[Senate Hearing 106-876]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 106-876

                   ENVIRONMENTAL PROTECTION IN AN ERA
                      OF DRAMATIC ECONOMIC GROWTH
                            IN LATIN AMERICA

=======================================================================

                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON WESTERN HEMISPHERE,
                  PEACE CORPS, NARCOTICS AND TERRORISM

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                              JULY 25, 2000

                               __________

       Printed for the use of the Committee on Foreign Relations


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
69-746                     WASHINGTON : 2001



                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
GORDON H. SMITH, Oregon              CHRISTOPHER J. DODD, Connecticut
ROD GRAMS, Minnesota                 JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas                RUSSELL D. FEINGOLD, Wisconsin
CRAIG THOMAS, Wyoming                PAUL D. WELLSTONE, Minnesota
JOHN ASHCROFT, Missouri              BARBARA BOXER, California
BILL FRIST, Tennessee                ROBERT G. TORRICELLI, New Jersey
LINCOLN D. CHAFEE, Rhode Island
                   Stephen E. Biegun, Staff Director
                 Edwin K. Hall, Minority Staff Director

                                 ------                                

                  SUBCOMMITTEE ON WESTERN HEMISPHERE,
                  PEACE CORPS, NARCOTICS AND TERRORISM

               LINCOLN D. CHAFEE, Rhode Island, Chairman
JESSE HELMS, North Carolina          CHRISTOPHER J. DODD, Connecticut
RICHARD G. LUGAR, Indiana            BARBARA BOXER, California
JOHN ASHCROFT, Missouri              ROBERT G. TORRICELLI, New Jersey

                                  (ii)




                            C O N T E N T S

                              ----------                              
                                                                   Page

DeWalt, Dr. Billie R., director, Center for Latin American 
  Studies; distinguished service professor of Public and 
  International Affairs and Latin American Studies, University of 
  Pittsburgh, Pittsburgh, PA.....................................    28
    Prepared statement...........................................    31
Eichenberger, Joseph E., Director, Office of Multilateral 
  Development Banks, U.S. Department of the Treasury, Washington, 
  DC.............................................................    11
    Prepared statement...........................................    14
    Mr. Eichenberger's response to additional questions submitted 
      for the record.............................................    39
Leonard, Carl H., Acting Assistant Administrator, Bureau for 
  Latin America and the Caribbean, U.S. Agency for International 
  Development, Washington, DC....................................     2
    Prepared statement...........................................     6
    Mr. Leonard's response to additional questions submitted for 
      the record.................................................    37
Watson, Hon. Alexander F., vice president and executive director 
  for International Conservation, The Nature Conservancy, 
  International Headquaters, Arlington, VA.......................    22
    Prepared statement...........................................    24
    The Nature Conservancy's response to additional questions 
      submitted for the record...................................    41

                                 (iii)



 
                   ENVIRONMENTAL PROTECTION IN AN ERA
                      OF DRAMATIC ECONOMIC GROWTH
                            IN LATIN AMERICA

                              ----------                              


                         TUESDAY, JULY 25, 2000

                           U.S. Senate,    
        Subcommittee on Western Hemisphere,
              Peace Corps, Narcotics and Terrorism,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:35 a.m. in 
room SD-419, Dirksen Senate Office Building, Hon. Lincoln D. 
Chafee (chairman of the subcommittee) presiding.
    Present: Senator Chafee.
    Senator Chafee. The hearing will come to order. This 
hearing of the Subcommittee on Western Hemisphere, Peace Corps, 
Narcotics and Terrorism will focus on environmental protection 
in an era of dramatic economic growth in Latin America.'' I 
would like to welcome the witnesses, and thank them all very 
much for appearing before us today.
    As the title of the hearing says, we are witnessing changes 
in South America and the Caribbean, particularly in the growth 
of the middle class and in the slow emergence of democracy and 
progress in many areas. I think it is appropriate to address 
whether we are seeing the same sort of progress environmental 
as well.
    As protection, Mr. Leonard says in his testimony, the 
countries in Latin America and the Caribbean have made some 
progress in advancing the well-being of their citizens in the 
past decade. This is great news. People are better educated and 
healthier than ever before. Economic reforms have spurred more 
growth, and democracy has been embraced in most countries. We 
have recently seen good things happening in the Caribbean and 
South America, and I think it behooves us to address how the 
United States of America can help these nations in 
environmental progress as well.
    I am also the chairman of the Environment and Public Works 
Subcommittee on the Superfund, and as I travel around and look 
at the various Superfund sites in my home State of Rhode 
Island--there are 14 in all, and I just went to my twelfth 
visit yesterday--I am staggered by the cost of the cleanup of 
these sites. I would note that much of the damage was done 
legally, at a time when people did not know what to do with 
some of these toxic wastes. Whether it is a landfill or a tire 
dump, it was legal at the time.
    Just think to yourself, helping to stop other countries 
from making these enormously expensive mistakes is surely in 
everybody's best interest, including the environment and the 
pocketbook. I mentioned what is happening in Rhode Island, but 
there are other examples such as the Hudson River and the Coeur 
d'Alene Valley in Idaho. Given the massive price tag into the 
billions of dollars--of the cleanup from the mine wastes that 
have flowed through the Coeur d'Alene Valley into the lakes and 
streambeds. I think that this is something Congress should look 
into further.
    The developing countries in the Caribbean and South America 
are certainly a great test tube of developing countries. All 
over the world, of course, countries are developing, Africa and 
Asia for example. But here in our own Western Hemisphere, we 
can monitor and help, achieve progress in countries, so close 
to home.
    Last, let me say that a few weeks ago the Senate voted on a 
massive aid package to Colombia, most of which went to military 
hardware. This should justify a pause as we look at trying to 
help these countries. Is it always through arms? Is there a 
better way in helping these countries, making friends, 
promoting democracy and achieving progress? I would hope so, 
and so we welcome the first panel, and Mr. Carl Leonard, who is 
a long-time student of Latin America. I believe he first became 
involved in 1971. I look forward to your testimony. Welcome.

 STATEMENT OF CARL H. LEONARD, ACTING ASSISTANT ADMINISTRATOR, 
  BUREAU FOR LATIN AMERICA AND THE CARIBBEAN, U.S. AGENCY FOR 
           INTERNATIONAL DEVELOPMENT, WASHINGTON, DC

    Mr. Leonard. Thank you very much, Mr. Chairman, for 
inviting me to speak on environmental problems in Latin America 
and the Caribbean [LAC], or LAC region.
    I would like to emphasize three points. First, 
environmental degradation in the LAC region is severe, and has 
serious consequences for both the people of the region and the 
United States. Second, USAID environmental programs are having 
a positive and significant impact, but the dimensions of the 
problem are well beyond the resources of the individual donor, 
and third, poverty and environmental degradation are 
interrelated and interdependent. Poverty is one of the major 
forces driving environmental degradation, while sound natural 
resource management is essential for reducing poverty and 
ensuring future prosperity.
    I request that my full written statement will be included 
in the record.
    Senator Chafee. Without objection.
    Mr. Leonard. In the past decade, the countries of the 
region have significantly advanced the well-being of their 
citizens. People are better educated and healthier, economic 
reforms have spurred more robust growth, and democracy is 
embraced in most countries. We are encouraged by this progress, 
but major challenges remain. Severe degradation of the region's 
environment and natural resource base is one of the most 
serious challenges. Most alarming, the degradation is 
accelerating. The environmental services and resources upon 
which economic prosperity, health, security, and stability 
depend are being destroyed.
    This environmental destruction cannot be viewed in 
isolation. From my current perspective and from my experience 
as USAID Mission Director in Costa Rica, Bolivia, and El 
Salvador, I firmly believe that to safeguard progress and 
advance prosperity sound environmental management must be a 
high priority within the region's broader development agenda.
    The LAC region is blessed with an extraordinarily rich 
natural resource base. However, this fortune can mask the 
severity of the environmental crisis. For example, LAC has half 
of the world's tropical forest, but also one of the world's 
highest rates of deforestation. The region lost more than 210 
million acres of forest between 1980 and 1995. Brazil, the 
country with the greatest amount of tropical forest in the 
world, loses more than 1 percent annually, or an area four 
times that of Rhode Island.
    Of particular concern, countries with the least amount of 
remaining forest have some of the highest deforestation rates. 
At these rates, some countries will lose their remaining forest 
within the next 10 to 20 years.
    Similarly, the region is blessed with more fresh water per 
capita than any other region of the world, but during the past 
50 years it has suffered the greatest decline per capita. The 
principal culprits are poor watershed management, misuse of 
agricultural inputs, the overdrawing of aquifers, and the lack 
of wastewater treatment.
    The region's marine and coastal resources include the 
second longest reef in the world, and extensive mangroves and 
estuaries. These resources harbor globally important biological 
diversity, support fisheries and tourism, buffer coastal 
communities against storm damage, and are at the core of some 
countries' economies.
    However, siltation, pesticides, and wastewater are 
smothering the region's reefs. Scientists categorize the 
survival of two-thirds of the reefs as threatened or highly 
threatened. Rapid urbanization, fueled in large part by 
immigration from rural areas, is magnifying cities' already 
severe environmental problems.
    Conditions are particularly severe in shanty towns, where 
almost half of city residents live, where the greatest growth 
is taking place, and where raw sewage and solid waste are 
dumped directly into the environment. More than 90 percent of 
LAC's urban and industrial wastewater is released to the 
environment untreated.
    None of the numerous examples illustrates the impact of 
resource mismanagement more clearly than Hurricane Mitch. To 
describe Mitch as a natural disaster is a misnomer. Nature 
provides the physical phenomena. People produce the 
vulnerability through the resource use decisions we make. It is 
the combination of the two that leads to disasters.
    Mitch left more than 9,000 dead, 3 million people homeless, 
and left $8 billion in direct damages. Experts attribute 70 
percent of the damage to poor land use decisions. The message 
is clear. Ignoring sound environmental practices imperils 
development.
    Environmental degradation in the LAC region directly 
affects the United States. Some impacts are immediately 
noticeable, for example, the 1998 fires in Mexico and Central 
America that fouled the air of the southern United States. The 
impacts of habitat degradation are less immediate, but 
profound, including sharp reductions in populations of 
migratory birds, an important green species.
    Environmental degradation can also lead to human flight. 
The 1999 report of the International Red Cross concluded that 
the number of people displaced by environmental degradation 
outstrips the number displaced by political unrest and war. 
Environmental degradation contributes significantly to 
immigration pressures.
    The most severely affected by environmental degradation are 
the poor, who live in the most vulnerable environments, often 
squatting on marginalized areas, which maximizes their exposure 
to disasters. The poor also lack access to clean water and 
sanitation, and often are forced to meet their needs through 
environmentally destructive practices such as the clearcutting 
of steep slopes for firewood, and slash-and-burn agriculture. 
Consequently, the poor are the greatest victims of 
environmental degradation, but poverty is one of the most 
significant forces driving that degradation.
    Rapid population growth makes the challenge more difficult. 
Although growth rates have dropped, population levels have not 
yet stabilized. Meeting the needs of a growing population 
places greater demands on the environment.
    Recognizing that improved resource management is essential 
to reduce poverty and foster prosperity, USAID follows four 
principles in designing our environmental programs. First, we 
develop and disseminate environmentally sound practices that 
ensure economic returns competitive with or superior to current 
wasteful practices.
    Second, we engage and empower local communities and 
individuals, for community action makes government more 
responsive and individual ownership and tenure provide 
motivation for stewardship.
    Third, we increase public awareness about the consequences 
of and alternatives to degradation, and fourth, we promote 
policy reforms that direct market forces toward sustainable 
use.
    Our environment program in the region totals approximately 
$65 million each year. I would like to summarize a few 
examples. USAID supports sustainable tropical forest management 
through policy reform, capacity building, introduction of 
sustainable forestry practices, and business market 
development. In Bolivia, the USAID program successfully 
strengthened the technical capacity of community groups and 
fostered partnerships with industry. The area of tropical 
forest certified as well-managed has increased fifteenfold, 
from 128,000 acres to 2 million acres. Exports of eco-certified 
timber have increased from zero to nearly $8 million annually. 
We are supporting similar programs in Brazil, Peru, Ecuador, 
Honduras, and Guatemala.
    In Honduras, USAID's land use and productivity enhancement 
project, known as LUPE, improved hillside agricultural 
practices. Approximately 38,000 hillside farm families adopted 
environmentally sustainable cultivation practices. As a result, 
soil erosion losses on steep slopes were reduced from 37 tons 
per acre to less than half a ton, saving an estimated 5 million 
tons of topsoil annually. Farmers increased their income by 
more than 50 percent.
    LUPE's effectiveness was vividly demonstrated during 
Hurricane Mitch. Although soil erosion and landslides destroyed 
many farms, adjacent LUPE sites withstood the ravages of the 
storm. The LUPE approach has been adopted and spread by Central 
American governments and donors in their commitment to ``build 
back better'' after Mitch.
    USAID is the leader in assisting LAC countries to conserve 
and utilize their biological resources in a sustainable manner. 
Our programs have improved protected areas management, 
safeguarded key watersheds, strengthened local NGO's and 
community groups, assisted indigenous communities to secure 
land tenure, and provided environmentally sound economic 
alternatives.
    For example, the Parks in Peril program, our partnership 
with the Nature Conservancy, local NGO's and municipalities, 
builds local capacity to conserve biological diversity. The 
program has improved protection at 37 park sites covering over 
28 million acres.
    Industrial pollution impairs human health and degrades 
economically important ecosystems. We have demonstrated that 
reducing pollution while enhancing business performance is a 
win-win approach. Our pilot projects have introduced pollution 
prevention technologies that reduce the consumption of water, 
energy, and raw materials, and thus improve efficiency and 
reduce costs.
    Because the challenge is beyond the means of any one actor, 
partnerships are essential. Accordingly, we build local 
capacity and commitment so programs will continue and have the 
opportunity to expand and engage the resources and creativity 
of the host country.
    Second, we develop models that others adopt. Practical, 
simple, and culturally appropriate models have the best 
opportunity for being disseminated.
    Third, we form partnerships with NGO's, universities, and 
other Federal agencies. These institutions are the source of 
extensive technical expertise and commitment, which we 
complement with our international development experience and 
country knowledge.
    Fourth, we encourage the ``greening'' of private 
investment, for private investment in the region far exceeds 
levels of donor assistance.
    And fifth, we coordinate closely with the multilateral 
development banks and other donors. USAID provides grant 
resources that host countries and international financial 
institutions frequently lack. We are doing the analyses and 
pilot activities needed for the design of larger loan programs. 
Coordination among donors can also encourage developing 
countries to adopt the reforms necessary for sound development.
    In conclusion, environmental degradation threatens 
sustained social and economic progress in our hemisphere. 
Environment remains the key element in our overall development 
strategy. We will continue to implement and buildupon the 
successful approaches outlined above to improve environmental 
management, conserve biodiversity, alleviate poverty, and 
ensure future prosperity.
    Finally, we greatly appreciate the interest of this 
subcommittee in an environment and development issues, and look 
forward to working with you. Thank you for the opportunity to 
present our views.
    [The prepared statement of Mr. Leonard follows:]

                   Prepared Statement of Carl Leonard

                               I. OPENING

    Thank you, Mr. Chairman, for inviting me to speak on environmental 
problems in the Latin America and Caribbean (LAC) region. Many of these 
problems are due to rapid economic and population growth, and 
unsustainable land-use practices, as well as other stresses on the 
environment. In addressing these issues, I would like to emphasize 
three points:

          1. First, environmental degradation in the LAC region is 
        severe and has serious consequences for both the people of the 
        region and the United States.

