11/13/2019 - How America Leads Abroad: An Examination of Multilateral... - (EventID=110198)

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Wednesday, November 13, 2019 (10:00 AM) -- Subcommittee on National Security, International Development, and Monetary Policy (Committee on Financial Services) Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/FinancialDems/ Follow us on Twitter: https://twitter.com/FSCDems This hearing will receive testimony from the following witnesses: Panel 1: • Charles Kenny, Senior Fellow, Center for Global Development • Nadia Daar, Head of Washington DC Office, Oxfam International • Jolie Schwarz, Policy Director, Bank Information Center • Matthew McGuire, Vice Chairman, CapZone Impact Investments • E. Whitney Debevoise, Partner, Arnold & Porter Panel 2: • Mathew Haarsager, Deputy Assistant Secretary for International Development Finance and Policy, U.S. Department of the Treasury Background The World Bank is a multilateral development bank (MDB), established in 1945, that offers loans and grants to low- and middle-income countries to promote poverty alleviation and economic development. The World Bank has near-universal membership, with 189 member nations. The World Bank Group includes: the International Bank for Reconstruction and Development (IBRD), which lends to middle-income countries; the International Development Association (IDA), which provides grants and low- or no-interest loans to the world’s 77 poorest countries; the International Finance Corporation (IFC), which promotes private sector development in poor and developing countries by making loans and investments in small- and medium-sized companies; the Multilateral Investment Guarantee Agency (MIGA), which provides private investors insurance coverage against non-commercial risk in developing countries; and, the International Center for the Settlement of Investment Disputes (ICSID), which facilitates investor-state dispute settlement. 2018 World Bank Group Capital Increase Package Last year, the World Bank governors endorsed general capital increases for two separate arms of the World Bank Group (See Appendix). 1) The World Bank’s main lending facility, the International Bank for Reconstruction and Development (IBRD) received a $60 billion general capital increase (GCI), which would increase the IBRD’s capital base by 22% to about $330 billion. The United States committed $1.24 billion of paid-in capital to this GCI, which would need to be authorized and appropriated by Congress over a five-year period. The proposed capital increase comes eight years after the previous World Bank capital increase ($87 billion) in 2010. With the exception of small selective capital increases to adjust relative shareholding, the Bank has raised its capital base four times: in 1959, 1979, 1988, and 2010, all with U.S. support. 2) The International Finance Corporation (IFC) received a $5.5 billion increase, which would more than triple the IFC’s capital base from $2.57 billion to $8.1 billion. Although the U.S. is not contributing any money to this GCI, the U.S. has veto power over IFC capital increase, so Congress would need to authorize the agreement before it can go into effect. IFC stops transferring a portion of its annual net income to IDA Every three years donors come together to negotiate a replenishment of the Bank’s International Development Association (or IDA)—the concessional arm of the World Bank for the world’s poorest countries. In addition to donor contributions, the IBRD (since 1964) has contributed a portion of its annual net income to each IDA replenishment. And for the past 12 years (from FY07 to FY18) the IFC has also transferred a portion of its annual net income to the IDA replenishments, which has totaled about $3.7 billion to IDA. However, in order to allow the IFC to do more work in fragile and conflict-affected states, and therefore take on more risk, and as part of its resource mobilization for its GCI package, the IFC has now suspended any transfers to IDA. Using IDA Funds to Subsidize Private Firms The current IDA replenishment, IDA-18, created a Private Sector Window (PSW) that allocates $2.5 billion of IDA’s concessional funds to the IFC and MIGA to subsidize private sector investments in lower-income countries and fragile and conflict-affected states. According to the World Bank, the rationale for this mechanism is that by transferring risk to IDA, the IFC would be able to attract private finance investments with high development impact in poor and fragile states that would not otherwise happen. There have been concerns raised, however, that the IDA Private Sector Window provided unreported levels of subsidies to private firms selected without competition on the basis of unsolicited proposals, which runs counter to the World Bank’s own principles on the use of concessional public resources to subsidize the private sector. These principles include ensuring that subsidies are justified on public policy grounds,...