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73–338 PS 2001

FY 2002 AUTHORIZATION REQUESTS FOR

INTERNATIONAL PROGRAMS

HEARING

BEFORE THE

SUBCOMMITTEE ON

INTERNATIONAL MONETARY POLICY AND TRADE

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

JUNE 12, 2001

Printed for the use of the Committee on Financial Services

Serial No. 107–23

(

(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

Hearing held on:

June 12, 2001 .................................................................................................... 1

Appendix

June 12, 2001 .................................................................................................... 29

WITNESS

TUESDAY, JUNE 12, 2001

Schuerch, Hon. William E., Deputy Assistant Secretary for International

Development, Debt, and Environmental Policy, U.S. Department of the

Treasury ................................................................................................................ 7

APPENDIX

Prepared statements:

Bereuter, Hon. Doug ........................................................................................ 30

Waters, Hon. Maxine ........................................................................................ 33

Schuerch, Hon. William E. .............................................................................. 39

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Frank, Hon. Barney:

United States Catholic Conference letter, June 5, 2001 ............................... 35

Schuerch, Hon. William E.:

Response to United States Catholic Conference, August 28, 2001 ............... 43

(1)

FY 2002 AUTHORIZATION REQUESTS FOR

INTERNATIONAL PROGRAMS

TUESDAY, JUNE 12, 2001

U.S. HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INTERNATIONAL MONETARY POLICY

AND TRADE,6COMMITTEE ON FINANCIAL SERVICES,

Washington, DC.

The subcommittee met, pursuant to call, at 2:00 p.m., in room

2128, Rayburn House Office Building, Hon. Doug Bereuter,

[chairman of the subcommittee], presiding.

Present: Chairman Bereuter; Representatives Roukema, Biggert,

Green, Shays, Capito, Sanders, Waters, Frank, Carson,

Schakowsky, and C. Maloney of New York.

Chairman BEREUTER. The hearing will come to order.

The Subcommittee on International Monetary Policy and Trade

meets today in open session to receive testimony from the Department of Treasury on the fiscal year 2002 authorization request for

the international financial institutions and on activities in Africa

of the African Development Bank and Fund, the World Bank, and

the International Monetary Fund.

The International Monetary Policy and Trade Subcommittee has

jurisdiction over the international financial institutions. The Congress has on its agenda this year the authorization of the following:

$165 million in multilateral funding for the Heavily Indebted Poor

Countries (HIPC) trust fund, $412 million for the Asian Development Fund, and $30 million for the International Fund for Agricultural Development, (IFAD).

This also will be the third subcommittee hearing this year which

will focus significant attention on Africa. The first hearing gave us

a private-sector perspective on the activities of the African Development Bank and Fund. The second hearing included a private-sector

panel on the World Bank and IMF activities in Africa, with particular emphasis on poverty reduction, debt relief, and HIV/AIDS.

Before introducing our witness from the Department of the

Treasury, I’d like to provide the following background on these

issues which are important to today’s hearing, HIPC debt relief,

the Asian Development Fund, IFAD, the African Development

Bank and Fund, and HIV/AIDS.

First, the HIPC initiative has provided both bilateral and multilateral debt relief to 18 countries in sub-Saharan Africa. This year,

further authorization and appropriation for the multilateral debt is

still needed to complete the U.S. pledge of $600 million to the

HIPC trust fund.

2

The Administration has requested $224 million be appropriated in fiscal year 2002, with $165 million to be required for authorization this year.

Second, the Asian Development Fund, of which the United States

is a non-regional member, is a concessional arm of the Asian Development Bank. The fund offers loans with a term of 24 to 32 years,

with an 8-year grace period. The interest rates are 1 percent to 11⁄2

percent.

This fund is focused on poverty reduction with particular emphasis on health and education. The fund provides loans to 29 borrower countries, including Vietnam, Bangladesh, Sri Lanka, Pakistan, Nepal and Laos. India and China are not allowed access to

the fund because of their access to the capital markets and due to

the sheer size of their economies.

Last September, the United States agreed to a 4-year, $412 million contribution to the seventh replenishment of the Asian Development Fund. The Administration has requested authorizing legislation for this U.S. commitment of $412 million.

This is approximately 14.3 percent of the total funding of the seventh replenishment.

The Asian Development Fund is capitalized through both contributions from donor countries, as well as loan repayments.

Third, IFAD provides loans and grants for agricultural and rural

projects for the world’s poor who live in rural areas.

Almost 75 percent of the world’s 1.2 billion poorest people live in

rural areas.

The mandate of IFAD is to increase the incomes of the smallscale producers and subsistence farmers. Since its founding, IFAD

has made $609 billion in commitments to finance 575 projects in

114 countries. Approximately two-thirds of IFAD loans are

concessional.

Last year, the U.S. negotiated the fifth 2-year replenishment for IFAD, which required $30 million for contributions as the U.S.

share.

The Administration has requested the Congress to authorize this

fifth replenishment.

Fourth is the African Development Bank and Fund, which were

previously explored, as I mentioned, by the subcommittee in April.

The U.S. is, of course, a non-regional member. At the earlier hearing, the subcommittee received testimony that the African Development Bank and Fund are the most fiscally troubled and perhaps

the most managerially challenged of all the multilateral development banks.

Since the annual meeting of the African Development Bank and

Fund was held at the end of May, the subcommittee is looking forward to the testimony of the Treasury Department on both this annual meeting and to any comments as to how the African Development Bank and Fund is addressing these challenges.

Lastly, the subcommittee conducted a hearing in May which focused on the World Bank and the IMF activities in Africa. Undoubtedly, we will have more hearings on that subject and their activities in other parts of the world.

A critical issue discussed at the hearing was multilateral efforts

on HIV/AIDS.

3

At this hearing, the joint United Nations program on HIV/AIDS

estimated that 36 million people are now living with HIV/AIDS.

Seventy percent of these people are in sub-Saharan Africa.

We are reminded that on May 11 of this year, the President pledged an initial $200 million to a global trust fund to combat

HIV/AIDS, malaria, and tuberculosis. Furthermore, last year, Congress passed legislation, P.L. 106–264, which directed the Secretary

of the Treasury to seek to negotiate the creation of a multilateral

HIV/AIDS trust fund at the World Bank.

The subcommittee is interested in the status of these negotiations. When Secretary O’Neill testified before the Financial Services Committee on May 22 of this year, he stated that the issue of

where this HIV/AIDS trust fund would be housed is still undetermined, or at least it was at that point.

To assist the subcommittee in examining these issues, I’m

pleased that we’ll have the opportunity to hear from William E.

Schuerch.

Mr. Schuerch, is that correct? Schuerch?

Mr. SCHUERCH. Schuerch, yes.

Chairman BEREUTER. The Deputy Assistant Secretary for International Development, Debt, and Environmental Policy for the Department of the Treasury. Mr. Schuerch has served in this capacity

since September 16th, 1996, and he has responsibility for formulation of international debt policy and issues pertaining to U.S. participation in the regional multilateral development banks.

Prior to his service at Treasury, Mr. Schuerch was a staff member of the House Appropriations Committee for a lengthy period of

time. He received his Bachelor’s and Master’s degree from the Maxwell School at Syracuse University.

Mr. Schuerch, we welcome you at the hearing. And I’ll say that

without objection, your written statement will be included in its entirety for the record.

But before your testimony, I turn to the distinguished Ranking

Member of the subcommittee, the gentleman from Vermont, Mr.

Sanders, for any comments that he might make.

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

page 30 in the appendix.]

Mr. SANDERS. Thank you very much, Mr. Chairman. And welcome, Mr. Schuerch. It’s nice of you to be with us.

Mr. Chairman, as this subcommittee considers the Administration’s funding request for various international financial institutions, we should ask whether these institutions are using the funding they receive from American taxpayers as effectively as they

should, and whether reforms are, in fact, needed.

I believe there is a growing sense in Congress and the international financial institutions, especially the IMF and the World

Bank, that they are not doing the jobs they were established to do,

and that they have taken on new jobs and new responsibilities that

they are not able to do.

The area of public health and the HIV/AIDS crisis is a case in

point.

At a recent hearing of this subcommittee, Dr. Dyna Ahrin of Harvard pointed out that one of the main reasons many poor countries

lack the resources they need to fight HIV/AIDS is that for 20 years,

4

the IMF and the World Bank have been forcing poor countries to

cut back on spending for public health and that many of their infrastructures for public health are in very bad shape.

