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BANKING ON REFORM: CAPITAL INCREASE PROPOSALS FROM THE MULTILATERAL DEVELOPMENT BANKS 

HEARING 

BEFORE THE

COMMITTEE ON FOREIGN RELATIONS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 15, 2010 

Printed for the use of the Committee on Foreign Relations 

( 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html 

COMMITTEE ON FOREIGN RELATIONS

JOHN F. KERRY, Massachusetts, Chairman

CHRISTOPHER J. DODD, Connecticut 

RUSSELL D. FEINGOLD, Wisconsin 

BARBARA BOXER, California 

ROBERT MENENDEZ, New Jersey 

BENJAMIN L. CARDIN, Maryland 

ROBERT P. CASEY, JR., Pennsylvania 

JIM WEBB, Virginia 

JEANNE SHAHEEN, New Hampshire 

EDWARD E. KAUFMAN, Delaware 

KIRSTEN E. GILLIBRAND, New York 

RICHARD G. LUGAR, Indiana 

BOB CORKER, Tennessee 

JOHNNY ISAKSON, Georgia 

JAMES E. RISCH, Idaho 

JIM DEMINT, South Carolina 

JOHN BARRASSO, Wyoming 

ROGER F. WICKER, Mississippi 

JAMES M. INHOFE, Oklahoma 

DAVID MCKean, Staff Director

KENNETH A. MYERS, JR., Republican Staff Director

(II)

C O N T E N T S 

Page 

Chin, Curtis, U.S. Executive Director, Asian Development Bank, Manila, 

Philippines ............................................................................................................ 19 

Prepared statement .......................................................................................... 22 

Responses to questions submitted for the record by Senator Richard 

G. Lugar ......................................................................................................... 63 

Response to question submitted for the record by Senator Robert Menendez .................................................................................................................. 70 

Kerry, Hon. John F., U.S. Senator from Massachusetts, opening statement ..... 1 

Lago, Marisa, Assistant Secretary for International Markets and Development, U.S. Department of the Treasury, Washington, DC ............................... 5 

Prepared statement .......................................................................................... 8 

Attachment submitted with prepared statement ........................................... 42 

Responses to questions submitted for the record by Senator Richard 

G. Lugar ......................................................................................................... 54 

Lugar, Hon. Richard G., U.S. Senator from Indiana, opening statement ........... 4 

Solomon, Ian, U.S. Executive Director, World Bank ............................................ 12 

Prepared statement .......................................................................................... 14 

Responses to questions submitted for the record by Senator Richard 

G. Lugar ......................................................................................................... 61 

Responses to questions submitted for the record by Senator Robert 

Menendez ....................................................................................................... 70 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Arnavat, Gustavo, U.S. Executive Director of the Inter-American Development Bank, prepared statement ......................................................................... 52 

Responses to questions submitted for the record by Senator Richard 

G. Lugar ......................................................................................................... 65 

Hudson, James L., U.S. Executive Director of the European Bank for Reconstruction and Development, prepared statement .............................................. 50 

Responses to questions submitted for the record by Senator Richard 

G. Lugar ......................................................................................................... 68 

Jones, Walter, U.S. Executive Director of the African Development Bank, 

prepared statement .............................................................................................. 47 

Responses to questions submitted for the record by Senator Richard 

G. Lugar ......................................................................................................... 67 

(III)

(1) 

BANKING ON REFORM: CAPITAL INCREASE 

PROPOSALS FROM THE MULTILATERAL 

DEVELOPMENT BANKS 

WEDNESDAY, SEPTEMBER 15, 2010 

U.S. SENATE, 

COMMITTEE ON FOREIGN RELATIONS, 

Washington, DC. 

The committee met, pursuant to notice, at 10:05 a.m., in room 

SD–419, Dirksen Senate Office Building, John F. Kerry (chairman 

of the committee) presiding. 

Present: Senators Kerry and Lugar. 

OPENING STATEMENT OF HON. JOHN F. KERRY, 

U.S. SENATOR FROM MASSACHUSETTS 

The CHAIRMAN. The hearing will come to order. Thank you all for 

being here with us today and particularly our witnesses. 

I am delighted to be joined by my colleague and partner in these 

efforts, Senator Lugar, and appreciate his knowledge and leadership with respect to the multilateral development bank issues. 

In the world we are living in today, it is fair to say that with 

the challenges we face globally in the economy and the challenges 

of radical extremism, religious fanaticism, extremism, and so forth, 

and countless numbers of young people in populations that are 

growing far more rapidly than the job base, development is, in my 

judgment, the single most effective, important tool we have available to us. And for my money, rather than have 6 billion bucks a 

month being spent in Afghanistan the way it is, I would love to see 

a lot more invested around the world in some of the things that are 

crying out for alternatives for some of those young people to spend 

their lives doing. 

So that is the context within which we come here today to talk 

about proposed increases in the capital that we provide to multilateral development banks. And we are joined by three policymakers 

who can speak directly to the new burdens that these banks have 

taken on and the challenges that they are going to have to meet 

over the course of these next years. 

For a lot of years, the multilateral development banks have 

played a crucial and usually unsung role in fostering global development. The World Bank and four other multilateral banks that 

service Asia, Europe, Africa, and the Americas offer loans, technical assistance, and grants to developing nations. They finance 

projects that role back poverty, educate girls, combat corruption, 

2 

spread economic opportunity, and generally lay the foundations for 

a stable, well-governed society. 

There are extraordinary examples of the successes around the 

world of what the development banks have achieved. Where it matters most to our interests currently in places like Pakistan and 

Afghanistan, the World Bank and Asian Development Bank have 

been very valuable partners. For many years, they have placed 

good people in harm’s way in order to further our common goals. 

And the global financial crisis has driven home both the importance of institutions like these and the need to expand them in 

order to match the scale of our global challenges. From 2007 to 

2008, total net private financial flows to the developing world, unfortunately, fell precipitously. In 2009, as the crisis took hold, the 

economic crisis, and the markets fell, current account balances of 

developing nations shrunk by half. 

As the flow of capital to many developing nations cratered, the World Bank increased lending from $13.5 billion in 2008 to a 

record $33 billion in 2009. And so as devastating as the global 

financial crisis has been, there is no question in any sound analyst’s mind that that crisis would have been far worse without the 

rapid response, technical advice, and billions of dollars of capital 

that the multilateral development banks provided. 

So now today these banks are coming to us and to others and 

saying we need an increase in capital. At a time when budgets are 

strained, obviously people are going to sit there and kind of scratch 

their heads and say, what, I mean, how is this going to work? 

So we have to measure very carefully on a cost-benefit analysis, 

a risk analysis. And needless to say, the banks are going to have 

to make their case. I believe it is a case that can be made, and I 

believe my colleague, Senator Lugar, shares that view. It is a case 

that can be made to us and to the other donors, but it is going to 

have to be. 

I would advise a cautious approach to ensure that in taking several difficult steps at once—and there are difficult steps to take in 

this—that the support of the United States Congress, which really 

represents the support of the American people, that that is maintained. 

But I am convinced the multilateral development banks have a 

strong case to make in asking for these greater contributions. They 

have protected the developing world from the worst of the financial 

crisis, and because the MDBs accept contributions from many regional and global partners, this is not a burden that we, the United 

States, carry alone. This is not something American taxpayers are 

doing and no one else is doing. There is a huge global contribution 

and commitment to this effort. In fact, for every dollar that we 

directly contribute, we enable $100 worth of lending to the developing world. 

As the largest shareholder in all but one of the major multilateral development banks, we are obviously deeply invested in seeing 

that these institutions remain relevant and effective. Going forward, it is going to be important to address questions of how nations share power within these institutions. The question of how we 

decide leadership at institutions like the World Bank is going to 

have to be taken in a thoughtful and measured way. In trying to 

3 

make these institutions more representative, we also have to be 

careful not to make them less effective. And this is not an easy discussion, but while we can support a fundamentally merit-based approach from top to bottom, we still need to reach an understanding 

about what that merit-based means in practice. 

Finally, even as these banks grow and restructure, they are 

going to have to do more to address 21st century challenges. That 

includes food security, empowering women, but especially the urgent and fundamentally linked challenges of climate change and 

energy poverty. As we invest limited public resources, we need to 

ensure that these banks are all supporting the clean energy and 

climate priorities of the planet, and our ways to do that that I 

think will have fundamentally salutary effect on all of our economies. Some countries are rushing to that effort today with great 

success economically, I might add. I regret that the United States 

is not sufficiently yet engaged in that, but I hope that it will be 

over a period of time. 

We have a series of difficult questions to confront, including how 

to reform our current institutions and build the multilateral development banks of the 21st century. It is clear that these banks represent an increasingly important tool, a vital tool to enhance global 

stability and advance our own interests. 

I will just say quickly I was recently in Syria meeting with President Assad, and President Assad defined to me the needs of Syria 

in terms of energy and technology and education and health. He is, 

in many ways, looking to the West, not the East, in order to try 

to provide for those needs. But ultimately he was very clear to me. 

He is the leader of a secular country the borders theocracy. He is 

a leader of an Arab country that borders a Persian country. He is 

the leader of a Suni majority country that borders a Shia majority 

nation. I think any of us making judgments about the long-term 

future of Syria ought to see that it is not necessarily written to the 

East. It could be written to the West. 

But he faces a fundamental challenge. He has got about 500,000 

young people who turn 18 every year—each year—and those 

500,000 people do not have jobs and they may not have educational 

opportunity unless there is reform in development in that country. 

That is replicated in Egypt, in Jordan, in Saudi Arabia, in Pakistan, Bangladesh, Afghanistan, Yemen. Run the list through Africa 

and other countries. 

It is not just their challenge, folks. It is our challenge too because 

if we do not address the future economic needs and transformation 

of those societies, we have already begun to see what the other side 

of that coin looks like. So this is an important challenge for me and 

one of the most important reasons that I believe these multilateral 

development banks are such a critical tool for us as we engage in 

this global struggle that we all face with respect to extremism and 

opportunity and exploitation. 

We are joined today by three policymakers who are at the center 

of these discussions. Marisa Lago is the Treasury Department’s 

Assistant Secretary for Markets and International Development. 

Ambassador Curtis Chin is the U.S. Executive Director to the 

Asian Development Bank, and Ian Solomon serves as U.S. ExecuVerDate Nov 24 2008 16:01 Dec 13, 2010 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 H:\DOCS\0915BANK.TXT SENFOR1 PsN: BETTY
4 

tive Director to the World Bank. So we are delighted to have all 

three of you here bringing your expertise to this. 

And I am delighted to be able to share this effort with a terrific 

partner, the ranking member of the committee, Senator Lugar, who 

has spent years trying to eradicate corruption and bring transparency to the multilateral development bank process. I am 

pleased to recognize him now for his opening statement. 

Senator Lugar. 

OPENING STATEMENT OF HON. RICHARD G. LUGAR, 

U.S. SENATOR FROM INDIANA 

Senator LUGAR. Well, thank you very much, Mr. Chairman. I 

deeply appreciate your generous comments about my efforts, and I 

simply want to affirm that much of my opening statement will second the motions that you have made in your very comprehensive 

statement. 

And I join you in welcoming our distinguished witnesses. We appreciate your appearance before our committee and the opportunity 

to visit with you again. 

The administration is requesting funds for the multilateral development banks through the regular budget process. This provides 

the Foreign Relations Committee and Congress with an opportunity to carefully examine these increases. In 2009, the administration waited until late in the process of a Supplemental Appropriation bill to request a $100 billion loan for the IMF. Consequently, 

on that occasion, Congress did not have a full opportunity for hearings or authorizing legislation addressing whether those additional 

funds should have been conditioned on reforms. 

The United States has strong national security and humanitarian interests in alleviating poverty and promoting progress 

around the world. That is why the Congress has supported appropriations for loan and grant programs through the development 

banks. But the American people must have confidence that our 

funds are managed effectively, efficiently, and transparently. We 

must ensure that our contributions promote the United States 

interests. 

The current request arrives in the context of the worst economic 

crisis since the Great Depression. We need to consider the impact 

of additional funding on our own bottom line, as well as on how 

funding might help strengthen United States influence in the 

global economy and contribute to the United States national security. Maintaining our shareholding and leadership positions at the 

International Monetary Fund, the World Bank, and regional development banks remains an important foreign policy tool that in 

many circumstances can be more cost effective than other mechanisms we might employ. 

Given global financial linkages, we cannot achieve a full economic recovery in isolation from the rest of the world. In the face 

of job losses, wealth evaporation, homelessness, hunger, and other 

outcomes, the economic viability of many nations will be tested. 

There is evidence the global crisis has been tempered by the actions of the International Monetary Fund, the World Bank, and the 

regional development banks. They have provided steady finance 

during a period of extreme uncertainty and turbulence. 

5 

Although the development banks have performed a valuable 

function, their operations can be improved significantly. Seven 

years ago, I began a review of the multilateral development banks 

that studied whether funds were being used effectively and efficiently and projects were benefiting legitimate development and 

financial goals. I chaired six hearings on that topic that included 

examinations of individual projects and policies of the respective 

banks. In March of this year, I issued a report entitled ‘‘The International Financial Institutions: A Call for Change.’’ The report outlined concrete recommendations for the development banks, including prioritizing projects designed to deliver sustained, long-term 

development; refocusing attention on the impact of projects, rather 

than their size and goals; strengthening anticorruption efforts by 

increasing financial resources for internal controls and embedding 

oversight funds into projects; and requiring budget disclosure and 

financial management standards for any loans going directly to a 

country’s budget. 

During the negotiation process for the general capital increases, 

each development bank committed to specific reforms of their operations. Part of our interest today is to examine whether additional 

reforms are warranted in advance of capital increases and how implementation of these reforms will be monitored. The administration and the other donor countries of the G20 should be firm in 

requiring the implementation of reforms before transferring funds 

for the general capital increases. It is also imperative that our Government examine capital increases for each bank as a unique request, because each financial institution has its own distinct management challenges. 

Once again, I thank the chairman for calling this timely hearing, 

and I look forward to engaging with our witnesses. 

The CHAIRMAN. Thank you, Senator Lugar, and I appreciate that 

last point particularly; it is an important one. 

We will ask for your testimony. We will start from your left to 

right, Secretary Lago, and then just run down the table. Thank you 

very much. 

Madam Secretary 

STATEMENT OF MARISA LAGO, ASSISTANT SECRETARY FOR 

INTERNATIONAL MARKETS AND DEVELOPMENT, U.S. 

DEPARTMENT OF THE TREASURY, WASHINGTON, DC 

Ms. LAGO. Thank you, Chairman Kerry, Ranking Member Lugar. 

Thank you for the opportunity to discuss the multilateral development banks, which for ease of conversation, we will refer to as the 

MDBs throughout the testimony. 

I will focus my remarks on addressing the fundamental question 

of why the MDBs merit our continued support, which both of you 

have so articulately expressed. First, I will discuss how the work 

of the MDBs directly supports the administration’s objectives. Second, I will review the reform agenda that we have pursued and are 

continuing to pursue at these institutions, and third, I will address 

the issue of resources and continued U.S. investment in the MDBs. 

Turning to the first topic, we believe that the MDBs are sound 

investments even in this tight fiscal environment because of their 

substantial leveraging capacity. Further, the MDBs have instituted 

6 

a set of fiscal controls to ensure that their funds are well spent, 

thus giving us assurance that the U.S. dollars that finance the 

MDBs’ projects are, indeed, going to their intended purposes. 

In addition to their fiscal effectiveness, the MDBs deserve our 

support because of their key role in furthering the U.S.’s international agenda. Specifically, the MDBs foster economic growth 

both at home and abroad, protect our national security interests, 

address transnational challenges, and support the very poorest 

members of the global community. I will briefly address each of 

these four policy goals. 

The MDBs were explicitly established to generate and support 

sustainable, broad-based economic growth in poor countries and in 

emerging markets. As the MDBs help developing nations stabilize 

and grow, we build new markets for U.S. exports and we create 

jobs here at home. In addition, we routinely turn to the MDBs to 

shore up emerging markets and systemically important economies 

in times of economic distress. 

As both the chairman and the ranking member have observed in 

the past, the MDBs responded decisively to the G20’s request to accelerate and expand lending in the wake of the financial crisis, and 

at a time when very few private sector banks were lending, the 

MDBs increased their lending by $100 billion above their preplanned crisis levels. 

The MDBs also play a vital role in helping us achieve and then 

safeguard our national security objectives. The President’s National 

Security Strategy identifies the acceleration of sustainable development as one of its core elements. The U.S. Government advances 

its objectives through our leadership position within the MDBs. 

Afghanistan is an excellent case in point. For our military successes to take hold, we need to help the Afghan Government, its 

people, its youth, strengthen their economy. A major project that 

is financed by the Asian Development Bank is the construction of 

the railway line that will connect Hairaton to Mazar-e-Sharif. This 

will link Afghanistan to Uzbekistan and thus open up a corridor to 

Central Asia, Russia, and Europe. While the cost of the project is 

$165 million, its benefits will greatly exceed this amount because 

the railroad is expected by 2016 to more than double the value of 

Afghanistan’s official trade with its neighboring countries. 

And in Pakistan much more recently, the World Bank and the 

Asian Development Bank are moving rapidly to mobilize $3 billion 

of assistance to help support the reconstruction efforts as the flood 

waters recede. 

Because of their diverse membership, the MDBs are at the forefront of efforts to create coordinated and effective solutions to 

transnational challenges such as food security and climate change. 

Because of the very diffuse nature of these challenges, they can 

only be addressed successfully in multilateral channels through 

which the community of countries owns both the problem and the 

tools to resolve it. 

Finally, the MDBs advance United States interests by supporting 

the very poorest members of the global community, countries like 

Haiti and Liberia. The MDBs are particularly important in mobilizing assistance for these poorest countries when they suffer from 

a sudden external shock, like a natural disaster. 

7 

Now as noted by the members of the committee, the MDBs’ 

effective response to the global financial crisis led to an accelerated 

depletion of the capital at the MDBs, thus prompting the World 

Bank and the regional development banks to seek new donor resources. In assessing each institution’s capital needs, we examined 

the financial and also the institutional capacities of each of the 

MDBs, and we focused, as part of our reform agenda, on policies 

that were designed to strengthen financial discipline, improve governance and accountability, and enhance development impact and 

effectiveness. Many of these reforms were directly responsive to the 

concerns raised during consultations with Congress and specifically 

with the members and the staff of this committee. Thank you so 

much for the helpful input, which is reflected in the reforms that 

were achieved. 

Turning to the specific reforms, as a result of our focus on fiscal 

responsibility, the MDBs are adopting economic models that include revised loan pricing policies that cover administrative costs, 

incorporate transfers to the concessional windows of the MDBs, 

thus ensuring more resources for the poorest borrowers, and also 

reforms that build up internal capital. 

We pushed for, and achieve, improvements in internal governance, including stronger anticorruption, transparency, and whistle 

blower policies. We also focused on strengthening institutional policies that reward the quality rather than just the quantity of lending. We believe that these reforms will provide further impact for 

each U.S. dollar that is invested in the MDBs and will also be 

translated into more impact on the ground. 

As my final topic, I will address the issue of the MDBs’ request 

for capital increases. 

All of the reforms that we sought and achieved were linked to 

the size and the structure of the capital commitments that we were 

prepared to negotiate for each institution. In some cases, we made 

a commitment lower than what management and even other donor 

shareholders had sought. We also pursued innovative mechanisms 

that would further leverage U.S. dollars, such as temporary capital 

commitments and the creation of triggers for the return of unused 

capital to shareholders. As a result of these institution-by-institution negotiations, the administration’s requests for these general 

capital increases will range from 30 percent at the World Bank to 

70 percent at the IDB, and 200 percent at the Asian and African 

Development Banks. 

For the current fiscal year, the administration is seeking authorization and appropriations only for the general capital increase at 

the Asian Development Bank, which my colleague, Executive Director Curtis Chin, will discuss in detail. 

Even during this tight financial environment when we have such 

difficult choices to make, we share the belief of the committee 

members here present, that the investments in the MDBs are critical to furthering U.S. objectives. The United States has proudly 

been a leading force within these institutions since their founding 

and our continued leadership is required today if we are going to 

continue to reshape these institutions so that they become the 

forces of good in the 21st century global economy. We have to continue doing our part if we wish to continue influencing these instiVerDate Nov 24 2008 16:01 Dec 13, 2010 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 H:\DOCS\0915BANK.TXT SENFOR1 PsN: BETTY
8 

tutions and then benefiting from their positive impact on the 

ground. 

We look forward to continuing to work closely with this committee, as we have throughout the general capital increase process. 

Thank you. 

[The prepared statement of Ms. Lago follows:] 

PREPARED STATEMENT OF MARISA LAGO, ASSISTANT SECRETARY OF THE TREASURY

FOR INTERNATIONAL MARKETS AND DEVELOPMENT, DEPARTMENT OF TREASURY, 

WASHINGTON, DC 

Chairman Kerry, Ranking Member Lugar and members of the committee, thank 

you for this opportunity to testify on the multilateral development banks (MDBs) 

and why they merit our continued strong support. 

I want to begin my remarks today by underscoring President Obama’s strong commitment to multilateralism. This commitment is reflected through our leadership in 

the G20, and is embodied in the President’s National Security Strategy, which identifies sustainable development—the core mandate of the MDBs—as essential to enduring global stability and security. 

In addition to being central to the President’s development and economic growth 

agenda, the MDBs are sound investments, even in a tight fiscal environment, because of their substantial leveraging capacity and oversight. For example, for every 

dollar we entrust, the World Bank can support current lending of $26. 

The MDBs have instituted a set of controls, both within their institutions and in 

borrowing countries, to ensure that funds are well spent. The application of these 

safeguards offers assurance to the American taxpayer that U.S. dollars used to 

finance MDB projects are, indeed, going to their intended purposes. 

To further illustrate why these institutions deserve continued U.S. support, I will 

discuss today the reasons why these institutions remain indispensable to the United 

States and how they further our agenda. Specifically, I’ll discuss their role in: (1) 

fostering economic growth, both at home and abroad; (2) protecting our national security interests; (3) addressing transnational challenges, such as food security and 

climate change; and, (4) supporting the very poorest members of the global community. In addressing these substantial benefits, I will also discuss our approach to the 

recent general capital increase (GCI) requests at the MDBs. 

SUPPORTING ECONOMIC GROWTH

The MDBs were established to generate and support sustainable, broad-based economic growth in poor countries and emerging markets. Through our leadership in 

these institutions, we seek to ensure that the MDBs advance principles that we 

espouse, such as the importance of private-sector-led growth, and the need for 

strong, transparent, and accountable institutions. 

We have a strong stake in ensuring the success of the MDBs’ efforts because by 

helping developing nations stabilize and grow, we build new markets for U.S. exports and create jobs here at home. In short, our investments in the MDBs help generate new engines of growth that benefit the U.S. economy and the global economy, 

as a whole. 

In addition, we routinely turn to the MDBs to shore up emerging markets and 

systemically important economies in times of economic distress. In each major financial crisis in every region, the MDBs have proved vital in staunching economic meltdowns. We need only examine their role during the recent global financial crisis as 

evidence of our reliance on the MDBs during hard economic times. 

As the chairman and ranking member have rightly observed in the past, the 

MDBs responded decisively to the G20 request to accelerate and expand lending in 

the wake of the financial crisis. At a time when few banks were lending, the MDBs 

increased their lending by $100 billion above planned precrisis levels. In Eastern 

Europe—where the crisis hit especially hard—the European Bank for Reconstruction and Development (EBRD) helped spearhead an initiative to stabilize market expectations and restore confidence in the financial sectors of Eastern Europe. In Asia, 

where trade finance evaporated following the crisis, the Asian Development Bank 

established an $850 million facility to support trade. Decisive actions such as these 

proved critical to global stabilization efforts, and helped underpin renewed economic 

growth around the world. 

9 

NATIONAL SECURITY

The MDBs also play a vital role in helping us achieve and safeguard our national 

security objectives. The President’s National Security Strategy identifies the acceleration of sustainable development as one of its core elements. The strategy details 

the imperative of fighting global poverty, increasing food security, and tackling climate change as key to America’s security and prosperity. It also recognizes that 

countries that achieve sustained development gains make more capable partners, 

and can better engage in and contribute to the global economy. The United States 

Government advances these objectives through our leadership at the MDBs. 

Afghanistan is an excellent case in point. For our military successes to take hold, 

we need to help the Afghan Government and its people strengthen their economy. 

But to achieve this objective, a number of challenges must be overcome. For example, Afghanistan’s isolation and lack of infrastructure impede the flow of goods and 

services necessary to support a more diverse and dynamic economy. A major project 

financed by the Asian Development Bank (AsDB) has the potential to address these 

obstacles and dramatically improve the country’s economic prospects. Specifically, 

the AsDB is financing construction of the Hairaton-Mazar-e-Sharif railway line, 

which will link Afghanistan with Uzbekistan, and consequently Central Asia, Russia, and Europe. The project cost is $165 million, but its benefits will greatly exceed 

this amount, as the railroad is expected to increase the value of official trade with 

neighboring countries from $4.7 billion in 2005 to $12 billion in 2016. 

In Pakistan, the World Bank and AsDB are moving rapidly to mobilize a $3 billion assistance package to help support reconstruction efforts after the flood waters 

recede. 

Both banks are working on a joint comprehensive Damage and Needs Assessment, 

which is to be completed by mid-October. In addition, the AsDB has approved funds 

from its Asia-Pacific Disaster Response Fund for immediate emergency assistance, 

and announced plans to establish a special flood reconstruction fund to facilitate 

donor cofinancing of AsDB projects. The United States is also working closely with 

the development banks to coordinate its response. The MDB’s forceful response will 

help Pakistan maintain economic stability as the country recovers from this 

disaster. 

It is because of efforts like these that the MDBs are recognized within the national security community as important partners in reconstruction and ongoing economic stability. The beneficial role of the AsDB in Afghanistan and Pakistan, as 

well as Central Asia and the Caucasus, prompted General Petreaus to write to 

Secretary Geithner to express his ‘‘sincere appreciation of the great work the AsDB 

team is doing’’ and welcome our ‘‘continued strong partnership with the AsDB.’’ 

TRANSNATIONAL CHALLENGES

Because of their diverse membership, the MDBs are uniquely qualified to help us 

address critical global priorities. Through U.S. leadership, in tandem with other 

major shareholders, the MDBs are at the forefront of efforts to create coordinated 

and effective solutions to transnational challenges, such as food security and climate 

change. These complex challenges, which know no geographic boundaries, will seriously imperil our prospects for global prosperity and poverty reduction if left 

unaddressed. And, because of the diffuse nature of the challenges, they can only be 

addressed successfully via multilateral channels, through which all countries own 

the problem and the tools to resolve it. 

Food Security 

With more than 1 billion people suffering from chronic hunger in the world today, 

and with the related challenges of climate change, water shortages, and land scarcity, investment in agriculture represents one of the most effective ways to promote 

economic growth, strengthen stability and alleviate hunger. As part of the administration’s Feed the Future initiative, Treasury has partnered with other countries, 

the World Bank, other multilateral organizations and civil society organizations to 

establish the Global Agriculture and Food Security Program (GAFSP). 

President Obama and the other G20 Leaders called for this program at the Pittsburgh summit less than a year ago. And today, the multilateral fund is already 

operational and making high-impact investments in poor countries, working through 

implementing partners such as the International Fund for Agricultural Development, the African Development Bank, and the World Bank. The fund has mobilized 

pledges and contributions totaling $880 million from a variety of governments, as 

well as the Bill and Melinda Gates Foundation. In June, the fund awarded $224 

million in grants to five poor countries with sound and country-led agricultural reform strategies—Bangladesh, Haiti, Rwanda, Sierra Leone, and Togo. 

10 

Tackling Climate Change 

The administration is also leading efforts to forge a global solution to the climate 

challenge, and is pursuing a global agreement with meaningful participation from 

all countries. Key to that effort is our work throughout the MDBs and especially 

our contribution to two multilateral programs, the Global Environment Facility 

(GEF) and the Climate Investment Funds (CIFs). 

These programs address the climate challenge in developing countries from three 

perspectives. First, they help the poorest and most vulnerable countries prepare for 

and respond to the impacts of climate change, which helps reinforce stability and 

security. Second, these programs spur the deployment of the clean energy technologies (including energy efficiency, wind, solar and geothermal) that will not only 

curb the growth of greenhouse gas emissions, but will provide the clean energy jobs 

of the future. Third, they contribute to the reduction of emissions from deforestation 

and forest degradation in developing countries-a critical component of the global 

effort. A good example is the GEF-supported Amazon Region Protected Area Program, which is the largest program for conservation and sustainable use of tropical 

forests in the world. 

Our participation in these multilateral environmental programs magnifies our 

‘‘bang for the buck’’ in two important ways. First, our contributions bring in other 

donors; specifically our contributions bring in almost $5 for every $1 the U.S. contributes. Second, these programs leverage MDB, government, and private sector 

sources. For example, the Clean Technology Fund, part of the CIF, in the past year 

approved clean energy investment plans that blend $4.3 billion of fund money with 

other financing to mobilize total planned investments of over $40 billion—leveraging 

nearly $10 from other sources, including the MDBs, for each CTF dollar spent. 

SUPPORTING THE POOREST

I also want to highlight the role of the MDBs in supporting the very poorest members of our global community. These are countries like Haiti and Liberia that have 

no capacity to tap financial markets, and lack the domestic resources to invest adequately in their people or their country. For these countries, the MDBs provide low 

interest and grant financing, funds that are absolutely essential for leveraging 

growth and lifting people out of poverty. 

The MDBs are particularly vital in mobilizing assistance for the poorest countries 

suffering from sudden external shocks, such as natural disasters. Following the 

earthquake in Haiti, for example, the World Bank and Inter-American Development 

Bank (IDB) moved swiftly to support the devastated nation. 

