The governance of the IMF, our position in the institution, and the role played by our Executive Director.
• The ways in which we seek to advance policy initiatives in the institution, and in this context, our successes and failures in advancing Congressionally mandated policies in the four specific areas you highlighted in advance of the hearing:

  1.) worker rights,

  2.) the role of the private sector,

  3.) human rights, and

  4.) military spending.

• The financial structure of the IMF.

• Improving transparency in the IMF.

• Performance measures for the IMF.

We have both, as you know, provided extensive material to the Committee in advance of this hearing. We hope this statement is responsive to the questions raised in your letters.

The International Monetary Fund

The IMF was created more than 50 years ago in the wake of a world depression and world war caused in part by a severe global economic disruption. Its mission is to promote the expansion of world trade and high levels of employment and growth. For this purpose, the IMF promotes the adoption of pro-growth, market-oriented economic policies through its surveillance of member economies and by providing conditional financing to enable countries to correct balance-of-payments problems without recourse to measures destructive of national and international prosperity.

The world economy has changed dramatically since the IMF was founded. The fixed exchange rate system established at Bretton Woods has given way to more diverse arrangements, from freely floating currencies to pegged rates and monetary unions. The integration of domestic capital markets into a global financial marketplace has resulted in an expansion of international capital flows to levels which dwarf the payments for goods and services that were the IMF'S original focus.

While the IMF's core mission remains the same, the institution has had to adapt. The new dimensions of today's financial crises require the IMF to complement its traditional emphasis on macroeconomic measures -- reducing fiscal deficits and avoiding inflationary monetary policies -- with consideration of broader structural and institutional issues that are critical to confidence and market-based responses to crises. IMF surveillance and program conditionality now often address the functioning of domestic markets, the soundness of banking systems, social safety nets and governance concerns.

New instruments have been developed. Within the IMF, the Extended Financing Facility was broadened to encompass the structural reforms necessary for Russia, the other FSU states and Eastern Europe to successfully make the transition from controlled to market-oriented economies. The ESAF and HIPC initiatives were undertaken to meet the special needs of the IMF's poorest members. The Supplemental Reserve Facility was created to encourage an early return of borrowers to private markets through loans which carry higher charges and shorter maturities. The Emergency Financing Mechanism was put in place to expedite the negotiation and implementation of IMF support in crisis situations. The New Arrangements to Borrow (NAB) were developed to provide an expanded backstop to IMF resources to deal with systemic threats.

The pace of change in global finance has accelerated in recent years. With this change has come tremendous benefits here in the United States through increased exports, more high-paying jobs, higher standards of living, and lower inflation. The huge increases in private capital flows to developing countries have, among other things, helped finance a greater increase in imports from industrialized countries, including our own. Developing countries from Latin America to Asia have also benefited greatly, as increased capital flows financed greater investment and contributed substantially to the high rates of growth in such countries, promoting higher standards of living and lifting millions out of poverty.

With these opportunities, however, have also come challenges. The Asian crisis has demonstrated that weak financial sectors and other structural problems in emerging economies and inadequate risk assessment by international creditors and investors can combine to have significant impact on countries around the globe. The crisis has also highlighted the need for further improvements to make the system more open, transparent and accountable, and for the private sector to play a greater role in preventing and resolving crises. The IMF, as the principal cooperative monetary institution for the world economy, must be in the forefront of that effort.

Let me therefore begin by describing how the IMF operates and how U.S. policy in the Fund is developed and implemented.

The Governing Structure of the IMF

The Board of Governors is the highest decision-making body of the Fund and consists of one Governor and one Alternate Governor appointed by each of its 182 member countries. The Secretary of the Treasury is the U.S. Governor and the Chairman of the Federal Reserve Board serves as the Alternate. Both are appointed to these positions by the President and confirmed by the Senate.