Debt relief for the poorest countries in the world is another case

in point.

A recent report by the U.S. General Accounting Office found that

the IMF and World Bank debt reduction program for heavily indebted poor countries, known as HIPC, is likely to leave these poor

countries in just as much debt as when they started the program.

Most of the countries that are now participating in the IMF and

World Bank debt reduction program spend more on debt service

than they spend on health care for their people and the majority

of the people in these countries subsist on less than a dollar a day.

The most urgent needs of the poorest people in the poorest countries are not being met, so that the IMF and the World Bank can

get their bad loans repaid.

Might it not be time, Mr. Chairman, to require the IMF and the

World Bank to use their own resources to cancel the debts that

they are owed by the world’s most impoverished countries?

The international financial institutions are among the most powerful institutions in the world, with, in many ways, effective control

over the economies of the poorest nations in the world. And yet,

these institutions make major decisions that affect the lives of hundreds of millions of the most vulnerable people on our planet, as

well as working people throughout the world in total secrecy.

And that’s a point that we want to underline.

These organizations meet in total secrecy, making decisions

which impact huge numbers of people.

For years, several of my colleagues in Congress and I have offered amendments to legislation calling for the U.S. executive directors of the international financial institutions to use their votes

to support reform, only to learn that there are almost never any

votes taken at these institutions.

There are no votes and there is little or no accountability.

You can’t instruct somebody to use a vote if no votes are taken.

Now it appears that the U.S. executive director at the World

Bank and the U.S. Treasury Department may have largely ignored

a very specific requirement enacted into law by Congress last year

to stop the IMF and the World Bank from imposing user fees on

primary health care.

Mr. Chairman, the World Bank continues to support the imposition of user fees for basic health care, despite the fact that this policy has led to a decreased access to primary health care for the

poorest people in the poorest countries.

As a result, Congress last year passed legislation requiring the

United States executive directors at the international financial institutions to oppose the imposition of user fees on poor people for

primary health care and primary education as a condition for

World Bank loans and grants.

The conference committee that reported the law also directed

that the U.S. Treasury Department notify the congressional committees on appropriations within 10 days if any loans requiring

user fees are approved by any of the international financial institutions.

5

But late last year, the World Bank appears to have approved financing for Tanzania, which included user fees on primary health,

albeit, with an exception for poor people.

It also appears that the World Bank did this without opposition

from the U.S. executive director at the bank. And it further appears that the U.S. Treasury Department may have failed to notify

the appropriations committees that this, in fact, had happened.

Now I say that it appears that these things were done, Mr.

Chairman, because, as you know, the proceedings of the board of

the World Bank are secret. Their meetings are closed to the public

and no minutes of the meetings are publicly available.

Even a summary of the meeting is kept secret.

However, according to a recent report by the Center for Economic

and Policy Research, World Bank staff informed the World Bank

board that the funding for Tanzania included user fees for health

care and no objection was raised by the U.S. executive director at

the World Bank, despite the requirement of U.S. law.

And according to the same report, the U.S. Treasury Department

failed to notify the congressional appropriations committees of the

existence of user fees in the World Bank’s financing for Tanzania.

Mr. Chairman, I am troubled that the U.S. executive director at

the World Bank and the U.S. Treasury Department may have

largely ignored a U.S. law to prevent the imposition of user fees on

primary health care in poor countries.

I am also concerned about the entire cloak of secrecy that surrounds decisionmaking at the international financial institutions,

which makes it so difficult to know whether U.S. law is, in fact,

being followed or ignored.

Perhaps it is time for this subcommittee, Mr. Chairman, to consider what reforms might be necessary to open these institutions

to the public and to make these institutions accountabe to the public when we consider the Administration’s request for funding.

Thank you very much, Mr. Chairman.

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

Under the subcommittee rules, other Members of the subcommittee are entitled to opening statements of 3 minutes.

Are there Members who wish to be recognized?

The gentleman from Massachusetts, Mr. Frank, is recognized.

Mr. FRANK. Thank you, Mr. Speaker.

I want to focus on what I think is the overriding moral importance of building on the work this subcommittee really initiated in

a bipartisan way on the debt relief for the highly indebted poor

countries.

Some issues are difficult. Some issues are complex. Taking loan

repayments for loans that were imprudently made, sometimes for

cold war political reasons, from the poorest people in the world is

just wrong. And that’s not a complicated question.

I’m glad that we have launched debt relief. Clearly, people are

better off with the debt relief than they would have been without

it. But I think that is a good argument for going forward with it.

I would ask at this point, Mr. Chairman, to insert into the record

a copy of the letter that was sent from the United States Catholic

Conference signed by the Cardinal Archbishop of Boston, Bernard

6

Cardinal Law, who is Chairman of the International Policy Committee, to Secretary O’Neill, urging a better position on debt relief.

Chairman BEREUTER. Without objection, that will be the case.

[The information referred to can be found on page 35 in the

appendix.]

Mr. FRANK. Thank you. And I want to stress, we had a debate

in this Congress over how much of a tax cut we could afford. Some

people wanted to hold it down under a trillion. Some people wanted

to go to $2 trillion.

A country which is fortunate and smart and efficient enough to

be debating the disposition of a trillion or two dollars, as we legitimately do, oughtn’t to be begrudging the relatively small piece of

that, a small piece of a small piece of a small piece of that, that

would go to alleviating desperate hunger and poverty.

I believe we should be moving to mandate, to the extent that we

can, that the international financial institutions get rid of 100 percent of the debt.

I believe that we ought to be getting some of that debt relief done

earlier.

People will respond that some of these countries aren’t well governed. That is true. But I do not understand how you improve the

lot of people unfortunate enough to live in poorly governed countries by taking some of the resources out of those countries and

paying off a debt that never should have been contracted in the

first place.

That is, I do not understand how it is going to make things better to extract more money from the societies.

I am favor of the policies that try to make sure that we accompany this debt relief with the right kind of guidance. But it is overwhelmingly important that we do this.

We had some skepticism about this. I think those of us who

thought that debt relief was morally important and workable have

been proven right. It has clearly had some very positive impact.

There are some criticisms of debt relief. The criticisms basically

come down to, it’s not happening quickly enough.

I would note that even as we talk about getting to the 100 percent, the letter from Cardinal Law does mention within the existing framework adopting a principle that has been incorporated into

the legislation introduced by the former Chair of this Full Committee, the gentleman from Iowa, Mr. Leach, and the recently retired Senator from Florida, Mr. Mack, which says that in no case

should the highly indebted countries be asked to pay more than 10

percent of their government revenues annually for debt relief.

It seems to me that we ought to be able to implement that one

right away and, indeed, I think we ought to be able to implement

the 100 percent.

Thank you, Mr. Chairman.

Chairman BEREUTER. Thank you. Are there other Members who

wish to be recognized for opening statements.

The gentleman from Connecticut, Mr. Shays, is recognized.

Mr. SHAYS. Thank you. Briefly, Mr. Chairman, I believe that

there needs to be debt relief. I don’t know if it should be 100 percent, but it should be darned closed to it.

7

My problem is that we are refinancing loans and extending debt

so that they can pay debt. And it strikes me that the IMF must

realize that some of this money simply isn’t going to be paid.

And I hope we address that.

Chairman BEREUTER. Thank you, Mr. Shays.

Secretary Schuerch, we’re ready to hear your testimony. You may

proceed as you wish.

STATEMENT OF HON. WILLIAM E. SCHUERCH, DEPUTY ASSISTANT SECRETARY FOR INTERNATIONAL DEVELOPMENT,

DEBT, AND ENVIRONMENTAL POLICY, U.S. DEPARTMENT OF

THE TREASURY

Mr. SCHUERCH. Chairman Bereuter, Ranking Member Sanders,

Members of the subcommittee, I thank you for the opportunity to

testify before you today for the specific authorization requirements

requiring action today.

Chairman BEREUTER. Would you pull the mike a little closer,

please?

Mr. SCHUERCH. OK.

Chairman BEREUTER. Thank you.

Mr. SCHUERCH. Thank you also for already submitting my written statement for the record.

I’ll keep my opening remarks brief and allow time for questions

and discussion, a full discussion.

There are three authorizing requests, as you have reiterated, requiring action this year: a contribution to the seventh replenishment to the Asian Development Fund; a contribution to the fifth

replenishment of the International Fund for Agricultural Development; a contribution to complete the total U.S. pledge of $600 million to the HIPC trust fund.