And, although the MDBs were not founded to be front-line responders to disasters 

and humanitarian responses, both the World Bank and the IDB provided vital 

assistance in the immediate aftermath of the disaster. For example, the IDB worked 

closely with the U.S. Government and money transfer agencies in Haiti, to ensure 

an adequate supply of cash so that Haitians in need could receive remittances sent 

by relatives abroad. And the IDB is financing the design, construction and maintenance of temporary housing, assisting businesses to restore production, helping 

microfinance institutions resume lending, and rebuilding the government’s financial 

and administrative capacity. 

The World Bank helped coordinate Haiti’s post-disaster needs assessment and 

quickly established a multidonor trust fund that, to date, has received over $130 

million in donor support. The World Bank has acquired and equipped offices for destroyed government ministries, provided solar lanterns, funded water supply systems, and is continuing to focus on infrastructure, agriculture, and disaster risk 

mitigation, among other sectors. 

The substantial financial support provided by the MDBs is only one of several 

benefits that they offer to the poorest countries. The MDBs also work actively with 

recipient governments to develop coherent development frameworks; mobilize additional bilateral funds, predominantly in the form of grants; provide technical assistance to build institutional capacity; and help capacity-strained countries work 

effectively with multiple development partners. 

This year, the concessional facilities at the World Bank and the African Development Bank (AfDB) that support the poorest countries are being replenished. 

Because the global financial crisis drained institutional resources faster than anticipated, the G20 called for ambitious replenishments of the concessional facilities for 

both institutions. Strong support from the United States will help provide the World 

Bank and the African Development Fund with resources necessary to help preserve 

fragile development gains and make further—and much needed—progress toward 

achieving the Millennium Development Goals. 

11 

MDB RESOURCES AND REFORMS

During the global financial crisis, the G20 recognized the vital role of the MDBs 

in mitigating its impact, and called on them to strengthen capacity on food security, 

fragile states, climate change, and private-sector-led growth. However, the rapid increase in lending levels led to an accelerated depletion of capital at the MDBs, 

prompting the World Bank and the regional development banks to seek new donor 

resources. (Because it was capitally constrained before the crisis, the AsDB request 

was already under consideration when the financial crisis hit.) In response, G20 

leaders committed to ‘‘help ensure that the World Bank and the regional development banks have sufficient resources to fulfill these four challenges and their development mandates.’’ 

To assess each institution’s financial and institutional capacities, as well as their 

capital needs, this administration conducted detailed analyses and held numerous 

discussions. During this process, we did not take a ‘‘one size fits all’’ or ‘‘bigger is 

better’’ approach. Rather, we carefully considered the medium- and long-term capacity of each MDB (which, in turn, reflected the impact of crisis-related lending, as 

well as each bank’s own financial management policies). We also considered the potential for escalating demand for MDB resources, especially in Africa, while at the 

same time promoting a focus on core mandates to avoid the risk of mission creep 

at the MDBs. 

OUR REFORM AGENDA

We pressed hard for robust reforms that we believed would have a positive and 

enduring impact on the MDBs. At each MDB, we focused on policies designed to 

strengthen financial discipline and protect capital, improve governance and accountability, and enhance development impact and effectiveness. During the negotiations, 

we transformed these policy priorities into concrete reform proposals, tailored to 

each institution. Many of our priority reforms were directly responsive to concerns 

raised during consultations with Congress, and I would like to thank the committee 

and its staff for their helpful input in the negotiations. 

I would also like to share briefly some examples of the significant and concrete 

outcomes that we achieved. 

Fiscal Discipline 

Fiscal responsibility is the first area of reform we targeted because we believe it 

is fundamental to ensuring appropriate burden-sharing between donor countries and 

borrowers in the MDBs. Specifically, we emphasized the need for revised loan pricing policies that fully cover administrative costs, incorporate transfers to the 

concessional windows—ensuring more resources for the poorest borrowers—and 

build up internal capital. As a result of our efforts: 

• The World Bank agreed to overhaul its budget process to ensure that decisions 

on pricing, compensation and administrative costs are closely integrated and 

aligned with the Bank’s strategic priorities; 

• The AfDB agreed to a comprehensive financial model that has parameters on 

loan pricing, locks in a minimum level of transfers to low-income countries, covers administrative expenses, and supports capital adequacy. 

• The IDB agreed to adopt a new income allocation model that sets loan prices 

consistent with the IDB’s financial constraints and priorities, including annual 

grants to Haiti of $200 million and provision of highly subsidized loans to its 

poorest borrowers. The IDB also crafted a new capital adequacy policy and investment guidelines that we believe successfully address the risks associated 

with the Bank’s portfolio losses in 2008. 

• The EBRD adopted a new Economic Capital Policy to provide it with additional 

lending flexibility while protecting its AAA status, despite its high risk predominantly private sector portfolio. 

Governance and Accountability 

We also pushed for—and achieved—improvements in internal governance, since 

we share the view of the members of this committee that anticorruption efforts and 

transparency are absolutely integral to the credibility of the MDBs. An example of 

the significant new commitments that we obtained is the World Bank’s revised disclosure policy. This policy now reflects a presumption of disclosure, a major improvement over past practice, which only allowed disclosure of a narrowly drawn list of 

documents. Similarly, the IDB and AfDB each committed to a new disclosure policy 

that meets international best practices. 

In addition, the IDB enhanced the scope and credibility of its inspection panel, 

a forum for citizens who believe they have been adversely affected by MDB operVerDate Nov 24 2008 16:01 Dec 13, 2010 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6621 H:\DOCS\0915BANK.TXT SENFOR1 PsN: BETTY
12 

ations. The IDB also committed to update its environmental and social safeguards 

in line with international best practices by the first quarter of 2011. As an example, 

current international best practice would require the IDB to tighten its oversight 

of financial intermediaries to ensure their lending practices comply with environmental and social conventions. 

Finally, the Asian Development Bank agreed to take a number of steps to 

strengthen its audit function and, at the end of 2009, adopted a new whistleblower 

policy. 

Development Impact and Effectiveness 

Third, we focused on strengthening institutional policies that reward the quality, 

rather than quantity, of lending—another key to development effectiveness. Successes here include a commitment at the IDB to employ metrics intended to improve 

the quality of the loan portfolio by measuring the degree to which the economic rationale of potential projects is well articulated and evaluable, risks are assessed, 

and monitoring and evaluation plans are in place. In addition, both the World Bank 

and AfDB agreed to improve measurement and aggregation of project impacts and 

related country development outcomes, rather than focusing solely on outputs. 

In sum, I believe that we succeeded in securing robust reforms, and in many 

cases, promoted an upward harmonization of policies across the MDBs. Of course, 

as significant as these commitments are, the key will be their effective and timely 

implementation. At the IDB, which has an especially robust agenda, shareholders 

agreed that the IDB’s independent evaluator should assess the timing and effectiveness of their implementation in a report to shareholders in March 2013. 

GENERAL CAPITAL INCREASES

All of the reforms we sought and have achieved were linked to the size and structure of the capital commitments that we were prepared to negotiate for each institution. In some cases, we made a commitment lower than what management and 

other shareholders were seeking. We also used innovative mechanisms, such as temporary capital commitments and the creation of triggers for the return of unused 

capital to shareholders. As a result, the administration’s commitments for general 

capital increases have ranged from 30 percent at the World Bank, 70 percent at the 

IDB, and 200 percent at the AfDB. 

For the current fiscal year, the administration seeks authorization and appropriations for the general capital increase at the AsDB only. Mr. Curtis Chin, our outgoing executive director at the AsDB, will address the details of the administration’s 

request and why we believe it merits the committee’s immediate support. I want to 

take this opportunity to thank Mr. Chin for his pivotal role in securing a number 

of robust reforms at the AsDB, which I believe are making the institution more 

effective, accountable, and transparent. 

CONCLUSION

While this is only a brief summary of the unique, sizable, and enduring benefits 

of supporting multilateral development banks, I hope I have conveyed a sense of the 

vitality and necessity of these institutions to the United States global agenda. 

Ideally, a time will come when the world is sufficiently prosperous and stable to no 

longer require support from the MDBs and other donors, but today the world still 

requires U.S. leadership, support, and strategic investment. The MDBs should remain our partners in this effort. 

In the coming year, this administration will continue its intense focus on timely 

implementation of the reform agenda, and will push for further improvement in 

order to make the MDBs the most effective partners possible. However, the United 

States must do its part if we wish to continue influencing these institutions. We 

must be a member in good standing that pays its fair share. We look forward to 

working closely with this committee on securing the legislation necessary to meet 

our MDB commitments, and retaining our leadership and influence. 

The CHAIRMAN. Thank you very much, Madam Secretary. 

Mr. Director, thank you. 

STATEMENT OF IAN SOLOMON, U.S. EXECUTIVE DIRECTOR, 

WORLD BANK 

Mr. SOLOMON. Chairman Kerry, Ranking Member Lugar, thank 

you for the opportunity to testify today. I will discuss how continued U.S. support for the World Bank is vital to U.S. interests. I 

13 

will address the World Bank’s response to the financial crisis, its 

request for capital, and how the United States has worked to enact 

reforms that improve results, transparency, and accountability for 

the institution. 

The global financial crisis, as we know, has caused real suffering 

here at home and abroad, and in 2009, President Obama and other 

world leaders called on the World Bank to help shore up the global 

economy. In response, the World Bank committed over $106 billion 

and accelerated disbursements to an unprecedented $80 billion in 

2 years. This was an extraordinary countercyclical response that 

improved confidence and macroeconomic stability, helped maintain 

public spending programs for millions of poor and vulnerable families, and strengthened financial sectors to ensure access to credit 

for small- and medium-sized businesses. 

In heeding the call of world leaders, the World Bank stretched 

its balance sheet, and as a consequence, the Bank’s capital position 

will decline below prudential levels by 2012 unless action is taken. 

The effect of this decline would be a drop in lending from an average of $15 billion per year, in real terms, before the crisis to less 

than $8 billion a year starting next year. 

To restore the IBRD’s lending capacity and maintain its credit 

rating, the Bank is seeking an increase in capital of approximately 

$80 billion. This would require a U.S. contribution of $865 million 

over 5 years. The administration supports this capital increase for 

the World Bank for the following reasons. 

First, the U.S. contribution would enable the Bank to continue 

to assist countries in the fragile global recovery. Developing countries and their emerging markets now contribute about half of 

global growth and are leading the recovery in world trade with an 

import demand rising twice as fast in developing countries as in 

high-income countries, creating greater demand for U.S. exports. 

Second, a capital increase for the IBRD secures support for IDA 

by enabling IBRD income transfers to IDA. IDA is among the most 

effective tools we have for fighting global poverty and supporting 

good governance and stronger institutions in the developing world. 

Third, U.S. support for the Bank’s long-term capital adequacy is 

important for the Bank’s AAA credit rating and the value of U.S. 

capital and our influence in the IBRD. 

Finally and most importantly, the capital increase will strengthen the Bank’s capacity to complement U.S. bilateral programs and 

support U.S. policy priorities for promoting our national security, 

poverty reduction, and economic growth, playing a key role, as the 

chairman said, to lay the foundations for stable, well-governed 

societies. 

For example, the Bank has renewed its commitment to agriculture and food security, improving agricultural productivity, the 

role of women in agriculture, and reducing the vulnerability of 

farmers. The Bank supports and helps to multilateralize the 

administration’s important Feed the Future initiative. 

On climate issues, with United States leadership, the Bank has 

increased financing for renewable energy and energy efficiency 

projects by 88 percent and works with countries to invest for sustainable growth. In fragile states such as Liberia and Pakistan, the 

14 

Bank is increasing its presence and employing innovative approaches to improve development effectiveness and results. 

And critically, the Bank supports strong governance, transparency, and anticorruption activities which not only gives us confidence that our resources are used for the purposes intended, but 

also addresses the debilitating development challenge of corruption. 

While indispensable, the Bank is also imperfect. As you said, 

Senator Lugar, it can be improved significantly. It needs to reform 

if it is to meet the great challenges of the 21st century. Thus the 

administration successfully made reform a central tenet of the capital increase negotiations. 

First, the World Bank has agreed to a new financial framework 

to ensure it will be prepared for future crises with a sound and sustainable business model. 

Second, the Bank has become significantly more open, transparent, and accountable through its new access to information policy and by expanding free access to its institutional knowledge and 

development data. 

Third, the Bank is improving its focus on results by expanding 

results tracking, increasing the use of impact evaluation on 

projects, institutionalizing learning from projects, linking staff performance to results, and creating a corporate scorecard to improve 

management’s accountability. 

Fourth, the Bank adopted a new strategy based on its comparative advantages and greater selectivity which aligns it with U.S. 

priorities such as addressing our transnational challenges, promoting sustainable global growth and private sector development, 

and rebuilding fragile states. 

The reform agenda has seen progress already. We are working 

to ensure vigorous implementation of the entire reform agenda. 

In conclusion, after careful review, the administration determined that the package of reforms and additional capital is essential to the Bank’s ability to work with us in effective partnership. 

Not supporting the capital increase could jeopardize the Bank’s 

credit rating, halve the size of the IBRD, and end IBRD support 

to IDA. In this regard, I am confident that the World Bank is a 

worthy and necessary investment of strong, continued U.S. support. 

Thank you. I look forward to answering your questions. 

[The prepared statement of Mr. Solomon follows:] 

PREPARED STATEMENT OF IAN SOLOMON, U.S. EXECUTIVE DIRECTOR

OF THE WORLD BANK

Chairman Kerry, ranking member Lugar, members of the committee, thank you 

for the opportunity to testify. 

The World Bank is a critical partner in fighting poverty and promoting sustainable economic growth around the globe. As the Bank’s leading shareholder for more 

than 65 years, the United States has helped shape the global development agenda, 

advancing maternal and child health, education, good governance, private sector 

growth, civil society, and responses to pressing global challenges such as food security, fragile states, and climate change, among other issues. Through U.S. investments in the World Bank, we have strengthened our policy objectives by helping to 

build a more peaceful and prosperous world. 

Today I will discuss how continued U.S. support of the World Bank is vital to U.S. 

interests. I will address the World Bank’s response to the financial crisis, the institution’s request for additional capital, and how the United States is working with 

the institution to enact a robust reform agenda. I am pleased to be joined on this 

15 

panel by Assistant Secretary of the Treasury, Marisa Lago, and by the United 

States Executive Director for the Asian Development Bank, Curtis Chin. 

RESPONSE TO THE ECONOMIC CRISIS

As Secretary Geithner remarked last week, this has been a terribly savage recession. In the United States and around the world, millions of people have lost their 

jobs, businesses large and small have shut down, families are struggling to regain 

their savings and livelihoods. Flows of private capital to developing countries 

dropped precipitously from a peak of $1.2 trillion in 2007 to $454 trillion in 2009, 

and estimates are that, due to the crisis, an additional 64 million people will fall 

into the ranks of extreme poverty, surviving on less than $1.25 per day. This has 

led some economists to estimate that 10 years worth of development gains in some 

world regions has been erased. 

In early 2009, President Obama and other world leaders called on the World Bank 

to help shore up the global economy and protect the world’s poorest by increasing 

lending in both middle-income and low-income countries. In response, the World 

Bank Group (WBG)—comprising the International Bank for Reconstruction and 

Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee 

Agency (MIGA)—committed to triple its lending to over $100 billion over 3 years 

and to bolster antipoverty efforts. 

Given the depth of the crisis and the demand among developing countries for 

countercyclical lending, the World Bank exceeded this goal. It made $47 billion in 

commitments in FY09, $58.5 billion in FY10, and plans an estimated $33 billion in 

commitments for this year. Importantly, the Bank accelerated disbursements of 

funds to an unprecedented $80 billion in 2 years, more money than any other multilateral development bank (MDB). The World Bank was in a position to help address 

these extraordinary needs of developing countries thanks to years of sound financial 

management and accumulation of reserves. 

Applying lessons from the Asian Financial Crisis and other financial crises, the 

Bank proved to be a strong partner in coordination with other donors and the IMF, 

focusing its response on its comparative advantages in protecting the vulnerable 

through support for social safety nets, supporting financing for infrastructure investment, and securing financial sectors to ensure credit for small- and mediumsized enterprises, which are vital engines of economic growth worldwide. 

While we are still in the early days of assessing the World Bank Group’s overall 

results, let me highlight a few examples. In Colombia and Mexico, the Bank supported conditional cash transfer programs, which expanded assistance to 2.7 million 

and 5.8 poor families respectively, through programs that promote school attendance 

and medical care for children. In Tanzania, the Bank provided interest-free credit 

to improve the access of the poor and vulnerable to job opportunities. In hard-hit 

regions of Central Asia, the Bank’s infrastructure investments, which account for 

29 percent of the overall increase in Bank commitments, improved regional transportation infrastructure. A clean energy project in Turkey helped reduce greenhouse 

gas emissions by an estimated 1.7 million tons of CO2 equivalents. 

The IFC, with a focus on private sector investments, developed a $5 billion risksharing mechanism through the Global Trade Liquidity Program (GTLP) to help 

build confidence between trade financiers who were concerned about counterparty 

bank risk. In one project, the GTLP supported a $100 million loan to a bank in 

South Africa to support trade in consumer goods, commodities, and small machinery 

in Africa. The IFC also launched a local currency bond to support lending to small 

and medium enterprises and strengthen capital markets in Central Africa, and developed a bank recapitalization fund to support banks of systemic importance. 

MIGA, which provides political risk insurance, has been on the front line addressing financial sector vulnerabilities in Eastern and Central Europe by providing 

guarantees to key financial institutions in the region, helping to keep down borrowing costs and providing reassurance to banking regulators and investors. 

For the poorest countries, the response by the WBG has also been rapid, though 

constrained by IDA’s overall financing envelope, which is replenished every 3 years 

by donors. IDA is the multilateral fund to support the poorest people in the world 

and plays an essential role helping 79 low-income countries achieve sustainable 

growth and respond to both economic crises and natural disasters. IDA increased 

its lending by 25 percent and accelerated the pace of disbursements to provide appropriate fiscal support for countries. At the same time, the IFC increased its investments in IDA countries to almost 50 percent of all projects to catalyze additional 

private-sector growth and provide advisory services to improve the business climate. 

16 

These examples point to successes of the Bank’s response, but we also know that 

there were areas of weakness as well. The World Bank’s Independent Evaluation 

Group’s (IEG) initial review of the crisis response noted that the Bank should have 

recognized the impact of the crisis earlier, and that in some cases, it underestimated 

the challenges associated with implementing new initiatives. Additionally, the 

Bank’s analytical work in certain sectors and countries was uneven. Emerging lessons to be incorporated in the Bank’s strategies going forward include: the continued 

importance of ensuring country ownership even in the face of global response in 

order to ensure the best results, the need to better anticipate crises in order to allow 

the Bank to intervene more effectively earlier and with better donor coordination, 

and the recognizing the value of the Bank’s knowledge, which is generated through 

economic diagnostics and on-the-ground analysis, in helping the Bank and countries 

prioritize expenditures when resources are constrained. 

The reach and effectiveness of the World Bank Group as demonstrated by its response to crisis and the ongoing recovery efforts underscore the importance of the 

Bank to advancing, in the words of President Obama, ‘‘the common security and 

prosperity of all people.’’ 

INVESTING FOR THE FUTURE: THE CAPITAL INCREASE

In responding to the crisis and helping fill the void created by the fall-off in private investment and government budgets, the World Bank stretched its historically 

strong balance sheet. As a result the Bank’s equity to loan ratio, the traditional 

measure of the Bank’s capital adequacy, is projected to fall below its prudential 

ratio of 23 percent starting in July 2013, unless some action is taken. The effect 

of this decline would be a drop in lending authority from an average of $15 billion 

a year in real terms before the crisis to less than $8 billion a year starting next 

year. This level would be less than a quarter of current projections for lending this 

year and is a small fraction of projected demand going forward. 

To restore its capacity and better meet demand for its services, the Bank is seeking a 31-percent increase in capital, approximately $80 billion, through a number 

of measures, including increasing loan prices and securing shareholder contributions 

of both paid-in and callable capital. With a capital increase of this level, the Bank 

would have to scale back its elevated crisis lending to precrisis levels but could continue lending about $15 billion annually while sustaining its AAA credit rating. 

Without this capital increase, the Bank would need to sharply curtail its lending 

program. 

The administration supports the general capital and selective capital increases for 

the World Bank, which would require a contribution from the United States of $865 

million over 5 years. This would be the first capital increase for the Bank since 

1988, and would provide a highly effective way to advance several important policy 

objectives. 

First, the U.S. contribution would be leveraged 55 times by the Bank and enable 

additional development lending of $48 billion over the next 10 years. The increase 

would enable the Bank to continue to assist countries in the fragile global recovery 

and to strengthen emerging and development markets for more balanced economic 

growth, including greater demand for U.S. exports. 

Second, capital for the IBRD also secures support for IDA and the world’s poorest. 

Every $1 contribution to capital will leverage close to $8 in income transfers from 

IBRD to IDA for a total of $6.6 billion IBRD income transfers to IDA over the next 

10 years. Moreover, without the capital increase, annual IBRD support on which 

IDA has come to rely would be impossible to fund for years to come—placing a 

greater burden for IDA contributions on the shoulders of IDA donors. In this context, the upcoming IDA16 replenishment is a critical moment for not only shoring 

up IDA’s capacity to help countries meet their development objectives but for building contingent support within IDA to enable a better and more robust crisis response capacity. 

Third, the U.S. contribution to the capital increase will demonstrate U.S. support 

for the Bank’s long-term capital adequacy, which we believe is important for the 

Bank’s AAA credit rating and the value of the U.S. capital in the IBRD. 

Finally, and most importantly, the contribution will strengthen the Bank’s capacity to complement U.S. bilateral programs and support U.S. policy priorities. Hence, 

there is no viable alternative to the capital increase without jeopardizing the Bank’s 

credit rating, halving the size of the IBRD, and ending IBRD support to IDA. We 

want to continue to support the Bank’s effective engagement throughout the development world. In particular, the Bank uses its global reach, expertise, strong fiduciary controls, and leverage to address many pressing global challenges, disseminate 

17 

development knowledge and standards, and advocate sound economic and development policies at the country level. Some examples include: 

Food Security. After years of neglect by nearly all donors, the Bank has revamped 

its commitment to the agricultural sector through the Agricultural Action Plan that 

focuses on improving productivity gains, strengthening value addition, reducing risk 

and vulnerability of farmers, and enhancing environmental sustainability of agricultural practices. This renewed commitment is a strong complement to the recently 

launched Global Agricultural Food Security Program (GAFSP), a multidonor trust 

fund championed by the United States and other G20 members, that will catalyze 

investments in country-developed agricultural development plans. With the risk of 

another food price shock on the horizon, the Bank’s experience from the 2008 food 

and fuel crisis provides timely assistance to the world’s poorest countries to mitigate 

the shocks. For example, the Bank helped the Senegalese authorities implement a 

school feeding program. Similarly, Bank assistance in Nepal supported the supply 

of fertilizer, local seed development, and small irrigation schemes for remote communities. 

Climate Change. The United States has been at the forefront of pushing the 

World Bank to help countries develop low-carbon growth strategies with alternatives to traditional fossil-fuel based plans, and including climate issues in the 

Bank’s country strategies. In recent years, the Bank has moved climate change from 

the periphery to the center of its mission to reduce poverty and support growth. The 

Bank’s growing focus on climate is evident in three areas: (1) the development process itself; (2) financing, and, (3) knowledge and capacity-building. This has translated into an 88-percent increase in renewable energy and energy efficiency financing. In addition to its engagement with borrowing countries, the Bank has become 

a go-to source for research and data on climate and its impact on development. 

Afghanistan. The United States has also benefited from the Bank’s knowledge of 

working in fragile states. For example, in Afghanistan we turned to the Bank to set 

up the Afghanistan Reconstruction Trust Fund (ARTF) following the fall of the 

Taliban as a means to help meet the recurrent costs of running the government. 

The ARTF has expanded to support other national programs, such as the Afghanowned and successful community-driven National Solidarity Program, which is helping communities build inclusive government through the selection and construction 

of development projects. Among other things, the ARTF leverages the Bank’s comparative advantage as a fiduciary agent with strong financial management systems. 

Governance, Accountability, Transparency. The U.S. relies on the Bank as a strong 

advocate of improving governance and transparency in developing countries. Its 

strong governance program not only gives us confidence that our aid dollars to the 

Bank are being used for the purposes intended, but also addresses the debilitating 

development challenge of corruption. For example, the Bank helped improve accountability mechanisms in Indonesia’s Urban Poverty Program, which currently 

disburses about $100 million per year to over 8,000 villages across the country, 

through the election of 100,000 volunteers to serve as project overseers; the establishment of a Web site to report on implementation details, status of disbursement, 

details on project-related expenses; and a complaints-handling mechanism. The 

Bank also supports revenue transparency initiatives to promote government and 

private sector accountability through the Extractive Industries Transparency Initiative (EITI) and has recently launched the Stolen Assets Recovery (STAR) initiative 

to work with developing countries and financial centers to prevent the laundering 

of the proceeds of corruption and to facilitate more systematic and timely return of 

stolen assets. 

Disaster Response and Recovery. The United States benefits from the Bank’s repository of development knowledge and capacity to react quickly. In the wake of the 

devastating earthquake in Haiti and the rising flood waters in Pakistan, the United 

States called upon the Bank for advice on the response, to assess the needs, to 

strengthen local institutions, to help coordinate donors, and to help lead the reconstruction. The Bank has significant comparative advantages in this regard given its 

experience in events such as the 2004 tsunami, 2005 Pakistan earthquake, and numerous droughts and floods and other calamities throughout the years. 

Private Sector Growth and Standards. Primarily through the IFC, the Bank plays 

a leading role helping to ‘‘crowd in’’ private sector finance, and in a way that 

strengthens environmental and social safeguards. For example, IFC’s performance 

standards ensure not only that IFC must operate at increasingly high levels of responsibility, but the standards have been adopted, following IFC’s lead, by almost 

70 private sector financial institutions. The ‘‘Equator Principles,’’ as they are known, 

now govern the way many of the world’s largest lenders measure and treat environmental and social sustainability. 

18 

Gender. Recognizing that inclusive growth is also smart growth, the Bank has 

been a leader in promoting economic opportunity for women. For example, in Tanzania by training commercial bank staff to better serve women entrepreneurs and 

enhance their financial literacy, women-owned small- to medium-sized businesses 

were able to access over $5 million in lending. 

ENSURING THE EFFECTIVENESS OF U.S. INVESTMENTS: REFORM AND RESULTS

While the Bank continues to be an indispensable partner, it is also an institution 

in need of reform. This past spring, Secretary Geithner said that ‘‘leverage alone is 

not sufficient to justify a substantial new financial commitment,’’ rather it must be 

accompanied by ‘‘full implementation of a bold reform agenda, so that the world’s 

leading development institution is vital and fully effective in meeting the challenges 

of the 21st century.’’ 

Recognizing the importance of a World Bank that is fully effective in meeting our 

challenges as well as the opportunity presented by the capital increase negotiations, 

the administration increased its pressure for a robust set of reforms. Our persistence has been successful in the following ways: 

First, the Bank has agreed to a unified financial framework to align financial decisions with the Bank’s strategic priorities for the first time, enhance budgetary discipline, ensure loan prices cover costs, and create clear rules for transfers to IDA. 

The financial reform measures will help ensure that the Bank can be financially 

prepared for future crises with a sound and financially sustainable business model. 

Second, we have emphasized the need for the Bank to be more open and accountable. In response the Bank has adopted a new access to information policy. This new 

policy will set the standard of best practice among global development institutions 

and help ensure the World Bank is transparent and accountable to all stakeholders. 

In addition, the Bank has moved to expand free access to its institutional knowledge 

and valuable development data through its OpenData initiative. The Bank is also 

piloting additional transparency innovations, including the use of geo-spatial 

mapping technology to illustrate the geography of investments made by the World 

Bank and other development partners alongside poverty and other demographic 

indicators. 

Third, the Bank is improving its development effectiveness with increased attention on measuring and learning from results. This includes the commitment to develop a new compensation framework that will link performance to results, the creation of a corporate scorecard to improve management accountability for results, 

growing use of impact evaluation, and the expansion of the IDA Results Measurement System, which the U.S. championed, to the IBRD. 

Fourth, the Bank developed a new strategy based on its comparative advantages, 

recognizing that it should not do everything and does not do everything best. The 

United States has been instrumental in helping to shape the strategic focus in 

alignment with our priorities, which includes: (1) Targeting the poor and vulnerable, 

especially in sub-Saharan Africa; (2) creating opportunities for growth with a special 

focus on agriculture and infrastructure; (3) promoting global collective action on 

issues from climate change and trade to agriculture, food security, energy, water 

and health; (4) strengthening governance and anticorruption efforts; and (5) focusing 

on crisis response. 

Commitments to reform have been made and progress in implementation has already been realized. Our task now is to stay vigilant and ensure vigorous implementation of the entire reform agenda. 

CONCLUSION

A strong World Bank complements our government’s capacity on development 

issues that demand attention. Nearly every day I receive requests from Treasury, 

the State Department, USAID, the National Security Council, the Commerce 

Department, USTR, and other agencies and government offices regarding work the 

World Bank is doing in countries from Afghanistan to Sudan, or on issues from fragile states to energy policy. We know that the World Bank’s efforts can help us 

achieve our objectives, and our ongoing support of the institution ensures it. 

After a long and careful review, the administration determined that the general 

capital and selective capital increases are essential to the Bank’s ability to work 

with us in effective partnership, both in recovery from crisis and on priority issues 

into the future. Not supporting the capital increase could jeopardize the Bank’s 

credit rating, halve the size of the IBRD, and end IBRD support to IDA. We are 

confident that the package of capital and reforms will benefit all shareholders of the 

Bank, our interests, and especially the clients and beneficiaries of World Bank 

Group work across the developing world. 

