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REAUTHORIZATION REQUESTS ON

U.S. PARTICIPATION IN THE INTERNATIONAL

DEVELOPMENT ASSOCIATION AND THE

AFRICAN DEVELOPMENT BANK

HEARINGS

BEFORE THE

SUBCOMMITTEE ON

INTERNATIONAL MONETARY POLICY AND TRADE

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

JULY 19, 25, 2002

Printed for the use of the Committee on Financial Services

Serial No. 107–78

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa

MARGE ROUKEMA, New Jersey, Vice Chair

DOUG BEREUTER, Nebraska

RICHARD H. BAKER, Louisiana

SPENCER BACHUS, Alabama

MICHAEL N. CASTLE, Delaware

PETER T. KING, New York

EDWARD R. ROYCE, California

FRANK D. LUCAS, Oklahoma

ROBERT W. NEY, Ohio

BOB BARR, Georgia

SUE W. KELLY, New York

RON PAUL, Texas

PAUL E. GILLMOR, Ohio

CHRISTOPHER COX, California

DAVE WELDON, Florida

JIM RYUN, Kansas

BOB RILEY, Alabama

STEVEN C. LATOURETTE, Ohio

DONALD A. MANZULLO, Illinois

WALTER B. JONES, North Carolina

DOUG OSE, California

JUDY BIGGERT, Illinois

MARK GREEN, Wisconsin

PATRICK J. TOOMEY, Pennsylvania

CHRISTOPHER SHAYS, Connecticut

JOHN B. SHADEGG, Arizona

VITO FOSSELLA, New York

GARY G. MILLER, California

ERIC CANTOR, Virginia

FELIX J. GRUCCI, JR., New York

MELISSA A. HART, Pennsylvania

SHELLEY MOORE CAPITO, West Virginia

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

PATRICK J. TIBERI, Ohio

JOHN J. LAFALCE, New York

BARNEY FRANK, Massachusetts

PAUL E. KANJORSKI, Pennsylvania

MAXINE WATERS, California

CAROLYN B. MALONEY, New York

LUIS V. GUTIERREZ, Illinois

NYDIA M. VELA ́ ZQUEZ, New York

MELVIN L. WATT, North Carolina

GARY L. ACKERMAN, New York

KEN BENTSEN, Texas

JAMES H. MALONEY, Connecticut

DARLENE HOOLEY, Oregon

JULIA CARSON, Indiana

BRAD SHERMAN, California

MAX SANDLIN, Texas

GREGORY W. MEEKS, New York

BARBARA LEE, California

FRANK MASCARA, Pennsylvania

JAY INSLEE, Washington

JANICE D. SCHAKOWSKY, Illinois

DENNIS MOORE, Kansas

CHARLES A. GONZALEZ, Texas

STEPHANIE TUBBS JONES, Ohio

MICHAEL E. CAPUANO, Massachusetts

HAROLD E. FORD JR., Tennessee

RUBE ́ N HINOJOSA, Texas

KEN LUCAS, Kentucky

RONNIE SHOWS, Mississippi

JOSEPH CROWLEY, New York

WILLIAM LACY CLAY, Missouri

STEVE ISRAEL, New York

MIKE ROSS, Arizona

BERNARD SANDERS, Vermont

Terry Haines, Chief Counsel and Staff Director

SUBCOMMITTEE ON INTERNATIONAL MONETARY POLICY AND TRADE

DOUG BEREUTER, Nebraska, Chairman

DOUG OSE, California, Vice Chairman

MARGE ROUKEMA, New Jersey

RICHARD H. BAKER, Louisiana

MICHAEL N. CASTLE, Delaware

JIM RYUN, Kansas

DONALD A. MANZULLO, Illinois

JUDY BIGGERT, Illinois

MARK GREEN, Wisconsin

PATRICK J. TOOMEY, Pennsylvania

CHRISTOPHER SHAYS, Connecticut

GARY G. MILLER, California

SHELLEY MOORE CAPITO, West Virginia

MIKE FERGUSON, New Jersey

BERNARD SANDERS, Vermont

MAXINE WATERS, California

BARNEY FRANK, Massachusetts

MELVIN L. WATT, North Carolina

JULIA CARSON, Indiana

BARBARA LEE, California

PAUL E. KANJORSKI, Pennsylvania

BRAD SHERMAN, California

JANICE D. SCHAKOWSKY, Illinois

CAROLYN B. MALONEY, New York

LUIS V. GUTIERREZ, Illinois

KEN BENTSEN, Texas

(III)

C O N T E N T S

Page

Hearings held on:

July 19, 2002 ..................................................................................................... 1

July 25, 2002 ..................................................................................................... 47

Appendixes:

July 19, 2002 ..................................................................................................... 79

July 25, 2002 ..................................................................................................... 125

WITNESSES

FRIDAY, JULY 19, 2002

Beckmann, Rev. David, President, Bread For The World .................................... 14

Lee, Thea, Assistant Director for International Economics, AFL-CIO Public

Policy Department ............................................................................................... 21

Offenheiser, Raymond C., President, Oxfam America .......................................... 17

Orr, James, Executive Director, The Bretton Woods Committee ........................ 12

APPENDIX

Prepared statements:

Bereuter, Hon. Doug ........................................................................................ 80

Oxley, Hon. Michael G. .................................................................................... 84

LaFalce, Hon. John J. ...................................................................................... 85

Sanders, Hon. Bernard ..................................................................................... 88

Beckmann, David ............................................................................................. 93

Lee, Thea ........................................................................................................... 98

Offenheiser, Raymond C. ................................................................................. 103

Orr, James ........................................................................................................ 112

WITNESS

THURSDAY, JULY 25, 2002

Taylor, Hon. John, Under Secretary for International Affairs, U.S. Department of Treasury .................................................................................................. 52

APPENDIX

Prepared statements:

Bereuter, Hon. Doug ........................................................................................ 126

Oxley, Hon. Michael G. .................................................................................... 131

LaFalce, Hon. John J. ...................................................................................... 132

Sanders, Hon. Bernard ..................................................................................... 135

Waters, Hon. Maxine ........................................................................................ 139

Taylor, Hon. John ............................................................................................. 141

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Bereuter, Hon. Doug:

Authorization Request for the African Development Bank .................................. 147

Authorization Request for the International Development Association .............. 150

Schakowsky, Hon. Janice D.:

‘‘Leasing the Rain’’ The New Yorker, April 8, 2002 .............................................. 153

(1)

REAUTHORIZATION REQUESTS ON

U.S. PARTICIPATION IN THE INTERNATIONAL

DEVELOPMENT ASSOCIATION AND THE

AFRICAN DEVELOPMENT BANK

Friday, July 19, 2002

U.S. HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INTERNATIONAL MONETARY

POLICY AND TRADE,

COMMITTEE ON FINANCIAL SERVICES,

Washington, D.C.

The subcommittee pursuant to notice, at 9:35 a.m. in Room 2128,

Rayburn House Office Building, Hon. Doug Bereuter, [chairman of

the subcommittee] presiding.

Present: Representatives Bereuter, LaFalce, Frank, Waters,

Bentsen, Sherman, and Sanders.

Chairman BEREUTER. The subcommittee will come to order. The

Subcommittee on International Monetary Policy and Trade meets

today in open session to examine the International Development

Association, IDA.

I will divert a little bit from my prepared remarks because I need

to convey that yesterday the administration did forward their request for the authorization with draft legislation. And it provides

for—and I have seen it about 15 minutes ago—it provides for an

authorization appropriation of $2,850,000 for the United States’

contribution replenishment. The draft legislation is itself only 16

lines long and it asks for that authorization without fiscal year limitations.

I would like to read briefly from the letter of transmittal to the

Speaker, who they asked to lay the draft bill before the House of

Representatives. And it is conveyed to us by the general counsel of

the Department of Treasury. I quote:

‘‘The U.S. leadership’’—‘‘with U.S. leadership, the 13th replenishment will carry two hallmark reforms. The first is the expansion

of grants in IDA. For the first time in history, IDA will be given

authority to significantly expand its grant program beyond the

small post-conflict program it has in place. Consistent with congressional desires, the administration was able to negotiate an IDA

agreement where over the next three years roughly one-fifth of

IDA’s resources will be made available to the poorest countries in

grant form for key sectors, such as education, health, water, and

sanitation, and HIV/AIDs. In addition, grants will be provided for

post-conflict situations, natural disaster recovery for the poorest

countries most vulnerable to external shocks.

2

The second major reform is the establishment of a monitored

evaluation system that measures IDA borrowing countries progress

against a set of key development indicators. The measurement system serves two important functions to provide development effectiveness and accountability function to better position the institution to receive and demonstrate more precise results from the resources invested and a learning function to improve project design

and to direct resources to what works.

In recognition of the importance of this initiative, the U.S. will condition a portion of its assistance, $100 million during the second

year, and $200 million during the third year of the replenishment

period on satisfactory progress toward select high-development impact objectives in areas such as health, education, and private sector development.’’

So the hearing today is the second in a series of three hearings

on the subject of World Bank IDA. Previously, on May 2, 2002, the

subcommittee heard testimony from the General Accounting Office

on the subject of converting World Bank IDA loans to grants.

Today we will hear from a distinguished panel of private sector

and non-governmental organization witnesses that I will introduce

in a few minutes. Subsequently, on July 25th, the subcommittee is

expected to hear testimony from Under Secretary John Taylor of

the Treasury Department on the pending administration request

for the multilateral development institutions. Actually, I am particularly pleased to have this panel first that we can use your comments and suggestions and consider them when we have our question period with the Treasury representative, Mr. Taylor.

I am going to ask unanimous consent to extend my remarks and

put the full statement in the record in a few minutes. I would say

with respect however to the loan and grants debate, in July 2001,

President Bush proposed that the World Bank and other multilateral development banks replace up to 50 percent of future lending

to the world’s poorest countries with grants. According to the GAO

report, which was co-requested by the Honorable Jesse Helms,

Ranking Member of the Senate Foreign Relations Committee, and

myself, conversion of half of all IDA loans to grants would cost

donor countries approximately $15.6 billion in present value terms.

The amount could be financed, they go on to say, if donor countries

increased their IDA contributions by 1.6 percent for each of the

next 40 years. The GAO also found that 50 percent grants would

promote debt sustainability better than 100 percent debt forgiveness of old multilateral debt. According to GAO, this is largely because despite any one time full debt forgiveness, poor countries

would continue to accrue new debt that would quickly become

unsustainable.

The administration’s loan to grant proposal has been controversial among some IDA donors in borrowing countries. The British

and Germans, for example, are concerned that the loss of loans reflows would hurt the long-term viability of the IDA program without significant new commitments from donors.

Similarly, Europeans more generally fear that the distribution of

grants would create an unhealthy dependence on foreign aid and

hinder the development of international credit worthiness. And

poor countries fear grants would give the World Bank increased

3

clout, which they could use to extract additional concessions from

the borrowers.

But in June of 2002, this month, IDA donors did agree to a complex plan that would ultimately result in converting 18 percent to

21 percent of future IDA loans to grants. Under this plan, IDA-only

countries will receive 100 percent of their assistance for HIV/AIDS

projects in the form of grants and all IDA assistance for natural

disasters reconstruction will be on grant terms.

Further, post-conflict countries and debt vulnerable countries

with a per capita income of less than one dollar per day will receive

40 percent of their assistance on grant terms separate from and in

addition to the HIV/AIDS or natural disaster fund. All other countries with a per capita income of less than one dollar per day will

receive 23 percent of their assistance in the form of grants, again

separate from and in addition to the HIV/AIDS and natural disaster funds.

There is general agreement among the donor countries that the

grant money will be focused heavily in health, education, water

supply, and sanitation projects. And then, of course, there is a substantial focus on performance funds but in order to expedite our

consideration today and before I introduce the panel, I would like

to recognize the distinguished gentleman from Vermont, the Ranking Minority Member for any comments that he might have in an

opening statement.

Mr. Sanders?

[The prepared statement of Hon. Doug Bereuter can be found on

page 80 in the appendix.]

Mr. SANDERS. Thank you very much, Mr. Chairman, and thank

you for holding this very important hearing. And we thank our

guests, distinguished guests for being with us today.

As we all know, the International Development Association, the

poor country lending arm of the World Bank, is up for reauthorization this year, and I look forward to working you and the committee on this legislation.

The World Bank was originally set up to end global poverty. Unfortunately, many economists, labor unions, NGOs, religious

groups, and others have strong concerns that the policies of the

World Bank, which often support unfettered free trade, privatization, and slashing social safety nets of countries in order to balance

their budgets, have contributed to increasing global poverty, not

lessening it.

Mr. Chairman, it is my view that the United States and the

other wealthy nations of this world must radically change their attitude and policies toward the developing countries. It is neither

moral nor in the long-term best interest of the United States that

millions of poor people around the world lack health care and medicine and die from preventable diseases. It is neither moral nor in

the long- term best interest of our country that large sections of humanity are unable to find clean water to drink or schools that can

teach children how to read or write.

Ultimately, in my view, a global situation in which a few countries have enormous wealth while a billion people live on less than

a dollar day is not sustainable. Public policies that enable huge,

multi-national corporations to exploit and control the poor of the

4

world cannot be allowed to continue. International financial organizations controlled by wealthy nations cannot be allowed to undermine democracy and the interests of indigenous people.

Here are just a few facts. According to the president of the World

Bank, James Wolfensohn, ‘‘Global poverty is getting worse. Some

1.2 billion people now live in extreme poverty.’’ In 1990, the world’s

poorest 400 million people lived on an average of just 78 cents a

day or less, which represents an actual reduction in living standards from 1990. At the same time, the world’s 200 richest people

have doubled their wealth in the last four years.

According to former chief World Bank economist Joseph Stiglitz,

‘‘Although world income increased 2.5 percent a year in the 1990’s,

an additional 100 million people fell below the poverty line. A

growing divide between the have’s and have-nots has left increasing numbers in the Third World in dire poverty, living on less than

a dollar a day.’’ According to a recent study by the United Nations,

more than 100 million people in the world’s poorest countries will

be dragged below the basic subsistence level of a dollar a day by

2015 due to globalization.

However, the UN study concluded that if countries were allowed

to abandon the economic adjustment programs they were forced to

adopt in the 1990’s by the IMF and the World Bank and instituted

other reforms, widespread poverty in the least developed countries

could be cut by two-thirds over the next 15 years.

Importantly, even the World Bank has admitted to its failure to

reduce poverty in Africa. According to an April 22, 2002 front page

story in The Washington Post, ‘‘Forty countries south of the Sahara

have over the past two decades adopted the free market reforms,

structural adjustment programs, and development jargon prescribed by such lenders as the World Bank and International Monetary Fund but in the generation since independence, Sub-Sahara

and Africa has never been so poor. Since Zambia’s leaders embraced free market policies in the 1990’s, the countries manufacturing base has been eviscerated, leaving the government buried in

more debt than it can repay and gradually replacing a full-time

workforce with a growing and formal economy that offers low

wages, no benefits, and no job security. World Bank officials acknowledge the collapse of Zambia’s textile industry is an unintended and regrettable consequence of the free market policies promoted by the organization.’’

According to Foreign Policy in Focus, ‘‘The policies dictated by

the World Bank and IMF exacerbated poverty, providing fertile

ground for the spread of HIV/AIDS and other infectious disease.

Cut-backs in health budgets and privatization of health services

eroded previous advances in health care and weakened the capacity

of African governments to cope with the growing health crisis. Consequently, during the past two decades, the life expectancy of Africans has dropped by 15 years.’’

It is my strong belief that while the current process involved in

the global economy may be working for multi-national corporations,

in many instances they are not working for the poorest people

around the world and in many instances are not working for the

middle class and lower income families in the United States.

5

Obviously, there are a lot of issues to be talked about. But I

think the events, Mr. Chairman, of the last number of months

where we have learned about the lying of some major corporations,

their concern only about the stock options and the huge compensation packages of the people who head those companies might suggest to us that some of the policies being advocated by these people

for the global economy may really not be of value to the poor people

of the world or in fact the working people of this country.

There is a lot to be discussed, but I think we have to do a lot

of fundamental rethinking about the direction and policies of the

World Bank.

Thank you, Mr. Chairman.

[The prepared statement of Hon. Bernard Sanders can be found

on page 88 in the appendix.]

Chairman BEREUTER. Thank you, Mr. Sanders. Under the circumstances under which this subcommittee meets today, other

members are entitled to up to five minutes. And I would recognize

first the distinguished Ranking Member of the full committee, Mr.

LaFalce, if he has an opening statement.

Mr. LAFALCE. I thank the Chair. I am very, very pleased by the

outstanding panel that you have assembled this morning. Each of

the organizations represented has played a critical role in the effort

to alleviate poverty and bring prosperity to the developing world.

Oxfam through its direct humanitarian education; Bread for the

World through grassroots activism to fight global hunger and poverty; the AFL-CIO through their promotion of worker rights in all

countries; and Bretton Woods through its advocacy role in support

of the World Bank and the other multilateral institutions that

serve as our primary tools, as they should be our primary tools for

development policy.

Let me just say a personal note. Mr. Orr of Bretton Woods, I remember so fondly when you were a staff assistant on this committee in the 1970’s and sorry that I couldn’t make that recent

speech before the Bretton Woods gathering but there were a few

votes, as I recall, I will try to make up for it.

David Beckmann, Bread for the World has just been tremendous

under your leadership. And I remember most fondly working in

1999 with Jim Leach, you, and Oxfam in the Year of the Jubilee

2000 in bringing about what I never thought we would be able to

bring about, real debt relief. Not that we are finished but we got

10 times more than I ever thought we were going to and it was because of Bread for the World and Oxfam. And so it is great having

you with us.

And Thea Lee, if there is any hope for bringing all the people of

the world up, I think it is going to be through a much stronger

unionization effort. I think that is an imperative. I think that is

one of the difficulties we have had in the United States, the number of unionized people has gone down. And as we have a global

economy, either we are going to bring the rest of the world up or

they are going to bring us down. And our job, working with you,

is to bring the rest of the world up.

And I know you emphasize international labor efforts, and I remember so many things we worked on but most especially the time

when you and John Sweeney and I met with the Vatican’s repVerDate 11-MAY-2000 15:23 Dec 23, 2002 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\83080.TXT HBANK1 PsN: HBANK1
6

resentative in Seattle pushing for a papal encyclical on that very

subject. So I could talk so much more. I have got a bill this year

with Chris Smith that I think is very, very important but for the

sake of brevity—I don’t think I can say for the sake of brevity—

for the sake of not going too long, I better just submit the rest of

my testimony for the record.

Thank you, Mr. Chairman.

[The prepared statement of Hon. John J. LaFalce can be found

on page 85 in the appendix.]

Chairman BEREUTER. Without objection, all members’ additional

statements will be made a part of the record.

Chairman BEREUTER. Mr. Frank, I know you have got a crucial

conference beginning this morning, House/Senate conference and

you indicated you probably won’t be able to stay for all of this, so

as I recognize you, you may want to leave a question or two for the

panel to address. And I recognize you.

Mr. FRANK. Thank you, Mr. Chairman. The Ranking Member

and I both will be going at 10:30 to the conference on corporate accountability. So I appreciate that. And my staff aide, Mr.

McGlinchey, will be here to hear the answer. And I will take advantage of that.

First, I want to join in what my colleague from New York has

just said. I do not think there is a more important moral question

before us and probably not one that is more difficult intellectually

than figuring out how to make sure that globalization goes forward

in a socially responsible manner.

We are faced internationally with exactly the challenge that this

country faced 70 years ago when Franklin Roosevelt was elected

president, namely, how do you get the maximum wealth-generating

impact of a capitalist system while mitigating its inevitable effects

to promote inequality and to give people perverse incentives? We

worked that out within in the United States.

The main reason for much of the New Deal was to put on a national level policies that would mean that you did not have states

engaging in a race to the bottom in competing with each other to

do too little. That is what we have to try to replicate internationally. It is of course much, much harder given the greater disparity

by far in real conditions and given the absence of a unified sovereignty but that has to be the goal.

IDA obviously plays a very important role in that. Now one of

the questions I would ask is this and that is to a great extent it

seems to me the debate over grants versus loans is an artificial one

that could easily be resolved, and I would ask this of Secretary of

the Treasury O’Neill, who had indicated support earlier, if we the

United States would simply pledge that to the extent a policy of

going to 100 percent grants generated some shortfalls in what we

would otherwise would have had we will make it up.

The numbers, as the chairman and others have produced, have

had produced in reports are very small. So I must say the other

arguments against loans seem to me to be insubstantial. The notion of ownership, telling poor people that they can show ownership

by owing you money is unpersuasive to me that this is a good

thing. I think that the case for grants is clearly there. The only

problem is the re-flows and we can take care of that.

7

I would ask the panel in my absence, if we don’t get there, to

comment. There is a proposal pending, and I have talked to George

Soros about it and others, for us to act on I think five year old decision now to increase the SDR allocation at the IMF.

Now this subcommittee has jurisdiction over that. It is not the

topic of today’s hearing but it is a relevant one. It is poverty alleviation. And I must say it seems to me that a decision to act on that

agreement of five years ago and allocate those SDRs, allocate our

share, has a lot of good sides and no bad sides. And I would be interested in your opinion as to whether or not that is something we

ought to be doing. I think that could be very helpful. And, again,

I want to say people tend to say, well, wait a minute new SDRs

or debt forgiveness or going to grants, people tend to compare

them. I do not understand why we should not be doing all the

above. Debt forgiveness is not an alternative to going from grants—

from loans to grants. They are additive in my judgment. And all

occur at a very low level of money.

One of the things that we ought to remember is that if you talk

about debt forgiveness and you accurately score that debt for what

it is worth in the market, what you are likely to get from it, debt

forgiveness is a pretty cheap way to go and it ought to be added

on. But I would think the new SDRs would be a part of it.

Finally, I did note, Mr. Orr, you particularly talked about the

private sector, and I am wondering whether you would address, as

I said Mr. McGlinchey particularly will be fully briefing me, the

question of how might we improve or increase the involvement

with the private sector obviously in ways that fully protect people’s

rights, that don’t give rise to an argument of exploitation. But,

again, these ought not to be either/or, they ought to be complementary. And what way could we implicate—do other elements of the

bank, the IFC or others, have any kind of expertise that might be

useful within the appropriate framework?

Thank you very much.

Chairman BEREUTER. You are welcome, Mr. Frank. Mr. Bentsen,

do you have an opening statement? The gentleman is recognized.

Mr. BENTSEN. Thank you, Mr. Chairman. And let me thank you

for calling this hearing. I want to thank our panel for appearing

today. I want to concur with the comments of our colleague from

Massachusetts, which in part come off a hearing we had a couple

of months ago on this subject.

I am reminded in his comments about debt not being equity that

about 20 years ago when I was a young staffer on the Hill, I had

a chance to go to a meeting with the Mexican representative to the

United Nations at the time of the Latin American debt crisis or the

beginning of it, and he made a comment that if, ‘‘I owe you $100

and can’t pay you, I have got a problem. If I owe you $100 billion

and can’t pay you, you have got a problem.’’ And I think that is

in part where Mr. Frank is going.

I will say that in the midst of all of the short- term crises that

we deal with, today it is corporate accountability. A couple of years

ago it was the Asian currency crisis or liquidity crisis. The other

issues we deal with, financial modernization and trying to meet the

marketplace, I continue to believe that our true long-term problem

for the developed or industrialized world is how we bring along the

8

lesser developed world and how we arrest the growing divide between rich and poor in this world because I think that too often

a number of our colleagues in this body and too often a number of

people in the industrialized world take a distorted view of how we

are—of why we need to address the needs of the poor. And I would

just, if you cannot appeal to their moral sense, which is good

enough to me, then I would appeal to their economic sense that it

behooves all of us to try and close that gap and increase industrialization and economic self-determination in the lesser developed

parts of the world. And if we don’t, we will pay a much steeper

price for it in the long run.