We request the authorizations because they represent commitments negotiated by the United States Government that should be

adhered to and they support United States’ interests.

Secretary O’Neill has said the Administration is working hard to

ensure that hard-earned U.S. taxpayers’ dollars go to the multilateral development banks (MDBs) more effectively, more efficiently,

more accountably, and meet the core objective of improving living

standards around the world.

In that regard, you’ll see us pushing for more rigorous use of results-based performance indicators, improve coordination among

the institutions both at a country level and ensuring the best practice procedures, and better delineation of respective roles of the institutions.

The Administration will strive to focus the banks on a more limited set of activities that yield high-impact productivity and poverty

reduction gains.

Now that the Treasury Department’s undersecretary for international affairs, John Taylor, has been confirmed, he’ll be working

closely with the Secretary to develop, implement and coordinate the

Secretary’s international financial institutions reform agenda.

As many of you on the subcommittee are aware, Africa presents

a tremendous challenge in pursuing an effective, efficient, and accountable development agenda. Conflict, natural disasters, the

plague of infectious disease, lagging growth, low productivity,

8

unsustainable debt and unfavorable trends in commodity prices are

the realities facing the design of a credible assistance program for

most of Africa.

But the overall economic picture in sub-Saharan Africa is not all

bleak. Average growth in the region was an estimated 3.3 percent

in the year 2000, expected to rise to 4.3 percent in 2001.

Those growth rates compare to estimated average growth of 2.6

percent in the 10 years from 1992 to 2001.

The main reason for the improvement appears to be the continuing pattern of reform in many countries, resulting in more

flexible exchange rates, better fiscal control, greater economic stability, more open and transparent trade and investment regimes,

and further reduction in the direct economic role of governments.

There are still significant challenges, but the Administration is

committed to facilitating growth and development in Africa.

President Bush’s pledge of a $200 million initial contribution for

the new global fund to fight HIV/AIDS and the African Growth and

Opportunity Act are important pillars in our partnership with Africa.

Equally important is the continued U.S. leadership in the World

Bank and the African Development Bank to shape operations and

direct the resources to achieve higher productivity, growth and reduce poverty in the region.

Now that Undersecretary Taylor is confirmed, he’ll be striving to

achieve the broad goals already laid out by the Secretary, in addition to more detailed policy proposals that are currently being developed and are evolving.

I’m pleased to have the opportunity to hear your views today,

provide additional background information that I can, and to stress

the Administration’s support for the reauthorization request before

the subcommittee.

Before closing, I’d also like to apologize for the written testimony’s very late arrival.

Thank you.

[The prepared statement of Hon. William E. Schuerch can be

found on page 39 in the appendix.]

Chairman BEREUTER. Thank you, Mr. Secretary. We will now

proceed under the 5-minute rule.

Mr. Schuerch, you recently led, or at least were involved, I think

you perhaps led the delegation at the annual meeting of the African Development Bank group. I’d like to know what you were looking for in the way of results.

But in particular, I wonder if you have any kind of an assessment as to whether or not the reforms undertaken by Bank President Kabbaj have translated into results.

We’ve had a poor record overall compared to the other funds, but

there was some optimism that his leadership would result in positive changes in the management of the bank and in the use of their

resources.

What can you tell us in the way of early conclusions about the

recent meeting?

Mr. SCHUERCH. Let me directly address the management issues

that you’ve raised at the bank.

9

First of all, I think we need to recognize that the African bank

has a different history than the other institutions. It is one that

was created by the regional countries and existed without contribution from developed countries, major developed countries for a considerable period of time.

It got into a situation in the middle 1990s whereby management

had got to a state where the major developed countries were unwilling to continue to contribute and, as you know, that resulted

in the removal of the president, a modest fund program, and then

followed up with significant management reforms.

Mr. Kabbaj was a candidate who came in on a reform agenda.

He removed most of the upper management of the institution. He

went through a process that scrubbed the bad loans out of the institution, about $2 billion worth of those loans.

And since that point in time, we have moved forward under a

new credit policy, one that mirrors the credit policy of the World

Bank to support the institution both with a general capital increase

for the bank and with a fund increase.

We’re now in the process of negotiating and at the annual meeting, or right after the annual meeting, was the first discussion on

a new replenishment to be considered for the following budget year.

I think Mr. Kabbaj has been an excellent president of this institution. He had done a very strong job of shaking it up, setting it

on a path.

I think the biggest criticism that is there is simply the starting

point. It was a very difficult starting point and it takes quite a few

years to set an institution on a path in terms of internal governance, but then also to move that forward into assuring that its programs on a country-by-country basis are effective and result in

good outcome, development outcomes.

Most of the large development programs take a considerable

number of years. So, in fact, many of the early ones under his presidency are only now kicking in.

So I think that, in terms of development outcomes, it is more of

a future result that we’re looking for, albeit, one that should be

starting to kick in now.

In terms of internal governance, I would say that there have

been more reforms within this institution than any other development institution and honestly, that they were needed.

I would also tell the subcommittee that he is in the process of

looking at a reorganization of the institution to make it further effective.

Thank you.

Chairman BEREUTER. Those are optimistic or encouraging comments. Making reforms at an institution that had been primarily

an instrument for distributing money among the African country

members is not necessarily a popular move.

To what degree do you think he has gained the support of the

African members himself? To what extent do the non-regional

members like the United States need to do more to sustain and

support and encourage his efforts and make sure that they’re not

reversed by what might be termed as a tendency to continue to

want to go back to the old system of pork barrel distribution, I

guess you’d call it?

10

Mr. SCHUERCH. Let me say that in the capital increase for the

bank itself, in the last cycle, we went after something that would

assure the donors that we would not have backsliding in this institution.

And in the context of negotiating a capital increase that increased the shareholding of the major donors to 40 percent, we also

achieved agreement on what we refer to as a super-majority voting

structure.

Basically, any executive director can choose to take advantage of

a provision that would require a 70-percent vote of the board.

That basically means that regional countries do not have the capacity within their own votes to change credit policy or push back

the major reforms that have occurred.

So I think we have assurance of this very stable base going forward. And, frankly, I think we have less disagreement, more cooperation, and more cohesion and unity in this bank than we have

seen in the past by very substantial margins.

This president has been very effective in working his board of

governors, but more importantly, on a daily basis, his board of executive directors. And when there are sort of strong initial differences, he goes into individual meetings if that’s necessary.

We’ve seen that happen. We’ve seen him effective in it.

So I think we actually have not only a change in the bank, but

a change in the attitudes from the regional countries.

We have much less contentiousness in terms of, for example, the

language of African character of the bank and much more joint

dedication toward government structures and performance structures.

In fact, this bank adopted a performance allocation system for its

fund very rapidly with strong governance requirements within that

allocation system.

Thank you.

Chairman BEREUTER. That’s very positive. Thank you very much,

Mr. Schuerch.

The gentleman from Vermont is recognized.

Mr. SANDERS. Thank you, Mr. Chairman.

Mr. Chairman, it is more than appropriate that Members of Congress can debate policy and what they believe. But it is not acceptable if Congress passes laws, that those laws not be implemented

by this Administration or any Administration.

And for Mr. Schuerch’s benefit, let me mention that the issues

I’m going to raise right now, I raised quite as strongly several

years ago under the Clinton Administration.

So I wonder if you could help me provide us with some information.

Mr. Schuerch, as you know, legislation was passed requiring the

Secretary of the Treasury to instruct the United States executive

director at each international financial institution to oppose any

loan of these institutions that would require user fees or service

charges on poor people for primary education or primary health

care, and so forth, and so forth.

Mr. Schuerch, to the best of your knowledge, did the World Bank

approve funding for Tanzania with a provision calling for user fees

11

on primary health care and did the U.S. executive director do anything to oppose those user fees?

Mr. SCHUERCH. First of all, on the broader issue, obviously, we’re

in full agreement on the need to comply with legislation as signed

into law.

On the specifics of the Tanzania case, as I understand it, the discussion in the bank board was a discussion about the poverty reduction strategy paper.

That document is not a bank document. That document is a document that is a new document that we use for countries themselves to put together their own plans, nationwide plans with a lot

of citizen participation for how they want to spend resources from

a whole wide range of donors and specifically also savings under

the HIPC program.

So there was no vote in the World Bank board on a document

that is owned by the government of Tanzania. There was a discussion of that document and I’m told that it does include user fees.