          2. Second, environmental degradation cannot be addressed in 
        isolation of other development challenges. In particular the 
        resolutions to poverty and environmental degradation are 
        interrelated and interdependent--poverty is one of the major 
        forces driving environmental degradation, while sound natural 
        resource management is essential for reducing poverty and 
        ensuring prosperity within the region.

          3. USAID programs to conserve natural resources and foster 
        their sustainable use are achieving positive results, but the 
        dimensions of the problem are well beyond the resources of any 
        individual donor.

                            II. INTRODUCTION

    The countries of LAC have made significant progress in advancing 
the well-being of their citizens in the past decade. People are better 
educated and healthier than ever before, economic reforms have spurred 
more robust growth, and democracy has been embraced in most countries. 
We should be and are encouraged by this progress. Nevertheless, the 
progress is fragile and major challenges remain.
    Severe degradation of the region's environment and natural resource 
base is one of the most serious challenges. Most alarming, the 
degradation is accelerating. The environmental services and resources 
upon which economic prosperity, health, security, and political 
stability rest are being destroyed. But, this environmental destruction 
cannot be viewed in isolation. Rather, it must be addressed in the 
broader context of development challenges including issues of 
governance, equity, and human and institutional capacities. From my 
current perspective and from my experience as USAID Mission Director in 
Costa Rica, Bolivia, and El Salvador, I firmly believe that to 
safeguard progress and advance prosperity, sound environmental 
management must be a high priority within the region's broader 
development agenda.
    It is the good fortune of the region to be blessed with an 
extraordinarily rich natural resource base. But, this fortune can mask 
the severity of the environmental crisis. I will first outline some of 
the most significant problems to illustrate the extent of this crisis. 
Then I will cite approaches USAID has found successful in helping to 
address the region's environmental challenges.

               III. EXAMPLES OF ENVIRONMENTAL DEGRADATION

    Forests--LAC has half of the world's tropical forests, but also one 
of the world's highest rates of deforestation. The region lost more 
than 210 million acres of forest between 1980 and 1995. Brazil, the 
country with the greatest amount of tropical forest in the world, loses 
more than one percent annually, or an area four times that of Rhode 
Island. Of particular concern, countries with the least amount of 
remaining forests have the highest deforestation rates. For example, if 
Jamaica, with only ten percent of its forest remaining, does not reduce 
its deforestation rate, it will have no forests by 2010.
    What is lost when forests are destroyed?--watershed protections, 
soil stabilization, habitat for biodiversity, and employment 
opportunities from forest industries and other businesses dependent on 
forest services. Left behind frequently are fragile and easily degraded 
lands. Conversion to agriculture is the principal cause of 
deforestation, but paradoxically much of the cleared land is unsuitable 
for sustained agricultural production. The chain of events is all too 
common. Declining land fertility leads to declining yields, which 
causes farmers to switch land to less productive uses such as pasture, 
use more inputs such as chemical fertilizers, and eventually abandon 
unproductive lands to move on to clear remaining forests.
    Fresh Water--Besides forests, the LAC region is blessed with more 
freshwater per capita than any other region of the world, but during 
the past fifty years it is also the region that has suffered the 
greatest decrease per capita. The principal culprits are poor watershed 
management, misuse of agricultural inputs such as fertilizers and 
pesticides, the overdrawing of aquifers, and the lack of wastewater 
treatment. More than ninety percent of LAC's urban and industrial 
wastewater is released to the environment untreated. The consequences 
of water mismanagement include: severe health problems (e.g., 
waterborne diseases cause sixty percent of child mortality); reduced 
hydroelectric potential; water shortages and increased costs for 
industry, agriculture, and homes; reduced shipping capacity; and 
extensive damage to freshwater, coastal, and marine ecosystems.
    Marine Resources--The region's extensive marine and coastal 
resources include the second longest reef in the world, and extensive 
mangroves, sea grass beds, and estuaries. These resources harbor 
globally important biological diversity, support fisheries and tourism, 
buffer coastal communities against storm damage, and are at the core of 
some countries' economies. The small island nations of the Caribbean 
derive thirty-one percent of their GDP from a tourism industry based on 
the beauty of their marine environments. Nevertheless, the region's 
reefs are being smothered and poisoned by siltation, pesticides, and 
wastewater. Scientists categorize the survival of two-thirds of the 
reefs as threatened or highly threatened. Other marine and coastal 
resources, such as mangrove forests are faring no better.
    Production of Illegal Drugs--Production of illegal drugs create 
significant environmental issues. The impact on the environment of coca 
production and cocaine manufacturing in Bolivia has been well-
documented. Land clearing for coca alone caused a deforestation rate 
estimated at 10,000 hectares/year. Cocaine processing also has an 
environmental impacts. Lime and sulfuric acid, used in the manufacture 
of cocaine base and discarded afterwards, modifies the pH of soil and 
water. Kerosene, used as a leaching agent, diminishes the oxygenation 
capacity of rivers, killing wildlife. During peak production times in 
Bolivia, annual averages of 14 million liters of kerosene were dumped 
into rivers.
    Urban Environment--Rapid urbanization, fueled in large part by 
immigration from rural areas, is magnifying cities' already severe 
environmental problems. Urban environmental services are essentially 
absent. The sewage of most households goes untreated, and refuse pick 
up is sporadic, inadequate, or totally lacking. Conditions are 
particularly bad in the shantytowns where almost half of city residents 
live and where the greatest growth is taking place. The rapid expansion 
of the ``informal'' (unregulated) sector of the economy, which employs 
over sixty percent of the labor force, is adding to the solid waste and 
wastewater problems. Unregulated textile, leather, metal processing 
shops and other small manufacturing operations dispose of their 
chemical and solid wastes in the most expeditious manner possible.
    Disasters--None of the numerous examples illustrates the impact of 
resource mismanagement more clearly than Hurricane Mitch. To describe 
Mitch as a ``natural disaster'' is a misnomer. Nature provides the 
physical phenomena, people produce the vulnerability through the 
resource-use decisions we make. It is the combination of the two that 
leads to disasters.
    Hurricane Mitch was the most destructive disaster in the 
Hemisphere's recorded history. Central America reported more than nine 
thousand deaths, and three million left homeless. Total direct damage 
reached $8 billion, including the destruction of social and economic 
infrastructure such as transportation routes, villages, schools, and 
crops. Such events threaten sustainable development, by destroying 
years of development progress and investments and shifting development 
priorities from long-term goals to meeting relief and reconstruction 
needs.
    The Central American Commission on Environment and Development 
(CCAD) estimated that seventy percent of the damage from Hurricane 
Mitch can be attributed to poor land use decisions. The message is 
clear--ignoring sound environmental practices imperils development.
    Impacts on the United States--Environmental degradation in the LAC 
region directly affects the United States. Some impacts are immediately 
noticeable, for example, the 1998 fires in Mexico and Central America 
that fouled the air of the southern United States and reached as far as 
New Jersey. The impacts of habitat degradation are less immediate but 
profound. As examples, nearly two-thirds of the bird species found in 
the United States are migratory and depend upon LAC habitats during 
winter months, and many U.S. commercial marine species depend upon 
coastal nurseries throughout the region. Loss of habitat in the LAC 
region has been a significant cause for the sharp reduction we have 
experienced in migratory birds and the population of important marine 
species in our country.
    Environmental degradation can also lead to human flight. The 1999 
annual report of the International Committee of the Red Cross concluded 
that the number of people displaced by environmental degradation far 
outstrips the number displaced by complex disasters such as political 
unrest, oppression, and war. When unsustainable practices exhaust 
fisheries and land, when pollution diminishes the quality of life, and 
when houses, schools, and clinics disappear in a disaster, people are 
compelled to move. There is no doubt that environmental degradation 
contributes significantly to the immigration pressures we experience.
    Businesses in the U.S. also have long-term interests in the sound 
maintenance of our neighbors' resource bases. U.S. timber, fishing, 
tourism, and agricultural companies have made significant investments 
that require sustainable resource management.
    Finally, degradation in the LAC region affects the U.S's interest 
in the global issues of biodiversity conservation and climate change. 
Latin American and Caribbean countries have approximately half of the 
world's biological diversity. The rapid measurable rate of habitat 
destruction demands our attention. The region's emission of greenhouse 
gases is substantial and rapidly increasing. A significant portion of 
this is due to deforestation, but the expansion of industrial output 
and growing demand for energy are major and growing contributors. If 
environmental practices for land-use, and energy production and use are 
not improved, the region's emission of greenhouse gases will 
dramatically increase.
    Poverty and Population--The most grievously affected by 
environmental degradation are the people of the region, particularly 
the poor who have no choice but to live in the most vulnerable and 
degraded environments. It is the poor who depend most directly on 
natural resources to meet their basic human needs, and have limited 
access to safe and productive lands. It is the poor who are forced to 
squat on marginalized areas, such as floodplains, which maximizes their 
exposure to the next disaster. When disaster strikes, it is the poor 
who lack a safety net. The poor also lack access to clean water and 
sanitation facilities, and often are forced to meet their needs through 
environmentally destructive practices such as clear cutting steep 
slopes for firewood and slash-and-burn hillside agriculture. 
Consequently, the poor are the greatest victims of environmental 
degradation, but paradoxically it is poverty that is one of the most 
significant forces driving degradation.
    Although alleviating poverty is the principal development and 
environmental challenge, rapid population growth makes the challenge 
more difficult. We are encouraged that in recent years there has been a 
marked decrease in growth rates, but population growth in the region 
has not yet stabilized. Due to the large percentage of young people in 
LAC countries (thirty-three percent are less than fifteen years of 
age), the population will double in Latin America and the Caribbean in 
the next thirty-nine years. In countries with the fastest growing 
populations--Guatemala, Nicaragua, and Honduras--populations will 
double in twenty-five years or less. As a point of comparison, it will 
take one hundred-twenty years for the population in the United States 
to double.
    Meeting the needs of a growing population and increasing standards 
of living to reduce poverty will place greater demands on the resources 
and services the environment provides. Sustainable resource management 
is, therefore, not simply essential to protecting the environment but 
to reducing poverty and assuring future prosperity and security in the 
region.

                           IV. USAID PROGRAMS

    Recognizing the relationship between poverty and natural resource 
management, USAID follows four basic principles in the design and 
implementation of our environment programs in LAC:

          1. USAID develops and disseminates environmentally sound 
        practices that ensure economic returns competitive with or 
        superior to current wasteful practices, for it is essential 
        that people have sound resource-use alternatives available to 
        meet their needs;

          2. USAID engages and empowers local communities and 
        individuals, for community action and decentralization make 
        government responsive to the needs of the people; and 
        individual ownership and tenure provide motivation for 
        stewardship;

          3. USAID increases public awareness about the consequences of 
        and alternatives to degradation, for sound environmental 
        management requires a broad constituency; and

          4. USAID promotes policy reforms that direct market forces 
        toward sustainable use, for without the proper incentives the 
        development and dissemination of best practices will be of 
        limited utility.

    Our environment program in LAC totals approximately $65 million 
each year. I would like to provide you with a few examples employing 
the above principles.
    Sustainable Forestry--USAID supports sustainable tropical forest 
management through policy reform, capacity building, introduction of 
improved technical practices, and business/market development. In 
Bolivia, USAID helped develop a comprehensive forestry law that: (a) 
ensures greater accountability and transparency in awarding 
concessions, (b) establishes high technical standards for management, 
(c) establishes appropriate market pricing that provides incentives for 
sustainable management, and (d) provides a framework for local 
communities and indigenous groups to obtain legal rights to forest 
resources. The program successfully refines and demonstrates best 
management practices, strengthens the technical and management capacity 
of community and indigenous groups, and fosters partnerships with 
industry to access international markets for sustainably produced 
forest products.
    Through the program, the area of tropical forests certified as well 
managed by such groups as the Forest Stewardship Council has increased 
fifteen-fold from 128,000 acres to two million acres--the most in the 
LAC region--and exports of eco-certified timber have increased from 
zero to nearly $8 million annually. By 2004 we expect that six million 
acres of forests will be certified and exports of certified products 
will surpass $20 million annually. USAID is implementing similar 
programs in Brazil, Peru, Ecuador, Honduras, and Guatemala.
    Hillside Agriculture--In Honduras, USAID's Land Use and 
Productivity Enhancement project (LUPE) promoted improved hillside 
agriculture practices that increase agricultural production with 
improved management of natural resources. LUPE also assisted farmers 
with crop diversification and marketing, especially of high value 
vegetables. Environmental education was carried out in rural elementary 
schools to enhance environmental awareness, and municipalities were 
strengthened in small watershed management. As a result of the program, 
approximately thirty-eight thousand hillside farm families in southern 
and central Honduras adopted environmentally sustainable cultivation 
practices. Soil conservation practices reduced soil erosion losses on 
steep slopes from thirty-seven tons per acre to less than half a ton 
per acre, saving an estimated five million tons of topsoil annually 
from LUPE sites; and in the process farmers increased their income by 
more than fifty percent.
    The effectiveness of LUPE's conservation practices was vividly 
demonstrated during Hurricane Mitch. Although many farms were destroyed 
by soil erosion and landslides, adjacent LUPE sites withstood the 
ravages of the storm. Central American governments and international 
donors; in their commitment to ``build back better'' after Mitch, are 
replicating LUPE models that protect the environment, address poverty, 
and reduce downstream vulnerability of people and economic investments 
to natural disasters. USAID has similar successful hillside agriculture 
programs in several other Caribbean and Central America countries.
    Biological Diversity--USAID is a leader in assisting LAC countries 
to conserve and utilize their biological resources in a sustainable 
manner. Our programs have improved protected areas management, 
safeguarded key watersheds that provide drinking water for urban 
populations, strengthened local NGOs and community groups, assisted 
indigenous communities in securing land tenure rights, and provided 
environmentally-friendly economic alternatives for local people. For 
example, the Parks in Peril program--a partnership among USAID, The 
Nature Conservancy, local NGOs and local governments--builds local 
capacity to conserve biological diversity in protected areas throughout 
Latin America and the Caribbean. During the past ten years, the program 
has improved protection at thirty-seven park sites covering over 
twenty-eight million acres containing globally significant 
biodiversity. So far twenty parks have been transformed into fully-
functioning protected areas that require minimal donor assistance. 
Equally significant, USAID has assisted twenty-seven local conservation 
NGOs to become self-sufficient organizations with effective voices in 
their countries for sound environmental management.
    Environment Endowments--USAID has been a global leader in 
establishing and strengthening locally-managed environmental 
endowments. These endowments provide long-term sustainable financing to 
fund the proposals of local environment NGOs and community groups. 
USAID has strengthened and served on the Board of The Enterprise for 
the Americas Initiative's (EAI's) seven environmental trust funds (in 
Argentina, Bolivia, Chile, Colombia, El Salvador, Jamaica and Uruguay), 
totaling over $175 million. USAID also led the creation and 
capitalization of additional environmental trust funds in Ecuador, 
Guatemala, Honduras, Jamaica, Mexico, and Panama and has leveraged 
$42.8 million to support these endowments.
    Industrial Pollution Prevention--Industrial pollution impairs human 
health, degrades economically important ecosystems, and decreases the 
competitiveness of LAC businesses in a global economy. USAID supports 
pollution prevention and cleaner production activities in seven LAC 
countries. These help to: (a) increase awareness of the economic and 
social benefits of cleaner production, (b) develop regulatory 
frameworks that favor pollution prevention over end-of-pipe pollution 
control, (c) build local capacity for advancing cleaner production, and 
(d) increase available investment capital by educating lenders about 
the financial soundness of the pollution-prevention approach.
    In our programs we have clearly demonstrated that pollution-
prevention practices are a win/win approach--reducing pollution while 
enhancing business performance. Pollution is often the result of not 
efficiently using and recycling resources. Pollution-prevention 
technologies can reduce the consumption of water, energy, and raw 
materials--improving production efficiency and reducing business costs. 
In Bolivia for example, eleven plants invested $131,000 in pollution 
prevention and generated annual savings of nearly $228,000, a seven 
month payback on investment. In the process they reduced the amount of 
pollution they produced by seventy percent. In Ecuador, sixteen plants 
invested approximately $4 million and generated annual savings of more 
than $5 million, a ten month payback on investment.
    Water Management--LAC governments are increasingly decentralizing 
the provision of water supply and sanitation as part of broader 
reforms. USAID has taken the lead in developing low-cost, low-
maintenance water supply and sanitation models for small municipalities 
in Central America and the Dominican Republic. In El Salvador, USAID 
has helped protect watersheds to increase water supplies, reduce 
surface and groundwater contamination, decentralize potable water 
authorities, and create sustainable local water groups. USAID's 
approach to providing rural water and sanitation services has strongly 
influenced the Inter-American Development Bank (IDB) water sector loans 
in El Salvador and the Dominican Republic. During the past two years in 
El Salvador, nine municipalities have developed water-resource 
management plans, twelve municipalities have implemented potable water 
systems, sixteen have constructed or rehabilitated water systems, five 
hundred households have adopted improved wastewater management, and 
soil conservation practices and tree planting have stabilized nearly 12 
thousand acres of land.
    Urban Development--LAC is marked by a concentration of political 
power, economic wealth, and opportunity in capitals and the largest 
cities. USAID programs have focused on promoting decentralization of 
political, administrative, and fiscal authority to local municipalities 
so that local people have the authority and resources to address their 
needs, including environmental services. USAID's efforts at increasing 
the availability of financing for urban infrastructure provide an 
example of the success of our approach. In 1993, the Municipal 
Infrastructure Finance Program was launched by USAID in partnership 
with the Central American Bank for Economic Integration (CABEI), 
establishing a $26 million credit fund. The program started in 
Guatemala and Costa Rica as a pilot. In 1999, the success of the 
program attracted an additional $50 million in funding from Taiwan and 
Germany, and was extended to El Salvador, Honduras and Nicaragua: CABEI 
lends to public and private financial institutions, which in turn lend 
to municipalities to finance infrastructure projects such as potable-
water and sewage systems, and solid-waste management. By the beginning 
of this year the program had financed three hundred sixty-four 
projects, benefiting over one million households.