19 

Finally, I take very seriously the responsibility to ensure that taxpayer resources 

are spent responsibly and seek to advance America’s interests as effectively and efficiently as possible. In this regard, I am confident that the World Bank is a worthy 

and necessary investment of strong, continued support. 

STATEMENT OF CURTIS CHIN, U.S. EXECUTIVE DIRECTOR, 

ASIAN DEVELOPMENT BANK, MANILA, PHILIPPINES 

Mr. CHIN. Thank you, Ranking Member Lugar. Thank you for 

this opportunity to discuss the Asian Development Bank, which I 

will in shorthand refer to as the AsDB. 

To complement my detailed written testimony submitted to this 

committee, I will highlight briefly this morning how the AsDB has 

furthered U.S. goals including contributing to broad and sustainable economic growth and development at home and abroad, supporting our national security objectives, and responding to the 

financial crisis in line with the G20 call for support. I will also 

address the administration’s request for a general capital increase 

and our ambitious reform agenda at the AsDB. 

First, though, allow me to note that I am concluding my tenure 

as the U.S. Executive Director for the Asian Development Bank. It 

has been a great honor and privilege for me to represent the 

United States on the board of directors of this institution and it is 

certainly also a great honor to appear here again today before this 

committee. 

In summary, let me note that I believe the state of the Asian 

Development Bank today is sound. Key institutional reforms are 

taking hold, but certainly continued U.S. engagement and oversight will be essential to ensure that it is not two steps forward but 

three steps back. 

With strong, continued U.S. support and attention, the Asian 

Development Bank has responded to the region’s needs, including 

in times of crisis. The Asian Development Bank has complemented 

the United States own response to crises ranging from the devastating Indian Ocean tsunami some 5 years ago to the ongoing 

recent floods in Pakistan. 

In response to the G20’s call to accelerate and expand lending to 

mitigate the impact of the global economic crisis on the world’s 

poorest, the Asian Development Bank responded in force. It increased lending to the benefit of nations as diverse as Georgia in 

the Caucasus region, to Bangladesh in the heart of South Asia, to 

the small Pacific island nation of Tonga. This crisis-related assistance included program and project lending, grants, private sector 

loans and guarantees, a countercyclical support facility, and a 

trade finance facilitation program. AsDB also approved commitment authority for some $400 million to the region’s poorest nations through its Asian Development Fund, or ADF. 

Yet, despite the numerous success stories in the Asia and Pacific 

region, inequality and poverty remains a fact of life for the some 

1.8 billion people who live on less than $2 a day. Today some 900 

million people in the region struggle on less than $1.25 a day, and 

Asia and the Pacific remains home to two-thirds of the world’s 

poor. 

20 

Further, all too often the burden of poverty falls on societies 

most vulnerable. This includes women and children, the region’s 

many indigenous peoples, the landless, and the marginalized. 

As a founding member of the Asian Development Bank, the 

United States has been successful in many ways in ensuring that 

the institution’s limited resources complement U.S. foreign policy 

goals, as well as our own official development assistance efforts in 

the region. Indeed, failed development contributes too often to 

failed nations. With strong U.S. support, the AsDB can continue to 

help the nations of the region to help themselves as they themselves commit to put in place the rule of law, the governance systems, and the conditions to ensure an environment for further sustainable economic growth and development. 

For example, the Asian Development Bank is the largest provider of nonmilitary assistance to Pakistan, averaging as much as 

$1.5 billion per year these last few years. With strong U.S. encouragement, the AsDB is now providing some $2 billion of reconstruction and development assistance to Pakistan as it grapples with 

the massive flooding that has so captured the world’s headlines. 

Attention rightly is also being paid to ensure strict compliance with 

AsDB and government anticorruption measures and procurement 

rules. 

In addition, the Asian Development Bank is now one of the largest donors to Afghanistan, along with the United States, the 

United Kingdom, and the World Bank. AsDB’s infrastructure 

projects include reconstruction of portions of Afghanistan’s main 

highway artery and the construction of the country’s first railway 

link to Uzbekistan, opening up alternative routes for national and 

international trade, as well as for humanitarian relief. In the energy sector, the Asian Development Bank is helping Afghanistan to 

expand its national power grid. In the agriculture and natural resources sector, AsDB is financing an effort to develop and rehabilitate irrigation and water resources infrastructure. 

The United States also directly benefits from strong, continued 

support to the Asian Development Bank. U.S. businesses and consultants routinely and successfully pursue Asian Development 

Bank projects. Since the institution’s inception in 1966, U.S. firms 

have won contracts worth $7.16 billion under AsDB-funded procurement. In 2009, U.S. firms won $508 million in contract awards. 

For the last 5 years, the United States has been the No. 1 recipient 

of procurement contracts among the biggest donor nations, and for 

every $1 that the United States has contributed to the AsDB since 

the institution was founded, U.S. companies have won some $1.63 

in procurement contracts. In 2008 and 2009 alone, U.S. contractors, 

suppliers, and consultants from more than 25 States representing 

every region in the country benefited from AsDB projects. These 

awards represent a true cross section of American companies in 

States as varied as the great State of Indiana, but certainly also 

Delaware, Massachusetts, New Jersey, Wisconsin, Virginia, among 

many others. With strong U.S. support to the Asian Development 

Bank, this will continue. 

Despite all these achievements, though, we must certainly remain vigilant that U.S. taxpayer funds are employed with the highest standards of efficiency. For that reason, we have been successVerDate Nov 24 2008 16:01 Dec 13, 2010 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 H:\DOCS\0915BANK.TXT SENFOR1 PsN: BETTY
21 

ful in working with our partners at the Asian Development Bank 

to help shape and drive a robust program for reform of the Asian 

Development Bank. Such reforms include: one, improving risk 

management and internal controls and other institutional reforms, 

particularly in the areas of anticorruption and integrity; two, 

strengthening the governance of human resources; three, ensuring 

strong safeguards in the areas of resettlement, indigenous peoples, 

and the environment; four, bringing new focus to the Asian Development’s work in the middle-income countries, including reorienting lending to China; and five, providing more resources to the 

very poorest countries in the region. Implementation to date remains mixed to strong, underscoring as ever the need for continued, strong U.S. engagement. 

Through a very active U.S. role on the Audit Committee of the 

Board of the Asian Development Bank, we have also helped win 

progress in a range of areas that some members of this committee 

have long pressed U.S. administrations, past and present, to 

achieve. As examples, the Asian Development Bank has introduced 

strengthened protections for whistle blowers and witnesses. 

The Asian Development Bank also have established strong, separate offices focused on internal audit and on anticorruption and integrity and elevated its risk management operations to office level 

with added authority and resourcing. 

The AsDB also became the first of the multilateral development 

banks, the MDBs, to introduce a comprehensive development effectiveness review, somewhat akin to a corporate scorecard. This regular report, posted on the AsDB’s Web site, outlines where the institution is ahead of, on track, or falling behind in key areas. 

This is not to say, though, that there is not much more to be 

done. Indeed, there is. Change has come incrementally, and a fully 

engaged United States at the AsDB can help drive further change. 

In the months ahead, strong U.S. involvement and engagement 

also will be critical as we work to ensure robust, credible reviews 

of the AsDB’s information technology governance and organization, 

as well as its public communications policy and its accountability 

mechanism. Now is not the time for the United States to pull back 

from what has been a strong and beneficial ownership stake in the 

Asian Development Bank. 

As has been noted, the Board of Governors of the Asian Development Bank recently approved the fifth general capital increase for 

the institution, the first in some 15 years, and the United States 

has pledged to participate. 

For fiscal year 2011, the administration is requesting capital subscription for General Capital Increase V, or GCI V. In addition, the 

administration is requesting $115.3 million for the second installment of a 4-year commitment under the agreement of the ninth replenishment of the Asian Development Fund which provides grant 

assistance to the region’s poorest nations. 

These contributions that are important to the continuity of the 

AsDB’s development assistance. More importantly, these commitments are crucial to our ability to engage and shape the Asian 

Development Bank, and the assistance it provides, in ways that are 

favorable to U.S. interests. 

22 

From my perspective of having served for nearly 31⁄2 years as 

U.S. Executive Director and having for many more years than that 

worked and lived in the Asia Pacific region, first as the son of a 

U.S. military officer and then as a member of the private sector, 

I can attest the money is needed and it is very much in America’s 

interest. A strong, focused Asian Development Bank that continues 

with the United States as its coequal largest shareholder is very 

much in America’s interests. 

The AsDB has responded to date, slowly but increasingly surely, 

to our calls for change and for added transparency and accountability. Clearly reform is an ongoing process. Indeed, reform is a 

never-ending process. 

As I prepare to step down from my post, my hope is that reforms 

achieved through strong U.S. involvement at the Asian Development Bank will not be lost. A general capital increase fully subscribed to by the United States will help ensure a continued, strong 

U.S. role and will help ensure that the Asian Development Bank 

will continue to move forward changing to meet the needs of a region that has changed faster than the institution designed to serve 

it. Achieving this and further progress on reforms will require 

strong, continued U.S. support and engagement that is to the benefit of not just the people of the Asia and Pacific region but also 

the United States. 

Thank you very much, Senators. 

[The prepared statement of Mr. Chin follows:] 

PREPARED STATEMENT OF CURTIS S. CHIN, U.S. EXECUTIVE DIRECTOR TO THE ASIAN

DEVELOPMENT BANK, MANILA, PHILLIPINES

Mr. Chairman, Ranking Member Lugar, members of the Senate Foreign Relations 

Committee, thank you for the invitation to discuss the Asian Development Bank 

(AsDB). 

The AsDB is an integral part of the United States engagement in the Asia and 

Pacific region, and today I will discuss how the institution has been central to furthering our goals in the region, including responding to the financial crisis, supporting our national security objectives, and driving broad and sustainable economic 

growth and development. I will also address the administration’s request for a General Capital Increase and our ambitious reform agenda. 

First, I would like to note that I am concluding my tenure as the U.S. Executive 

Director for the AsDB, and that it has been a great honor and privilege for me to 

represent the United States on the board of directors of the institution. I believe 

the state of the AsDB today is sound, and that continued U.S. involvement and 

leadership will be essential to maintaining strength of impact in the region. 

You may well already know of the status of many of these and other reforms 

through my having met routinely with committee staff members for more than 3 

years as part of my regular twice yearly consultation trips to Washington, DC. Indeed, our push for change has benefited from those updates and interactions, and 

several of the changes that we have achieved stemmed in no small part from the 

suggestions and encouragement of this committee. Key institutional reforms are 

taking hold, but continued U.S. engagement and oversight will be essential to ensure that it is not two steps forward, three steps back. 

As of December 31, 2009, the AsDB had provided some $155.89 billion in loans 

for 2,205 projects in 41 countries, $5.19 billion for 315 grant projects and $3.809 billion for 6,863 technical assistance projects. Much of this assistance takes the form 

of financing for large-scale infrastructure projects, particularly in transport, energy, 

and agriculture, all with the aim of improving people’s ability to engage in economic 

activity and access critical public resources. 

The AsDB is the largest regional development bank of which the United States 

is a member. Today, there are some 67 members of the AsDB—48 from the Asia 

and Pacific region. As of December 31, 2009, Japan and the United States were the 

coequal largest shareholders, each having contributed some 14.198 percent of the institution’s capital stock. That large shareholding in turn brings, of course, influence, 

23 

and also underscores the critical roles of as well as expectations of both the United 

States and Japan at the institution. 

With strong U.S. support and attention, the AsDB has over these past four and 

one-half decades responded to the region’s needs, including in times of crisis. In the 

last 5 years alone, we have seen the AsDB complement the United States own response to crises ranging from the devastating Indian Ocean tsunami and earthquakes that have hit the region, to spiraling food prices that threatened to add hundreds of thousands more to the ranks of the poor and hungry, to the ongoing floods 

that have impacted thousands of people in Pakistan today. 

In response to the G20’s call to accelerate and expand lending to mitigate the impact of the global economic crisis on the world’s poorest, the AsDB responded in 

force. It increased lending to the benefit of nations as diverse as Georgia in the 

Caucasus region, to Bangladesh in the heart of South Asia, to the small Pacific island nation of Tonga. Ultimate beneficiaries ranged from schoolchildren in Mongolia 

who might have otherwise gone hungry to rural villagers in Indonesia. This crisisrelated lending assistance including some $5.4 billion for program and project lending, grants, private sector loans and guarantees; $2.5 billion for a Countercyclical 

Support Facility; and $850 million for a Trade Finance Facilitation Program. AsDB 

also approved commitment authority for some $400 million to the region’s poorest 

nations through its Asian Development Fund (AsDF). 

Yet, despite the numerous success stories in the Asia and Pacific region, inequality and poverty remains the fact of life for the some 1.8 billion people who live on 

less than $2 a day, according to the AsDB. Beyond the images of sparkling skyscrapers are still the all too common images of people who go to sleep hungry and 

who collectively drive home the reality that the Millennium Development Goals will 

not be fully met in many Asia-Pacific nations. Today, according to AsDB statistics, 

903 million people in the Asia and Pacific region struggle on less than $1.25 a day, 

and the region remains home to two-thirds of the world’s poor. Further, all too 

often, the burden of poverty falls on society’s most vulnerable: this includes women 

and children, the region’s many indigenous peoples, the landless and the 

marginalized. 

THE UNITED STATES AND THE ASDB

As a founding member of the Asian Development Bank, the United States has 

been successful in many ways in ensuring that the institution’s limited resources 

complement U.S. foreign policy goals as well as our own official development efforts 

in the region. The AsDB and the Asia and Pacific region are as important to the 

United States now as at any time since the AsDB’s establishment some 45 years 

ago. That was a time when conflicts threatened Southeast Asia, and many of today’s 

Asian and Pacific island nations had yet to forge their own independent paths forward two decades after the close of the Second World War. Today, sadly, conflict 

or unrest continues in many parts of the region, and the demands on—and the benefits of continued engagement and leadership by—the United States continue as 

strong as ever. 

In many ways, the AsDB’s work today is also a crucial contributor to the United 

States security. As an apolitical, international body, the AsDB has the power to convene, bringing sometimes less than friendly neighbors together in a shared goal of 

a more prosperous and peaceful region—a goal in which the United States, as a 

Pacific nation, certainly shares. 

To frame the United States strategic foreign priorities, officials have spoken of the 

importance of the three Ds: diplomacy, defense, and development. Here too, from a 

U.S. perspective, the AsDB plays a critical role. At the Asian Development Bank 

and in the Asia and Pacific region, we bear witness to these interlinkages. Indeed, 

failed development contributes too often to failed nations. With strong U.S. support, 

the AsDB can continue to help the nations of the region to help themselves, as they 

themselves commit to put in place the rule of law, the governance systems, and the 

conditions to ensure an environment for further sustainable economic growth and 

development. 

For example, the AsDB is the largest provider of nonmilitary assistance to Pakistan, averaging as much as $1.5 billion per year. With strong U.S. encouragement, 

the AsDB is now providing some $2 billion of reconstruction and development assistance to Pakistan as it grapples with the massive flooding that has captured the 

world’s headlines. Attention rightly is also being paid to ensure strict compliance 

with AsDB and government anticorruption measures and procurement rules. The 

AsDB assistance focuses on reconstruction of Pakistan’s battered transportation and 

energy infrastructure. Even before the flooding crisis, my own Board oversight visits 

to Pakistan—to the cities of Islamabad, Lahore, and Karachi as well as to rural 

24 

communities that are benefiting from AsDB-supported water and sanitation projects 

and mountain villages benefiting from earthquake reconstruction efforts—underscored to me that AsDB was clearly a leader among multilateral organizations delivering assistance to Pakistan. 

In addition, the AsDB is now one of the largest donors to Afghanistan, along with 

the United States, the United Kingdom and the World Bank. Since the AsDB’s resuming of operations in Afghanistan in 2002, AsDB projects are now helping the 

country recover from nearly 30 years of continuous conflict. AsDB’s infrastructure 

projects in the transport sector include the reconstruction of significant portions of 

Afghanistan’s main highway artery and the construction of the country’s first railway link to Uzbekistan, opening up alternative routes for national and international 

trade, as well as for humanitarian relief to Afghanistan. In the energy sector, AsDB 

funding is helping Afghanistan to expand its national power grid and connect to 

Tajikistan’s grid, allowing Afghanistan to import surplus electrical power from its 

northern neighbor. In the agriculture and natural resources sector, AsDB is financing a $303 million effort to develop new irrigation and water resources infrastructure, and rehabilitate and upgrade existing infrastructure. My predecessor as U.S. 

Executive Director and I have both traveled in our Board oversight role to Afghanistan to meet with our U.S. Embassy Kabul colleagues, Afghan Government counterparts and AsDB staff. To all of them as well as to our American colleagues on the 

front lines of diplomacy, defense, and development in both Afghanistan and Pakistan, let me pause to encourage and applaud their work under difficult circumstances. 

The AsDB is also a major provider of assistance to Bangladesh, India, and Indonesia, homes of some of the largest Muslim populations in the world. These are also 

countries that have deep challenges in poverty and have been afflicted by numerous 

natural disasters. 

BENEFITING U.S. BUSINESS

The United States also directly benefits from strong, continued support to the 

Asian Development Bank. U.S. businesses and consultants routinely—and successfully—pursue AsDB projects. According to the AsDB, since the institution’s inception in 1966, U.S. firms have won contracts worth $7.16 billion under AsDB-funded 

procurement. The AsDB reports that in 2009, U.S. firms won $508 million in contract awards. For the last 5 years, the United States has been the number one recipient of procurement contracts among the biggest donor nations. (The others are 

Japan, Germany, United Kingdom, and Australia.) Using numbers from the AsDB 

Controller’s office for the period January 1, 1967 to December 31, 2009, AsDB 

staff also recently informed the U.S. Department of Commerce that for every one 

dollar that the United States has contributed to the AsDB since the institution was 

founded, U.S. companies have won some $1.63 in procurement contracts. 

Regarding its relationship with the business community, the U.S. Commercial 

Service has noted that the AsDB is among the most open of the multilateral banks, 

and AsDB staff regularly meet with U.S. company representatives. It is also not 

only large companies that benefit from AsDB projects and programs. Small- and medium-sized enterprises also benefit from AsDB procurement, and these firms are integral to fueling economic growth. 

In 2008 and 2009 alone, U.S. contractors, suppliers, and consultants from more 

than 25 states, representing every region in the country benefited from AsDB 

projects. AsDB contract awards for those 2 years show that in the North and Northeast, companies in New Hampshire, Maine, Vermont, Massachusetts, New York, 

New Jersey, Delaware, and Pennsylvania have all landed AsDB contracts; in the 

South, companies in Alabama, North Carolina, South Carolina, Virginia, and Maryland have won AsDB contracts; in the Midwest, companies in Illinois, Wisconsin, 

Ohio, Indiana, Kansas, Missouri, Nebraska, and Iowa have landed AsDB contracts; 

and in the West, companies in Colorado, Utah, California, Washington, and Hawaii 

have also benefited from AsDB contract awards. These awards represent a true 

cross section of American companies. 

As further illustrations of the interest of U.S. companies in AsDB projects, the 

U.S. Commercial Service maintains an up-to-date database of approximately 1,700 

contacts that have asked to receive monthly project alerts for all current and 

planned AsDB projects, and in just the first 9 months of this fiscal year, the Commercial Service AsDB Liaison Office in Manila counseled nearly 125 U.S. companies 

who were seeking information about how to do business with the AsDB. They also 

arranged 85 individual meetings at the Bank for interested firms. 

25 

The U.S. Government works hand in hand in assisting U.S. companies in becoming aware of AsDB project opportunities as far in advance as possible, and in intervening on their behalf, as appropriate. With strong U.S. support, this will continue. 

A CONTINUING FOCUS ON REFORMS

Despite all these achievements, however, we must remain vigilant that U.S. taxpayer funds are employed with the highest standards of efficiency. 

For that reason, we have been successful in working with our partners at the 

Asian Development Bank to help shape and drive a robust program for reform of 

the AsDB. Such reforms include: (1) improving risk management and internal controls, and other institutional reforms particularly in the areas of anticorruption and 

integrity; (2) strengthening the governance of human resources; (3) ensuring strong 

safeguards in the areas of resettlement, indigenous peoples, and the environment; 

(4) bringing new focus to the AsDB’s work in the Middle Income Countries, including reorienting lending to China; and, (5) providing more resources to the very poorest countries in the region. Implementation remains mixed to strong, underscoring 

as ever the need for continued U.S. engagement. 

Through a very active U.S. role on the Audit Committee of the Board of the AsDB, 

we also have helped win progress in a range of areas that some members of this 

committee have long pressed U.S. administrations, past and present, to achieve 

through our engagement at the AsDB. As examples, the AsDB has introduced 

strengthened protections for whistleblowers and witnesses. The AsDB also has established strong, separate offices focused on internal audit, and on anticorruption 

and integrity, and elevated its Risk Management operations to office-level, with 

added authority and resourcing. The AsDB these last 3 years also became the first 

of the multilateral development banks to introduce a comprehensive Development 

Effectiveness Review, somewhat akin to a corporate scorecard. The regular report, 

posted on the AsDB’s Web site, outlines where the institution is ahead of, on track 

or falling behind in key areas. 

This is not to say though that there is not much more to be done. Indeed there 

is. The AsDB’s own corporate scorecard makes this clear. Change has come incrementally, and a fully engaged United States at the AsDB can help drive further 

change. Let me cite one area where our continued U.S. focus and engagement, I believe, can continue to help us win progress. As members of this committee might 

know, the AsDB continues to decline to make public the names of firms and individuals that it has barred from future work at the AsDB although it acknowledges that 

there is some deterrent effect to publicizing its debarment list. With strong U.S. 

urging, AsDB now publishes and make publicly available on its Web site the names 

of firms and individuals that have been: debarred by AsDB for second or subsequent 

integrity violations; debarred by AsDB for sanctions violations (for example, attempting to participate in an AsDB-financed activity while ineligible); debarred by 

AsDB but who AsDB has found impossible to notify (so-called ‘‘process avoiders’’); 

or cross-debarred by AsDB pursuant to a Cross-Debarment Agreement (Agreement 

for Mutual Enforcement of Debarment Decisions) entered into in April 2010 by the 

World Bank Group, the AsDB, the African Development Bank, the Inter-American 

Development Bank, and the European Bank for Reconstruction and Development. 

Continued U.S. engagement is necessary to achieve further improvement in the disclosure of firms and individuals debarred from MDB procurement activities. 

Firms and individuals who are on AsDB’s publicized list subsequent to the CrossDebarment Agreement being declared in force are subject to cross-debarment by the 

other MDBs. The list of firms and individuals sanctioned by AsDB as first-time 

violators is published on AsDB’s intranet for AsDB staff and AsDB’s Board of 

Directors. Currently, AsDB shares this debarment list via e-mail with international 

organizations, government agencies that implement AsDB projects, bilateral aid organizations and others with a demonstrated need to know. AsDB also is currently 

developing a password enabled Web site to provide all of the foregoing with direct 

access to the list of initially sanctioned firms and individuals, and expects to have 

the site operational before the fourth quarter of 2010. 

In the months ahead, strong U.S. involvement and engagement—in part through 

full participation in a General Capital Increase for the institution—will also be critical as we work to ensure robust, credible reviews of the AsDB’s Information Technology governance and organization, as well as of its Public Communications Policy 

and its Accountability Mechanism. Now is not the time for the United States to pull 

back from what has been a strong and beneficial ownership stake in the Asian 

Development Bank. 

As has been noted, the Board of Governors of the AsDB—with Secretary of Treasury Geithner serving as the governor for the United States—recently approved the 

26 

fifth General Capital Increase for the institution, the first in some 15 years, and 

the United States has pledged to participate. For FY 2011, the administration is requesting capital subscription for General Capital Increase V (GCI V). Participation 

in the GCI requires $106.6 million for FY 2011 (and a similar amount for the following 4 years for a total U.S. 5-year commitment of approximately $533 million). 

This will allow the AsDB to continue lending at a sustainable level of $10 to $11 

billion for the next 10 years. In addition, the administration is requesting $115.3 million for the second installment of a 4-year commitment under the agreement of the ninth replenishment of 

the Asian Development Fund. The U.S. total 4-year commitment for AsDF 10 of 

$461 million contributed to a total $11 billion replenishment, allowing the AsDB to 

provide up to $2.75 billion in grant assistance per year via the Asian Development 

Fund to the poorest nations of the region. 

These contributions are important to the continuity of the AsDB’s development assistance; failure to fully fund these commitments impairs the ability of the AsDB 

to deliver timely assistance. Furthermore, these commitments are crucial to our 

ability to engage and shape the AsDB and the assistance it provides in ways that 

are favorable to U.S. interests. 

Six months ago, in March of this year, the ranking member of this committee 

transmitted to the full Committee on Foreign Relations a report entitled ‘‘The International Financial Institutions: A Call for Change.’’ This report followed on an oversight project on the multilateral development banks that had begun some 7 years 

earlier, focused on ensuring that the MDBs’ financing reached the intended people 

and projects. In it the report said, ‘‘As the requests for capital are negotiated with 

the international donor community, there is a window of opportunity for significant 

reform.’’ The report also said that ‘‘Congress must be able to assure taxpayers that 

the money is needed, and that it will be used efficiently.’’ 

These are critical points. From my perspective, though, of having served for nearly 31⁄2 years as U.S. executive director at the AsDB, and having for many more 

years than that worked and lived in the Asia and Pacific region, first as the son 

of a U.S. military officer and then as a member of the private sector, I can attest: 

the money is needed and is in America’s interests. Further, a strong, focused Asian 

Development Bank that continues with the United States as its coequal, largest 

shareholder is very much also in America’s interests. 

The AsDB has responded to date, slowly but increasingly surely, to our calls for 

change and for added transparency and accountability. Clearly reform is an ongoing 

process. Indeed, reform has rightly been called also a never ending process. As I prepare to step down from my post as U.S. executive director, my hope is that reforms 

achieved through strong U.S. involvement at the AsDB will not be lost. A General 

Capital Increase fully subscribed to by the United States will help ensure a strong 

U.S. role; and that the Asian Development Bank will continue to move forward, 

changing to meet the needs of a region that has changed faster than the institution 

designed to serve it. Achieving this and further progress on reforms will require 

strong, continued U.S. support and engagement. That is to the benefit of not just 

the people of the Asia and Pacific region, but also of the United States. 

The CHAIRMAN. Well, thank you very much and thank you for 

your service there. 

By prior understanding, Senator Lugar knows I am going to be 

very, very brief in the questions. I am already late for a meeting 

that I had to be at. He is going to continue the hearing and close 

out if necessary. And I will leave the record open for a week in the 

event that other colleagues want to submit questions. I know I 

want to submit some additional ones in writing. 

But let me just very quickly ask you, Director Chin, picking up 

on your last comment about reforms being ongoing and never-ending. That may be true, but be advised that for Congress to get excited about recapitalizing and to moving forward, there is a certain 

de minimis level of expectation with respect to what has to be done 

now. I mean, reforms may be ongoing, but nobody is going to accept 

that major accountability and transparency or other kinds of steps 

is somehow going to be never-ending. That is not going to satisfy 

people. And I think that there is going to be a higher expectation 

of performance and standard as we go forward here. 

27 

The G20 has called for more open, transparent merit-based selection for the IMF and the World Bank, and I would just like to ask 

quickly, Secretary Lago, what is the administration’s position on 

exactly how that ought to be implemented in practice? 

Ms. LAGO. Thank you, Chairman. 

This is a topic that has been introduced in the G20 discussions, 

and the United States has been clear about the benefit that we 

have seen from U.S. leadership in the World Bank, and we also 

know that any decision with respect to changing the understandings with respect to the appointments of the head of the 

World Bank and the IMF is something that would have to be done 

across the IFIs and only after consideration at the most senior political levels. We have been well served. American interests have 

been well served and the World Bank has been well served by having strong, competent, capable American leadership. 

The CHAIRMAN. What is the interpretation of that with respect 

to what the merit-based selection process might produce in terms 

of enabling a candidate from a nontraditional country to actually 

lead one of the institutions? Can you say? 

Ms. LAGO. I think that different countries within the G20 may 

have different understandings. We believe that we need to have 

tremendously competent, capable leadership as we do have at the 

World Bank. It has been well served by—— 

The CHAIRMAN. You would see that as somewhat limited then. 

Ms. LAGO. Excuse me? 

The CHAIRMAN. It would be somewhat limited then in your judgment. 

Ms. LAGO. That is the understanding that is in place, and if the 

understanding were to change, it would have to be a discussion 

about more transparency and accountability—something where 

America thrives. But any change would have to be discussed only 

at the highest political levels and in the context of all of the IFIs, 

including the IMF. And again, I reiterate we have been very well 

served by the American leadership, and the World Bank has been 

well served by that leadership. 

The CHAIRMAN. And what would you say, Mr. Solomon and perhaps Ms. Lago, is your impression of the level of coordination between the World Bank and the regional development banks? Are 

you satisfied at the level of coordination between the regional 

development banks and the World Bank? 

Mr. SOLOMON. Thank you, Chairman. 

I think the issue of improving coordination between all the international financial institutions is an important priority. I think we 

have seen some good progress; I think in certain countries extraordinary progress. In other places, there is more work that needs to 

be done. I think we have seen some good work between the Asian 

Development Bank and the World Bank working together in the 

damage needs assessments in Pakistan, for example. We have seen 

some good cooperation between the World Bank—— 

The CHAIRMAN. Can it be improved in your judgment? 

Mr. SOLOMON. I think coordination can also be improved. I think 

there is—— 

The CHAIRMAN. Is there an ongoing effort to actually do that? 

28 

Mr. SOLOMON. From my perspective, absolutely there is an ongoing effort, and I think it is something that we continue to press. 