So I appreciate the chairman calling this hearing and moving forward on the authorization. I yield back.

Chairman BEREUTER. Thank you, Mr. Bentsen. Ms. Waters will

also be a conferee in the House-Senate conference beginning at

10:30. I recognize her for her opening statement.

Ms. WATERS. Thank you very much, Mr. Chairman. I appreciate

very much your holding this hearing for the reauthorization of our

participation in the World Bank’s International Development Association.

Let me just start by saying I have been watching with horror the

developing famine in southern Africa. Almost 13 million people in

southern Africa are in danger of starvation. The crisis is widespread, affecting the people of Lesotho, Malawi, Mozambique, Swaziland, Zambia, and Zimbabwe.

The World Food Program estimates that 1.2 million metric tons

of food assistance will be needed over the next nine months to meet

the minimum food consumption requirements of these six countries. People in these countries are already turning to desperate

measures, such as eating potentially poisonous wild foods to stay

alive. And we saw this graphic depiction on ABC the other night

of a man eating dirt and children eating bugs.

Over the last three years, I have been working with members of

the Financial Services Committee and supporters of the Worldwide

Jubilee 2000 Debt Relief movement to end the crushing burden of

poor country debts. Unfortunately, our efforts have only been partially successful and international debts have left several southern

African countries unable to respond to crises such as this one.

Zambia provides an excellent illustration of why deeper debt relief is necessary. Even before the current famine began, Zambia

was a deeply impoverished country with a per capita income of only

$330. The infant mortality rate exceeded 1 percent of live births

and 27 percent of Zambian children under five are malnourished.

Almost 10 percent of the population is infected with the AIDS

virus and 650,000 children have been orphaned by AIDS. Yet Zambia’s debt payments were actually increased after its total debt

stock was reduced. Moreover, Zambia still spends more than twice

as much money on debt payments as it does on health care.

Now in the case of Malawi, there is some evidence that indicates

that the policies of the International Monetary Fund and the World

Bank may have contributed to the famine. Malawi enjoyed bountiful harvests in 1999 and 2000. As a result, Malawi’s Strategic

Grain Reserve was stocked near its full storage capacity. By July

of 2000, the Strategic Grain Reserve contained 174,000 metric tons

9

of grain reserves. The IMF, I am told, argued that storing that

much grain was too expensive and risked distorting the market.

The World Bank agreed with the IMF that smaller reserves

would be preferable. So the IMF, I am told, urged Malawi to sell

some of its reserves to service its debt. Some of the grain was sold

domestically in 2000 while domestic supplies were plentiful and

prices were depressed. An additional 35,000 tons was exported in

2001 to Kenya and Mozambique. Even in the face of the current

food crisis, the IMF continues to view the Strategic Grain Reserve

as a drain on Malawi’s budget and a source of funds for making

debt payments and not as a source of desperately needed food for

Malawi’s starving citizens.

Last year, I introduced H.R. 1642, the Debt Cancellation for the

New Millennium Act. This bill would require the IMF and the

World Bank to provide complete cancellation of 100 percent of the

debts owed to them by impoverished countries. Over 80 Members

of Congress representing both political parties have co-sponsored

the bill.

Earlier this year, H.R. 4525, the Debt Relief Enhancement Act

of 2002, was introduced by a bipartisan group of Members of Congress, including Christopher Smith, John LaFalce, Spencer Bachus,

and myself. This bill would require the IMF, the World Bank, and

other creditors to provide significantly deeper debt relief to impoverished countries. Several members of the Financial Services Committee have co- sponsored the bill.

Mr. Chairman, I am going to have to leave but I look forward

to hearing about the testimony of these witnesses. And I am particularly interested in hearing their views on the extent to which

the IMF and World Bank policies and international debts contributed to the current famine in southern Africa.

I thank you, Mr. Chairman.

Chairman BEREUTER. Thank you, Ms. Waters. Mr. Sherman, do

you have an opening statement?

Mr. SHERMAN. Amazingly, I do.

Chairman BEREUTER. You are recognized.

Mr. SHERMAN. I want to associate myself with Mr. Frank’s advocacy for the important work of International Development. Ms. Waters has brought to our attention the dire situation in Africa. There

is perhaps nothing more important that America can do then lead

the world to greater not only political but also economic democracy.

As for debt relief, let us remember that most of the time this

debt is not paid except either through—and I am talking about

debt to the poorest countries—either as part of a package in which

monies lent or given and then comes back to the very people who

give it or is paid in anticipation of receiving additional loans. And

debt relief may be a very, very good thing to facilitate the credit

worthiness of governments that need money for additional development projects.

But we should regard debt relief, as we do any other aid, and

that is a transfer to try to help people usually through the host

government. And in a few cases, those host governments have no

real connection with efforts to help their own people.

Those of us who support more foreign aid, whether it be in the

form of aid or in the form of loans, have a special duty to make

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sure that we can go to the American people and say that that

money is well spent. And there are a few regimes seeking debt relief today so that they can borrow more tomorrow that would not

spend those new loan proceeds effectively.

But as we sit here, we have to recognize that the people on this

committee favor foreign aid more than the rest of Congress. That

is why we got on this subcommittee. And the Congress as a whole

has favored foreign aid far more than the American people. And

nothing is more dangerous to the inadequate congressional support

for foreign aid than the plan of the World Bank to loan $755 million to the Islamic Republic of Iran or I should say the ‘‘twin evils,’’

the first evil being that plan and the second being the passive acceptance of this World Bank semi-decision by State Treasury and

frankly this Congress.

There are those that think that the Iranian government is somehow captured by moderates. They listen to the occasionally moderate statements of the powerless president, the figurehead. Yet,

we all know that Iran is actually run by its supreme leader, hence

the title, supreme leader. That is why our State Department has

identified Iran as the number one source of state terror, and we

should always remember that the government in Iran is working

every single day to develop nuclear weapons, smuggle them into

American cities, and kill Americans by the millions. The American

people I think understand that. I think decision- makers in Washington occasionally forget it.

And that is why it will be almost impossible to maintain over

this decade support for foreign aid and international lending institutions if the United States does this year and next year what we

did in the year 2000. In the year 2000, the World Bank lent $231

million to Iran. The United States voted no, voted no in a loud

voice and then went for tea and crumpets for those who voted

against us. I am not sure about the crumpets. But we simply

shrugged our shoulders and did business as usual. Financing the

nuclear destruction of American cities is not to be regarded as business as usual and yet $755 billion—rather million dollars is the

plan of the World Bank over the next two years. Its web site currently identifies a $112 million loan as right in the pipeline right

now.

Let us remember that money is fungible. The terrorists who operate the regime in Tehran spend as little as they can on domestic

projects in order to hold on to power and everything that is left

over is available for terrorism and nuclear weapons development.

Everything. And we should not take lightly providing that government with that bit it needs to maintain power so that it has more

of its oil and other revenues available for nuclear weapons development.

I will be proposing legislation very soon. I hope to have as cosponsors the most passionate supporters of foreign aid because this

is the greatest danger to foreign aid—a bill that would say that the

$847 million or such other amount—if I could have one more

minute?

Chairman BEREUTER. Without objection, the gentleman is extended an additional minute.

11

Mr. SHERMAN. Thank you. Or whatever other amount might otherwise be provided to the World Bank will instead be spent on

fighting AIDS in Africa if the World Bank authorizes any additional loans to Iran.

And, finally, let us not draw ultra fine distinctions between the

IBRD and IDA. I don’t have a constituent who knows the difference

between those different pockets of the World Bank and the World

Bank itself says that those are two organizations run by the same

staff, basically money out of a different drawer. That is the World

Bank position.

I look forward to safeguarding America’s foreign aid program by

making sure not one penny goes to a World Bank that would loan

money to this government and Iran, and I look forward to a better

government in Iran in the future so I don’t have to make these

comments.

Thank you.

Chairman BEREUTER. Thank you, Mr. Sherman. I appreciate my

colleague’s comments this morning. They are an important part of

our hearing record.

As mentioned previously, we have a distinguished panel with us

here today. We are anxious to hear from them. I will first receive

testimony from Mr. James Orr, who is co-founder and executive director of the Bretton Woods Committee, a bipartisan, nonprofit

group organized to promote sensible reforms and increase public

understanding of international financial and development issues in

the global economy. And, as mentioned by Mr. LaFalce, from 1975

to 1983, Mr. Orr served as a legislative counsel for this subcommittee’s predecessor.

Second, we will hear from the Reverend David Beckmann, who

will provide testimony on behalf of Bread for the World, a nationwide Christian citizens movement dedicated to eliminating world

hunger. Reverend Beckmann served for several years on the board

of directors of Bread for the World before becoming its president in

1991. In the interest of full disclosure, I also served on the Bread

for the World board under his predecessor. Prior to his activities

with Bread for the World, he spent many years as a World Bank

economist where he played a prominent role in the Bank’s heightened focus on poverty reduction.

Third, we will hear from Mr. Raymond C. Offenheiser, president

of Oxfam America and a member of the board of Oxfam International, a confederation of 12 non-governmental agencies working

together in over 80 countries where he works to serve Oxfam International’s goal for lasting solutions to poverty, suffering, and injustice. He is a part of Oxfam as a strategic funder of development

projects, providing emergency relief in times of crisis, and campaign for social and economic justice.

Finally, the subcommittee will hear from Ms. Thea Lee, assistant

director for international economics in the public policy department

of the AFL-CIO where she oversees research on international trade

and investment policy. Previously Ms. Lee worked as an international trade economist at the Economic Policy Institute in this

city and as an editor of Dollars and Cents Magazine in Boston.

So with that kind of introduction, I want to say that we are anxious to hear from you. The House is unexpectedly not in session

12

today. It means that we have less members here but it also means

we have more time to hear from you and ask questions. And so we

will extend from five to eight minutes to each member of the panel.

And first we would like to hear from Mr. Orr. And I would say finally we will include your entire statements in the record and you

may proceed as you wish. Mr. Orr?

STATEMENT OF JAMES ORR, EXECUTIVE DIRECTOR, THE

BRETTON WOODS COMMITTEE

Mr. ORR. Thank you very much, Mr. Chairman, Mr. Sanders,

and members of the subcommittee, it is a pleasure to be back with

you today.

As Mr. Bereuter mentioned, the Bretton Woods Committee is a

public interest group with 700 members across the country who

share an interest in seeing positive reforms adopted by the multilateral institutions and in increasing public understanding and

support for their work. As a number of members have already commented, Mr. Sherman in particular, public support for multilateral

institutions is particularly thin in the United States.

I am here today to strongly endorse the replenishment of IDA.

IDA is deserving of support from the Congress for many reasons.

It is the main program that the United States has for helping the

world’s poorest countries, people who live, as has been mentioned,

on a dollar or two a day. IDA pays for the bulk of infrastructure

and social services in about 80 poor countries around the world,

guaranteeing a basic level of social welfare that couldn’t exist without IDA and paving the way ultimately for these countries self-sustaining growth, at least that is our hope. Moreover, much of the assistance from IDA goes to countries that are very important to us

politically and strategically.

Over the years, IDA has been a very effective vehicle for helping

these countries. It has done an incredible amount of good. It is

working on one of the most difficult problems of our era. Although

there is widespread agreement on the kinds of results we want to

see from the work of the World Bank and IDA, there is much less

agreement on what is the appropriate approach to pursue to

achieve these goals. But all of the donor countries to IDA, which

include the major countries in the world and many emerging market countries, agreed in their document approving this replenishment of IDA that IDA is the most effective agency for helping poor

people of all those in existence, bilateral and multilateral.

One measure of the Bank’s and IDA’s effectiveness is that over

IDA’s 50 year history, there have been 32 countries which have

graduated out of IDA and are no longer in need of concessional

loans. They are able now to borrow either in commercial markets

or from IDA’s sister institution, the IBRD, which lends at commercial rates of interest.

A second bit of evidence that IDA is very successful is what recipient countries think. I was privileged to accompany a group of

eight ambassadors from IDA countries two years ago who went to

call on members of the Foreign Operations Subcommittee and it

was really moving to hear each of these ambassadors talk about

the important work that IDA was doing in their country and how

important it was to the welfare and benefit of their population.

13

Clearly, the IDA and World Bank have made mistakes over the

years. We have heard some referred to today. But in general it has

learned from its mistakes and it is much more effective today than

it has ever been before. There is certainly some skepticism about

effectiveness. I think that is a good thing. It makes organizations

like IDA constantly try to improve what they do and prove that

they are in fact effective. And I think all supporters of IDA, including all of us at this table I think, would want to see the program

held to very tough standards.

Another point I would like to make is that IDA is evolving to

meet current challenges. It has made great strides recently in a

number of areas that have been a concern to this committee in

years past. In the area of transparency in particular, there has

been a huge change in the World Bank and the other multilateral

institutions over the last 10 years. The way is now open for interest groups around the world and people in borrowing countries to

closely track what it is the World Bank and IDA do to comment

on projects and to involve themselves in shaping and influencing

the work of IDA and the World Bank.

I found it quite interesting that the draft agreement approving

the new IDA was sent out and made available to NGOs around the

world for comment months before the final document was agreed

to. And many organizations, including some represented at this

table today, took the opportunity to make suggestions for improving IDA and some of those suggestions were adopted in the final

agreement.

On the question of transparency, I think the onus now is on

countries. There is no greater champion of transparency than the

World Bank itself but it is sometimes prevented from moving more

aggressively in this area by some borrowing country members who

are reluctant to see more transparency. I think it is important to

recognize who are the foot- draggers in this.

The World Bank and IDA have made tremendous improvements

recently in increasing ownership by borrowing countries. They have

done this by mandating the participation of civil society in the

preparation of loans, largely through the PRSP, Poverty Reduction

Strategy Paper writing process and through other means.

The Bank and IDA have had a huge impact on fighting HIV/

AIDS, the greatest problem of our era. The World Bank and IDA

are the largest investor in AIDS projects of any institution in the

world, over a billion dollars recently. And President Wolfensohn

has pledged publicly on many occasions that no worthy project to

fight AIDS will go unfunded as long as he is president of the World

Bank.

Another recent innovation at the Bank and IDA is the movement

to grants, which some members of the subcommittee have already

referred to. I think this is a very important innovation, not just because it will help reduce the debt burden that we all understand

has been a very significant impediment to development, but it will

also open the way to implementation of projects by civil society

groups, some of whom are better, frankly, at working at grassroots

levels than some huge multilateral institutions.

Finally, I would like to say in the view of most members of the

Bretton Woods committee, the new focus on private sector developVerDate 11-MAY-2000 15:23 Dec 23, 2002 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 C:\DOCS\83080.TXT HBANK1 PsN: HBANK1
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ment is a very important realization by the Bank that the private

sector ultimately will be the engine of growth for most countries

that break out of the ranks of the poorest and achieve the status

of an emerging market country, at least that has been the history

of all of the 32 graduates from IDA in the past.

I would like to plant a few ideas for possible initiatives which

Congress might like to consider in advancing legislation for IDA.

One of the things that I think would be important is to see if Congress could help devise ways to make the Bank somewhat tougher

on borrowers. Despite conditionality, which is applied to all World

Bank and IDA loans, I think over the years a certain closeness has

developed between project officers at the World Bank and IDA and

the officials in the countries that are borrowers from IDA to the

point where sometimes the World Bank could be tougher in making

demands of countries. Often in my own view they have been too

forgiving. And I think that is why we have seen slow movement in

many of the areas that we are all concerned about, fighting corruption, improving governance, and some other areas. So I think this

is probably a fruitful area to look for innovations.

I would also urge the subcommittee to keep pressure on Treasury

to work on the issue of public education on the importance of the

multilateral institutions. Treasury does virtually no public education and this is in stark contrast to what happens in many other

countries. Every time I travel in Canada and turn the radio on, I

hear public service announcements touting what Canadian development assistance through the World Bank means in terms of HIV/

AIDS clinics in Southern Africa, for instance. If there were more

U.S. public support for the work of IDA and the other multilateral

institutions, it would open the way for potentially increasing contributions and doing the kinds of things that members of the subcommittee would like to see happen.

I have reached the end of my time, Mr. Chairman. I look forward

to answering your questions. Thank you.

[The prepared statement of James Orr can be found on page 112

in the appendix.]

Chairman BEREUTER. Mr. Orr, thank you very much. In light of

Secretary O’Neill’s recent visit to Africa, maybe this is the time to

pursue the latter point and put it into place in some sort of an institutional basis.

We are pleased now to hear from Reverend Beckmann, president

of Bread for the World and a native of Lincoln, Nebraska.

STATEMENT OF REV. DAVID BECKMANN, PRESIDENT, BREAD

FOR THE WORLD

Rev. BECKMANN. Mr. Chairman, Mr. Sanders, and members of

the committee, I am really honored by the chance to contribute to

this hearing. I will focus my oral testimony on four issues related

to IDA: my overall assessment of IDA, the issue of debt relief, the

specifics of how Treasury is going to implement this reform in the

area of monitoring and evaluation, and then the Millennium Challenge Account in relationship to IDA.

The first thing I want to say is that I think IDA on balance is

a really good institution. I really appreciated the opening comments and all of the members’ emphasis on the importance of reVerDate 11-MAY-2000 15:23 Dec 23, 2002 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 C:\DOCS\83080.TXT HBANK1 PsN: HBANK1
15

ducing poverty in the world. It is a bloody scandal that there is still

as much poverty and hunger in the world as there is now. But on

balance I think IDA contributes to the reduction in poverty.

I have been involved in working for World Bank reform now for

26 years, for 15 years within the Bank and for the last 11 years

as an advocate outside the Bank, contributing to efforts to make

the Bank and IDA better. And there is still a long way to go. I am

struck that this committee has been a major force for reform for

as long as I can remember. Since the early 1980’s at least, this

committee has been pushing for the Bank to be more poverty focused and more open to democratic participation. And then all over

the world a lot of people for the last couple of decades have been

working to make the governments of some of the poor countries

more democratic and more effective for development purposes. All

these efforts have had some impact. The Bank was always a competent institution. And I think it has become more poverty-focused,

more open to democracy. It has got a long way to go but, on balance, the bank is a good thing for poor people. And at this point

in history, Bread for the World supports the replenishment of IDA.

We hope that you pass the authorizing legislation.

Second, with regard to debt relief. The Jubilee movement for

debt relief was a huge explosion of popular interest and active interest in an international development initiative. This is the most

popular multilateral development initiative in U.S. history.

The data on U.S. public opinion show that in the last few years

opinion has become markedly more favorable to effective initiatives

to reduce poverty and hunger and help with health problems. And

the Jubilee movement was a successful effort to mobilize some of

that increasingly favorable public opinion into a political initiative.

So I have three specific suggestions for the committee in terms

of moving forward with what debt relief did for IDA and for poor

people and for the politics of our own country.

First I would suggest that the committee hold a hearing on debt

relief implementation. From what Bread for the World has learned

from official channels and from church channels, we think it is

working pretty well. And tens of thousands of Americans actively

work for debt relief. A committee hearing could help Congress and

Americans see that it has worked pretty well, and a hearing would

also push so that debt relief would work better. There are a lot of

things that could be done to make debt relief and the poverty reduction strategy paper process more effective.

Second, the G-8 Summit just agreed on an additional $1 billion

to continue the debt relief initiative that has already been agreed.

That is necessary because of the global economic downturn. It is

just more expensive to do what was originally planned.

I really hope that Congress and the President will fund the

United States’ share of that billion dollars in Fiscal 2003 as an addition to what Congress would have otherwise done. Partly because

of September 11th, the President has made a number of promises

that our country is going to do more to reduce poverty around the

world. But so far it is all money in fiscal years 2004 to 2006. This

agreement at the G-8 is an opportunity for Congress and the President to increase funding for poverty reduction in Fiscal 2003.

16

Third, in the area of debt relief, Bread for the World supports the

Smith-LaFalce bill, which would modify the criteria by which the

international community decides how much debt relief a country

needs to get to a sustainable level of debt payments. It modifies it

in sensible ways, ways that also take account of the AIDS crisis in

many countries.

Mr. Chairman the Senate recently passed their version of the

Smith-LaFalce measure in their AIDS bill. The most likely way

that this could come to the floor of the House is through the conference on the AIDS bill. So I would urge you and the committee

to look favorably on the Smith-LaFalce proposal. It would deepen

debt reduction.

Now let me turn to the question of the second major reform,

monitoring and evaluation. It is really exciting that Secretary

O’Neill is putting so much emphasis on how we know what is really happening in the lives of poor people in the poor countries; How

do we monitor that? I don’t see how it is possible for Treasury to

evaluate whether IDA does a good job next year on the basis of

whether poverty or education indicators change over a one year period. That doesn’t make sense. But what does make sense is for

Treasury to put emphasis on what the World Bank is doing, together with the whole international system, to improve data collection. There is a broader movement underway to focus on the millennium development goals, specific goals, and to develop good indicators. If the Bank can help us get reliable real-time indicators of

education, health, poverty and hunger, that would help everybody.

Treasury, the Bank, also, local people in poor countries know what

is going on and hold the authorities responsible (not only IDA but

all the way through the system.) So one focus for monitoring IDA’s

performance how well it helps in this broader effort to improve indicators of what is happening to poor people.

Another area where I would focus year to year evaluation of IDA

is on the question of transparency and democracy-friendliness. The

Bank has come a long way, but it has a long way to go. We have

learned that the best way to improve the quality of Bank-supported

policies and projects is to let local people know what is going on

and give them a better chance to have an influence. That is more

powerful than any indicator that somebody in Treasury is going to

look at. What Treasury can look at is what is the Bank doing to

become more democracy-friendly, so that people in rural Tanzania

can know what is going on and hold the Bank accountable.

Finally, I would like to talk about the Millennium Challenge Account in relationship to IDA. President Bush and other heads of

government have recently promised a major expansion of development assistance to the poorest countries, an additional $5 billion

from the U.S. every year and an additional $7 billion a year from

Europe. So as you are considering IDA, you should ask how the

next replenishment of IDA will play out in what could be a dramatically improved context of overall development assistance.

In particular, when Under Secretary Taylor comes, I hope you

will ask him how the administration’s is thinking the Millennium

Challenge Account, and bilateral assistance generally are going to

coordinate with IDA and the poverty reduction strategy process

and with what the Europeans are doing with their promised addiVerDate 11-MAY-2000 15:23 Dec 23, 2002 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\83080.TXT HBANK1 PsN: HBANK1
17

tional $7 billion. My sense is that there has not been much conversation about how the U.S. $5 billion and the European $7 billion, are going to work together. The MCA will be most effective

if it is part of acoordinated international development effort, which

means it needs to connect with IDA and the PRSP process.

Bilateral assistance can be more frankly supportive of democracy

and human rights than IDA by its charter is likely to be. The MCA

can specifically focus on whether a country is respecting human

rights, and they can fund things like technical assistance to legislatures, the media or civil society groups. If the MCA does that kind

of democracy-focused funding in the context of the multilateral system, that would improve the impact of IDA and the whole development system.

Thank you.

[The prepared statement of David Beckmann can be found on

page 93 in the appendix.]

Chairman BEREUTER. Thank you very much, Rev. Beckmann. We

are very pleased now to hear from the representative from Oxfam

and that is Mr. Raymond C. Offenheiser. You are welcome to proceed as you wish.

STATEMENT OF RAYMOND C. OFFENHEISER, PRESIDENT,

OXFAM AMERICA

Mr. OFFENHEISER. Thank you, Mr. Chairman. Chairman Bereuter, Ranking Member Sanders, committee members and guests, it

is a distinct honor for me representing Oxfam to testify before the

subcommittee today on the World Bank’s International Development Association.

By way of introduction and background, I would just like to comment briefly that Oxfam as an organization was founded here in

the United States in 1970 and is based in Boston. And for the

record, we accept no government or World Bank funding.