While all powers of the IMF are vested in the Board of Governors, authority for day-to-day operations has been delegated to the Executive Board, except for certain specific powers which are reserved for the Governors, including decisions on admission and expulsion of members, quotas, SDR allocations, and amendments of the Articles of Agreement. The Board of Governors meets annually although decisions can be and routinely are taken without a formal meeting. The Interim Committee is a ministerial-level group which advises and reports to the Board of Governors on the functioning of the international monetary system and IMF-related issues. The composition of the Interim Committee reflects that of the Executive Board, with the Treasury Secretary representing the United States. The Committee currently meets twice annually but can be convened more frequently.

The Executive Board is currently composed of 24 Executive Directors appointed or elected by the membership with responsibility for the regular operations of the institution. The U.S. Executive Director is appointed by the President and confirmed by the Senate. Her office also includes an Alternate Director, also appointed by the President and Senate-confirmed, an economic advisor, three technical assistants, and two administrative assistants.

The Executive Board meets in continuous session, with formal meetings scheduled 3-4 times a week. During calendar year 1997, the Executive Board met in 166 sessions for a total of 635 hours, of which more than half related to country issues, primarily surveillance and use of IMF resources; one-third involved policy issues, including multilateral surveillance of the world economy and financial markets, the ESAF/HIPC initiatives, quotas, and capital account amendment; and the remainder was devoted to administrative matters including budget, overall staffing levels and compensation issues.

The third leg of the governing structure is management and staff. The IMF Managing Director is chosen by the Executive Board and serves as Chairman of the Board and Chief Operating Officer of the Fund. The Managing Director is assisted by three Deputy Managing Directors, each with responsibilities for particular areas of the Fund's activities. The IMF staff currently totals about 2,600, including about 1,000 economists, from over 100 countries, and is organized into area, functional and support departments. The IMF has over 60 resident representatives stationed in member countries. The number of authorized staff increased in the early part of the decade when the IMF membership expanded to include Eastern European countries, Russia and the other FSU states, but has remained fairly constant in recent years.

The salaries of Fund staff are set and adjusted annually on the basis of a comparison with the salaries of employees performing comparable work and with equivalent responsibilities in the U.S. public and private sectors. The resulting salary level is also reviewed for international competitiveness in order to achieve the wide geographical distribution of staff mandated in the IMF Articles of Agreement.

Most countries in the world impose tax on the worldwide income of individuals on a residence, rather than citizenship, basis. Thus, non-U.S. nationals employed by the Fund outside of their home countries generally do not pay home country income tax on their Fund incomes. However, the United States taxes its citizens regardless of where they are resident; U.S. staff of the Fund are taxed by the United States on their Fund income regardless of where they are located. Arrangements have been made to reimburse employees for income taxes paid to their home countries to put them on an equal footing with staff who do not have to pay home country tax. Of IMF tax reimbursements, 99.5% go to U.S. staff. These reimbursements represent a transfer from the IMF to the U.S. Treasury. In the absence of tax reimbursement, the actual after-tax Fund income of U.S. staff would fall well below both the pay of other IMF staff (that is not taxed) and the after-tax pay of employees in the U.S. public and private sectors. In such circumstances, it would be very difficult, if not impossible, for the Fund to recruit or retain well qualified U.S. staff.

In a 1995 report, the GAO reviewed the IMF compensation system and concluded that it was consistent with the basic objective of providing competitive salaries and attracting high quality international staff. While agreeing with the thrust of the GAO report, the Administration has worked to restrain the level of compensation allowed within the agreed formula and has called for a bottom-up review to consider appropriate reforms. The U.S. Director, at the direction of the Treasury Department, has also been in the forefront of efforts to pursue budget consolidation following the period of increased spending due to the expansion of IMF membership. As a result, the number of authorized staff has declined slightly and the increase in administrative expenditures has been less than the rate of inflation over the past three to four years.

Executive Board Procedures

The agenda for an Executive Board meeting is determined by management, in consultation with the Board, and based on a rolling four-week tentative schedule which is subject to change. The Board discussions are usually based on staff papers which Board procedures require be circulated 2-3 weeks prior to a meeting although provision is made for waiving this requirement under certain circumstances. Under the IMF emergency financing procedures, expedited consideration in as little as 3-4 days can occur.