                       V. PARTNERSHIP WITH OTHERS

    The previous examples illustrate USAID's partnerships with other 
donors, host country institutions, the private sector; NGOs, 
communities, and other USG agencies. These partnerships are essential. 
Our programs are successful, but the problems are beyond the resources 
of any individual organization. Consequently, USAID's strategic 
planning focuses on engaging the interest and resources of others, 
providing guidance and leadership, and supporting innovations of 
others. Collaboration is so important to overall success in promoting 
sustainable development, that I would like to outline the basic 
components of our approach.

          1. Build local capacity and commitment--Without local 
        capacity the end of donor funding is the end of that activity. 
        With it, not only does the program continue but also has the 
        opportunity to expand and spread as it engages the resources 
        and energies, and creativity of the host country and people.

          2. Develop models that can be adopted by others--Practical, 
        simple, and culturally appropriate models have the best 
        opportunity for being disseminated and adopted on their own 
        merit with minimal or no further external resources.

          3. Form partnerships with NGOs, Universities, and other 
        Federal Agencies--These institutions are the source of 
        extensive technical expertise and commitment, which are 
        complemented by USAID international development experience. 
        USAID provides guidance based on our years of development 
        experience, our in-country knowledge, and the framework of U.S. 
        foreign-policy interests to create effective partnerships with 
        U.S. entities for advancing our country's development 
        assistance goals.

          4. Encourage the ``greening'' of private investment--Private 
        investment in the region far outstrips donor assistance. It is 
        essential that these investments be environmentally 
        sustainable. USAID helps countries develop capacity for 
        evaluating investment proposals, and assists in developing and 
        promoting environmentally improved modifications and 
        alternatives.

          5. Cooperate with other bi-lateral donors and the 
        Multilateral Development Banks--USAID's in-country presence and 
        knowledge places us in a position to contribute to close donor 
        coordination. USAID has been successful in providing the up 
        front grant resources that host countries and International 
        Financial Institutions (IFIs) frequently do not have for doing 
        the analyses and pilot activities needed for the design of 
        large loan programs. Developing a consensus among donors can 
        also be essential in encouraging developing countries to make 
        tough decisions and reforms necessary for sound development.

                            VI. CONCLUSIONS

    In conclusion environmental degradation threatens sustained social 
and economic progress in the region, including aspirations in the 
region for a better life.
    We will continue to maintain environment as a key element in our 
development strategy, and will continue to implement and build upon the 
approaches outline above. To make the most of limited resources and in 
recognition of the inter-sectoral aspects of environment and its 
relationship to poverty, we will continue to integrate environment 
goals into our economic, health, education, and democracy, programs.
    Finally, we greatly appreciate this subcommittee's interest in 
environment and development issues and thank you for the opportunity to 
present our views.

    Senator Chafee. Thank you, Mr. Leonard, very much, for your 
experience and words.
    Mr. Joseph Eichenberger is the Director of the Office of 
Multilateral Development Banks, and is a long-time expert in 
economic affairs in Latin America. Welcome, Mr. Eichenberger.

   STATEMENT OF JOSEPH E. EICHENBERGER, DIRECTOR, OFFICE OF 
    MULTILATERAL DEVELOPMENT BANKS, U.S. DEPARTMENT OF THE 
                    TREASURY, WASHINGTON, DC

    Mr. Eichenberger. Thank you, Mr. Chairman. On behalf of the 
Treasury Department I greatly appreciate the opportunity to 
discuss the role of the Multilateral Development Banks (MDB) in 
addressing environmental degradation in Latin America.
    I also want to take this opportunity to express our sincere 
thanks to you, Mr. Chairman, for your active support and 
leadership with respect to two Treasury programs of particular 
significance in dealing more effectively with major 
environmental challenges. Those programs are the Global 
Environment Facility and the Tropical Forest Conservation Act. 
Both are enormously important programs and both have benefited 
greatly from your active interest and close engagement.
    These institutions, the World Bank, the Inter-American 
Development Bank and the Global Environment Facility, are 
making important contributions, both directly and indirectly, 
to efforts to deal more effectively with such key challenges as 
air and water pollution, biodiversity conservation, forestry 
preservation and land degradation.
    Directly, the institutions are major lenders for 
environmental purposes in Latin America, together providing 
over $1.6 billion in loans and grants in 1999 alone. 
Indirectly, each is working to promote the policy and 
institutional reforms needed to create a foundation for 
environmentally sound growth over the long-term.
    The Treasury Department has been actively engaged for more 
than a decade in helping to shape MDB policy and project 
decisions related to these environmental challenges. We have 
benefited greatly in these efforts from the keen ongoing 
interest of Congress and civil society groups of all kind.
    I also want to acknowledge USAID's expertise on 
environmental issues and the very helpful collaboration it has 
had with both us and the MDB's on the full range of 
environmental issues.
    I believe it is fair to say that these shared efforts have 
produced major progress, and that the environmental efforts 
within the banks have been advanced substantially.
    But it is also fair to say that there have been 
disappointments. There is clearly still a great deal of work to 
be done, and continued strong U.S. leadership will be 
essential.
    My colleague, Carl Leonard, has spoken directly, and I 
think effectively, about the key environmental challenges in 
Latin America. I request that my complete written statement be 
placed in the record and I would like to focus my oral remarks 
more specifically on MDB efforts to address these challenges 
and on our priorities, U.S. priorities, for the MDB's going 
forward.
    There is no question that the MDB's need to play a 
significant role in helping Latin America deal effectively with 
its urgent environmental challenges. Over the past decade, we 
have worked hard to ensure that the institutions take fully 
into consideration the direct impact of their projects on the 
environment. We have also given high priority to their 
important indirect role in helping strengthen indigenous 
institutions and the basic policies that are indispensable to 
achieving both environmentally sustainable development and 
enduring poverty alleviation.
    Last year, the World Bank, the Inter-American Bank [IDB] 
and the Global Environment Facility [GEF] provided close to $4 
billion in loans, grants and technical assistance for 
environmental efforts worldwide. For Latin America, the IDB 
provided just under $900 million for these purposes, the World 
Bank, about $450 million; and the GEF about $270 million, which 
includes some co-financing.
    Most of the IDB and World Bank loans have been geared to 
address urban environment problems, to improve the supply of 
clean water and to promote pollution control. They have also 
provided technical assistance in such important areas as 
strengthening institutions, coastal resources management, 
watershed management, and natural resources conservation.
    My full written submission identifies a number of specific 
projects that might be of particular interest to the 
subcommittee. These projects, and many others, I think, reflect 
the MDBs' efforts to find innovative approaches to 
environmental challenges, including by forming public/private 
sector partnerships. We have encouraged such work by the MDB's 
and we will continue to do so in the future.
    I would like to spend a moment on the Global Environment 
Facility, which is the primary international funding mechanism 
to address global environmental challenges.
    Since 1991, the GEF has provided close to $570 million in 
grants for operations in Latin America, leveraging an 
additional $1.3 billion in co-financing for such projects as, 
most recently, demonstrating economically viable renewable fuel 
technologies in Brazil in cooperation with General Electric, 
and a multi-country effort to reduce pesticide runoff into the 
Caribbean by improving management practices.
    In these and other areas, the GEF seeks to maximize its 
impact by focusing on innovative solutions to cross-border 
problems and by collaborating closely with other institutions, 
such as the World Bank, to multiply the effect of its limited 
resources.
    The formula is working. In 1999, for example, every dollar 
provided by the United States leveraged approximately ten 
additional dollars from other donors, including recipient 
governments and the private sector. What was a pilot program 
just a few years ago has established a growing record of 
results and has garnered growing support for its efforts. And 
again, we greatly appreciate the strong support you, in 
particular, have given to the GEF, Mr. Chairman.
    Yet, the GEF's ability to achieve its mission is being 
severely limited by the financial constraints arising largely 
from our inability to deliver on U.S. financial commitments. 
U.S. arrears to the GEF now total $204 million, and they will 
expand further if the funding levels contained in the current 
appropriation bills for fiscal year 2001 are maintained. The 
impact of U.S. arrears is further magnified by the fact that 
other countries are holding back their contributions until we 
deliver on ours.
    The bottom line, Mr. Chairman, is that the GEF may find 
itself unable to make any new operational commitments beyond 
the fourth quarter of this year in the absence of some 
significant new U.S. funding.
    With respect to the MDB's--the World Bank and the Inter-
American Bank--our efforts to promote environmental soundness 
have focused on several key areas. First, integrating 
environmental considerations thoroughly into project design. 
Second, increasing the amount of financing for environmentally 
beneficial projects. Third, implementing stronger environmental 
policies fully and strengthening them where that is needed. 
Finally, ensuring greater transparency and effective civil 
society participation in bank operations.
    We have achieved much at the World Bank. Operational 
requirements for environmental analysis are now widely 
considered to be among the strongest of their kind. Public 
consultations are mandatory in most cases. The Bank has an 
information policy based on a presumption of disclosure.
    There is a centralized unit at the bank for environment and 
sustainable development, as well as specialized staff located 
throughout the operational units. And in the private sector 
area, the Bank's investment insurance arm, Multilateral 
Investment Guarantee Agency [MIGA], has formally adopted new 
environmental and disclosure policies.
    At the IDB, I would note, in particular, a series of 
specific policies on water resource management, coastal 
management, forestry and agriculture. The IDB, as has the World 
Bank, has created an independent Inspection Panel to give a 
voice to local people who feel that their interests have been 
adversely effected by IDB projects. There is a greater 
operational emphasis on energy efficiency. Environmental units 
now exist throughout the organization's regional and operations 
departments. Most recently the IDB has pursued what we think is 
an exemplary process for consulting with civil society as it 
develops a new energy policy.
    I think the record is one of progress in the organizations, 
but there is no question that more remains to be done. Both 
institutions need to make further progress in integrating 
environment more thoroughly into their operations. Information 
disclosure policies and the Inspection Panels in these 
institutions are being reviewed for further improvements. We 
expect to be fully engaged in this exercise to achieve those 
improvements.
    Consistent implementation of the various safeguard policies 
and enforcement of bank procedures are a key U.S. concern. The 
banks are aware that they need to do more to make this a 
reality.
    I would point out, Mr. Chairman, that the G-7 finance 
ministers, as part of the Okinawa economic summit, recently 
agreed to a slate of MDB reforms which I think constitutes a 
very substantial agenda for further progress. Among these is 
agreement that the MDB's need to focus more resources on the 
provision of global public goods, including global 
environmental goods. I would be happy to share that reform 
agenda with you if you are interested.
    In conclusion, Mr. Chairman, the Treasury Department is 
absolutely committed that U.S. support for the MDB's helps to 
protect the environment and the natural resources in Latin 
America and the Caribbean and beyond. We have a clear strategic 
interest in helping our neighbors in the hemisphere achieve 
growth that also protects the environment. And we believe that 
we have a unique opportunity to do so through institutions that 
we have helped shape for as much as 50 years. I would be 
pleased to answer any questions that you have. Thank you.
    [The prepared statement of Mr. Eichenberger follows:]

