Today, the House Foreign Affairs Committee's Subcommittee on Terrorism, Nonproliferation and Trade, chaired by Representative Brad Sherman (D-CA), held a hearing entitled “Foreign Policy Implications of U.S. Efforts to Address the International Financial Crisis: TARP, TALF and the G-20 Plan.”

The following witnesses testified before the Subcommittee:

Nancy Birdsall, President, Center for Global Development  

Kevin L. Kearns, President, United States Business and Industry Council

Roger Robinson, Jr., President and Chief Executive Officer, Conflict Securities Advisory Group and Former Senior Director of International Economic Affairs at the National Security Council

Damon Silvers, Associate General Counsel, American Federation of Labor and Congress of Industrial Organizations and Deputy Chair of the Congressional Oversight Panel

Terry Miller, Director, Center for International Trade and Economics, The Heritage Foundation and former Ambassador to the United Nations Economic and Social Council

The witnesses discussed generally the foreign policy implications of ongoing U.S. efforts to address the international financial crisis, including its role in carrying out the objectives outlined in the recent G-20 plan. The witnesses indicated that the U.S.'s economic and national security has been compromised in several respects. In particular, the increased monetary support provided by the U.S. and other member states to the International Monetary Fund (IMF) and the creation of U.S. government programs under the auspices of the Troubled Asset Relief Program (TARP) and the Term Asset-Backed Securities Loan Facility (TALF) has increased the potential for transfers of American taxpayer dollars to terrorist-sponsoring states as well as other countries of security concern.

Mr. Robinson noted that “[d]espite the efforts of the U.S. Treasury Department and other government agencies to curtail financial flows (both overt and covert) to bad actors, these regimes continue to benefit from the lawful inflows of hard currency and external financing,” due in part to an increase in U.S. government contracts that have been awarded to private companies under the U.S. government’s TARP and TALF programs. Mr. Robinson remarked that these particular programs involve an “unprecedented sum of federal dollars available to the private sector and [are] offered with a similar lack of security-minded conditionality regarding the recipient’s business activities overseas." He also noted that a potential increase in the IMF’s Special Drawing Rights (which may be exchanged for hard currency) of all member countries (including those that have been deemed terrorist-sponsoring states) may pose an additional security concern since such “funds are undisciplined and easily divertible.”

Ambassador Miller, representing the Heritage Foundation, strongly criticized the present administration’s interference in the present economic market. On a separate point he noted that the TARP “in particular, has created confusion and interfered with the establishment of market-clearing price for the troubled assets in question.” He also noted that the administration of TARP has lacked transparency which, as a result, has created further uncertainty in the direction of the financial markets. He remarked however, that the G-20 can play an important rule in “exchanging information and promoting mutual confidence among governments," but emphasized that the "most important macroeconomic variables under the control of the governments, the money supply and spending levels, must and will remain the province of individual governments.”

Mr. Kearns agreed in part with Ambassador Miller that the present Administration’s response to the economic crisis has created a “bleaker future” for the U.S. “while undermining prospects for acceptable levels of global security and prosperity.” However, he noted that the economic crisis and “the nation’s addition to debt has produced a new danger – the loss of economic and political independence to foreign creditors.” Ms. Birdsall stated that the U.S., in the midst of this present economic crisis, must “engage actively in cooperative institutions designed to help member countries manage global challenges through collective action.” She noted that it was in the U.S.'s best interest from a national security perspective to ensure that the financial crisis did not continue to “destabilize fragile states.”

In his concluding remarks, Mr. Robinson outlined specifically “some private sector arguments for companies to implement new security-minded due diligence procedures that bring a self-policing dimension to their activities in a way that mitigates the valid risks involved.” He noted in this regard that the U.S. government and Congress should play an important role in helping private companies meet these objectives.

Ms. Birdsall strongly recommended that the United States should fully support the efforts of the IMF, including endorsing the “proposed sale of gold to increase IMF resources for financial and other surveillance.” She also emphasized that the U.S.'s road to economic recovery and protection of its national security “depend[s] on substantially increase[ing] resources at international institutions and especially the IMF.” She noted that Congress should fully support the proposed increase in the IMF’s resources including proposals to increase the U.S.'s contribution to the IMF and that Treasury should assume a greater leadership role in carrying out the reforms endorsed by the G-20 leaders.