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that time, he worked in the Treasury Department's Office of International Monetary Affairs.
I must say your background gives you an expertise on a myriad of issues, including the Third World debt, the trade deficit and the coordination of monetary policies between the United States and the Western allies. Other than that, you won't have much else to do, I guess. [Laughter.]
The CHAIRMAN. We are very pleased to have you. I defer now to my distinguished colleague, Senator Packwood. Senator PACKWOOD. I have no opening statement, Mr. Chairman. The CHAIRMAN. All right. We are very pleased to see the distinguished senior Senator from the State of Virginia here, my good friend, John Warner. Would you proceed, sir? STATEMENT OF HON. JOHN WARNER, A U.S. SENATOR FROM
VIRGINIA Senator WARNER. Thank you, Mr. Chairman, Senator Packwood. I shall be very brief.
Both of these distinguished Americans are well known to this committee and I would like to ask unanimous consent that my statements on behalf of each will be inserted into the record in its entirety.
They are both Virginians, and as such it is a distinct honor for me to come before the committee and introduce them.
I would like to just mention briefly one thing about Dr. Dallara, which I am sure the Chairman, in view of his distinguished military record, will understand why.
Dr. Dallara comes to this position with an impressive ray of experience and background. He served our country in the United States Navy in the early 1970s as an Admiral's aide and a Flag Lieutenant to a Rear Admiral, serving as executive assistant with a variety of duties, including flotilla watch officer at sea. These coincided with my tenure as Secretary of the Navy, so I can personally attest to how hard we worked the Flag Lieutenants and the Admirals' aides. Need I say more, Mr. Chairman?
The CHAIRMAN. Well, once upon a time, I thought about joining the Navy, but I would have been Ensign Bentsen and I would never have been promoted. [Laughter.]
Senator WARNER. Well I am fully aware the distinguished chairman's record is a member of the old Army Air Corps many years ago.
And also, Mr. Chairman, I am honored to represent here Kay Cole James to be Assistant Secretary for Public Affairs in the U.S. Department of Health and Human Services. She, likewise, has had a distinguished record of public service, but I have had the opportunity to work with her on a number of very controversial issues. I would say unequivocally that she has a sense of fairness and objectivity in her approach to decisions which I think will do her very well in the duties for which the President of the United States has designated her, subject to confirmation by the Senate.
I thank the chair and I thank the ranking member for the privilege of appearing.
The CHAIRMAN. Senator, we are very pleased to have you and appreciate your introduction of these two nominees. Senator WARNER. Thank you.
The CHAIRMAN. Now, Dr. Dallara, the introduction is over and you are on your own.
[The prepared written statements of Senator Warner appear in the appendix.] STATEMENT OF CHARLES H. DALLARA, DEPUTY UNDER
SECRETARY OF THE TREASURY-DESIGNATE Dr. DALLARA. Thank you, Mr. Chairman. I would like to thank the Senator for his very kind introductory comments. I appreciate very much him joining the hearings here today to introduce me.
It is indeed a pleasure to appear before you and your committee today, Mr. Chairman, as you consider my nomination to the position for the Assistant Secretary of the Treasury for International Affairs.
I am honored to have been nominated by President Bush for this position, and I am, of course, prepared to answer any questions you or your colleagues may have concerning my qualifications, experience, or the responsibilities associated with the position to which I have been nominated.
It was my pleasure to have appeared before this committee only seven months ago in connection with my nomination to the position of Assistant Secretary for Policy Development. At that time, Mr. Chairman, I underscored my willingness and intent to work with Congress in the fulfillment of my duties if confirmed. I made every effort to follow up on that commitment and I would like to reiterate that pledge to you today. If confirmed to the position to which I am nominated, my duties will cover, as you have already indicated, Mr. Chairman, a full range of Treasury activities in the international arena.
I would plan to work closely with the appropriate committees, subcommittees, and individual members of the Senate and House, as well as their staffs, in an effort to ensure full and continuing consultation with the Congress on such matters of vital national interest.
