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House Financial Services Subcommittee with David Malpass, Treasury

House Financial Services Subcommittee on Monetary Policy and Trade

“Administration Priorities for the International Financial Institutions”

Wednesday, November 8, 2017

Key Topics & Takeaways

  • World Bank Accountability: Rep. Andy Barr (R-Ky.), Chairman of the Subcommittee on Monetary Policy and Trade, noted that the World Bank Accountability Act was unanimously approved by the full House Financial Services Committee. David Malpass, Under Secretary for International Finance at Treasury, acknowledged that the Administration intends to encourage the World Bank to undertake reforms, such as to “graduate” economies once they no longer need to borrow from the bank, refrain from crowding out private sector capital, and focus on the impact their lending programs have on median income levels in recipient economies.
  • China: Malpass lamented the non-reciprocal trading relationship that the U.S. has with China, which he said President Trump will raise that with President Xi Jinping during their meeting this week. Malpass also stated that it is “troubling” that multilateral development bank (MDB) heads have curried favor with China, and he argued that there are “better ways” to implement development finance.
  • CFIUS Reform: Malpass agreed that the Administration intends to work on a bipartisan basis to reform CFIUS, and stated that the reform process will move through committees in the House and Senate.

Witness

  • David Malpass, Under Secretary, International Finance, Treasury Department

Opening Statements

Andy Barr (R-Ky.), Chairman, Subcommittee on Monetary Policy and Trade

Barr cautioned that the World Bank “risks becoming” “out of touch” due to its focus on “churning out loans” rather than lifting economies out of poverty.  He lamented that the Bank still lends to middle income countries that have access to other financial resources, and noted that it continues lending to China despite the fact that Beijing launched a “rival” lending institution (the Asian Infrastructure Investment Bank). He also claimed that the International Monetary Fund’s (IMF’s) 7-year lending to Greece has “tarnished [its] reputation.”

Barr called on the Administration to focus on “demonstrable results” from the international financial institutions (IFIs), advocate that they advance clearly defined objectives, and hold them accountable to those results.

Rep. Gwen Moore (D-Wisc.), Ranking Member, Subcommittee on Monetary Policy and Trade

Moore underscored distinctions between development finance and investment banking, and expressed skepticism about whether unfettered market openness and trickle-down economics creates wealth and equality. She encouraged the administration to undertake public policies that reign in the “excesses of the market” and ensure the benefits of capitalism are widely shared.

David Malpass, Under Secretary, International Finance

In his testimony, Malpass explained that one of the Trump Administration’s top objectives is to improve U.S. and global economic growth through reforming tax, regulatory policy, trade, energy, financial regulation, and the budget.  Malpass maintained that the financial regulatory framework is a “key driver of growth” so small and medium-sized businesses can obtain the working capital needed to create more jobs.

Malpass stressed that each IFI presents its own set of challenges and opportunities. Noting that economic growth is accelerating and the world financial system is relatively stable and liquid, he stated that now is an appropriate time to consider the role, mission and structure of IFIs.  Malpass clarified that the Administration opposes isolationism, yet believes that globalization and multilateralism have gone too far and are hurting global growth. The challenge for IFIs, he argued, is to have a clear, focused mission and deliver results effectively with accountability to participants. Malpass maintained that the World Bank currently has the resources it needs to fulfill its mission.

Question and Answer

World Bank Accountability

Barr noted that the World Bank Accountability Act was unanimously approved by the House Financial Services Committee. Malpass acknowledged that the Administration intends to encourage the World Bank to undertake reforms, such as to “graduate” economies once they no longer need to borrow from the bank.  He cautioned against the World Bank crowding out private sector capital, and encouraged them to focus on the impact their lending programs have on median income levels in recipient economies.

Tax Reform

Malpass stated that the biggest obstacle to economic growth is the U.S. corporate tax rate. He argued that the current rate blocks investment and job creation in the U.S. and is a “powerful deterrent.”

Currency Manipulation

Rep. Brad Sherman (D-Calif.) noted that currency manipulation is one of the Administration’s negotiating objectives for the modernization of the North American Free Trade Agreement (NAFTA).  Malpass explained that while Canada and Mexico are not labeled currency manipulators by Treasury, the Trade Promotion Authority passed by Congress in 2015 required that the Administration incorporate currency manipulation provisions in its free trade agreements. Sherman also criticized the fact that China was not labeled a ‘currency manipulator’ by Treasury, calling such as report “fiction.”

China

Rep. Robert Pittenger (R-N.C.) lamented that China was granted ‘most-favorite nation’ (MFN) status by the U.S. in 1994, but since then the U.S. trade deficit with China has reached 350 billion dollars. Malpass clarified that MFN constitutes normal trading relations, yet acknowledged that the U.S. has ended up with a non-reciprocal relationship with China.  He noted that President Trump will raise that with President Xi Jinping during their meeting this week.  Malpass also stated that it is “troubling” that multilateral development bank (MDB) heads have curried favor with China, and he argued that there are “better ways” to implement development finance.

CFIUS Reform

Rep. Denny Heck (D-Wash.) expressed interest in contributing to a bipartisan reform of the Committee on Foreign Investment in the U.S. (CFIUS), yet expressed disappointment that his inquiries were not responded to in a prompt manner by Treasury.  Malpass agreed that the Administration intends to work on a bipartisan basis to reform CFIUS, and stated that the reform process will move through committees in the House and Senate.

Multilateral Trade Agreements

Rep. French Hill (R-Ark.) asked about the Administration’s policy on the select use of multilateral trade agreements.  Malpass explained that multilateral trade agreements are more complex to negotiate, and that bilateral trade deals offer better opportunities to advance U.S. national interests.

For more information on this hearing, please click here.