If I get a sense from someone in the U.S. Government that calls 

every day from various U.S. agencies—— 

The CHAIRMAN. Is there a specific set of proposals as to how that 

coordination could be improved that are on the table in writing? 

Mr. SOLOMON. I am aware of broad coordination, but on particular issues, like there is a group of all the procurement officers, 

for example, across the different multilateral banks that work together to implement cross-debarment process that this committee 

was so effective in championing to try to improve how procurement 

is done on a coordinated basis and improve information-sharing 

about corrupt practices. We are taking information we get in one 

Bank and applying it across the board. As you know, as the President of the Bank said, Bob Zoellick said, ‘‘To cheat and steal from 

one, get punished by all.’’ That level of coordination I think has 

been very important. 

I think there are additional ways we can improve coordination 

around the way we set up some of the new targeted trust funds, 

so for example, the food security trust fund. The World Bank administers the fund, but the implementing entities can be other 

multilateral development banks. So it is a way of trying to get 

them all working together on the same process. 

The CHAIRMAN. Well, I thank each of you. 

Again, the record will be left open. 

Senator Lugar, thank you very much. 

Senator LUGAR [presiding]. Thank you, Mr. Chairman. 

Secretary Lago, in your written statement, you noted that as the 

administration weighed the capital requests of the various development banks, it considered the capacity of each MDB, demand for 

MDB resources, and focus on the core mandates of each MDB. 

Would you please explain how the administration arrived at the 

general capital increase requests for each of the MDBs? Why do the 

requests vary so widely? For example, the request for the InterAmerican Development Bank is almost five times more than the request for the African Development Bank. 

Ms. LAGO. Thank you very much, Ranking Member Lugar. 

In looking at the request for the general capital increases, we 

looked both at the base number. The different banks started from 

very different capitalization levels. So we considered both the absolute number but also the percentage increase. So the IDB started 

out at three times the level of the African Development Bank. 

The second thing that we considered was the capacity within 

each institution. What we saw during the crisis was that the institutions markedly upped their game. They increased their lending, 

at the request of the G20, to unprecedented levels. 

And we evaluated the capital needs of the institutions. Absent 

the GCIs, the institutions would fall back—would only have resources at levels far below their precrisis lending levels, let alone 

the lending level during the crisis. 

And finally, we considered what the needs were within the recipient countries, within the areas of operation, and by looking at 

all of those factors and also at the extent of the reform agenda, we 

29 

reached the requests that were made here, that we are making 

today. 

Senator LUGAR. So you have had to conduct a very careful study 

literally of each individual country as a component of a larger 

group that would be borrowing from the banks and you have also 

considered where the banks started with the capital levels. I ask 

that question simply because there is this very large difference in 

the requests and your explanation appears to offer a detailed response to those who would question why this is the case. 

Now, second, during the capital increase negotiations, the administration secured commitments from the development banks to 

make many reforms regarding fiscal discipline, governance, and 

effectiveness. While the Inter-American Development Bank will 

have an independent assessment of these reforms, how will implementation by the other development banks be evaluated? And 

should implementation fall short of commitment, will donors adjust 

their capital increase contributions? 

In addition, what additional steps will you have to take to see 

development banks make the improvements required in their 

operations? 

Ms. LAGO. Thank you, Senator. 

It is clear that the mechanism that we have in place at the IDB 

is a cutting-edge mechanism of the midterm review. And as Chairman Kerry had asked about coordination among the banks, the 

American executive directors are always looking at a best practice 

in one bank and seeing how it can be exported across the other 

banks. I think of that as a race to the top. It is the kind of competition that serves us well. 

With respect to all of the MDBs, we have extremely active and 

engaged executive directors. It is not a ceremonial post. It is a 

working post. We pride ourselves on the extent to which we interact with management both through our executive directors and 

their offices and myself personally as well with the senior management at the Bank. We serve on key committees including, as Executive Director Chin mentioned, the Audit Committee which is 

clearly one of the key controls. 

And finally, it is well known within the banks that the U.S. contribution—and we are a sizable donor in each of these institutions—is appropriated on a year-by-year basis. It is not a blank 

check. And so through our active participation, our day in, day out 

presence within these institutions, we drive the reform agenda. 

The GCI and the reform agenda that was negotiated at that time 

is critically important, but as important as reaching the agreement 

is our day in, day out overseeing of its implementation. 

Senator LUGAR. Well, that is very helpful. 

Is it conceivable that the other banks may eventually adopt such 

a procedure? Granted, as you point out, day by day you are looking 

into these accounts. This is not something that is just simply left 

to its own accord after a period of time. 

Ms. LAGO. I think at this point we are pleased with the pace of 

reform and the implementation, and if we were to see that there 

was slippage, that would be the time at which we would raise it. 

At this point, the agreements have not only been reached by the 

Board of Directors but endorsed by the management and are in the 

30 

process of implementation. And as I said, we will continue to keep 

our eyes on the implementation of the reforms. It will not come as 

any surprise to senior management that in talking about the GCIs, 

we spoke first of the reform agenda and then of the amount of 

capital. 

Senator LUGAR. Do other countries monitor operations in the 

same way that the United States does? For example, as you approach these things, if you were one of the examiners, you could 

say not only is the administration of our country interested, but 

you are getting questions from Congress and even the press largely 

because of hearings such as this. Does the same dialogue occur in 

other nations that are a part of the structure of these banks? 

Ms. LAGO. We actually are very fortunate in having key partners 

in the other donor nations, and within each bank, the leadership 

structure is slightly different. So for instance, in the Asian Development Bank, we and Japan have the same shareholding percentage and are the two largest shareholders, and so they are strong 

partners in implementing the reform. In many of the development 

banks, the United Kingdom has been a strong presence, and the 

executive directors routinely work with their colleagues as we are 

trying to advance a reform agenda. 

If I could turn it over to our Executive Director Solomon who 

might be able to give us some examples. 

Senator LUGAR. Very good. 

Executive Director Solomon. 

Mr. SOLOMON. Thank you, Ms. Lago. Thank you, Mr. Chairman 

or Ranking Member Lugar. 

I work quite closely with the other executive directors, and I 

think that there is a variety. Some are deeply engaged and their 

Parliaments and other governments are very much on top of every 

single decision the Bank makes, and other times it’s a somewhat 

complicated situation because some executive directors represent 

not one country but a group of countries. So their ability to get the 

feedback from their capitals that we benefit from here can be more 

complicated. But on a number of decisions, a number of individual 

loan projects, we will work very closely with other chairs, and they 

are often hearing from their governments as well as their Parliaments. 

Senator LUGAR. Let me just continue with a couple of questions 

for you, Executive Director Solomon. 

The current global financial crisis led to an increase in lending 

at the MDBs across the board and a particularly dramatic increase 

at the World Bank in particular. Are these unprecedented high 

lending levels expected to return to precrisis levels, or are we seeing a perpetual increase in the volume of lending by the World 

Bank? And are there any additional measures that can be taken 

to ensure that the increased lending does not result in inappropriate debt levels for the poor countries? 

Mr. SOLOMON. Thank you for the question about lending levels 

and debt. I think both are critically important to how we view our 

roles in these institutions. 

The extraordinary response from the World Bank was unprecedented. It was also necessary, but it was also unsustainable at that 

level. So when we looked at the capital increase request and looked 

31 

at the role of the Bank going forward as we continue with recovery 

and get beyond the crisis. The level of capital we were comfortable 

with was a level of capital that would enable the Bank to return 

to its precrisis lending levels of lending. So the answer to your 

question is ‘‘No,’’ this is not a perpetual increase in lending. It is 

a return to precrisis levels. 

And I think that means that the Bank is going to have to be increasingly selective, increasingly careful about where it spends its 

money, and increasingly realizing that its value added in the world 

of development is not always going to be the volume of resources 

but the development knowledge it brings to the table, its ability to 

identify and scale up innovative solutions to problems. 

So the volume game is one. It was an issue that you spent a lot 

of time working on. The interest in big, large lending volumes is 

a culture in some of the banks about a pressure to lend. You have 

documented that in your reports. We need to change that culture 

to one that is focused on results and meeting the development 

needs, and I think there has been great progress on a much greater 

focus on results. I can talk more about that if you would like. 

The issue of debt is one that we take very seriously and worry 

about greatly. I think we do not want to get back in the cycle of 

lend and forgive. That is not effective for development. For the 

World Bank and particularly in IDA for the poorest countries, they 

have implemented a debt sustainability framework at the World 

Bank. So we very clearly look at every country’s situation before 

deciding whether or not loans are appropriate and have also increased the amount of grants that are given because some of these 

countries cannot afford to pay back loans. So grants are the more 

appropriate development instrument to use. We will continue to 

monitor this, both the poorest countries and the middle-income 

countries. Every time we review a potential investment, one of the 

things we look at whether it is a sustainable investment for that 

country. 

Senator LUGAR. Well, I appreciate your thoughtful answers. This 

is a subject, as you pointed out, that was addressed in our extensive report. And it is a dilemma for anyone who is a compassionate 

observer of the world because the number of situations that could 

be assisted by appropriate lending and correspondent appropriate 

spending on the part of the borrower are legend. Yet at the same 

time, it is difficult to understand the level of debt that could be 

sustained by a particular borrower without there being a perpetual 

lend-and-forgive situation, which, to say the least, does not lend 

confidence to the international banking system. At the same time, 

there has to be funding at the precrisis level so that when huge crises do occur, there will be funds for borrowers to draw on and utilize. But I appreciate very much the sophistication with which you 

and the other executive directors approach this. 

Let me ask one more question of you. Do you see an inherent 

contradiction between providing general budget support, especially 

in poor countries with weak government institutions, and ensuring 

that funds are not stolen or appropriated for other purposes? For 

instance, given the World Bank’s increasing interest in budget support and in sectorwide programs, what should the World Bank do 

32 

to ensure that these funds are used as intended in these countries 

with weak institutions and perhaps weak accounting? 

Mr. SOLOMON. Thank you. 

I think the question of the appropriate lending instrument and 

what is the appropriate oversight role for us as the major shareholder of the World Bank I think is an important issue. Let me be 

clear. No matter what instrument is used—whether it is an investment loan for an individual project or budget support—we need to 

have the same standards on safeguards to ensure that the poor 

benefit. We need to be applying the same level of oversight and 

analysis to make sure that is an appropriate investment. 

And I think as we look at some of the budget support operations, 

we need to make sure that the prior actions and the policy reforms 

that we hope to be getting for the budget support are actually 

being achieved and that the evaluation of the investments is robust 

so we know where were results achieved. Are we learning from the 

examples of budget support that we have given in the past? 

I think it is important to realize that to tackle some of these development challenges, policy reform is quite important in a lot of 

these countries. So we need to have a range of instruments we can 

provide. Sometimes it will be building a particular infrastructure 

project, for example. Other times it will need to be a close, longtime 

engagement with the Department of Education, for example, about 

how to improve enrollment of women in schools, girls in schools. So 

I think having a range of instruments is very important, but having strict standards of oversight and accountability for them is also 

important. 

Senator LUGAR. Thank you very much. 

Executive Director Chin, I have some questions for you. I wanted 

to ask, first of all, with regard to China, China’s rising financial 

and strategic power is a crucial factor in our approach to global 

problems generally. What is China’s role at the Asian Development 

Bank? How much of the ADB’s financing goes to China, and why 

is the ADB lending to China when it is the major lender to other 

countries? Namely, Chinese buy some of our Treasury bonds from 

time to time. 

Mr. CHIN. Thank you, Ranking Member Lugar. Those are important questions and ones that I actually always ask the Asian 

Development Bank. 

Let me share with you some of the factual numbers and figures— 

you know, when I pose that question, what they respond to me 

with, but then I also want to share with you some broader 

thoughts on what we are doing to change that situation that you 

described. 

Number-wise, China is both a major shareholder and, as you 

noted, a major borrower from the Asian Development Bank. Shareholder-wise, as of December of last year, China was the thirdlargest shareholder in this institution. So Japan and the United 

States—— 

Senator LUGAR. Behind the United States and Japan? 

Mr. CHIN. I’m sorry. Japan and the United States are coequal 

largest. China was No. 3 as of December of last year. 

Senator LUGAR. About what percentage—— 

33 

Mr. CHIN. Sorry. The United States and Japan together are 

about—each have about 15 percent, and if you look at China, it is 

about 5 percent. But clearly those numbers will change based on 

how all the shareholders subscribe to this GCI, again underscoring 

the importance of a full subscription from the United States. So 

that is the role as a shareholder. 

In terms of a borrower, if you look at just historically, if you add 

up all of the borrowing from China, about 20 percent of the Bank’s 

hard window lending, what they call from its ordinary capital resources, has gone to China. But then when you look at it in the 

more recent years, China has now voluntarily capped its sovereign 

guaranteed borrowing at about $1.5 billion a year. It could go up. 

I think I looked at the most recent figures. It went up to 1.9 when 

it included a nonsovereign borrowing. 

But to the question as to why does China borrow, I broke it 

down. You will see that China has made clear that its borrowing 

really is not about the money. In some cases, the money that the 

ADB will lend to China might only be 10 percent of the overall size 

of a project. And let me just highlight one which would be this past 

year they came to the ADB to borrow, I think, about $400 million 

for a loan to help with reconstruction of the Sichuan province area 

that was devastated by that earthquake with tens of thousands of 

peoples dying. They borrowed specifically to gain some of the 

knowledge that came with the borrowing. So, for example, to help 

them strengthen building codes so that schools would not collapse 

on their young people. 

And I think with strong U.S. pressure, we are continuing to see 

the Bank encourage China that when it looks at its relationship 

with the ADB, that it no longer be based on additional borrowing. 

And actually there is a bank commitment that by 2020 the relationship with China is no longer one of borrowing, but one of the 

knowledge that they can benefit from by engaging with the Bank. 

The only other thing I would note there—and this is again very 

much in the United States interest. Even if China were to only borrow a little bit for a project, that overall project will have to follow 

the strong environmental, indigenous peoples, and resettlement 

safeguards that the United States insists on for everything that is 

part of that project. And so clearly that is to the benefit of the 

world also. 

Senator LUGAR. These are very important points, both the fact 

that the Chinese might borrow in order to benefit from the Bank’s 

expertise and knowledge in, as you say, reconstructing a school in 

a fashion appropriate for an area vulnerable to earthquakes, but 

then they also take on the obligations of following environmental 

and other standards that are conditions of borrowing the funds. So 

it is an interesting interplay in terms of money and the sharing of 

knowledge. 

Let me ask, should the United States not fund or only partially 

fund the capital increase request for the ADB that has already 

been submitted to the Congress? How would that impact United 

States shareholding and influence at the Asian Development Bank? 

Mr. CHIN. Very clearly it will weaken the United States influence. In the long run, if the United States does not fulfill its subscription, clearly our shareholding will go down. Right now, the 

34 

United States and Japan are, I think, seen as both not just major 

shareholders but as leaders at the Bank, and my fear would be the 

unintended message that maybe the ADB is seen as less. I think 

the chairman referred to it in his opening comments as a critical 

tool, one more tool in our box to help advance kind of our U.S. interests. Clearly that would be at risk over time if, indeed, the subscription was not fulfilled. 

Senator LUGAR. Speaking of U.S. interests, given the Asian 

Development Bank’s sizable funding in Afghanistan and Pakistan, 

how is it coordinating with the United States and other donors? 

How do the ADB’s investments complement the activities of the 

United States in Afghanistan and Pakistan? 

Mr. CHIN. Sure. I would argue that Afghanistan is one of the biggest success stories for actually the ADB in its coordination with 

the United States. Pakistan, getting better, as my colleague, Ian 

Solomon, said, but it is coordinated at a number of levels. I would 

say first at the individual country level, the Asian Development 

Bank representative office will work closely with our U.S. mission, 

our U.S. Embassy there, but certainly also with the other major development partners in that country. 

So specific examples from Afghanistan. I just had in my office in 

Manila representatives of the U.S. Corps of Engineers who are 

working very closely with the Asian Development Bank in finishing 

that section of the Ring Road through a very cooperative arrangement. 

This Sunday I was with the U.S. COO of USAID about a possible 

partnership arrangement between ADB and USAID as another 

step forward in trying to better coordinate our approach in countries that are so critical to our United States interests in not just 

Afghanistan, but Pakistan. 

In his old role, General Petraeus, when he was head of Central 

Command—you know, now he is head of our Afghanistan command—he wrote in a letter to Secretary Geithner of the great coordination that was taking place between ADB and our U.S. Government in some key countries of interest to the United States. 

There he flagged not just Pakistan and Afghanistan, but also the 

nation of Georgia in the Caucasus region. 

Senator LUGAR. Well, that is a very interesting point. And I presume a majority of the shareholders share the desire to make these 

loans to Afghanistan and Pakistan in the midst of warfare or certainly conflict in which there could be some disagreements or debates over American policy or the policies of our NATO allies and 

others who are involved there. But at least you have not found that 

to be the case apparently as these loans have been made. 

Mr. CHIN. Yes, very much the case. We have to look at each 

country individually. In Afghanistan, the assistance is really all 

grant-based given the poverty of Afghanistan. But unanimously, 

the shareholders of the Asian Development Bank supported the replenishment of the Asian Development Fund. So that is the 

concessional window which benefits Afghanistan and thus the request from the administration for the funding of that replenishment. 

Pakistan likewise. I think I and colleagues from both the Asia region and non-Asian countries at the board very much push the 

35 

Bank to respond quickly with an eye, of course, always to good governance and corruption for the situation in Pakistan. But the members are very much behind that mission of poverty reduction in the 

Asia Pacific region. 

Senator LUGAR. I have one final question. As a member of the 

Asian Development Bank Executive Board, you have championed 

reform of its human resources system. What improvements has the 

ADB made in this regard, and have they impacted operations? And 

what more should it do to attract and to retain highly qualified 

men and women? 

Mr. CHIN. Thank you, Ranking Member Lugar. 

Indeed, the United States has very much championed human resources reform at this institution. The unkind people would say I 

terrorized the institution, but clearly people are at the heart of development. This is where implementation succeeds or falls apart. 

Through constant U.S. pressure, we have a number of changes both 

small and large. You know, the small ones would be introductions 

of things like flex time, spousal employment, address some of the 

gender issues with regard to the staffing at ADB. 

But much larger, we address things at a governance level. For 

the first time ever, the Asian Development Bank accepted a new 

standing committee of our Board of Directors, a Human Resources 

Committee. So once a month, the Director General of the Bank’s 

Budget and Personnel Division is called before us to address concerns that we have about what more needs to be done. 

So these are some steps. Clearly there needs to be more done, 

and I think again the importance of the full U.S. subscription to 

a GCI which will allow us to continue to push this Bank forward— 

clearly the Bank’s Human Resources Department needs to further 

professionalize—that indeed this principle of a merit-based, competitive process for selection of the staff is applied. And I think we 

are getting there, and I think that is one of the great benefits of 

this GCI process. We were able to push things. Indeed, I read some 

of the transcripts of some of the hearings that you all had 7 years 

ago, and some of these same issues were raised back then. Indeed, 

with great pride, I would say our U.S. Government was able to get 

some of those things that have been long pushed for by administrations present and past. 

Senator LUGAR. Well, I join Chairman Kerry in congratulations 

to you on your service. We thank you for testifying today, that your 

service did not end before this hearing, and that you have been 

available once again to be most helpful to us. We appreciate that. 

Executive Director Solomon, I have a couple of questions. Over 

the years, many have discussed the ‘‘pressure to lend’’ culture of 

the development banks which rewards staff for designing the largest loans rather than implementing the most successful loans. Currently the executive boards review the projects at their inception 

but not all together at their completion. Would you concur with the 

committee’s report I commissioned that recommended loans be reviewed upon completion, as well as to promote a ‘‘pressure to succeed’’ culture? 

Mr. SOLOMON. Thank you for raising this issue of pressure to 

lend. I think it is something that I spend a lot of time figuring out 

how we can change this to move the Bank away from quantity, 

36 

more toward quality. And I think there is good progress by getting 

the Bank to focus more on results, results being both preparing for 

tracking results by getting good baseline information, actually 

measuring what is happening and making sure you have proper incentives for people to do the measuring and the tools to do the 

measuring, and then learning from those results before you do another project. And the Bank does spend a lot of time on projects 

at the beginning, but also at every project that is completed has a 

project completion report and the independent evaluation group 

does an assessment of the project. And I spend a lot of time at the 

Bank looking at the IAG reports on projects before we go and agree 

to another project. So for a country assistance strategy, for example, we will always be studying what the IAG said of the previous 

period of investments made in that country and then asking the 

team, well, have you learned the lessons from the previous assessments? 

And I think there has been a mixed record on learning from results. I think the trend is very positive. I think the use of project 

completion reports and the important role of the IAG is more 

greatly appreciated. But I welcome the opportunity to discuss 

projects at the beginning, in the middle, and the end, and then 

going back and seeing years later have we applied the lessons we 

have learned from that experience. 

Senator LUGAR. Thank you for your response. The G20 has called 

for changes to the selection process for the leadership of the International Monetary Fund and World Bank and for more representation of emerging markets in these institutions. Is the administration willing to agree to give up the presidency of the World Bank, 

which could undermine our ability to promote innovation at this 

flagship institution? Should leadership of regional banks not likewise be discussed? Also, what is the administration’s view of current calls for the United States to give up its veto at the IMF, 

which could erode American support for that institution? 

Ms. LAGO. If I might answer that question. 

Senator LUGAR. Yes. 

Ms. LAGO. Clearly in the leadup to the G20 meeting that will be 

occurring in Seoul, there has been a lot of discussions. The United 

States is proud of the support that we provide to the World Bank 

and the IMF and of our voting shares there. And as you note, in 

the IMF it has a veto on certain key decisions. And the administration has been strongly supportive of looking at the share structure 

of the IMF to ensure that the body maintains its legitimacy by giving increasing voice to emerging and developing countries. Clearly 

that review of the shareholding is something that needs to be done 

and that is underway. We do not believe that that calls into question the U.S. veto. 

And as I had mentioned earlier, with respect to the presidency 

of the institutions, we believe that the United States benefits from 

having strong leadership, having provided strong American leadership at the World Bank and that the World Bank itself benefits 

from it. Discussions on these topics would have to occur at the 

highest political levels and in the context of looking at the leadership structure across the IFIs. 

37 

Senator LUGAR. So it would be, as you say, a question that would 

be answered through deliberation at the highest leadership levels 

as opposed to simply crafting a formula consisting of each nation’s 

shareholding percentage, capital contributions, and other figures? 

Ms. LAGO. Certainly with respect to the shareholding percentage 

in each of the institutions, it is linked to the capital contributions, 

and in agreeing the capital contributions, we certainly had a keen 

eye to maintaining our leadership position within these institutions. We know that our ability to lead, to influence, is because of 

the quality of the team that we have, but it is also because of the 

influence, that we have with our shareholding. 

Senator LUGAR. Well, it is sort of theme and variation that we 

have discussed with the Executive Director Chin in the Asian 

Development Bank. Our current shareholding percentage in the 

ADB is roughly equivalent with that of the Japanese leadership. If 

we were to fall well behind, then there would be some obvious 

ramifications and questions about leadership. 

Let me just ask, Secretary Lago, one further question, before 

agreeing to providing the development banks with more funds: Has 

the international community commissioned a review of potential 

cost savings at each development bank? If not, is such a study 

forthcoming? 

Ms. LAGO. Thank you, Ranking Member, for raising the question 

of the fiscal discipline within the institutions. That was a key factor, not just the effectiveness of their loans for the development 

impact in country, but also how well are they marshaling their 

resources. 

I will point to two specific examples. At the World Bank, the 

Bank, as was noted, markedly increased its lending into the crisis 

and without increasing its internal resources. There has not been 

an increase in its budget since 2006. And we, through the GCIs, 

were able to put in place an internal check and balance. Part of the 

fiscal regime within each of the institutions requires a transfer of 

funds from the hard-loan windows to the concessional windows. 

This is particularly evident if one looks at the IDB. And so since 

the loan pricing structure is borne by member countries, there is 

an internal pressure to keep costs under control, and we think that 

that is an effective mechanism since it is the borrowers who are 

paying for the costs of the institution. As we looked at each of the 

institutions, we sought to make sure that the fees that are charged 

to the borrowers covered the administrative costs at the institutions. And so that is the internal mechanism that provides this 

calibration, that provides this cost control that you were mentioning. 

Senator LUGAR. Let me ask you, Executive Director Solomon, one 

additional question. A few years ago, I joined then-Senator Biden, 

Senator Leahy, Senator Bayh, and others in asking the Government Accountability Office to conduct a review of the World Bank 

regarding its ability to fight corruption and to conduct environmental assessments. But, at that time, the GAO did not receive 

clearance from the World Bank to commence its work. What is delaying that review and what could be done to ensure that the GAO 

has the ability to carry out its work in this endeavor? 

Mr. SOLOMON. Thank you. 

38 

The GAO, I think, provides an invaluable service to the Congress 

and the U.S. taxpayer. I am a strong believer in the work that the 

GAO does holding us all accountable for these taxpayer resources. 

I think the GAO has been quite involved in a number of studies 

and audits and evaluations of bank work through the years. However, the particular studies you refer to were before my time on the 

board. 

In discussions with staff, it is my understanding there was a fair 

amount of discussion between the GAO, the World Bank, and the 

multilateral audit advisory groups which helped to define the scope 

of audits by supreme audit agencies like the GAO in this country. 

And you know, reams of documents went back and forth, lots of 

discussions. In the final analysis, at least for the environmental assessments one, the GAO decided it was going to allocate its resources elsewhere. But I will continue to look at this issue because 

I think the GAO provides an important function. 

Senator LUGAR. I would appreciate that. 

This is a general question that any one of the three of you might 

want to comment on. One of the effects of our hearings on these 

issues, which began 7 years ago, is that many times the press in 

various nations that were being discussed in the hearings learned 

about loans for the first time. So this commenced a discussion within the political systems of various countries. In some cases, members of their respective Parliaments raised questions about the 

loans, complaining they had not achieved their stated effects. So 

this led to a certain degree of commotion initially in the world 

community. 

I think this has calmed down over the years. It is hard for such 

trends to sustain themselves, but at the same time, the regional 

development banks, the World Bank, and others have been more 

transparent. 

Do you have any general thoughts about this? It goes well beyond promoting viable, responsible international financial institutions as a component of our broader diplomacy. Sometimes controversies of this variety lead to disruptions at higher levels, as 

leaders of various countries who either feel embarrassed or put 

upon by these situations are going to respond to our Secretary of 

State or others. 

Ms. LAGO. Thank you for pointing out the importance, the beneficial aspects of transparency. Because the reform agendas at the 

MDBs were so broad, we chose to focus on a couple of key areas. 

Transparency is one of them. It so underpins our American way of 

doing business, and this is one of the values that we are able to 

export, and I believe beneficially, through the MDBs. 

One need only look at the difference in the Web site of the African Development Bank. It has undertaken a sea change, and as 

people increasingly are using the Web as the source of information, 

having a robust Web site has made a significant difference. 

In particular, we know that civil society and nongovernmental 

organizations within the countries look for information about the 

activities of the banks, as do the governments, as you have noted. 

We are comfortable with the fact that every decision in the MDBs 

is posted. That is absolutely essential, and through ongoing reviews 

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39 

ing always to drive more transparency. We believe that putting information out about the projects is useful to avoid surprises, but 

also to spread the development impact. 

Senator LUGAR. Yes, sir. 

Mr. SOLOMON. Thank you. If I could make a few additions to the 

comments made. 

One, I think that Secretary Lago talked about the important role 

that CSOs can play in helping to improve accountability for what 

the institutions do. And I think we work closely with the CSO community, the civil society organizations, NGOs around the world, 

who can provide an important link to some of the rural areas and 

other areas. 

And I think in terms of the Bank’s efforts on transparency, there 

are a lot of efforts. And your team has been looking at the role of 

technology in these institutions. There are a lot of initiatives underway now to try to find out how do we use new technologies to 

get information both out to the communities better but also feedback from those communities into the development process, so for 

example, piloting things like using cell phone text messages to get 

feedback from farmers about agricultural assistance and things like 

that. 

Senator LUGAR. Do you have a thought? 

Mr. CHIN. Yes. I know you are not looking for praise, but I think 

our engagement with the MDBs is stronger because of these hearings. I am only in the United States every 6 months or so, but I 

know with strong Treasury support, I have regularly updated and 

engaged with this committee through its staff members. And the 

ideas that we have pushed in terms of strengthening risk management or anticorruption in some ways have been stronger because 

I can say it is not just Treasury and the United States ED that 

have raised these things, but it is based on consultations with all 

branches or at least another branch of Government. 

I would also echo Assistant Secretary Lago and Executive Director Solomon with regard to the importance of civil society and also 

to media. I know under my watch and with strong Treasury support, I have engaged regularly with nongovernmental organizations, with civil society. Some of them are even in this room behind 

me like the Bank Information Center. They really do provide a 

third party check, and I think that is critical. I think that makes 

these institutions stronger. 

Assistant Secretary Lago referenced some of the reviews taking 

place. At the Asian Development Bank, two critical reviews address 

this issue, the public communications policy review and the accountability mechanisms review. And I think the Bank will be 

stronger thanks to strong Treasury pushes but also the input of 

civil society. 

And to bring it all back to why we are here today, I think this 

Bank will certainly be much stronger with full U.S. support for a 

general capital increase because all the more reason they need to 

listen to our constant pushing for them to be stronger and to be 

better. 

Thank you. 

Senator LUGAR. Well, we thank you for not reserving your compliments to our committee. I would just say that the compliments 

40 

really are deserved by the staff of our committee on both sides of 

the aisle, especially with respect to the continuity of interest they 

have displayed on these issues over several years of time. 

