in banking, global capital flows, and government debt management policies.

      Section II outlines the problems the proposal is meant to address. Section III describes the principles that should guide reform. Section IV discusses details of how to implement those principles, including specific rules governing domestic bank safety nets, IMF membership and IMF lending policy. These would replace not only the current IMF, but other lending programs including the Exchange Stabilization Fund (ESF) and ad hoc emergency lending by the World Bank the InterAmerican Development Bank. Section V discusses the political economy of the new set of rules and whether enforcement would be credible. Section VI concludes.

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Perverse economic incentives are key, important forces contributing to the increasing number and severity of financial crises in today's emerging market economies. A pernicious combination of factors works to create these incentives. Specifically, these factors include overly generous public safety nets (e.g., implicit or explicit public, uncircumscribed deposit insurance), risk-enhancing structural change in the financial system, and inadequate levels of owner-contributed equity capital. This combination contributed to produce the severe financial crisis in the U.S. thrift and banking industries in the 1980s.

      This same combination is present in even more virulent form in many of today's emerging market economies. Recent IMF lending and prospects for additional IMF lending not only reinforce these risk-promoting incentives in emerging economies, but also foster additional risky lending by international financial institutions.

      Recognizing these circumstances underscores a number of important policy implications and suggestions for policy action to minimize these adverse incentives.

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      This paper reviews key issues relating to IMF financing in the context of the recent Asian bailouts. Several major problems exist with current IMF lending practices. In particular, IMF lending promotes moral hazard, is overly dependent on taxpayer support, involves subsidized interest rates, and is often associated with conditions that are open to question. Furthermore, IMF operations are overly secretive or non-transparent in nature. Accordingly, continued unqualified support from the U.S. Congress is problematic. Whether or not financing is extended, ironclad guarantees are needed to ensure that IMF lending meet certain conditions mitigating the above-cited problems.

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