But it is not a document or vote, because there was no vote that

directly applies World Bank money.

The U.S., discovering the user fees, had a discussion, a bilateral

discussion, with the government of Tanzania, I’m told, and raised

the questions of the user fees.

The government told us that they permitted and would exempt

the poor from the effect of the user fees. And my understanding is

that within the context of that planned program, the medical officers that are involved in making the decisions can, in fact, waive

those fees.

Mr. SANDERS. We have a couple of problems here. And again,

this is not certainly just the work of this Administration, but previous Administrations as well.

As I understand it, Mr. Schuerch, you’re telling me there was no

vote. But there very rarely is a vote.

Isn’t that the problem?

Mr. SCHUERCH. Not in this case. I mean, I’ll get to the broader

issue of votes and how they do and don’t happen.

But in this case, there was no loan from the bank that was directly relevant at this time. There may be one that we will see in

the future. But what we had was a planning document of the government of Tanzania that was created and was being discussed.

So there was no financial decisionmaking action related to a

lending activity of the bank.

Mr. SANDERS. Because there was no loan at this point.

Mr. SCHUERCH. Yes.

Mr. SANDERS. And will the Administration oppose any loan that

includes user fees for health care and education?

Mr. SCHUERCH. This Administration has the same policy as the

past Administration and it is consistent with the legislation and

with this subcommittee’s views on user fees.

The answer is yes.

Mr. SANDERS. The answer is yes. OK. Could maybe you give this

subcommittee some advice?

Several years ago, we had the United States executive director

to the IMF before the subcommittee. And what we learned there

12

is, in fact, that despite hundreds and hundreds of very important

decisions, there were only a handful of votes.

Now can you advice this subcommittee as to how they could get

policy implemented at a time, say, with the IMF, where the U.S.

has veto power if votes are not, in fact, taken? And further advise

this subcommittee, if you might, about the issue of transparency

and openness and what the Administration will be doing so that

the Congress, the American people, and the people of the world will

actually have an understanding of the kinds of discussion that

takes place currently behind closed doors.

Chairman BEREUTER. The time of the gentleman has expired.

But you may answer fully.

Mr. SCHUERCH. Thank you. I think what I need to say is that before explaining the votes issue, there is a long history of the U.S.

Government pushing for transparency in the institutions and there

are a lot of specifics.

I’ll give you examples right now.

We’re starting a new International Development Association replenishment. Those discussions could be characterized by some as

private discussions. We’ve made a new set of decisions. Documents

that are provided to the IDA deputies at the request of the deputies are now on the World Wide Web so the public sees precisely

what the deputies see.

A summary of each meeting is made public on the World Wide

Web as well.

The draft, penultimate version of the draft donors report will go

up on the World Wide Web for people to see and comment as well.

I think by any standard, that’s extraordinary transparency and

openness. Comments that are made by the public on those documents are summarized and brought to the deputies’ attention and

in a meeting we had in Ethiopia last week, we were told there were

400 sets of such comments on the first set of documents that were

made public.

So progress is being made, albeit not in every area. We are pushing forward on a policy that will encourage significant more numbers of policy documents and draft documents and country assistance strategies to also be public.

Let me step back and address the votes issue.

I think it is a little bit of an oversimplification to say that we

don’t have votes in the institutions. But we certainly don’t have

votes in the nature that you do on the floor of the House or the

Senate, where you have a tote board that has everybody’s name

and shows their voting on it.

We take seriously all of the legislative directions that exist, and

there are now a considerable list of them. I’m sure over 20 or more.

And in each case, what happens in the board is there’s a discussion

about a particular loan.

Each chair in that board is able to express their views. They

don’t say yes or no, per se. But it is clear from their views as to

what their position is pretty much.

So generally, there are not close votes, if you will.

What we do in the institutions is we record a United States vote,

even though no other government is recording a vote. So that indiVerDate 11-MAY-2000 13:36 Feb 11, 2002 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 73338.TXT HBANK1 PsN: HBANK1
13

cates that we are opposed or an abstention or a pure no vote, in

those cases where legislation requires it.

Mr. SANDERS. You record a vote when votes are not being taken.

Is that what you’re saying?

Mr. SCHUERCH. When there is a discussion on a loan that we

have reason to object to because of legislation and for other reasons, we request that the record show that the U.S. is abstaining

or voting no, yes.

Mr. SANDERS. I ask the indulgence of the Chair.

How often would you say in the last 5 years will the record show

that the United States has voted no?

Mr. SCHUERCH. We give a report to the Congress annually that

goes down a long list of these.

I would be shocked if in a 5-year period we’re not in the several

hundred range.

Mr. SANDERS. That you have recorded votes of no on several hundred occasions?

Mr. SCHUERCH. Over 5 years, yes, I would be sure of that, yes.

Chairman BEREUTER. Thank you very much. The gentleman

from Wisconsin, Mr. Green, is recognized.

Mr. GREEN. Thank you, Mr. Chairman.

At the end of May, you led the U.S. delegation to the African Development Bank Group annual meeting.

Could you describe what the objectives were for the Administration at that meeting and what progress was made on those goals?

Mr. SCHUERCH. Let me say that annual meetings are sort of interesting events.

They are, in one sense, business meetings of an institution. But

in another sense, they are much broader than that.

So we go to such a meeting. Each government has an opportunity

to give an official statement, a speech, usually 5 minutes or so, that

gives them the opportunity to present a set of views.

There’s not a decisionmaking forum at that point in time. Most

decisions that are discreet decisions are made in the boards of executive directors or are made in the context of replenishment increases.

So we went with an agenda to continue to support the President’s reform efforts in this institution, to continue to push it to coordinate particularly well with the other institutions. They are

working on a further memorandum of agreement. It has been

agreed to, and it is being worked on some more with the World

Bank.

There is also one being discussed with the International Fund for

Agricultural Development.

So to encourage them to continue on their reform program, to

consult with them about their reorganization plans, which I think

will be voted on the board in later July in the bank, and to push

on the performance allocation system and on the sort of improved

development effectiveness issues that are there.

Mr. GREEN. You made some reference, as you have elsewhere, to

the President’s reforms at the African Development Bank.

What tangible results have you seen from those reforms? What

can we sort of hang our hat on in terms of progress being made?

14

Mr. SCHUERCH. You came in a little later. I had mentioned that

in the process of reforming this institution, he had basically removed the upper management of the institution and replaced it.

There has also been a considerable staff change since that at

lower levels. I also said that they took the portfolio, which included

significant numbers of problematic loans and scrubbed it and

closed those loans off to the tune of as much as, I think, $2 billion

over a several-year period.

He has been very serious about credit policy and has aligned it

with World Bank credit policy.

So we no longer have countries who shouldn’t be borrowing hard

loans, getting hard loans from this institution. We no longer have

hard-loan countries getting soft loans from this institution, as did

occur in the past.

At this point, he has been more focused on internal management

and not on quality of implementation than probably any other

president of an institution.

Mr. GREEN. Good. Thank you. Thanks, Mr. Chairman.

Chairman BEREUTER. Thank you, Mr. Green. And the Secretary

also mentioned that a super-majority vote can be required by any

member, which would then mean that the African members could

not carry a vote on their own. They’d have to have the support of

at least some of the non-regional members, as I understand it.

The gentleman from Massachusetts, Mr. Frank, is recognized.

Mr. FRANK. Thank you. Mr. Schuerch, as I understand your

statement, the position of Secretary O’Neill on behalf of this Administration is to be supportive of the HIPC program, as far as we

have approved it, and to hold off on whether or not to go to the

100-percent phase based on, what?

Mr. SCHUERCH. I think you’re accurately characterizing where

the Secretary is.

He’s come in. We have a program that has essentially had about

18 months since its first appropriation. We have now 23 countries

to decision points. We only have two countries to completion points.

We have significant success with the help of this subcommittee

and this Full Committee to get full funding last year, in particular,

and we’re moving forward.

We have a request in front of you.

Mr. FRANK. No, no, Mr. Schuerch. Maybe I was inarticulate.

Mr. SCHUERCH. OK.

Mr. FRANK. The question was, what will be the factors that will

be taken into account by the Secretary in deciding whether to support an increase in the amount of debt relief?

I’m familiar with the history that you’re recounting. You do it

well, but this ain’t the History Channel.

So what will lead to a decision about whether or not to go further? What factors will he be looking at?