I would add just one thought which really is beyond the scope of 

our hearing, but I appreciate your interest as generalists. As a part 

of a very important element of our diplomacy with the Government 

of Pakistan, the Congress initiated the so-called Kerry-LugarBerman strategy for Pakistan, which provides for as much as $1.5 

billion of expenditure over a 5-year period of time. Now, this was 

initially wildly heralded in Pakistan largely because it constituted 

a 5-year commitment, but it was sometimes criticized in Pakistan 

because of the suspicion that there might be some accountability 

for the spending of this money. 

Now, the difficulties of all of this I think are now well known, 

and we have hearings on this issue from time to time. It is not easy 

to spend money in Pakistan or in any country even if you have the 

best intentions, while wishing to maintain some accountability to 

American taxpayers for the expenditures that are occurring. And 

the question is how well do the institutions function, and not just 

the banking and financial institutions in this case, but if money 

were to go to strengthening educational institutions, infrastructural improvements, the building of a legal system, or a good number of other objectives that would benefit the citizens of Pakistan, 

are the central and regional governments of that country capable 

of envisioning the programs, administering them, and accounting 

for the money? 

Now, the returns are fairly sketchy at this point as to what has 

been allocated, although we know because of the devastating floods 

that tens of millions of dollars may very well be allocated immediately, even if that was not one of the original intents. However, 

because these floods have caused a serious humanitarian emergency in Pakistan, the use of Kerry-Lugar-Berman funds for relief 

purposes is certainly valid. 

But I just ask from your experience, as we get into the allocation 

of funds, what advice and counsel do you have, and is there any 

intersection regarding the international banks and this money? 

Secretary Lago. 

Ms. LAGO. Thank you. You raise one of the most challenging 

questions that any of us involved in development face. We know 

that in many of the countries where the need is greatest, the challenge is also greatest, with corruption being an ever-present challenge. And I think that we have to go in with our eyes open and 

with the recognition of what we can do, which is making sure that 

the institutions themselves have controls over how they spend 

money, but then also being very wise on a project-by-project basis 

on how we invest in the institutions within the country. Capacitybuilding is a key facet. How we, the United States, how we, the 

MDBs, in which we exercise a large role, operate within country, 

the expectations that we set, and also the investments that we are 

willing to make in government ministries to build the capacity are 

the seeds that are there. But it is not easy and we do have to confront or be realistic about the starting point and measure the 

progress and be realistic about the rate of progress. 

Senator LUGAR. I thank you. 

41 

Do either of you have comments? 

Executive Director Solomon. 

Mr. SOLOMON. I will just add one point to the incredibly important capacity-building point that has been made. I think many donors like to use the World Bank for its strong fiduciary standards 

and they create trust funds at the Bank because the Bank has 

demonstrated a comparative advantage in actually managing donor 

resources. It is sometimes criticized for being slow in that regard 

because it does try to have very stringent procurement rules and 

very stringent accountability in setting up separate accounts and 

doing things in a way that increase donor oversight and donor confidence in the institution. 

On top of that, the Bank also has a strong integrity unit within 

itself that seeks to root out fraud and corruption in Bank projects, 

and if there is a firm that has defrauded the institution or has had 

illegal practices, they will find sanctions against that vendor and 

then in some cases bar that vendor from working with the Bank. 

I think that creates again a deterrent from fraudulent activities 

but also strengthens the confidence donors have in the Bank as a 

fiduciary agent. 

Senator LUGAR. Director Chin. 

Mr. CHIN. Yes, Ranking Member. I would just echo my colleagues 

here. One reason that I think the borrowing countries want to work 

with the Asian Development Bank—these are apolitical institutions, and sometimes it is easier for them to hear the criticisms 

from an apolitical institution because they themselves know they 

need to move forward. 

With specific reference to Pakistan, I think the reprogramming 

of some $2 billion in assistance to Pakistan actually provides an opportunity to push this issue even further forward, of how we are 

particularly watchful of the money that is going to a country that 

has really been devastated by these floods. And so as in 5 years 

ago when the terrible tsunami hit Acce in Indonesia, the donor 

community in their response helped push some things forward in 

Acce including strengthening governance, it is my hope that with 

strong United States support for these institutions, we will also see 

that in Pakistan, that this flood will also generate some changes 

that in the long run will help all assistance be better and more 

effective. 

Senator LUGAR. Well, I thank you on behalf of our chairman and 

the committee for your testimony, for your carefully prepared statements, as well as the statements you have delivered here and your 

responses to our questions. 

As the chairman indicated, we will leave the record open for 

other members as they survey the dialogue we have had. We would 

appreciate your responses. 

But thank you again for coming, and the hearing is adjourned. 

[Whereupon, at 11:40 a.m., the hearing was adjourned.] 

42 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

ATTACHMENT SUBMITTED WITH THE PREPARED STATEMENT OF

ASSISTANT SECRETARY MARISA LAGO

APPENDIX 1. DETAILS REGARDING ASDB REFORMS

The Treasury Department and the Office of the United States Executive Director 

will carefully monitor the status of implementation of the following reform commitments, which the AsDB is undertaking in connection with the 2009 capital increase 

agreement. 

• Professionalize Human Resources. The AsDB committed to develop a time-bound 

human resources action plan with input from an external consultant in order 

to professionalize human resources management. This plan is currently being 

implemented. 

• Create a Human Resources Committee of the Board. The AsDB has established 

this Board Committee, which is helping to increase transparency of human resources decision making, and improve oversight. 

• Updated Safeguards Policy. The AsDB Board of Directors approved an updated 

safeguard policy statement in July 2009, with U.S. support. The update included a number of important improvements, including greater clarity with respect to borrower/client responsibilities, clearly identified principles, strengthened safeguard implementation oversight, improvements in consultation and 

participation, greater clarity in the safeguards requirements for different lending modalities such as framework approaches and financial intermediaries and, 

for the first time, a specific provision on greenhouse gases. 

• Risk Management. The AsDB upgraded the risk management office and incorporated its functions into more AsDB operations. In addition, the AsDB has significantly upgraded its technical capacity through the provision of additional resources and hiring more qualified personnel. In 2010, the AsDB is strengthening staffing for private sector operations, public-private partnerships, and 

credit risk management, all of which have been major priorities in our engagement with the Bank. 

• Separate the Integrity Division from the Auditor General’s Office. This separation has been completed, and is helping to enhance the visibility and functioning of both the internal audit and the integrity (investigations) offices, and 

align the Bank with best practices. Of the new professional staff in 2010, two 

positions will strengthen the Anti-Corruption and Integrity Office and one will 

strengthen the Office of the Auditor General’s internal audit function. 

• Further dissemination of the AsDB sanctions list. Currently, all Board members 

have access to the AsDB’s complete list of sanctioned firms and individuals. Although the list is not posted on the AsDB Web site, it is available to all AsDB 

staff, other MDBs, and bilateral agencies. We will continue to press the AsDB 

to make its list publicly available. The AsDB joined other MDBs in signing a 

cross-debarment agreement in April 2010. 

• Formalize principles for selecting the external auditor. This is ongoing. We will 

continue to work with other Board members on the audit committee and the 

Board of Directors to ensure the highest standards are adopted. We expect to 

complete this before the next selection of the external auditor in 2012. 

• Establish a revised Whistleblower policy. The AsDB revised its policy in December 2009, which now generally reflects the best practices of other MDBs, the 

U.N. and other international organizations. The revision consolidates and extends AsDB’s existing protections, which were previously located in several documents. It also improves the protections available to staff (as well as the limited 

protections available to external parties who report information about integrity 

violations and misconduct). 

• Increasing Resources for the Poorest. The AsDB committed to increase net income transfers to the Asian Development Fund (AsDF) from $40 million to $120 

million. This occurred in 2009 and again in 2010. This commitment makes the 

AsDB the second largest contributor to the AsDF10 replenishment, behind 

Japan. 

• Broaden the use of fee based services. The AsDB is developing pilot programs 

for fee-based services to its more advanced developing member countries. The 

AsDB has had little interest to date from its developing member countries. We 

expect that this is partly attributable to the financial crisis and its pressure on 

the fiscal balances of countries in the region, as well as a need for the Bank 

to refine its approach. 

43 

• Reshape Lending to China. The AsDB expects that China will eventually decrease its borrowing and become primarily a recipient of ‘‘development innovations, knowledge, managerial expertise, and international standard and practices and technology.′′ In the medium term, lending to China will almost 

entirely be directed towards the poorer inland provinces with a specific focus 

on energy efficiency and environmental sustainability. For example, in 2007 to 

2009, 90 percent of AsDB lending to China was directed towards the inland 

provinces, and 50 percent of lending supported agriculture, water, and energy 

projects. 

While we recognize that the AsDB has made significant progress in recent years, 

especially on agreed GCI related reforms, we are continuing to work on the following priority issues. 

1. One relates to accountability in the institution, particularly of managers. We 

are addressing this through improvements in human resources management, and in 

managing for development results. 

2. A second area requiring improvement is gender, as there are few women in senior management. We also want gender equity throughout the institution to be improved, in addition to better mainstreaming of gender in AsDB projects. 

3. The AsDB can more fully publicize the names of firms and individuals that 

have been debarred from future AsDB procurement work. Although we have been 

successful in improving the dissemination of the AsDB’s list, continued U.S. engagement is necessary to ensure progress in improved transparency. 

4. The AsDB should update consistent with best practices its Accountability Mechanism and its Public Communications Policy. The Bank is conducting public consultations on each this year, ahead of a decision in early 2011. 

5. The separation of the Integrity Division from the Auditor General’s Office is 

welcome. However, the AsDB should further strengthen both offices through the 

provision of additional staffing. 

6. Finally, we are closely monitoring actions that the AsDB is taking following a 

recent fraud case in the Bank’s information technology department; an external review of governance, with a specific focus on information technology, is expected to 

be completed by end-September of this year. 

APPENDIX 2. IMPROVEMENTS IN THE MDB’S ANTI-CORRUPTION EFFORTS AND

TRANSPARENCY

Strengthening accountability and improving effectiveness of the MDBs is a top 

Treasury priority. We have championed efforts to fight corruption and increase 

transparency on three levels—within each institution, through MDB-funded projects 

and country programs, and in the MDB system as a whole. 

• At the institutional level, Treasury advocates for strong internal governance 

mechanisms, such as ensuring functional independence of internal auditors and 

effective Board oversight of the external audit function, establishing and 

strengthening integrity and investigative mechanisms, designing effective whistle-blower protection mechanisms, and setting new standards for information 

disclosure policies. • At the country level, Treasury has encouraged the MDBs to provide extensive 

support for governance reforms in borrowing member countries through loans 

and grants for capacity building in key areas such as public financial management, judicial reform, and efforts to fight corruption. • In the system as a whole, we have supported the establishment of IFI working 

groups or task forces in a number of areas (such as procurement, public financial management and internal audit) to improve coordination, harmonize standards, and measure performance all intended to increase aid effectiveness. 

Treasury shares the concerns and commitment of Congress to improve the accountability and transparency of the multilateral development banks. Notable 

progress has been made since 2003, and achievements on the three levels (institutional, country, and system-wide) include: 

1. Institutional Level 

All of the MDBs have established anti-corruption/integrity investigative units, 

publish annual reports of the results of the investigations, and make the reports 

publicly available on their Web sites. All MDBs have whistle-blower protection policies in place. 

• Treasury supported external reviews led by former U.S. Federal Reserve Chairman Paul Volcker for the World Bank in September 2007 and former Attorney 

General Dick Thornburgh for the IDB in 2008. These reviews have had far 

reaching consequences. 

44 

• The World Bank has implemented all 18 recommendations of the Volcker 

Report to strengthen its Department of Institutional Integrity (INT), which 

investigates fraud and corruption in Bank programs. The key recommendations 

were raising the status of the Integrity Unit to the Vice President level, providing sufficient budget and staff to get the work done more efficiently, and improving disclosure of INT reports making results of investigations publicly 

available. Treasury has consistently pushed the Bank to provide adequate resources for offices responsible for upholding high fiduciary standards in Bank 

lending and addressing potential corruption in Bank-financed projects, including Procurement Policy and Services, Institutional Integrity, and Internal 

Audit. The Bank has also worked to complete investigations in the 12–18 month 

timeframe recommended by the Volcker Panel. As a result, 82 of the 138 cases 

opened in WBFY 2009 were also closed within the same fiscal year. In WBFY 

2010, INT closed 238 cases, which is a 56 percent increase over the previous 

fiscal year. • The IDB is implementing the recommendations of the 2008 Thornburgh Report 

to improve its overall anti-corruption framework. Key changes include increasing the status of the Office of Institutional Integrity by making it an independent unit within the Bank’s basic structure, establishing an Anti-Corruption 

Policy Committee, creating a new Sanctions Committee (four of whose seven 

members will be from outside the IDB), and increasing protection for whistleblowers. • At the AfDB, the Integrity Function began working in 2006. Initially created 

to be housed under the Auditor General, the office now reports directly to the 

President. It is both reactive to and proactive in preventing corruption and 

fraud. The AfDB also has a Whistle Blower Policy and a corruption/fraud hotline. • At the AsDB, the separation the Integrity Division from the Auditor General’s 

Office was a key deliverable for the United States in the GCI–V negotiations. 

This separation has been completed. The purpose of this reform was to enhance 

the function of both offices, and align the institution with best practices. Of the 

new professional staff in 2010, two positions will strengthen the Anti-Corruption and Integrity Office and one will strengthen the Office of the Auditor General’s internal audit function. Our view is that the AsDB can further strengthen 

both offices through additional staffing and we will continue to press them to 

do so. Furthermore, we will press the AsDB to improve accountability in the 

institution. • The EBRD’s Chief Compliance Office (CCO) has been in place since 1999. As 

of January 2008, the EBRD requires automatic referral of any potential investments that involve Politically Exposed Persons and High Risk Sectors (property, 

natural resources) to the Chief Compliance Officer. The CCO reports functionally and administratively to the President, and has full and free access to the 

Chair of the Audit Committee. The EBRD’s Integrity Risk Policy and the Compliance Office’s Terms of Reference were updated in April 2009. 

All MDBs have functionally independent internal audit departments. The internal 

audit departments in all of the Banks conduct regular audits of internal management controls and procedures. 

• Most recently in 2010, the IDB revised the terms of reference for the Audit 

Committee to conform to internationally-recognized principles. These changes 

enhanced the functional independence of the internal audit department, by having this department report both to the President and to the Audit Committee 

of the Board. The IDB also updated and improved the charter of the Auditor 

General. 

• At EBRD, the Internal Audit Department (IAD) terms of reference were updated in April 2008. The Terms of Reference include specific provisions designed 

to protect the independence of all IAD staff reporting to the Head of Internal 

Audit, who reports functionally and administratively to the President and has 

full and free access to the Chair of the Audit Committee. 

• At the AfDB, the Auditor General reports to the President and to the Audit 

Committee and implements a robust, risk-based annual work plan of audits. 

Treasury has also pressed for strong Board oversight of the external audit function. We have urged the MDBs to put in place requirements regarding the appointment and governance of external auditors that will conform with international good 

practices. 

• In 2003, the World Bank Group adopted best-practice ‘‘Principles’’ for the appointment of the external auditor. The Principles include: a tenure of 5 plus 5 

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45 

tory rotation of the audit firm after 10 years; senior partner rotation every 5 

years; evaluation of the external auditors’ performance after 2.5 years; exclusion 

from pure consulting services; and only very limited ’audit-related’ consulting 

services to be approved on a case-by-case basis by the Executive Board upon the 

recommendation of the Board’s Audit Committee. • Since 2003, the IDB and AfDB have adopted, either formally or in practice, 

similar requirements for the hiring of their external auditors. 

One of the core elements in the U.S. strategy to increase MDB accountability is 

to improve disclosure of information on MDB operations and activities. 

• A signature achievement in 2009 was the revision of the World Bank’s information disclosure policy, which called for a major shift in approach under which 

disclosure is the norm, not the exception. In addition, the Bank has created a 

formal, independent appeals process, through which members of the public can 

seek disclosure if they believe it was wrongfully denied, and will release significant policy documents and certain project documents to the public at the same 

time that they are released to the Board. The process leading up to adoption 

of the new information policy was extensive, involving consultations in 33 countries and through the Bank’s external Web site. This allowed the Bank to consider the views of the public, including civil society organizations, parliamentarians, the private sector and other international organizations. • In 2010, the IDB agreed to a fundamental change in its access to information 

policy. The new disclosure policy is consistent with the highest standards applied by the revised World Bank policy, including the replacement of a ‘‘positive 

list’’ of documents that could be disclosed with a narrow ‘‘negative list’’ of reasons why a document could be withheld, a presumption of disclosure, release 

of Board/Committee minutes, an independent appeals mechanism, voluntary 

disclosure of Executive Directors’ statements, and disclosure of project-level 

results. • The AsDB’s Public Communications Policy is currently under review and is 

open for public comment on the Bank’s Web site. Furthermore, the AsDB just 

completed an outreach tour, which included Washington, DC. • The AfDB is reviewing its 2005 Information Disclosure policy this year. In keeping with best practice, the new policy will have an explicit presumption of disclosure, and will include the disclosure of Board and Committee minutes. The 

Bank continues to modernize and improve its Web site, where most of its documents can now be found. • The IFC is also reviewing its Information Disclosure Policy this year. • For its own account, the Treasury Department posts U.S. votes on all MDB 

projects on our Web site. Treasury posts U.S. positions on significant operational policies and on projects that have a significant impact on the environment, as well as reports to Congress, on topics such as extractive industries. 

All of the MDBs now have put in place project and institutional-level results 

frameworks. The United States has used negotiations for replenishments and capital increases to urge that the results frameworks are more extensive in scope, robust in measurement, and transparent in releasing results. 

• The AsDB management developed a robust AsDF results framework to guide 

the implementation of the AsDF–10 replenishment. Further, the Bank subsequently expanded the framework to an AsDB-wide results framework to be updated annually, called the Development Effectiveness Review (DER). The results framework covers key benchmarks and indicators on the country, regional, 

and project levels, as well as on the institution’s operational effectiveness. The 

DER feeds directly into the development of the AsDB work plan and budget. 

This is a major accomplishment for the AsDB. 

• One of the most significant outcomes of the IDB GCI process is the requirement 

that the IDB now publicly disclose, ex-ante, project-level evaluability analyses, 

compliance with institutional priorities, and economic rate-of-return calculations 

for projects approved that year. The IDB must also publicly disclose, ex-post, 

impact evaluations for any projects evaluated in that year, including private 

sector projects. 

• In the negotiations for the AfDB GCI, Bank Management agreed to expand its 

Results Framework into a Bank-wide effort, with core sector indicators, and results reporting for middle income and private sector lending (concessional financing for low-income has already been covered). In addition, Management 

will implement cross-disciplinary ‘‘readiness reviews’’ for country strategy papers. (‘‘Readiness reviews’’ are already being implemented to improve the quality of project design.) A major upgrade of the Bank’s project supervision is 

aimed at making supervision more risk-based and results-oriented. 

46 

• The World Bank’s IDA16 Results Measurement Framework will expand the use 

of common ‘‘core sector indicators,’’ which can be measured across countries. 

The United States is also pressing for IDA to more effectively incorporate 

project impact evaluation to improve accountability and inform the deployment 

of limited development resources. 

• The EBRD has a robust results framework. All projects considered by the 

EBRD are assigned an ex ante ‘‘transition impact potential’’ rating and a ‘‘risk 

to transition impact’’ rating by the Office of the Chief Economist. In its Annual 

Report, the EBRD reports on the share of new projects approved that year that 

were given a ‘‘good’’ or ‘‘excellent’’ transition impact rating. For 2009, the level 

was 89 percent. In addition, the EBRD maintains a Transition Impact Monitoring System that tracks the progress of projects through their life cycle, assessing whether transition impact benchmarks have been met and adjusting 

project ratings accordingly. 

All of the MDBs have functionally independent evaluation units that are essential 

to make sure that there is credible, impartial assessment and reporting on their 

work. 

2. Country Level 

All of the MDBs recognize the risk that corruption poses to the fulfillment of their 

mandates to promote economic growth and poverty reduction. They each have developed strategies to combat corruption both in their institutions and on the projects 

and programs that they finance. 

• In 2009, the IDB approved a new action plan for Bank support to its member 

countries in their efforts to fight corruption and foster transparency. The plan 

calls for the Bank to support countries’ implementation of international conventions against corruption, and encourages the involvement of the private sector 

and civil society in institutional strengthening. 

• The AfDB’s Governance Strategic Directions and Action Plan guides AfDB work 

at the country, sector, and regional levels. The Bank is helping strengthen Africa’s economic and financial governance structures so that public resources are 

managed transparently and accountably. The AfDB is focusing heavily on the 

fragile states that are coming out of conflict where institutions are weak or nonexistent. Given that the Bank is heavily engaged in infrastructure, the Bank 

has focused on the importance of addressing corruption and fraud in procurement practices. The Bank has recently released guidelines for identifying fraud 

in infrastructure projects. The Bank also recently released its guidelines for developing projects in resource-rich countries. It is working on a natural resources 

strategy as well, another area prone to corruption and abuse. 

• The World Bank’s Governance and Anticorruption Strategy (GAC) was endorsed 

by the Board in 2007. Since that time, the Bank has identified 27 countries for 

heightened attention to governance and anti-corruption, and has begun to develop actionable governance indicators to better target Bank assistance and 

monitor progress. All country assistance strategies now incorporate governance 

and anticorruption measures in their design. Since the adoption of the GAC 

strategy, Treasury has advocated for mainstreaming implementation of this 

strategy throughout the Bank’s work. In regular and frequent engagement with 

Board members, senior management and Bank staff, Treasury has emphasized 

the need to include GAC elements in country strategies, projects, loans and the 

Bank’s operating procedures. For example, after pressure from the United 

States, the Bank committed to disclose to the Board any ongoing investigations 

on previous projects that might be relevant to discussion of present projects. 

• Treasury has encouraged the MDBs to support the principles of the Extractive 

Industries Transparency Initiative (EITI) in their policy, operational and diagnostic work. All of the MDBs have now endorsed EITI and are increasingly integrating EITI principles into their operations. This has helped 27 candidate 

countries—17 of which are in sub-Saharan Africa—comply with the EITI principles. Treasury consistently stresses the importance of resource revenue transparency in Executive Board discussions and our loan review analysts scrutinize 

MDB investment projects, country and sector strategy papers, and technical assistance for compliance with legislation on the extraction of natural resources. 

Transparent and accountable management of extractive resources is a critical 

issue, particularly in Africa, and Treasury will continue to press for effective 

MDB engagement. 

Æ The AfDB has supported the efforts of borrowing member countries, such 

as Liberia, to adhere to the disclosure standards of EITI through technical 

assistance, policy advice, and regional training. 

47 

Æ Following strong U.S. leadership during negotiation of IDA14 (covering the 

period 2005 through 2008), the World Bank agreed to require recipient governments to have in place, or to be in the process of establishing, functioning systems for accounting for revenues and their use. 

• In 2007, the World Bank, in coordination with the United Nations Office on 

Drugs and Crime, established the Stolen Asset Recovery Program to work with 

developing countries and financial centers to fight money laundering, and help 

countries identify and recover stolen assets. The Bank is working with seven 

countries that have requested assistance, and other countries have expressed 

interest in receiving support. • The EBRD and IFC advise companies and banks on ways to strengthen their 

corporate governance practices, including by improving Board arrangements, 

strengthening shareholder rights, and putting in place better internal controls 

and reporting practices. 

3. System-wide 

The MDBs have established an Investigators and Integrity Forum to work toward 

a harmonized approach to combat corruption in the activities and operations of the 

member institutions. 

• At the 2006 World Bank Annual Meeting, the heads of the MDBs agreed to 

common definitions of fraudulent and corrupt practices. They also agreed to a 

set of principles and guidelines for investigations conducted by their respective 

integrity units. • In April 2010, heads of the MDBs signed an historic agreement on cross-debarment that adds a strong MDB accountability tool to deter fraud and corruption. 

Firms or individuals that have been sanctioned for fraud and corruption by one 

MDB will now be debarred by all MDBs. World Bank President Bob Zoellick 

summed it up by saying ‘‘With today’s cross-debarment agreement among development banks, a clear message on anticorruption is being delivered: Steal and 

cheat from one, get punished by all.’’ • The EBRD has followed up in May 2010 with an update of its policies to implement cross-debarment. 

• The IFI Heads of Procurement Working Group has made important contributions to harmonizing procurement rules. The Group is promoting more accountable procurement processes through increasing harmonization of procurement 

rules, including the development of standard bidding documents that are widely 

recognized as an international best practice. 

• The IFIs have also established an Evaluation Cooperation Group and an MDB 

Common Performance Assessment System (COMPAS) group. 

APPENDIX 3: U.S. OWNERSHIP IN MDBS

Institution Current capital 

base ($ billion) 

Proposed 

increase 

($ billion) 

U.S. Share of 

increase 

($ billions) 

U.S. Share of 

new paid-in 

capital 

($ millions) 

U.S. Ownership 

Share (%) 

IBRD (GCI) ......................................... 190 58 9.8 587 16.8 

IBRD (SCI) ......................................... 190 28 4.7 279 16.8 

AfDB .................................................. 33 66 4.4 234 6.6 

AsDB .................................................. 55 110 15.7 107 15.6 

EBRD ................................................. 30 15 1.3 0 10.0 

IDB ..................................................... 101 70 21.0 515 30.0 

U.S. ownership share will remain unchanged by the capital increase process, provided payment requests are fully funded. Should U.S. payments lag those of other shareholders, our ownership share would decline. If U.S. ownership fell below 15% of IBRD votes, the United States 

would lose its ability to veto modifications to the Articles of Agreement. Failure to fully fund a U.S. contribution to the IDB will limit the ability of other shareholders to contribute, and limit the impact of the GCI, as the United States cannot fall below 30% of total voting power 

under the IDB’s Articles of Agreement. 

PREPARED STATEMENT OF WALTER JONES, UNITED STATES EXECUTIVE DIRECTOR OF

THE AFRICAN DEVELOPMENT BANK

Chairman Kerry, Ranking Member Lugar, and members of the committee, thank 

you for this opportunity to submit a statement on the record regarding the United 

States engagement in and support of the African Development Bank Group (‘‘AfDB’’ 

or ‘‘the Bank’’). 

The African Development Bank is widely recognized as one of the world’s leading 

institutions supporting economic growth and development in Africa. Through its operations, the AfDB provides loans, grants, budget support as well as a wealth of ecoVerDate Nov 24 2008 16:01 Dec 13, 2010 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6621 H:\DOCS\0915BANK.TXT SENFOR1 PsN: BETTY
48 

nomic and market research data. Today, particularly as a result of the ongoing global financial crisis, the Bank has emerged as a key player in stabilizing and shielding 

African economies from global volatility. By providing record amounts of credit, 

budget support, trade finance and capacity-building assistance, particularly during 

the height of the global crisis, the Bank cemented its role as an indispensable tool 

to promote growth and expansion in Africa. 

SUPPORTING ECONOMIC GROWTH AND THE POOREST

In response to the G20’s call on the multilateral development banks to assist developing countries in countering the effects of the financial crisis, the AfDB increased lending in 2009 to almost $9 billion from the AfDB and nearly $4 billion 

from the concessional African Development Fund. This compares to precrisis annual 

lending of $1.5–$2.5 billion, placing considerable strain on the AfDB’s balance sheet. 

If not for provision of temporary callable capital by Canada and Korea, the Bank 

would have breached its statutory debt limit in 2010. The increase in lending to the 

private sector, especially in low-income countries, as well as renewed demand for 

public sector lending from middle-income countries would have exhausted the 

Bank’s available risk capital by 2013. 

Thus, a significant general capital increase (GCI) of 200 percent, with 6 percent 

paid in, is necessary to support the Bank’s continued role in promoting African 

growth and poverty reduction. The GCI was approved by the Bank’s Board of Governors at the May 2010 Annual Meeting in Abjidjan, Cote d’Ivoire. Once implemented, the 200 percent GCI will provide for a sustainable lending level of over $5 

billion a year, while without a GCI, sustainable lending would drop below precrisis 

levels to less than $2 billion. Similarly, the African Development Fund will have 

fully utilized the record level of resources from its 11th replenishment by end-2010. 

Strong support for the ambitious United States AfDF–12 replenishment pledge will 

also be required to meet the needs of Africa’s poorest countries. 

Recent improvements in the Bank’s operations have led to a greater capacity to 

deliver meaningful support to its constituent countries and ensure effective use of 

shareholders’ capital and donor contributions. Such improvements would not have 

been possible without steadfast U.S. support and without a senior management 

team led by President Donald Kaberuka, who himself sought to bring about positive 

changes and operational efficiencies. Under current leadership, the Bank has implemented far-reaching reforms and has begun to institute a culture of results and 

accountability. Continued Bank leadership and success is not only important for 

Africa, but it is likewise of critical importance for the United States and for our 

economy. 

A few statistics are useful to underscore this conclusion. For example, in a May 

2010 report, the U.S. Department of Agriculture noted that over the past 10 years, 

U.S. agricultural exports to sub-Saharan Africa had grown ‘‘at a faster pace than 

exports to the top five U.S. export markets combined.’’ The Department of Agriculture report goes on to state that growth in commercial shipments alone—excluding food aid and focusing solely on agriculture exports generated exclusively through 

actual commercial sales—increased by an astounding 326 percent. The report also 

states that those commercial agriculture shipments to Africa exceeded U.S. shipments to all of South Asia, whose population is more than twice that of sub-Saharan 

Africa. These figures illustrate the tremendous growth in commercial ties between 

the United States and Africa, particularly in agriculture, which of course, lead to 

job creation right here at home. Furthermore, these figures highlight the importance 

of a strong, vibrant Africa for the U.S. economy. 