Before closing, Mr. Chairman, I would like to take the opportunity, if I may, to introduce my family who is here with me today. My wife, Carolyn, and my children, Stephen and Emily, all of whom have tolerated the demands for my positions in Government for a number of years, and who are apparently willing to do so for at least a few more.
I would also like to thank Secretary of the Treasury Nicholas Brady, and President Bush for the confidence they have expressed in me by nominating me to this position.
If this committee were willing to share their confidence, I will do my utmost to serve my country in these duties.
Thank you, Mr. Chairman. I would be happy to answer any questions which you or the members of the committee may have at this time.
The CHAIRMAN. Dr. Dallara, one of the most serious problems facing this country is the trade deficit. The previous Administra
tion, and perhaps this Administration to a degree, has relied on two means to improve the trade deficit: reducing the budget deficit; and by decreasing the value of the U.S. dollar in relation to other currencies.
From my perspective, the budget that has been presented is very marginal, and will not achieve its objectives. It depends on some very rosy economic assumptions that I don't agree with and that are contradictory
The value of the dollar has been on the rise. And, I don't see much improvement in the trade deficit.
What is the Administration proposing to do about the trade deficit? Is the Administration satisfied with the run up in the dollar?
Dr. DALLARA. Mr. Chairman, on the first question concerning the trade deficit itself, the Administration is in the process of developing a position on trade policy and, more broadly, the trade deficit. It seems to me that the Administration's approach in this area will need to encompass a number of policy areas. First, it will need to cover trade policy in terms of enforcing legislation and ensuring that efforts continue, and are strengthened where necessary, to reduce and eliminate trade barriers overseas and to promote trade liberalization.
Beyond that, it will be important to continue the economic policy coordination process with other industrial countries in order that domestic demand in foreign countries exceeds their total GNP, and they can pull in our imports. And the converse of that is necessary here; that our domestic demand be below our overall level of GNP in order that we can reduce our demand on foreign goods relative to domestic products.
The CHAIRMAN. Well let's get to the dollar. What is the attitude of the Administration towards the run up in the dollar? And what, if anything, does the Administration propose to do about it?
Dr. DALLARA. One month ago, Mr. Chairman, we had a meeting of the G-7 Finance Ministers and Central Bank Governors. At that time, the meeting agreed in a communique that a rise in the dollar that was counterproductive to the adjustment process would be unwelcome. The Administration, in effect, stands by that commitment today, Mr. Chairman.
The CHAIRMAN. You mentioned Secretary Brady a moment ago. When the Brady plan on third world debt was announced, it resulted in great expectations by some of the debtor nations. Mexico was cited as a test case because it had adopted some tough austerity measures and had taken steps to privatize State-owned industry. Mexico has also worked very hard to reduce its trade deficit and increase exports. I haven't heard much about the progress in these negotiations. What is the status of the negotiations with Mexico. And, what incentives are there for banks to charge off part of those loans?
Dr. DALLARA. The negotiations are underway, Mr. Chairman. The Mexicans have presented some initial proposals to the Bank Advisory Committee which is representing the full universe of banks. And it is my understanding that the Advisory Committee is in the process of developing a coordinated position within the banking community to respond to that initial proposal by the Mexican Government. We expect that such a response by the banks to the initial position of the Mexicans will occur within a matter of days.
The CHAIRMAN. What is the incentive for a bank to charge off part of the loan?
Dr. DALLARA. There are a number of incentives, Mr. Chairman. One of the most fundamental incentives, in my view, is that in the absence of cooperative action on the part of the banks, either in the form of providing new money or providing debt reduction or debt service reduction, it will be difficult to foresee timely payment by the debtor countries of their interest obligations to the banks.
The CHAIRMAN. The problem is they will say, “Let the other banks do it. I am going to take care of my bank, I am not going to charge off anything." How do you get to that bank?
