July 28, 1978
Page 23230
Mr. McCLURE. Mr. President, will the Senator yield?
I take this time now only because I want the record to reflect what the varying views are. I appreciate the comments of my colleague from New York because I do know that the Treasury has maintained all along the position that payments to the IMF are like deposits in a bank where Treasury funds are kept pursuant to withdrawal. Therefore, Treasury contends that these payments are not expenditures but merely an "exchange of monetary assets."
In short, the Treasury would lead us to believe that a special drawing right (SDR) is like a certificate of deposit (CD) for Treasury funds at Riggs Bank. Nothing could be further from the truth. The CD is liquid while the SDR can be redeemed only to the extent that the IMF asserts that the United States is in a severe balance-of-payments position and some other country is willing to accept the SDR for its own currency.
Aside from the merits of the Witteveen Facility itself, the exchange-of-assets concept poses substantial problems as a precedent for future financing activities. Under the reasoning advanced by the Treasury, it would be possible to set up a bank to finance some activity — energy development or urban development, for example. The Treasury could then deposit in the bank such sums as it deemed appropriate and obtain in return a certificate of deposit. The bank would have the use of U.S. funds, which the Treasury would treat as assets on deposit in the bank. And all this could be accomplished without congressional approval. The potential for this technique as a new form of backdoor spending is almost unlimited.
That is the reason why I am absolutely confident that it is a violation of the Budget Act. I would have made the point of order except I wanted to give the managers of the bill the opportunity to correct the defect in the legislation rather than barring its consideration and requiring that it go back to the committee.
I would be happy to yield to the Senator from Maine.
Mr. MUSKIE. Mr. President, I want vigorously to support the argument of the distinguished Senator from Idaho (Mr. McCLURE). We have been discussing this off and on privately throughout this calendar year, indeed, prior thereto.
Throughout the year, I and others have been asked to attend meetings for the purpose of trying to resolve this institutional issue. But, the meetings were never called or were canceled. Meanwhile, S. 2152 has been languishing on the Senate calendar.
There is no question that a point of order lies to this bill, in its present form,under my interpretation of the Budget Act. I will not undertake to describe or define the interpretation at this point because, I take it, we will have ample opportunity to do that later on. But I wouldlike to suggest that what is important with respect to the Witteveen facility is that the certainty of American participation be established.
I really doubt that our partners in this effort abroad are concerned as to the integrity of our bookkeeping arrangements. They are more concerned about the certainty of our commitment. It is unfortunate that this delay has taken place, this delay in implementing the Witteveen facility, whose purposes I thoroughly subscribe to, because of bookkeeping arrangements that are mandated, in my judgement, by the Budget Act.
If we permit this exception, and the Senate accedes to this exception that is being urged by the floor managers of this legislation, we open a very wide door indeed, not only with respect to international legislation, but with respect to legislation having domestic impact. What is being urged apparently is that we approve a token appropriation which can then be the basis for unlimited commitment to obligations far exceeding the amount of the original appropriation.
If that is not inconsistent with the accountability which the Budget Act imposes upon us, then I do not recognize the mandate of the Budget Act which I have been charged to support for now some 4 years.
I will not go into it further at this point, but I will have ample opportunity later to define my understanding of the Budget Act as it applies. I state again: It is unfortunate that we are going to be involved in a step which delays further implementation of the IMF supplementary financing concept. But that is the way it has to be. I feel very strongly about this situation, and I want to make that point clear at the outset of the debate.
Mr. PROXMIRE. Mr. President, will the Senator yield very briefly?
The PRESIDING OFFICER. Is the Senator from Idaho yielding?
Mr. CHURCH. Mr. President, who has the floor?
The PRESIDING OFFICER. The Senator from Idaho (Mr. McCLURE) has the floor and he yielded to the Senator from Maine. But I gather he is yielding
Mr. McCLURE. I yield the floor.
Mr. CHURCH. Mr. President, I would like to respond briefly to the remarks of the Senator from Maine, the able chairman of the Budget Committee, as well asto the remarks of my colleague,
Senator McCLURE. It may be that there need be no problem concerning this matter.
First of all, I think we ought to get the facts straight with respect to this Witteveen facility.
The contributions that we would make to the Witteveen facility differ from ordinary contributions that the United States makes from time to time to the International Monetary Fund in this respect: The money which the United States provides to the Witteveen facility under the provisions of this bill will be repaid to us in eight semiannual installments beginning 3½ years after the financing is provided. The funds will be repaid with interest, covering the cost of borrowing to the Treasury, so there will be no net interest costs involved.
So let it be clear that both the principal and interest will be repaid. The only possible potential loss that could result from U.S. participation would come about if there is a change in the relative exchange rates between the dollar and the SDR during the period in which our contribution is outstanding.