The discussions in the Executive Board are normally informal with Directors usually making opening remarks and then engaging in debate with each other and staff. Representing the largest, most influential member, the U.S. representatives speak on virtually every issue coming before the Board.

At the conclusion of the meeting, the Chairman normally summarizes the discussion and takes a sense of the meeting on issues requiring decision, including loans, program reviews and policy matters. While a Director may request a formal vote, an effort is usually made to reach a consensus on key issues with votes taken only in the rare occasions when the necessary majority may be in doubt. However, even in situations where a clear majority is in favor of a decision, the United States has at times asked that the record indicate its opposition to a particular course of action. As the Committee requested, a list of all Executive Board documents and decisions and votes by the USED is being submitted for the record.

The voting power of each member is based on its subscription to IMF quota resources, with each member receiving 250 basic votes plus an additional vote for each SDR 100,000 of quota. As the member with the largest quota, the U.S. has the highest voting power, now about 18 percent of the total, which provides us with a veto over major policy issues such as an increase in quotas and amendment of the Articles of Agreement. While this voting power is nearly triple that of the next largest countries, Japan and Germany, it still falls well short of the majority vote needed for most IMF decisions.

Consequently, the U.S. must engage in coalition building to obtain the necessary support for its views on most issues. This is accomplished through a variety of channels including frequent contacts with Management, staff and the Offices of Executive Directors, either individually or in groups. These efforts are often supplemented by contacts with the home governments of member countries, including within the G-7 framework, other multilateral fora and bilaterally.

As the representative of the U.S. in the IMF, the Executive Director reports directly to the senior levels of the Treasury, particularly the Under and Assistant Secretaries for International Affairs, and works closely with the Treasury Department in the development and implementing of U.S. policies. The Executive Director participates regularly in meetings with Treasury officials where IMF issues are considered and receives guidance on the items being considered by the Executive Board, including written instructions to implement legislation and congressional mandates. Regular reports are provided by the Director on Executive Board deliberations and additional guidance sought as issues evolve. The Executive Director also participates in meetings between Treasury and foreign officials when IMF issues are being considered and is a senior member of the U.S. delegation to meetings of the IMF Board of Governors and Interim Committee.

In addition, members of the Office of the USED maintain close liaison with such U.S. Government entities as the Treasury Department, Federal Reserve Board, State Department, NEC and NSC as well as with U.S. representatives in the World Bank and other MDBs. Members of the office also meet with congressional staff, academics, business and labor groups, NGOs and others that have a particular interest in IMF issues.

Let me turn now to the issues raised by the Committee to indicate how this process is used to advance U.S. policy objectives.

Congressional Mandates

On a number of occasions over the past several decades, the Congress has sought to increase the profile of certain policy objectives through legislation requiring that the U.S. seek specific changes in IMF policies. Since 1977, these legislative mandates have generally taken the form of requiring the Secretary of the Treasury to instruct the U.S. Executive Director to use the voice and vote of the United States to seek the adoption of measures that would advance the attainment of the policy goal. In explaining the use of the voice and vote formulation in 1977, the House Banking Committee said, among other things, that the formulation concentrates U.S. policy on finding effective means of furthering our goals instead of merely putting a negative vote on specific loans. However, in some cases, the voice and vote requirement is cast in terms of opposing a particular action, which the U.S. Executive Director can do by either abstaining or voting against.

Most IMF members and Fund Management and staff view the institution primarily in terms of the monetary mandate contained in the Articles of Agreement in which macroeconomic and structural policies are designed to correct balance of payments problems. They tend to view the provisions in the Articles which require the Fund to "respect the domestic social and political policies of members" and to "pay due regard to the circumstances of members" as limiting the Fund's competence to economic issues directly related to the balance of payments. In these circumstances, we have found that the most effective strategy for garnering the necessary support to modify Fund policies is through careful persuasion based on arguments that are consistent with the IMF's charter.