The Oxfam network or family, Oxfam International, has broad

experience in the developing world supporting some 4,000 non-government partner organizations in some—120 developing countries,

many of whom incidentally are IDA recipients.

The replenishment of IDA is an especially opportune moment

from our point of view to examine the operations of the World

Bank and to push for reforms in its operations. The Congress, and

this committee particularly, has been a leader in encouraging the

Bank to reform. And it is clear to us as an observer and an advocate within this process, that when you speak, as committee and

as Congress, the Bank indeed listens.

By way of prefacing comments on the context in which this

broader discussion is taking place, I would like to just simply open

with a couple of broad observations about what has taken place

over the last 10 years by way of re-framing the approach to development that actually Oxfam feels is very important to the directions that IDA and the general process of development is taking.

First of all, we are heartened by the increasing emphasis on poverty alleviation, and as David has emphasized, real outcomes in

people’s lives. And the fact that this kind of language and this kind

of emphasis is very evident in the way the World Bank and other

18

international institutions today speak about their work and seek to

measure it.

Second, we have been heartened over the last 10 years by the increasing emphasis on citizens’ democratic participation in setting

agendas and providing citizen accountability for the performance of

bank institutions. And we are particularly happy about the increasing use of the PRSP process as a way of focusing that debate and

citizen participation.

We also think that the emphasis in the past few years to take

perhaps a tougher look at the results of the macro economic policies that have guided Bank and IMF lending over the last many

decades has been healthy and salutary and it has led to innovative

thinking that has brought forward the kinds of debt relief proposals and HIPC initiatives that have been debated in this committee.

And, finally, we have been pleased by the greater emphasis on

donor coordination and by country buy-in, which we think is particularly relevant to the MCA debate that will be emerging in the

coming months.

And we also recognize that these—you might call them drivers

have led to substantial reforms in the way the World Bank and the

IMF perform as members of the multilateral system, and we think

those changes and reforms are palpable and visible in many ways.

And we would like to open with giving some credit where credit is

due to the World Bank leadership, particularly Jim Wolfensohn for

his efforts to push these kinds of reforms. While recognizing that

everything is not perfect in a real world, real initiatives have been

taken, and we recognize that this kind of change on such a large

scale is a long-term process. But we think some good first steps

have been taken.

Since my written testimony covers a diverse range of topics in

some considerable detail, I am only going to review some of the

high points of that broader testimony this morning.

First, in the area of overall IDA effectiveness, it is clear to Oxfam

that initiating IDA grants is a very, very positive step that we fully

endorse. We strongly support the administration’s position of providing grants for health and education in the public sector as long

as the United States and other donor governments provide sufficient funds to make up for the decrease in loan repayments. This

was Congressman Frank’s point earlier today, that in fact we want

to keep the IDA flows real and we think it won’t cost that much

money to do so.

We regret in fact that the G-7 rebuffed the President’s proposal

of a 50 percent grants ratio and is limiting grants to only 18 to 20

percent. Nonetheless, from our point of view, converting some loans

to grants will increase the likelihood that the poorest countries will

be able to reduce their foreign debts to a substantial level over the

long haul.

Donor governments with the United States leading by example

must provide sufficient funds for the poorest countries to meet the

Millennium Development Goals. This is a major challenge put forward by Kofi Annan. We must also insist that the World Bank,

IMF, and credit countries like ourselves provide deeper debt relief

to impoverished countries.

19

As was noted earlier by Congressman LaFalce, we made a great

start with the HIPC initiative and the Debt Relief bill of 2000 but

we have not finished the job as it were and perhaps that is what

lies before us.

Specific to the debt issue, we would like to encourage you, Mr.

Chairman, and your subcommittee to demonstrate your commitment to effective development by examining and then supporting

the Smith-LaFalce debt reduction bill that is currently before the

Congress. If a heavily indebted poor country or HIPC country were

to spend no more than 10 percent of its annual revenues, or in the

case of a country suffering a severe public crisis, such as HIV/

AIDS, not more than 5 percent of its budget, the bill estimates that

between $700 million to $1 billion of additional debt relief will be

provided.

In addition to grants for basic services and debt relief, this subcommittee should insist also that all elements of the World Bank

be dedicated to eradicating poverty or focus heavily on the human

development indicators. Currently, the World Bank actively supports investments in oil, natural gas, and mining. These loans, in

our view, do little to increase broad-based economic growth and

poverty reduction in developing countries.

A recent study commissioned by Oxfam reveals that these sectors

may actually worsen poverty by creating little employment or opportunity for the poor and by contributing to corruption, conflict,

and increased vulnerability to economic shocks. In our view, Congress should press the World Bank to prioritize investments other

than those in extractive industries that might better respect the

rights of poor communities and foster more equitable outcomes and

diversify the economic base of the world’s poorest countries.

On the PRSP process, the Poverty Reduction Strategy Papers of

the World Bank, we believe they have real potential for ensuring

that all World Bank and other donor actions, including the new

Millennium Challenge Account, are consistent with a coherent national poverty plan in each country that can succeed with local

leadership and ownership. We believe that the PRSP process has

given a coherence and a focus to the civil society debate that currently takes place in many of the countries around the world where

these plans are in process.

A developing country in our view should articulate one and only

one national strategy that all donors buy into. Admittedly, the current PRSPs are still weak. We are cognizant of that in terms of

both donor acceptance and quality of local participation. But we believe these areas can be improved. Almost all share a further weakness, the macroeconomic policies that create the basic architecture

for the entire economy are still largely mass produced by the World

Bank and its sister institution, the IMF.

And our belief is there needs to be more flexibility in the thinking about the economic logic that underlies the PRSPs. Through

the PRSP, the national government, along with its legislature,

press, and civil society need to understand and buy into a coherent

national approach for ending poverty.

As politicians, you recognize that the PRSP approach will take

time and several iterations to get it right. In the meantime, it is

important that countries urgent needs for basic services and debt

20

relief not await a perfect product, we might say. By way of example, we might ask how many of each of us would be willing to hold

our six year old sons or daughters out of school for five or six years

until the national government designed an education plan that

some other folks decided was ‘‘good enough.’’

Oxfam maintains that all people have a right to basic services,

such as health care and education. In the area of health, the HIV/

AIDs crisis cries out for attention. Five thousand Africans die everyday for the lack of medicine. We and other donors have resources to fund both prevention and treatment programs. IDA provides a mechanism for us to act in concert to halt the 21st century’s black plague.

The World Bank developed an excellent assessment of the national education needs of the world’s poorest countries. Unfortunately, the G-8 failed to take up the challenge to commit the essential funds to educate all of the world’s children and to leave no

child behind. It is an opportunity again through IDA and an obligation for this subcommittee to insist that there be full funding so

that all the world’s children receive a basic education.

A surprising reality about the Bank’s work in education and

other basic services is the poor quality of data available for monitoring the effectiveness of its programs. It is our belief that the

Bank must commit sufficient resources, both intellectual and financial, to ensure that data are collected, not on administrative and

bureaucratic infrastructures of health and education ministries and

programs, but rather on the number of well babies and healthy

mothers and children reading and writing. Such data collection is

essential if we are to ensure that IDA funds are well used and that

performance-based development genuinely yields the kinds of results for the poor that we are really all after.

My final point touches on the need for full disclosure and on the

broader issue of transparency. The U.S. Congress was instrumental

in insisting that the World Bank begin the process of letting the

public see its decision-making processes. Regrettably, in our view,

additional pressure is needed for this process to achieve greater results. Therefore, we would like to recommend that the committee

require the Bank to open its board of directors’ meetings to the

public, disclose transcripts of these meetings, and release all key

documents prior to board considerations of lending.

Let me conclude by saying that the IDA replenishment discussions enable us to insist on greater development effectiveness by

the World Bank. The United States Congress has a proud record

of bringing reform to the Bank as you act on the people’s voice—

or act as the people’s voice. We thank you for your work that you

have done in the past and your dedication that you continue to

show on these important issues. And I am very grateful for the opportunity to speak to you this morning, and I request permission

to have my extended remarks submitted for the record, Mr. Chairman.

Thank you very, very much.

[The prepared statement of Raymond C. Offenheiser can be

found on page 103 in the appendix.]

21

Chairman BEREUTER. That will be the case and thank you very

much. In fact, all of your full statements will be made a part of the

record.

We are pleased now to hear from Ms. Lee, representing the AFLCIO. You may proceed as you wish.

STATEMENT OF THEA LEE, ASSISTANT DIRECTOR FOR INTERNATIONAL ECONOMICS, AFL-CIO PUBLIC POLICY DEPARTMENT

Ms. LEE. Thank you so much. Thank you so much, Mr. Chairman, Congressman Sanders, and Congressman Bentsen, for inviting me here today and allowing me to speak on this important

issue of the IDA replenishment on behalf of the 13 million working

men and women of the AFL-CIO.

This morning I also would like to offer some comments on behalf

of a broader coalition of civil society organizations that the AFLCIO has been working with in recent months and years on this

positive reform package. Oxfam America and Bread for the World

are also part of this broader coalition and so I think you will see

that there is some overlap in some of the reforms and the policies

that we have been talking about. The full report that the coalition

wrote is called, ‘‘Responsible Reform of the World Bank,’’ and it is

available on the web site of the Bank information center at

www.bicusa.org and I think there are also some copies available

here for anybody who is interested.

I wanted to focus today on three things. First, increasing the

amount of resources that poor countries can dedicate to development, as I think everybody has said here today, we are all in agreement on this, through the two roots of increased debt relief and the

shift from loans to grants. Those are both crucial pieces of the

changes in policy that we need to make.

But I think it is also equally important that we emphasize the

reforms that we need to see at the World Bank in current policies;

We don’t think it is appropriate just to give more money and step

back; We need to both ensure that the World Bank is more effective and accountable through improved transparency, as Ray

Offenheiser said, and through improved assessment mechanisms

that really do go to the heart of the concrete benchmarks in development that we are looking for as opposed to kind of vague policy

reforms that don’t have a very good track record in our view.

And it is crucial for us also that Bank policies and Bank resources are used to make productive investments in human development instead of being used to support policies that in our view

in the past have harmed the environment, workers, and the poor.

And we believe that this opportunity right now, the IDA replenishment, which, as you all know, comes up once every three years, is

a crucial opportunity for the Congress and this subcommittee in

particular to push for these meaningful reforms of World Bank

policies.

Congress should ensure that the hundreds of millions of taxpayer

dollars or billions that are provided to the World Bank this year

do not fund more failure at the institution but instead really go to

cancelling debt, improving transparency, achieving positive health

22

and education outcomes, ensuring respect for core worker and gender rights, and protecting the environment.

Tying these essential reforms to congressional funding decisions

is in our view the most effective way of ensuring two things. First,

that our government convey effectively via the U.S. Treasury Department to the Bank what these concerns are. Second, that the

Bank is motivated to comply. We have all had a lot of experience

in the past, I know you have, but we in the labor movement too

with working with Congress to put in place policy reforms at the

international financial institutions, and I would have to say that

our experience in that regard has been inconsistent at best and disappointing at worst. Congress has been in some cases very clear

with the Treasury Department as to the kinds of policies we want

to see and that Treasury in our view applies its own priorities to

those concerns that are legislated by the Congress and sometimes

drop some of them by the wayside. I will come back to that later

in my remarks, but I think it is really important that Congress’

role be meaningful in this regard.

There are two kinds of reforms that we are talking about for the

World Bank, and one is the positive set of improving transparency,

participation as the PRSP program has made some efforts in that

direction, and making more resources available.

There are also negative reforms that need to be made. The Bank

has in our view put in place policies in the past that have done

harm to workers and the environment. The conditions that have

been imposed in the name of structural adjustment in our view

have yielded disappointing development results, poverty results,

equity results, and also have had real adverse consequences on particular groups of people, particularly working people and the poor.

We think it is important that Congress conditions future IDA

funding increases on progress in adopting the congressionally-designated reforms, just as the Treasury Department itself has

pledged funding increases conditioned on performance indicators.

Like everybody else, I have submitted my written testimony, so I

am just going to hit a few highlights today.

First in terms of the grants versus loans issues, I think I agree

with my co-panelists that this is a crucial reform, that it is important. We did support the move to the 50 percent grants for IDA

funding so long as future contributions were not harmed by doing

so. We think the move to 21 to 18 percent is a step in the right

direction, and we hope that we will be able to build on that and

build a successful program and show that the resources will be

there to make up for the lost loan repayments in the future. But

it is also crucial, as I have said, that the grants are really used for

the pro- poor policies and that environmental and social safeguards

and proper assessment benchmarks are put into place.

Second and again the point has come up several times, the transparency issue. I just want to say I think that everything we talk

about with respect to the World Bank is pivotal on transparency

reforms being made. We applaud the progress that has already

been made at the World Bank in this area. There has been some

real concrete progress made but the reforms that are in the responsible reform report, and that Ray Offenheiser mentioned, are crucial, including the opening the directors’ meeting, disclosing the

23

transcript, and releasing key documents prior to board consideration.

These are the same reforms, of course, that were legislated in

H.R. 2604 with respect to the regional development banks, and we

think that was an excellent step in the right direction. And particularly for working people and for unions, not having access to the

draft documents of bank loans ahead of time really cuts their legs

out from under them and makes it hard for them to participate in

a meaningful way, whether it is in the PRSP process or in conveying to their governments whether they agree with or disagree

with some of the elements of the World Bank policies.

The other thing we would like to ask of Treasury is to set a good

example for other countries by posting its own board statements

immediately and reporting regularly to Congress on compliance

with its mandates. Treasury can post its own statements today. We

don’t have the excuse that other World Bank members are resistant to these forms of transparency. It is something that can be

done and it ought to be done, and we would urge Congress to ask

Treasury to do that when they come to see you next week.

And the last point I want to touch on is workers’ rights, which

is of course crucial to our members. We work closely with our

brothers and sisters in trade unions in the developing countries,

and we hear disturbing stories all the time about World Bank policies that actually weaken unions, lower wages of workers who are

already at or below the poverty level, and undermine the core labor

standards that the international community has time and again

endorsed and agreed to, both at the ILO, at the United Nations,

and at the WTO, believe it or not.

But it seems to us that respect for core workers’ rights, for freedom of association, the right to bargain collectively, and prohibitions on child labor, forced labor, and discrimination in employment are absolutely essential to the World Bank’s core mission of

reducing poverty and also building the kind of democratic, sustainable, equitable societies that can really take the money from debt

relief and from the IDA loans and be able to ensure that they are

benefitting a broad sector of society, that they are hearing from key

civil society players in an effective way.

We would like to see the United States and this Congress in particular use the IDA replenishment process to require the Bank to

adopt enforceable and comprehensive policies to protect core workers rights, and we would like to see in particular a screening mechanism that the Bank would put in place for all of its lending, including the structural adjustment to ensure that loan conditions do

not undermine core workers rights, as we are afraid they have

done numerous times in the past. Also the Bank should assess the

impacts of its loans on employment, wages, and income inequality.

It should work with the ILO and with trade unions on the ground

in a consistent way year after year in order to ensure that their

participation and input is incorporated into Bank policies.

And one final point on this, that the Treasury Department has

been mandated by Congress to produce an annual report on workers’ rights and how the various policies that have been legislated

through this Congress to structure policies and programs so that

24

they don’t undermine workers’ rights and so on to report on what

kinds of progress they have made.

Now even when Treasury makes those reports, sometimes they

are not as transparent as we might like. There are conflicting

claims that are made by different people and we hear different reports and, of course, since we don’t have access to the meetings or

the transcripts, it is hard for us to verify what is going on.

But most troubling is that in 2001, Treasury did not even bother

to issue this report. The report just didn’t happen. And there has

been I think not enough outcry and not enough outrage that Congress has asked Treasury to report on workers’ rights and Treasury

has simply decided it is not interested in doing that. And we object

very strongly to that dropping off the agenda.

So let me end there and look forward to your questions. I thank

you so much for the opportunity to come. I thank my fellow panelists for their very interesting and thoughtful remarks. And I look

forward to working with you and the subcommittee in the future

on shaping this authorization program.

[The prepared statement of Thea Lee can be found on page 98

in the appendix.]

Chairman BEREUTER. Thank you very much, Ms. Lee. We will

proceed under the five-minute rule but we will be able to proceed

with as many rounds as members wish this morning to take maximum advantage of the expertise that is at the witness table today.

And I will recognize myself first. Ms. Lee, your most recent comments, as you concluded your remarks, are bringing to our attention a very troubling aspect of Treasury’s performance with respect

to congressional mandates. It seems to me it doesn’t matter which

administration is in office, which Secretary is there, there is a degree of arrogance in Treasury that is almost unmatched in the Executive Branch. They seem to regard themselves as part of the Office of the President and therefore are not a line department like

all the others that are to respond to appropriate policy initiatives.

Within the Department, there is this culture of loving democracy

but not respecting the role of Congress in this democracy and its

appropriate public policy statements.

I would like to—and I want my staff to follow up on some of your

suggestions about the recent failures and how we can bring more

transparency to Treasury itself. Perhaps this is the time for a

major consideration of legislation related to Treasury in addition,

as a separate item instead of just focusing on the reauthorization.

One of the disappointments, and I think it must be somewhat

embarrassing to the Europeans, is that when the United States

takes the lead on trying to move a larger percentage of resources

to grants, they oppose. They have always had a very superior attitude about their contributions and their assistance to undeveloped

countries of the world and so I find their reluctance to move in this

direction to be puzzling, at least. What do you think, gentlemen

and lady of the panel, that we should consider in objective consideration of their statements and views that moving to a larger percentage of grants would actually weaken the governments of poor

countries by contributing to a culture of dependency and hindering

poor countries’ ability to develop international credit worthiness?

25

That is the line that we have heard repeatedly in the course of

these negotiations. Is that something where there is legitimacy or

is it something that you reject? Who would like to offer an opinion?

Reverend Beckmann, you can start. I see several hands.

Rev. BECKMANN. I think it is nutty, the European position has

just been nutty. But what it is about is not the issue. What it is

about is a really dangerous lack of coordination and sense of common purpose on these international development issues.

Over the last few months there was a sort of bidding war between the Europeans and the U.S. about who was going to embarrass the other at Monterrey. Both the Europeans and our own administration made remarkable commitments to increase development assistance, but I don’t get any sense that they are talking to

each other about how they are going to do this together. I don’t

want to exaggerate that, but as far as I can tell the conversation

about the Millennium Challenge Account within the administration

is not very well connected to what the Europeans may be planning.

Just before the hearing began, I talked to John Sanford from

Congressional Research Service. He just came back from Europe.

John said this stand-off on IDA grants is partly because Europeans

together have 30 percent of the votes in the multilaterals. They realize that if they can get their act together, they don’t always have

to follow the U.S. the way they have typically done.

To me the issue is not just why were the Europeans wrong on

this issue, but why aren’t we working together better when on both

sides of the Atlantic, people are promising to do more for poor people? If they don’t work together on what could be a remarkable new

initiative, then we will squander a lot of the potential of the moment.

Chairman BEREUTER. I think I saw two other hands, Mr. Orr

and Mr. Offenheiser both. Mr. Orr?

Mr. ORR. I am never eager to rise to Europe’s defense, but I

think it would be a mistake to dismiss too quickly this argument,

which I associate more with the Japanese government that has resisted debt relief for fear that countries will adopt a culture that

not paying debts is an acceptable practice.

I think there is a feeling throughout Asia that Asian countries

borrowed from these institutions and made the sacrifices necessary

to repay the debts and that other countries should follow suit.

I think in the case of Europe that that argument might have

been a sham. My sense is that Europe was really worried that we

would move the World Bank or IDA to a largely grants-based system and then legislatures, particularly this legislature, might not

then follow-up with the additional resources that would be necessary to keep up the flows.

There is a lot of resentment in Europe that the United States is

the country that pushes hardest and loudest for reforms at all the

multilateral institutions and then is often the country that is the

lowest common denominator in agreeing to funding increases and

then often the last country to implement those increases.

So whether Europe is right or wrong, I leave to you to judge but

I think that is perhaps the real concern with the move to grants.

Chairman BEREUTER. Mr. Orr, I am afraid that there is some validity in there, the last two expressed concerns that you reiterated.

26

Mr. Offenheiser?

Mr. OFFENHEISER. As a member of the broader Oxfam family, I

spend a good deal of my time in Europe with my European colleagues who we have five Oxfam members, affiliate members who

are European based. And, again, my perspective on this discussion

about grants versus loans is that in Europe at this particular time,

the deeper concern is not about credit worthiness and dependency

of the developing countries. In some ways, I think that is a canard.

The real issue is at this particular moment in history a deep distrust of the motives of the United States in putting that offer on

the table, unfortunately. In its extreme, I think there is an assumption that behind it there is an intent in some sense to undermine or de-fund the multilateral institutions over the long haul by

putting forward that kind of an agenda and then trying to push it

and broaden it going forward. In some sense, it is about the Treasury Department. And the fact that there is a sense that our approach to these issues perhaps is more unilateral than multilateral

and that we are less concerned about coordination than perhaps

advancing a particular agenda.

I actually believe that Congressman Frank is correct that to

some degree if the United States were to come forward with a very

strong statement about a commitment to replenishment and were

actually to deliver on it, not just to argue for it, that in some sense

it would allay a lot of the fears about this that there are other motives behind this gesture than good development practice.

The other thing I would like to say about the grants versus loan

issue is that there is some interesting history in the United States

that I think sometimes we lose sight of and that has to do with our

broader sort of philanthropic connection to the developing world.

I spent 10 years prior to Oxfam working for the Ford Foundation

in Asia and all over Latin America, and one of the things that was

really quite striking to me, particularly during my tenure, five and

a half years in Bangladesh, was the extraordinary contribution

that institutions like Ford and Rockefeller Foundation had made to

building institutions, teacher training institutes, universities, in

some cases the actual ministries and planning institutes of these

governments, all of this was done with grants through much of the

1950’s and 1960’s. And really those institutions today are the backbone of what is really conducting a lot of the development debate

with the United States throughout South Asia. All of which is to

say that I think grants combined with loans actually gives institutions like the World Bank a multiplicity of tools to use creatively

to solve problems that are extraordinarily complex.

And so I would encourage the committee at some point perhaps

to tap some of the knowledge within the foundation community to

understand a little bit about that history and the use of grants in

the developing world over the last 50 years.

Finally, I think at the root of this discussion about grants versus

loans there is an important question about accountability and leverage that I think is obviously of concern to bank lending officers.

I think there is a sense that somehow if you switch from a loan

mechanism where you have a lot of obligations for repayment and

reporting requirements and so forth that are tight and very finanVerDate 11-MAY-2000 15:23 Dec 23, 2002 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 C:\DOCS\83080.TXT HBANK1 PsN: HBANK1
27

cially based to grants that somehow you lose leverage and there is

no accountability.

And I think the real question about switching to this mechanism

is what are the accountability mechanisms and tools that you

would use in a grant versus a loan framework. And I think there

is a lot of experience out there that could assist the World Bank

in thinking those issues through.

Thank you, sir.

Chairman BEREUTER. Thank you very much. Thanks to all of

you. Ms. Lee, you will let this one go? All right. The gentleman

from Vermont is recognized.

Mr. SANDERS. Thank you all. I don’t want to get into the issue

of grants versus loans. That has been touched upon a lot, and I

think there is nobody who is a Member of Congress who has been

here today who is not in favor of substantially increasing U.S. aid

and seeing the rest of the world do what it can to alleviate the horrendous poverty that exists in developing countries.

But there is an issue that we have not gotten into terribly deeply

this morning and that is the impact of globalization in recent

years. I think there is sometimes an assumption, just as there is

in the United States: free trade, no kidding, that is great. That always works. But you examine it and you find that it is a disaster

for American workers. In my own state right now, we are at the

lowest level of manufacturing in the last 33 years. We have lost 10

percent of our manufacturing base. Real wages for many workers

is going up. Guess what? Free trade does not work for American

workers.

