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Mr. Chairman, members of this Committee, let me spend a few minutes to discuss the critical importance of approving funding for the International Monetary Fund in light of our attempts to help restore financial stability in Asia, and examine the impact of the crisis on American businesses, workers and farmers.
Let me make one overarching point to start. We have critical economic and national security interests in restoring financial stability in Asia. Nearly forty percent of America's agricultural production is exported -- and forty percent of those exports go to Asia. In general, thirty percent of U.S. exports go to Asia, supporting millions of U.S. jobs, and we now export more to Asia than Europe. In states like California, Oregon and Washington, exports to Asia account for more than half of each state's total exports. Financial instability, economic distress, and depreciating currencies all have direct effects on the pace of our exports to the region, the competitiveness of our goods and services in world markets, the growth of our economy and, ultimately, the well-being of American farmers and workers. Moreover, if the problem were to spread to developing countries around the globe, the potential impact on our economy could be severe.
The United States also has critical national security interests in seeing a restoration of financial stability in the region. We have 100,000 troops based in Asia, 37,000 on the Korean peninsula alone. A stable and prosperous Asia is more likely to be a peaceful Asia -- as was the case over the last decade when Asia was experiencing dynamic growth. Economic stability and political stability, political reform and social stability are separate but closely interrelated, and they all promote peace and our national security interests.
In short, Mr. Chairman, by doing everything sensible to help these Asian countries get back on track, we support our exports to the region, reduce the risk that financial instability will spread to other developing countries with potentially severe effects on us, and help protect our national security interests in the region and around the world.
Mr. Chairman, there are difficult times ahead for the Asian countries in crisis and many challenges to be met, but a number of the countries affected by the recent crisis have committed themselves to sustained reform and that has led to signs of progress. Moreover, the contagion risk that threatened in the early stages of the crisis has so far largely been contained and economic instability has not spread to other developing countries.
In Korea, newly inaugurated President Kim has acted strongly to implement the IMF-supported economic reform program and has worked effectively to reschedule Korea's debt with Western banks. Thailand's new government has also acted strongly to implement the IMF reform program, particularly in beginning to restructure its banking sector. Investors are starting to show renewed confidence in these countries, though, as I said, there are difficult times and great challenges ahead for both Korea and Thailand.
Let me say a word now about Indonesia. Although the political situation is changing rapidly, I do want to make a couple of points. First, it is important to emphasize that it is the economic crisis and political conditions in Indonesia -- and the Indonesian government's mishandling of the crisis -- that have led to a loss of confidence in the government by the Indonesian people and the global financial markets. All of this, in turn, exacerbated the current economic problems and led to political instability. The IMF reform program was a creative response to the economic crisis, not a cause. The IMF program did include difficult measures, but implementing difficult measures is always necessary in restoring financial stability. There are no easy answers to financial crisis, but there are many examples of the necessary rigors of IMF-led reform promoting real progress: Latin America in the 1980's; Russia, though it has many great challenges ahead, and Poland and other ex-communist nations in the early 1990's; and Mexico in the mid-1990's. And if a country is not successful in taking tough steps, and getting back on track, the crisis will very likely be far deeper and far longer and conditions far worse than during the difficult period of implementing reform. The key in all of these situations is for the government and the people to internalize and commit to reform on a sustained basis. It is also important to note that the IMF typically includes specific provisions in the programs to reduce impact on the poor, and that was so in Indonesia.
Second, when the financial crisis developed in Indonesia late last year, the most immediate and pressing issue was to restore financial stability. At the same time, the Administration has always recognized the close links between financial stability, political stability, political reform and pluralism. But it is also important to note that restoring financial stability in a crisis is essential both to prevent the most vulnerable from further suffering and to lay the foundation of long-term economic health necessary for political reform and stability. In the earlier state of the Indonesian crisis, the IMF and the the international community that attaching political reform conditions to the IMF programs would not have worked; indeed, for very important reasons, the IMF is barred in its own charter from engaging in political conditionality. Therefore, we pursued political and human rights objectives through other means. Moreover, significant components of the IMF-led reform program were designed to undo the monopolies and price subsidies that were part and parcel of the existing system, and this was a step to reform. Clearly, the circumstances have now changed, and in addition to the President's statement last week, the United States joined with the other nations in the G-8 this past weekend calling for political reform in Indonesia. In the short term for Indonesia, restraint by the authorities and political dialogue and reform are necessary to reestablish political and social stability and create a framework within which essential IMF-supported economic reforms can be implemented to restore financial stability.
All financial crises involve enormous economic, political and social complications and uncertainties, but those uncertainties must not stop us from acting. Instead, the international community, through the IMF and otherwise, must make the most practical judgements as to what is most likely to work with respect to the interrelated objectives of financial stability, economic well-being, political stability, political reform, and human rights -- and then adapt their programs' approaches as circumstances warrant. This is a most difficult undertaking: the results take time, and there is no easy course, but undertaking this effort is critically in our interest.
The financial assistance mobilized by the International Monetary Fund has played a key role in providing breathing room and developing strong reform programs for these countries. What is important now is sustained adherence to these strong reform programs, as difficult economically and politically as that may be. This is the best path back, and the alternative to reform is far worse. Sound macroeconomic policies, stronger financial systems, structural reform and more open markets are key to restoring financial stability and to the long term economic health of these nations.
Let me now say a few words about the impact of the crisis on the US economy. We have begun to be directly affected by events in Asia. On an annualized basis, exports to the key countries were down about $23 billion in the first three months of this year, and that is likely to worsen in the months ahead.