The rise in exports and in overall economic ties between the United States and 

Africa is largely a result of Africa’s impressive economic growth over the past few 

years. While many world economies contracted in 2009, growth in sub-Saharan Africa’s low-income countries averaged more than 4 percent. This growth has led to an 

unprecedented expansion of an African consumer class that has fueled domestic consumption, which, in turn, has generated an increase in imports. As African economies expand, as their populations gain more access to credit and as the African 

middle class grows, so too will demand for U.S. exports, demand for U.S. direct investment, and the need for stronger overall economic ties between the two. Clearly, 

there is a link between Africa’s growth, development of an African consumer class, 

and in the associated economic benefits for the United States. Given this 

unassailably symbiotic relationship, the African Development Bank’s role in promoting African growth and expansion is, therefore, of paramount interest to our 

country. 

By virtue of its presence on the continent, the makeup of its membership and the 

institutional expertise and knowledge base that it possesses, the African DevelopVerDate Nov 24 2008 16:01 Dec 13, 2010 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6621 H:\DOCS\0915BANK.TXT SENFOR1 PsN: BETTY
49 

ment Bank is an institution whose success is vital to our own commercial, economic, 

and national security interests on the continent. Through its capacity-building programs, the Bank is helping to strengthen African governments and institutions so 

they become more accountable to their citizens and more effective in meeting the 

growing needs of their population. African Development Bank loans also support infrastructure projects throughout the continent that help bring power to areas where 

there was none, and water that has turned arid land into fertile landscapes. The 

Bank has become the leading financier in promoting regional integration in Africa. 

Roads financed by the Bank create new markets for agricultural products, which 

leads to greater income distribution, wealth generation, and food security, particularly in rural areas. Loans to local African banks have helped to expand the availability of credit to burgeoning private sector firms. Private equity funds, including 

several managed by U.S. fund managers, have benefited from African Development 

Bank investment, which has enabled them to provide equity critical to indigenous 

private sector growth. 

ADDRESSING NATIONAL SECURITY AND TRANSNATIONAL CHALLENGES

An area where the security of the United States is affected is in the Bank’s programs and support for fragile states. In many cases, these countries have the potential to become security risks and unstable areas where forces contrary to United 

States interests can take hold and potentially operate with impunity. Support for 

fragile states, by strengthening governance and building government capacity and 

restoring infrastructure, is a major operational focus for the Bank and one where 

it has committed considerable human and financial resources. Through Bank assistance, it is hoped that rebuilding and strengthening those countries will allow them 

to become integral members of the world community rather than potential soft targets for civil unrest and instability. 

In response to transnational challenges, the Bank has increased its projects’ emphasis on enhancing food security and mitigating and adapting to climate change. 

IMPLEMENTING OUR REFORM AGENDA

The recent increase of Bank operations has, indeed, tested the strength of the institution. Senior management has undertaken several internal assessments to determine how best to meet these new challenges while instituting meaningful, effective 

reform. Our own government has been a strong and vocal advocate of such reform. 

We leveraged the GCI discussions to obtain agreement from Bank management on 

a robust reform agenda, reflected in a reform matrix that Governors adopted at the 

annual meetings in May. These reforms were informed by consultations with Congress, and specifically from the members and staff of this committee. For example, 

the United States has pressed Bank management to reform its income model to assure, inter alia, that additional funds out of Bank net income be made available and 

transferred to the Bank’s soft (concessional) loan and grant window that targets the 

poorest countries. A repricing exercise was also undertaken to assure that Bank 

lending rates at least cover operational expenses. The Bank is reviewing and 

strengthening its approach to risk management to meet the challenges of increased 

private sector lending, and the Integrity and Anti-Corruption unit has been given 

more prominence. 

The United States has likewise been insistent on deepening a culture of transparency and accountability at the AfDB. A review of disclosure policy and practice 

is underway, with the intention of moving to a policy based on best practices and 

a presumption of automatic disclosure. By publicly posting the matrix, the Bank can 

be held accountable when it fails to reach a reform milestone. Similarly, the United 

States has also insisted that the Bank publicly post on its Web site the names of 

individuals and companies debarred by other MDBs. This so-called ‘‘cross debarment’’ was memorialized in the Luxembourg Agreement, which the Bank recently 

signed. Although there is more progress to be made in this area and the United 

States continues to press Bank management to be more expeditious in identifying 

and posting such names, we are confident that the Bank will take its responsibility 

seriously. 

The United States has also been persistent in calling for the Bank to embrace a 

new culture of self-assessment and results. To this end, the Bank has adopted an 

impressive results measurement framework that implements a comprehensive system to assess Bank performance at key intervals. The new approach requires a 

change in mindset. Instead of a formerly, somewhat robotic ‘‘programming culture’’ 

that analyzed results and outputs post-facto, the new guidelines call for focusing on 

desired outcomes and ways to produce or achieve those outcomes. Readiness reviews 

are now performed on all projects to assure quality-at-entry, and the Bank is movVerDate Nov 24 2008 16:01 Dec 13, 2010 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6621 H:\DOCS\0915BANK.TXT SENFOR1 PsN: BETTY
50 

ing to a continuous supervision process complemented by an automated results reporting system. This has led to fostering a ‘‘culture of results’’ that will allow more 

critical self-assessment and enhanced delivery of products and services. 

The Bank has made noteworthy strides in other areas as well, such as in promoting gender equality in its projects. 

Although there is certainly much to praise, the Bank admittedly must continue 

to improve in many areas of its operations. A major decentralization effort is now 

underway. Great care needs to be taken so that problems within the Bank are not 

repeated or propagated as it expands its footprint across the continent. Furthermore, in undertaking new initiatives, the Bank must be careful to make an objective 

assessment of its own internal capabilities and available budget resources before announcing unrealistic timetables or goals. The performance-based employee evaluation system needs to be fully implemented, and the Bank should strive to improve 

its ability to attract, retain, and reward outstanding staff. The Bank must likewise 

improve its internal operations to assure that its employees receive adequate IT, 

telecommunications, logistical support, and training. 

A STRONG AFRICA BEGETS A STRONGER AMERICA

While there remain areas where we continue to advocate for further progress, the 

strides and accomplishments achieved by the African Development Bank to date are 

far more noteworthy. Continued, active United States participation in the African 

Development Bank is an investment in our own country’s economic growth. A strong 

Africa begets a stronger America. African markets present U.S. companies with attractive growth opportunities. An active United States presence in the Bank helps 

to assure that our values of transparency, good governance and sound environmental stewardship continue to resonate throughout. Through our efforts, the 

United States has been able to play a leading role in bringing about many of the 

key reforms noted herein. Continued strong U.S. support and leadership within the 

Bank help to assure that those reforms remain grafted onto the very fabric of the 

institution, and provide the impetus for even greater effectiveness and more meaningful contributions to Africa’s development. 

PREPARED STATEMENT OF JAMES L. HUDSON, UNITED STATES EXECUTIVE DIRECTOR

OF THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

The European Bank for Reconstruction and Development (EBRD) invests in 

projects that foster entrepreneurship from Central Europe to Central Asia. By 

strengthening local economies, developing the private sector, and establishing foundations for long-term economic growth, the EBRD remains an important institution 

to help the United States stabilize the global economy and foster sustainable development. Additionally, our support of the EBRD furthers our own objectives in the 

region. The EBRD supports political stability and promotes democracy in volatile 

areas such as Ukraine, Kosovo, Georgia and the Caucasus, the Kyrgyz Republic and 

the Central Asian states that border Afghanistan. And EBRD support helps firewall 

the more fragile economies in the region from economic challenges, such as those 

recently experienced by the Eurozone economies. 

CRITICAL FINANCIAL CRISIS SUPPORT

The global financial crisis severely impacted the economies of Eastern Europe and 

the former Soviet Union. Among emerging markets, Eastern Europe experienced the 

largest reversal in economic output, large declines in foreign capital flows, and is 

recovering more slowly. The EBRD was critical to reducing the impact on these 

economies from the crisis as it responded with speed and vital support, increasing 

its 2009 business volume by 55 percent over the previous year and assuming considerable risk in the process. In 2009, the EBRD outlined a bold operational response 

in Ukraine, where currency devaluation, output and commodity price collapses, and 

political turmoil threatened systemic collapse. 

In early 2010, as I assumed my duties at the EBRD, the institution was undertaking a capital resources review. Following their analysis, EBRD shareholders 

agreed on a 50-percent capital enhancement in May 2010 based on the institution’s 

use of resources during the crisis. The capital enhancement has a unique structure 

that was the result of aggressive negotiating by the United States to achieve our 

primary objectives of securing a temporary capital increase while preserving EBRD’s 

core mission as a transition bank. 

The structure consists of a transfer of ÷1 billion ($1.5 billion using a conservative 

exchange rate) from EBRD’s reserves to its permanent capital base and a new 

51 

contribution of ÷9 billion ($13.5 billion) in temporary callable capital by all shareholders on a pro rata basis. The U.S. is the largest single shareholder, with 10 percent of EBRD capital, making our contribution ÷900 million ($1.35 billion) of 

temporary callable capital. This contribution requires congressional authorization. 

Temporary callable capital is an innovative instrument. It is structured so that 

excess callable capital will be cancelled in the future, as long as the EBRD meets 

its prudential ratios. The advantages of this instrument are that: (a) no new paidin capital is needed; and (b) the EBRD will have sufficient callable capital to increase investments to help crisis-affected countries in its region recover, while the 

shareholders of the Bank can manage future growth by cancelling excess capital. 

As a multilateral development bank whose lending is 75 percent oriented to the 

private sector and 25 percent to the state sector, EBRD is guided by three criteria: 

(1) sound banking; (2) additionality; and (3) transition impact. These criteria are intended to ensure that the EBRD makes commercially viable investments that do not 

compete with private capital markets and that develop markets by increasing private ownership, enhancing competition, reforming corporate governance, and improving regulation. By having a mechanism to cancel excess capital, the shareholders can keep EBRD focused on its core transition mandate and avoid mission 

creep. 

Initially, this structure was strongly opposed by some shareholders who preferred 

a traditional paid-in permanent increase. Ultimately, our approach prevailed because we were able to build a consensus that this mechanism gave EBRD sufficient 

resources for crisis response in the medium term and that it was sufficiently flexible 

to allow the Bank to respond to future changes. Critically, the U.S. was able to retain consensus that graduation from EBRD lending is expected for the first group 

of EU accession countries. The capital increase was underpinned by critical policy 

reforms, summarized below: 

EBRD REFORMS

Sound Finances 

• In March 2009, EBRD reinterpreted its gearing ratio to use its existing capital 

base more efficiently. 

• In December 2009, EBRD adopted a new Economic Capital Policy to provide it 

with additional lending flexibility while protecting its AAA status, despite its 

high risk, predominantly private sector portfolio. 

Transparency and Accountability 

• Between 2008 and 2010, the EBRD revised its Enforcement Policy and Procedures to be in line with Uniform Framework for Preventing and Combating 

Fraud and Corruption and allow for mutual enforcement of debarment decisions 

of other international financial institutions. 

• In March 2010, EBRD launched a new accountability mechanism, the Project 

Complaint Mechanism, to independently assess and review complaints about 

EBRD financed projects. The Project Complaint Mechanism replaces an older 

accountability mechanism and is designed to be more accessible to the public. 

FURTHERING THE TRANSITION MISSION AND SUPPORTING U.S. PRIORITIES

Food Security 

• The Agribusiness Strategy approved in July 2010 scales up investment in primary agriculture in order to help the EBRD region exploit agricultural potential 

and contribute to global food security. Twenty percent of EBRD transactions in 

2009 were in the agribusiness sector. 

Local Capital Market Development 

• EBRD, working closely with national institutions and other international financial institutions, is expanding its efforts to develop local capital markets and 

local currency finance in its region to prevent reliance on risky foreign currency 

finance. Underdeveloped capital markets and a lack of local currency lending 

left the EBRD region vulnerable to exchange rate shocks. Addressing this weakness is a key lesson of the recent crisis. 

Climate Change Mitigation 

• In 2009, EBRD launched the second phase of its Sustainable Energy Initiative, 

which makes investments in energy efficiency climate change mitigation and 

adaptation in the region—which is one of the most energy intensive in the 

world. The investments focus on the industrial, power, buildings, transport and 

municipal sectors; renewable and biomass energy; and working with local banks 

52 

to promote energy efficiency in the small business sector. EBRD has set a target 

of investments resulting in 25–35 million tons of carbon dioxide reductions annually. 

In conclusion, the EBRD supports key U.S. international economic and foreign 

policy objectives. The EBRD is the largest single financial investor in its region. 

Through our shareholding, the United States shapes the development of market 

economies in Eastern Europe and the former Soviet Union. EBRD’s nimble crisis response in 2009 demonstrates its value to the United States in helping respond to 

challenges. 

PREPARED STATEMENT GUSTAVO ARNAVAT, UNITED STATES EXECUTIVE DIRECTOR OF

THE INTER-AMERICAN DEVELOPMENT BANK

Chairman Kerry, Ranking Member Lugar, and members of the committee, thank 

you for the opportunity to submit this statement regarding the Inter-American 

Development Bank (IDB or Bank), and the case for the proposed general capital 

increase (GCI). 

The IDB is the largest source of development finance in the Western Hemisphere, 

providing 26 borrowing member countries close to 50 percent of their multilateral 

financing. Between 1994 and 2009, the Bank financed over 1,400 projects for a total 

of $125 billion, averaging approximately $7 billion per year. Since 2007, lending to 

the region increased sharply, reaching $15.5 billion in 2009, as the Bank mobilized 

its resources in the wake of the global financial crisis. This lending has helped, directly or indirectly, the roughly 580 million people of the Latin American and Caribbean members of the Bank to improve their lives through enhanced economic opportunity and stronger support to defeat poverty in their communities. 

The proposed capital increase is designed to allow the Bank to lend an average of $12 billion per year; without it, the IDB would be forced to reduce lending to approximately $7 billion per year, well below our estimates of the borrowing needs of 

the member countries. This would mean curtailing critical programs aimed at reducing poverty, stabilizing economies, promoting private sector growth, and improving 

the health and education of vulnerable populations, among others. 

As the largest shareholder at the IDB, the United States leadership was vital to 

the negotiations regarding the proposed GCI during the Annual Meeting of IDB 

Governors in March 2010. The U.S. reform agenda, which was developed based upon 

congressional input and specific comments from members and staff of this committee, was successfully incorporated and linked to the discussion of resources. 

Based on this engagement, and the subsequent discussions I had with executive directors and the Bank’s senior management on how to implement the mandates and 

guidance provided by Governors, I believe we have achieved a GCI agreement that 

merits strong U.S. support. Among the signature achievements is the agreement that at least $200 million 

per year from 2010–2020 will be transferred from the Bank’s ordinary capital to the 

Grant Facility established for Haiti’s reconstruction and development. In addition, 

we achieved an agreement to eliminate all of Haiti’s remaining debt held by the 

Bank, which was equal to $661 million in nominal terms. These commitments will 

mean real opportunity for the poorest in Haiti, and are a testament to the necessity 

and importance of continued U.S. support for and engagement in the IDB. The 

agreement also ensures the financial viability of the IDB’s concessional window, the 

Fund for Special Operations (FSO), over the next decade. The FSO supports the region’s poorest countries through highly concessional lending. 

The United States used the GCI negotiations not only to recapitalize the institution, but also to improve the strategic direction of the Bank, as well as consolidate 

key institutional reforms with the aim of promoting management for development 

effectiveness and enhanced safeguards, transparency, accountability, disclosure and 

financial and risk management policies and practices. Supporting this capital increase will reinforce the United States commitment to the region, and its leading 

and historic role in promoting the sustainable economic growth of its neighbors, a 

commitment rooted in the proposition that an economically strong and politically 

stable region ultimately benefits the economic and security interests of the United 

States. 

IDB REFORMS

Not only does the GCI agreement include a Results Framework to monitor the 

institution’s performance, but for the first time as part of a capital increase at the 

Bank there will be an independent mid-term review of progress achieved in implementing the Governors’ directives. Specifically, the Bank’s implementation of the 

53 

agreed reforms will be subject to a full review by the IDB’s Independent Evaluation 

Office by March 2013, culminating in a report to Governors assessing the extent to 

which the Bank has fulfilled these mandates. The following are among the key reforms agreed by Governors: 

Strategic Focus on Core Missions. Based on discussions with the United States 

and other shareholders during the GCI negotiations, the IDB agreed to focus more 

intensely on the following core priorities: reducing poverty and inequality, ensuring 

sustainable development, addressing energy and climate change challenges, focusing 

on the special needs of the poorest countries, promoting regional integration, and 

fostering development through the private sector. In addition, Bank management 

will adopt sector strategies and notional lending targets for the following urgent regional needs by the first quarter of 2011: regional integration infrastructure and 

technical assistance; better education performance; broader private sector access to 

finance, particularly for SMEs; renewable energy; and, climate change adaptation 

and mitigation. 

Management for Development Effectiveness. The IDB will implement a new development effectiveness matrix to improve the quality of the Bank’s loan portfolio. The 

Operations Policy Committee, headed by the Executive Vice President of the Bank, 

will ensure that only projects that meet a quantitative minimum development effectiveness threshold will be forwarded to the Board of Executive Directors for consideration. 

Safeguards. The IDB will adopt updated environmental and social safeguards that 

are fully consistent with the recommendations of the independent advisory group on 

sustainability in its final report (due before the end of 2010) and in line with international best practices. Moreover, the Bank will implement new and rigorous safeguards against lending into unsustainable macroeconomic situations. 

Transparency, Accountability and Disclosure. One of the most significant outcomes 

of the reform discussion during the GCI negotiations is that the IDB has agreed to 

publicly disclose ex-ante project-level evaluability analysis, compliance with institutional priorities, and economic rate-of-return or cost effectiveness calculations for 

projects, as well as ex-post impact evaluations for all projects, including private sector projects. The Bank has also put in place a new Independent Consultation and 

Inspection Mechanism with high standards of independence and transparency. In 

addition, the Bank has adopted a new access to information policy consistent with 

the highest standards applied by other international financial institutions that includes the replacement of a ‘‘positive list’’ of disclosed policies with a limited ‘‘negative list,’’ a presumption of disclosure, release of board and committee minutes, an 

independent appeals mechanism, and voluntary disclosure of statements by Executive Directors. 

Sound Financial Management. The IDB has agreed to important new approaches 

to the stewardship of its resources. The Bank will implement a newly approved capital adequacy policy this calendar year and management will develop and adopt a 

corporate strategy for results-based budgeting for its 2011 budget. In addition, the 

Bank has adopted a comprehensive income management model that allocates income and adjusts loan pricing to cover the Bank’s complete lending and grant programs, minimum annual transfers of $200 million to the above-mentioned Grant 

Facility for Haiti, a capital accumulation rule that preserves the financial soundness 

of the Bank, administrative expenses, and requirements of the Bank’s capital adequacy policy. Any changes in expenses must generate an automatic offsetting adjustment in loan charges or other expenses. 

In conclusion, for more than 50 years, the role of the United States at the Bank 

has been to ensure that the investments made by the American people through the 

IDB are sound financially and lead to the economic and social development of our 

neighbors in Latin America and the Caribbean. While the primary beneficiaries of 

the Bank’s projects (loans as well as technical assistance and, in some cases, grants) 

are the 26 borrowing countries, the Bank’s overall objective of fomenting economic 

growth and reducing poverty in the region benefits the United States and its citizens and businesses from the resulting increase in demand for American goods and 

services. The United States also benefits because economic growth in the region, 

coupled with sound social policies, should lead to increased prosperity among its citizens and greater social stability, which also tends to promote greater democracy and 

security. In short, we believe strongly that the GCI for the IDB will benefit both 

the region and the United States. 

54 

RESPONSES OF ASSISTANT SECRETARY MARISA LAGO TO QUESTIONS SUBMITTED BY

SENATOR RICHARD LUGAR

Question. In your written testimony and during the question and answer session, 

you explained that as the administration weighed the capital requests of the various 

development banks, it considered the capacity of each MDB, demand for MDB resources, and focus on the core mandates of each MDB. Would you please explain 

in detail how the administration arrived at the general capital increase request levels for each MDB? Please explain the variances in the requests. 

Answer. Each bank confronted a different set of challenges. Accordingly, the factors we considered differed widely, and the outcomes were similarly variable. For 

example, the Asian Development Bank (AsDB) management sought shareholder 

support for a 200-percent increase to avoid a steep decline in lending (from $8 billion annually to $4 billion annually). This forecast, coupled with management’s willingness to adopt a robust reform agenda, was key to securing the administration’s 

support for the Bank’s request. 

Similarly, the African Development Bank (AfDB), which started with a relatively 

low sustainable lending level of $1.8 billion per year, faced increasing demand for 

sovereign and private sector lending well before the crisis. By 2008, lending had increased to over $2.5 billion, and management had indicated that the Bank would 

need to seek new capital in 2012 to avoid a sharp decline in lending below the annual $1.8 billion level. The Bank’s acceleration in crisis lending after 2008 further 

accelerated the timeline for considering a capital increase. Management also made 

a compelling argument that regional demand—especially for infrastructure projects 

and private sector lending—had the potential to increase significantly. Here, too, 

management proved receptive to making significant reform commitments. As a 

result, we chose to support management’s request for a 200-percent increase. 

The Inter-American Development Bank (IDB) initially sought a 200-percent General Capital Increase (GCI) as well, premised on a sustained downturn in the region. However, Latin America proved more resilient than projected, which led shareholders to consider a more modest request. Ultimately, we agreed to support a 

smaller capital increase of 70 percent because it enabled the Bank to provide significant new funds to the poorest countries, especially Haiti, and helped leverage reforms that we had been seeking, including a new capital adequacy policy, an improved inspection panel and a more robust disclosure policy. 

We also found the European Bank for Reconstruction and Development (EBRD) 

GCI request compelling, chiefly because its borrowing countries were among the 

hardest hit by the crisis. However, because we continue to expect EU accession 

countries to begin graduating, we advocated for a temporary increase in callable 

capital, which did not require any paid-in amount. We felt that this option, which 

other shareholders ultimately agreed to, would enable the EBRD to sustain its support for the region’s recovery, but still be able to scale back when appropriate. The 

EBRD also addressed our concerns about excessive focus on the advanced transition 

economies by approving new business targets designed to increase the geographic 

diversification of projects and recommitting to work with EU accession countries on 

a graduation path. 

Finally, we supported management’s request at the World Bank because of its 

projections that its crisis-lending would cause the Bank’s equity to loan ratio, the 

traditional measure of the Bank’s capital adequacy, to fall below its prudential ratio 

of 23 percent starting in July 2013, or result in a drop in lending authority from 

an average of $15 billion a year (before the crisis) to below $8 billion a year starting 

in 2011. In addition, we believed that additional resources were necessary to 

strengthen the Bank’s capacity to complement U.S. bilateral programs and support 

major U.S. policy priorities, such as food security and climate change. 

To help ensure the long-term financial sustainability and responsible oversight of 

the Bank’s finances, management also agreed to a new financial framework that 

unifies decisions on budget, pricing, and net income transfers. And, to further improve a focus on results, the Bank agreed to implement a corporate ‘‘scorecard’’ to 

assess the Bank’s performance and to more closely link performance evaluation to 

results. 

Question. Were larger general capital increases offered to MDBs that agreed to 

more significant reform packages? If so, why? Are we rewarding reformers or rewarding the MDBs that were in the worst condition to begin with? Would it be fair 

to assume that the MDBs should want to improve on their own? 

Answer. Although we took the opportunity to seek new reforms in the GCI negotiations, we made no explicit links between the size of the GCIs and the reform commitments. Rather, we arrived at GCI levels that we believed best reflected the needs 

55 

1 Except the EBRD, which has no concessional window. 

of the institutions, factoring in demand in their regions of operation and capacity 

to deliver. On a parallel track, we developed a reform and policy agenda for each 

institution and made clear that our support for a GCI would require satisfactory 

commitments on the reforms from management and by the other shareholders. 

Question. Will the capital increases benefit middle-income countries more than 

poor countries? How will the capital increases raise grant support for the poorest 

countries? 

Answer. The capital increases were supported by all borrowing country shareholders at the MDBs, and will benefit both poor and middle income countries. A key 

reason for this is that a major outcome of the GCI negotiations at each MDB was 

to prioritize the transfer of income earned from lending to middle-income countries 

to the MDBs’ concessional lending windows.1 In fact, as part of its GCI, the IDB has committed to transferring over $2 billion of its income over the next 10 years 

to support Haiti’s reconstruction and development. Also, in the AfDB, AsDB and 

IDB, the GCIs will support increased lending to the private sector in low-income 

countries directly through the hard loan windows. Finally, the regional development 

banks have agreed to focus more on increasing regional linkages, strengthening connections between neighboring middle- and low-income countries, boosting growth for 

each. 

Question. By MDB, please note the formula for transferring funds from the regular lending windows to the subsidized lending and grant windows. Are some MDBs 

providing significantly more assistance to poor countries than others? Please list the 

amount of grants and subsidized loans offered to poor countries by each MDB. 

Answer. During GCI negotiations, the United States placed high priority on securing commitments to increase the transfer of MDB net income to support 

concessional assistance through MDB soft loan windows. 

• AsDB management committed to triple net income transfers for AsDF to $120 

million per year from $40 million per year. • AfDB management committed to increase net income transfers for AfDF to SDR 

$35 million ($53 million) per year from SDR $20 million ($30 million) per year. 

The AfDB also committed to provide at least 75 percent of its total net income 

to low-income country support (primarily contributions to AfDF, but it could 

also include contributions to arrears clearance, debt relief, and technical assistance grants to low-income countries). The latter measure will ensure that the 

AfDF will also benefit in years where AfDB net income is exceptionally high. • IDB management agreed to transfer $200 million per year in net income to the 

IDB grant facility, which currently benefits only Haiti. (Four additional lowincome countries have access to concessional loans from the Fund for Special 

Operations; the FSO does not receive net income transfers from the hard loan 

window of the IDB.) • World Bank management agreed to maintain IBRD transfers to IDA flat in real 

terms (presently about $635 million per year) until the IBRD’s equity/loan ratio 

recovers to 23 percent, at which time there will be modest increase in transfers 

to IDA. In addition, the equity/loan ratio reaches 27 percent, it will trigger 

Board consideration of much stronger measures to redirect GCI resources, including through higher transfers to IDA. • IFC net income transfers to IDA: IFC net income transfers to IDA (about $400 

million per year in recent years) and other initiatives, including technical 

assistance activities, are determined by a sliding scale formula that takes into 

account the IFC’s annual financial performance and agreed principles that the 

Board uses in determining specific allocations. The sliding scale formula includes a minimum income threshold of $150 million that has to be met before 

a portion of the income can be transferred to IDA or other initiatives. For an 

income amount above the $150 million threshold, the incremental rate of designations increases in steps, from 20 percent up to a maximum rate of 35 percent. The sliding scale determines the maximum amount of net income transfers and the Board then decides on the actual amount of allocations including 

to IDA, technical assistance grants, or other initiatives that support the IFC’s 

work in low-income countries. The principles that guide Board decisions on the 

levels and purposes of designations of IFC’s retained earnings include: preservation of IFC’s AAA rating and maintaining capacity to support IFC’s endorsed 

growth path. 

• The EBRD does not have a separate soft loan window, though it does provide 

investment grants for projects in poorer countries and regions with limited 

56 

finances, notably heavily indebted countries subject to borrowing constraints 

under an IMF Debt Sustainability Analysis (DSA). (The IMF prepares DSAs 

which indicate minimum concessionality requirements needed to avoid debt 

distress.) • IDA provides by far the largest volume of concessional loans to low-income 

countries, while the AsDF and AfDF also provide substantial amounts. IDA is 

also the leader in grant assistance to low-income countries, followed by AfDF 

and AsDF. The IDB provides relatively smaller amounts of concessional loans 

and grants. These results are not surprising given the global scale of IDA and 

the fact that only five members of the IDB qualify for concessional loans and 

grants. 

[$ in billions) 

2009 Approvals for Low-Income Countries 

Grants Concessional Loans 

AsDF ............................................................................................................................. $0.9 $2.2

AfDF ............................................................................................................................. 1.4 2.0

IDA ............................................................................................................................... 2.6 11.4

IDB Grant Facility/FSO ................................................................................................. 0.16 0.23 

Question. What are the administration’s plans to ensure that a recapitalization 

does not mean a tradeoff in a limited budgetary environment away from grant support and debt relief for low-income countries? 

Answer. We are currently in discussions with OMB on our budget request for 

FY12. In negotiating the GCI commitments, we were very mindful of the budgetary 

costs associated with them. We will continue to work to ensure that we meet our 

debt relief obligations. 

Question. Building on our discussion during the hearing, what internal fiscal 

measures have the development banks taken to save money, thereby mitigating the 

need for additional donor contributions? Will the administration or the international 

community conduct a review of potential cost savings at each development bank? 

Answer. Several MDBs agreed to pricing reforms that will directly link loan pricing to their internal expenditures. For example, the World Bank agreed to overhaul 

its budget process to ensure that decisions on pricing, compensation, and administrative costs are closely integrated and aligned with the Bank’s strategic priorities. 

The AfDB agreed to a comprehensive financial model that has parameters on loan 

pricing, locks in a minimum level of transfers to low-income countries, covers administrative expenses, and supports capital adequacy. In the FY 2011 budget (not 

yet finalized), AfDB identified $8 million in annual savings from expenditure control 

efforts (e.g., telecom and Blackberry contracts, travel costs) and streamlined business processes (e.g., use of video conferences, e-recruitment). This amounts to 2 percent of AfDB’s 2010 budget. 

The IDB agreed to adopt a new income allocation model that sets loan prices consistent with the IDB’s financial constraints and priorities, and it is already apparent 

from the FY11 budget discussions that this is motivating shareholders to seek cost 

cuts. 

It has been a longstanding policy at the Asian Development Bank for loan income 

to cover the cost of administrative expenses. In addition, the AsDB’s results management framework, which was adopted just prior to the GCI, emphasizes cost effectiveness at all levels of the organization. 

