Bipartisan Support and Misconceptions at House Hearing on the Multilateral Development Banks

This is a joint post with Jenny OttenhoffThe House Subcommittee on International Monetary Policy and Trade showed tremendous bipartisan support for a strong U.S. role in the multilateral development banks (MDBs) at last week’s hearing with Lael Brainard, Under Secretary of the Treasury for International Affairs.  But reservations about future funding—and some misconceptions about the institutions—remain, signaling a tough FY2012 budget road ahead.Chairman Gary Miller (R-CA), Rep. Robert Dold (R-IL) and Rep. Carolyn McCarthy (D-NY) kicked off the hearing with supportive remarks about the benefits the MDBs provide to U.S. interests at home and abroad.  Rep. Miller said the MDBs leverage resources to achieve U.S. interests. The United States’ ability to leverage financing and influence through the MDBs will be a critical factor when Congress considers regular funding requests and the once-in-a-generation general capital increases later this year. Rep. Dold argued the MDBs also serve a national security interest, paying “huge dividends” on money the United States won’t have to spend on military action and increased security measures.  And Rep. McCarthy highlighted that the general capital increases will enable the United States to strengthen its domestic economy through increased markets for U.S. exports.Brainard’s testimony echoed these sentiments, adding that U.S. leadership in the MDBs serves more than U.S. national security and economic interests; it is critical to improving transparency, accountability and results at the MDBs. Her testimony comes in the wake former International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn’s scandal-spurred resignation, which raises questions about whether the gentleman’s agreement of U.S. leadership at the World Bank and European leadership at the IMF should change. When pressed, Brainard said the United States has benefitted from American leadership at the World Bank, but that the Treasury department supports an open, merit-based selection process.The main sticking point at the hearing, of course, is how much benefit must the MDBs provide to justify the cost to American taxpayers in the FY2012 budget?Rep. Dold offered one response. He said the American public is generally supportive of spending on foreign aid but  lacks understanding on how and where the MDBs fit into the debate (I bet this applies to much of Congress as well) .  Citing a recent poll, he pointed out that Americans think foreign aid is 25 percent of the budget and want to cut it to 10 percent. Yet it's actually 1 percent and only a fraction of that is spent on MDBs (In 2009, the U.S. spent only twelve percent of its official development assistance through multilateral channels compared to donors like the United Kingdom and Germany who provided a third or more of their aid multilaterally). He concludes that even in a difficult budget cycle ahead, U.S. “priorities still need to be funded and this is an outstanding way to spend these resources on spreading influence around the globe.”Meanwhile, Rep. Donald Manzullo (R-IL) balked at the notion that the MDBs would provide loans to people in developing countries while his own constituents couldn’t get them. He also asked why the World Bank didn’t operate like a regular bank without federal money. I’d like to think that the recent financial crisis highlighted the growing importance of economic stability in developing countries—where five out of six people in the world live—to recovery at home. And that some basic education about the role of the MDBs as development investments, not commercial banks, would help tackle some of these questions. Rep. Dold rightly asked “how can the administration do a better job of getting information to the American public” about the benefits the MDBs yield for the United States and globally, for relatively minor outlays.What kind of information do you think would help members of Congress and their constituents better understand the costs and benefits of the MDBs to the United States?