Treasury Notes

 Secretary Lew’s Hearing on the International Financial System

By: Alexia Latortue
3/19/2015

​This week, Secretary Lew testified before the House Financial Services Committee, in a hearing focused on the state of the international financial system.
 
During the hearing, he received several questions about multilateral institutions, and was specifically asked about the proposed Asian Infrastructure Investment Bank (AIIB).  Treasury, and the Administration more broadly, have been clear and consistent about our position on the AIIB.  It is essential that the United States and other countries continue to enhance infrastructure investment worldwide.  It is equally important that any new multilateral institution incorporate the high standards that the international community has collectively built, especially with regard to governance and environmental and social safeguards.  These standards are necessary to ensure that institutions contribute to strong and sustained economic growth over the medium term.
 
Speaking to this issue in his testimony, Secretary Lew said: “There are obviously vast needs in Asia and many parts of the world for infrastructure investment.  Our concern has always been not is there going to be an investment institution, but will it adhere to the kinds of high standards that the international financial institutions have developed?  Will it protect the rights of workers, the environment, deal with corruption issues appropriately?  Our point all along has been that anyone joining needs to ask those questions at the outset.  And I hope before the final commitments are made, anyone who lends their name to this organization will make sure that the governance is appropriate.”
 
Under Secretary for International Affairs Nathan Sheets made a similar point in an op-ed earlier this year about the important role of the multilateral institutions in advancing global development, and the core standards that underlie the effectiveness of these institutions.  With regard to new institutions like the AIIB, Under Secretary Sheets said, “We believe that each new addition to the architecture should be designed to add value to the system as a whole, and have a clear role alongside of, and complementary to, the existing institutions… The United States stands ready to welcome new institutions into the international development architecture, provided that they share the international community's strong commitment to complementing the existing institutions and maintaining time-tested, and ever-improving, principles and standards.”
 
The United States and our partners around the world – including China – have a stake in seeing the AIIB complement existing institutions and uphold high standards, especially those regarding governance and environmental and social safeguards.  These standards are about much more than risk management; they are intrinsically part of the value that multilateral institutions offer to achieve positive and sustainable outcomes.
 
Some of our partners may choose to join AIIB and work from within to encourage the institution to adopt high standards, while others may engage in other ways.  For the United Sates, we will continue to engage directly with China and to coordinate with the rest of our international partners to provide concrete suggestions on how the AIIB can best adopt and implement high quality standards.
 
Regardless of whether they join or not, many countries – both potential donors and borrowers – share similar views about what constitutes a sound multilateral institution, and we are confident that prospective members of the AIIB will push for the high standards that are necessary for such an institution.  It is therefore not surprising, that in announcing that they would become prospective founding members, Germany, France, and Italy stated that, “in close coordination with international and European partners, [we] are keen to work with the AIIB founding members to establish an institution that follows the best standards and practices in terms of governance, safeguards, debt and procurement policies.”
 
We look forward to ongoing engagement, with the goal of ensuring that the lessons learned and work over decades in the existing international financial institutions is incorporated into new ventures, to the benefit of developing countries and the international financial system.


Alexia Latortue is the Deputy Assistant Secretary for International Development Policy at the U.S. Department of the Treasury.
 
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Posted in:  International Affairs
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