Statement of the Honorable Jack Kemp, Co-Director
Empower America, on behalf of Constituency for Africa

Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means

Hearing on U.S. Trade Relations with Sub-Saharan Africa

February 3, 1999

Thank you, Mr. Chairman, for inviting me to testify on H.R. 434, the "African Growth and Opportunity Act." Before I begin, let me pass along warm greetings from Mel Foote, Executive Director of the Constituency for Africa, and its Board of Directors. And I am especially pleased to be here with my old friend, Ambassador Andrew Young, who originally got me involved with CFA when he was Chairman of the Board.

It is a pleasure to be here to discuss how to spread the blessings of freedom, enterprise, democracy and human rights to the widest possible group of people—and specifically, to the people of Africa, a place where for too long, too many of those benefits, of those human rights, have been lacking.

The legislative initiative toward Africa again under consideration by this committee is vitally important. The legislative goals in this bill constitute a roadmap toward development: eliminating government corruption and minimizing government intervention in the market; encouraging private ownership and removing restrictions on investment; lowering tax rates and establishing stable money; promoting the free movement of goods and protecting property rights. If African countries navigate by these stars, and if the United States works with them to reduce tariff and nontariff barriers to trade and to negotiate free trade areas, there is no limit to the continent's potential.

Since I last spoke to the Committee on the subject (April 1997), I have visited Africa as a participant at the African African-American Summit in Harare, Zimbabwe, where I had the honor to meet President Nelson Mandela and many other distinguished African and African-American leaders.

Mr. Chairman, much of Africa is growing dynamically today—growing economically, politically, socially and most of all in the attention of the United States and the world. Shifts toward political and market liberalization are revitalizing and energizing the continent. We see a new generation of leaders implementing democratic reforms, expanding economic growth and unleashing the human spirit that will help bring greater prosperity and democracy to African nations. Problems and challenges abound, but the potential of both human and physical resources is enormous.

Many of Africa's leaders, like President Museveni of Uganda and his colleagues, have revived the East African Community and brought trade liberalization and renewed economic growth to Uganda and the region.

We have the spirit of Thabo Mbeki, who rejected the cramped goals of mere subsistence and African recovery or Western aid. It is not enough, as he has said, for us to work for "African development." He said we must seek nothing less than an "African Renaissance."

And we have the great Leon Sullivan, whose memorable words on the universal desire of people to improve their living conditions and be free, I quoted all over the world and during my trip to Africa two years ago.

Post-colonial and post-Cold War Africa has made considerable progress but its progress has not yet reached enough people. Though political stability has improved for much of the continent, too many African nations are still plagued with violence, disease and political unrest. And though economic growth is healthy, development is slowed by remaining political and economic barriers that hinder Africans from reaching their fullest God-given potential.

By removing those barriers we can build an even stronger, more prosperous, more democratic Africa—a community of nations mutually benefiting each other, secured and sustained by broad-based economic growth, trading openly with the rest of the world. In that spirit, I am pleased to be here today to discuss a way in which America might assist in this endeavor, not in a paternalistic sense, but as a true partner of the African continent and its great people.

Some of the common themes in the policy mix of African countries enjoying strong economic growth, which would make them excellent partners, are: reasonable tax rates, particularly on personal incomes that allow individual Africans to flourish and prosper; stable monetary and exchange rate policies; and balanced policies on foreign investment with a focus on privatization and economic growth as the solid foundation that is the ultimate magnet for investment capital.

Those African countries that have established successful economic policies want nothing more than to be able to continue the healthy trends they are experiencing, countries such as in Botswana and Uganda. But more than this, they wish to be able to reap the benefits of private capital flows and trade that follow naturally from such policies. They are not asking for a handout, or even for a long-term investment on sentimental grounds. They only seek to harness for their people the same market forces that have worked so prodigiously for the developed nations of the world.

When this committee first opened the prospect of American trade and access to American markets and conceived of a direct relationship with Africa's new tigers, it was an audacious proposal. It still is, but it cannot work if it is implemented in an environment of currency turbulence. Remember the high hopes we all had for NAFTA—hopes that were crushed under a collapsing peso? Revival of those hopes has been stunted by the protectionist sentiments that arose from the currency chaos that followed the peso's devaluation.