Mr. SCHUERCH. I don’t know that I can fully second-guess the

Secretary’s thinking, personally.

Mr. FRANK. OK. That’s a good answer.

Mr. SCHUERCH. But I think that’s probably the fairest thing.

I think that as he has focused on implementation, they are committed to the existing program.

15

Mr. FRANK. No. OK. I don’t mean to be rude, but we have 5 minutes and I know what the program is.

I’ll tell you, I’m a little troubled by this and I’m glad to hear this

affirmation of the existing program, because I read of the appointment of Ann Kruger to be the number-two official of the IMF. And

as is appropriately the case, the U.S. Government, in power at a

time when such an appointment is made, has some influence over

it. And it was represented that Ms. Kruger was appointed with the

support of this Administration.

I was troubled to read that she had expressed opposition to the

debt relief program. Now that may have been a misreporting. If so,

I think it would be useful to clear it up.

But are you familiar at all with Ms. Kruger’s position? Was she

accurately reported as being opposed to debt relief?

Can you enlighten me at all on this?

Mr. SCHUERCH. I didn’t catch that particular article. But if one

observes closely, there are differences in views among a range of

officials on a range of issues.

That’s not surprising.

The President of the United States, however, has expressed himself on the HIPC program with full support.

Mr. FRANK. All right. That’s reassuring. I would ask you, if we

could, and maybe you can elaborate in writing, what are Ms.

Kruger’s views.

If, in fact, it is accurate that she has been opposed to this, it

would be disturbing to me if the Administration would have sponsored her appointment to the number-two position in the implementation of this.

Let me ask you my final question.

I quoted from a letter that Cardinal Law of Boston has sent on

behalf of the Catholic Conference to Secretary O’Neill advocating

that even without any upgrade in the amount of debt relief, that

we should adopt the principle that Mr. Leach and former Senator

Mack put forward, that in no case should there be a greater than

10 percent of government revenues drained from the HIPC countries to debt relief.

What’s your response to that proposal from the Catholic Conference?

Mr. SCHUERCH. I’ve seen the letter and of course it does support,

as you said earlier, legislation.

Mr. FRANK. Mr. Schuerch, please don’t just restate. We only have

5 minutes.

Mr. SCHUERCH. OK.

Mr. FRANK. I know what the letter said. What do you think

about the 10-percent proposal?

Mr. SCHUERCH. We think it is an artificial trigger. There are

many poor countries that do not qualify for HIPC that are using

more than 10 percent of their debt service.

There are many HIPC IDA countries that you would have to expand. Otherwise, there would be questions of fairness. There are

differences among countries about how much revenue they raise

out of their populations as well, which directly affects essentially

the denominator of that equation.

16

Mr. FRANK. So you can’t support a 10-percent limit on some poor

countries, because that would be unfair to other poor countries that

aren’t getting the benefit of it?

Can’t we kind of level it down instead of leveling up?

Mr. SCHUERCH. Yes, there is an equity question among poor

countries when we’ve already given deep debt reduction to sets of

countries that get them well below the average for other poor countries on debt service.

Mr. FRANK. Well, but you’re comparing the HIPC to the nonHIPC.

I presume by putting people in the HIPC countries, we have all

agreed that this is a separate set of countries and the comparisons

ought to be made between and among those countries.

So I would differ with your notion that you decide this by looking

at the HIPC versus the non-HIPC. We’ve made a decision as to

who ought to be in the HIPC. What about within the HIPC countries?

Is there some great inequity? If you apply the 10-percent limit

to all the HIPC countries, how could some of them then be treated

unfairly? By definition, they wouldn’t be paying more than 10 percent.

Mr. SCHUERCH. Well, we’ve used three different sets of indicators

on how to qualify countries for HIPC. And you could pick any one

of them and you would have quite varied performance against that.

So you can pick 10 percent and if you want to align everybody

on that basis, you get one result that is different than exports and

so forth.

Mr. FRANK. Right. And what the Cardinal is suggesting——

Mr. SCHUERCH. But we’ve blended it.

Mr. FRANK. What the Cardinal is suggesting on behalf of the conference is that you use multiple criteria, but that in no case would

it go above 10 percent.

And again, your comparison of the HIPC to the non-HIPC seems

to me, frankly, you’re looking for a reason to say no to it, because

we all agree that they’re going to be treated, the HIPC countries,

differently.

And what he’s saying is, yes, use whatever criteria you’re using,

but then put on a kind of a fail-safe—but in no case shall it be

more than 10 percent of the government’s revenues.

What’s the objection to that?

Mr. SCHUERCH. The objection is an inequity objection as we look

across the countries.

But, no, we have not supported it. That was put forward in the

course of the legislation last year.

Mr. FRANK. Right.

Mr. SCHUERCH. Congress fully considered it and did not include

it in the final legislation, either.

Mr. FRANK. I understand that. You’re very good at stating facts

as an alternative to opinions, and I appreciate that.

But the purpose of this hearing is to try and get some policy

opinions. You say it wouldn’t be equitable, but——

Mr. SCHUERCH. Well, an example. If you take one country that

is raising revenue from its people at a significant rate and actually

17

does the collection on its tax rates, so it has a good revenue flow,

you get a very different reaction than one who does not.

Mr. FRANK. So that’s why you think it might be a disincentive?

Mr. SCHUERCH. In fact, you end up benefiting the one that fails

to collect revenue.

Mr. FRANK. So you think this might be a disincentive in revenue

collection?

Mr. SCHUERCH. I’m sorry. I missed that.

Mr. FRANK. Do you think it might be a disincentive with regard

to revenue collection? That would be a policy argument I’d be interested in.

Mr. SCHUERCH. I’m not sure I’d argue it that strongly.

Mr. FRANK. All right. I’d appreciate it if you would also in writing elaborate on the reasons for rejecting that suggestion from the

Catholic Conference.

Mr. SCHUERCH. We’ll come back on the record. In fact, given that

you’ve put his letter in the record, if you’d allow us to put our response to his letter in the record.

Mr. FRANK. Yes, that’s why I put it in. At that point, since it is

in writing, you can give as long a history as you want. That will

be OK. As long as you get to the other point as well.

Mr. SCHUERCH. OK. Thank you.

[The information referred to can be found on page 43 in the

appendix.]

Chairman BEREUTER. Thank you, Mr. Frank.

Mr. Shays has returned and he’s on the list. Mr. Shays, you’re

recognized for 5 minutes.

Mr. SHAYS. Pass.

Chairman BEREUTER. Well, then, Ms. Capito is gone. And so,

Mrs. Roukema is next.

Mrs. ROUKEMA. Pass.

Chairman BEREUTER. And she passes. Mrs. Biggert?

Mrs. BIGGERT. Thank you, Mr. Chairman.

Mr. Secretary, on page 4 of your testimony, you emphasize the

need for multilateral development banks to focus on productivityled economic growth. And you note that education is a necessary

complement to growth.

Can you be specific about what it is that you’d like to see the

MDBs do different from what they are already doing relative to

education?

Mr. SCHUERCH. I think there’s been a fair bit of press on this

productivity issue. Some have tried to align it or contrast it to poverty alleviation. In retrospect, we might have written a speech or

two slightly differently than they were written so that poverty alleviation words were also in the speech.

We do not see the conflict between the concepts in any sort of

extreme way. In Africa, in particular, we’re dealing with countries

that are under $800 per capita. In many cases, under $400 per capita, very poor areas.

If you look at how one is going to raise people out of poverty, redistribution is simply not a significant way to achieve that result.

You have to grow the economy of the country.

There are a fair set of issues about equitable growth that do deserve consideration. But fundamentally, you have to get growth

18

rates up significantly higher than population rates in order to

achieve that in Africa.

Education is clearly one of the identified sort of main building

blocks of productivity that the Secretary has focused on repeatedly.

Thank you.

Mrs. BIGGERT. Could you just be a little more specific in the kind

of education that you envision?

Mr. SCHUERCH. Well, we have always for development purposes,

I think you’ll find the whole development community primarily focuses on primary education and women and girls’ education as the

most effective components of where to target in discrete resources.

The other area is obviously, we focused on basic health as well.

Mrs. BIGGERT. OK. So, then, in practical terms, what would an

emphasis on productivity mean for future directions of the bank

and the fund?