And I happen to think that globalization, while everybody in a

major corporation, ‘‘It is obvious, trade not aid.’’ It is obvious. It is

a no-brainer says every intellectual and editorial writer in the

United States. You know what? It may not work as well.

Let me just ask, and Mr. Orr, maybe start with you. Worldwide,

the total wealth of the globes three richest individuals is greater

than the combined gross domestic product of the 48 poorest countries and the wealthiest 447 billionaires own more wealth than the

bottom half of humanity, some 2.5 billion people. What do you

think about that, 447 individuals own more wealth than the bottom

half of humanity? Is that an issue that we think we should put on

the table?

Mr. ORR. Well, on a personal basis, Mr. Sanders, I find that fairly shocking. I think all of us at the table and certainly all the members of the Bretton Woods Committee share concerns that you have

expressed today about growing inequities and inequalities and

problems with income distribution around the world. But I would

like to think that those problems exist despite and not because of

the World Bank and IDA. In fact, I think IDA is a very important

tool for helping rectify the problem that you have pointed to.

Mr. SANDERS. What I wanted to do, if you will allow me is, I appreciate that and I know where you are coming from, but I wanted

to get away from the IDA issue just a little bit, although I know

that that is the subject of the hearing this morning, and to suggest

that maybe there are broader issues out there in terms of

globalization that are working against billions of poor people in this

world and having to do with a philosophy exerted by multi-national

28

corporations in this country that are working to the detriment of

the poorest people in the world and in fact American workers.

What we call the race to the bottom. In other words, playing off

American workers who are losing their jobs against the very poor

in the world to the detriment of both. Do you share that?

Mr. ORR. I would say I guess, Mr. Sanders, my sympathies lie

more with the editorial writers and others that you have described

who see the glass as mostly full.

Mr. SANDERS. Thank you. Ms. Lee, what do you think?

Ms. LEE. I would have to say that the general view, the generally

accepted view within the economics profession or the editorial

pages on globalization has missed a lot of really important pieces

of the picture. I think if you look at the overall picture, of very slow

growth, of stagnant or growing poverty, growing inequality, that it

is not a successful global economy and that we do need to look at

both the rules and the institutions that we put in place over the

last 20 years and say what can we do differently, not how do we

do more of the same? How do we change that set of rules and

frameworks?

We have in my view provided precisely the wrong incentives for

both governments and for multi-national corporations that are trying to navigate in a global economy, a very difficult competitive, dynamic, global economy. What we have said to the corporations,

what we have said to the governments is go out and make a lot

of money, move around, pit governments against each other, pit

workers against each other. Go get the best deal you can and there

is no limit on how low you can go in terms of respect for workers,

respect for the environment, and basic human concerns.

We need to build that floor. We need to say, sure, we need a dynamic global economy. We need competition. Competition can be a

very important force for growth and for change, but we need to put

some limits on the kind of competition. We need to send a message,

it needs to be an enforceable set of rules that will protect basic

workers rights. And the global community has agreed that every

worker in the world deserves the core workers’ rights, the fundamental human rights of the workplace, the freedom of association,

the right to bargain.

Mr. SANDERS. The global community, multi-national corporations

agreed with that?

Ms. LEE. The International Labor Organization, which has employers, workers, and governments from over 175 countries has

agreed to that. Even the WTO at its first ministerial meeting in

Singapore in 1996 agreed that all countries should promote the

core labor standards. But they have made a rhetorical commitment

and then the question is how do we make that real? Is it just

enough to stand up in a room in Geneva and say we believe in core

workers’ rights?

Mr. SANDERS. But in many ways that is just words. Up until a

few years ago in Mexico, Mexico, when workers tried to form free

unions, they were destroyed, put in jail, right?

Ms. LEE. Well, that is exactly the point. The trading system we

have put in place—and I would say that the World Bank and the

IMF have been also guilty of it, of having an ideology where they

29

believe that if they just took care of the multi-national corporations, everything else would fall into place.

But growth hasn’t fallen into place. Poverty reduction hasn’t fallen into place. And certainly we haven’t seen that there is an inevitable improvement in workers’ rights and environmental standards. Some countries do. Some countries trade, grow, invest and

improve their workers’ rights. Other countries, and I would say

China is a prime example here, have been very much a part of the

global economy, have benefitted from trade and investment flows

and yet have allowed a really disgraceful human rights and workers’ rights situation to continue and in fact worsen.

So I would say that if we are going to get improvements, we need

to put in place the rules and the institutions that will change the

direction of the global economy so that we can really get some better outcomes for the people at the bottom, for workers all over the

world, and for workers in the United States.

And you said it, and I haven’t talked that much about it today,

but obviously for our members the direction of the global economy

has been extremely damaging. It has just pulled the whole manufacturing sector to pieces in the United States with a lot of serious

impacts for the distribution of wages, for the productivity growth

in the United States over the long time, and even the trend of

growing international debt, which I think is not sustainable, those

are all pieces of the failure of globalization to date.

Mr. SANDERS. If I could, Mr. Chairman, let me just ask Mr.

Offenheiser how he feels about that?

Mr. OFFENHEISER. Thank you, Congressman Sanders, for the

question and the opportunity to comment. Oxfam, about five years

ago began to struggle with the fact that much of the kind of development and humanitarian work we were doing on the ground in

poor countries in Africa and elsewhere we felt was not achieving

the goals that we had hoped for. And increasingly in dialogue with

the partner organizations that we work with, we became increasingly aware that we were dealing with a process and a problem

that extended far beyond the national borders of the countries

where most of our programs were concentrated. And I think what

it led us to was actually the recognition that in some ways

globalization has become the default development paradigm of this

era and that as an organization we in some ways had to struggle

to come to terms with what that in fact meant for many of the poor

people of the world that we represent and work on behalf of.

Having said that, as we have delved into the issue, we have recognized that, as one talks about globalization, many people mean

different things when they use the word. I think very often here

in Washington the term is used in a very narrow economic sense.

But I guess from our point of view that globalization is probably

more aptly described as the accelerated movement of people,

money, ideas, images, knowledge, and technology around the world

at a highly accelerated pace through sort of a seamless and almost

borderless planet.

Now, looking at that objectively even from within developing

countries, you can actually see some things that are positive about

globalization defined in those terms. And we want to be honest

about those. The information flows that are going into many counVerDate 11-MAY-2000 15:23 Dec 23, 2002 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 C:\DOCS\83080.TXT HBANK1 PsN: HBANK1
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tries I think are good for democratization, good for promoting citizen accountability, and so on and so forth, and human rights.

Mr. SANDERS. But given the growth of all of that technology,

computers, the Internet, all of those very positive things, why

aren’t we seeing a substantial increase in the standard of living of

the poorest people? Why aren’t we seeing people with health care

and educational opportunity? And what endemic, what aspects of

globalization are working the other way?

Mr. OFFENHEISER. Well, just to pursue this a bit further. Oxfam,

in trying to grapple with more of the economic side of this question,

released in April a report on trade, which was an effort on our part

to tackle the larger issue of globalization from the economic side.

The study is entitled, ‘‘Rigged Rules and Double Standards: Trade,

Globalization, and the Fight Against Poverty.’’ And the fundamental premise of the study, which has gotten quite a bit of play

in the global media, this report was released—this a 270-page report, this is the executive summary, we are happy to provide committee members with the full report or the executive summary as

you would care.

Mr. SANDERS. Please do.

Mr. OFFENHEISER. The fundamental premise was that trade in

and of itself is not inherently bad for development or bad for the

poor. In fact, it might actually deliver some greater economic benefits. But the rules are rigged against the poor and against poor

countries. And the study attempts to try to explore in greater detail

what exactly that might mean.

For example, we struggled with the question of—we were looking

at the issue of ending the use of conditions attached to IMF/World

Bank programs which force poor countries to open their markets

regardless of the impacts on poor people, the Zambia case being an

example that was cited earlier in the hearing this morning. We are

concerned about the whole issue of commodity pricing. As you may

well be aware, the international price for coffee has collapsed and

Central America is in a dire crisis at the moment.

Mr. SANDERS. But what does it mean if countries are forced to

export if they give up their basic agriculture, which feeds their own

people perhaps not in the best way but provides sustenance to their

people, if they are transformed to an export economy, coffee or

whatever it may be, and that market collapses, what happens to

the people in those countries?

Mr. OFFENHEISER. Well, the economic indicators or the social and

development indicators would suggest we are going to get greater

impoverishment and greater erosion of social welfare. I think that

is pretty clear.

And I guess what we through this trade report have found ourselves arguing for is a less of a rigid sort of cookie cutter approach

to the kind of planning that goes forward through the PRSP processes that we talked about this morning and giving countries more

of an opportunity to develop more diversified approaches to the development planning that would vary a bit from the more straitjacket free market policies of the World Bank.

It is interesting, Joseph Stiglitz in a recent speech commented

that if you actually look—or he actually posed a question to the audience which was what do India, Botswana, and Vietnam have in

31

common, all countries with significant economic growth rates and

reasonably good social welfare indicators or at least on the rise.

And the answer to his rhetorical question was none of them have

participated in a World Bank structural adjustment or policy program. And more to just make the example, that they have sort of

exempted themselves and yet they are the good performers.

Mr. SANDERS. Right. I know I have gone on too long. Can we get

Reverend Beckmann to say a few words? Please proceed.

Rev. BECKMANN. Well, I agree with the other people who have

spoken, that globalization is a mixed bag for poor people. And there

are a number of things that can be done. With all political realism,

that would make globalization work better for poor people.

One of those is to have a strong, well-financed IDA that is democratic, more democratic than it is now. That would help some of the

poorest countries insert themselves into the global economy in a

way that would be good for their people.

Another one is the issue of worker rights or environmental

standards or I would say food security standards. If we are going

to go into a trade agreement and we know it is going to make some

people hungry, then part of the agreement should be, no, we are

going to do some things to keep that from happening. So I think

there are a number of politically feasible reforms that in fact will

make globalization work better for poor and hungry people. So that

has been the focus of our effort.

I do think it is important to recognize that globilization is a

mixed bag. On the one hand, it seems to me that over the last 25

years, we have seen a fairly dramatic reduction in hunger and poverty in the world—

Mr. SANDERS. In what parts of the world?

Rev. BECKMANN. Well, especially in East Asia. And part of that,

in my judgment, is because East Asia seized the opportunity of

opening markets for manufactured goods. Europe and North America negotiated liberalization in manufactures, and countries like

Korea, Indonesia, and Thailand jumped in. That is not the whole

story. But the global economy I think arguably helped a lot of people in East Asia get out of poverty.

At the same time, it is also clear that globilization has left a lot

of people behind. I went to a meeting in Tanzania some years ago

that had a really significant impact on my own thinking about this.

This was church leaders in Tanzania and other English-speaking

countries. And there was a guy there from the World Bank who

talked about adjustment. He said, ‘‘get used to it.’’ Everybody has

got to adjust. General Motors has got to adjust. This is a global

economy. It is fast moving. We were meeting in a rustic hotel in

Aroutia. And this guy would retreat into his hut, and he would be

on the Internet. He said, ‘‘Tanzania has got to adjust to the fact

that Malaysia is a more competitive coffee producer. The problem

isn’t North America. The problem is that you guys have got to get

in shape and compete with the Malaysians. They are getting ahead

of you.’’ And these African church leaders had no answers. They

said the reality you describe is exactly the reality that we are living, and we cannot cope with this. Our countries cannot cope.

32

In fact, the only hopeful note was that those church leaders

prayed together, and they said, ‘‘God will not forget Africa,’’ and

they sang like nobody’s business.

Mr. SANDERS. Thank you very much for that. Your last remarks.

Mr. Chairman, you have been amazingly indulgent. You get five

gold stars.

Chairman BEREUTER. Mr. Sanders, you and I have both asked

excellent questions that have elicited substantial illuminating responses but Mr. Bentsen is entitled to a very generous five minutes.

Mr. SANDERS. Given how long we have gone on, give him a

minute or two and that is it.

Mr. BENTSEN. I appreciate that, Mr. Chairman. I know my colleague from Vermont, who I agree with more often than I don’t,

won’t cut me off if he starts to disagree with me. I actually enjoyed

the last round of questions. And I have to say, Reverend Beckmann, I agree with your assessment of our partners in IDA in not

going to the 50 percent grant level, I think ‘‘nutty’’ is probably the

appropriate term. I don’t know if that comes from your economics

background or your divinity background. So I think just that in

and of itself is rather interesting.

But I do think that—I would also say I think it is absurd because

the question of whether or not the United States will make a longterm commitment to IDA, either in the -- is equal either in the

form of grants or loans. And from a budgetary standpoint, arguably

in real terms, the loans as they are structured are really no better

than grants themselves. Now, we use obviously a little bit different

accounting but nonetheless I just think the risk exists one way or

the other.

I was actually—and Mr. Frank alluded to this as well, we had

the Secretary of the Treasury here last year before the full committee and discussed the question of the HIPC program and the

new administration’s commitment to it and whether or not—what

its response would be going beyond HIPC. It was at that time that

the Secretary I think for the first time said, ‘‘Well, we probably

would look at it going into grants.’’ And I have been pleasantly surprised, quite frankly, with this administration that they have that

commitment. So I think that would bode well for the long-term

commitment.

The other thing I would say is when we did the debt forgiveness

program back in 1997 or 1998, I don’t remember exactly when, one

of the issues I was concerned about, and I think maybe perhaps

misunderstood on, but I didn’t lose in the committee nonetheless,

was this whole idea that we would forgive debt and then immediately turn around and put these countries back in the hock again.

It made absolutely no sense whatsoever. I think the first part of

the proposal was on track but there had to be some form of a—and

there is not a better term for it, but some form of a bankruptcy

that you were putting these countries through and then providing

them with capital so that they could go forward and restructure

themselves to continue the process of what the original intent was

for them to become at some point self-sustaining.

And, Mr. Offenheiser, I appreciate—I think it was in your testimony—that you addressed the need to look at the various ratios

33

that we are using. The 150 percent export ratio has always been—

I have always had many questions about what the validity of that

ratio really is in what we are trying to accomplish. So I am glad

that you raise it. I am not confident that anything is going to be

done about it in the near future, but I think the more that is talked

about it and trying to look at self-sustainability of ratios is a better

idea.

I do have a few questions. Mr. Offenheiser, in your testimony you

state that we should work to de-link the HIPC program from the

PRSP. Is your concern that the PRSP will just be another means

by which to hold up the HIPC program as those papers are being

developed and reviewed, as just yet another condition that is set?

Mr. OFFENHEISER. That is precisely the concern. In other words,

that the promise of the PRSP is an extraordinarily ambitious one

but it requires a lot of citizen participation and citizen consultation

to do it right and do it well. And, as I said in my testimony, we

haven’t quite got it right yet but we are getting there. And the concern was really that we might be delaying the delivery of debt relief benefits to countries if the PRSP process is too onerous.

That has been partially addressed by the acceptance of the notion of an interim PRSP which then was able to trigger debt relief

to a number of countries. And I think we are at a place now where

we are finding our way through it, but I think we want to just underline in the testimony that we don’t want to hold up debt relief.

We think deeper and broader debt relief should be a critical priority and along side it delivering on a good PRSP is equally important but not to conflate the two to a degree to which it slows down

the debt relief process. That is really the core point.

Mr. BENTSEN. Mr. Orr, in your testimony, you discussed, if I understood it correctly, you talked about the close relationship between Bank staff and Development staff in the recipient—in the

beneficiary countries. Are you asserting I guess that this long-term

relationship I guess creates too much coziness that there is not sufficient oversight from the Bank staff?

Mr. ORR. The point I was trying to make, Mr. Bentsen, is that

I think in certain instances there is room for the World Bank to

be tougher on its clients than it has been, particularly in areas of

governance and ending corruption. If you take a long-term look at

performance of some of these countries, it is disappointing that

more progress hasn’t been made in some of these areas. And I

think the reason, part of the reason is that too many allowances

are made for failure or slow progress in some instances.

Now, it has occurred to some people that maybe multilateral institutions ought to threaten to cut off funding to governments that

don’t make important strides in these areas. But that, of course,

would have a very harsh impact on the poor people that IDA

serves. But I think maybe it is worth thinking about, are there

other ways to deliver benefits to the same recipients, perhaps not

using governments that are resistant to change, either using civil

society or some other mechanism to deliver the benefits.

Mr. BENTSEN. Well, if I might, Mr. Chairman, if we went to a

larger grant program, wouldn’t that in some ways allow for greater

oversight and greater involvement as those grant monies are disbursed? If you think about some of our own federal programs, it is

34

certainly not true in all, that there are compliance mechanisms in

place. And going to a grant program, one, would allow you to—it

seems to me it would allow you to do that with the government.

But it also would allow you, whereas in trying to structure a loan

with— you have to structure a loan with a sovereign entity, a grant

program would be, and similar to Mr. Offenheiser said with the

Rockefeller Foundation and the Ford Foundation and others were

able to do perhaps with non-governmental entities. So would that

be something that we could pursue on the grant side of the ledger?

Mr. ORR. Certainly grants will involve less local government involvement than the current lending process, where all the loans

have been from the World Bank and IDA to the local government.

But, of course, there will be other oversight problems. Instead of

watching one ministry in borrowing Country X, the World Bank

will have to monitor 15 or 75 civil society organizations that are

implementing smaller aspects of the same project. So I mean there

will still be plenty of room for oversight.

Mr. BENTSEN. If I could with the chairman’s indulgence ask one

quick final question. A number of you all talked about the problem

of the cookie cutter approach to whether it is the structural adjustment programs or view towards dealing with the IDA countries.

There aren’t that many of them. There are a lot of people within

the various nations but there aren’t that many clients if you look

at the individual countries themselves.

Is it possible within the structure of the Bank and its sponsors,

including the United States, that the Bank can become more I

guess client-specific? I don’t know if that is the appropriate term

or country-specific in developing structures or is it something inherent in the view of the donor states that precludes that or the

culture of the Bank? Whoever is fine.

Rev. BECKMANN. For myself, I am not convinced that the Bank

has a cookie cutter approach. They are trying to learn from the experience of one country for another country, and they are making

some generalizations about what works. Maybe at a certain point

in time it is too much market-oriented. Or it is too statist. The

Bank has swung back and forth on those issues a little bit. But an

advantage of the Bank is that they are sharing from the experience

of one country to another, and that may mean that an idea that

really has worked in one country gets channeled through the Bank

to another country and so there is a certain parallelism to it.

As I look at specifics of the Bank’s dialogue with particular countries and projects in different countries, it seems to me they do a

pretty good job of adapting their advice. At any one time, if you

think they are too gung ho on the markets (as I think they were

in the early 1980’s), they may go that way in a bunch of countries

at the same time. On the other hand, in the 1960’s and 1970’s, they

promoted governmental development finance companies all over

the world.

So if, let’s say, it is the early 1980’s and you think, they are

wrong, well, they are wrong everywhere. There is a certain amount

of similarity across countries. But I think it is an unfair criticism

to say that it is rote and unthinking and completely insensitive to

local reality.

35

One other thought though is about the whole emphasis on participation and democracy and letting people in on the discussion

with the PRSP’s. In fact, there is still very little civil society participation on the big issues of national economic policy. And to a

great extent in the poorest countries, civil society organizations

don’t have much capacity on these issues. When they are ushered

into the finance minister’s office, they don’t know what to say about

some of the issues of national economic policy.

Moving in the direction of openness and capacity building for

local democratic discussion of the biggest issues—of the questions

of markets versus state, for example allows for local democratic discussion of precisely the issues that this Congress debates all the

time for our own country.

Chairman BEREUTER. Mr. Bentsen, I think Mr. Offenheiser

would like to respond.

Mr. OFFENHEISER. Well, I am going to disagree with my very

good friend David here for once. I recently was at the World Social

Forum in Puerto Alegre, Brazil in southern Brazil where there

were some 60,000 civil society representatives from all over the

world meeting to debate actually these issues about globalization.

And in one rather sort of heated exchange over coffee early one

morning with one of the sort of leading spokespersons in these

events, when we were talking about precisely these issues, he said

to me, ‘‘You know oftentimes it is really hard to get the leaders of

the multilateral institutions and particularly Americans to understand we want in our countries the same thing that you had.’’ And

I said, ‘‘Well, what do you mean by that?’’ And he said, ‘‘Well, if

you study your own history, you will realize that you had 200 years

of managing your economy with tariffs and developing strong institutions to manage sort of the internal operations of your economy

and you carefully managed your trading relationships with others

and developed a very strong internal economy.’’

The point he was really making was that in his own country and

the country of many of the others around the table, the institutions

are weak and the model of export-led development and free trade

that I think is at the core of the cookie cutter approach, if you will,

is really what worries many of the advocates for less of a cookie

cutter approach, if we can put it that way, from the developing

world. And what they are really arguing for is the opportunity to

manage their sovereignty on their own terms, to open to the global

economy. And the interesting thing is they are not antiglobalization in the pure sense.

They want to open to the global economy but they want to do it

on their own terms and in a way that they can sort of pace reasonably so they can address the kinds of food security, internal food

security issues that Congressman Sanders was talking about. They

want to build strong infrastructures in their country. And they feel

they have a right to manage tariff regimes if that is a tool that

might be appropriate for them at a given point in time or they

might want to preserve the right to manage capital flows in ways

that would disagree with IMF/World Bank policy on those particular issues.

So I think that is really at the heart of this issue, can an institution like the World Bank and the IMF vary a bit from its exportVerDate 11-MAY-2000 15:23 Dec 23, 2002 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 C:\DOCS\83080.TXT HBANK1 PsN: HBANK1
36

led development free trade model and accept that the countries

that have succeeded like South Korea and the Vietnams and the

Botswanas have in fact managed their opening to the global economy more on their own terms with strong civil society participation, building institutions, and using macro economic instruments

in a reasonable way. And that is I think where the nub of the problem is.

Chairman BEREUTER. You are going to have the last word on this

question, Ms. Lee.

Ms. LEE. Okay, I will be brief. I think the whole concept of the

PRSP of course is designed to address that. And the rhetoric of the

PRSP is terrific, that countries will own their development strategies. They will have broad-base stakeholder participation. And that

sounds very good. And I think the reality, not surprisingly, as it

gets off the ground has been less than that. It has not yet reached

its potential.

The points you make I think are exactly right, that there is a capacity problem in very poor developing countries. We see this with

the trade unions and we work very closely with our trade union

counterparts in helping to build the capacity to participate effectively in the PRSP and also trying to take their stories back to the

IMF and World Bank headquarters in particular when they tell us

that they have been excluded from that process. I think it takes

time and it will take time to get that process up, and we need to

keep a lot of very close scrutiny on whether that is working out.

And I think the point you raise, Ray, in terms of the export-led

development is also very important. That when you talk about a

cookie cutter approach and you tell every country to do the same

thing, export to the U.S. market and that is how you are going to

get rich, it can’t work for all those countries at the same time in

the same way and that they need to make sure that they are taking steps to develop internal markets, to develop strong middle

classes, and that is where the role of trade unions we think is so

important, in raising wages and building a middle class in developing countries so that they can not be totally reliant on always

selling to an export market. And if that market is always going to

be the United States of America, we have a $400 to $500 billion

merchandise trade deficit.

We have fairly low tariffs to begin with. And it is not clear to

me that we can just double our trade deficit and take in more

goods and be a consumption engine for the entire developing world.

That is not probably a viable option overall, and I think that goes

to whether the development advice that the World Bank and the

IMF have been giving out is actually likely to work or not.

Thanks.

Mr. BENTSEN. Thank you, Mr. Chairman.

Chairman BEREUTER. I am going to grant a little time to Mr.

Frank in absentia because he wanted to address a series of related

questions to you, Mr. Orr. And I am going to read it as he has written it here.