              Prepared Statement of Joseph E. Eichenberger

    Mr. Chairman, Ranking Member Dodd, and distinguished Members of the 
Subcommittee.
    Thank you for the opportunity to discuss the important role of the 
multilateral development banks (MDBs) in addressing environmental 
degradation in Latin America. The Inter-American Development Bank, the 
World Bank, and the Global Environment Facility are playing a key role, 
both directly and indirectly, in the region to address such issues as: 
air and water pollution, biodiversity conservation, forestry 
preservation, ozone depletion, and land degradation. Directly, the 
institutions are major lenders for environmental purposes, together 
financing over $1.6 billion in Latin American in FY 1999. Indirectly, 
all are involved in promoting the policy and institutional reforms. The 
World Bank has rightly said, ``. . . lasting poverty reduction is only 
possible if the environment is able to provide the services people 
depend on and if natural resource use does not undermine long-term 
development.'' We can all agree on that common sense principle.
    The Treasury Department is actively engaged in MDB policy and 
project decisions related to environment and we have been successful in 
promoting a stronger environmental agenda within the banks. We have 
benefited greatly in these efforts from the keen on-going interest of 
Congress and civil society groups. I also want to acknowledge USAID's 
expertise on environmental issues and the very helpful collaboration it 
has had with us and the MDBs on a wide range of issues. But that said, 
there is clearly still a great deal of work to be done, and continued 
strong U.S. leadership will be essential. Today, I will focus my 
remarks on three main topics:

I. The key environmental challenges in Latin America;

II. MDB efforts to address these challenges; and

III. U.S. priorities for the MDBs going forward.

            I. KEY ENVIRONMENTAL CHALLENGES IN LATIN AMERICA

    In Latin America, as elsewhere, natural resources have 
traditionally been viewed as a basis for revenue generation and 
economic growth, with important sustainability issues typically 
relegated to secondary status. Over time, this has led to over 
exploitation of the natural resource base upon which many of these 
economies depend. Fortunately, the view in the region is changing, as 
democracy has taken stronger hold, and as the basic economic logic of 
conservation and sustainable development has become better understood.
    Meeting an increasing demand for energy is one of the biggest 
environmental issues faced by Latin American today--be it through the 
use of forests as a fuel source or emissions from power generators, 
rural and urban areas suffer the associated environmental impacts of 
energy production and usage. Urban air pollution remains a key human 
health and environment issue, as does water pollution in densely 
populated areas. Much of the region's biodiversity resources are under 
threat from forest loss, soil depletion, water pollution, fisheries 
exploitation, land degradation from poor agricultural practices, 
unsustainable forestry practices, and overgrazing. The use of 
persistent organic pollutants (e.g., DDT), with their insidious 
impacts, is also another major challenge for the region.
    The reasons for these problems are multiple and complex. Lack of 
institutional capacity has long been a constraint to implementing 
environmental policies and programs, and to managing the environmental 
implications of growth and development. In many cases, government 
policies in areas such as land use and energy pricing have directly 
encouraged activities that are contrary to sound, long-term resource 
management. Latin America's welcome efforts to build market-based 
economies have in some important respects outpaced its efforts to build 
capacity to regulate and monitor natural resource use and enforce 
environmental laws. Poverty itself can be directly responsible for 
unsustainable resources use, leading to a vicious cycle of need and 
overexploitation.

          II. MDB EFFORTS TO ADDRESS ENVIRONMENTAL CHALLENGES

    We believe the MDBs need to play a significant and multifaceted 
role in helping Latin America deal effectively with these urgent 
environmental challenges. Over the past decade, we have worked hard to 
ensure that the MDBs take fully into consideration the direct impact of 
their projects on the environment. We have also given considerable 
emphasis to the important role of the MDBs in helping strengthen 
institutions across the region responsible for implementing and 
developing sound environmental policies for sustainable development and 
poverty alleviation.
    With substantial leadership from the U.S., the Inter-American 
Development Bank, the World Bank, and the Global Environment Facility 
have dedicated significant amounts of resources to environmental 
protection. Globally, in 1999, these MDBs have provided close to $4 
billion for environmental efforts. For the region, the figures are also 
impressive. Despite the appropriate priority given to managing the 
financial crisis, in 1999 the IDB approved $894 million in loans for 
environment and natural resources, or 9 percent of the Bank's overall 
lending total. FY 1999 World Bank lending in the region for environment 
totaled approximately $458 million.
    Both institutions have used loans, grants, and technical assistance 
to build diverse environmental portfolios in the Latin American and 
Caribbean region, with some very innovative projects. Most of the IDB 
and World Bank environmental loans in the region have been geared to 
address urban environment problems, improve the drinking water supply, 
and pollution control. They also provide technical cooperation to 
countries, in such areas as pollution control, institutional 
strengthening, coastal resources management, watershed management, and 
natural resources conservation.
    To highlight several projects in particular:

   The IDB's Multilateral Investment Fund (MIF) and the Nature 
        Conservancy co-sponsored the EcoEmpresas Fund to invest risk 
        capital in NGOs, microenterprises, and small businesses that 
        work to preserve the environment while making a profit. The IDB 
        received a special recognition award from the Nature 
        Conservancy for its work on this project.

   The IDB's Inter-American Investment Corporation (IIC) and a 
        U.S.-owned environmental service provider have formed a 
        strategic partnership to handle industrial waste and harness 
        the recovered energy resources from waste material.

   The IDB is also supporting the Coastal Resources Management 
        program in Ecuador with the assistance of the University of 
        Rhode Island Coastal Resources Center.

   A World Bank Clear Air Initiative in Latin America will 
        bring together city managers, development agencies, leaders 
        from public sectors, and NGOs to address air quality problems 
        in large metropolitan areas. This three-year program covers 
        issues of environment, urban, transport, health, energy, 
        industrial pollution, and global emissions, as they relate to 
        the quality of the air in the cities of the most urbanized 
        region of the developing world.

   The Meso-American Biological Corridor is a multidonor 
        initiative which includes the World Bank and GEF investments in 
        Belize, Costa Rica, El Salvador, Honduras, Mexico, Nicaragua, 
        and Panama. This initiative is helping to protect the 
        countries' terrestrial and marine ecosystems through a variety 
        of projects, including by training indigenous peoples in 
        natural resource management.

   In Mexico, the World Bank supported a project to test 
        whether small- and medium-sized enterprises can successfully 
        adopt environmental management systems. The project enlisted 
        the private sector, local academic institutions, and the 
        Mexican Government.

    These projects, and many similar projects reflect the MDBs' efforts 
to find innovative approaches to environmental challenges, including by 
forming public-private sector partnerships. We have encouraged such 
work by the MDBs as a concrete application of their particular assets 
and capabilities.

Global Environment Facility
    The Global Environment Facility (GEF) has emerged as the principal 
international funding mechanism to address global environmental 
challenges (e.g., international waters, biodiversity, ozone depletion, 
and climate change) facing developing countries and nations 
transitioning to market economies. Since its creation in 1991, the GEF 
has provided close to $570 million directly in grants for operations in 
Latin America, which has leveraged $1.3 billion in cofinancing.
    The GEF financed $270 million, including co-financing, for Latin 
American projects in FY 1999. In 1999, every dollar provided by the 
U.S. has leveraged approximately $10 from recipient governments, other 
bilateral donors, the private sector, and other multilateral 
institutions.
    Examples of GEF Projects in Latin America include:

   Renewable fuel technology is being developed in Brazil. The 
        GEF has worked with the Brazilian Government, General Electric, 
        and private Brazilian companies to develop and demonstrate 
        generating technology that uses wood chips from plantation 
        forests for fuel.

   GEF is working with Colombia, Costa Rica, Panama, and 
        Nicaragua to reduce pesticide runoff to the Caribbean Sea by 
        developing and implementing management practices and national 
        regulatory systems to control the use of pesticides and promote 
        the use of alternative pest control systems.

   In Argentina, GEF is financing work with fisherman and tour 
        guides off the Patagonian coast to develop a plan enabling 
        profitable fishing while protecting endangered whales, elephant 
        seals, and penguins.

    The GEF seeks to maximize its efficiency and impact by 
collaborating closely with other institutions, including the World 
Bank. In FY00, for example, joint World Bank-GEF projects equal to $264 
million were approved. In response to a new GEF policy supported by the 
United States, the regional development banks are preparing to 
implement GEF projects. The IDB has already proposed its involvement in 
two projects, a coastal zone management program in Jamaica and a 
technical assistance project in the Gulf of Honduras.
    However, the GEF's ability to achieve its mission is being severely 
limited by financial constraints arising largely from the U.S. 
inability to deliver on our financial commitments. U.S. arrears to the 
GEF now total $204.2 million, and will expand further if the low 
funding levels contained in the current Foreign Operations 
Appropriations bills for FY01 are maintained. The impact of U.S. 
arrears is further magnified by the fact that other countries are 
holding back their contributions until the U.S. makes a substantial 
contribution. The bottom line is that the GEF may find itself unable to 
make any new operational commitments beyond the fourth quarter of this 
year in the absence of some significant new U.S. funding.

Tropical Forest Conservation Act
    Though not a part of the MDB efforts on environment, the Tropical 
Forest Conservation Act (TFCA) bears mentioning. It is another priority 
in our environmental agenda. The TFCA, enacted in 1998, provides 
eligible countries the opportunity to reduce concessional debts owed to 
the United States, and at the same time generate funds to conserve or 
restore their tropical forests. While the debt reduction component of 
the legislation is modest, the amounts generated for tropical forest 
conservation programs are meaningful. For example, the roughly $6 
million that we have already set aside for Bangladesh's participation 
will leverage even more resources to conserve or restore its 1.5 
million hectares of tropical forests, roughly half of which are in the 
southwestern Sunderbans region and home to the world's sole genetically 
viable population of 400 Bengal tigers.
    Of the 10 countries that have requested participation in the TFCA, 
six are from Latin America (i.e., Peru, Belize, El Salvador, Paraguay, 
Ecuador, and Costa Rica). Of these, Peru and Belize, have already been 
certified as eligible and are now entitled to discuss innovative debt 
swap mechanisms that could generate additional funds for tropical 
forest conservation programs.

  III. THE U.S. ENVIRONMENTAL AGENDA IN LATIN AMERICAN AND HOW WE ARE 
             WORKING TO ENSURE MDB OPERATIONS REFLECT THIS

    The U.S. has focused its efforts on MDB reforms in several areas to 
promote the overriding principle of environmentally sustainable 
development: (1) greater ``mainstreaming'' or integration of 
environmental concerns into regular operations of the MDBs; (2) more 
environmentally beneficial projects; (3) ongoing implementation of 
existing MDB operational policies on environment; (4) improvements in 
MDB policies regarding civil society participation; and (5) further 
enhanced transparency of the Bank's operations. We pushed for progress 
on these fronts in our negotiations to provide financial replenishment 
and have been pleased with progress in some areas.
    At the IDB, many of the positive developments stem from U.S. 
leadership in the negotiations for the eighth replenishment of the IDB 
in 1994 to press the Bank to provide greater protection for the 
environment. The accomplishments are wide-ranging:

   Development of new policies related to the environment, such 
        as water resource management, coastal management, forestry, 
        energy and sustainable agriculture development, including a 
        commitment to not finance commercial logging in moist tropical 
        forests;

   Lending for environmentally beneficial projects. Lending for 
        environmentally beneficial projects has remained relatively 
        constant since the General Capital Increase (GCI) at around 9 
        percent of the Bank's portfolio. However, this figure may 
        actually understate the environmental work of the Bank since 
        many projects have positive environmental aspects even though 
        the primary objective of the project is not environmental;

   Greater emphasis on energy efficiency. The Sustainable 
        Energy Markets (SMSE) program, initiated in 1996, focuses on 
        industrial energy efficiency, renewal and efficiency in urban 
        transport. The program has mobilized around $5 million in 
        external donor funds to prepare efficiency projects for 
        implementation. In addition, IIC and MIF, both members of the 
        IDB Group, are financing pilot projects under this program;

   Consultation with affected people and inclusion of 
        resettlement plans as part of environmental impact assessments; 
        and

   Development by Management of an information disclosure 
        policy and creation of an independent inspection mechanism that 
        will investigate charges by local people that the Bank has 
        failed to follow its own operational policies.

    As a result of the negotiations for a capital increase of the 
Inter-American Investment Corporation (IIC) in 1999, the IIC adopted a 
new policy regarding environmental and labor review of projects. The 
IIC has also adopted the IDB inspection panel function and, in January 
1999, a policy regarding information disclosure was approved for the 
first time.
    The IDB has created environmental units within each regional 
operations department to integrate environmental considerations into 
project preparation and implementation. It has adopted procedures to 
deal with any resettlement that might be entailed by projects. The Bank 
has adopted a Strategy for Integrated Water Resources Management and an 
implementation action plan that focuses on internal dissemination and 
mainstreaming of environment into Bank operations. The IDB has improved 
its capacity to integrate environmental considerations into its 
projects and programs. We were pleased with the involvement of civil 
society in the IDB's development of an energy strategy. Going forward, 
we want to see the IDB put greater emphasis on lending for renewable 
energy and energy efficiency projects. The IDB needs to reinforce its 
program of consultation with civil society to ensure this is an 
integrated element in all its operations. In this regard, we are 
working closely with the Bank as it prepares a formal framework for 
consultation and public participation.
    During the 1998 negotiations for the twelfth replenishment for the 
International Development Association (IDA-12)--the soft loan window of 
the World Bank, the U.S. pushed for a deeper set of reforms than those 
achieved in prior replenishments to better mainstream environmental 
considerations into both IDA projects and its policy dialogue with 
borrowing countries. In particular:

   Adequacy of country environmental policies and regulations 
        as a performance criteria for allocating IDA resources;

   Integration of environmental issues into all Country 
        Assistance Strategies (CASs);

   Using National Environmental Action Plans as a key element 
        when designing Bank operations; and

   Greater IDA collaboration with the Global Environment 
        Facility.

    It should also be noted that other World Bank affiliated 
institutions are showing progress on the environment. The Multilateral 
Investment Guarantee Agency (MIGA) adopted new environmental disclosure 
policies in 1999, which are being implemented. The International 
Finance Corporation (IFC) is also moving forward to better incorporate 
environmental concerns into its lending operations.
    The World Bank has made noteworthy progress in mainstreaming 
environmental issues into the Bank's operations. Serious gaps remain, 
however. We do not consider the Bank to have lived up to the 
expectation that it would make strong efforts to mainstream environment 
throughout its regular operations, as required by the GEF's second 
replenishment agreement. A progress report on the mainstreaming efforts 
outlined in IDA-12 is due in December 2000, which we will be carefully 
analyzing to see what areas are lacking. In addition, the Bank's 
Environment Strategy, currently under preparation, provides a mechanism 
for securing a better commitment from the Bank to integrate 
environmental issues into all operations. As a result of strong U.S. 
advocacy, an independent Inspection Panel was created in 1994 to 
examine alleged violations of Bank policies in the preparation and 
implementation of projects. In the policy area, we are following 
closely the ongoing conversion of advisory directives into more formal 
operational policies, especially in the area of resettlement and 
indigenous peoples.
    Enhancing the transparency of these institutions and increasing 
public participation in countries' development programs are central 
policy goals of the U.S., particularly in terms of the environment. We 
have been at the forefront in calling upon these institutions to 
increase their disclosure of information in a timely manner. Over the 
last five years there have been notable successes (e.g., disclosure of 
country assistance strategies by the World Bank, and public release of 
environment impact assessments by both the IDB and World Bank for 
projects with a significant impact on the environment before project 
appraisal/analysis missions leave for the borrowing country).
    We believe there is much more room for improvement in both the IDB 
and the World Bank policies and practices related to environment. The 
Banks' record on consistent implementation of safeguard policies and 
enforcement of their own procedures is a key concern to the U.S. The 
Banks, to their credit, are also aware that they need to do much more 
to ensure that staff and management make this a priority. Though we 
have made progress in improving the quality of loan documents related 
to environment and resettlement and making them publicly available in a 
timely manner, in part due to the requirements of the Pelosi Amendment, 
we still find projects which do not meet the Amendment's standards. We 
subsequently oppose any offending projects, sending a clear message to 
Bank leadership. We will continue to use our voice and vote to urge the 
Banks to meet higher environmental standards in accordance with the 
provisions of the Pelosi Amendment.
    In a broader context, we are calling for a reform agenda for the 
MDBs to enhance their focus on the provision of global public goods, 
including the global environment, as a more forwardthinking approach to 
poverty reduction and the links between it and our environment and 
natural resources. We believe the MDBs must move away from financing 
sectors/projects that the private sector can easily do on its own and 
focus more on social programs and international public goods that the 
private sector will not or cannot finance, such as the environment. We 
believe that the banks potentially have an enormous contribution to 
make in helping to push the frontier of international efforts to 
promote these kinds of goods, many of which will especially benefit 
developing countries. The GEF, obviously has a key role to play, but 
the World Bank and IDB also must show greater leadership in finding 
ways for the international community to better protect the global 
resource base we share.