This approach has involved, for example, encouraging IMF staff to undertake research on the economic aspects of an issue, including the potential impact on the functioning of the economy, the members' ability to implement economic policies, or the consequences for international trade, investment and the balance of payments. We work to engage IMF Management on the issue and encourage the Managing Director to address the issue in public fora and international meetings. We raise the issue with other Executive Directors, initially through informal contacts, and then in Board seminars and retreats. We work to obtain the support of other member governments through the G-7, other multilateral groups, and bilaterally. And we work in other fora and bilaterally to pursue the issue in an effort to generally raise the profile of the issue. When we are successful, recognition of the issue becomes widespread and accepted, thus allowing us to raise it in IMF policy and country discussions without triggering counterproductive reactions and a hardening of positions. Ultimately, then, Fund policies can be modified, guidance to IMF staff adapted accordingly, and IMF-supported programs adjusted to include the appropriate conditionality.

This approach requires patience and persistence over an extended period. The views of other countries may be strongly held, particularly when the issue is perceived to affect a vital national interest. The IMF's rules in some cases may require high majorities to change policies and, in some instances, the consent of an individual country may be required before a general policy can be implemented in a specific case.

Here is a more detailed report on our experience to date pursuing four specific issues you raise in your letter: worker rights, role of the private sector, human rights, and military spending.

• Worker rights: Since the passage of the Sanders-Frank amendment in 1994, the United States has worked actively to encourage the IMF, World Bank and other MDBs to pay greater attention to labor issues, including the adoption of policies to encourage borrowing countries to guarantee internationally recognized worker rights. I would also note that Treasury views the provisions, contained in HR 3114, as passed by the full Banking Committee by a margin of 40-9, regarding labor rights and IMF coordination with the IMF on these issues, as a constructive means to enhance Treasury's ability to advance more appropriately this concern within the IMF. Consistent with Congress's 1994 action, considerable progress has been made in the World Bank where, for example, the importance of improving labor standards is formally acknowledged by the institution, a comprehensive policy to eliminate exploitative child labor has been adopted, and MIGA is prohibited from extending guarantees for programs involving forced labor and exploitative child labor.

Progress admittedly has been slower in the IMF. The initial reaction of most IMF members has been that this is an issue more appropriately addressed in the MDBs and ILO rather than the IMF. Consequently, our initial efforts have focused on encouraging the IMF to develop a stronger working relationship with the ILO; pressing Management and staff to incorporate core labor standards into program design and to include representatives from organized labor in program discussions; and raising worker rights issues in specific country reviews where the United States has particular concerns.

This effort is beginning to bear fruit although much work remains to be done. Notably, at the February 21, 1998, G-7 meeting in London the finance ministers and central bank governors recognized the importance of "the International Financial Institutions' support for the work of the ILO in promoting core labour standards." Furthermore, the 1998 G-8 Conference on Growth, Employability and Inclusion, expressed support for "the global progress towards the implementation of internationally recognized core labour standards". These statements are important steps in the consensus-building process both within and outside of the IMF.

The IMF and ILO are developing a close working relationship at all levels, including meetings of senior officials, joint sponsorship of conferences, attendance at each institution's annual meetings, and enhanced staff cooperation in specific country cases. Moreover, as part of the effort to promote country ownership of IMF-supported programs, the Fund is reaching out to a wider range of representatives from civil society, including labor unions, and urging governments to consult more closely with labor groups in the formulation and implementation of economic policies. The "tripartite" process of program negotiation and implementation adopted in the recent Korea arrangement is a model that could be used in other cases. The USED has also raised worker rights issues in specific country cases including Ethiopia (child labor in the informal sector), Pakistan (child and bonded labor), Morocco (core labor standards as a means of improving labor market flexibility), and Indonesia (freedom of association).