In 1997, the IMF member finance ministers and central bank

governors, including Bob Rubin and Alan Greenspan, agreed to a

special one-time allocation of SDRs, special drawing rights, which

37

is an international reserve asset issued by the IMF. Failure of the

U.S. Congress to ratify this allocation has held it up.

Would this not be a good time to have the increase of international liquidity? Wouldn’t it complement the IDA replenishment

and the increase in bilateral aid the President has promised for

next year and give at least a small additional stimulus to global

growth?

Would you like to try to respond to his two related questions?

Mr. ORR. Yes, Mr. Chairman. Mr. Frank is alluding to an amendment to the Articles of Agreement for the IMF that the United

States pushed at the IMF, primarily to give countries that weren’t

in existence when SDRs were originally issued, many states of the

former Soviet Union in particular.

It would increase SDR allocations to 40 or 50 countries to about

$30 billion, if I remember correctly, which is a pretty large number.

It is 10 times or so as big as the IDA replenishment that we are

discussing today. Much of that money would go to some of the poorest countries, including some of the front-line countries in the war

on terrorism, countries in Central Asia, Afghanistan, Pakistan.

From my vantage point, for reasons of good government, this is

something the United States should do. We pushed this amendment at the IMF. The last time I checked I think it requires an

85 percent approval in terms of vote share, the United States having 19 percent more or less. Seventy-two percent of the members

have approved it. It can’t be approved without the United States.

And I don’t believe that Treasury has even submitted it to the Congress. The Clinton Administration, when the time came, chose not

to, for whatever reason.

But in terms of maintaining respect for U.S. initiatives within

these institutions and out of respect for the other governments that

have already approved this, I think it is probably an important

thing to do. And I think the additional liquidity would certainly be

of use to many of the poor countries that would be receiving it.

Chairman BEREUTER. Thank you very much. I wanted to ask two

questions in a second round here. And one can be relatively brief.

It is for you, Mr. Offenheiser. And the other one perhaps all of you

can try to respond to if you care to.

You mentioned, as I understood it, that investments ought to be

focused on in other areas. And I think you mentioned, among others perhaps, I didn’t quite get it all, extractive industries. And then

my staff showed me the report that Oxfam did on extractive sectors

and the poor. In a minute or two, could you enlarge upon that

statement and see if I have it correctly stated?

The second thing, I would welcome comments from any of you for

a comment that Mr. Orr made and he said we as a Congress need

to pressure treasury on the subject of educating the public with respect to the multilateral development institutions. That rang a bell

with me. He said, ‘‘There is virtually no public education conducted

by Treasury over the years on this subject.’’ And I would like to

have your thoughts about what specifically could and should be

done if you agree that it is desirable, and I would think you would?

So let’s go to Mr. Offenheiser first for the first question and then

I will let the others respond, and then we will move to Mr. Sanders.

38

Mr. OFFENHEISER. Yes, in the particular area of mining extractives, Oxfam has been giving some attention to this, driven actually

by experiences we have been having in countries where we work

where we have seen an extraordinary increase in bank lending and

also foreign direct investment from mining companies stimulated

by actually concessionary lending from the Bank.

What has concerned us is what we have seen as relatively limited employment benefits, welfare improvements, and other broader sort of social development impacts that are a consequence of this

kind of lending and at the same time, extraordinary negative environmental impacts and little net and economic benefit for the regions or communities that are actually the sites for these major

projects. And it raised in our mind really the question is this the

best approach to development lending when significant amounts of

money are going into this particular area?

The general question we are raising is if we look at this from a

development point of view, while it might make sense for a country

to exploit a particular resource, and we are not against the mining

of extractive activities per se but when measured against other

types of investments, either to stimulate private sector investment

or to promote other kinds of human development, we would question whether this was the best use of Bank funding.

Chairman BEREUTER. Thank you. And now it is for the public

education responsibilities of Treasury. What specifically would you

recommend that the Congress might encourage or mandate, any of

you? And, Mr. Orr, you may start since you brought up the subject.

Mr. ORR. I didn’t come with a solution. I think the problem is,

if it is a problem, the problem is that Treasury doesn’t think this

is its mandate. But I remember back three or four administrations

ago a very aggressive assistant secretary of Treasury for international affairs made it his business to do a great deal of public

speaking about the important work of the multilateral institutions,

and I think it had an important impact on raising public understanding and support. So potentially a mandate from Congress to

do this and some funding to do it with. Perhaps it is the Department of Commerce, the Department of Commerce should have a

role in this as well.

Chairman BEREUTER. You may as well mention, if you recall, is

it—

Mr. ORR. I was thinking of Fred Bergsten, Assistant Secretary

Fred Bergsten in the Carter Administration.

Chairman BEREUTER. Perhaps he will give us some suggestions.

We will go right down the line. Reverend Beckmann?

Rev. BECKMANN. Well, I would encourage you to just commend

Secretary O’Neill. He did a great job of development education

going to Africa with Bono, precisely because it was so unlikely. And

why did he have to play straight man to Bono? He did this because

he cares about the issue. And I think he is really learning a lot

about development and seems to really care and want to do more.

I don’t know what his next moves will be, but what he did

achieved a lot. He articulated precisely the questions of a lot of people in Nebraska, ‘‘We spend a lot of money on this, but what are

we getting for it?’’ He asked these questions, but then was willing

to go to Africa with Bono and say, yes, we ought to do more about

39

AIDS and water supply and opening up enterprise here. He did an

extraordinary service to the world. So just commend him for what

he has done, and ask him what his next moves are going to be in

this area.

The notion that Treasury is going to have a program of development education strikes me as implausible. But they could do a couple of things. Clearly, they can do more speaking and that sort of

thing. I think that over the years they have really discouraged the

World Bank itself from spending money on speaking to Americans.

I used to work at the Bank and there were serious partly financial constraints on the extent to which the Bank itself could do development education. My understanding at the time was that the

U.S. opposed spending by the Bank to tell its story within our own

country, partly because of the fear that the Bank might have a

slightly different line and would in effect propagandize against the

administration’s policy on a particular issue. But the Bank could

do more to talk about development to Americans and would probably do a better job than Treasury.

And then within the U.S. government, I think the Biden-Pell program is where it belongs. The Biden-Pell program could be five

times the size that it is. That is within AID. The ads within Canada probably come out of CIDA and most of the other industrialized countries also have very substantial programs of government

funding for development education.

Mr. SANDERS. If I could just interrupt and just ask, if I could,

don’t you think part of the problem is that there is probably 25 or

35 percent of the United States Congress that doesn’t believe in the

United Nations?

Rev. BECKMANN. Sure.

Mr. SANDERS. Let alone AID?

Rev. BECKMANN. Sure. That is part of the problem.

On the other hand, there is a movement afoot within American

life; the public opinion polls show it clearly. It is a political movement that leads President Bush to propose a bigger expansion in

development assistance than President Clinton ever proposed, and

Senator Helms this year has made a big push for an extra half billion dollars for AIDS. There may be a movement in our nation’s life

and in international life that would make it possible to do some

new things. And one new thing that would have a long-term impact

would be to increase funding for the Biden-Pell Program. It

wouldn’t cost Congress very much, and it would have a multiplicative effect over a period of 5 or 10 years.

Chairman BEREUTER. Mr. Offenheiser?

Mr. OFFENHEISER. I very much welcome this recommendation

from Mr. Orr and wanted to share with you that, stimulated in

some sense in the aftermath of 9-11, there is a whole series of

groups that are actively meeting, trying to evaluate the impact on

public opinion and sentiment in the United States about alternative forms of U.S. engagement overseas.

In other words, what is the sentiment of the American public

about internationalism, about investment in development programming, and how that connects back to the whole larger discussion

of U.S. security going forward. And the surveys that have been

done, and actually there are quite a number of them, there are

40

probably four or five, and we can certainly—I would be very happy

to provide these to the committee if there is interest, are really

quite striking in I think all sharing the numbers that would suggest that the public is in fact—the public attitude on these issues

has really shifted to some significant degree. And there is more

awareness in the broader public or more thinking going on about

should we be addressing these issues of poverty and AIDS and isn’t

that perhaps linked in some way, although the public isn’t real

clear how, to these broader issues of terrorism that we are confronting.

Now, these polls would suggest that the public in general supports the war on terrorism, as the President has articulated it, but

it also supports I think a more long-term view about rethinking

U.S. engagement in the world and about the obligations of Americans to address issues of poverty and injustice. The question of how

we do that is another matter. But I think what this survey material really represents is an opportunity I think for the Congress

and the administration and programs like the Biden-Pell program

to expand its reach and perhaps challenge the American public and

these sensibilities and see what the American public attitude is. I

think the surveys might suggest that the public attitude might be

ahead of the congressional leadership on these issues. That might

be just one sort of line I would close with.

Chairman BEREUTER. That would be really shocking but I would

be pleased to hear from Ms. Lee again in the final spot on the response panel.

Ms. LEE. Thank you. I think it is important to have a broad public discussion and debate over U.S. development aid and the role

of the United States in the world along those lines.

I guess I am not quite as enthusiastic about the idea of the

Treasury Department sort of leading what might be sort of a

cheerleading public effort just on behalf— uncritically on behalf of

the multilateral development agencies, that there are so many

issues that we are debating in terms of the direction of these institutions that what I think would be more important is the transparency reforms that we have talked about. That if it were easier

for Americans to understand where the policies are and who they

are helping and what the conditions have been and so on, I think

that would be a really important piece.

Obviously, that takes a lot of doing and that information needs

to be made accessible to the public. It can’t just be in World Bankspeak or its not going to be all that relevant. So I think certainly

the idea of broadening the public debate is very important and

broadening information.

I think one of the tragedies, when we see the poll results that

Americans that we are already devoting an enormous percentage

of our budget to foreign aid and that it is probably not quite

enough. But they are way off the mark in terms of that percentage.

Chairman BEREUTER. Every two years the Chicago Council on

World Affairs demonstrates that. And the American public think

we ought to reduce our foreign aid to about 5 or 6 percent.

Mr. ORR. We are for it.

Chairman BEREUTER. The gentleman from Vermont is recognized.

41

Mr. SANDERS. Thank you for that point. Let me just ask a very

simple question but obviously a question with huge human ramifications.

We all know what the AIDS epidemic is doing throughout the

world and in Africa and so forth. I think something like 5,000 people a day are dying in Africa from AIDS. We also know that there

are medicines and prescription drugs that are available that certainly can play a significant role in extending life and protecting

people. And we also know that these drugs are extremely expensive. We know that here in the United States the pharmaceutical

industry is the most powerful lobby. And the United States Congress is unable to take them on. They are too powerful for the

United States Congress let alone poor African countries.

What would you do if you were seated where we are seated in

terms of understanding that God knows how many people will die

because they don’t have medicine, that the pharmaceutical industry is making certain to as great a degree as possible that they will

not get medicine at a price that poor people can afford around the

world, what strategies would you utilize? Mr. Orr?

Mr. ORR. I think I have seen somewhere, Mr. Sanders, the statistic that something like $10 billion in additional resources is

needed to combat AIDS and to treat— to do more in prevention

and to treat current HIV/AIDS- inflicted people. I think one of the

most important things Congress could do is add pressure on administrations and other governments to increase funding for this objective.

Mr. SANDERS. But should we pay the prices that the pharmaceutical—you are right in one sense, obviously. But should we pay

the prices that the pharmaceutical industry wants or is there some

moral obligation to make sure that poor people around the world

get drugs at a price that they can afford?

Mr. ORR. I am by no means an expert on this, but my impression

was that pharmaceutical companies had promised to make a number of price concessions to developing countries.

Mr. SANDERS. Yes, but if you are living on a dollar a day, price

concessions. Yes, you can cut your prices in half or by a third but

it is still like—

Mr. ORR. Clearly, it has to be the international community that

finances this at this stage for the poorest countries.

Mr. SANDERS. But what is the responsibility—my question is we

can pay for these things. We can go to the American taxpayers and

say, hey, it is $50 billion. Buy the drugs from the pharmaceutical

industry at the price they want or maybe get a little discount. But

what is the moral responsibility, what should we do about the

pharmaceutical industry that make huge profits while people die?

Mr. ORR. I don’t think I have the answer.

Mr. SANDERS. Okay, thank you. Yes?

Mr. OFFENHEISER. Well, Oxfam, along with Doctors Without Borders over a year or two ago began a global campaign to challenge

the pharmaceutical industry on precisely these questions. And

what we were fundamentally arguing was that the industry per se

was making less than 1 percent of its profit on sales of these critical drugs in the developing countries.

42

And that from our point of view, we could not see why there

could not be approaches to what is commonly called tiered-pricing

for these markets where per capita income annually is very low as

one approach. Or where you had extreme AIDS crises invoking

what is already part of the WTO rules for clearing of public health

emergency and producing generic drugs at lower prices. We were

pleased with the progress made on this issue at Doha but were

troubled that the industry seems to want to kind of reel it back a

bit and tighten up the application of these rules in the developing

countries.

The industry I think for its part is struggling to find ways forward. And, unfortunately, some of the ways forward that they are

opting for are more philanthropic approaches. While we are heartened that they are willing to distribute drugs in various countries,

free in some cases, we think that is laudable, in our view it is not

a systemic solution to the problem.

In our view, what we do need when faced with a global pandemic

of the sort that AIDS presents to us and TB as well, we need more

systemic approaches to these kinds of problems that will make

these kinds of pharmaceuticals available on a more routine basis

in all of these developing country markets. And we are not sure if

philanthropy is an adequate and sufficient response.

Mr. SANDERS. Do you support the right of countries like Brazil

and India, I think it is compulsory licensing is what we are talking

about?

Mr. OFFENHEISER. Yes, we do. We very actively have supported

the Brazil—we think Brazil is an exemplary case of a country that

has responded to this public health crisis in ways that I don’t know

what else the international community could ask a country to do.

And we think that in their case they have every right to invoke the

compulsory licensing provisions and produce generics to address

the problem, yes.

Mr. SANDERS. Okay, Reverend Beckmann, your thoughts on that?

Rev. BECKMANN. I would like to second what Ray just said. The

only addition I would make is on the question of financing. The coalition around AIDS is particularly strong, partly because the problem is so severe but also partly because it is easier for us to

empathize about people who are dying from AIDS than say, people

who are dying because many girls never get to go to school.

We can’t imagine all the deaths that are taking place for all the

other reasons. The international community ought to do everything

possible to deal with the AIDS pandemic. It is really huge. But it

is not the only problem. And so also the broader approach to helping get girls in school, providing agricultural development assistance, dealing with TB and malaria and all—

Mr. SANDERS. I absolutely agree but I was—but I think that the

issue of the role of the pharmaceutical industry, in a sense withholding life-saving drugs, while they are the most profitable in the

United States, raises very broad philosophical and moral issues,

which—

Rev. BECKMANN. Makes sense to me.

Mr. SANDERS.—we have got to deal with. Ms. Lee?

Ms. LEE. I just had a quick point to make in terms of the leverage of trade agreements and how we have written the intellectual

43

property rights provisions into trade agreements like NAFTA and

also the Vietnam bilateral trade agreement. The pharmaceutical

companies I think have been very influential in shaping the trade

agreements and using the leverage of access to the U.S. market in

order to force other countries not to put in place the kinds of policies like compulsory licensing that would save a lot of lives but

would cut into the profits of the pharmaceutical companies.

And I think it is very important—Ray, you mentioned Doha and

the declaration there, which we were very supportive of. And it is

worth noting that the TPA bill before the U.S. Congress right now

in fact contradicts the Doha declaration. That on the one hand the

Doha declaration says that developing countries should have a

longer implementation period for trips and the TPA bill instructs

the U.S. negotiators to seek quicker implementation of trips even

for the least developed countries. And these kinds of contradictions

I think haven’t been well resolved.

We are putting a lot of priority into achieving, into getting developing countries to agree to enforce intellectual property rights in

a way that will profit pharmaceutical companies but maybe take

life-saving medicines out of the hands of people who desperately

need them. And we think that is a real backwards way of using the

negotiating leverage that we have in these trade agreements.

Mr. SANDERS. What I have found interesting, and it gets back to

the issue of globalization and how it is manipulated and for whom

it works and whom it doesn’t work, everybody around here believes—not everybody but many people believe in unfettered free

trade. Some of us for years, I don’t believe in it, some of us for

years have said, ‘‘If you believe in free trade, why do American

pharmacists and prescription drug distributors re-import drugs

from Canada where they are sold—the same exact drug is sold for

50 percent or in some cases 10 percent of the price?’’ The pharmaceutical industry fought us successfully.

So I think your point is very well taken. But I would hope that

this issue and the responsibility of the pharmaceutical industry,

which has a product that can keep millions of people alive but is

fighting hard to prevent that product from getting to the people at

a price they can pay has got to be one of the great moral issues

that we are addressing and the Congress has got to deal with that.

Thanks very much for your comments.

Chairman BEREUTER. You will remember, Mr. Sanders, that the

House has approved re-importation of drugs and the Secretary of

HHS, both the Clinton and the Bush administration has refused to

implement it. And yesterday or the day before, the Senate re-approved it and I think if it is brought to the House, we will re-approve it again.

Mr. SANDERS. But it will not be implemented because there will

be loopholes in it and because the pharmaceutical industry makes

huge contributions to the Republican Party, and all due respect. I

know something about that issue because I first introduced it here

in the Congress and basically the industry is too powerful for Congress to pass it.

Chairman BEREUTER. Well, Mr. Sanders, let’s prove them wrong.

Mr. SANDERS. Good.

Chairman BEREUTER. There is too much—

44

Mr. SANDERS. I look forward to your vote when I bring that up.

Chairman BEREUTER. Absolutely. You have always had it. International cost shifting is an egregious abuse of the American public.

International cost shifting gets worse and worse. They are charging

what the market will bear here as the other countries across the

world impose restraints. But that is a side issue that is related as

you brought it up.

One bit of advice in a sentence or two from you if I could get it

and that is is it practicable for the U.S. to withhold a fixed amount

of money as a rejection of aid to Iran? And I bring this up because

of legislation introduced by Mr. Sherman and about which he

talked today? Is it practicable because this will be a significant

issue for us to address on the floor, if we bring this to the floor?

Mr. Orr?

Mr. ORR. I think there are ways that legislation can be written

to have the same effect that Mr. Sherman wants to do, have the

impact that Mr. Sherman wants to have. But a law that said the

World Bank cannot lend to Iran or an appropriation that came

with that stipulation would traditionally be rejected by the World

Bank because of precedents dating back 30 or 40 years.

So attempts to condition funding against certain countries directly probably won’t work but there are ways to do it. Legislative

Counsel has found interesting ways to have the same impact.

Chairman BEREUTER. I will appreciate having your ideas in private on that because the conditionality has never been successfully

pursued here in the past but it makes a big hurdle for those of us

who might be advocates for the replenishment.

Mr. Offenheiser?

Mr. OFFENHEISER. I would just only make one brief comment and

that is as the representative of a global humanitarian organization,

we oftentimes find ourselves working in highly difficult national

settings because of all sorts of humanitarian crises. And I guess

what would trouble me a bit about the way that proposition goes

forward, particularly if it can be replicated in other contexts, is

where you have post-conflict regimes that may not meet everyone’s

expectations in terms of quality, are we precluding responding to

humanitarian need or to the needs of impoverished populations by

issuing sort of blanket positions like that? So I guess I am a little

reluctant to kind of support such a strong position that might be

more binding than our initial intent.

Chairman BEREUTER. Thank you. Mr. Sanders, do you have anything else?

Mr. SANDERS. No, I have got a plane to catch.

Chairman BEREUTER. All right, I ask unanimous consent that

the statement on behalf—a statement by Chairman Michael Oxley

be a part of the record. And I did want to read one paragraph to

the public here and to members of the committee and to witnesses.

He says, ‘‘I am encouraged by the proposal to change the way

IDA gives aid to developing countries to a mixture of both loans

and grants. This is perhaps the most creative approach to improving the operations of the development institutions that has arisen

in some time. I believe that this proposal will result in not only

better access to critical services but also could help reduce the

crushing debt burden that the developing countries face.’’

45

[The prepared statement of Hon. Michael G. Oxley can be found

on page 84 in the appendix.]

Chairman BEREUTER. In light of that statement and a very similar statement in the written statement of the Ranking Minority

Member, Mr. LaFalce, I think that is an encouraging expression of

viewpoints by the leaders of the full committee.

I don’t recall a hearing which I have found more interesting or

stimulating for a very, very long time. So I want to thank the witnesses for their excellent testimony and your responses to our questions. They have been very helpful.

Mr. SANDERS. Let me concur in that. Thank you all very much.

Chairman BEREUTER. Thank you gentlemen and lady. And the

hearing is adjourned.

[Whereupon, at 12:15 p.m., the subcommittee was adjourned.]

(47)

REAUTHORIZATION REQUESTS ON

U.S. PARTICIPATION IN THE INTERNATIONAL

DEVELOPMENT ASSOCIATION AND THE

AFRICAN DEVELOPMENT BANK

Thursday, July 25, 2002

U.S. HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INTERNATIONAL

MONETARY POLICY AND TRADE,

COMMITTEE ON FINANCIAL SERVICES,

Washington, D.C.

The subcommittee met, pursuant to call, at 1:55 p.m., in Room

2128, Rayburn House Office Building, Hon. Doug Bereuter [chairman of the subcommittee] presiding.

Present: Representatives Bereuter, Ose, Sanders, Frank, Watt,

Carson, Schakowsky, Gutierrez, and Bentsen.

Chairman BEREUTER. The Subcommittee on International Monetary Policy and Trade today is meeting in open session to examine

the administration’s authorization request for the International Development Association, IDA, and the African Development Fund.

I apologize for the late start. We have been involved in a series

of three votes. Mr. Secretary, I appreciate your patience and those

of you in attendance. Mr. Sanders has been here. He will be back

shortly, but I think we have been authorized to go ahead with the

agreement of Mr. Watt and Mr. Bentsen, too, now.

On July 18th, 2002, the administration submitted the following

two authorization requests to House Speaker Dennis Hastert, copies of which are at each member’s desk, $2.85 billion for the thirteenth replenishment of IDA and $354 million for the ninth replacement of the African Development Fund.

[The following information can be found on page 147 and 150 in

the appendix.]

Chairman BEREUTER. Earlier this week we also received the administration’s request for the North American Development Bank,

and that is now being distributed to members.

Chairman BEREUTER. So this hearing is the fourth in a series of

subcommittee hearings on IDA and the African Development Fund.

I ask unanimous consent that my entire statement be made a

part of the record and I will summarize it. And all members may

have their entire statements printed in the record, including that

of the ranking Democrat member of the full committee John LaFalce. Is there objection?

Hearing no objection, that will be the order.

48

First, I would like to go to the thirteenth replenishment of IDA

and give some preliminary remarks on four areas.

The first, as I said, is on the thirteenth replenishment of IDA. For fiscal year 2003, the administration is requesting $850 million

for the first of three U.S. scheduled contributions under IDA 13,

plus 24.3 million to pay one-third of the outstanding U.S. arrearages.

The total 3-year U.S. commitment to IDA 13 is 2.55 billion, with

a possible increase up to 2.85 billion based on IDA’s satisfactory

achievement against key performance measures. With these increases, the annual average U.S. commitment to the IDA 13 replenishment would represent an 18.2 percent increase over the

U.S. annual commitment under the previous IDA 12 replenishment.

The agreement for the thirteenth replenishment of IDA includes

two major reforms which were initiated by the United States—conversion of loans to grants and the establishment of performance

standards. With respect to the issue of loans to grants, in July of

2001 President Bush proposed that the World Bank and other multilateral development banks replace up to 50 percent of future lending to the world’s poorest countries with grants. This proposal was

controversial with some IDA donors and borrowing countries. The

British and Germans, for example, were concerned it said that the

loss of loan reflows would hurt the long-term viability of the IDA

program without significant new commitments from donors, and

Japan feared the broader use of grants would create an unhealthy

dependency on foreign aid and hinder the development of international creditworthiness.

