More Treasury Oversight Sought
CONGRESS will have more extensive regulatory power over the United States Treasury, if House Banking Committee Chairman Henry Gonzalez (D) has his way. Mr. Gonzalez complains about the Treasury's access to $26 billion in Federal Reserve resources - essentially a loan - to carry out Treasury foreign currency interventions. He plans to introduce legislation providing for tighter congressional review of Treasury expenditures.
Last week Gonzalez chaired a hearing to investigate the Treasury's involvement in a debt reduction deal with Mexico. This deal was part of the Brady plan - named for Treasury Secretary Nicholas Brady - which encourages economic reform of debtor countries through partial forgiveness of their debts.
The current controversy with the Treasury involves the sale of zero coupon bonds to Mexico. These bonds bear no interest and are sold at a price greatly reduced from face value. In effect, according to Congress's General Accounting Office (GAO), the Treasury gave Mexico a $192 million subsidy at US taxpayers' expense.
The Treasury disputes this. David Mulford, the Department's undersecretary for international affairs, says US taxpayers were actually saved more than $100 million, given what the US would pay in interest to sell the usual interest-paying bonds to Mexico instead of the zero coupon bonds.
Gonzalez remains unconvinced. He says that the Treasury was so concerned with making a success of the first deal of the Brady plan that ``they were willing to put aside the best interests of the American taxpayer'' by using the zero coupon bonds. The bill proposed by Gonzalez would prohibit the Treasury from pricing bonds at a discount in any future deals. It would also make it mandatory for the Treasury to consult Congress and allow audits by the GAO in any dealings concerning the Exchange Stabilization Fund (ESF).
This Treasury-run fund allows the department to intervene in currency markets - without consulting Congress. Mr. Mulford says congressional oversight would disrupt the efficiency and effectiveness of the ESF. He says foreign authorities will be more likely to restrict their financial disclosures if they believe the information will be shared with other entities, such as Congress.
A current law preventing congressional involvement with the affairs of the ESF, Mulford says, reflects ``congressional recognition of the need to be able to act swiftly and decisively to international financial developments.''
Gonzalez maintains that the provision restricting congressional review of ESF affairs was created in response to support for Britain just prior to World War II. Now, in light of growing concerns in Congress over Treasury's power, Gonzalez says he finds it ``indefensible that there is a $26 billion fund in government totally free from independent review.''
The congressman also questions US encouragement of World Bank and International Monetary Fund (IMF) bailouts for heavily indebted countries. The Brady plan calls for these institutions to make $25 billion in loans available to debtor nations to pay off old loans. Gonzalez says many in Congress are concerned that required reforms will be ineffective and that debtor nations will be unable to pay back World Bank and IMF loans.
Since the US is the largest stockholder of both the World Bank and IMF, US taxpayers would then bear most of the burden of recapitalizing them, Gonzalez says. This could cost tens of billions of dollars.
Christopher Whalen, senior vice president with the Whalen Company in Washington, says this is not an unlikely scenario, especially in the case of Mexico. Mr. Whalen testified last week that new loans from the World Bank and IMF have actually allowed Mexico to ``avoid basic structural changes.''