                             IV. CONCLUSION

   In concluding Mr. Chairman, I would like to emphasize the 
importance that the Treasury Department places on working to ensure 
that U.S. support of the MDBs helps to protect the environment and 
natural resources in Latin America, the Caribbean, and beyond. The U.S. 
has a strategic interest in helping our neighbors in the hemisphere 
achieve growth that also protects the environment. I would be pleased 
to answer any questions that you may have.

    Mr. Chafee. Thank you, very much, Mr. Eichenberger, for 
your testimony on behalf of the multilateral development banks 
and what they can do to promote environment protection in Latin 
America and the Caribbean.
    My first question is for Mr. Leonard. You said that the 
region is blessed with more fresh water per capita than any 
other region in the world. But during the last 50 years, it is 
also the region that has suffered the greatest decrease per 
capita.
    The principle culprits are poor watershed management, 
misuse of agriculture inputs such as fertilizers and 
pesticides, the overdrawing of aquifers and the lack of 
wastewater treatment. These problems appear to be all things we 
can solve. And in later testimony, Dr. DeWalt will say that 
less than 10 percent of municipal waste water is treated.
    And it seems to me that is where we should start: the very 
basic of all the problems that people care about. Treating 
wastewater I should think is primary.
    In my city, Warwick, of course, we are upgrading our sewage 
treatment plant, not the primary treatment, not the secondary, 
but the tertiary treatment as clean as the stream that runs by 
it. And your testimony indicates that wastewater in the region 
is flowing into water bodies completely untreated. Do you agree 
that that is a good place to start? And what can we do about 
it?
    Mr. Leonard. Absolutely, Mr. Chairman. The problems of 
wastewater treatment, sanitation, portable water are serious 
challenges in the region. And it is a byproduct of rapid 
urbanization. But there are also issues with rural water 
systems.
    We are working in USAID to encourage the installation of 
improved water systems, sanitation systems. A major effort is 
underway now in Central America in the aftermath of Hurricane 
Mitch with the supplemental resources we received from the 
Congress, in Honduras and Nicaragua. That is a major focus of 
attention of ours.
    Similarly, we are working in our programs of local 
governments, municipal development. Very frequently what 
citizens most demand on their list of priorities is improved 
water and sanitation.
    So as we work with local government to improve their 
capacity to respond to citizen needs, we have a number of 
activities underway in the sector. It is a very important 
sector. The needs are enormous. We are pleased that the 
multilateral banks are also heavily engaged in providing 
resources for this need. But the figures of 90 percent of 
wastewater released untreated are staggering. We have a long 
way to go.
    Mr. Chafee. I would assume since you have been studying 
this region since 1971 when you were a backstop officer for 
Brazil, is that accurate?
    Mr. Leonard. That is correct, sir.
    Mr. Chafee. That you have seen over the years some changes, 
as you have traveled through the region? Or is it still a tough 
road ahead?
    Mr. Leonard. Taking the long view, my almost 30 years with 
USAID, I have seen tremendous change in the region, most of it 
positive. If you look at where the region was in 1971 in terms 
of democratic governance, we have come a long way. When you 
look at where we have come on infant mortality rates, child 
mortality rates, access to primary education, if you look at 
economic growth rates, there are a number of very encouraging 
developments.
    But the degradation of the environment is one area where 
the trends are going the other way, where we have not arrested 
those declines and much more needs to be done.
    But looking back over the time I have spent in Latin 
America, I am certainly one that feels that tremendous progress 
and achievements have been realized.
    Mr. Chafee. And one last question. From your resume, it 
says you have been all over the area: Brazil, Bolivia, Peru, 
the Caribbean, Honduras, El Salvador, and Costa Rica. Can you 
give a synthesis across the continent, who is doing well and 
who is not doing well?
    Mr. Leonard. Well, I think, you know, I spent a lot of time 
in Central America.
    Mr. Chafee. Where are the biggest challenges and who has 
the will at present to address these environmental concerns?
    Mr. Leonard. I think Central America has made a great deal 
of progress. I think South America countries like Bolivia in 
confronting narco trafficking, they have made great progress. I 
think there are real challenges in places like Colombia which 
you mentioned where a combination of threats and multiple 
factors give rise to concern. There are certainly serious 
challenges in places like Haiti. So, I guess, the places where 
I worry most, where the challenge seems greatest, I would put 
Haiti and Colombia in that order. But I see reason to be 
optimistic throughout the region in Central America and South 
America.
    Mr. Chafee. Thank you. And, Mr. Eichenberger, in your 
testimony, you lamented the funding situation with respect to 
our foreign operations appropriations bills. If we fulfill our 
commitments, do you believe that would bring greater progress 
to some of the areas that we are discussing in this hearing?
    Mr. Eichenberger. Yes, Mr. Chairman, I think it would for a 
variety of reasons. With respect to the GEF, which I mentioned 
specifically, that money goes directly to fund on grant terms a 
variety of environmental investments in environmental issues 
that I think, generally speaking, would not have been made 
otherwise. There clearly is an important leveraging issue here 
with respect to U.S. funding.
    As I noted, one dollar from the United States generates, 
attracts, ten additional dollars from other donors. So to the 
extent that we are in substantial arrears to this organization, 
there is clearly a negative ratcheting effect on the GEF's 
capacity to do the kind of work that it was created to do. So, 
$200 million of U.S. arrears with that degree of leveraging 
translates into a great deal of work that is not being done.
    With respect to the multilateral banks more broadly, we 
have made substantial progress in recent years in reducing our 
arrears. At one point, they were in excess of $800 million. We 
reduced them last year down as low as about $350 million.
    Unfortunately, we have taken a turn back in the wrong 
direction and arrears have now gone up in the MDB's, including 
the GEF, to about $450 million and threaten to go up further at 
the of funding levels that the House and Senate are now talking 
about.
    The issue for us really is one of the capacity to continue 
to exercise leadership in these organizations. I think it is no 
stretch to say that it has been active and aggressive U.S. 
advocacy in these organizations over a period of years that has 
led to the greater environmental sensitivity and has led to 
strong environmental policies. U.S. advocacy has led to a 
change in the internal debate in these organizations about what 
really matters for environmental development. Our concern is to 
maintain that leadership, and we do so in part by meeting our 
financial commitments. Thank you.
    Mr. Chafee. Do these developing countries have the 
expertise to do the right thing once they get the money, for 
example, are they able to build the proper wastewater plants, 
or to properly address some of the land use issues associated 
with Hurricane Mitch, which caused such devastation? We have 
all learned through trial and error here in this country. We 
would hate to see them make the same mistakes. Common sense 
will tell you it should be a natural partnership as we move 
forward; to take what we have learned, the mistakes that we 
have made, and helping our neighbors make sure they do not make 
them. Beyond money, do they have either the will or the 
capacity and know-how to address these problems?
    Mr. Eichenberger. Well, I think that there is no question 
that capacity is a real issue. And it is a real issue not just 
with respect to environmental issues, but, for example, 
education and primary health and so forth.
    That is clearly recognized, both in the borrowing countries 
themselves and in the institutions. It is for that reason, in 
part, that the institutions are trying to shift a great deal of 
their emphasis toward making investments in what they refer to 
as capacity building--building the institutions and the human 
capacity to implement programs in a consistent way that 
produces results. There is no question that we are not there 
yet.
    I would point out a couple of things that I think are very 
promising. Carl spoke earlier of the importance of 
partnerships. One of the very important developments, I think, 
over the past 5 years is the much greater willingness and 
interest of the multilateral development banks to reach out to 
the private sector for partnerships. Because there is a huge 
amount of expertise there--American firms and in other firms--
innovative solutions are being found that are highly promising.
    For example, bank research indicates that one of the most 
serious obstacles to effective provision of clean water is the 
fact that initial investments are allowed to go to seed because 
maintenance money is not paid over a period of years. The 
organizations are working with countries to essentially engage 
private sector operators in doing the maintenance, doing the 
metering, doing the repairs. That has had the effect of 
preserving the value of the original investments. It is just 
one example where those partnerships can help, and at the same 
time, build the capacity to deal with problems as they arise.
    Mr. Chafee. Thank you, very much. Thank you, gentlemen, 
very much. We will take a short break and convene the second 
panel, just a minute or two at your convenience. Thank you, 
gentlemen, very much.
    Mr. Leonard. Thank you, Mr. Chairman. Look forward to 
working with you in the future.
    [Pause.]
    Mr. Chafee. Welcome once again. I would also like to ask if 
everybody can hear in the back, because there is nothing worse 
than being at a hearing where you cannot hear. And if anybody 
cannot hear, raise their hand. I will make sure that whoever is 
speaking gets closer to the microphone or speaks up. I have 
been to many a hearing where you could not hear.
    Welcome, Mr. Watson and Dr. DeWalt. I look forward to your 
testimony. Mr. Watson is the vice president and executive 
director for International Conservation at The Nature 
Conservancy located here in Arlington, Virginia. And a 
distinguished career. We look forward to your testimony. 
Welcome.

STATEMENT OF THE HONORABLE ALEXANDER F. WATSON, VICE PRESIDENT 
  AND EXECUTIVE DIRECTOR FOR INTERNATIONAL CONSERVATION, THE 
               NATURE CONSERVANCY, ARLINGTON, VA

    Mr. Watson. Thank you very much, Mr. Chairman. And thank 
you very much for inviting The Nature Conservancy to present 
some views before this subcommittee. I would like to commend 
the subcommittee for addressing this sensitive but crucially 
important relationship between economic development and 
conservation of precious natural resources in Latin America and 
the Caribbean. And I think Carl Leonard did a nice job of 
explaining why these issues are so closely related and why we 
in the United States have a responsibility to try to address 
them.
    With your permission, sir, I would like to summarize the 
key points of my remarks and submit the balance for the record.
    Mr. Chafee. No objection.
    Mr. Watson. The Nature Conservancy's mission is the 
protection of plants and animals that make up the natural 
world, what is commonly referred to as biological diversity or 
biodiversity, primarily through the protection of habitats of 
those plans and animals.
    And in my written statement, I touched on the enormous 
biological and economic importance of biodiversity and some of 
the most serious threats that biodiversity faces in Latin 
America and the Caribbean. So I will not go into those here.
    Rather, I will discuss very briefly how The Nature 
Conservancy addresses these issues overseas. The Conservancy 
works mainly domestically. And as I think you know, Mr. 
Chairman, we have chapters in all 50 states in the United 
States.
    But we have long recognized the need to work with the 
world's greatest biodiversity which is beyond our borders, 
chiefly in the tropics. The Conservancy operates in 19 
countries in Latin America and the Caribbean as well as others 
in Asia, Oceania and in Canada. We also work indirectly in a 
couple of other Western Hemisphere countries such as El 
Salvador and Argentina through regional projects and liaison 
relationships without having formal conservation programs in 
those countries.
    Since the beginning of our international program in 1981, 
we have helped protect more than 74 million acres of 
biologically significant land in Latin America and the 
Caribbean. Funding for the Conservancy's work is 92 percent 
from private sources. In fact, we are currently engaged in a 
campaign to raise 1 billion private dollars for conservation.
    Nevertheless, it is important to underscore that the 
funding that the Conservancy receives from the Agency for 
International Development is crucial to our success in Latin 
America and the Caribbean. And we urge members of the committee 
to support appropriations requests for international 
conservation in the AID budget as well as to fund the U.S. 
contribution to the Global Environment Facility mentioned by 
the representative from the Department of the Treasury a minute 
ago. And also to expand the excellent and growing international 
programs of such U.S. agencies as the Fish and Wildlife 
Service, United States Forest Service and the National Oceanic 
and Atmospheric Administration as well as the Environmental 
Protection Agency.
    And we applaud the leadership that the Congress has 
displayed in enacting the Tropical Forest Conservation Act 
which is essentially a congressional initiative and 
appropriating funds for its implementation. And we also welcome 
the growing interest of many Senators and Representatives in 
protecting coral reefs and other coastal marine environments.
    Internationally, the Conservancy identifies highly 
important natural areas and helps local organizations build the 
capacity to protect those areas over the long term. We try to 
strengthen local institutional capacities, build conservation 
infrastructure, conduct scientific research and involve local 
people in community based conservation.
    Our goal is to foster strong and sustainable local 
conservation organizations, usually private and nonprofit 
organizations, that will involve local communities in enduring 
protection of their country's most precious natural heritage. 
These efforts, of course, also contribute to strengthening 
civil society.
    We seek market oriented solutions to conservation issues 
involving all legitimate stakeholders in those issues. We 
collaborate closely with the multilateral development banks, 
including the Inter-American Development Bank, with whom we 
have created a pioneering fund called the EcoEnterprises Fund 
which is to support and invest in environmentally sound 
enterprises in the hemisphere that will generate resources for 
non-government organizations to undertake conservation work. 
And we also try to take lessons we have learned from our 
extensive work in the United States and apply those in Latin 
America and the Caribbean.
    For instance, conservation easements and tradeable 
development rights are concepts that have been used for years 
in the United States to protect important land and water. And 
with the help of some brilliant colleagues in Costa Rica, we 
are introducing some of these concepts to other countries in 
the hemisphere. Their jurisprudence does not contain these 
ideas at this point. And this effort has had an enormously 
positive reception. It involves private sector people in 
conservation directly without necessarily having to rely on the 
actions of government.
    But the flagship of the Conservancy's conservation program 
in Latin American and the Caribbean has been the Parks in Peril 
program that Carl Leonard mentioned a minute ago. It has 
received important funding from AID as well as private 
resources. It is important to note that the AID money through 
us leverages considerable private resources for this program.
    Many of the parks and nature preserves where we work were 
initially created by local governments in areas that were 
relatively distant from intensive settlement or development; 
hence, in most cases they were largely unspoiled. But in our 
work we have seen the effects of increased economic pressures 
even at these protected sites. Among the greatest threats to 
conservation of biodiversity, as Carl Leonard pointed out a 
minute ago, are inappropriate unsustainable agriculture and 
destruction of coastal marine areas.
    The Parks in Peril program converts what are often in 
effect only paper parks--that is to say parks that exist on 
maps but not in reality--into well-managed protected areas 
capable of resisting the destructive pressures they face.
    Of course, the Conservancy strongly supports economic 
development in Latin America and the Caribbean and other 
developing regions. And we do not believe that development has 
to be at the expense of conservation of countries' natural 
resources.
    In fact, we believe that development and conservation are 
mutually dependent. Unless biological and other resources are 
managed carefully and protected, development in countries 
highly dependent on natural resources, as most developing 
countries are, will soon run dry.
    And yet, unless development provides economic alternatives 
for the poor, they will be forced to consume natural resources 
on an unsustainable basis and conservation efforts will be 
thwarted.
    So we all must strive to assure that development and 
conservation are mutually supportive.
    Finally, Mr. Chairman, I would like to take this occasion 
to express the hope that the full committee will be able before 
recessing for the year to send forward to the Senate--for its 
favorable advice and consent--those conservation-related 
international agreements that are pending before the committee 
and which I believe are not contentious. I am referring 
specifically to the Sea Turtle Convention, on which I believe 
there were hearings a few days ago, and the special protected 
areas and wildlife protocol to the Cartagena Convention. Thank 
you, very much, Mr. Chairman, for the opportunity to be here 
today.
    [The prepared statement of Mr. Watson follows:]

             Prepared Statement of Hon. Alexander F. Watson

    Mr. Chairman, with your permission I will summarize the key points 
of my remarks and submit the balance of my testimony for the written 
record.