In early July of this year, IDA donors agreed to a complex plan

to convert 18 percent to 21 percent of future IDA loans to grants.

Under this plan, IDA-only countries will receive 100 percent of

their assistance for HIV/AIDS and natural disaster reconstruction

projects on grant terms. Further, post-conflict countries and debtvulnerable countries with a per capita income of less than $1 per

day will receive 40 percent of their assistance on grant terms separate from and in addition to HIV/AIDS or natural disaster funds.

All other countries with a per capita income of less than $1 per day

will receive 23 percent of their assistance in the form of grants,

again separate from and in addition to HIV/AIDS and natural disasters.

With regard to performance standards, the second major reform,

IDA 13 directly links multilateral development aid to meaningful

governmental and social reform.

The U.S. administration has promised a $100 million increase in

year 2 funds and a $200 million increase in year 3 funds if IDA

demonstrates progress in developing reliable measuring tools, advancing specific health and education programs, and increasing

steps taken toward market liberalization. This U.S. plan to increase donations in return for certain broad results incentivizes the

systemic change necessary for sustainable development.

Number two, the ninth replenishment of the African Development Fund—a lot of attention on this subject by members of this

subcommittee. Here, we have to consider not only the ninth replenishment of the African Development Fund, the concessionary lendVerDate 11-MAY-2000 15:23 Dec 23, 2002 Jkt 000000 PO 00000 Frm 00052 Fmt 6601 Sfmt 6601 C:\DOCS\83080.TXT HBANK1 PsN: HBANK1
49

ing, an affiliate of the African Development Bank; the Fund also,

it needs to be said, provides loans on consensual terms, 40 to 50

years maturity, including a 10-year grace period, zero percent interest, 0.75 service charge, and 0.50 percent commitment fee to Africa’s poorest countries.

In fiscal year 2003, the administration is requesting 118 million

for the first installment of a 3-year commitment under the ninth

replenishment of the African Development Fund. In addition, they

are seeking—I am not sure I have the complete number here. Is

that in fact the case? I will simply pass that number up and say

they are seeking to clear one-third of outstanding arrearages.

This committee has looked with some particular attention at the

African Development Bank and Fund because, by all accounts, it

has been the weakest of the regional multilateral development institutions. At the subcommittee’s hearings on this subject on April

25th of last year, we learned that the African Development Fund

suffered both a serious fiscal and a managerial crisis in the early

1900s. From 1993 to 1997 the U.S. made virtually no contributions

to the African Development Bank and Fund. The U.S. Also led

other nonregional members in suspending negotiations for a new

replenishment until reforms had been implemented.

However, in 1995 the African Development Bank and Fund elected Omar Kabbaj, a Moroccan finance official, as the new president.

He has implemented fiscal and managerial reforms and as endorsement of Kabbaj-initiated reforms, U.S. contributions to the African

Development Fund resumed in 1998 and to the African Development Bank in fiscal year 2000. And President Kabbaj was unanimously appointed to a second 5-year term in May of 2000.

The third element of points I would like to cover, the third replenishment of the Global Environmental Facility. I won’t go into

the responsibilities of the fund. I think they are fairly well known

by members.

One thing we would note here, I don’t know if it has come to the

attention of all members, but according to a Congressional Research Service legal opinion, which I requested, authorization for

the GEF appears to be provided by prior appropriation legislation,

Public Law No. 103-306.

As the chairman of the subcommittee which authorizes GEF, and

perhaps speaking for all authorizers in the Congress, I am upset,

concerned about the fact that this is said perhaps to be a permanent authorization provided through an appropriation bill.

Fourth, the Regional Multilateral Development Bank legislation.

As you know, we have legislation pending before the Senate at this

point. I will hope other members will join me in pushing for action

with Chairman Biden.

With that background, I would like to introduce Dr. John Taylor,

the Under Secretary of Treasury for International Affairs, who will,

I am sure, assist the subcommittee in examining these important

issues. This is the second time that Dr. Taylor has appeared before

the subcommittee. On February 6th, 2002, he testified on the Argentina financial crisis. And without exception, Secretary Taylor

has been very helpful, cooperative, forthright in all of his contacts

with the committee.

50

He has a very distinguished academic and professional record.

He received an undergraduate degree from Princeton University

and a Ph.D. From Stanford University; he has taught economics at

Columbia, Yale, Princeton and Stanford Universities. He also has

directed the Monetary Policy Research Program at the Stanford Institute for Economic Policy and Research.

In addition to these academic positions, Dr. Taylor was a member of the President’S Council of Economic Advisors during the administration of President George Herbert Walker Bush.

We are going to permit you to speak in a couple minutes, Mr.

Secretary, but I want to now turn to the distinguished ranking

member of the subcommittee, the gentleman from Vermont, Mr.

Sanders.

[The prepared statement of Hon. Doug Bereuter can be found on

page 126 in the appendix.]

Mr. SANDERS. Thank you, Mr. Chairman. And I apologize for

being late. I am going to have to be running in and out. But I

thank you for holding this important hearing.

We welcome Mr. Taylor. Thank you very much for being with us.

As we all know, the International Development Association, the

poor countries’ lending arm of the World Bank is up for reauthorization this year, and we look forward to working with the chairman and other members of the committee on that legislation.

The World Bank was originally set up to end global poverty. Unfortunately, many economists, labor unions, NGOs, religious

groups, and others have strong concerns that the policies of the

World Bank and the IMF, which often support unfettered free

trade privatization and slashing social safety nets of countries in

order to balance their budgets, have contributed to increasing global poverty.

Mr. Chairman I would like to briefly quote, I don’t know if some

of—if you saw an article that appeared on the July 19th front page

of the New York Times. Let me just quote some of that article. I

think it is important for us all to hear this.

‘‘Across Latin America millions of others are also letting their

voices be heard. A popular and political ground swell is building

from the Andes to Argentina against a decade old experiment with

free market capitalism. The reforms that have shrunk the state

and opened markets to foreign competition many believe have enriched corrupt officials and faceless multi nationals and failed to

better their lives.’’ .

The article continues, and I quote the New York Times:

‘‘Indeed 44 percent of Latin Americans still live in poverty and

the number of unemployed workers has more than doubled in a

decade. Tens of millions of others, in some countries up to 70 percent of all workers, toil in the region’s vast informal economy, as

street vendors, for instance, barely making ends meet.

Economic growth has been essentially flat for the last 5 years.

Popular perceptions revealed in street protests, opinion polls and

ballot boxes are clearly shifting against the economic prescriptions

for open markets, less government, and tighter budgets than American officials and international financial institutions have preferred.’’

I hope everybody heard that.

51

In fact, a regional survey supported by the InterAmerican Development Bank found last year that 63 percent of respondents across

17 countries in the region, that is, Latin America, said that privatization had not been beneficial.

And this, by the way, is Latin America. I think the same tale is

being told in many countries throughout the world.

I won’t—I will just introduce my statement for the record, Mr.

Chairman. I won’t read the whole thing. But I think it is time not

to keep saying the same old things. Year after year, we hear people

saying free trade is just great, it is wonderful. But you know what,

unfettered free trade has been a disaster for American workers. We

have lost 10 percent of our manufacturing base over the last 4

years. It has equally been a disaster for many, many poor people

throughout the Third World. Privatization has not been a miracle.

What you are hearing here is, people in Latin America do not

necessarily think it is a good idea when most industries are given

over to foreigners who could care less about their existence and

jobs in their own country.

Free market competition has not necessarily been good for agriculture. When poor countries are forced to develop crops that export and those prices go up and down, when they go down as they

have in recent years, it is a disaster. And it is a very scary situation that many poor people around the world are unable to grow

the subsistence in food that they need, and on and on it goes.

So I think, Mr. Chairman, what you are increasingly seeing all

over the world—and I think is even trickling into the United States

Congress when Republican leadership really had to twist some

arms severely for the last fast track agreement that passed by one

vote—that a lot of people are beginning to rethink what the IMF

and the World Bank has told us in the sense it is not working for

poor people around the world nor is it working for American workers.

With that, I would ask unanimous consent to submit my full

statement into the record.

Chairman BEREUTER. Thank you, Mr. Sanders. I have received

unanimous consent for all members already.

[The prepared statement of Hon. Bernard Sanders can be found

on page 135 in the appendix.]

Chairman BEREUTER. Are there other members of the committee

who wish to have opening statements? Under the rules, you are entitled to 3 minutes.

The gentleman from Texas, Mr. Gonzalez.

Mr. GONZALEZ. Thank you, Mr. Chairman. And I do thank you

for calling this hearing today. I am particularly interested in what

Under Secretary Taylor has to say concerning the North American

Development Bank. As you may know NAD Bank, is located in my

district, it is the only multilateral development bank dedicated to

the United States-Mexico border.

This past May, this subcommittee did in fact hold hearings on

that bank. It is apparent from that hearing that NAD Bank is critical to the economic development of the United States-Mexican border and that, in my view, Treasury has not been especially forthcoming either with this committee or with border communities as

to what their specific reform proposals are concerning NAD Bank.

52

I will hope, and do hope, that Under Secretary Taylor will use

today’s hearing to open the doors to what exactly the administration’s plans are with NAD Bank, and start to open a full dialogue

with Congress and other communities as to how best to improve

this important situation. I would hope that he would expand on the

latest initiative and what would be in store later in the year

around September.

I yield back. Thank you very much.

Chairman BEREUTER. Thank you, Mr. Gonzalez. To be fair, to be

up front about this, we did not request Secretary Taylor to present

testimony on the North American Development Bank because we

didn’t know that the authorization request would be coming to us

this week. Now, if he wishes to give some preliminary comments

today, that would be most welcome. But he has not been asked to

be prepared on that subject.

Mr. GONZALEZ. The only reason I bring it up, sir, is that we were

informed that he was going to address it. And that may—it may

not be good information, but if we have that opportunity, I would

welcome it and would seek the Chair’s indulgence. Thank you very

much.

Chairman BEREUTER. You certainly have that. And Secretary

Taylor will be invited to make any comments on that subject, but

it was not in the invitation. I just wanted that to be known.

Secretary Taylor, again thank you for the cooperative attitude

and spirit that you have always displayed since you have come to

your position with respect to the subcommittee and committee.

Your entire written statement will be made a part of the record

and you may proceed as you wish.

STATEMENT OF THE HONORABLE JOHN TAYLOR, UNDER SECRETARY FOR INTERNATIONAL AFFAIRS, U.S. DEPARTMENT

OF TREASURY

Mr. TAYLOR. Thank you very much, Chairman Bereuter, for your

kind remarks and for inviting me to this hearing, along with the

other members. As I understand, the topic of the hearing is the reforms we are trying to put through the multilateral development

banks, as well as the reauthorization request for the International

Development Association, IDA, and the African Development Fund.

My testimony does touch on the North American Development

Bank in the written version. I wasn’t planning on discussing it in

my opening remarks, but I would be very happy to answer any

questions that Mr. Gonzalez might have. I would like to focus my

opening remarks on IDA and the African Development Fund.

The reform of the multilateral development banks has been one

of the highest priorities of the Bush administration’s international

American agenda. Improving the effectiveness of these development

banks means making them more effective in raising economic

growth and improving the lives of the poor in all parts of the world.

We think that they can improve a lot in these regards, and have

put forth a number of specific reforms, some of which you mentioned in your opening remarks, Mr. Chairman.

I would mention three specific reforms that we pursued most actively: first, an insistence on measuring the results of their activities; second, a conversion of grants to loans to the very poorest

53

countries; and third, a focus on increasing productivity growth,

which is the ultimate source of poverty reduction.

I am happy to say, after long negotiations and very hard work

by the Treasury staff, that we have made progress on all of these

fronts; and I think this progress provides grounds for our request

for authorization and for appropriations for the MDBs. Total appropriation requests for fiscal year 2003 is 1.437 billion for all the

MDBs.

In the case of IDA, the authorization request is for an 18 percent

increase over the previous replenishment. In fact, it is an 18 percent increase over the replenishment before that. So it is a substantial increase compared to recent history. I think it is very important that this requested increase entails a new focus on measuring and achieving results from our IDA funding.

For the first time ever, part of the requested funds will be contingent on achieving results in particular areas, first, creating a new

measurement system—believe it or not, a measurement system has

not been developed yet so that we can measure results—but, in addition, to look for real improvements in certain particular areas

such as health, and here we are looking at immunization rates improvement; and education, and here we are looking for improvement in primary school completion rates; and in private sector development, here we are looking for reductions in the cost it takes

to start up businesses.

I will say that without achievement of these stated objectives the

administration will not seek appropriations for that additional

funding which amounts, over 2 years, to $300 million. I think this

is just the start of a fundamental shift of focus on the multilateral

development banks to measure results. It means stating in quantitative terms the expected results of individual projects that we

support and overall country assistance before providing the funding.

This agreement also includes a substantial increase in the

amount of funding in the form of grants—as you stated, Mr. Chairman, grants going to the poorest countries—and it largely fulfills

the vision that President Bush put forward last summer. It is a

real victory which will make a difference in the operation of IDA.

In addition, there is another first-time accomplishment, and that

is that part of IDA funds can be used to help private sector development. Here the idea is that IDA can work along with the International Finance Corporation, the arm of the World Bank Group

that provides financing to the private sector. So that it can develop

in ways that we couldn’t before the private sector itself.

Let me briefly say some—give some remarks on the African Development Fund. Negotiations for the ninth replenishment are not

complete unlike the negotiations for IDA 13. We have reached

agreement on certain things, such as the importance of measurable

results and the importance of better coordination with the other

multilateral development banks, and in particular, the World Bank

in Africa, as well as bilateral donors.

Two issues remain which are not settled in these negotiations;

one is the overall size of the replenishment, and second is how

much will be in the form of grants.

54

President Bush’s proposal was that all the MDBs would shift a

substantial amount of their funding towards grants, and we expect

that the African Development Fund will adopt a grants program

which is similar in its characteristics to that which we successfully

negotiated in IDA.

Let me say, just to conclude my opening remarks, Mr. Chairman,

to say that MDB reform has been a very high priority to us. I believe that steady progress is being made in achieving our objectives

with each of the institutions, and that, for that reason, these authorizations will allow us—should be approved and will allow us to

make further progress.

I would like to say that I want to work hard, along with the staff

of International Affairs at Treasury, to pursue these goals. I will

endeavor to be demanding of the institutions, to set high standards

for them in order to make them more effective in raising living

standards around the world.

Thank you, Mr. Chairman. I will be happy to answer any questions, and I hope you can put my full testimony in the record.

Chairman BEREUTER. That has been ordered. Thank you very

much Mr. Secretary for your remarks and for your statement.

[The prepared statement of Hon. John Taylor can be found on

page 141 in the appendix.]

Chairman BEREUTER. We will now proceed under the 5-minute

rule, and I will recognize myself, then Mr. Sanders when he returns, if he is here at that time; then Mr. Bentsen and Mr. Watt

were also here at the beginning of the hearing. Then we will take

members as they appeared. We think we have an accurate record

of that.

Mr. Secretary, my first question would be how IDA 13’s program,

with its new performance standards, would be reconciled, coordinated with the Millennium Challenge Account. And how would you

see any kind of coordination or effort between our bilateral programs, which are handed out of the State Department, and what

you are attempting to accomplish through multilateral institutions

and Treasury’s dominant role in the U.S. participation in those

multilateral development banks?

Could you speak to the Millennium Account and the bilateral aid

and what you are attempting to accomplish.

Mr. TAYLOR. There are some similarities between our reform efforts in the multilateral development banks and the President’s

proposal for the Millennium Challenge Account. One similarity is

the emphasis on measurable results. Another similarity is the emphasis on policy performance.

In the multilateral development banks we have been working towards an allocation of resources to countries who have policies that

are more conducive to economic growth. But that really is the most

important aspect of President Bush’s proposal for the Millennium

Challenge Account. As you know, he wants to increase funding on

bilateral assistance by 50 percent. It is not decided what the form

of that will be, but the total is there; and the way in which it was

delivered will be there, and that is by policies that endeavor to invest in people that encourage economic freedom and that encourage

good governance to rule justly.

55

Now, the interaction between these, I think is something we need

to focus on very much. My observation from traveling and observing on the ground the operation of the MDBs and the operation of

our bilateral systems, other countries’ bilateral assistance, is there

is an enormous amount of improvement we can do in coordination.

We want to work towards that.

I can assure you, as we develop the MCA, how they are actually

used and disbursed, it will be very high priority for to us get that

coordination right.

Chairman BEREUTER. Thank you. I think the disbursement coordination is a major problem. If we just, at least, manage to coordinate our involvement through the MDBs, those disbursements

with our own bilateral, that would be a major step forward.

Mr. Secretary, during our hearing last week a number of witnesses suggested that the Treasury Department ought to take a

more active role in promoting the successes of IDA and highlighting the positive role that the U.S., through such multilateral

institutions, has played in improving conditions throughout the

world. Others felt this was an inappropriate task for Treasury and

that public education funds should be handled elsewhere.

I would be interested to see, to hear, if you have any comments

on that suggestion.

Mr. TAYLOR. Well, my comments are that we should do our very

best to communicate what we are doing with these institutions and

to lay the facts out, both the successes and the failures of the institution, so that we can improve them. I think the obligation here

is to show how foreign aid can be useful, and in particular, this

kind of foreign aid; but also to be very demanding.

I think the position that we have been taking is to be demanding

of the institutions, to point out successes and failures. That is what

I think is the most effective thing we can do to the American public

and to the voters. They want to see results from the funds, from

the taxpayer funds. If we are convincing and straightforward in

presenting the results, I think that is the best thing we should do.

Chairman BEREUTER. Thank you, Mr. Secretary.

I yield the balance of my time to Mr. Watt, who was here at the

beginning.

The gentleman is recognized for 5 minutes.

Mr. WATT. Mr. Chairman, I think I will pass.

Chairman BEREUTER. Then we will recognize Mr. Bentsen.

Mr. BENTSEN. Thank you, Mr. Chairman.

Mr. Secretary, I want to say at the outset that I am actually

pretty pleased with the administration’s proposal to expand the use

of grants and to do so, hopefully, in conjunction with debt forgiveness, because I think it is a mistake to go through a period of debt

forgiveness and then just go straight back to the soft window. And

then, in fact, the studies you referenced, the GAO study and others, have shown that that would be meaningless because we would

be back in debt forgiveness again.

You mentioned that it is the administration’s intent to increase

bilateral assistance by 50 percent over a period of time, if I understood you correctly; and I assume this would be related to the—in

large part, to the grant program to the extent, at least, of meeting

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the new level that has been worked out in IDA 13, and then hopefully getting our partners to agree to a higher ratio.

I personally think it is ludicrous that our European partners

have objected to this thinking that we would not be putting up the

money. But I am eager to hear from you exactly how the administration plans to fund this increase over the next several years.

We are in a pretty tight budgetary situation. It doesn’t appear

to be getting all that much better. As you know, this is probably

the hardest money to get from Congress, but I do think it is important.

Is the commitment from the administration as strong as it ought

to be?

Mr. TAYLOR. Thank you for your remarks about the grants. It is

indeed related to the debt forgiveness operation, because one of the

advantages of grants is, it provides assistance without adding to

the debt burden of countries, especially in areas where the effect

of a loan would not be something that would generate revenue.

So, for example, support for HIV/AIDS, which will be 100 percent

grants from now on instead of loans, makes so much sense.

The 50 percent increase in funding I mentioned wasn’t particularly associated with the Millennium Challenge Account. The Millennium Challenge Account will—over a period of 3 years will rise

to 50 percent of our current foreign assistance. It is separate; it is

over and above the amount that would be going to the IDA, into

the other existing foreign assistance.

Your question about funding for the grants is a very important

one. I agree very much with the General Accounting Office study

which showed that because of the fact that the loans are now very

concessional and payments occur years in the future, it actually requires a very small increase in funding to offset the loss from the

reflows of the loans. In fact, it is quite remarkable; GAO showed

that even for a larger grant program than we ultimately negotiated, it would require an increase in IDA less than the rate of inflation over the coming years. So it is—actually it could even be a

decline in real terms.

So I feel very confident that as long as we continue support for

IDA at the levels that we have been—and I hope with the achievement of results that we can do more than that—that we will be

able to support this grant program. And that is the arithmetic.

Mr. BENTSEN. I agree with your arithmetic.

I want to ask you—I am not sure what the arithmetic is at the

Office of Management and Budget and whether or not, because of

the way that these items are scored, and I honestly don’t know—

whether there is a different scoring mechanism. You may—between

the grants and loans, whether or not you have to score the grant

allocation up front, as opposed to loans and being able to amortize

it and spread it out over time. So that is one concern I have, if you

could address it either now or for the record.

And the other is—you probably can address this—the political

question, again with the Office of Management and Budget, because we hear a lot of folks within the administration say things

they are for, and then your colleague, Mr. Daniels, comes up and

seems to be saying something different.

And so I just hope that the commitment really is there.

57

Let me ask in my remaining time two things. One is, you talk

about going to a results-oriented approach as well; and I think that

is good. The recent IDA conference came up with the idea of the

PSR, the country-specific paper of what the country’s plan would

be.

What goals does the United States have for ensuring that there

is sufficient NGO and public involvement, as opposed to all governmental involvement in preparing that document; and what goal—

what is the administration’s plan for ensuring that we don’t—that

this just isn’t a new plan like the old plan, and we end up with

either a one-size-fits-all or another ESAF-save or something like

that.

Mr. TAYLOR. Well, the poverty reduction strategy papers do involve NGOs in a wide community input. I think the purpose is to

have ownership of this from a broad segment of society. I think

what we have tried to do is emphasize ownership, in the countries,

of the programs and policies they want to follow. We will continue

to do that as best we can.

The measurable results are more for what the country decides

what they want to do. So, for example, increase enrollment in

schools; once that is decided, then we want the grant or the loan

to have the specifics of how much the enrollment will increase by

what dates. And those results will be monitored, and we will hold

the institutions to those results. So that is how it fits in.

The concept that what should be done, whether it is education,

health or particular kinds of help will be over this overall process

where we emphasize the full participation in the democracy, as

well as the ownership of the countries. But once it is decided, then

we want to be very specific that this is what you are getting for

your money, this is what we want to get for our money, and this

is the time line.

Mr. BENTSEN. My time is up, but if I could interpret what you

said, then it would be the administration’s position that you would

set your goals based upon PSR in consultation with the beneficiary

country?

Mr. TAYLOR. Yes.

Mr. BENTSEN. Thank you, Mr. Chairman.

Chairman BEREUTER. Thank you, Mr. Bentsen.

The gentleman from Vermont, Mr. Sanders, is recognized.

Mr. SANDERS. Mr. Chairman, I apologize again for having to run

out.

Mr. Taylor, let me just change the direction of the discussion a

little bit. I want to get your point of view on the administration’s

point of view. You heard me a moment ago read an article from the

New York Times. Let me read again the, quote, ‘‘popular perceptions’’—this is dealing with Latin America, but the truth is, this is,

I think, a sentiment which exists increasingly around the world.

‘‘popular perceptions revealed in street protests, opinion polls

and ballot boxes are clearly shifting against economic prescriptions

for open markets, less government, and tighter budgets that American officials and international financial institutions have preferred. Sixty-three percent of respondents across 17 Latin American countries felt that privatization had not been beneficial.’’ .

58

Is the growing opposition to the formula of the World Bank and

the IMF the fact that more and more people think that that is

working to benefit the wealthy and corrupt officials, rather than ordinary people? Does that have any impact on the administration’s

thinking?

Mr. TAYLOR. I don’t know the survey explicitly that the article

refers to. I would like to look at it carefully. It seems to lump in

things which some people can like and some people could not like.

‘‘Tighter budgets’’ has a connotation that maybe it is too tight,

maybe it is not providing the services that it might. If someone

asked me if I am in favor of tight budgets, I guess it depends on

what is being tightened.