Moreover, the effects are being felt by America's farmers. As I said earlier, nearly forty percent of America's agricultural production is exported, and forty percent of our agricultural exports -- about $23 billion -- go to Asia. Many fishermen in Alaska are suffering because depreciating currencies have caused their fish to be too expensive for Asian markets. For example, Seattle-based NorQuest Seafoods, Inc, which procures much of its catch from Alaska, reports that demand for surimi, a fish paste used in artificial crabmeat, has declined by about 30 percent. Corn farmers in the Midwest, livestock producers in the West, are all feeling the effects. Corn exports are expected to fall seven million tons, or 11 percent. Cattle and other livestock exports are expected to drop to $7.5 billion this year from $8.2 billion projected before the crisis and $7.7 billion last year. American farmers have a tremendous stake in a restoration of economic health in the region, and a tremendous stake in preventing future crises or most effectively dealing with them and containing them if they occur -- and that gives them a large stake in the future strength of the IMF.
Let me point out that the recent IMF programs in Asia included significant market-opening and structural reform measures that increase the opportunities for US farm exporters. Additionally, we are taking bilateral actions to help farmers. US bilateral export assistance has been stepped up via more than $2 billion in additional export credit guarantees. The US ExIm Bank has also assisted U.S. capital goods exporters with $4 billion in additional short-term trade insurance available for sales to the countries in crisis.
The IMF has been central to the effort to restore financial stability through reform programs to address the causes of crisis in each nation. The IMF has the expertise to shape effective reform programs, the leverage to require a country to accept conditions that no assisting nation could require on its own, and it internationalizes the burden.
Our contributions to the IMF have not cost the taxpayer one dime in fifty years. When the IMF draws on our commitments, we receive a liquid, interest bearing offsetting claim on the IMF of equal value. There are no budget outlays under CBO scoring and no increase in the deficit, or reduction in resources for other spending priorities.
We are asking Congress to approve funding for our participation in the IMF as quickly as possible. As a result of the recent situation in Asia, the IMF's normal financial resources are approaching a historically low level, and the IMF does not have sufficient funds to deal with a truly major crisis, for instance if the Asian crisis were to worsen and spread to developing countries elsewhere, or if a new crisis were to develop. It is in our economic interest to have that vulnerability exist for as little time as possible.
Moreover, failure to support fully the IMF now could shake confidence in American leadership in the global economy just at a time when confidence and American leadership are so important in reestablishing stability in Asia and once we act the rest of the world will act very quickly. At the last IMF replenishment, in 1992, all of the other countries acted within six days of action by the U.S. Congress.
Some have suggested that we should not advance new monies to the IMF unless it agrees to attach certain conditions to all its reform programs. We agree with the importance of many of these objectives. Let me discuss a few steps we are taking to strengthen the IMF and to prevent future crises or deal with them when they occur.
First, we are actively promoting a broad range of reforms within the IMF to make it a more effective institution -- reforms that are directly responsive to suggestions by members of Congress -- and many of these have been attached to the legislation passed in the Senate and passed in the House Banking and House Appropriations Committees. Our contribution to the IMF affords us enormous influence in the IMF, but it does not give us the capacity to control the institution. Important changes and policy decisions require that we work with the 180 member countries and build support for our policies. Thus, while we can and do work energetically to achieve these objectives, some can be accomplished quickly, and others will take time.
Second, we have been working to develop mechanisms so that investors and creditors more fully bear the consequences of bad decisions. In fact, many creditors and investors, have taken large losses in Asia. However, a byproduct of programs designed to restore stability and growth may be that some creditors will be protected from the full consequences of their actions. That is because any action to force investors and creditors involuntarily to take losses, however appropriate that might seem, could cause banks to pull their money out of the country involved, and, perhaps from other emerging markets, which, in turn, could cause serious global economic disruptions.
The United States is leading an international effort to strengthen the architecture of the international financial system to address this question of moral hazard, and, more generally, to better prevent financial crises and better manage those that occur. Last month, I hosted a meeting of finance ministers and central bank governors from 22 countries to focus on this problem.
The United States believes reform of the international financial system should focus on three areas: First, an increase in transparency and disclosure so that investors have better information with which to make good decisions. However, investors must then use that information well. We were struck during the Asia crisis by how little rigorous risk analysis was done by many creditors and investors. Second, strengthening domestic financial systems, to reduce the risk of economic and financial crises. Virtually all financial crises in developing countries either began in or were exacerbated by badly flawed financial sectors. Finally, as I just discussed, we must work to create mechanisms so that creditors and investors more fully bear the consequences of their actions.
Mr. Chairman, let me conclude by reiterating how important it is to secure full IMF funding now, even as we work to improve the IMF and strengthen the international financial architecture. We live in an interdependent world, where the conditions in one country or a group of countries can dramatically affect the economic well-being of farmers and workers in this country. We need the IMF to help deal with financial instability problems when they occur. The probability of a serious reversal in the Asia situation and contagion to developing countries around the world, or of a new crisis in the short term, is small. But these occurrences are possible and the consequences to us could be severe. We cannot afford to take the risk that such events could start to unfold and the IMF does not have the capacity to try to cope effectively. Recognizing the importance of moving forward, the Senate approved funding by a vote of 86-14. I urge you to follow suit. The full IMF funding is needed now, to protect the interests of American farmers, businesses and workers. Thank you very much.