Our efforts are continuing. The IMF and the World Bank, together with the ILO, are holding a conference in Bangkok this week on the implications of Asian crisis for workers in the region. In several recent speeches, the IMF Managing Director highlighted the need to adapt Fund policies to place greater emphasis on labor issues, including core labor rights.

• Role of private creditors in crisis resolution: Fifteen years ago, in the midst of the Latin America debt crisis, the Congress directed the Secretary of the Treasury to instruct the U.S. Executive Director to oppose and vote against any IMF financing which in his or her judgment is to be used principally for repaying imprudent bank loans to a member country and to encourage the rescheduling of bank loans. At U.S. urging, the Fund adopted during the 1980s a variety of measures to facilitate the orderly resolution of the debt crises, including policies requiring assurance of adequate private external financing in support of members' adjustment efforts, IMF lending into arrears to ensure that reluctant private creditors to sovereign borrowers could not derail a country's adjustment efforts, and IMF support for a menu of options developed for restructuring a country's private external debt (the Brady Plan). Between 1987 and March 1997, 31 debtor countries had more than $180 billion in commercial bank debt restructured, and the original claims of the banks were reduced by $83 billion.

The Asian crisis has demonstrated again the importance of finding more effective mechanisms for sharing with the private sector the burden of managing financial crises. In a world in which trillions flow through international markets every day, there is simply not going to be enough official financing to meet the crises that could take place. Moreover, official financing should not absolve private investors from the consequences of excessive risk-taking and thus create the "moral hazard" that could plant the seeds of future crises.

This issue was a central topic at last week's international meetings, including the G-7, the Interim Committee and the special meeting of finance ministers and central bank governors of 22 countries. In a speech last week, Secretary Rubin outlined U.S. views and, in his Interim Committee statement, suggested some steps that the IMF could take now while more fundamental reforms are being examined. Possible mechanisms could include the promotion of new, more flexible forms of debt agreements and indentures which could provide a framework for direct negotiations between creditors and debtors. The IMF should also explore lending into arrears -- in other words, the IMF would continue to provide financing to countries even when those countries may be behind on the debt payments to some private creditors -- to create a situation in which debtors and creditors work things out themselves.

• Human rights: The United States pursues the advancement of human rights through a variety of diplomatic channels and international institutions. As provided in legislation, the USED has opposed IMF financing to countries about which the United States has human rights concerns or countries harboring war criminals.

Our ability to pursue this objective in the IMF is constrained in part by the fact that most countries about which the U.S. has human rights concerns do not borrow from the IMF. At present, for example, the only country within that category which receives IMF financing is Mauritania. The USED's Office has continuously opposed IMF financing for Mauritania since 1992. Similarly, with respect to our war criminals concerns, the U.S. opposed an IMF loan to Croatia that was approved by the Board, successfully postponed subsequent disbursements of the approved loan and only agreed to a resumption of disbursements after being satisfied that Croatia had changed its policies.

• Military spending: The issue of military spending is another area where U.S. efforts have had to overcome entrenched views, particularly as most members consider that it involves sensitive national security concerns. However, we have been able to make progress by placing the issue within the broader governance framework and the need to improve the quality and composition of fiscal adjustment by reducing unproductive spending while ensuring adequate basic investment in infrastructure and human resources, and the importance of enhancing the transparency of fiscal policy by reducing off-budget transactions. We have encouraged Fund staff to undertake studies of the economic effects of reducing global military spending. The Managing Director has also taken an active role in promoting reduced military spending and discouraging arms races among developing countries, including by urging developed countries to restrain their military sales programs.

As a result of these efforts, the Fund is paying increased attention to military spending issues, including in the context of IMF programs. For example, the IMF review of Peru's extended arrangement was delayed by staff concern regarding the substantial acquisition of fighter planes and whether the financing of the purchase was consistent with program conditions. In Pakistan, the IMF has continued to insist that the level of military-related external debt be included in the overall debt limit as a means of enforcing budgetary transparency in military spending and restricting such borrowing. In Romania, the Fund pressed for inclusion of military spending in the budget in order to force the authorities to be transparent and to consider the impact of military spending on other priorities in the context of tight budget constraints.