We expect these new policies to enhance MDB operating efficiency and, together 

with new capital accumulation objectives, mitigate the need for future shareholder 

contributions. The Treasury Department will closely supervise implementation of 

these new policies. In addition, the MDBs’ annual budget processes will provide key 

opportunities for oversight. 

Question. To promote the principle of transparency, democratic governance, and 

country-ownership of development strategies and to avoid the irresponsible borrowing practices of the past in some countries, the United States should use its influence to ensure that new loans are at least reviewed by the Parliaments of borrowing countries. Is this part of the reform agenda being discussed in reference to 

the capital increase request? 

Answer. As a general principle, we advocate for an open and thorough consultation process in all borrowing countries to help promote buy-in of country development strategies. Similarly, we believe it is important that all relevant parties have 

57 

a consultative role in the project development process, which could include legislative bodies, NGOs, and indigenous groups. We advance these principles in all relevant discussions of MDB policy, ranging from Country Assistance Strategies to 

safeguards and disclosure. 

Question. How are the MDBs preparing their respective institutions in terms of 

responding to the climate, fuel, and food crises facing most vulnerable countries in 

the coming decade? 

Answer. At the direction of the G20, the World Bank is taking the lead on issues 

related to climate change and energy efficiency, as well as food security. As discussed further below, each MDB has established a tailored approach, according to 

its mandate and clients, to engaging developing member countries on energy efficient, low carbon and climate resilient development options. 

With regard to food security, the share of agriculture in official development 

assistance (ODA) declined sharply from a high of 18 percent in 1979 to 5 percent 

in 2006–08, which equates to an almost 50 percent decline in the real value of support. To reverse this decline, the MDBs, along with other development partners, are 

gradually scaling up their assistance and aligning their support with country-owned 

agricultural development strategies. In addition, new mechanisms like the Global 

Agriculture and Food Security Program (GAFSP) are playing an important role in 

leveraging resources, scaling up assistance, and maintaining the international community’s focus on agriculture. 

Called for by G20 leaders at their summit in Pittsburgh in 2009, GAFSP is a 

multidonor trust fund designed to provide financing for country-owned agricultural 

development strategies in low-income countries. The trust fund, supported by contributions from the United States, Australia, Canada, Spain, Korea, and the Gates 

Foundation, has already committed and started disbursing $321 million to eight 

countries (Bangladesh, Haiti, Rwanda, Sierra Leone, Togo, Mongolia, Ethiopia, and 

Niger), and has received requests for financing from an additional 20 countries. 

Question. What are the tools, skills required that they need to acquire to ensure 

they remain relevant? 

Answer. We believe that the MDBs have the tools to remain relevant, as illustrated by the fact that they were able to substantially increase borrowing levels during the financial crisis. In addition, we have found that MDBs are nimble enough 

to develop new tools quickly to help support borrowing countries as needed. For example, in response to the drying up of trade credits, the IFC, AsDB, and AfDB all 

created new trade financing facilities. Another example is the IDB’s creation of a 

$6 billion liquidity fund, designed to support the banking sectors in borrowing countries. Also, the EBRD led the Vienna Initiative, a $30+ billion effort to stabilize the 

financial sector in Central and Eastern Europe. As the crisis has abated, the MDBs 

are phasing out these crisis-response tools, starting with the IDB’s facility. 

Within IDA, we are now working with other donors and management on a crisis 

response window, which will be designed to provide a rapid response to the poorest 

countries in the event of an external shock. We expect this new instrument to become operational in IDA 16. 

Adding to the MDBs’ skill levels will be important as well. The World Bank has 

recently hired internationally renowned experts in climate change and renewable 

energy to boost its efforts to help countries mitigate and adapt to climate change. 

The AsDB has agreed to strengthen the personnel resources of the Bank’s internal 

audit and integrity functions; similarly, the AfDB has agreed to strengthen its risk 

management function. 

Question. Developing member countries are beginning to have greater voice and 

representation at the governing bodies of the MDBs. How will this affect progress 

made on improving anticorruption, social and environmental standards? How will 

the United States be engaging these developing member countries on these standards and additional reforms? 

Answer. The Treasury Department is committed to assuring that MDBs apply 

strong fiduciary, social, and environmental standards. We work closely with an 

array of stakeholders, including developing country shareholders, to deliver continuous improvement in MDB policies and practices in these areas. 

The GCI discussions enabled us to garner international support for key reforms. 

For example, the AsDB agreed to enhance that Bank’s financial control practices, 

and upgrade its social and environmental policy. At the IDB, shareholders have 

agreed to implement the findings of a comprehensive review of the Bank’s environmental practices. The AfDB pledged to increase its internal anticorruption resources. Finally, in the World Bank, a landmark access to information policy is promoting greater public accountability. 

58 

Question. Ten years ago, world leaders made history when they agreed to provide 

debt relief for impoverished countries struggling with unsustainable debt burdens. 

The United States has fallen behind in our commitments for the Multilateral Debt 

Relief Initiative and the President’s request includes a contribution toward those 

arrears. Will that contribution clear our arrears for our commitment to debt relief? 

If not, how much more is needed to eliminate these arrears? 

Answer. The United States has made several commitments with respect to multilateral debt relief. In 2005, the United States agreed to help cover the costs to IDA 

of providing MDRI debt relief. With full funding of our $1.285 billion request for 

IDA, the United States will be on track to meet its MDRI commitment for IDA15. 

Separately, full funding of our $50.0 million request for HIPC debt relief would 

leave us with an obligation of roughly $65 million to the HIPC Trust Fund. Unlike 

our MDRI commitment, however, our pledge to the HIPC Trust Fund for HIPC debt 

relief is not time bound, so we are not at risk of accumulating arrears. 

Question. Is the administration supportive of negotiating an expansion of HIPC 

and/or MDRI to all IDA-only countries? Would the administration promote a framework to provide debt relief to countries facing extreme exogenous shocks? 

Answer. The Congressional Budget Office estimated that the cost of expanding 

HIPC and MDRI to all IDA-only countries would be about $11 billion. In today’s 

fiscal environment, securing this level of funding would represent a significant challenge, particularly when we have other unfulfilled financial commitments, notably 

$1 billion in arrears to the multilateral development banks. 

The administration was a strong advocate for debt relief for Haiti following the 

devastating January earthquake. We are prepared to consider providing debt relief 

to other countries that suffer from extreme exogenous shocks on a case-by-case 

basis. Further, the Paris Club creditors have procedures in place to treat sovereign 

debt when non-Paris Club countries face financial constraints that make it extremely difficult to service their debt. 

Question. Critics of the World Bank and IMF’s Debt Sustainability Framework 

(DSF) for low-income countries argue that reforms to make the DSF more ‘‘flexible’’ 

introduced in the height of the crisis seem more geared to hide rising debt levels 

than to address longstanding concerns about the actual performance of the DSF as 

a tool to maintain debt at sustainable levels. Is this correct? If so, is the administration considering calling for reforms in the mechanism for determining debt sustainability, its links to debt relief needs, and its appropriateness to support developing 

country efforts to achieve their development goals? 

Answer. We attach a high priority to continued debt sustainability in low-income 

countries and believe that the Debt Sustainability Framework has generally served 

the international community well. The modifications introduced last year were modest. The most significant change was allowing the exclusion of certain state owned 

enterprises (SOEs) from the calculations of debt sustainability if these SOEs met 

certain conditions related to independence and financial sustainability. We indicated 

that when an exception is granted for a particular SOE, full discussion and justification should also be included in the debt sustainability assessment. The most significant challenge to the Debt Sustainability Framework continues to be the lack of its 

adoption by all countries and institutions in the world. 

Question. How is each development bank engaging recipient and developing member countries to consider energy efficient, low carbon and climate resilient development options? 

Answer. In recent years, all of the MDBs have taken steps to incorporate low carbon development, climate resiliency, and energy efficiency across their respective 

portfolios. Generally, the MDBs approach these issues through their individual 

country assistance strategies, relevant sector strategies, and operational policies. 

The instruments they use to address climate issues include project loans, technical 

assistance, development policy loans, and financial intermediary operations. MDBs 

frequently combine these instruments with external sources of dedicated 

concessional support, such as through the GEF and CIFs. 

At the same time, each MDB has established its own approach, according to its 

mandate and clients, on engaging developing member countries on energy efficient, 

low carbon and climate resilient development options. For example: 

• The World Bank Group has a Board-approved Strategic Framework on Development and Climate Change that is operationalized through relevant sectoral 

strategies and operational policies, including support for a set of country-led 

pilot low carbon development strategies. 

59 

• The IDB is implementing the second phase of the Sustainable Energy and Climate Change Initiative, which focuses on a set of lending and assistance priorities for renewable energy and energy efficiency. 

• The EBRD is implementing the second phase of the Sustainable Energy Initiative that focuses on energy efficiency and renewable energy. 

• The AfDB recently presented its Board with a Climate Change Action Plan that 

lays out its priorities for support for mitigation and adaptation activities. 

• The AsDB has established a set of sector-specific initiatives, including sustainable transport and solar energy. 

Question. With the increase in budget support and sectorwide financing, is the 

proportion of development bank financing subject to social and environmental safeguards decreasing? Does this vary by development bank? If so, how? 

Answer. During the crisis, there was an increase in the proportion of World Bankfinanced budget support loans and sectorwide financing, which are subject to different requirements on poverty and social impacts than project loans. For budget 

support, the Bank determines whether specific country policies supported by the 

loans are likely to have significant poverty and social consequences, especially on 

poor people and vulnerable groups, or are likely to cause significant effects on the 

country’s environment, forests and other natural resources. For country policies with 

likely significant effects in either area, the Bank provides an assessment of the impact and the borrower’s capacity to reduce adverse effects. If there are significant 

gaps in the analysis or shortcomings in the borrower’s systems, the Bank describes 

in the Program Document how such gaps or shortcomings would be addressed before 

or during program implementation, as appropriate. 

With respect to the regional development banks, we did not observe a similar shift 

in loan portfolios. There was a temporary increase in budget support lending by the 

AfDF in response to crisis needs during the 2008–10 period, but it stayed under 25 

percent of total lending cap for budget support, and budget support lending is now 

expected to return to lower levels. Similarly, the AsDB undertook some fairly limited budget support and liquidity-based lending in 2008 and 2009 in order to help 

countries dealing with a drop off in capital flows. The EBRD does not do public 

finance except for infrastructure. At the IDB, the share of project investment loans 

compared with policy-based sector lending has been increasing recent years. 

Question. Is the administration incorporating the reforms promoted at the development banks into its bilateral aid programs including through USAID and the Millennium Challenge Corporation? Is there a process to convey best practices between 

the multilateral and bilateral aid agencies? 

Answer. Many reforms that the United States promotes at the development banks 

are specific to those institutions. But, the basic themes that motivate USG bilateral 

and multilateral assistance are the same, such as measuring results and improving 

transparency. The President’s Policy Directive on Global Development (PPD) exemplifies this, establishing a governmentwide commitment to sustainable development. 

Currently, mechanisms for conveying best practice between the multilateral and 

bilateral aid agencies include: (1) in-country dialogue among donors; (2) dialogue 

between USG agencies and the development banks’ headquarters offices; and (3) 

participation by bilateral and multilateral donors—along with partner countries— 

in the Working Party on Aid Effectiveness and in its efforts to develop and distribute best practice in areas of common interests. 

The establishment of a new U.S. Interagency Policy Committee on Global Development, as envisaged by the PPD, will facilitate the coordination of development 

policy across the executive branch, and will facilitate discussion within the USG of 

best practices that are relevant to the MDBs and the USG’s bilateral aid agencies. 

Question. How are the core missions of the development banks different? 

Answer. Each of the MDBs shares the same core mission to reduce poverty and 

accelerate sustained economic growth. How that mission is expressed in each Bank’s 

programming and internal culture varies, which is appropriate given the differing 

regional needs. But, this shared basic objective remains the cornerstone of the 

MDBs’ successful collaboration. During the GCI negotiations, we urged the MDBs 

to highlight their areas of comparative advantage and focus. In response: 

• The World Bank affirmed that it will act increasingly on global objectives, such 

as food security, climate change, and other transboundary issues, while working 

to alleviate poverty through the Bank’s five strategic priorities to target the 

poor and vulnerable by creating opportunities for growth, providing cooperative 

models, strengthening governance, managing risk, and preparing for crisis. 

60 

• The AfDB identified as specific core priorities infrastructure, economic governance, regional integration and private sector development. 

• The AsDB pointed to its ‘‘Strategy 2020,’’ which identifies the AsDB’s strategic 

objective as ‘‘An Asia and Pacific Region Free of Poverty’’ and lays out three 

complementary agendas to advance that goal: inclusive economic growth, environmentally sustainable growth, and regional integration. 

• The IDB’s Governors affirmed as institutional priorities: reducing poverty and 

inequality, ensuring sustainable development, addressing sustainable energy 

and climate change, addressing the special needs of the poorest countries, promoting regional integration, and fostering development through the private 

sector. 

• Shareholders reaffirmed that the purpose of the EBRD is to foster the transition towards open market-oriented economies, and to promote private and 

entrepreneurial initiative in the Central and Eastern European countries committed to and applying the principles of multiparty democracy, pluralism and 

market economics. 

Question. How can information and communication technology (ICT) improve the 

efficiency and effectiveness of multilateral assistance programs? 

Answer. Each of the MDBs has identified ICT as a key lever to improve the effectiveness of multilateral development assistance. The banks have focused on ICT a 

means of: 

• Developing human capital and encouraging lifelong learning; 

• Improving the transparency of local and regional governments; 

• Improving the efficiency of businesses and markets by improving communications infrastructure; 

• Encouraging citizen participation in democratic processes and increasing the 

effectiveness of economic and political reforms; 

• Fostering entrepreneurship and creating new employment opportunities. 

Question. To what extent do the multilateral development banks incorporate ICT 

in their programs? Is there a cohesive strategy on ICT as a development tool? If 

so, please describe. 

Answer. Each of the MDBs has worked to incorporate ICT in a cross-cutting manner in its investment and development programs, although there are natural variations in each bank’s approach to the ICT sector. For example, the AfDB has paid 

particular attention to the physical development of modern telecommunications infrastructure, and has sought to leverage advances in communication in order to help 

improve the delivery of public services. By contrast, the EBRD has focused its ICT 

investments on private IT enterprises, in an effort to take advantage of the high 

literacy rates, and large pool of scientific talent within its target region. 

Question. What could the multilateral development banks do better with regard 

to ICT? Is there a need for better donor coordination on best practices? What challenges or impediments prevent greater integration of ICT in development projects? 

Answer. The returns on ICT investments could be further improved through 

greater efforts to encourage reforms that improve local educational systems, protect 

intellectual property rights, promote greater clarity in regulatory regimes, and encourage the development of local capital markets that can finance the growth of 

small and medium enterprises in local ICT sectors. 

Question. The administration has been promoting improvements to the way the 

development banks evaluate projects. Will it be possible to compare, across development banks, the level of success of similar projects? Will observers be able to identify what caused the differences in the levels of success? 

Answer. Each of the MDBs’ independent evaluators prepares an annual review 

that reports on their findings, including project evaluations. This allows the Boards 

in each of the institutions to compare performance across and within sectors and 

regions, and to see trends over time. For example, infrastructure projects typically 

have higher ratings than health sector projects. While some differences can be attributed to sector-specific issues, common themes emerge. Strong analytical work 

and careful targeting are often factors in project success, whereas projects that are 

overly complex or pay inadequate attention to cost recovery generally perform poorly 

and have lower sustainability. That said, comparing projects of different types within an institution, or similar project types across different MDBs, is complicated by 

the fact that the MDBs lack common metrics. To remedy this, we have been urging 

the use of cost-benefit analyses, which allow for the calculation of an economic rate 

of return, facilitating comparisons across project types and institutions. 

61 

RESPONSES OF EXECUTIVE DIRECTOR IAN SOLOMON TO QUESTIONS SUBMITTED BY

SENATOR RICHARD LUGAR

Question. As we discussed briefly during the hearing, a few years ago, the Government Accountability Office was tasked by myself, Senators Biden, Leahy, and Bayh 

to conduct review of the World Bank regarding its ability to fight corruption and 

conduct environmental assessments. The GAO has not commenced its work on 

either study. What is the status of each review? What is delaying the reviews and 

what can be done to ensure that the GAO has the ability to carry out its work? 

Answer. I believe GAO would be best placed to explain the status of its reviews. 

However, to my knowledge, they have only undertaken the environmental assessment, as my office is not aware of any request for engagement regarding the World 

Bank’s ability to fight corruption. I would also note that for GAO engagements requiring Board approval, which the environmental study does, the development of a 

clear roadmap of all of the steps in the process from GAO’s first engagement to 

Board approval would help to ensure that that GAO can carry out its work. 

Question. The IFC Lighting Africa initiative helps organize the off-grid lighting 

sector in Africa. Has this initiative been successful? If yes, how is the World Bank 

building upon these efforts and support the market linkages and infrastructure 

needed to produce, distribute, and service decentralized power in rural areas around 

the world? 

Answer. The joint IFC/World Bank Lighting Africa initiative has been broadly 

successful. Recent accomplishments include: 

• Development of new products: From fewer than eight products developed for the 

base of the pyramid lighting market in 2008, today over 70 products manufactured by 50 companies are available for purchase in Africa—a growing number 

of them now priced under $25. Nearly 40 percent of the companies in this market state that they have explicitly used Lighting Africa services for their product and business model design. 

• Providing improved energy services to 500,000 people: In 2009, Lighting Africa 

directly supported six client companies, which reached more than 500,000 Africans with quality assured products. This market is not at an inflection point 

and in 2010 it is expected that clients will reach more than 1,000,000 with improved lighting. 

• Established a B2B platform for the industry: The Lighting Africa conference has 

been established as the premier business conference on off-grid lighting worldwide, with more than 600 paying visitors in 2010. The dedicated Web site is 

receiving more 40,000 hits per month. 

As the World Bank Group continues to expand its experience in Africa, lessons 

learned can be used to build upon these efforts in other parts of the world. 

Question. U.S. businesses and consultants routinely pursue World Bank projects. 

For the last 5 years, what are the top five recipient countries of procurement contracts and how much did they receive? If the United States is not in the top five, 

what was the size of contracts won by U.S. firms in the past 5 years? For every 

one dollar that the United States has contributed to the World Bank since the institution was founded, how much have U.S. companies have won in procurement 

contracts? 

Answer. Specific answers are provided below, but I think it is important to emphasize up front that the United States has played a major role in ensuring the use 

of transparent and equitable procurement processes that result in a level playing 

field for American companies. In this context, we are also working very hard to ensure that the use of country systems is implemented in a manner that would not 

disadvantage U.S. firms. 

In addition, it is important to note that at the World Bank, procurement figures 

very likely underrepresent U.S. procurement by a significant amount because the 

World Bank lists contract winners by the country of registration. This means that 

an American firm bidding from its China office will appear to be a Chinese firm in 

the contract awards list. For example, if IBM (China) wins a contract, it will count 

as a Chinese win. In addition, some U.S. companies act as subcontractors or equipment suppliers to local firms, so their national identity is not visible in the contract 

awards list. 

Finally, I want to bring your attention to the fact that the U.S. Commercial Service’s Advocacy Center is charged with ensuring that U.S. companies enjoy the best 

possible access to World Bank procurement opportunities. Specifically, its mission 

is to train U.S. companies on the World Bank procurement process, assist with disVerDate Nov 24 2008 16:01 Dec 13, 2010 Jkt 000000 PO 00000 Frm 00065 Fmt 6633 Sfmt 6621 H:\DOCS\0915BANK.TXT SENFOR1 PsN: BETTY
62 

pute resolution, and educate the private sector about business opportunities created 

by World Bank activities. 

The Commercial Service officer has been instrumental in persuading the World 

Bank to agree that all procurement opportunities should be published on its Web 

site at no cost. Once approved by the Board, these opportunities will become freely 

available to thousands of small- and medium-size U.S. companies for the first time. 

For the 12 month period ended October 31, 2010, our liaison officer organized or 

participated in 17 outreach events reaching about 450 U.S. companies and counseled or worked directly with about 230 individual U.S. firms. 

Further information on MDB opportunities for U.S businesses can be obtained 

from the Commercial Service’s Liaison Office to the World Bank. The contact information for the Liaison office is: world.bank@mail.doc.gov, and the Director is David 

Fulton. 

Question. For the last 5 years, what are the top five recipient countries of procurement contracts and how much did they receive? 

Answer. 

Top 5 Suppliers Aggregate Totals (FY 2005–09)* 

[$ in billions] 

Supplier Country Amount 

China ....................................................................................................................... $10.2 

India ........................................................................................................................ 5.4 

Argentina ................................................................................................................ 2

Brazil ....................................................................................................................... 1.9 

Russia ..................................................................................................................... 1.6 

Question. If the United States is not in the top five, what was the size of contracts 

won by U.S. firms in the past 5 years? 

Answer. 

U.S. Awards (FY 2005–10)* 

[$ in millions] 

Fiscal year Amount 

2005 ......................................................................................................................... $122 

2006 ......................................................................................................................... 159 

2007 ......................................................................................................................... 131 

2008 ......................................................................................................................... 157 

2009 ......................................................................................................................... 88

2010 ......................................................................................................................... * 93 

Total ................................................................................................................. $751 

* Refers to ‘‘Prior review’’ contract awards which are World Bank-funded contract awards that 

were conducted under World Bank procurement guidelines and were reviewed by World Bank 

staff to ensure that the procurement process was carried out in accordance with the guidelines 

as required in the Loan Agreement and further elaborated in the Procurement Plan. Prior review is applied only to the larger contracts in a project. A project’s thresholds for prior review 

vary from loan to loan and from country to country; they are specified in the procurement schedule of the project’s Loan Agreement. Contracts below the prior review threshold, and other fastdisbursing contracts subject to the Bank’s ex-post review, are not entered in the Bank’s procurement systems. Most of the contract awards captured in the World Bank’s database were awarded under International Competitive Bids (ICB). Contracts awarded under National Competitive 

Bidding (NCB) are not captured or reported by the World Bank. 

Question. For every one dollar that the United States has contributed to the 

World Bank since the institution was founded, how much have U.S. companies have 

won in procurement contracts? 

Answer. Contract award data for the World Bank does not go back to its founding 

in 1947 making it difficult to compute an accurate picture of the benefits to U.S. 

companies. Tracking of contracts began in 1995 and the data for these awards is 

found below. 

Prior Review Contracts Under Bank-Financed Projects.* Contract Awards to U.S. 

Suppliers (FY 1995–2010). Data as of: 9/22/2010. Data prior to FY 1995 is not available. 

Question. To what extent does the World Bank incorporate information and communication technology (ICT) in their programs? Is there a cohesive strategy on ICT 

as a development tool? If so, please describe. What could the World Bank do better 

with regard to ICT? 

63 

Answer. ICT has demonstrated tremendous promise as a change agent within the 

World Bank and in client nations, requiring fruitful collaborative work across sectors and countries. The Bank has a team dedicated to ICT that works globally 

across the six regions and in collaboration with the World Bank Institute and the 

Information Solutions Group to advance this agenda. The application of ICT across 

all sectors has been growing steadily in Bank projects, and there are a number of 

portfolio projects dedicated to ICT, supporting development of telecommunication 

policies and infrastructure networks and the use of ICT to help transform service 

delivery across sectors. 

The Bank’s strategy has three pillars: connectivity, innovation, and transformation. The World Bank Group’s current ICT sector strategy has a strong focus 

on the connectivity agenda through support of sector reform and liberalization to attract private sector investment. In addition, it supports the roll-out of innovative 

ICT applications that improve service delivery across sectors. 

A new transformational sector strategy is under preparation with an emphasis on 

increasing support to use ICTs strategically to transform the delivery of public and 

private services across sectors—leveraging the existing 3 billion mobile phones in 

developing countries and technology innovations (such as social media, mobile applications, etc.) to improve accountability of governance and to increase the efficiency 

and outreach of service delivery. The Bank has recently launched a technologyenabled Mapping for Results platform to geo-code and visually to locate Bank 

projects on a map, and overlay this with development indicators, as well as feedback 

from beneficiaries using ICT. 

The Bank’s internal assessments have identified four areas for improvement: 

greater partnering with innovative IT industry players and governments; increasing 

staff awareness to scale up projects and integrate into the Bank’s core business and 

processes; focusing more on cross-cutting foundations to break down sector-specific 

walls within projects; and improving IT procurement procedures and capacity in 

order to better accommodate the rapid changes taking place in technology. These 

approaches, however, will also require sufficient resource allocation and a firm commitment from Bank leadership to break down silos and inertia within the Bank. 

Further efficiencies and innovations could be generated if the Bank’s own internal 

ICT equipment, policies, and practice were integrated more closely with client 

activities. 

RESPONSES OF EXECUTIVE DIRECTOR CURTIS CHIN TO QUESTIONS SUBMITTED BY

SENATOR RICHARD LUGAR

Question. In your testimony, you indicated that the United States and Japan are 

the largest shareholders at the Asian Development Bank and China is ranked third. 

However, since China has already provided its general capital increase contribution 

to the Asian Development Bank, isn’t China actually ranked higher? If so, how does 

that affect their influence in the institution in the short run while the other shareholders are putting together their contribution packages? 

The United States and Japan were the largest shareholders at the Asian Development Bank before other member countries began making their capital subscriptions 

to the General Capital Increase V, and will regain that shareholding once capital 

subscriptions have been completed. In the interim, because China voluntarily made 

its entire capital subscription early, it is technically true that China a larger shareholder than the United States until we complete our capital subscription. 

The current breakdown of ownership is shown in the chart below: 

AsDB SHAREHOLDING AND VOTER POWER—SEPTEMBER 2010 

Member Shareholding 

(percent) 

Voting power 

(percent) Status of Subscription 

Japan .................................................................................................... 22.4 18.2 Fully subscribed. 

China .................................................................................................... 9.3 7.7 Fully subscribed. 

India ..................................................................................................... 9.1 7.6 Fully subscribed. 

Indonesia .............................................................................................. 7.8 6.5 Fully subscribed. 

United States ........................................................................................ 7.5 6.3 Pending subscription. 

Source: AsDB Treasury. 

As in any institution, an increased shareholding is commensurate with increased 

influence. In this case, having a borrowing member country as the largest shareholder could complicate efforts to increase loan pricing, flow of funds to other borrowing member countries, and reform of the institution, particularly in the area of 

64 

development results. In addition, it effectively eliminates the co-veto on membership 

and capital structure issues that we share with Japan. 

China’s temporary status as a larger shareholder than the United States has not 

yet been a significant obstacle to our goals. Nevertheless, we expect that future 

efforts in the area of loan pricing or transfers to the concessional window would be 

especially difficult because China in combination with other large developing member countries, such as India and Indonesia, could effectively block such actions at 

the Board. When fully subscribed, the United States and Japan will again be the 

largest coshareholders. 

Question. What type of lending is the Asian Development Bank providing China? 

How has that changed during the past few years? What type of loans has the United 

States supported for China at the ADB? Do you think that loans through the Asian 

Development Bank to China could be improving China’s competitive position vis-avis the United States and thereby contributing to economic concerns in our country? 

Why should the U.S. taxpayer contribute to the Asian Development Bank when it 

is providing funds to a country that is a net creditor of the United States? 

Answer. In recent years, the Asian Development Bank has worked with China to 

change the composition of its borrowings from the Bank to focus far more on environmentally sustainable growth and rural development. AsDB’s investments are in 

areas that do not erode the U.S. competitiveness vis-a-vis China, but instead focus 

on areas that guide sustainable development. 

The Asian Development Bank has shifted its support to provinces inland where 

China’s poorest are concentrated. The AsDB’s strategy for China focuses on providing support to the 500 million people in China who still live on less than $2/day 

and who live in rural areas, where environmentally sustainable growth and improved access to basic services are integral to lifting people out of poverty. Furthermore, the AsDB’s support of China’s rural development and environmental sustainability has increased, representing a shift away from the Bank’s previous focus on 

transportation and industry. Finally, AsDB assistance has helped rehabilitate zones 

devastated by the historic Sichuan earthquake by reconstructing roads, bridges, and 

schools. 

China values AsDB lending because of its high-quality implementation through 

tough anticorruption controls and environmental safeguards. Although AsDB typically finances only a fraction of total projects costs, its safeguards apply to the total 

loan amount. The United States has an interest in continued AsDB financing in 

China because Bank financing explicitly includes social safeguards, anticorruption 

provisions, and policy reforms. 

Question. Is China’s exchange rate discussed or addressed at the Asian Development Bank? If so, how? 

Answer. The choice of monetary policy falls outside the mandate of the AsDB and 

other MDBs. We have consistently encouraged the MDBs to focus on their core capabilities. As such, China’s exchange rate is not discussed or addressed at the Asian 

Development Bank. 

Instead, the AsDB focuses on a regional integration strategy to support policy dialogue and capacity-building through regional initiatives and bilateral technical 

assistance. Much of this work focuses economic surveillance, capital markets developments, financial sector reforms and restructuring. The overarching goal is to 

increase financial openness and integration, and improve the strength of the banking sector. 

By way of example, AsDB has a Regional Policy and Advisory Technical Assistance Program for deposit insurance establishments in China and Mongolia. The 

technical assistance provides support to the central banks of Mongolia and the PRC 

to develop and help establish national deposit insurance institutions that (i) conform 

to the specific conditions of each country’s financial market; (ii) suit the current 

unique global financial market circumstances; (iii) minimize moral hazard; and (iv) 

provide extensive public information campaigns as to the purpose and functions of 

deposit insurance, particularly for households that are poor, income-insecure, or 

have low financial sophistication. 

Finally, the AsDB’s overall work in China ultimately supports U.S. objectives by 

helping to create domestic sources of demand there, reorienting growth away from 

the export sector. 