Dr. DALLARA. Well it can be a problem with some of the smaller banks, Mr. Chairman, and we don't have an easy solution to that. We do believe, however, that we have created a variety of options here which should be attractive to a range of banks. If a bank no longer wants to provide new lending, now that bank is offered an opportunity to participate in debt reduction, for example. In addition, there are some other financial incentives, we are prepared to see some modest use of IMF and World Bank resources to help, in effect, back up this debt reduction process.
The CHAIRMAN. You are giving them more security. For one thing, I assume what you are hanging out there is a carrot.
Dr. DALLARA. They will exchange an existing claim at a discount, and the new claim which they will hold will be fully collateralized. And at the end of that 30-year term, or whatever it turns out to be, they can expect with a high degree of certainty full repayment of that principal. They will also have some security on the interest, most probably.
The CHAIRMAN. I think the progress has been awfully slow, frankly.
Senator ARMSTRONG. Thank you, Mr. Chairman. I have nothing at this time.
The Chairman, Thank you very much. Dr. DALLARA. Thank you, sir. The CHAIRMAN. Senator Thurmond, were you here to speak? Senator THURMOND. If you will give me about two minutes to endorse this gentleman?
The CHAIRMAN. Well, I will tell you, Dr. Dallara is really hanging in the balance. Now you have Senator Thurmond here. (Laughter.]
STATEMENT OF THE HON. STROM THURMOND, A U.S. SENATOR
FROM SOUTH CAROLINA Senator THURMOND. Thank you very much, Mr. Chairman. I am very pleased to be here today and endorse Mr. Charles H. Dallara who has been nominated by President Bush to be Deputy Under Secretary for International Affairs at the Department of the Treasury.
Mr. Dallara was born in Spartanburg, South Carolina. In 1970, he graduated from the University of South Carolina with a Bachelor of Science degree in Economics. Four years later, Mr. Dallara entered the Fletcher School of Law and Diplomacy at Tufts University where he received a Master of Arts in International Economics, and Law and Diplomacy. In 1986, he received his Ph.D in International Economics from the Fletcher School of Law and Diplomacy.
Mr. Dallara served in the United States Navy from 1970 to 1974. During his service he was a gunnery officer, deck officer, navigator, legal officer and personnel officer on the U.S.S. Sampson. Additionally, he served as an aide and flag lieutenant for Rear Admiral Samuel L. Gravley, Jr. in Newport, Rhode Island.
Mr. Dallara has had considerable experience in the area of international economic policy. Over the last 13 years, Mr. Dallara has held several positions of responsibility at the Department of the Treasury. In these jobs, he has been generally responsible for international and domestic economic issues.
Additionally, Mr. Dallara is currently the United States Representative at the International Monetary Fund. I believe that his considerable experience will be most valuable to Mr. Dallara in the position to which he has been nominated. It is with much pride that I appear today to present this fine man to the committee and endorse him highly. Thank you very much, Mr. Chairman.
[The prepared statement of Senator Thurmond appears in the appendix.]
The CHAIRMAN. Senator Thurmond, we are very pleased to have you back. That was a strong statement in support.
Dr. DALLARA. Thank you, Senator. The CHAIRMAN. Thank you, Dr. Dallara. Dr. DALLARA. Thank you, Mr. Chairman. The CHAIRMAN. Our next nominee, is Mr. Hollis S. McLoughlin. Mr. McLoughlin has been nominated to fill the post of Assistant Secretary of the Treasury for Policy Management. In that position he would be the chief advisor on policy formulation for the Treasury Secretary. Mr. McLoughlin is no stranger to the Dirksen Building. In 1982, he was Chief of Staff for then Senator Nicholas Brady. Mr. McLoughlin also brings to the job a background in business management. He was managing director of the Taggart Group and a senior vice president for Purolator Courier.
Mr. McLoughlin, you will be putting your management skill to the test on the myriad of issues facing Treasury these days.
I defer to my colleague, Senator Packwood.
The CHAIRMAN. Senator Armstrong, do you have any statement to make?
Senator ARMSTRONG. Thank you, Mr. Chairman. No, I do not at this time.
The CHAIRMAN. Mr. McLoughlin, we would welcome any opening statement which you may care to make at this time.