Since I last visited with the Committee to discuss this subject, currency chaos has spread. The world financial system has been thrown into turmoil, calling into question the beneficial effects of market forces and indeed creating doubt about the whole notion of economic globalization.

Protectionist instincts, never far beneath the surface, are on the rise as a consequence of the global deflation in commodities and other raw materials. The U.S. steel industry, hurt by a record level of imports from Russia, Asia and other regions, is a prime example. These protectionist instincts are being misdirected at free and open trade instead of the real source of the problem—an international monetary arrangement of floating currencies, in which no currency is linked to a stable anchor and all countries are tempted to use currency devaluation as an economic policy instrument during times of economic duress.

The current system clearly is a menace to the stability and viability of global markets. Since the 1970s, the Leviathan known as the International Monetary Fund has impoverished much of the developing world—such as helping to wipe out the savings of ordinary citizens and families in Mexico when it supported the devaluation of the peso four years ago—through its mindless formula of increasing taxes to balance budgets and depreciating currencies to promote going-out-of-business export sales. Despite promises to reform, the IMF continues to inflict its damaging policies on countries already suffering from financial and economic collapse. Rather than shelling out billions of dollars for the Fund, our Treasury Department should be hard at work figuring out how to reconstitute a stable international monetary system.

The beginning of chaos in financial markets around the world can be traced to the devaluation of the Mexican peso four years ago. At the time, Fed Chairman Alan Greenspan essentially told the Senate Banking Committee that the impoverishment of Mexico would not have occurred if we were on a gold standard—which would have meant that both the peso and the dollar were convertible into gold at a fixed rate. The same is true of the Asian crisis, which sent Thailand and Indonesia off track as the Fed's monetary deflation caused the dollar to depreciate against gold and other commodities.

The economist and author Judy Shelton makes the connection between stable money and free trade: "The real threat to the global trade system is thus the prevailing free-for-all approach to currency relations that engenders monetary nationalism and ultimately fosters a protectionist backlash. The solution is to set up an orderly international monetary system that would permit all nations to compete in the global marketplace based on a common unit of account."

The great 30-year experiment in floating exchange rates has clearly failed. Restoring world-wide currency stability must be our first order of business. Not only Africa, but also the world would greatly benefit from the establishment of a coherent and stable monetary foundation to support free markets and free trade and achieve far greater economic growth.

Some people believe that by setting up currency boards we can curb monetary disorder. In certain countries under certain circumstances, that may be the right thing to do. But a country-by-country approach is an insufficient solution. The world desperately needs a new international monetary regime linked to gold.

Such an arrangement would be the very antithesis of the so-called "new international financial architecture" now being pursued by Deputy Treasury Secretary Lawrence Summers, who favors continued reliance on government-managed fiat currencies and who would grant expanded supervisory and central bank-like powers to that bureaucratic Leviathan, the IMF.

That is why I propose a new international gold-price standard updated for today's sophisticated financial markets. We must restore a standard that makes the dollar "as good as gold," in order to prevent the kind of hyper-inflations and deflations that Brazil and many Third World countries have experienced when they anchor their currency to the dollar and the value of the dollar changes. It is imperative that we do so. Indeed, the fate of the world economy depends upon restoring a global monetary anchor as soon as possible. Doing so would provide a lift to free trade and the global economy, and Africa would reap the benefits of the new international monetary system of stable prices and a currency with a constant value.

In closing, I want to thank the committee for bringing the "African Growth and Opportunity Act" up early in the 106th Congress. Let me reiterate that I believe some of the ideas contained in this legislation can make an important contribution to helping Africa take its rightful place in the global political economy.

A democratic and economic revival of Africa would be mutually beneficial to Africa and her partners in trade, business and diplomacy. This is the genius of economic freedom from which every nation can benefit: no country succeeds at the expense of another. Everyone benefits from their neighbor's prosperity. It is the common ground on which to build a stable community.

Thank you again, Mr. Chairman, for affording me an opportunity to address this crucial matter today. My very best to you and your colleagues as you continue your work to open this new relationship between Africa and the United States. I would now be happy to answer any questions from the committee.