‘‘open markets,’’ I think what I observe from traveling around the

world and talking with people is that there is a perception of a

great benefit from opening markets. And in terms of Latin America, the Chilean economy is doing very well by opening. And even

closer to home, America, Mexico is a much different economy now.

It is one of the real stars in Latin America, getting investment

grade rating.

Central America, El Salvador, is opening and emphasizing the

private sector. And as I go around and look, I see the private sector

as really the source of poverty reduction. The private sector is creating jobs. Everywhere you go, if you want to see a job created that

is higher wage or raising productivity, it is in the private sector.

That is just trying to answer your question.

Mr. SANDERS. That is fair enough. You are right in pointing out

in some countries, actually some of these neo-liberal reforms have

been successful. But in many other countries, and you have cited

some of them, Chile being a good example—in Mexico, I don’t have

the statistics in front of me, but my understanding is that poverty,

while some good things have happened in Mexico, there is an increase in poverty, an increase in child labor. And then, in fact, the

average Mexican worker, as I understand it, is worse off today than

they were before NAFTA, for example.

So it is working to some degree, but in many, many countries it

is not working.

What I think you are seeing is that people are saying, well, opening up our markets, completely moving toward privatization, cutting back on health care, education, food subsidies in order to get

IMF loans and World Bank assistance may not be doing so well.

And, you know, in Argentina we have a disaster; in Venezuela you

have a disaster; and there is growing sentiment against it.

So I am just kind of curious if these types of political sentiments

have had an impact on your feeling about the wisdom of the IMF

and World Bank approach.

Mr. TAYLOR. I am disappointed that growth is not more rapid in

Latin America. The best measure of growth I know is productivity

growth; it is how much more workers can produce and, therefore,

get paid per hour. And it is—productivity growth in Latin America

is lower than the United States. They are way behind in terms of

income per capita. It should be higher.

But I am also disappointed about productivity growth not being

higher in Africa. In China, it is much better.

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But we can do a lot better. We can do much better than we are,

and that is why we are trying this reform effort to do what we can.

Mr. SANDERS. People very often, when they talk about developing

countries, they talk about China. But China has done everything

in the last—with the exception of the last few years, they have

done an entire process in opposition to what the IMF and the

World Bank do. They have closed their boundaries, they have

heavy state involvement in their economy. The people say, Isn’t it

interesting how China has gone a long way to eliminate poverty?

But they have not accepted the IMF and World Bank formula.

Mr. TAYLOR. I think there is lot of advice that the World Bank

and IMF give that you can criticize from time to time, and some

advice you can say makes a lot of sense. The fact is, the World

bank feels they made a lot of positive suggestions with respect to

China. The Chinese have pointed out it is good advice they have

been getting. I think if you go to Shanghai, you see the private sector thriving, you see foreign investment thriving, you see the great

possibilities because of openness, because of the WTO. It is exciting.

It seems to me the things you see are this openness and this emphasis on the private sectors and markets.

Mr. SANDERS. But China has been in the WTO for 3 months or

5 months. They have been doing what they have been doing for

decades and doing exactly opposite of what the IMF recommends

to many other poor countries. And people say, Look at China, look

at well their economy. It doesn’t make a lot of sense to me.

I would end my questions by suggesting that laissez-faire, unfettered capitalism does not always work for all people around the

world and, in fact, has caused a lot of suffering. I would hope we

rethink some aspects of that.

Thank you very much.

Chairman BEREUTER. Thank you, Mr. Sanders.

The gentleman from Texas, Mr. Gonzalez, is recognized.

Mr. GONZALEZ. Mr. Chairman, I would be glad to defer to the

other members that are here to pose questions to the Secretary on

those matters that he was noticed on; but I would reserve the right

and the privilege to ask questions regarding NAD Bank at the conclusion of the other members’ questions relating to those topics.

Chairman BEREUTER. Thank you. That is very courteous. Then

we would move to Mr. Frank.

Mr. FRANK. Mr. Secretary, I am very pleased that we appear to

be reaching what I think is a consensus, namely that substituting

grants for loans makes a great deal of sense when you are talking

about very poor countries, as long as there is a commitment to prevent that from leading to a lower level of activity.

And your reference—when Secretary O’Neill testified here earlier, I asked him that. I have a letter from him, March 28th, which

isn’t as categorical as I would like—unusual for Mr. O’Neill for

being less categorical than people want, but I think your comments

reassure me, namely, am I correct to say that our position is that,

assuming you get agreement on the poverty measurement, the effectiveness measurement, assuming things are being done well, our

position would be that we would be prepared as a country—and

you mentioned how relatively small the amounts are under the

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GAO study—that we are in fact prepared to put our money where

our mouth is, and that to the extent that we get what we think

is appropriate and we substitute grants for loans, we would make

up any difference that there might be from the lack of reforms? Is

that accurate?

Mr. TAYLOR. Yes.

Mr. FRANK. I appreciate that. I think that very much advances

where we are.

The next specific question I had has to do with, you mentioned

the private sector, and I know there was a meeting of the deputies

at IDA dealing with this. And one of the things we are talking

about up to this poverty reduction and health and education, there

is also the infrastructure question, and I guess one of these days

we have to deal with it.

And I share Mr. Sanders’ skepticism that unrestrained, unregulated capitalism is the answer to everything. It does seem to me

there is clearly a private sector role in the provision of some essential services, and the question is, how do we structure that in the

utility area and in infrastructure.

You talked about some ways of doing that. One of the ways you

talked about was drawing on the International Finance Corporation as part of this.

I want to make a declaration. I have a personal relationship with

an employee of the IFC, so I want to get the record clear here. But

that does seem to me to have something to do—how would you see

that being worked out in conjunction with this? How could we most

make some kind of synergy possible there, without raising the kind

of flags that the people would be troubled by?

Mr. TAYLOR. Well, let me give you an example of something that

we are working on. It hasn’t been completely developed yet, but I

think it is a good answer to your question.

One of the most difficult areas in terms of our helping the development of the private sector, small-, medium-sized businesses is

really where a lot of jobs are created, and in many developing countries, it is very hard for this entrepreneurial sector to get financing.

So one of the proposals we are working on is where IDA could contribute some small funds for small loans in some financial institutions—more ‘‘microlending,’’ as it is uniquely called—and the IFC

could help organize that as part of their emphasis on the private

sector. So that is an example.

Also, some of the IDA assistance could be for technical assistance

to make this micro—.

Mr. FRANK. So IDA funds do utilize the expertise of the IFC in

distributing these funds? I must say that sounds plausible to me,

the great deal of support for the small and medium enterprise.

You mentioned microlending, but by the time you get to them,

you are beyond microlending. But the notion of increased lending

to smaller entrepreneurs drawing on IFC’s—I would be interested,

not necessarily now, but as we get to a marking up stage, in any

suggestions you might have about how we could best implement

that.

Mr. FRANK. My last point a more general one. I am pleased that

we are talking about a 50 percent increase; I just want to know

whether it is enough. We are the richest society in the history of

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the world. When we need to find money, we can find it. It isn’t totally free, but it does seem to me, if we were talking about

leveraging some money, a relatively small amount in terms of the

Federal budget going to places of desperate poverty would be very

important.

Now, we are talking about economic development, but we are

also talking about poverty reduction. We read about famine now in

Africa and, of course, the devastation of AIDS. Is there any reason

why we shouldn’t just—when you say, ‘‘I am encouraged,’’ you appear to be telling us that there is increased confidence on the part

of the administration that we are able to send money with some

confidence that it is being spent well, we have a new organization

in Africa trying to put more focus in the way we want.

Given that, is there any reason why we don’t significantly increase by a couple of billion dollars to try and alleviate the abject

human misery that we see over there? Are there ways that we

could even go beyond this to encourage, both bilaterally and multilaterally? I think none of us—obviously we are the richest country

in the world, and there are kids starving to death. Can we do more

about that?

Mr. TAYLOR. Our proposals are to increase substantially the foreign aid. They are matched, substantially. You compare—historical

comparisons, whatever you want to do, and they are matched with

this assistance on measuring results and getting something for the

funds, which I think is essential if we are to be successful in getting the appropriations and the authorizations that are necessary.

The taxpayers will be looking carefully, your constituents, so I

think they go right together.

But we are increasing it. And I guess in terms of very—you

know, some specifics again: I have been spending a lot of time on

Afghanistan reconstruction. We have had a very successful fundraising conference in Japan, got pledges for $1.8 billion for this

year, 4.5 over several years. It is a global—.

Mr. FRANK. How much have we disbursed so far?

Mr. TAYLOR. The United States has disbursed just about all of

what we have pledged. There have been some more funds—.

Mr. FRANK. How much is that?

Mr. TAYLOR. The United States, in the first year, has pledged

296 million, and approximately over 90 percent of that has been

disbursed. There are some additional funds that are in the supplemental, which will be able to go directly to the operating budget

of Afghanistan; and that will be, hopefully, going very soon.

Mr. TAYLOR. We need to work harder on other countries’ fulfilling their pledges. That is one of the things that I am trying to

do.

Chairman BEREUTER. The time of the gentleman has expired.

The gentlelady from Indiana, Ms. Carson.

Ms. CARSON. Thank you very much, Mr. Chairman. I will be

brief. Thank you very much, sir, for preparing me for the committee.

Mr. Taylor, some time ago the Treasury committed to implementing the law passed by Congress to oppose any loans or other

agreements that include user fees for children going to primary

school or for basic health care.

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Should not the U.S. Lead the way in pushing to eliminate these

fees that harm poor people and don’t raise much money?

Mr. TAYLOR. Yes. I am not quite sure what legislation you may

be referring to, but we agree that user fees for people, very poor

people that can’t afford the services, is not something that we are

supporting.

In fact, the World Bank doesn’t have a position that there should

be user fees in any particular case. There is some legislation that

says there shouldn’t be user fees at all, of any kind, in poor countries. What we emphasize is that there shouldn’t be user fees for

poor people, because even poor countries have people that are quite

well off.

Ms. CARSON. Further question, Mr. Taylor.

Do you have an index in terms of what constitutes quote, unquote, ‘‘a poor person’’? Is there some level of poverty that you determine as being the poorest of the poor? I guess that would be—

Mr. TAYLOR. That is a good question. There are measures of poverty. The World Bank sometimes uses $1 a day; 1.3 billion people

earn less than $1 a day in the world. The goal is to double that

to $2 a day. That still seems awfully poor to me.

I see a lot of poverty, even by those measures. And it is well

below what we use as measures here. So one of the reasons we are

pursuing all of these reforms and being so demanding on institutions is, we want to make faster progress than has been made in

the past to reduce poverty.

Ms. CARSON. Do you have some tracking mechanism, Mr. Taylor,

that would sort of follow through the kinds of grants and supports

that the United States makes to ensure that it does, in fact, reach

the human beings for which it is intended?

Mr. TAYLOR. Well, that is one of the things that this measurable

results proposal should do.

I have been very disturbed to find out sometimes that a very

small fraction of the aid goes to the people who it is meant for,

sometimes less than 50 percent, sometimes less than 30 percent.

We just can’t let that stand anymore. But it requires a lot of work;

there are a lot of people out there. We are talking about coordination of assistance with NGOs and all of the different donors.

But we really want to work very hard on that. I think it makes

no sense to be spending money and so little of it goes to the people

who need it.

Ms. CARSON. Is there in place now some auditing process, some

ongoing auditing process?

Mr. TAYLOR. Yes. The auditing process, or monitoring process, for

this kind of thing is already being developed and, in fact, has been

successful in detecting some of the real outrages.

In Uganda, these review mechanisms have discovered that a very

small fraction of the aid, I believe, in this case, education, went to

students. As a result of that, it has changed. There is now a much

larger fraction.

So some of these performance evaluation reviews—I believe is

the name that is most frequently used, kind of a budget review

process—have been tracking it down and trying to expose these

problems and then trying to fix them.

But more needs to be done, in my view.

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Ms. CARSON. Thank you, Mr. Chairman.

Chairman BEREUTER. Thank you, Ms. Carson. Good questions.

The gentleman from California, Mr. Ose, is recognized.

Mr. OSE. Thank you, Mr. Chairman.

Mr. Taylor, welcome to our meeting. Last May, the witnesses

who came before us to talk about the North American Development

Bank talked about the merging of the boards of directors on the environmental side and the bank itself. And what I am curious about

is, how do you see the fair and equal representation of the two organizations being reflected in that board?

Mr. TAYLOR. Well, the board members themselves are representative. There are representatives from the region, representatives

from the different agencies of the government on both sides. And

the merging of these two entities I think is essential to make NAD

Bank more effective in delivering assistance.

It is unusual to have kind of the certification separate from the

funding in these kinds of institutions. Mr. Gonzalez was saying

that the North American Development Bank is the only bank of

this kind operating with Mexico and the United States. Well, it is

also the only the only bank of its kind that separated out these two

functions. So we think that by merging at least the boards on this,

we will be able to coordinate and do a better job.

Mr. OSE. One of the concerns that I have had since we got here

is that Mexico remains one of our largest trading partners, and to

the extent that we can frankly facilitate the amelioration of environmental challenges that they face and what have you, we prosper

and they prosper, because, frankly, air pollution or water pollution

really doesn’t know national boundaries in this sense.

What kind of assurance do you have under the agreements or

discussions between President Bush and President Fox that we are

going to have true, measurable improvements within that new 300

miles or 300 kilometers—.

Mr. TAYLOR. Kilometers.

Mr. OSE. —300-kilometer band?

Mr. TAYLOR. Well, part of the reform is to extend it from 100 kilometers to 300 kilometers. The NAD Bank’s mandate is also, part

of it will be in the form of grants. That is actually somewhat related to our other reforms.

I always think of grants, you are able to bring in monitoring and

measurable results even more than you can in the case of the

loans. But the main reason to provide the grants, in this case, is

that a greater amount of subsidies seem to be necessary to make

those projects work.

NAD Bank really has not provided much assistance in a loan

form since its existence. So putting it in grant form, we hope will

improve that. But in terms of measurable results, I guess it may

be best just to appeal to this general cultural change which we are

trying to institute in all of these institutions, which is, write down

what is meant to be achieved, on dates, by quantified form, and

make sure it gets done.

Mr. OSE. I am very pleased to see the administration focusing on

this to the degree that they are. I want to encourage you—I think

the message that I would like to convey both to the administration

and to our trading partners is that when you are a good trading

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partner, when you pay your debts in the past and you trade fairly

and equitably, there is transparency in your system and what have

you, the United States will look at you as a premier trading partner, if you will, and make it possible for so many other things.

I think there ought to be a premium attached to those of our

trading partners who have paid their debts and who have worked

with us in this way. And I would hope that, given the difficulty

Mexico went through that caused the genesis of the Brady Bonds

and what have you, and the fact that they repaid those, would give

us the opportunity to provide our friends to the south in Mexico the

opportunity to, frankly, get a little of a premium in the evaluation

of their grant applications.

And I just think that is good policy, to reward positive behavior.

With that, Mr. Chairman, I yield back.

Chairman BEREUTER. Thank you, Mr. Ose.

For the information of the members, I have been calling on members that are members of the subcommittee. And Mr. Hinojosa and

Mr. Gonzalez are not members, as I understand it, but they have

been here very early. If you have a scheduling problem, you would

just have to ask unanimous consent that you be allowed to go next

and you would probably find a cooperative attitude.

Mr. HINOJOSA. I would like to ask unanimous consent to be able

to address—.

Chairman BEREUTER. Is there objection? Hearing none, the gentleman is recognized under the 5-minute rule.

Mr. HINOJOSA. Thank you. I appreciate, Mr. Chairman that you

have called this hearing. And I also want to voice my skepticism

as to what I just heard regarding the amendments, to some of

these documents that you all wish to approve.

My first question is with regard to the U.S. Participation in the

International Development Association and the African Development Fund: In looking at and listening to your statement, you talk

about the three hallmark reforms, and that is to help countries,

poor countries, in the areas of health, education, and creating small

businesses.

The reason I have such skepticism is that just in January of

2002, President Bush signed the bill on ESEA, which has a component of trying to improve the graduation rate of students in our

country. I represent border communities in Texas. We have an Hispanic performance of students graduating at only 70 percent. And

Senator Jeff Bingaman included in the EASE bill that the President signed a bill that is designed to improve graduation rates.

We received $25 million in this 2002 budget, and yet, for the

2003 budget, the President zero funded it. So how can we believe,

if we can’t take care of the domestic problems in our country with

the fastest growing minority group in this country, and that we are

asking for $125 million to fund those programs, exemplary programs that work, to graduate Hispanic students, and we get a zero

funding, what is going to be different in this international program

to help all of those countries improve their graduation rate when

we can’t even do it in our own country?

And certainly there is no political will in the administration, or

they would have funded at $125 million as both the House and the

Senate had requested. Could you answer that question?

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Mr. TAYLOR. I am not familiar with the particular line item you

are referring to at all. And I would like to look into it and try to

answer your question.

Mr. HINOJOSA. I would appreciate it.

Mr. TAYLOR. With respect to the portfolio that I have, I think the

goals of raising completion rates are ones that we are going to take

very seriously and that the amount that is there in the first year

is not as large as I would like, but it is moving in the right direction. And, you know, 70 percent is too low; that is obvious. We need

to work to make it higher, but I don’t know why this one was—

this line item was affected the way that it was.

In the international case, which I can speak to, we want to make

sure it gets done. The resources are limited. We have indicated a

request of $850 million for the whole world in the IDA program for

the current fiscal year. So some very hard choices will have to be

made about how to use it effectively. And we will participate in

that choice and try to make sure it is used effectively.

Mr. HINOJOSA. Well, Mr. Taylor, I look forward to getting some

kind of response on this.

The second question that I have, and the last one, this is on NAD

Bank, and I follow up on some of the questions that my friends

from Texas, Ken Bentsen and Charlie Gonzalez, have.

That is that you know that in South Texas we are currently suffering a severe drought and a water shortage crisis that is compounded by the lack of Mexico repaying its water debt to the

United States.

It has been said in the newspapers that President Bush agreed

to fund water conservation projects in Mexico in exchange for their

speedy repayment of the water debt. Do you know if the Texas

projects to improve its water distribution system, which we have

been asking $60 million for, are going to be funded before we ask

the NAD Bank with its amendments and improvements that are

being proposed, before the loans or grants are given to the Mexico

water projects—which, to my understanding, have not been

planned, no engineering has been done; whereas we have, in Texas,

for 3 years been working on that, but have not been able to get the

funding?

Mr. TAYLOR. The proposed amendments that we have would take

the current retained earnings in NAD Bank, which is approximately $80 million, put those into a trust fund of which equal

amounts could be used on both sides of the border, Mexico and the

United States. So that is $40 million that, once it is in that fund

and—that the intent is to put it in that fund, could be used in

Texas or wherever it is allocated.

I would think, if there are proposals and plans already worked

out, that you would be first in line to be able to use those funds

as soon as they are available.

With respect to the other amounts that you are indicating, I

don’t know. It doesn’t sound like it is related to NAD Bank, but

other sources of funding from the United States.

But with respect to this proposal of taking $80 million of retained earnings, it is meant to be used equally on both sides of the

border.

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Mr. HINOJOSA. Well, I hope that that equal parity is respected

because everything that we read in the papers, our water users,

farmers and ranchers and municipalities are very unhappy with

the agreement on that Order 308 that was signed 2 weeks ago.

Farmers and ranchers are expected to be here in the next week to

voice their—how upset they are with regard to this, and certainly

we hope that equal parity will be respected.

Mr. TAYLOR. Well, our part of this—my own part had mainly to

do with the NAD Bank component and the use of these funds. But,

of course, it is not just for Mexico; it is for the United States.

I understand that Mexico has pledged and will be delivering

90,000 acre-feet of water that is due under the treaty. So that will,

I hope, have a positive impact on the farmers suffering from the

drought in your area.

Mr. HINOJOSA. But the other amendment to that agreement is

that, if they don’t get rain in October, we have to repay those

90,000 acre-feet of water. So it is not good for south Texas where

we have—at least half of our farmers and ranchers have gone out

of business.

So, again, I thank you for giving some clarification on the

amount of money, and that it is available to both sides. We thank

you.

Thank you, Mr. Chairman.

Chairman BEREUTER. Mr. Hinojosa, thank you. You went beyond

your time, but I have a drought-stricken State as well, so I have

an understanding.

Next I have on the list the returning Mr. Sherman, Schakowsky,

Mrs. Waters, then to Mr. Gonzalez if that is—Mr. Sherman.

Mr. SHERMAN. Thank you. We have to go back to our districts

and explain why we are for more foreign aid, and I want to do that.

I have got one problem, and I am about to mention a word that

I don’t think has been spoken at this hearing. It may be because

it is considered an obscenity, and I hope my words are not taken

down. The words or phrase is ‘‘World Bank.’’

Now, we can call it IDA. We can keep repeating IDA. But my

constituents are smart enough to know it is the World Bank. The

World Bank is smart enough, or at least honest enough, to say on

its own Web site, the IBRD and IDA are run on the same lines.

They share the same staff, the same headquarters, report to the

same president, and use the same rigorous standards when evaluating projects. IDA simply takes its money out of a different drawer.

That is not Sherman railing about the World Bank, that is the

World Bank about the World Bank. And my colleagues on this committee know where I am going. The World Bank is about to loan $755 million to the government

in Tehran. So we have a President that tells us that this is a government insistent upon developing nuclear weapons and smuggling

them into American cities, and a bureaucracy that doesn’t mind

very much that our tax dollars, or our capital investment dollars,

to draw fine distinctions that matter only in Washington, are about

to allow that government to meet the minimum domestic expenditures it needs to make to retain power, and then use money which

is fungible, use its other money that they would otherwise have to

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spend on domestic programs, to develop the nuclear weapons that

will be smuggled into American cities—not to mention that that

government is identified as the number one state sponsor of terror

in the world.

So, Mr. Secretary, would you support a provision in this authorization bill that says that in the event that the World Bank approves future loans to Iran, that we will thereafter not disburse a

single penny to the World Bank? Or would you, instead, like to

come to my district and explain how it is okay to put money in one

drawer if it is another drawer that is financing the nuclear destruction of American cities?

Mr. TAYLOR. Well, I would like to explain our position in the following way. IDA, which is an arm of the World Bank, focuses on

the poorest countries, provides funds to Africa, to the poorest countries in Asia, poorest countries in Latin and Central America. So

to take money away from that—.

Mr. SHERMAN. If I can interrupt you, sir, my bill will provide, or

amendment will provide, that any penny otherwise taken away

from IDA is used to help the poorest countries in Africa deal with

HIV/AIDS; and I am open to other amendments as to some other

difficulties, as well. I am not for spending a penny less on helping

the poorest countries with the worst problems.

I want to know whether you think that the only way we can help

poor countries is to take money from my constituents and put it in

a drawer at the World Bank?

Mr. TAYLOR. It is not the only way. And, in fact, we are helping

poor countries, humanitarian assistance bilaterally in the U.S., in

the Millennium Challenge Account. There will be more of that. But

it is an effective way.

The advantage of the multilateral assistance is, other donors contribute too. And we—basically it is—sometimes people refer to it as

a leverage. Our request for $850 million this year is only part of

the total. It multiplies by a factor of five, roughly, so we get more

as a result of that.

Mr. SHERMAN. Are you saying that if we spent that $850 million

helping poor people deal with AIDS in Africa, that Europe would

turn off the spigot and not help those same people, either through

the World Bank, if they chose, or in some other way; that the generosity of the Japanese or the Europeans is dependent upon the

willingness of this administration to put money in the hands of

those who want to finance Iran; that anything else we do to help

the world would be ignored by our other developed friends?

Mr. TAYLOR. No.

We, as you know, are working hard on, and the President has

focused on, Iran and the problems there. We will continue to do so.

My only point is that attacking IDA is not going to help that. And

what I—.

Mr. SHERMAN. So do you have another strategy that will prevent

the World Bank from making those loans?