Mr. SCHUERCH. Well, it is an emphasis on working with the core

economies to get growth rates up. It does exclude investment in social areas. But one has to get an economy going. That means open

trading regimes. That means floating exchange rates. But it also

means focusing strongly on performance when one puts resources

in, as well as the policy reform structures that are there.

Mrs. BIGGERT. Thank you. Thank you, Mr. Chairman.

Chairman BEREUTER. Thank you.

The gentlelady from Illinois, Ms. Schakowsky, is recognized.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. I have a couple of

questions.

But I just want to say, as a relatively new Member of this Congress, it weighs so heavily on me when I realize how little money

relative to the wealth of this country and the budgets that we propose and the tax breaks that we give, how relatively little money

it would take to address problems that have been acknowledged

even as security issues, like the AIDS pandemic around the globe,

and that we have to struggle so hard over what are, in fact, minuscule amounts relative to many other things.

Mr. Sanders referred to U.S. law that now requires United

States executive directors to the international financial institutions

to oppose any loan that includes user fees.

Is there any intention by the Administration to delete Section

596, which does have that requirement?

Mr. SCHUERCH. The appendix of the budget pretty typically goes

through and strikes, and has for decades, most of the insertions

that are policy-related in the Congress on various provisions. This

one, along with, I think, virtually all the others in the foreign aid

bill, have been struck in the appendix.

That striking is not reflective of an intent by the Administration

to change the policy.

Ms. SCHAKOWSKY. Well, can you declare, then, that it is the intent of the Administration to maintain that policy?

Mr. SCHUERCH. I can declare two things. I cannot declare that

we will support it being reinserted. But I can declare that we intend to support that policy, yes.

Ms. SCHAKOWSKY. So, then—— Mr. SCHUERCH. The reason for the two, which seems odd, is simply most administrations desire to have flexibility across a range

19

of policy issues, so don’t support inclusion of broadly this kind of

directive language.

But it is not indicative of an intent to change the policy.

Ms. SCHAKOWSKY. And how would that policy be played out when

there are discussions about user fees, whether or not there are

votes?

Does that mean—maybe that question was answered, but I didn’t

quite get it. Are there instructions for our representatives to

proactively argue against those?

Mr. SCHUERCH. We do instructions sort of loan by loan as decisions come up that require a vote.

So there is standing policy instructing executive directors that

the policy of the United States Government is against the imposition of user fees for the poor on basic health and education, and

we do look at it, when we find strategy papers or policy documents,

as well as loans, and do directly talk with EDs and have them intervene, yes.

Ms. SCHAKOWSKY. Although my understanding in the Tanzania

case, in fact, there was no effort on the part of the United States

that we could see to oppose.

Again, if I’m asking the same question, I’m sorry.

Mr. SCHUERCH. Yes, we’re covering some of the same ground, but

very quickly, the discussion in Tanzania was not about a loan from

the World Bank. It was about a planning document of the government of Tanzania.

So it was not subject to a vote.

Ms. SCHAKOWSKY. No, no, I understand that. I guess I’m trying

to understand the difference between the spirit and perhaps the

letter, and if we are serious about trying to have a policy for these

countries not to impose user fees.

It seems to me so critical. All the evidence is in that when those

fees are added, that the access to that particular education or

health service plummets.

And so, it would seem if it is part of our furtherance of a policy,

that we want to make sure that we advocate at every moment that

we can.

And so, I understand the differences that you pointed out. I’m

just trying to understand what people are instructed to do.

Mr. SCHUERCH. Let me just have a minute, because not only was

it raised in the discussions at the bank in this instance, but the

U.S. directly went to the government of Tanzania to have a discussion about this issue, because it was a decision of the Tanzanian

government to put it in its planning document. It was not a World

Bank document or imposition.

The result of that discussion was they pointed out that user fees

in this particular case were waivable by the medical profession for

the poor so that the document itself and their plans would enable

them to proceed in a way that was totally consistent with the language of the U.S. law.

Ms. SCHAKOWSKY. And getting back to how the language of the

law may be changed.

When you say that you want to maintain, or the Administration

wants to maintain flexibility, what does that mean vis-a-vis user

fees if we don’t say it—what is so binding—not so binding, but

20

what is so limiting in terms of applying U.S. policy by including

language that says, we’re against user fees?

Mr. SCHUERCH. I spent 15 years working on staff in the Congress

on appropriations bills and virtually every year, you look at the

budget appendix and all legislative language on policy instructions

is struck in the proposed new budget, virtually.

So there’s no difference in what’s been proposed that way. The

Congress has the right, obviously, to reinsert any of that language

as they choose and often does. But all I’m telling you—— Ms. SCHAKOWSKY. Would that be opposed? Would reinsertion of

that language be opposed by the Administration?

Mr. SCHUERCH. I don’t know. When we get a document, we’ll

take a look at it. It is not a major focus of the Administration. It

is not a strong difference in policy here at all.

So I would be surprised if people spend a lot of effort on this subject in terms of opposition.

Ms. SCHAKOWSKY. Thank you.

Mr. FRANK. Would the gentlewoman yield?

Ms. SCHAKOWSKY. Yes, I would.

Mr. FRANK. I would appreciate that. I appreciate the spirit of

that. And if you would send us a list of other parts of the President’s budget we should feel free to ignore, I would be glad to have

it.

[Laughter.]

Chairman BEREUTER. Thank you, Mr. Frank.

The gentlelady from West Virginia—all right. She’s not here.

The gentlewoman from New York, Mrs. Maloney, is recognized.

Mrs. MALONEY. Thank you. Several Members have mentioned

Secretary O’Neill’s call for improved living standards through increased productivity as the primary objective of our Treasury’s

work through the MDBs.

Yet, many of the Members have raised questions and, actually,

the GAO raised questions as to whether many of these countries

can realistically expect economic growth, and certainly sustained

economic growth, because of the large amount of debt that they

carry, even with the enhanced debt relief initiative.

So I believe that there’s an argument that can be made that to

truly spur economic productivity, as Secretary O’Neill has testified

that he wants, that we truly need 100 percent debt relief to make

that happen.

So he must not be truly sincere about increasing productivity,

unless you’re willing to increase debt relief.

Mr. SCHUERCH. That’s an interesting argument. But I also would

observe that countries with the greatest sort of—what should I

say?—per capita debt, are also those that are most productive.

The issue is not debt. It is the effective use of capital for development and for growth. You need a return on your investment.

The difference between—well, let me put it this way.

Mrs. MALONEY. Isn’t it hard to have a return on your investment

when you have so much debt that you don’t have money to invest,

even the needs that the countries have.

Mr. SCHUERCH. The HIPC program, when it is fully implemented, has a very deep debt reduction. We have gone through

years of reduction. We’ve done bilateral aid reduction at 20 percent

21

and 30 percent and 50 percent and 67 percent, and then we went

into HIPC in 1996 and we started doing debt reduction above that

level for the multilaterals and for bilaterals at 80 percent as well.

And now under the enhanced program, we’re up in the 90 and

above.

The bilateral aid is 100 percent reduction. Literally, we’re looking at a world where the only remaining debt for some of these

countries is that portion which has not yet been reduced at the

bank and the fund, and the other multilaterals.

So I would suggest to you that if you look at the quantities that

are being reduced by country by country, and we’re more than

happy to come up and work with your staff on that, that you will

find the depths of this debt reduction quite extraordinary.

Mrs. MALONEY. Thank you.

Chairman BEREUTER. Ms. Carson, we’ll recognize you. But we’re

about to start a new round. Do you want to go at this moment?

If you’re ready, please proceed.

Ms. CARSON. Well, I would appreciate that very much, Mr. Chairman.

Chairman BEREUTER. You’re recognized.

Ms. CARSON. Thank you very much. And I apologize abundantly

for my delay. And thank you very much for having this hearing.

I hope I’m not redundant, given my delay in getting here.

But I’d like to ask, when the World Bank board discussed poverty reduction strategy papers for Tanzania, the staff acknowledged

the concern of nongovernmental organizations about user fees on

health care.

Yet, based on a World Bank staff summary of the board meeting,

the U.S. representative did not raise the issue of health user fees.

Nor did she oppose the PRSP for Tanzania as required by U.S. law.

You may have already addressed that. If you have, I apologize.

But could you give me a brief response?

Mr. SCHUERCH. Let me very quickly tell you that U.S. law does

not require the U.S. to do this on a PSRP. It does require the U.S.

to respond on user fees and loan instruments.