                                SUMMARY

    The Nature Conservancy's mission is the protection of the plants 
and animals that make up the natural world, what is commonly referred 
to as biological diversity or biodiversity, primarily through 
protection of their habitat. We work mainly domestically, but we have 
long recognized the need to work where the world's greatest 
biodiversity is found--beyond our borders, chiefly in the tropics. The 
Conservancy operates in 19 countries in Latin America and the 
Caribbean, as well as others in Asia and Oceania. We also work 
indirectly in additional Western Hemisphere countries, such as El 
Salvador and Argentina, through regional projects and liaison. Since 
the beginning of our international program in 1981, we have helped 
protect more than 74 million acres of biologically significant land in 
the Western Hemisphere alone.
    Funding for the Conservancy's work is 92 percent private. In fact, 
we are currently engaged in a campaign to raise one billion private 
dollars for conservation. Nevertheless, the funding the Conservancy 
receives from the Agency for International Development (AID) is crucial 
to our success in Latin America and the Caribbean. We urge Members of 
the Committee to support increased appropriations for international 
conservation: in the AID budget, as well as to fund the U.S. 
contribution to the Global Environment Facility (GEF), and to expand 
the excellent international programs of such U.S. agencies as Fish and 
Wildlife Service (FWS), United States Forest Service (USFS), National 
Oceanic and Atmospheric Administration (NOAA), and Environmental 
Protection Agency (EPA).
    Internationally, the Conservancy identifies highly important 
natural areas and helps local organizations build the capacity to 
protect those areas over the long term. We strengthen local 
institutional capacities, build conservation infrastructure, conduct 
scientific research and involve local people in community-based 
conservation. Our goal is to foster strong and sustainable local 
conservation organizations--usually private and non-profit--that will 
involve local communities in enduring protection of their countries' 
most precious natural heritage. These efforts also contribute to 
strengthening civil society.
    The flagship of the Conservancy's conservation program in Latin 
America and the Caribbean has been the Parks in Peril (PiP) program, 
which has received important funding from AID and private sources. Many 
of the parks and nature preserves where we work were initially created 
by the local governments because they were relatively distant from 
intensive settlement or development, hence in most cases largely 
unspoiled. But in our work we have seen the effects of rapid economic 
pressures even at these protected sites. Among the greatest threats to 
conservation of biodiversity are inappropriate, unsustainable 
agriculture and the destruction of coastal marine areas.
    Of course, the Conservancy supports economic development and we 
believe development does not have to be at the expense of conservation 
of countries' natural resources. In fact, we believe that development 
and conservation are mutually dependent. Unless biological and other 
natural resources are managed carefully and protected, development will 
soon run dry. Yet, unless development provides economic alternatives 
for the poor, they will be forced to consume natural resources on an 
unsustainable basis.
    Finally, Mr. Chairman, I take this occasion to express the hope 
that the full Committee will be able before recessing for the year to 
send forward to the Senate--for its favorable advice and consent--those 
conservation-related international agreements that are pending before 
the Committee and uncontentious.

              THE IMPORTANCE OF INTERNATIONAL BIODIVERSITY

    People in developing countries rely on living natural resources for 
a multitude of economic and social benefits, and the rest of the world, 
including the United States, also receives benefits from them. 
Biological diversity is critical for the pharmaceutical industry, 
agriculture and a wide variety of other industrial activities. 
According to a study by the World Resources Institute, 4.5% of the U.S. 
Gross Domestic Product is due to economic benefits from wild species. 
Genetic diversity used in plant breeding accounted for about one-half 
of all the gains in agricultural yields in the U.S. between 1930 and 
1980. Major U.S. crops now depend on infusions of new genes from plants 
found in nature. One quarter to one third of all the prescriptions 
drugs in the U.S. contain compounds derived from wild species. 120 
prescription drugs currently come from about 95 species of plants; of 
these, 39 grow in tropical forests. Botanists believe that more than 
35,000 plant species (mostly drawn from tropical forests) provide 
traditional medicines to local peoples and, hence, are good candidates 
for future pharmaceutical research. Only about 2 percent of plants have 
been examined for medicinal properties. There is no way to know what 
new cures we may be losing with each species that goes extinct or what 
the health care costs can be of remedies never developed.
    These biological resources are increasingly imperiled. Even here in 
the rich nations of the North, where parks and nature preserves are 
generally well protected, pressure on many forms of biodiversity is 
rising. In the United States, on which the Conservancy recently 
completed an unprecedented study of national biodiversity status and 
published the results in the book Precious Heritage, about 14 percent 
of bird species are at risk, 16 percent of mammals, 37 percent of 
freshwater fish, and 69 percent of freshwater clams and mussels 
(Precious Heritage, p. 102). In the poorer countries of the developing 
world, the situation is worse. Biodiversity decline, often caused by 
migrating populations with no economic alternatives to living off the 
land, increases rapidly once the frontier of development reaches areas 
formerly isolated by distance, lack of roads, difficult climate and 
poor soil. All too often, the destruction of natural resources, 
including biological resources, does not even bring local people the 
benefit they hope for--sustained economic development. Instead, the 
land is ravaged for a quick return, and the survivors must either move 
on or face a grimmer poverty than before.
    The Western Hemisphere tropics are particularly notable for their 
forests. Such forests are at the heart of world biodiversity. There may 
be 10 million species in the world. Tropical forests house between 50 
and 90 percent of the total. About 17 million hectares of tropical 
forests--an area four times the size of Switzerland--are being cleared 
annually. E. O. Wilson, the great Harvard biologist, has estimated that 
at current rates of forest destruction one-tenth to one-quarter of all 
tropical rain forest species may disappear within 30 years.
    Tropical forests are by no means the only threatened Western 
Hemisphere ecosystem. For instance, freshwater ecosystems are often the 
hardest hit of all, as they battle long-term water shortages and 
pollution caused by population growth, expansion of settled areas, 
increased irrigation, and economic development without needed 
environmental protections.
    Coastal and marine systems face serious loss and degradation in the 
continental and insular territories of the United States, as well as 
many countries in the Caribbean, Asia and Oceania. Coral reefs are 
facing threats never faced before. Coral reefs are so rich in 
biological diversity that they are often referred to as the ``rain 
forests of the sea.'' Irresponsible extraction and trade of both 
seafood and decorative marine life, deforestation and inadequate 
construction and industrialization, together with global climate 
changes not well understood, are putting many coral reefs at the brink 
of extinction for the first time in human history. We welcome the 
interest shown in protecting coral reefs by many Senators and 
Congressmen. and the Administration's commitment to do more to protect 
marine systems, especially coral reefs, as shown by the work of the 
Coral Reef Task Force and the programs of NOAA.
    The true economic value of biological, and other ``renewable'' 
resources such as water are certainly immense. Credible estimates of 
the annual economic contributions of ``environmental services'' run 
into multiple trillions of dollars. But such resources are only truly 
renewable if properly treated. Not if species are driven to extinction, 
or if they become so scarce as to make them commercially useless and 
incapable of recovery in a lifetime. Certainly not if watersheds are 
destroyed. Not if coral reefs are killed. Not if topsoil is blown or 
washed away. Not if complex interlocking communities of living 
organisms are disrupted.
    The developing world's economic progress is unquestionably tied to 
the careful management and protection of its natural resources. Coastal 
wetlands, mangrove forests and offshore reefs, for example, are 
essential for healthy fish populations (sometimes far away from the 
source of impact)--and fish is currently the leading source of animal 
protein in the human diet worldwide. Forests serve as ``carbon sinks'' 
to help control carbon dioxide buildup in the atmosphere. Forests also 
promote the retention of water and prevent soil from blowing away and 
eroding into critical waterways--waterways that provide drinking water, 
hydropower, irrigation and transportation to millions of people, as 
well as essential nutrients and water of adequate quality to coastal 
resources. Biodiversity provides pollination, pest control, and the 
recycling of essential elements, such as carbon, oxygen and nitrogen. 
Parks and protected areas are critical to conserving biodiversity, and 
they have the added benefit of attracting tourists who generate income 
and employment. Nature tourism alone already generates $12 billion 
annually.
    By contrast, the degradation of biological resources leads to 
poverty, hunger, disease and civil unrest. Massive shifts in population 
may occur when affected peoples migrate from areas that once were 
productive but now cannot support them. The linkages between natural 
resource depletion in developing countries, and the national security 
of the United States, are real and growing in this age of economic 
globalization.
    The Conservancy does not see this situation as necessarily 
development versus conservation. In most situations, indeed in 
virtually all, it is possible to achieve both. In fact, in the long run 
there can be no development, especially in countries that depend 
heavily on natural resources as most poor countries do, without careful 
management (including conservation) of the countries' natural heritage. 
Conversely, there cannot be effective conservation if the people living 
in or near areas that should be protected have no economic alternatives 
to consuming the natural resources of those areas simply to survive. 
The answer is thoughtful economic development that recognizes the 
importance, limitations and fragility of natural biological systems. 
There is a growing recognition of these facts in Latin America and the 
Caribbean. But, unless countries act effectively on this understanding 
before careless development devours biological resources once and for 
all, they will lose the race--to the severe detriment of future 
generations and the planet.

    WESTERN HEMISPHERE COUNTRIES INCREASINGLY REALIZE THE VALUE OF 
                              CONSERVATION

    Over the course of recent decades, many nations of Latin America 
and the Caribbean recognized that natural resources that seemed 
abundant were, in fact, limited and had to be managed thoughtfully. 
Many took important initial steps to conserve their living resources by 
establishing systems of protected areas, to safeguard critical forests, 
watersheds, coastal and marine ecosystems, wildlife habitat, scenic 
attractions, and other areas of significance. Often, however, these 
nations had not succeeded in effectively managing these areas so as to 
truly protect them--they remained ``paper parks.''
    To address this serious problem, in Fiscal Year 1990 the Agency for 
International Development (AID) began supporting the Conservancy's 
``Parks in Peril'' (PiP) program, a public-private partnership that 
seeks to protect the most important and threatened national parks and 
reserves in this hemisphere.
    Parks in Peril was designed to secure minimum critical management 
for a series of natural sites, transforming them into functional 
protected areas. The program builds collaborative partnerships among 
national, international, public and private organizations. It has 
become the largest in-situ biodiversity conservation project in the 
tropical world and has drawn wide support from other governmental and 
non-governmental constituencies in the region and around the globe, as 
well as from private firms and individuals.
    Parks in Peril works to achieve four objective goals:

          (1) To build on-site protection and management 
        infrastructure;

          (2) To integrate the protected areas with the human societies 
        inhabiting their surrounding regions;

          (3) To create long-term funding and policy mechanisms to 
        sustain the local management of the Parks in Peril sites; and

          (4) To influence conservation in other sites in the region's 
        most imperiled ecosystems.

    AID and the Conservancy have designed an innovative scorecard to 
measure how well particular sites meet these goals. As they do so, the 
sites are ``consolidated''--having achieved the program's original 
goals, they are phased out from receiving direct assistance from AID. 
This transition to long-term sustainability has been from the outset a 
fundamental goal of the program.

                    CONCLUSIONS AND RECOMMENDATIONS

    Mr. Chairman, Members of the Committee, our experience of 
international conservation has convinced the Nature Conservancy of the 
urgent need to do more to protect these precious biological resources. 
We are currently in the midst of the largest-ever private fund-raising 
effort for conservation. We have set a goal of $1 billion in private 
funds for conservation, of which we have earmarked $100 million for our 
international conservation programs. I am proud to say that we are 
halfway there--we have raised $500 million toward our goal. But the 
technical and financial contributions of U.S. Government agencies will 
remain essential to this great effort, including in our work overseas. 
I urge the Members, both in the Committee and in their other activities 
as Senators, to support increased efforts by the United States 
Government to protect global biodiversity through increased funding to 
the biodiversity conservation programs of AID, to the Global 
Environment Facility (40 percent of whose budget goes for biodiversity 
conservation), and to the under-funded but immensely useful 
international programs of the U.S. Forest Service and the Fish and 
Wildlife Service, and as well as those of NOAA and the EPA.
    Finally, Mr. Chairman, I take this occasion to express the hope 
that the full Committee will be able before recessing for the year to 
take up those conservation-related international agreements that are 
pending before the Committee and uncontentious. The Sea Turtle 
Convention, which received a hearing last week, is one such. Another 
worthy of action is the Caribbean ``SPAW'' (Specially Protected Areas 
and Wildlife) Protocol to the Cartagena Convention. We have worked with 
this Protocol and know its value, and hope that the Senate is able to 
provide its advice and consent this year.
    I thank you once again for this opportunity to share with you and 
the Committee the Nature Conservancy's views on these important 
international conservation issues.

    Mr. Chafee. Thank you, very much for your time and your 
testimony. Good luck in raising the billion dollars.
    Mr. Watson. We are working on it.
    Mr. Chafee. And we will work here on the congressional side 
on the funding that you care about, the Global Environmental 
Facility and others.
    Mr. Watson. Thank you.
    Mr. Chafee. And as you said about your work, these efforts 
also contribute to strengthening civil society, noble goals.
    Dr. Billie R. DeWalt is the director of the Center for 
Latin American Studies and distinguished service professor of 
Public and International Affairs and Latin American Studies at 
the University of Pittsburgh, Pittsburgh, Pennsylvania. Did you 
get in this morning or last night?
    Dr. DeWalt. Last night.
    Mr. Chafee. Last night. Easy flight?
    Dr. DeWalt. Yes.
    Mr. Chafee. Good. Welcome. And when do you go back?
    Dr. DeWalt. Today.
    Mr. Chafee. Today. Great. Thank you for taking the time.
    Dr. DeWalt. Sure.
    Mr. Chafee. Welcome.