If the dollar appreciates against other currencies during that period, the Treasury will get back fewer dollars than it paid in. If the dollar depreciates during that period, the converse will be true: our Treasury will get back more dollars than it paid in.
It is my understanding that the President has included in his 1978 supplementary budget request a $200 million contingency reserve to meet the potential exchange loss which might result from U.S. participation in the facility.
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. CHURCH. Yes, I would like to yield, because I do not think that it is necessary for us to have a collision on this question. All we are attempting to dois to accurately ascertain the extent of the liability and the possible cost.
Mr. MUSKIE. The difficulty I have with the Senator's argument is that all across the budget, we have programs involving direct loans — in agriculture, for example. And the dollar amount of those loans has to be appropriated, notwithstanding the fact that in many cases they are totally repaid without loss to the Treasury. We in Congress have to account for the drain on national resources.
So the fact that this is in the nature of a direct loan, if this is an accurate description of it, does not differentiate it from other programs, policies, or transactions which involve direct loans. That is not a distinction that has any persuasiveness so far as the Budget Act is concerned. All must be fully accounted for by appropriations.
Loan guarantees are sometimes treated differently. However, Witteveen is most comparable to a direct loan. If we were to extend that kind of a precedent here, then I am sure that before long we would have committees coming to the Senate floor and arguing that really the full amount of the program that they are requesting should not be charged against them, because it is their estimate that only 10 percent may represent an ultimate loss, so we do not have to worry about the 90 percent which will be repaid.
I can see all sorts of precedents offered, then, for expansion of our obligations, based upon that kind of loan, because of someone's estimate on the amount of loss which may or may not ultimately occur. It is to close that back door that section 401 of the Budget Act was written into law.
So I think the Senator needs to make a very careful distinction based on that point.
Mr. McCLURE. Mr. President, will my colleague yield for one further comment?
Mr. CHURCH. Mr. President, I would hope that the Senator from Maine might also distinguish between the International Monetary Fund and the more conventional types of loans made by our Government for various domestic purposes.
This fund is, after all, an international fund. It is owned by the participating governments that contribute to it. We have special drawing rights in connection with it, should we, because of our own balance-of-payments deficit, require assistance from the fund.
So I do not quite understand the Senator's fear that passing the bill in its present form would create a dangerous precedent.
In the past, when the United States has made contributions to the fund where no appropriation has been required, it has been regarded as a deposit of an asset by the U.S. Government in international funds in which we participate and in which we have rights.
The Witteveen facility seems to me to be an especially poor place to change past practice, because here we not only deposit the asset with a drawing right should we need it, but we do so under the terms of a special facility which is temporary in character, and which expressly undertakes the obligation of repaying the full amount with interest.
I think this is a unique situation, quite different from the kind to which the Senator refers, and I wonder if we really even assume any risk of establishing some precedent that might come to afflict other loan operations.
I think not. I think this is unique.
Mr. MUSKIE Let me say, first of all, it is not the question of a risk which is the only reason why the Budget Act requires that we account for drains upon the Treasury.
Not every dollar spent out of the Treasury in the form of domestic or international loans means 100 percent risk. It is not just a question of risk; it is the question of accounting to the taxpayer for resources that we commit, that are not then available for other purposes.
With respect to the IMF, in 1976 the IMF received appropriations as it had since it began its operations in 1946.
The second point is that I am not the one seeking to make an exception; it is the distinguished floor manager of the bill and those associated with him who are trying to make an exception to the Budget Act.
As to the argument that all that is involved is an exchange of assets between the Treasury and the special drawing rights, in short, meaning that somehow it should be regarded as taking the matter out of the Budget Act, the fact is that the asset we get for the money paid, that is, the special drawing right, is restricted. It is not readily usable to the same extent as the funds paid in.
Their use is restricted because they are available only if the United States officially submits a request to the IMF, formally stating a balance-of-payments need, and the executive board approves the request and issues a decision to that effect.
Although the United States could theoretically sell its holding to another major contributor to the facility willing to purchase the U.S. holding, there is no certainty that such a sale could be arranged. It is not an exchange of equal assets, as I understand it.
But second, if we were to accept the exchange of assets argument, then we would have to be concerned, Mr. President, about the application of such an exchange of assets concept in areas which traditionally do undergo appropriations action, and are counted fully as budget authority.
For example, take the case of the U.S. purchases of oil for strategic petroleum reserves. The U.S. purchases of oil for strategic petroleum reserves are counted as budget authority in full, as are virtually all other exchange of assets transactions. Under S. 2152 as originally introduced, the administration would have covered exchange losses from the off-budget exchange stabilization fund without any appropriation. In fact, the oil is much more liquid in its value than the SDR's in the facility: The exchange of assets idea could eliminate from the budget alldirect loans as they would be construed as exchange of assets. For example, dollars for mortgages, mortgages in the domestic field or elsewhere. We would be exchanging dollars for mortgages, for housing or any other purpose. Or Treasury might be authorized to set up a bank to finance some activity such as energy or urban development without any appropriation or budget authority.