A PSRP is a document of the Tanzanian government and it was

subject to a discussion in the bank. The U.S. Government did talk

to the Tanzanian government directly about the user fee element.

We were assured that, in fact, it could be waived and would be

waived in the medical community for the poorest people.

So, actually, their intent was in compliance with U.S. law.

But in terms of bank policy, when there is an individual loan

that comes up, we will have an opportunity to take a close look at

it and assure that user fees are not being imposed on the poor.

Ms. CARSON. OK. Most of the nation is poor, anyway. So that

would be kind of hard to distinguish between who’s poor and who

isn’t, given the high rates of poverty.

Help me. Did we pass a law last year, an amendment to the appropriations bill, that denied America’s physicians to support user

fees?

Mr. SCHUERCH. There is an amendment in the appropriations bill

on user fees that requires that U.S. executive directors vote against

when they are imposed on the poor, yes.

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Ms. CARSON. So it just says we would vote against it if it came

up.

Mr. SCHUERCH. Yes.

Ms. CARSON. So is your department, State Department, opposed

to user fees, then, in general?

Mr. SCHUERCH. I’m sorry. I missed that.

Ms. CARSON. Are you opposed to user fees?

Mr. SCHUERCH. Yes. The Administration is fully in agreement on

that policy with the Congress, yes.

Ms. CARSON. Thank you.

Thank you, Mr. Chairman.

Chairman BEREUTER. Thank you very much.

I’d like to begin a second round of questioning. I want to go to

the HIV/AIDS fund, where the Congress, by an enactment last

year, directed the Treasury to attempt to negotiate the fund to be

housed in the World Bank.

Of course, we can’t mandate that, but our direction was to negotiate in that direction.

One of my concerns is that a decision could be made that the

fund be housed and managed by the United Nations. I don’t think

they have the capacity to adequately do that in a timely fashion.

Now what the legislation proposed is that it would have a separate board of donors, which of course would include the United Nations or its affiliates and the other major national donors.

The G–8 meeting is coming up soon in July in Genoa, where I

think the final decision will be made on that issue. My understanding is that the Administration has not decided at least what

they will push for in that respect.

But I would like to urge that regardless of what the United Nations’ involvement may be, that the World Bank be the delivery instrument.

I think it is essential that the funds flow no later than 6 months

after the Genoa meeting. If we have a long delay, we are dramatically reducing the ability to do good with the funds that would be

provided by the various donors.

So my hope is that you’ll take this message back from this Member and I will try to solicit bipartisan support urging the Administration to push hard for the delivery mechanism to be the World

Bank, regardless of how the donor board is constituted.

Is there any clarification you’d like for me or anything you’d like

to comment upon?

Mr. SCHUERCH. I’d like to comment. One, I’ll assure you that we

will certainly take the message back, clearly. And also the message

that you bring from your colleagues on the subject.

I would say it is complex, a more complex problem and issue

than one sort of immediately thinks on the surface.

We’ve been dealing in an international context with the views of

a range of U.N. institutions and officials, as well as a range of G–

8 countries and government officials and differences within countries as well.

Obviously, the G–8, in terms of where we deal, is financial ministries and treasuries. Development ministries don’t have the same

sort of say in that process. Development ministries and foreign

ministries have a greater say in the U.N. process.

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But we’ve heard your message. I would say there’s a discussion

about sort of policy control versus sort of the fiduciary role of handling the resources and vouchering and so on and so forth.

I think when we’re done, it is clear in my mind that we will have

a board that is making independent decisions. There are discussions about how strongly medical doctors and technicians and professionals in the medical field will be vetting proposals and making

those decisions. And the U.S. feels strongly on that respect.

Chairman BEREUTER. The donor board is a complicated issue and

we need the best expertise we can generate there.

But I am really more concerned about the delivery mechanism,

because I think the delivery mechanism is existent in the World

Bank.

And if we didn’t use it, we’d be probably not using a resource

that we really need to consider. And we will also provide this advice to the State Department as well, of course, because you point

out that the foreign ministers or the Secretary of State will have

a significant role in this at the G–8.

Mr. SCHUERCH. Let me be clear about your communication, because it’s actually important to the issue.

When you say that as a delivery mechanism, do you mean that

you desire the financing for the trust fund, in fact, to go through

World Bank loan processes as opposed to simply the World Bank

acting as the fiduciary agent to, in fact, handle all the money and

resources to do that job?

They’re quite different things.

Chairman BEREUTER. It’s the latter.

Mr. SCHUERCH. Thank you. OK.

Chairman BEREUTER. I’d like to move to Asia. The U.S. currently has arrearage of $128 million to the Asian Development Fund.

How do the arrearages accumulate? And what effect does that

have on our influence on the operations of the fund? I know I’ve

pretty much exhausted my time here, but please proceed if you

care to respond.

Mr. SCHUERCH. Let me say, it is a question that I sort of lose

on either answer.

Arrears are important. And we’ve spent much of the last 5 years

in dealing with the banks, reducing U.S. arrears from a billion and

a half dollars down to about $335 million 2 years ago and then losing ground the last 2 years. Five years ago, our arrears in the Asian bank were about $350

million. Today, they’re about $128 million.

There’s no question that having arrears hurts influence. And

there’s no question you can get to critical levels in that respect.

When I first took this job in IDA, the U.S. had a full year’s worth

of arrears and IDA 11 was affected. And you couldn’t have a policy

discussion, because the entire discussion in the international arena

was, would the U.S. pay out that IDA?

We are not important as it is to clear arrears at that level of critical situation in the Asian bank. We have substantial influence.

We’ve been very effective in that regard. But I don’t want to leave

the impression in the context of being sort of equal shareholders

with the Japanese that it isn’t critical we live up to the commitments we’ve made.

24

It is absolutely critical and the resources are needed for the poorest application to the fund for the poorest people in the region.

Thank you.

Chairman BEREUTER. Mr. Sanders, I’m going to ask for your indulgence for just one follow-up question here, and to the minority

as well as Ms. Biggert.

Why did the Administration not request authorization to pay the

arrears for the Asian Development Fund?

Mr. SCHUERCH. The arrears are fully authorized. We did not request an appropriation this year for any of arrears.

Chairman BEREUTER. I see. Let me redirect the question, then.

Why did the Administration not request appropriations?

Mr. SCHUERCH. I think it was a matter of coming in in the first

year, taking a look at a broad budget envelope and picture, and deciding that it was inherently important that the U.S. live up to the

commitments it has made internationally. And that was focused on

primarily the annual commitments that had been made.

To some degree, the existing arrears were viewed as an existing

situation carrying in from a prior administration. And arrears in

every case have been requested by the Executive Branch.

So that there’s a sense that the causes of lack of financing coming through the budget process.

I think it is best for me to say that it has been a policy that—

Treasury is very much aware of the arrears and very much aware

that in the context of looking at the next budget and the following

budgets, that we have to face up to the arrears situation. And that

means working on a clearance plan.

We’ll be doing that process during the fall, working into the next

budget.

Chairman BEREUTER. Thank you very much. I thank my colleagues.

The gentleman from Vermont is recognized.

Mr. SANDERS. Thank you. Thank you, Mr. Chairman.

Two questions. One, a general question on the IMF and the other

a question about AIDS and the pharmaceutical industry.

Mr. Schuerch, there are many economists and many Members of

Congress who think that in many ways, basic IMF policy of austerity measures, forcing countries to open up their economies, forcing cutbacks in education, health care, nutrition, has had a disastrous impact on low-income people throughout the world and has

primarily benefited the wealthy and the powerful and multinational corporations.

Russia is an example which some people say is an ahistorical situation where never before in history has a first-world country descended into third-world poverty under the guidance of the IMF.

The support of the IMF for dictators like Suharto and dictators

in Africa who did terrible things to their own people and left with

huge debts that these people now have to pay out, is another example of some of the failed policies of the IMF.

Given the fact that throughout the world, IMF policy has often

resulted in a lowering of the standard of living of poor people,

while the wealthy in those countries and multinational corporations have done well.

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Is the Administration giving any thought to rethinking some of

the basic tenets of IMF policy?

Mr. SCHUERCH. I wouldn’t want to leave anyone with the impression that the Administration shared your views on the subject of

the history of the contribution of the bank and the fund to development since the war.

Mr. SANDERS. Well, why don’t you tell me? Do you think the IMF

has done a pretty good job for the poor people around the world?