 STATEMENT OF THE DR. BILLIE R. DE WALT, DIRECTOR, CENTER FOR 
  LATIN AMERICAN STUDIES, DISTINGUISHED SERVICE PROFESSOR OF 
 PUBLIC AND INTERNATIONAL AFFAIRS AND LATIN AMERICAN STUDIES, 
            UNIVERSITY OF PITTSBURGH, PITTSBURGH, PA

    Dr. DeWalt. Well, it is a pleasure to be here. And I really 
appreciate the opportunity to address the subcommittee about my 
perspective on growth and the environment in Latin America. My 
remarks are based on three decades of research in Latin America 
and I have consulted with a lot of the organizations that have 
been mentioned here today, including the Inter-American 
Development Bank, the World Bank, Global Environment Facility, 
World Wildlife Fund, USAID and so on.
    I will briefly summarize my remarks and then submit the 
balance of my testimony for the written record.
    There are several main points that I wish to make in my 
statement to the subcommittee. And I would like to emphasize 
first that Latin America is quite rich in its resource 
endowments compared to its population. With only 8 percent of 
the world's population, it contains rich mineral and fossil 
fuel deposits, 25 percent of the world's potentially cultivable 
land, 30 percent of the annual freshwater runoff, and 25 
percent of forest and more than 50 percent of tropical forests 
in the world.
    And because of the economic reforms that have taken place 
in the region, several of the countries are now growing quite 
rapidly. But with economic growth, the already stark 
socioeconomic inequalities in the region are being exacerbated. 
In my written testimony, I just refer to a couple of the recent 
studies that have been done.
    The extremes of wealth and poverty in the region are both 
implicated in continuing conservation degradation. We often 
blame the poor because they mine resources in order to survive. 
But I have also seen many cases in which the rich, because they 
act with impunity regarding environmental laws, regulations and 
norms, are also significant causes of environmental 
degradation.
    The poor, of course, are often also the victims of 
environmental destruction. They have the least access to decent 
habitats, clean water and air, suffering infectious diseases, 
the effects of natural disasters like Hurricane Mitch and 
malnutrition.
    From my perspective, conserving and improving natural 
resources will require interventions that directly provide 
economic incentives to people and to industry to maintain and 
enhance their natural resources. I can provide a lot of 
examples in data on these issues from my own work over the last 
30 years. But I would like to do is to mainly focus on what I 
see as some of the important policy solutions that are 
required.
    Major steps, of course, I think have to occur within Latin 
America countries to reduce inequalities. And this is a task 
that I think very few governments have been willing to tackle.
    For the United States, we have relatively blunt edged 
policy instruments. But there are some things that I think can 
be very useful.
    In terms of policy solutions, one thing I would like to 
emphasize, and I think it reinforces what some of my colleagues 
here have said today, is that it is really important to 
continue foreign assistance to Latin America, honoring our 
international commitments to the multilateral development 
banks, to the global environment facility. I know that USAID 
funding for the Latin American, Caribbean region has been 
shrinking over the last several decades.
    But this foreign assistance to Latin America ought to be 
really targeted specifically on social and environmental 
policies.
    As a result of a lot of the forms that have been undertaken 
in the last several years, foreign directed investment to the 
region now is huge and growing. And it is really taking care, I 
think, of many of the private development needs of the region. 
This means that U.S. foreign and multi-lateral development bank 
assistance should address the issues that are not likely to be 
effected by foreign direct investment.
    This, of course, includes a focus on environmental laws, 
regulations, particularly strengthening enforcement. We have, 
as I mention in my written testimony, quite a number of Latin 
America countries that have adopted environmental ministries, 
have put in place very fine sounding environmental laws and 
regulations. But what is really lacking is enforcement of these 
regulations. The main environmental protection organization in 
Mexico, for example, has 150 agents to cover the whole country. 
Obviously, this is a prime area in which investment ought to be 
allocated.
    And, of course, U.S. foreign assistance should also be 
targeting health and education programs to alleviate some of 
the poverty in the region.
    The second thing that I stress in my written testimony is 
that we need to determine how to create structures to 
compensate rural people for the environmental services that 
they provide. That is we need to attach a value to the 
production of clean water and air, soil conservation and carbon 
sequestration.
    As Ambassador Watson has mentioned, using mechanisms like 
easements to protect forest and watersheds, determining how we 
can use certification schemes for things like organic coffee 
and wood that is produced in a sustainable manner and then 
creating market mechanisms that actually work to get consumers 
to purchase these goods that are certified as being eco-
friendly. I think that Mr. Leonard mentioned there is a lot of 
certification efforts going on in Latin America. I have seen in 
Mexico there is very substantial certification, smart wood 
certification of forests. Unfortunately, this kind of 
certification has not yet led to people being able to market 
the timber that they produce at a reasonable price. In other 
words, they are getting the same amount of money for eco-
friendly wood as any other producer.
    A third mechanism here in terms of structures I think is to 
look at carbon credit markets as proposed in the Kyoto protocol 
to reduce greenhouse gas emissions. This is something that 
would allow industries in the industrialized world to 
essentially purchase carbon credits in developing countries 
that agree to maintain forests.
    The third area I would like to emphasize is the need for 
greater research collaboration. USAID has quite a number of 
collaborative programs in agriculture that have been operating 
for approximately 20 years. To my knowledge, there is only one 
that really focuses on the environment which is the Sustainable 
Agricultural Natural Resource Management collaborative research 
support program. And I think we need to have additional 
programs that USAID creates to link U.S. universities with 
universities in Latin America that focus on the inter-related 
biological and social issues.
    As the National Science Foundation expands its 
environmental science program, I think one of the things that I 
have seen missing in much of what NSF has been proposing is any 
mention of cross border collaboration.
    Again, there is the necessity to develop linkages between 
U.S. universities and universities in Latin America and in 
other parts of the world.
    A particular interest of mine in terms of a third policy 
recommendation is that I think the United States ought to 
instruct its representatives to the multilateral development 
banks to push for social analysis of projects.
    That is I think we need to complement the existing analyses 
that are carried out within the development banks that focus on 
financial, economic, technical, institutional and environmental 
analysis to also include social analysis. World Bank, Inter-
American Development Bank, should be investing in projects that 
privilege resource poor people in the Latin American region. 
And I think that if we had social analysis of programs to 
really determine what the effects of those programs are, who 
wins and who loses, that they would be both more socially as 
well as environmentally sustainable.
    So the bottom line is, from my perspective, unless we 
address the issues of social inequality and poverty in Latin 
America more directly, then environmental degradation is going 
to continue. And many of the results of that degradation will 
be exported to the United States through illegal migration, 
production of drug crops and political turmoil near our 
borders. Thank you, very much.
    [The prepared statement of Dr. DeWalt follows:]

               Prepared Statement of Dr. Billie R. DeWalt

                              INTRODUCTION

    The tragedy that Hurricane Mitch caused in Honduras, Nicaragua and 
El Salvador in November of 1998 should teach us an important lesson 
concerning the linkages between poverty, wealth and environmental 
degradation in Latin America. Although the hurricane bit the Caribbean, 
most of the damage occurred on the Pacific coast of Central America. 
There, the drenching rains fell on deforested hillsides resulting in 
landslides that blocked rivers and buried shanty towns, flooding that 
destroyed bridges, roads, power lines, crops, and aquaculture farms 
(DeWalt 1998). That death and devastation were exacerbated by the 
deforestation and degraded watersheds of the region.
    The main point of my presentation is to stress that many of the 
most important environmental problems and challenges for Latin America 
are directly or indirectly linked to inequality and poverty. To be 
sure, the increasing adoption of a market economy by most Latin 
American countries has reversed the effects of the debt crisis in the 
1980s and brought positive growth rates to many countries. But positive 
economic growth has not reduced poverty in the region, and indeed in 
several countries has exacerbated the already large inequalities 
between the rich and the poor (Berry 1997). Real wages in Mexico, for 
example, are more than 25% lower than they were in 1980 (Economist, 
June 24th 2000:26).\1\ Progress in addressing issues like 
deforestation, biodiversity loss, water and air contamination, and 
watershed deterioration in Latin America can be made, but only if 
countries and donors promote programs that directly address the 
linkages between inequality and environmental degradation.
---------------------------------------------------------------------------
    \1\ For example, between 1996 and 1998, social inequality in Mexico 
increased with the poorest 60% of households in Mexico seeing their 
income share fall from 26.9 to 25.5%, while the share held by the 
wealthiest 10% rose from 36.6 to 38.1% (Economist 2000:25).
---------------------------------------------------------------------------

                         THE CURRENT SITUATION

    Latin America is a region with considerable resources and a 
relatively sparse population so achieving sustainable development there 
ought to be easier than in other parts of the developing world. 
Consider that although the region has only about 8% of the world's 
population, it contains:

   rich mineral and fossil fuel deposits as well as coastal and 
        marine resources

   25% of the world's potentially cultivable land (Reca and 
        Echevarria 1998:xiii)

   25% of forests and more than 50% of the tropical forests 
        (http://www.iadb.org/sds/document.cfm/45/ENGLISH)

   about 30% of annual freshwater runoff (IDB 1998:5)

Despite this, estimates are that:

   45% of the population is poor, the absolute number of poor 
        have increased by 80 million in the last 25 years, and 60 
        million people in the region are malnourished (Reca and 
        Echevarria 1998:xiii)

   84 million had no access to clean drinking water

   over 165 million had no adequate sewer service and less than 
        10% of municipal wastewater is treated (Inter-American 
        Development Bank 1998:5)

   the region has the highest rates of deforestation in the 
        world, losing 7.4 million hectares per year (Dourojeanni 
        1999:1)

                             POSITIVE STEPS

    Although it is easy to be pessimistic about environmental trends in 
the region, there are a number of positive signs of progress. Relating 
to forests and watersheds, for example:
    Most countries no longer promote colonization schemes in tropical 
forests. Inequality in access to land in Latin America has been a 
continuing source of social conflict, fuelling many of the revolutions 
and civil wars that plagued the region. Although this led to attempts 
at agrarian reform particularly beginning in the 1960s, more often than 
not colonization of tropical areas was promoted to relieve pressures on 
land. In Mexico and Central America, this meant resettling people from 
highland areas to coastal and/or tropical areas. In South America, it 
resulted in colonization of the Amazon basin. Most of these schemes did 
not result in viable agriculture and were failures, though they caused 
considerable deforestation. Although schemes like Mexico's ``March to 
the Sea'' and National Commission for Forest Clearing from the 1960s 
and 1970s have disappeared, road building into tropical areas continues 
to lead to settlement and deforestation.\2\
---------------------------------------------------------------------------
    \2\ One particular project that is currently of great concern is 
the proposed $100 billion Avanca Brasil infrastructure program to 
expand soy production and exports that may result in an additional 18 
million hectares of deforestation (Bonnie et. al. 2000:1763).
---------------------------------------------------------------------------
    Legal Changes Improved Incentives for Forest Conservation. 
Colonization efforts were often accompanied by laws denying ownership 
titles to settlers until they had put at least 50% of their land into 
cultivation. This resulted in substantial deforestation and in most 
cases planting of pasture for cattle. Such incentives for deforestation 
have been removed in most countries. Property rights regimes are also 
being reformed to encourage conservation. For example, resin-tappers in 
Honduras who worked the pine forests had little incentive to care for 
the trees because all trees were owned by the state. In Mexico, timber 
companies were given concessions to cut timber on the lands of 
indigenous communities; neither the communities or the companies had 
incentives to insure that sustainable forest practices were followed. 
Indigenous communities in the poor southern state of Oaxaca struggled 
for years to have the right to work their own forests, and succeeded in 
having forestry laws changed in the early 1990s. With forests now under 
their own control, management has improved significantly, some 
communities have created their own forest reserves, and many are 
developing ecotourism projects with the assistance of a World Bank 
program.
    Requirements for Environmental Impact Assessments Are Now Common. 
In the late 1980s and early 1990s, the World Bank, Inter-American 
Development Bank, and USAID began requiring that environmental impact 
assessments be done for projects they sponsored. This has helped to 
insure that donor projects do not have negative impacts on the 
environment. Spurred by these models and concerns about environmental 
degradation, several countries in the region (e.g. Mexico, Argentina) 
are now beginning to require environmental impact assessments of major 
projects within their borders.
    Countries Have Established Ministries Focused on Environmental 
Concerns. Of the countries in the region, 16 out of 22 now have a 
cabinet post that focuses on environmental concerns. Most of these have 
been established within the last several years. Legal frameworks for 
environmental protection are being established in most countries and 
the Inter-American Development Bank has been supporting these efforts. 
It is critical to get such legal frameworks in place as a means of 
eventually regulating private sector development within countries.\3\
---------------------------------------------------------------------------
    \3\ Even where an adequate legal framework is in place, enforcement 
is still problematical. For example, the Attorney General's Office for 
Environmental Protection (PROFEPA) in Mexico has fewer than 150 agents 
for the whole country.
---------------------------------------------------------------------------
    International and National NGOs Are Intensely Involved. Led by such 
international organizations like the World Wildlife Fund, Nature 
Conservancy, Conservation International, and others, the non-
governmental sector has been intensely involved in efforts to create 
and manage parks, reserves, protected areas, and to encourage natural 
resource management. These organizations understand that communities 
must be involved and be able to generate income if resource 
conservation is to be successful. Greenpeace and others have adopted a 
watchdog role and are activists in opposing projects that may lead to 
resource degradation (e.g. successfully opposing the salt works 
proposed for San Ignacio Lagoon on the Gulf of California in Mexico). 
Local nonprofit organizations with an environmental focus are being 
established in all countries reflecting increased public concern about 
the environment (e.g. about 700 environmental NGOs are registered in 
Mexico).

                          CONTINUING PROBLEMS

    Despite these signs of progress, environmental degradation 
continues unabated in Latin America. Among the most vexing problems are 
the following:
    Transparency and Fairness in the Application of Laws and 
Regulations Are Often Lacking. Major corporations and wealthy private 
investors often play by different rules than everyone else in Latin 
America. Abuses of power and authority, unfortunately, are all too 
common when it comes to environmental requirements. In Mexico recently, 
a peasant told me that the laws are only applied to the poor. He and 
those in his community are fined for extracting timber from forests if 
all of their permits are not done exactly right. At the same time, 
illegal timbering goes on all around their community and the sawmill 
industry is not required to document from where they receive their 
logs. Local people have learned not to press charges against the 
illegal timbering because the culprits are released almost immediately, 
and retaliate against their accusers. Inequality means that the rich 
and powerful are able to engage in practices that cause environmental 
degradation.
    Poverty Continues to Cause Environmental Degradation. Inequality 
and poverty in places like the Pacific Coast of Central America. 
Deforestation there is caused by the poor who plant subsistence crops 
on steep hillsides. Their poverty, however, coexists alongside wealth 
created by melon-growers producing for the export market, shrimp 
producers who now cultivate this commodity in ponds along the coast, 
and especially cattle producers who have appropriated much of the best 
land for their ranches. The Pacific Coast of El Salvador, Honduras, and 
Nicaragua has long been characterized by vast differences between the 
wealthy few who have appropriated the best, flat lands, often for 
commodities like cattle that require little labor to produce. The 
Honduran Central Bank estimated in 1988 that 48% of the valley lands in 
the country were sown in pasture for cattle. The poor majority is left 
with the alternatives of deforesting the steep slopes for a patch of 
land to cultivate, migrating to the cities where they create squatter 
settlements, or invading the protected areas of Honduras' rainforest 
(DeWalt et. al. 1993). Poverty, infectious diseases, environmental 
degradation, illegal migration, cultivation of drug crops, and other 
ills are all common problems affecting the poor regions of most Latin 
American countries.