Question. To what extent does the Asian Development Bank incorporate information and communication technology (ICT) in their programs? Is there a cohesive 

strategy on ICT as a development tool? If so, please describe. What could the Asian 

Development Bank do better with regard to ICT? 

65 

Answer. As early as the 1970s, the AsDB recognized the need to support information and communication technology (ICT) in development. The AsDB recommitted 

in 2001 to support ICT with a new, cohesive strategy for its developing member 

countries because it recognized the widening inequalities in information, skills, technology, infrastructure and institutions between developing member countries and 

the industrialized world. AsDB assistance is focused on promoting ICT policies, 

applications, human development and strategic alliances; it encourages regional 

cooperation and networking to enhance local efforts and promote private sector 

participation. 

Despite all this good work, ICT does not figure prominently in the AsDB’s devel- opment assistance, and has only averaged $123 million per year, in contrast to the 

World Bank where ICT applications have been estimated at approximately $1 billion per year. Improvements could be made to tailor ICT products to developing 

member country needs and to further integrate ICT as a component part of the 

AsDB’s core capabilities in large-scale infrastructure. 

RESPONSES OF INTER-AMERICAN DEVELOPMENT BANK U.S. EXECUTIVE DIRECTOR, GUSTAVO ARNAVAT, TO QUESTIONS SUBMITTED BY SENATOR RICHARD LUGAR

Question. In 2008, the Inter-American Development Bank suffered $1.9 billion in 

losses. Since then, the IDB’s portfolio has experienced some recovery. What is the 

current size of the IDB’s losses? Is there any link between the losses and the need 

for a general capital increase? Please explain. 

Answer. According to the Bank’s Finance Department, over the 18-month period 

ending December 31, 2008, the IDB booked losses in its trading investment portfolio 

of approximately $1.9 billion, mostly unrealized accounting losses on asset and 

mortgage backed securities—all of which were rated triple-A at the time of purchase—that were marked-to-market in accordance with U.S. GAAP. 

Beginning in the second quarter of 2009, the IDB began booking gains on these 

same securities as market conditions improved and as it received principal repayments at par. As of September 30, 2010, more than $2.8 billion had repaid at par 

(out of almost $7 billion originally held asset and mortgage backed securities) and 

cumulative valuation losses had been reduced to about $1.0 billion, reflecting these 

par repayments as well as higher market prices. Of the $1.0 billion, about $132 million represents net realized losses, incurred when the positions were restructured 

or sold below par. The Bank believes that the valuation losses as of September 30, 

2010, will be further reduced over time for those securities held and continuing to 

repay at par, although it anticipates additional net realized losses as it monitors 

market conditions and decides to further reduce its exposure to asset and mortgage 

backed securities. 

In light of the 2007–09 global financial crisis, the IDB implemented various reforms aimed at strengthening its investment management framework. These include: (a) a change in the IDB’s overall investment policy to allow for more diverse 

investment strategies, hence reducing overall risk; (b) revisions to the IDB’s investment guidelines, including concentration constraints to improve diversification 

across asset classes, and shorter maturities to lessen the overall investment portfolio’s vulnerability to market price volatility; and, (c) further enhancements to the 

Bank’s investment and risk management systems, including a capital project to provide capabilities for advanced portfolio analytics and risk measures. 

The unrealized mark-to-market losses in the trading investment portfolio were not 

a significant contributing factor to the request for a general capital increase. Rather, 

the request stemmed from the Bank’s decision, with the support of its shareholders, 

to significantly increase lending volumes to help developing countries withstand the 

effects of the global financial crisis. As was the case at other MDBs, the front-loaded 

use of the IDB’s capital to support increased lending in 2008 and 2009 depleted its 

ability to sustain increased volumes of lending after 2010, prompting a need for a 

capital increase. In addition, the commitment by the Governors of the Bank to significantly increase grants to fund—from the Bank’s Ordinary Capital—Haiti’s reconstruction program further increased the need and urgency felt by the Governors to 

approve the capital increase for the Bank. 

Question. Regarding allegations of irregularities with the Camisea project, what 

type of investigation was conducted by the Office of Institutional Integrity (OII)? 

Did the team sent from OII in Washington to Lima in 2007 review all relevant documents, interview key witnesses and visit leak sites? Specifically, how many people 

were on the OII team reporting directly to the IDB? Did the OII team visit the pipeline site? Did the expert certifying the welds in the locations where leaks were 

66 

reported visually inspect those welds him or herself? Did the OII investigators have 

sufficient time in Lima and Washington to complete their investigation? Did team 

members agree about the conclusions to be drawn from the investigation? Have 

there been any followup investigations regarding the Camisea project? 

Answer. I have consulted extensively with the OII and the General Counsel’s 

office, and they have informed me that confidentiality requirements preclude them 

from disclosing the conclusions of or information pertaining to the investigation. 

However, based on these consultations I can confirm that OII processed an investigation into allegations of fraudulent practices regarding the Camisea project and 

communicated its conclusions to the original complainants, in writing, in May 2007. 

Question. U.S. businesses and consultants routinely pursue Inter-American Development Bank projects. For the last five years, what are the top five recipient countries of procurement contracts and how much did they receive? If the United States 

is not in the top five, what was the size of contracts won by U.S. firms in the past 

five years? For every one dollar that the United States has contributed to the InterAmerican Development Bank since the institution was founded, how much have 

U.S. companies have won in procurement contracts? 

Answer. For the period 2005–09, the top five recipient countries of procurement 

contracts stemming from investment loans were: 

Top 5 Suppliers Aggregate Totals (FY 2005–09) 

[$ in billions] 

Supplier Country Amount 

Brazil ....................................................................................................................... $7.0 

Argentina ................................................................................................................ 4.9 

Mexico ..................................................................................................................... 3.4 

Colombia ................................................................................................................. 1.6 

United States ......................................................................................................... 1.0 

Since the Bank’s inception, U.S. companies have won $8.4 billion in procurement 

contracts stemming from investment loans or $1.36 for every dollar the United 

States has contributed to the Bank’s Ordinary Capital and the Fund for Special 

Operations. These figures do not reflect the full benefits derived by U.S.-based firms 

in connection with awarding of procurement contracts because they exclude contracts awarded to non-U.S. affiliates of U.S. firms. 

Additionally, because the IDB’s headquarters are located in Washington, DC, U.S. 

companies are uniquely positioned to pursue corporate procurement opportunities. 

For the period 2005–09, the IDB issued approximately $231 million in purchase 

orders and contracts to U.S. firms or 95 percent of total corporate procurement for 

the period. 

Finally, it is important to note that I count on the services of several U.S Commercial Service representatives (CSOs). They are charged with ensuring that U.S. 

companies enjoy the best possible access to IDB procurement opportunities by training U.S. companies on the IDB procurement process, assisting with dispute resolution, and educating the private sector about business opportunities created by IDB 

activities. 

For the 10-month period ended October 31, 2010, IDB-dedicated CSOs conducted 

over 100 counseling sessions with U.S. firms, most of them new to the IDB. Also 

during this timeframe, those CSOs conducted 12 formal, large audience presentations reaching over 700 attendees, most of whom were new to the procurement 

process. 

Question. To what extent does the Inter-American Development Bank incorporate 

information and communication technology (ICT) in their programs? Is there a cohesive strategy on ICT as a development tool? If so, please describe. What could the 

Inter-American Development Bank do better with regard to ICT? 

In 1999, the IDB Board of Executive Directors approved a multisectoral policy for 

Information Age Technologies and Development (OP–711). Per OP–711, the Bank’s 

focus in ICT is to increase the efficiency and effectiveness of social and economic 

development programs. 

The IDB offers its borrowing countries financing, as well as capacity-building and 

technical assistance, conducive to their integration into the global knowledge economy. It also offers a network of expertise and a platform for knowledge generation, 

exchange, and dissemination of best practices in the areas of science, technology, innovation and ICT. ICT programming is covered in the Science and Technology Division, which was created in 2007. 

67 

While the Science and Technology Division has a cross-sector mandate for introducing ICT in the Bank’s development agenda, there are other sectoral divisions 

whose operations are intensive in the use of ICT and that have specialized staff who 

work on such operations. These divisions are the Institutional Capacity of the State 

(e-Government) division, the Education (ICT for Education) division, and the Multilateral Investment Fund. 

Examples of the Bank’s ICT programs include: supporting an e-procurement platform in Chile, which helps SMEs provide goods and services to the Government; 

monitoring teacher attendance in Haitian schools; and providing remote child and 

maternal health care in Peru. 

One area where the Bank could do better is to mainstream ICT more in its programming. The Science and Technology Division is housed within the Social Sector 

Department. Therefore, organizationally it is not integrated as efficiently with other 

divisions that focus on programming that can benefit from investments in ICT, such 

as Fiscal and Municipal Management, Transport, Rural Development and Natural 

Disasters, and Opportunities for the Majority. 

RESPONSES OF AFRICAN DEVELOPMENT BANK U.S. EXECUTIVE DIRECTOR, WALTER

JONES, TO QUESTIONS SUBMITTED BY SENATOR RICHARD LUGAR

Question. U.S. businesses and consultants routinely pursue African Development 

Bank projects. For the last 5 years, what are the top five recipient countries of procurement contracts and how much did they receive? If the United States is not in 

the top five, what was the size of contracts won by U.S. firms in the past 5 years? 

For every one dollar that the United States has contributed to the African Development Bank since the institution was founded, how much have U.S. companies won 

in procurement contracts? 

Answer. The top five recipient countries of procurement contracts for the years 

2005–009 are: 

Top 5 Suppliers Aggregate Totals (FY 2005–09) 

[$ in millions] 

Supplier Country Amount (USD *) 

China ....................................................................................................................... $1,454 

Japan ...................................................................................................................... 511 

France ..................................................................................................................... 433 

Tunisia .................................................................................................................... 477 

Morocco ................................................................................................................... 467 

* At current USD/SDR exchange rate. 

Over that period, the U.S. received $164.4 million in procurement contracts, placing 11th, with a 2.3 percent share. While this ranking is lower than desired, it 

potentially understates actual U.S. procurement wins, as U.S. companies may be 

subcontractors in some instances, which would not be counted. Also, procurement 

information is recorded by country of registration, so an American firm based outside the United States will not be counted as an American win. Moreover, until very 

recently, Africa has not been seen as a desirable investment destination for many 

American firms and there is limited knowledge of, and interest in, the AfDB among 

many American firms. Finally, many of the contracts that the AfDB finances simply 

are not large enough to attract attention from American providers. For example, 

only recently has the AfDB begun dedicating significant resources to large infrastructure projects, which could create attractive procurement opportunities for 

companies. Prior to this strategic reorientation, many AfDB projects relied heavily 

on small-scale, local procurement which was not necessarily attractive for U.S. 

exporters. 

For every one dollar the United States has contributed to the African Bank 

Group, U.S. companies have won about 19 cents in procurement contracts. U.S. 

firms have received about $600 million in contracts for African Bank Group operations since 1983, relative to U.S. cumulative contributions of about $3 billion to the 

African Development Fund and $175 million to the African Development Bank. The 

more aggressive reorientation towards infrastructure, particularly renewable energy 

and technology-intensive projects, should be conducive to a rise in the level of U.S. 

procurement. Last, with concerted efforts underway to make more companies familiar with the AfDB, and as Africa itself becomes a more attractive investment opportunity, prospects for U.S. procurement at the AfDB should likewise increase. 

Support for U.S. companies seeking procurement opportunities at the Bank or 

funding from the private sector arm of the AfDB is provided by a Senior Commercial 

68 

Service Officer (CSO) from the Department of Commerce. The CSO is responsible 

for with ensuring that U.S. companies enjoy the best possible access to AfDB procurement opportunities by training U.S. companies on the procurement process, 

assisting with dispute resolution, and educating the private sector about business 

opportunities created by AsDB activities. The office has been instrumental in providing transparency and contract resolution for the AfDB procurement process 

through factsheets, dialogue with the procurement staff and webinars on ‘‘doing 

Business with AfDB.’’ 

Question. To what extent does the African Development Bank incorporate information and communication technology (ICT) in their programs? Is there a cohesive 

strategy on ICT as a development tool? If so, please describe. What could the African Development Bank do better with regard to ICT? 

Answer. The African Development Bank recognizes the critical role that information and communication technology can play in stimulating growth, alleviating poverty, attracting private sector investment, and promoting good governance and accountability through efficient public service delivery in Africa. In recent years, the 

Bank has moved from an unfocused approach to the ICT sector to one of greater 

prominence, including the creation of a dedicated ICT for Development Division 

within the Infrastructure Department as part of an organizational restructuring approved in April 2010. The AfDB Board approved the Operational Strategy for Information and Communication Technology in October 2008, and the strategy is currently under review for a possible update. The strategy has two pillars: (1) provision 

of regional and national ICT infrastructure backbones and (2) supporting creation 

of enabling policy and regulatory environments. 

Under the first pillar, the Bank is currently funding preinvestment studies on regional broadband backbones for the Southern, Eastern, Western, Central, and North 

African regions and will move forward with the projects once the studies are complete and funding is available. The AfDB’s Private Sector Department is funding the 

Main One cable project along Africa’s western coast, the EASSy cable for Eastern 

and Southern Africa, two satellite projects, and a shared telecom tower infrastructure project, among others. Where possible, the Bank also seeks to incorporate fiber 

optic cable components in its road, electricity transmission line, and railroad 

projects. Work on the policy and regulatory framework is largely done through technical assistance and analytical components of the preinvestment studies on the infrastructure backbone. Efforts are underway to fund the establishment of regional 

ICT centers of excellence in Rwanda, Tunisia, and Mali. 

There are three areas where we see scope for improvement in the AfDB’s engagement in the ICT sector: 

1. More effort could be made to incorporate ICT components in other infrastructure projects. In particular, we would like to see the Bank work more closely with 

governments to identify opportunities for public-private partnerships to provide this 

supporting ICT infrastructure. 

2. We would like to see stronger implementation of the second strategy pillar 

through more attention to ICT policy and regulation in the design of AfDB governance programs focusing on business climate reform. Many of these governance programs seek to enhance the efficiency of public service delivery and boost transparency in public finances, but existing programs have not taken full advantage of 

the role ICT can play in promoting these goals. While the AfDB has become a leader 

in financing the construction of regional infrastructure, incorporating ICT policy 

reforms into regional integration projects remains a challenge requiring more 

attention. 

3. The Bank needs to upgrade and modernize its internal ICT systems. This is 

a necessary component of the AfDB’s efforts to decentralize and put itself closer to 

its clients. Strengthening internal ICT will improve business process efficiency, contributing to better project performance, easier supervision, and enhanced results 

tracking, while further reducing opportunities for fraud and corruption. 

RESPONSES OF EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT U.S. 

EXECUTIVE DIRECTOR, JAMES HUDSON, TO QUESTIONS SUBMITTED BY SENATOR

RICHARD LUGAR

Question. U.S. businesses and consultants routinely pursue European Bank for 

Reconstruction and Development projects. For the last 5 years, what are the top five 

recipient countries of procurement contracts and how much did they receive? 

69 

2 EBRD assumes an exchange rate of ÷1 = $1.30 for planning/budgeting purposes 3 EBRD assumes an exchange rate of ÷1 = $1.30 for planning/budgeting purposes. 

Answer. Over the last 5 years (2005–09), EBRD projects resulted in $7.5 billion 

(÷5.8 billion) 2 in public sector procurement contracts. According to EBRD figures, 

the top five recipient countries are as follows: 

Top 5 Suppliers Aggregate Totals (FY 2005–09) 

[$ in millions] 

Supplier Country Amount (USD*) 

Russia ..................................................................................................................... $2,323 

Croatia .................................................................................................................... 747 

Austria .................................................................................................................... 627 

Italy ......................................................................................................................... 509 

Turkey ..................................................................................................................... 486 

* Assumes an exchange rate of ÷1 = $1.30. 

During 2005–09, the EBRD’s cumulative business volume was ÷28 billion or $36 

billion. The relatively low proportion of public sector procurement contracts reflects 

the fact that EBRD’s operations are heavily oriented to toward private firms. 

Support for U.S. businesses interested in EBRD procurement opportunities is provided by the Commercial Service’s Liaison Office to the EBRD (CS/EBRD). The CSO 

is responsible for with ensuring that U.S. companies enjoy the best possible access 

to EBRD procurement opportunities by training U.S. companies on the procurement 

process, assisting with dispute resolution, and educating the private sector about 

business opportunities created by EBRD activities. 

Question. If the United States is not in the top five, what was the size of contracts 

won by U.S. firms in the past 5 years? 

Answer. U.S. firms have won $15,448,280 (÷11,883,292) in contracts over the last 

5 years (2005 09). U.S. firms bid on 24 contracts over the 5 years and won 6 of them 

for a 25-percent success rate. It is important to note, however, that this figure may 

be understated as it does not include activities of the overseas subsidiaries of U.S. 

firms. The value of those tenders would be reflected in the figures for countries 

where the firm is registered. 

Question. For every one dollar that the United States has contributed to the European Bank for Reconstruction and Development since the institution was founded, 

how much have U.S. companies have won in procurement contracts? 

Answer. According to EBRD procurement data, U.S. registered firms have won 

approximately ÷166 million, ($216 million) in public sector procurement contracts 

since the EBRD’s founding in 1991, which represents approximately 32 percent of 

the paid-in capital that the U.S. has contributed to the EBRD and 8.3 percent of 

the total paid-in and callable capital.3 As noted above, however, that this figure may 

be understated as it does not include activities of the overseas subsidiaries of U.S. 

firms. The value of those tenders would be reflected in the figures for countries 

where the firm is registered. It should be noted that the proportion of EBRD public 

sector finance is low relative to other MDBs. Approximately 80 percent of EBRD’s 

investments are made in private firms where it is not possible to ascertain the level 

of U.S. procurement because the EBRD has no formal oversight of procurement by 

private clients. 

Question. To what extent does the European Bank for Reconstruction and Development incorporate information and communication technology (ICT) in their 

programs? Is there a cohesive strategy on ICT as a development tool? If so, please 

describe. 

Answer. The EBRD continues to support both public and private sector initiatives 

in the telecommunication industry’s transformation by tackling one of its key challenges: physical infrastructure. Whether the underlying infrastructure is cable, 

fiber, or some wireless form such as WiMAX (Worldwide Interoperability for Microwave Access), the goal remains the same: quality, high-speed broadband access by 

the mass market. 

While increased communication access is critical, it is not sufficient to support the 

development of knowledge-based economies—economies where knowledge resources, 

know-how, skills, and innovative capacity diversify the economy and promote productivity, sustainable growth, higher valued jobs and social cohesion. Therefore, the 

EBRD has been directing more of its investments into innovative private enterprises 

in the ICT area to support IT infrastructure such as data centers, software developVerDate Nov 24 2008 16:01 Dec 13, 2010 Jkt 000000 PO 00000 Frm 00073 Fmt 6633 Sfmt 6621 H:\DOCS\0915BANK.TXT SENFOR1 PsN: BETTY
70 

ment and services, media and content creation and distribution, and business services where employment opportunities for the highly skilled human capital residing 

in the region can be the greatest. 

To foster the emergence and growth of such businesses, the EBRD is also increasing its support to entrepreneurs by investing in the creation of innovation or technology-led venture capital and private equity funds. Through these funds, the EBRD 

is hoping to develop a new class of entrepreneurial investor as well as support that 

section of the economy where the most innovation is driven—the small and medium 

enterprise sector. 

Question. What could the European Bank for Reconstruction and Development do 

better with regard to ICT? 

Answer. We are working with the EBRD to better leverage its investments in the 

ICT sector to push for greater reforms, in areas such as the protection of intellectual 

property rights and promotion of more transparent regulatory regimes, in order to 

lay the groundwork for greater private sector investment. 

RESPONSE OF U.S. EXECUTIVE DIRECTOR CURTIS CHIN TO QUESTION SUBMITTED BY

SENATOR ROBERT MENENDEZ

Question. The World Bank and Asian Development Bank are already supposed to 

internalize the full costs and benefits of all projects for which they lend. In the energy sector this includes unpriced costs and benefits such as those associated with 

the risks of disruption of energy supplies; fuel price instability, the costs and risks 

of oil spills, toxic contamination, acid rain, and climate change. How has the World 

Bank incorporated the range of costs associated with fossil fuels? 

Answer. The Asian Development Bank’s work in fossil fuels is limited, and instead its work in the energy sector focuses on clean energy investments through energy efficiency improvements and renewable energy projects. The AsDB’s energy policy recognizes that fossil fuels such as coal and oil are internationally traded commodities with established commercial interests, and as such the AsDB does not finance coal mine development, except for captive use by thermal powerplants, or oil 

field development, except for marginal and already proven oil fields. 

RESPONSES OF U.S. EXECUTIVE DIRECTOR IAN SOLOMON TO QUESTIONS SUBMITTED

BY SENATOR ROBERT MENENDEZ

Question. The World Bank and Asian Development Bank are already supposed to 

internalize the full costs and benefits of all projects for which they lend. In the energy sector this includes unpriced costs and benefits such as those associated with 

the risks of disruption of energy supplies; fuel price instability, the costs and risks 

of oil spills, toxic contamination, acid rain, and climate change. How has the World 

Bank incorporated the range of costs associated with fossil fuels? 

Answer. At the World Bank, the project appraisal process includes an analysis of 

risk factors that could affect the financial viability of the proposed project. Where 

relevant, these factors include fuel price volatility, energy supply disruption, and domestic environmental regulation. In addition, the environmental assessment and 

management process incorporates measures to avoid and mitigate environmental 

impacts and risks such as oil spills and toxic contamination. The costs of these 

measures are incorporated into project capital and operating costs. For projects with 

major carbon emissions, the World Bank conducts a ‘‘switching analysis’’ in which 

it determines the shadow price of carbon that is associated with the incremental 

cost of lower carbon alternatives to the proposed project. 

Question. From fiscal year 2006–10, World Bank lending for fossil fuels increased from $1.5 billion to $6.2 billion. Fiscal year 2010 represented a record year for fossil 

fuel lending at the Bank with $4.4 billion for coal projects alone. This compares to 

only $3.3 billion in financing for all new renewable energy and energy efficiency 

projects. How does the Bank justify this dramatic increase in coal and fossil fuel 

lending? Given a general capital increase would these figures rise further? How will 

the Bank ensure that lending for fossil fuels is rapidly phased out when it continues 

to increase lending for fossil fuels? 

Answer. From 2006 to 2010, World Bank lending for the energy sector increased 

overall. Of the total, the share for fossil fuel lending fluctuates from year to year 

in part from the ‘‘lumpy’’ nature of fossil fuel projects, which tend to be capital intensive. In addition, this period of time was associated with a contraction in global 

capital markets, which resulted in some countries facing challenges in financing all 

infrastructure projects. 

71 

There is no direct relationship between the size of the World Bank’s capital base 

and the amount of money it lends for fossil fuel projects, since the latter is largely 

driven by developing country demand and World Bank sectoral strategies. In this 

regard, the World Bank’s lending for coal projects is driven by its Strategic Framework for Development and Climate Change (SFDCC), which imposes substantive 

constraints on financing such projects. 

Question. Companies are attempting to position supercritical coal technology as a 

low carbon alternative to more CO2 intensive subcritical plants. Regardless of the 

technology, however, coal is still the most CO2 intensive form of energy. How does 

the Bank define low carbon technology? Would the Bank identify supercritical or 

ultrasupercritical coal technologies as low carbon technologies? 

Answer. The World Bank defines ‘‘low carbon’’ as renewable energy projects, 

energy efficiency, powerplant rehabilitation, district heating, biomass waste-fueled 

energy, and gas-flaring reduction. 

Question. The Bank states that both powerplant rehabilitation and fuel switching 

are considered low carbon projects. However, both can still involve carbon intensive 

fossil fuels. 

• How much of the Bank’s low carbon lending is for new renewable energy 

projects rather than merely reducing the carbon intensity of fossil fuel use? 

Answer. 

THE WORLD BANK GROUP: TRENDS IN ENERGY FINANCING (MARCH 2010)

• In 2009, the World Bank Group set a ‘‘green’’ record: 40 percent of our energy 

financing was dedicated to renewable energy or energy efficiency projects in developing countries, a total of $3.3 billion. This is a 24-percent increase from 

2008, which itself was an 87-percent increase over the previous year. We are 

committed to growing our low carbon energy project financing to at least 50 percent of all Bank Group energy financing by 2011. 

• Our total commitments in 2009 on renewable energy, energy efficiency, transmission and distribution, sector reform etc., accounted for more than 75 percent 

of our total energy lending—a record high proportion. 

• In 2004, we committed at the Bonn International Renewable Energies Conference to increase support for new renewable energy and energy efficiency by 

nearly $1.9 billion over the period 2005–09. In fact, our financing surpassed 

$7.0 billion, more than 31⁄2 times the target. 

• During the past 5 years, we approved 364 renewable energy and energy efficiency projects in 85 countries, including 99 projects in 46 countries last year 

alone. 

• Our fossil fuel financing in 2009 was less than 24 percent of our total energy 

portfolio, the lowest ever. Two-thirds of our fossil fuel projects were in clean 

natural gas. Of the remaining projects, half were in coal; of that, half were to 

rehabilitate existing coal plants to make them more efficient and emit fewer 

GHGs. We finance very few new coal generating plants: about one every 2 

years. In terms of megawatts generated by new coal plants over the next 3 

years, our financing is approximately 2.4 percent of what has been committed 

for such plants in OECD countries. 

• Bank Group financing for thermal generation has steadily declined as our clean 

energy portfolio grows. Today, renewables and energy efficiency make up 40 

percent of our financing; a decade ago, it was about 10 percent. The Climate 

Investment Funds have $6.3 billion pledged, with $3.2 billion in investment 

plans already endorsed to support more than $30.6 billion in clean technology 

projects. 

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• In some countries (e.g., Botswana, South Africa), under some circumstances, 

there is no viable alternative to fossil fuel development. In the near term, some 

countries have few or no prospects for ‘‘clean’’ fuel energy sources. Hydro and 

wind power potential is nonexistent; solar power remains too expensive to 

produce and store, and insufficient for heavy base-load use. Where electricity 

from a fossil fuel is a commercially viable option in the near term and other 

sources are not, extending access to electricity may well mean relying on fossil 

fuel power generation. 

• If thermal power generation is unavoidable in the near term, our policy is to support countries on a case-by-case basis to develop the least-cost, lowest carbonbased energy sources—under strict criteria as the lender of the last resort. Given 

the impact of the financial crisis and the urgent need to generate energy to promote growth and reduce poverty, we believe we must continue to support a limited number of coal projects in a handful of countries. These are unusual times 

and we are responding to specific needs. 

Æ We will support such projects provided that a panel of external experts reviews any such project to determine that it meets strict preconditions outlined in the Strategic Framework on Development and Climate Change (see 

below). 

Æ Our fossil fuel projects will respond to near-term, critical energy necessities 

while helping countries move to a medium-term low-carbon growth path. 

These projects will include components that strengthen a country’s efforts 

in renewable energy, energy efficiency, energy sector capacity building, and/ 

or research and development. 

Æ Over the medium to long term, developing countries should be in a position 

to take advantage of low carbon technologies, particularly as technical 

progress and financing opportunities make them more deployable and 

affordable. 

• Our Strategic Framework on Development and Climate Change, endorsed by our 

shareholder governments in 2008, outlines six conditions under which we could 

support client countries to develop coal power projects: 

(1) There is a demonstrated developmental impact (e.g., improving overall energy security, reducing power shortage, or access for the poor); 

(2) There is assistance to identify and prepare low carbon projects; 

(3) There has been optimization of energy sources by considering the possibility of meeting the country’s needs through energy efficiency and conservation; 

(4) There has been full consideration of viable alternatives to the least-cost 

options (including environmental externalities), and when additional financing 

from donors for their incremental cost is not available; 

(5) The project uses the best appropriate available technology, to allow for 

high efficiency and, therefore, lower GHG emissions intensity; and 


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(6) there is an approach to incorporate environmental externalities in project 

analysis. 

Question. How is the Bank engaging recipient and developing member countries 

to consider low or zero carbon energy planning? Does the Bank plan on phasing out 

fossil fuel lending? If so, by when and what steps is the Bank taking now to achieve 

that result? 

Answer. The World Bank’s Country Assistance Strategies are the primary vehicles 

for addressing energy planning in individual countries. Two-thirds of all new Country Assistance Strategies address climate issues, particularly adaptation; this number will only increase. According to the April, 2010, Interim Progress Report on the 

Strategic Framework on Development and Climate Change (SFDCC), the demand 

for World Bank Group engagement in coal power generation will be limited while 

the demand for financing low carbon options will grow. There will be continued demand for rehabilitation of coal-fired powerplants, which will reduce GHG emissions, 

and projects that lead to improvements in local environmental quality. A review of 

the lending pipeline shows no greenfield coal generation projects in middle income 

countries for the next few years and very few in IDA countries. 

Question. The World Bank recently appointed Nobel Prize recipient Daniel 

Kammen as Chief Technical Specialist for Renewable Energy and Energy Efficiency. 

What steps does the World Bank anticipate Mr. Kammen will take to strengthen 

the financing capacity for renewable energy and energy efficiency projects? Will Mr. 

Kammen’s strategies for renewable energy and energy efficiency financing lead to 

a decrease in financing for fossil fuel projects? 

Answer. This is a new position created to provide strategic leadership on the policy, technical, and operational fronts. The aim is to enhance the operational impact 

of the Bank’s renewable energy and energy efficiency activities, while expanding the 

institution’s role as an enabler of global dialogue on moving energy development to 

a cleaner and more sustainable pathway. Mr. Kammen’s appointment takes effect 

in October. Treasury intends to meet with him shortly thereafter to discuss his approach to strengthening the World Bank’s capacity to finance renewable energy and 

energy efficiency projects. 

Æ