The Financial Structure of the IMF

The financial structure of the IMF is similar to that of a credit union. All members contribute to the resources of the IMF, and each member is entitled to obtain financing based on agreed uniform criteria. A member that provides resources used in extending financing to another country is generally paid interest on its creditor position. A country receiving financing pays interest charges on its loan. The rates of remuneration and charge are based on the Special Drawing Right (SDR) interest rate, which is a weighted average of the market interest rates on short-term government securities in the U.S., U.K., Germany, Japan and France. The SDR interest rate is a floating rate which changes weekly with fluctuations in the interest rate on the component securities. Consequently, the rates of remuneration and charge are adjusted in response to changes in these market rates.

The IMF Articles of Agreement require that the rate of remuneration paid creditors must be between 80 percent and 100 percent of the SDR interest rate. Pursuant to legislation enacted in 1983, the U.S. Director successfully obtained a revision of IMF policies which raised the rate of remuneration to 100 percent of the SDR rate. A portion of this remuneration is deferred under arrangements whereby creditors and debtors finance the financial burden to the IMF arising from interest arrears on IMF obligations and for additions to the Fund's precautionary balances. The basic rate of remuneration for the week of April 20, 1998 was 4.24 percent.

As requested by the Committee, we have provided a table indicating the net benefit or cost of U.S. participation in the IMF.

The basic rate of charge paid by borrowers is set at a level relative to the SDR interest rate which is sufficient to cover the cost of financing to the IMF (primarily remuneration paid creditors) and to generate sufficient income to finance agreed increases in the IMF's reserves, and is adjusted upward to pay the borrowers' share of the burden of deferred charges and additions to the IMF's precautionary balances. Like remuneration, the rate of charge fluctuates with changes in the SDR interest rate and thus the underlying market rates. The basic rate of charge for the week of April 20, 1998 was 4.54 percent or 107 percent of the SDR rate.

Last year, the IMF adopted a U.S. proposal for a Supplemental Reserve Facility (SRF) under which members obtaining large amounts of IMF financing to deal with emergency situations pay a surcharge of 300-500 basis points over the regular rate of charge. The surcharge is intended to encourage such borrowers to repay IMF loans as soon as possible after access to private markets is restored. A portion of the IMF loan to Korea was financed under the SRF, and we expect that there will be increased recourse to the facility in the future.

The Executive Board reviews regularly the policy on charges and remuneration and has considered the possibility of instituting a risk premium. Changes in IMF charges require a 70 percent majority vote, and most Directors, both debtors and creditors, have opposed introducing differential risk premia. The IMF is a cooperative institution established on the principle that member countries share a fundamental interest in providing mutual support to each other in order to prevent or contain disruptive financial crises and preserve the stability of the international financial system. A non-discriminatory pricing policy is fully consistent with the basic tenets and mission of such an institution. As an international financial institution, the IMF enjoys what amounts to preferred creditor status, seniority relative to other creditors and a superior capacity to obtain repayment. This tends to equalize the risk of all IMF loans. No country has ever defaulted on its IMF obligations.

Transparency

One of the most prevalent concerns about the IMF is that it discloses inadequate information about the details of its lending programs and the contents of its policy advice to its members. In general, we share these concerns. We strongly believe that increased transparency by governments and the international financial institutions is essential for the effective functioning of the global financial markets. We have been at the forefront of efforts to promote greater openness and accountability, successfully gaining support for a number of changes in IMF policies.

In 1996, the IMF introduced the Special Data Dissemination Standard (SDDS) to improve the information collection and publication practices of countries accessing international capital markets. The Fund is also providing more information on its own activities, largely in response to U.S. efforts, including the voluntary release of Press Information Notices (PINs) summarizing IMF views at the conclusion of Article IV consultations -- PINs have been issued for 72 countries since its creation in May 1997 -- publication of the Policy Framework Papers describing country economic strategies which serve as the basis for ESAF and IDA financing, and issuance of IMF background papers on economic developments in individual countries. Letters of Intent describing the policy commitments which countries undertake as a condition for receiving IMF financing are being increasingly released by the country concerned. The Letters of Intent for IMF programs with Korea, Thailand, and Indonesia have all been made public and are available on the IMF web site.