Chairman BEREUTER. The time of the gentleman has expired.

Mr. SHERMAN. I would ask that he be allowed to answer the

question about whether we have a strategy to prevent American

dollars from financing the nuclear destruction of American cities.

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Mr. TAYLOR. Well, of course we would never vote for that and

don’t vote for it. And we try to persuade others not to vote for it.

And, overall, it seems to me that the mechanism that you are suggesting would be harmful to our foreign policy interests; and we

should therefore focus on ways, such as the President is pursuing,

to deal with the terrorism and the proliferation issues, very serious

ones that you mention, in Iran.

Mr. SHERMAN. In other words, the same strategy that failed completely in the year 2000.

Thank you. I yield back.

Chairman BEREUTER. The gentlelady from Illinois is recognized.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. I wanted to talk

about water.

My former U.S. Senator, Paul Simon, is spending a good deal of

his time and energy dealing with the international water crisis and

wrote a wonderful book called ‘‘Tapped Out, the Coming World Crisis in Water and What We Can Do about It.’’

A couple of things that he points out are that late in 2000, U.S.

Intelligence agencies were asked to project what challenges the

world might face in 15 years. And, not surprisingly, one of them

was that the world will be threatened by wars over water. And another source said the national security issue of the 21st century is

water.

And you are probably aware that about—well, actually when he

wrote this book, so it is now more, 9,500 children die every day due

to poor quality water; at least 1.5 billion people do not have access

to a minimally adequate supply of safe water—1.5 billion; 3 billion

lack sanitation facilities, which is really tied to water quality.

The World Bank estimates that 80 nations have water shortages

severe enough to retard agricultural production.

This book is a plea really for the United States to get more involved. Let me just read a couple of words he says.

‘‘The massive numbers dying for lack of both food and water will

be seen by us over and over again if the world does not act, and

action requires U.S. Leadership. No other nation has our capability

and resources to lead. The question is whether we will.’’

So I just wanted to ask, one, what level of priority—one of the

senses that I get from this book is his feeling that no one is really—that no entity—that there is not a concerted international effort or U.S. Effort to really focus in on the problem of this looming

water crisis, or in some places, extant water crisis. And just your

views on this.

Mr. TAYLOR. Well, thank you very much for the question and for

the information about the book. Secretary Paul O’Neill has actually

focused attention on this issue in a very constructive way. I think

that is the best way for me to answer this question.

He has, as you may know, traveled to Africa—.

Ms. SCHAKOWSKY. With Bono?

Mr. TAYLOR. Yes. And at every stop asked about water and the

issues that you are raising, and really would like to try to improve

the situation in a dramatic way by providing more water to people,

fresh water to people who don’t have fresh water, and to deal with

the problems, especially, in the rural areas. So it turns out it is a

high priority for us at this point in time.

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It will require an international effort. There will be a discussion

of it at the World Summit on Sustainable Development in Johannesburg. There is a meeting at the State Department tomorrow on

the subject. So, fortunately, I can answer your question in a very

positive way. We are trying to move ahead on this important issue.

Ms. SCHAKOWSKY. What kind of money are we putting into desalinization, for example? Have there been any concrete efforts to

spend more money on things that will actually alleviate the problem?

Mr. TAYLOR. Well, money is being spent. I don’t think it is being

spent in the most effective way. I have no idea how much is spent

on desalinization, but I will try to get the information for you.

What Secretary O’Neil has emphasized is how to be more cost effective in getting it. He observes that with the same amount of

money we are spending now, we could do a lot better; not to say

that we shouldn’t spend more money, in fact, my guess is that we

will have to spend much money to reach the goals of reducing the

number of people that don’t have fresh water.

But with respect to desalinization, I will get some information for

you.

Ms. SCHAKOWSKY. In the remaining couple of seconds, the emphasis of the World Bank has been heavily on the issue of privatization of water. In many cases, as cited, I can also share a wonderful article in the New Yorker, April 8th, 2002, that talked about

some of the serious problems that water privatization projects have

wreaked on the poor inhabitants of communities. And those

projects are beginning to backfire all over Latin America.

[The following information can be found on page 153 in the appendix.]

I see that my time is up. But I hope that I can work more closely

with the Secretary of the Treasury and try and help to promote

more focus on this issue.

Mr. TAYLOR. Good. Thank you.

Chairman BEREUTER. I thank the gentlelady for her questions.

The gentlelady from California.

Ms. WATERS. Thank you very much, Mr. Chairman.

I have a number of questions, and the first ones that I ask, I am

not asking for a long answer. I just want to quickly try and understand. I will do my research later.

Is World Bank funding an oil pipeline from Uzbekistan down

through Afghanistan into some Gulf or Pakistan?

Mr. TAYLOR. A particular pipeline you are referring to, or simply

the funds?

Ms. WATERS. Pipeline.

Mr. TAYLOR. I will have to look into the particular pipeline from

Uzbekistan to Afghanistan.

Ms. WATERS. You don’t know about it, though?

Mr. TAYLOR. I don’t know enough about it to answer your question.

Ms. WATERS. Do you know anything about it?

Mr. TAYLOR. I was just in Uzbekistan. We talked about gas, we

talked about oil, we talked about water. But this particular project,

I don’t—.

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Ms. WATERS. Are there any projects that you know, any pipeline

projects at all from Uzbekistan down through Afghanistan, that the

World Bank is involved in?

Mr. TAYLOR. Not that I know of.

Ms. WATERS. You are talking about getting involved in something?

Mr. TAYLOR. There was talk about natural resources, energy and

water, when we visited Uzbekistan, Yes.

Ms. WATERS. Okay. Obviously you are very cautious about this

discussion for some reason; I don’t know why. But evidently, whatever is going on, we will find out about it. I will talk about it later.

How much is spent on the Chad/Cameroon pipeline at World

Bank, how much do you have in that?

Mr. TAYLOR. I have to look up those numbers for you.

Ms. WATERS. Okay. This discussion on Iran was very, very interesting. If you can’t prevent loans to Iran, how did you prevent

loans to Haiti? How did you do that?

Mr. TAYLOR. The loans to Haiti in question are from the IDB, the

Inter-American Development Bank. We are trying to get those

loans moving. They were approved 4 years ago. There are a lot of

troubles, as you know, in Haiti, and the IDB is sending a team, I

believe, on—next week, July 29th, to Haiti to try to work this out.

Ms. WATERS. Okay. So the mission is on its way to do the assessment, and you support that?

Mr. TAYLOR. I certainly support that.

Ms. WATERS. All right.

Now, what I really want to talk about are the six countries

where there is a famine in southern Africa—Malawi, in particular.

I am told, and again it has been reported, that the IMF basically

advised or forced, coerced, or what have you, Malawi into selling

its excess grain, because they had a surplus and now the silos are

bare and the famine is on. It is a fact of life.

Did you in any way get involved in causing the selling of that

grain from Malawi to be exported to other countries for sale?

Mr. TAYLOR. No. I have not been involved in that at all. Before

the hearing, someone mentioned this to me; and I was told that the

IMF did not, in fact, instruct that the grain be sold. But I will look

into it and see if I can get more information for you.

Ms. WATERS. Would you please do whatever you have to do and

share that information with us, because we want to know how

those decisions are made.

Now, given that there is a drought and there is famine and there

is a crisis in these six countries in southern Africa, what can you

do? Given that you are exploring the possibility of giving more

grants, how can you make an impact on this drought, this crisis;

and given what you can do, why haven’t you done something about

the water needs of those southern countries, these southern African

countries?

We have this drought. There is a need for both water and wells,

and these water projects, that can be done for $12-, $13,000,

$14,000 each that could help irrigate land and supply food—they

need seed, they need water, and we need food for the crisis. What

can you do now to help with this?

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Mr. TAYLOR. With respect to the water, we can get started putting forth a water program to provide water to people that don’t

have it. As I said just a few minutes ago, that is something that

Secretary O’Neill has focused on, he speaks about; and I believe

that we will really make a difference. So what we can do is go

ahead and do something.

Ms. WATERS. So what would your next step be from this conversation? What would your next step be?

Mr. TAYLOR. Well, we already are costing out how much it would

take to deliver water to areas. We have had a round table with

water experts to come into Treasury. Water is very much on our

minds these days in the Treasury, and I hope it will really make

a difference.

As I mentioned, at the World Summit for Sustainable Development, it will be a subject. We have talked about it in the State Department and in the Treasury.

But what we can do is get started. As you say, why have I done

anything? Well, I am doing something, and Secretary O’Neill has.

Ms. WATERS. I would like to set up a meeting with you and a

U.N. representative whose name I can’t recall, who has made me

very much aware of the cost of these small water projects, to talk

with you about water and seed. We are trying to think beyond the

drought, so that people can become more independent. That is one

of the goals.

Mr. TAYLOR. I would like to work with you.

Ms. WATERS. I would like to meet with you on that. I would like

to help organize a meeting so that I can do everything that I can

to support, you know, getting into these projects as quickly as possible.

Secondly, in terms of the immediate drought, what role can you

play?

Mr. TAYLOR. With respect to humanitarian assistance, USAID is

quite effective in getting on the ground with food aid fast. I know

most about their recent activities with the droughts in Afghanistan, which I think were very impressive, and they worked quickly,

both before the Taliban and after the Taliban.

But my sense is that we do have a very effective operation with

respect to humanitarian assistance in the case of droughts. But

this is perhaps a little longer term than your answer—your question indicates. But I think raising the capability of agricultural production in Africa is a very high priority, should be a very high priority.

Right now the potential to produce grain or simple food products

is very low. The productivity in Africa is like a hundredth of what

it is in the United States. So what we need to do, I guess, is go

to Ethiopia. And I saw the huge potential from simply getting a different breed of cow in terms of producing milk, they could increase

the productivity of a single animal by 700 percent by just a different breed.

Ms. WATERS. I ask for 30 seconds.

Chairman BEREUTER. No objection.

Ms. WATERS. I don’t know if you have been seeing the reports

about this famine and the fact that people are dying now. And at

first I had confidence that USAID could get ahead of this problem

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and stop this impending crisis, but they haven’t, and people are

dying. And ABC and the world reports are coming in, we are going

to see more images of dying people on television.

It appears to me that they need some additional things that I

want to get more money for. But if in fact they needed more trucks

to truck food up into the villages, and they needed money for security for the trucks to keep starving bandits from robbing the trucks

on their way to the villages, could you assist in that from the—

from your operation? Could you do that? Is that something that is

possible by the way grants for immediate—.

Mr. TAYLOR. Security is not something that we have focused on,

international security, in the Treasury.

Again, let me look into this issue and see what I can do. But we

usually—usually the security is needed, as you say, for delivery of

humanitarian assistance. If it is dangerous to go into areas, or the

products are being stolen, it is not being effective. But with respect—I personally am not involved in providing security assistance.

Ms. WATERS. I know. We need your money. We just need some

money, it seems like.

I would like to again, in addition to the meeting I am talking

about with the U.N. representatives and others, with Mr. Natsios

at USAID and you and some others, I would like to talk about—

I am trying desperately to stop what happened in Ethiopia. I am

trying desperately not to have us 6 months from now looking at

these starving, dying people on television and saying, oh, isn’t that

a shame—we are doing all we can.

So I would like to follow up with you.

Chairman BEREUTER. The time of the gentlelady has expired. To

the extent that you provide answers to Mrs. Waters on her previous questions, I would appreciate it if you would put it to the

committee, as well, so we have it as part of the record.

If I may make a personal suggestion, I think the gentlelady

ought to have Mr. Hyde and Mr. Lantos try to get you an immediate meeting with AID, because if they are not providing assistance, then the only logical source of this kind of assistance is not

working. I appreciate the desperation that faces these people.

Now, the gentleman from Texas, Mr. Gonzalez, has been waiting

for some time. I appreciate that. He is recognized for 5 minutes,

at least.

Mr. GONZALEZ. Thank you, Mr. Chairman. I do appreciate the

opportunity and the courtesies that you have extended me to discuss NAD Bank.

And Mr. Secretary, as we know that OMB Director Daniels in his

letter of July 19th to Vice President Cheney and Speaker Hastert

had a draft of a bill regarding some changes to the cooperation

agreement that created NAD Bank. And, of course, part of it has

already been alluded to, and that is the extension of the jurisdictional area within the Mexican border to 300 kilometers.

We would commend Treasury, and we join you; it is something

that we have been discussing for some time. However, the bill does

mention—and I wanted some explanation—a system of financial

differentiation whereby grants and subsidized loans would be restricted to the current 100-kilometer region.

73

There is very little borrowing capability and environmental

projects throughout Mexico, even at the subsidized interest rates.

What impact would you expect then of a market rate lending program in the additional 200 kilometers, given whatever you—you

propose regarding this differential rate?

Mr. TAYLOR. The reason to differentiate really was because of the

limited resources, in the sense that the funds closer to the border

were ones that—100 kilometers, I think it is—were ones that

should be used for grants.

If you had grants—and I think this is what you mean in your

question. If you had grants that could go all of the way to 300 kilometers, it might not be enough. We have limited resources for the

grants, so we had to limit it to go further, but not to have this very

concessional support go further.

If there are other ways to think about this, I haven’t been informed about it; but that seemed to make sense to me as a way

to allocate it. I could imagine that there would be other ways,

based upon need or based on population or something like that, but

this one made sense to me.

Mr. GONZALEZ. Part of the question is—I understand on the

grant part of the equation, but if we are still talking about extending some sort of credit, loans, whatever, in this expanded region,

we still have the same problems that we have always had, haven’t

we?

I guess I am just asking, what do you see, other than grants? Because I think your whole focus has been—and that has been part

of some of the difficulty—is, what can we do regarding accommodating a loan relationship?

Mr. TAYLOR. When we thought about this, we thought about extending the scope in terms of the area as one way that the funds

could be used. In other words, there may be some projects beyond

100 kilometers which could benefit from the loans with interest

rates.

The second way we looked at was to make the support more

concessional, that is, through grants. So both the distance from the

border and the form of finance, we looked at ways to make NAD

Bank more effective or make it more usable to people.

And I think what you are saying there is a combination of those,

increasing the distance from the border, you can use the money in

increasing grants; but just because of the limitation on the resources, we didn’t do both of those on top of each other. We did a

little bit of each.

Mr. GONZALEZ. And the nonmarket rate loans aspect of it, again,

are we looking at treating that aspect of your recommendation differently for those—for the area within 100 kilometers and those

outside of 100 kilometers?

Mr. TAYLOR. I just had a note passed to me. Some of the low interest loans can be used between 100 and 200 kilometers, that is,

25 percent. So it is actually like a graduation, or an incline, if you

like. The further you are away, the less concessional it is.

But it is not like it is a once-and-for-all thing. Between 100 and

200 kilometers, you get this somewhat more concessional rate than

between 200 and 300.

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Mr. GONZALEZ. The second question—and obviously this has been

around for discussion for some time, and I appreciate the opportunity of discussing this with you today; that is that the lending

experience regarding environmental projects in every multilateral

development bank, including the World Bank, around the world is

extremely limited. Their lending to such projects is, at best, 6 percent of their total portfolios.

The challenge is to increase the creditworthiness of service utilities through technical assistance, which we already know that

NAD Bank is engaged in doing. But that process takes a long time

and is subject to legal and political reforms controlled by Federal

and local governments. In the meantime, NAD Bank’s sectorial

mandate continues to be constrained to environmental projects.

How can the bank use its capital more productively and service

broader and equally urgent infrastructure needs along the border

to include energy, transportation and communications, as the Mexican side has been demanding for some time, if its mandate continues to focus only on projects with a direct environmental component?

Mr. TAYLOR. We also considered those kinds of proposals to expand the scope of NAD Bank beyond where it is now, in terms of

types of projects. And many people we talked to—and it was a very

open process—suggested that.

We also recognize that this is a package which requires an enormous amount of consensus from different parties with different

perspectives. And what we felt, in consultation with many people,

was that if we tried to work with the grants and increasing the distances from the border within roughly the current environmental

mandate, we should try to do that and make it work.

We will try to do that, and I think it will work. But believe me,

if it doesn’t work, we are going to look for alternatives to make it

work.

I think those are some of the things that were discussed. But for

right now we have got a good reform package in place that balances a lot of different interests—and there are many different interests—and I think it will work. And we would like to pursue it

and hope that the legislation is passed.

Mr. GONZALEZ. Mr. Chairman, if I can have just one short question, and that is, I realize this has been proposed as of July 9th.

Our understanding is that Treasury would have a more comprehensive proposal that would be forthcoming. And if so, can you

give me an idea when it would be presented for our consideration,

because at every step of the way, we have always asked that we

be kept informed. And the honest truth is, that we have not been.

We will take that up some other time.

What do you perceive again as your next proposal affecting NAD

Bank, and when would it be coming?

Mr. TAYLOR. Well, the proposed legislation, as submitted, are the

things that we need legislation for. Other parts of the reform package we don’t need legislation for. But you should know about those

now, as much information as we have; and I will try to make sure

that you get it.

Mr. TAYLOR. There is a process that is being put in place, called

a business review process, where the whole operations of NAD

75

Bank and back are going to be examined. There may be additional

ideas that come out of that. So I don’t want to say this is completely settled about how we—maybe there are some new ideas

that will come up.

But in terms of where we are now, and the rationale for the legislation and the rationale for the other changes, I would like to

keep you completely informed, and I will try to make sure that it

happens.

Mr. GONZALEZ. Any time line?

Mr. TAYLOR. Let’s set up a meeting as soon as we can.

Mr. GONZALEZ. Talking about, as far as any proposals, nonlegislative in nature, you don’t require us, initially anyway. Do you

have any idea when all of that is coming to a head?

Mr. TAYLOR. As far as I know, we have—except for this business

process review, we are ready. We have all of the information. Okay,

so we will sit down with you, or my staff can sit down with your

staff, however you want to proceed. If you don’t perceive it as

enough, or if they don’t perceive it as enough, let me know, and we

will see what the problem is.

But, I have got a good fix in my head about what we are proposing on the legislative and administrative side. I am going to go

to San Antonio in the middle of the month. I am going to participate in one of the NAD Bank board meetings, with my counterpart

from Mexico—from their hacienda. The two of us have talked a lot

about how to expedite this and work hard together to make—make

the whole process work.

I can perhaps provide with you some more information after that

meeting, after I am down there for a few days.

Mr. GONZALEZ. I look forward to it. Thank you very much.

And thank you, Mr. Chairman.

Chairman BEREUTER. Mr. Gonzalez, if you will look at the bill,

I want to make sure that you have a positive reaction.

Mr. GONZALEZ. I think there are a couple of items in there that

are encouraging, regarding sanctions jurisdiction. Again, I am not

real clear on some of the provisions, Mr. Chairman. We will be

talking to staff at Treasury to get some clarification.

All of these things are, hopefully, proposals to make the bank

something that it is really a viable international financial institution, and not necessarily just a conduit or agent for grants.

I mean, that is really the whole problem, Mr. Secretary. We

would really love to work with you. We would like to see it be a

robust and vibrant instrument.

Mexico is different from most other countries with which we have

these types of relationships. Grants are necessary. But the potential to have a really good business relationship with some of these

communities taken into the character of the Mexican people, their

history with the United States, and of course the fact that they are

our neighbors, really does come into play. And it is going to take—

maybe it is a different philosophy as we go in there and we deal

with our Mexican neighbors. So I look forward to it.

Thank you again, Mr. Chairman, for your interest.

Chairman BEREUTER. If you work with Treasury, you and anybody else that you want to be involved with that, I won’t promise

76

to take it up, but I will give it very strong consideration to take

it up and move it in a separate bill.

Mr. GONZALEZ. I express my appreciation, sincerely. I look forward to that day.

Chairman BEREUTER. We are going to conclude with questions

from Mr. Bentsen. I heard some bells ringing. This is an appropriate time.

Mr. BENTSEN. Thank you, Mr. Chairman. I will be brief. You

caught me off guard earlier. I thought Mr. Watt was going to ask

questions. I did have some.

Last week we had some of the NGOs testify before the committee. And they raised some issues that I wanted to raise with

you. One goes back to the PRSP. And one of the groups argued that

Congress should work to have the U.S. Propose to delink the PRSP

from the ongoing debt relief program and—I believe the fear there

being that we have already been through a series of debates with

our partners in IDA, in the bank, and in the fund on the debt relief

and conditions that are set, that need to be set, and that that

should not be extended any further, the debt relief program is ongoing.

I would like to get the position of the administration with respect

to that.

And the second question that was raised, as well, is that as part

of the conditionality that the administration is seeking in its new

view of the IDA programs, both loans and grants, and the proposal

to put more money in, assuming conditions are met, is the concept

that the guidepost or measures should change. And one of those

raised—it caught my attention because I have always been curious

about it—is the debt-to-export ratio, and what the administration’s

position is with that.

Is it your intention to maintain that as a key factor of determining poverty level or to discount that?

Mr. TAYLOR. I don’t know of any proposals to delink the PRSP,

or the other mechanisms that were put in place in recent years, to

broaden the discussion about how our assistance can be used and

broaden the coordination in order to delink this from any kind of

program that we are doing.

So I have tried to learn as much as I can about the PRSP process

since I have been in this job—talked to a lot of people, read a lot

of documents—and my sense is that it does bring together different

parties in a healthy way. It is positive.

I don’t think it is the only thing that we should be doing, however. I think, as I said before, that once something is decided upon

and it is viewed as something that is going to be helpful to the

country with their leadership and their people, then we ought to

make sure that is the most effective that we can, that is, with

measurable results.

Mr. BENTSEN. I think the concern—if I understood it correctly in

the testimony that was given last week, the concern was not so

much with the PRSP program, assuming that it works the way everyone wants it to—that is a matter of interpretation—but rather

that it raises the bar for the debt relief program, and thus could

act as a delay.

77

With the assumption of many parties and the NGOs that that

program has been decided, it is just a question of process at this

point in time. And the PRSP is really a more forward program as

it relates to new loans and grants.

Mr. TAYLOR. All I can say is that I haven’t even heard that proposal. Almost all of the NGOs I talk to are positive about the PRSP

process. I don’t hear about delays that it may be causing. Let me

look into it.

Mr. BENTSEN. That is all I ask.

Mr. TAYLOR. With respect to the different measures of debt, sustainability is the way that I would put it. Debt-to-exports, for example, I don’t think there is any one single measure that is sufficient. We are now using debt-to-exports, and I think we should continue with that. It is something that people are familiar with. But

I think we should look at the whole process of sustainability of

these countries, debt sustainability, in the broadest way that we

can.

What I am concerned about is the HIPC process not completely

bringing the countries to a sustainable situation, so that they can

get favorable credit ratings and function as good, healthy developing economies so they can grow.

There is going to be a review of the HIPC process—it is in process now; it will be finished in the fall—by the World Bank and the

IMF. They are looking at the measure you mentioned, debt-to-exports, seeing how things are going, whether the country is really

fiscally sustainable.

I want to look at that, and the rest of our government is looking

at it very carefully, to see whether there are some improvements

that we can make in the process. Maybe there are some other

measures.

Some people suggest—in fact, there is some legislation that says

we should look at interest payments compared to revenues. But

there are a whole bunch of indicators. Right now we have that one;

it seems fine to continue using. But I don’t think it is the end or

the last word on the story.

Mr. BENTSEN. Thank you.

Thank you, Mr. Chairman.

Chairman BEREUTER. Thank you, Mr. Bentsen.

Mr. Secretary, it is nice to give the executive branch a look at

the diversity of views and interests of the Congress. Thank you for

taking a variety of questions here. We very much appreciate your

time today.

We will look back to you from time to time for some advice as

we try to move forward.

Mr. TAYLOR. Thank you, very much.

Chairman BEREUTER. The subcommittee’s hearing is adjourned.

[Whereupon, at 3:40 p.m., the subcommittee was adjourned.]

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July 19, 2002

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