Treasury could deposit funds in the bank, obtaining in return a certificate of deposit, like the SDR rights. The bank would have the use of the funds which Treasury could treat as any asset in a bank. Under Treasury's reasoning, only a small sum, if any, covering potential losses, would be appropriate as budget authority although direct funding of the same activities by the U.S. Government would require appropriation and budget authority for the full amount.
These are the kinds of consequential results that we have to guard against if we loosely interpret the Budget Act in order to open the door for this particular application. As a precedent for some such urgings by other Members of the Senate or by other committees, I think the logic is directly relevant to what we are being asked to consider.
Mr. CHURCH. Mr. President, just so the RECORD is not left with a contradiction as to the facts, I have been advised that no appropriation has been required for deposits in the IMF by the United States since 1973. It was at that time that the Congress accepted the Presidential argument that this was a deposit of assets. Appropriations have not been required since that date.
The Senator is correct that before 1968 it was the practice to appropriate the money.
I simply want to get the facts straight between us.
Mr. MUSKIE. I think we should add another fact, that the Budget Act was enacted in 1974, which had made no exceptions with respect to back door spending authority in either foreign policy or domestic policy. There is a reason there was an authorization to establish the need and then an appropriation to establish the justification as among competing priorities. That has been the basis of our appropriations process at least since I have been in the Senate and for a long time before. There is an authorization to establish the need and an appropriation then to permit priorities to compete for the resources available in the Treasury. It is for the reason of protecting that procedure and that practice that this provision was written into the Budget Act.
It was written in because increasingly in the domestic field and the foreign field there had been efforts by authorizing committees to bypass the appropriation process. By so doing, life became easier. I was guilty of it myself. The Public Works Committee, at that time, in seeking to enlarge the program of waste treatment facilities, wrote into our legislation contract authority which, in effect, bypassed the Appropriations Committee.
Other committees were doing the same thing. The Foreign Relations Committee and other committees interested in foreign policy obligations were doing the same thing.
The Budget Act was designed to reimpose the discipline implicit in that two-pronged approach, authorizations to establish need and appropriations to insure that among all the competing priorities for Federal funds there is room for a particular priority.
We ought not lightly retreat from that policy which was re-enshrined in the Budget Act of 1974.
Mr. STEVENSON. Will my colleague yield?
Mr. CHURCH. I will in a moment. I would point out first that following the enactment of the Budget Act, in 1975 and again in 1976 American contributions to the International Monetary Fund were made.
Mr. McCLURE. Will my colleague yield briefly?
Mr. CHURCH.I did promise to yield to Senator McCLURE. Then I will yield to Senator STEVENSON.
Mr. McCLURE. There is some difference regarding the facts. I have been advised that only in 1976 was the U.S. contribution to the IMF permitted without appropriations. I think in every other year since 1946 the U.S. contributions have gone through a regular appropriations process.
As I say, I may be in error on that.
Mr. CHURCH. I would call my colleague's attention to a statement appearing on page 31 of the committee report, which reads:
In July1975, Treasury officials explained to Congress (in letters from Assistant Secretary Charles A. Cooper to Chairmen Reuss, Mahon, Sparkman, Proxmire and McClellan) that no appropriation would be sought to meet the U.S. maintenance of value obligations to the IMF that resulted from the reduction in the SDR value of the dollar during the IMF fiscal year ending April 30, 1975.
So on this occasion, as well as in 1976, no appropriation was sought and Congress did not impose such a requirement even though the Budget Act was passed.
Mr. MUSKIE. May I clarify the RECORD on that point? Frankly, we were asleep, some of us. It has not been an easy task to watch all of you geniuses undertake your work under the Budget Act without changing too many of your hats. Some of these slip by. The 1976 action was not taken as an explicit definition of the requirements of the Budget Act. The question was not raised. It was not raised because we in the Budget Committee were asleep at that point. We were occupied with other responsibilities; we did not fully understand our new mandate.
In the absence of an explicit definition with respect to 1976, that constitutes no precedent for the action we are being urged to take today. We are now in a position to take a clear cut definition and a clear cut precedent which will guide our future actions. It is because we slipped in 1976, in part; it is because we do not want to see this precedent growing into a wide open door with respect to government operations in the domestic field, that we are raising this issue today.
Clearly, if the Congress and the Senate wish to open the door to backdoor spending once more, it can take a first step today, whatever my view or whatever the view of Senator McCLURE, my good friend from Idaho. Whatever our view, the Senate can decide to open that door today. All I am trying to do is to say in my judgment the Budget Act does not permit it. It can be bypassed, it can be run around, it can be abrogated, in effect, by whatever we do, but in my judgment it is not permitted.