While the progress has been substantial, there is clearly room for improvement. At the Interim Committee meeting, Secretary Rubin presented specific proposals to:

• increase the participation in and content and usefulness of the SDDS;

• create a presumption that all members would issue PINs;
• require publication of Letters of Intent;
• permit release of staff reports on Article IV consultations; and
• allow more timely access to IMF archival material, release of IMF reports to the Interim Committee and staff papers on key policy issues, and publication of more summaries of Executive Board meetings.

Beyond these steps there are practical limitations and legitimate concerns regarding how far the IMF could and should go in releasing information. The Fund's effectiveness as a confidential policy advisor to member governments requires that consultations be frank, candid, and based on mutual confidence. Moreover, the Articles of Agreement permit a country the right to prohibit publication of information which it provides the Fund in confidence. Finally, we do not believe the IMF should substitute for private creditors and investors reaching their own decisions about the risk of lending or investing in a country. Progress will continue, albeit at a slower pace than many would consider optimal.

Performance Measures

The Committee has asked us to identify possible concrete performance measures by which the Congress could judge the effectiveness of the IMF. This is a particularly difficult task in an institution such as the IMF. The issues which the IMF seeks to address are not fully in the institution's control but depend importantly on decisions and actions by member governments and the markets. Finally, the tools which the IMF relies upon are inherently imprecise and subject to conflicting interpretation and judgment.

In this context, any assessment of the IMF's performance will necessarily be judgmental and qualitative. There are a variety of measures that the Congress might consider:

First, the Congress could evaluate the extent to which the IMF meets the general purposes contained in its Articles of Agreement to promote trade, growth, employment and a stable international monetary system. It is both possible and appropriate to assess whether the policies and programs the IMF advances contribute to these objectives, although it is important to recognize that the IMF does not and cannot bring about by its actions alone a positive change in any of these areas.

Second, the Congress could evaluate the extent to which the United States succeeds in advancing specific policy issues, such as advancing core labor standards or improving transparency within the IMF. Here it is clearly possible to measure performance against a specific list of objectives.

Third, the Congress could examine the more specific questions of how countries with IMF programs perform, whether they meet the conditions in the programs, and whether the policies pursued with IMF support are effective, for example, in strengthening growth and employment.

The legislation now being considered by the Congress contain a number of different types of reporting requirements that are designed in part with these objectives in mind. We would be pleased to work with you and other interested members of Congress to explore how best to identify performance measures that would provide a useful picture of the effectiveness of the institution.

Conclusion

The IMF is an imperfect institution and there is room for improvement. However, a reasonable reading of the record of the past 50 years would indicate that the IMF has:

• contributed to a period of unprecedented growth in the world economy by promoting pro-growth, market-oriented reform, and by reducing barriers to the flow of international trade, investment and capital;

• advanced U.S. interests in promoting a market-based, global economy that is best suited to the pursuit of the spread of democratic ideals; and

• helped countries deal with financial problems in a manner that reduces the risk of deep and prolonged economic contraction and competitive exchange rate policies that could threaten global prosperity and stability.

Our view, Mr. Chairman, is that the United States and the world are significantly better off with the IMF than they would have been without it. Our efforts should be focused on reforming the IMF to make it work better. The legislation now before the Congress to replenish the IMF's resources is critical, especially as the Fund's current liquidity has fallen to levels which threaten its operational capacity to deal with any spread or intensification of the current crisis and to deal with further crises that could threaten U.S. interests. We are committed to supporting reforms in the IMF and in the architecture of the international financial system as a whole that will help advance U.S. interests and best respond to future challenges to U.S. interests. We look forward to working with the Congress toward these objectives.