"Thank you for holding this hearing and for inviting me to testify.
"My testimony a year ago to
"Major Policy Developments in 2018
"In 2018, we worked to orient better the
"We engaged repeatedly with
"We have worked multilaterally to forge a new currency consensus in the
"We have refocused the Financial Stability Board (FSB) on its systemic risk mandate, including the adoption of an activities-based approach for insurance activities, the wind-down of work streams unrelated to stability issues, and the evaluation of the effectiveness of existing policies before developing new policies. I served on the nominations committee for FSB leadership and was pleased with the recent announcement of
"We prepared and published a number of reports including: the MDB Evaluation Report, the Foreign Exchange Report, the report of the
"My testimony before
Click here to view the graph: (https://www.foreign.senate.gov/imo/media/doc/112718_Malpass_Testimony.pdf)
"Policy Direction for 2019
"Looking into 2019, we are again aiming our initiatives at improving the
"Here in the Western Hemisphere, we have emphasized the risks and challenges posed by 'The Troika of Tyranny,' namely
"A high priority in 2019 will be the continued implementation of FIRRMA. Pursuant to that legislation, CFIUS launched an innovative pilot program on
"There will be substantial work to deepen our major initiative on debt transparency. And we will continue to challenge
"As Brexit approaches,
"Supporting the Administration's trade agenda remains another high priority in 2019. We will continue to increase reciprocity and market access, particularly for
"We continue to work to streamline the
"We have been in discussions on the
"Seismic Shifts in Global Finance
"My testimony a year ago discussed the seismic shifts that have occurred in the global financial landscape and that are challenging the relevance of the international financial institutions (IFIs). The structure of global interest rates has moved substantially lower after the inflation peaks of the late 1970s and early 1980s. Large inflows of private sector capital at increasingly affordable interest rates have materially added to growth and prosperity in many developing countries and dwarfed the resources of the IFIs. Similarly, emerging markets have gained far more access to external private capital, including directly from the capital markets as well as through global banks that borrow on the capital markets, resulting in private capital flows dwarfing official flows.
"But these inflows have presented challenges, including renewed debt sustainability risks in more vulnerable countries with weaker institutions and macroeconomic policies. Consequently, the availability of increased financing must be accompanied by a dramatically increased level of debt transparency, the capacity to manage liabilities prudently, and the capability to deploy resources toward their most productive use.
"Many emerging economies-particularly larger middle-income and upper middle-income economies-have gained access to longer maturity debt, increasingly in local currency. This has allowed these countries to build domestic yield curves, providing a solid foundation for ongoing market-sourced borrowing.
"In addition to greater private capital flows, there is another important feature in the creditor landscape: developing economies are grappling with significant and growing inflows from non- traditional official creditors such as
"These major developments-the increase in developing country access to global capital markets and the surge in their official inflows from state-directed capital (mainly from
"To deliver on their policy goals- positively shaping the conditions for growth and higher median incomes in developing countries-the MDBs need to focus more on the quality of their project loans rather than the quantity and on helping developing countries get their policy environment right for using private capital inflows effectively. The MDBs must ensure that they themselves do not displace private capital or lower their lending standards to compete with
"Role of MDBs
"For the MDBs to effectively deliver on these goals, they must conduct sweeping reforms: Refocus assistance on poorer and more vulnerable countries. Strengthen institutions in those countries, and work with them to implement sound policies that attract private investment, deepen private markets, and accelerate economic growth. Potential reforms include limiting lending to defined needs and existing resources, introducing mechanisms to promote financial discipline including through budget and salary constraints, differentiated loan pricing, graduation of borrowers, and sustainable lending practices.
"We are working in the G-20 and G-7 to improve coordination among the IFIs. The G-20 has agreed on a set of principles whereby the IFIs will coordinate with each other, particularly regarding budget support lending. This helps ensure that the MDBs are not competing with the
"With regard to
"But it is worth noting that
"World Bank Capital Increase
"As a direct result of the reform package, the IBRD committed to directing a bigger share of its lending to poorer countries, with the share of lending going to countries below the IBRD graduation income threshold increasing to 70 percent (from the current level of 60 percent); and to applying its graduation policy more rigorously, freeing up resources for countries that most need them. The reform package introduced differentiated loan pricing, making it the first MDB to adopt differentiated pricing for non-concessional sovereign lending. This will provide better- off, more creditworthy countries with an incentive to pursue market financing, rather than IBRD financing.
"The IBRD capital increase is packaged with an increase in the capitalization of the
"We will work with
"We are pursuing policies at the
"We have pressed the
"As countries approach the
"The last point was recently illustrated by
"IMF Quota Review
"Pursuant to Section 41 of the Bretton Woods Agreement Act, we will shortly send a notification that
"MDB Authorization Topics and Specific MDB Objectives
"We have notified
"The negotiations for the 19th replenishment of IDA (IDA-19) were launched on
"The Governors of the AfDB, over a
"As with IDA, replenishment negotiations for the
"We are strongly committed to enhancing growth and development within the
"Mandates Can Complicate the Goal of High-quality MDB Programs
"We continue to press the MDBs to achieve high standards regarding transparency, procurement, and environmental and social safeguards, with the goal of having our funds used correctly, fairly, and transparently. These high standards set the MDB projects apart from projects financed by other lenders who may provide funding, but without transparency and other protections.
"The MDBs have substantially improved their projects over the years, often with significant help from
"Debt Transparency Initiative
"Over the next two years, this new standard of debt disclosure should be defined and endorsed by the official sector. In the case of the
"The IFIs-including the
"On the borrower side, the
"On the creditor side, the
"In conclusion, while