Mr. SCHUERCH. I think that if you look at the range of developing

countries and you look at the range of countries that are far better

off today than they were before, that one can find in the last 50

years there’s greater growth in the world in a whole range of countries than has ever occurred before in the history of the country,

including in Africa and other locations, yes.

Mr. SANDERS. You use the word growth. That wasn’t what I

asked you.

I asked you about what happens to poor people who, in fact, are

generally the bulk of the population in those countries.

You could have growth and the rich could make out like bandits.

You’ve got an increase in hunger and economic misery.

So growth was not the question. My question was—— Mr. SCHUERCH. Well—— Mr. SANDERS. Excuse me. My question was, IMF policy regarding

the poor people in Africa, Asia and Latin America.

Are you going to tell me that you think that those policies have

basically been a success?

Mr. SCHUERCH. I will tell you that life expectancy in Africa has

increased, prior to the HIV/AIDS crisis, by probably 15 or 20 years

over the last 50 years. That’s an overstatement. But there have

been a substantial improvement in life expectancy in Africa.

If you look at the social statistics as opposed to financial statistics, you will find a better picture actually prior to HIV/AIDS than

you might think, yes.

Mr. SANDERS. So your basic conclusion in general is that you

think that IMF has done pretty well by poor people around the

world?

Mr. SCHUERCH. I don’t think that the IMF can be used as sort

of the whipping boy for everything that hasn’t happened that we

wish would have happened better around the world, nor the World

Bank, either.

Mr. SANDERS. OK. My second question deals with the pharmaceutical industry.

As you know, there has been a lot of controversy about the role

of the pharmaceutical industry in dealing with the AIDS crisis in

Africa and elsewhere in the sense that, for many very poor people,

the kinds of prices that the pharmaceutical industry charges to

deal with AIDS is prohibitive.

What is the Administration’s thoughts about how we can get the

pharmaceutical industry to substantially lower the prices in Third

World countries?

Mr. SCHUERCH. I think the Administration welcomes the actions

that the pharmaceutical industries have been taking in reducing

price.

I think I want to probably stop there on the subject.

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Mr. SANDERS. Well, as a result of massive public pressure in

countries like South Africa, the pharmaceutical industry has made

some concessions. We will see how they play out.

My question is that’s what the people in South Africa have demanded. What about the United States Government?

What are we demanding?

Mr. SCHUERCH. I don’t know what has happened in terms of private conversations with pharmaceutical industries. I am unaware

of a public policy of the U.S. Government that would have consistent demands of that nature.

We have watched public pressure move pharmaceutical companies to reduce prices on HIV/AIDS drugs and it is broadly across

Africa, but it is a very significant change in prices. That is a welcome change at this point in time.

But as a matter of U.S. Government policy, we have, to my

knowledge, not been demanding that change.

Mr. SANDERS. I would appreciate if you could write to me. It is

one thing when the people of Africa stand up and demand lower

prices and the industry responds to that.

But I think the United States Government should be joining the

people of Africa and elsewhere in demanding lower prices.

I would appreciate it if you could write to me what the official

policy of the Administration is regarding the pharmaceutical industry and how they’re going to respond to the AIDS crisis.

Thank you very much.

Mr. SCHUERCH. Thank you.

Chairman BEREUTER. Mr. Sanders, would you like that response

in the record?

Mr. SANDERS. Yes.

Chairman BEREUTER. We’ll ask unanimous consent that the

Treasury response to this question and to the letter presented by

Mr. Frank be a part of the record when their responses arrive.

The gentlelady from Illinois, Ms. Schakowsky, is recognized.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman.

I wanted to follow up a bit on the AIDS issue and get to what,

in fact, has been U.S. policy. I wanted to check and see if it still

is U.S. policy.

The Executive Order, I think, is still—or if there is another one

or whatever—that deals with supporting compulsory licensing and

parallel importing of drugs.

That is, the United States not standing in the way of countries

that would choose to either manufacture or shop the world market

for lower-cost AIDS drugs.

Is that still the policy of our Government?

Mr. SCHUERCH. I’m not sure I can answer completely. I’m not

aware of a change in an executive order in this area. Certainly,

sort of open price competition has always been the policy of the

Government in this regard on drugs.

But I’d have to give you something more accurate for the record,

I think, on this.

Ms. SCHAKOWSKY. OK. The United States has forgiven the HIPC

debt owed to it bilaterally. But the HIPC countries owe billions

more to most of the world. It’s about a $14 billion face value. And

of course, that is the money that we’re talking about that could go

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to anti-poverty measures, including fighting the AIDS pandemic

and education.

Do we have a posture of trying to convince the rest of the world,

our allies, to forgive any debt, forgive that debt?

Mr. SCHUERCH. I’m not sure how the $14 billion figure works

particularly. But let me say, the HIPC program is fundamentally

a multilateral program where all the major donor countries have

worked together, the G–7 has worked together. It started with a lot

of U.S. leadership and then agreement of the G–7 and the Cologne

Summit.

So, basically, we have a situation where the major donors—

France, Germany, Japan, Italy, U.K.—are all reducing bilateral

debt as the U.S. is reducing bilateral debt.

There is some difference among them on whether they’re doing

100-percent debt reduction above and beyond what’s necessary for

meeting the HIPC criteria. But overwhelmingly, it’s a joint effort

and, frankly, the U.S. has had an advantaged position in the sense

that it has less exposure to a lot of the HIPC countries, because

its’ aid programs moved to grant programs many years earlier than

some of the Europeans.

But, yes. We have used it on what we call a burden-shared basis

to include not only other governments, but well beyond the mean

multilateral development banks and the IMF, to a list of 20 or so

smaller subregional multilateral organizations as well.

Ms. SCHAKOWSKY. When Secretary O’Neill was here, and I only

saw part of that, and I don’t have that testimony in front of me,

as I recall, he said things about HIPC country debt that, something

like, we didn’t force them to take it, and he talked about moral

hazard.

How would you characterize our attitude in general about multilateral debt reduction? Or at least the Secretary’s position on it.

Mr. SCHUERCH. I’m not sure precisely what he said about multilateral debt in that hearing.

I was here. There was in the hearing a fair bit of

miscommunication, I would say, on sort of the numbers of debt reduction vis-a-vis certain proposals that are out in public and

whether it is 22 countries or 41 countries or 36 countries or 32

countries, and there was a fair bit of that back and forth.

Ms. SCHAKOWSKY. That’s why I’m really more interested in getting how you would characterize our policy in general toward debt

reduction.

Are we looking toward moving toward 100 percent debt reduction? Do we think that’s unwise?

Mr. SCHUERCH. What we’re doing at the moment as a matter of

policy is fully committed to the existing enhanced HIPC initiative

and fully committed to getting it implemented in a quality way so

that we have both the reduction and the economic reform components of it.

It is actually pretty much of 3-year program. We have money requested this year that we’ll be fighting for in the budget process

and that we’re asking for a component for authorization.

So it is really a focus on implementation.

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The question of whether one moves further is a question that’s

a reasonable policy question to take a look at it, and we’ll have to

do that as we go forward.

I would not project a decision one way or another on that particularly. I think there are a lot of concerns about it. There are

many people who have expressed support for it. But we have not,

to my knowledge, gone on the record formally against or for at this

point in time, other than to say, we would hate to have a move to

100 percent get in the way of actually implementing what we have

at the moment and we’re trying to implement, which is very deep

and substantial debt reduction for the same countries.

Ms. SCHAKOWSKY. Thank you. Thank you, Mr. Chairman.

Chairman BEREUTER. Mr. Secretary, thank you very much for

your testimony today. I think we’ve made some progress. And we

look forward to your responses into subject issues that have been

brought up by two Members.

I think it’s a good start today to learn more about the Administration’s initiatives.

I appreciate the clarification on several issues. For example, with

respect to the issue related to Tanzania and what happened there.

Mr. SCHUERCH. Thank you very much. I appreciate the opportunity.

Chairman BEREUTER. Do you have any final comments?

Mr. SCHUERCH. No. Not broadly, other than I think, one, we need

to recognize and thank this subcommittee and the broader Full

Committee for their role both in HIPC and in pushing pressures

publicly to move forward on the HIV/AIDS initiative as well.

It has really been a shared experience and a positive one.

Chairman BEREUTER. Thank you very much. We’ll close on that

compliment.

The hearing is adjourned.

[Whereupon, at 3:30 p.m., the hearing was adjourned.]

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A P P E N D I X

June 12, 2001

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