                            POLICY SOLUTIONS

    Attacking the linked problems of inequality and environmental 
degradation must be made a priority. The solutions that are required 
will require public policy efforts primarily within the countries of 
the region. The United States and other donors, however, can take steps 
that can help. Our country's efforts to promote democracy, free trade, 
and stability in the Americas are unlikely to be successful unless 
people have a livable environment (State Department 1997). Priority 
must be given to investments in Latin American regions that both 
provide economic opportunities to reduce inequalities and conserve the 
environment.
    U.S. Assistance Targeted at Poverty and the Environment to the 
Region Should Be Increased and Made More Effective. In the face of the 
dire needs of Africa and parts of Asia, U.S. assistance to Latin 
America has diminished at the same time that we have focused efforts on 
the North American Free Trade Agreement and potentially a Free Trade 
Agreement of the Americas. Building more sustainable relationships with 
Latin America cannot occur when environments are degraded because those 
who live in these areas will migrate internally and/or internationally 
to seek a better life. Investing in programs run by reputable 
Nongovernmental Organizations like WWF, Conservation International, 
Nature Conservancy, and others that try to work with various 
stakeholder groups and that work with local NGOs ought to be a 
priority.
    We Need to Determine Ways to Compensate Rural People in Latin 
America for the Environmental Services They Provide. Clean water and 
air have always been thought of as free public goods. Increasingly, as 
part of the strategies we use to address rural poverty, we should 
determine ways to compensate people for the production of ``ecosystem 
services'' they provide. For example, the soil erosion from degraded 
watersheds of southern Honduras means that shrimp farms along the coast 
must spend an estimated five cents a pound of shrimp tail produced just 
to manage sediments in ponds (Samayoa, Thurow and Thurow 2000:16). If 
government were to begin programs to ``tax'' downstream users for 
environmental services, it could make significant investments in 
assisting upstream farmers. An example of where this is working now is 
that the water management agency in Quito, Ecuador is now allocating a 
percentage of user fees collected to help conservation efforts in a 
national park in the mountains where the water is produced. Similar 
kinds of programs can be established to provide rural people with 
income and/or investments to maintain forests that would help provide 
clean water and air to Mexico City and other large urban metropolises, 
to maintain forests in watersheds to prevent the siltation that reduces 
the life of hydropower dams, and to improve watersheds that provide 
irrigation water to downstream users.\4\
---------------------------------------------------------------------------
    \4\ The World Resources Institute has recently released a report 
indicating that, at least in the U.S., marketbased approaches to water 
quality management can be more effective than regulatory approaches 
alone (Faeth 2000).
---------------------------------------------------------------------------
    On a global scale, tradable permits are one mechanism for doing 
this. There is considerable interest in using forest conservation for 
carbon sequestration to help address global climate change. The 
``adoption of forest carbon markets (as proposed under the Kyoto 
Protocol) . . . could dramatically increase incentives for developing 
nations to protect forests'' (Bonnie et. al. 2000:1763). The Clean 
Development Mechanism of the Kyoto Protocol could allow industrialized 
nations to purchase carbon credits to meet overall goals of reducing 
greenhouse gas emissions.
    Consumers also have a role to play by rewarding producers who use 
sustainable practices. For example, about 90,000 hectares of pine/oak 
forests in Oaxaca, Mexico have received SMARTWOOD certification, yet 
thus far producers have not received any market benefits from this. To 
guide consumers, we need to devote more resources to establishing 
verifiable, simple certification systems to encourage consumers to 
purchase products that are environmentally friendly. Organic, shade-
grown coffee is an example; another is dolphin-friendly tuna.
    The main point here is that unless there are economic rewards and 
returns that will go to directly helping poor people, it is unlikely 
that they will engage in behaviors to protect natural resources. Right 
now, too many people in Latin America see conservation as 
``prohibition'' and contrary to their own interests. As one peasant 
leader in the Monarch Butterfly Reserve in central Mexico told me just 
last week: ``If you tell me that each year I can harvest one of every 
ten trees on my land, I will be happy to cooperate. If you tell me that 
I can't cut any trees, then I can assure you all ten trees will 
disappear immediately.''
    The U.S. Should Ask Our Representatives to Multilateral Development 
Banks to Require Social Analysis of Projects. The assessment of 
projects in institutions such as the World Bank and Inter-American 
Development Bank currently require only financial, economic, technical, 
and institutional analysis, with environmental analysis now required in 
most cases. There are ``social safeguard policies'' on indigenous 
peoples, involuntary resettlement, and women in development that are 
applied to some projects, yet social analysis of projects is not 
required. This means that we have no comprehensive mechanism for 
determining how projects might affect important issues like poverty or 
social inequality. Given that multilateral development bank loans are 
now only a small percentage of foreign investment in Latin America, 
such loans ought to be targeted in ways that can directly affect 
poverty and its accompanying maladies.
    Invest in University Linkages Focused on Social and Environmental 
Research. International NGOs have done a relatively good job of 
establishing linkages with local NGOs. Although there are exceptions, 
U.S. universities have not developed the same sorts of collaborative 
research and development linkages for environmental research and 
policy-making with counterparts in Latin America. The kinds of 
partnerships developed for agricultural research by programs like 
USAID's Collaborative Research Support Projects (CRSP) need to be 
expanded for work on environmental and social research. As the National 
Science Foundation expands its role in addressing environmental 
problems (NSF 2000), it ought to provide more emphasis to supporting 
international research collaborations.

                                SUMMARY

    The goal of this presentation was to emphasize the link between 
inequality and environmental degradation in Latin America. Despite many 
positive steps that have been taken by Latin American countries in the 
last several years, the continuing disparities between rich and poor 
hold threats for the environment. Degradation results from the rich who 
consider themselves to be above the law, and from the poor who have no 
alternative but to mine natural resources for current survival. Policy 
makers must look for means to reduce inequalities and to directly 
channel resources so that those in control of natural resources have 
incentives to conserve and improve them.

                              BIBLIOGRAPHY

Bonnie, Robert, Stephan Schwartzman, Michael Oppenheimer, and Janine 
        Bloomfield, 2000 Counting the Cost of Deforestation. Science 9 
        June: 1763-1764.
Berry, Albert, 1997, The Income Distribution Threat in Latin America. 
        Latin American Research Review 32(2):3-40.
DeWalt, Billie, 1997, The Human Causes of a Natural Catastrophe (on the 
        effects of Hurricane Mitch on Central America). Pittsburgh 
        Post-Gazette Forum Sunday, Nov. 22 (Op-ed).
DeWalt, Billie R., Susan C. Stonich and Sarah Hamilton, 1993, Honduras: 
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        of Steepland Erosion on Shrimp Production, Honduras. Soil 
        Management Collaborative Research Support Program, Texas A & M 
        University Technical Bulletin 2000-01.
State Department, 1997, Environmental Diplomacy: The Environment and 
        U.S. Foreign Policy. Washington, D.C.

    Mr. Chafee. Thank you, very much for your time and your 
testimony. I especially like when you say it is easy to 
pessimistic, but here are some of the positive things that are 
happening. Here are some possible solutions. And let us move 
forward. So, thank you very much. You really are strong on the 
linkage of the inequities and progress on environmental 
concerns and how some of the corporations do not abide by the 
same laws that everybody else is required to abide by. I am 
sure that is a problem. The powerful can get away with more 
than the regular citizens.
    Mr. Watson, you have been all over the region as 
Ambassador, Peru, Colombia, Bolivia, Brazil, Santo Domingo. And 
in your experience, your rich experience, in traveling the area 
during the past few decades, how are we doing? How is change 
coming both on the emergence of democracy, the growing middle 
class, and addressing some of the basic environmental concerns, 
proper land use, wastewater treatment?
    Mr. Watson. Well, Mr. Chairman, the broad experience that 
you mentioned in many countries, looking at a broad variety of 
issues, I think there has been enormous progress in two or 
three of the most important issues. And also there are setbacks 
every now and then, there is no doubt that the countries of 
Latin America and the Caribbean are essentially committed to 
democracy even though it needs to be deepened and strengthened 
in a great variety of ways, especially judicial systems and 
things like that and greater participation by some of the less 
fortunate people in the countries. But still, compared to what 
it was a while ago, it has been enormous progress.
    Second, I think that most of the countries in the region 
have gotten the macroeconomic policies right now to all sorts 
of experiments, most of which failed. And every failure, of 
course, hurts the poorest people more than anybody else. And I 
think basically the macroeconomic policies are essentially in 
place if you understand what they are.
    Third, I am encouraged that there is a greater awareness on 
the part of the leadership in most countries that natural 
resources are not free goods as they might have been considered 
before. In other words, they are not limitless goods, that they 
have to manage them carefully or they are not going to have any 
in the future. That does not mean have I got the right policies 
in place all the time. But at least there is an awareness which 
is essential to start to formulate the right policies which 
sets a context for people like ourselves, and like the AID 
programs that Carl Leonard was talking about, much more likely 
to succeed.
    Areas where I think there has still been enormous failure 
is in the distribution of income. In most of the countries, 
Latin America and the Caribbean, the economic growth has been 
terrific but has not benefited everybody even close to equally.
    This I think has been compounded to a certain extent, to a 
great extent, by failure of education systems to really be 
equal, to really bring people who are, let us say, outside the 
modern sector of the economy into the economy, be able to give 
them the skills to do that. And I have been worried for a long 
time that the revolution in communications that is taking place 
now will widen this gap. We will just have two classes, those 
who are on the Internet if you will and those who have no idea 
what it is.
    And I think that another area that is relevant in this 
respect is public health. There has been a lot of improvement 
in a lot of places, but there is still a long way to go. And it 
is profoundly in the interest of all the countries of the 
hemisphere. Even if all you are concerned about is having an 
adequate labor force to be able to keep your economy booming, 
to have well-educated and healthy citizens, irrespective of the 
ethical and moral considerations that I think are important to 
many of us.
    I think that we are now, at least my perspective now in The 
Nature Conservancy--I just spent a week in Guatemala. I came 
back last night. You are beginning to see much more creative 
approaches to reconciling the differences or the potential 
tensions between development and management of natural 
resources or conservation of resources. And I think there is a 
greater awareness of the need to involve the local people in 
positively constructed and long-term engagement in the 
solution, designing the solutions and implementing the 
solutions of those problems.
    So obviously, if one has spent a long time in the 
hemisphere like I have thinking about a lot of these things, I 
could go on forever and bore everybody in this room. But those 
would be some of the highlights, at least from my experience.
    Mr. Chafee. Thank you, very much. I suppose it all does 
start with education and public health. And those are the 
building blocks. Gentlemen, I do not have any other questions. 
I look forward to working with you in the future as we go 
forward.
    I think there is a tremendous opportunity for our country 
to be involved across our borders in a positive way, and I hope 
you can share with us any other ideas you have as we go 
forward. And we appreciate your taking the time to come all the 
way from Pittsburgh and back from Guatemala. We are very 
indebted to sharing your wisdom with us here this morning and 
wish you the very best. And thank you again.
    Mr. Watson. Thank you, very much, sir.
    Dr. DeWalt. Thank you.
    Mr. Chafee. The hearing is concluded.
    [Whereupon, at 10:38 a.m. the hearing was adjourned.]

                              ----------                              


    Additional Questions Submitted for the Record

  Response of Carl H. Leonard to Additional Questions for the Record 
                      Submitted by Senator Chafee

                 PRIORITIZATION OF ENVIRONMENTAL ISSUES

    Question. This hearing covered a great many environmental issues 
and problems in Latin America/Caribbean that need to be addressed. It 
appears that USAID, the multilateral development banks (MDBs), and NGOs 
are working on all of them.
    Would you find it useful to prioritize these problems so that our 
resources are allocated appropriately? Which problems pose the greatest 
threat to human health over the long-term?

    Answer. There is a broad array of environmental issues in the Latin 
America and Caribbean region. In this regard, USAID brought up a subset 
of what we feel are some of the most pressing and where we believe we 
can have an impact: deforestation, water mismanagement, coastal 
degradation, absence of urban environmental services, and vulnerability 
to natural disasters. Within this subset, it would be difficult to 
prioritize because each poses a significant threat to the region's 
future prosperity and stability, and to United States interests.
    With regard to human health, of the myriad of environmental 
problems facing the region, water scarcity and water pollution may pose 
the greatest direct threat. Roughly 25 percent of the population in 
Latin America and the Caribbean lacks access to safe drinking water and 
almost 60 percent do not have adequate sanitation facilities. Moreover, 
it is estimated that only 5-10 percent of all municipal wastewater 
receives any sort of treatment before being discharged. The results are 
not unexpected: heavily contaminated receiving waters, unhealthy living 
conditions, and high levels of mortality and morbidity from waterborne 
diseases, especially among children.
    In fact, The World Bank estimates that roughly 60 percent of 
mortality in children under five years of age is attributable to 
waterborne diseases. These problems are most acute in pen-urban and 
rural areas.
    USAID and the multilateral development banks (MDB) do have distinct 
primary areas of focus based on our respective and complementary 
capacities. In general, USAID focuses on natural resource management 
issues where the development and dissemination of best practices can be 
effective, including watershed management and rural water supply and 
sanitation. The MDBs focus on urban and energy issues that require 
large capital investments. In the urban and energy sectors, USAID does 
coordinate with the MDBs by providing grant assistance for the 
technical analyses and the piloting of promising approaches that can 
become the basis for MDB loans.

                   URBAN ENVIRONMENTAL INFRASTRUCTURE

    Question. What are the major impediments to providing basic 
environmental infrastructure in urban areas?

    Answer. Historically, central governments have been unable to 
adequately finance, deliver and maintain roads, sewage, water systems, 
and solid waste collection for their countries' exploding urban 
populations. Now, as a result of the recent wave of decentralization 
throughout Latin America, many of these challenges still exist, albeit 
at the city level. While decentralization ushered in legal reform which 
gave cities the authority to make decisions on service delivery, many 
new city governments, especially smaller municipalities, remain ill-
equipped to respond. Capacity building is needed to help cities learn 
to plan, finance and deliver infrastructure and environmental services. 
In addition, further reform at the policy level is required to ensure 
that cities are granted the authority to access the needed financing--
either from capital markets or from local revenue collection--to carry 
out this new function. In fact, access to capital markets is a major 
impediment to providing environmental services in the larger urban 
centers which are home to a growing percentage of the Latin America and 
the Caribbean population and which require large capital investments. 
This is a primary focus of the multilateral development banks (MDB).
    The recent natural disasters in Latin America, especially Central 
America and the Caribbean, highlighted the need to build capacity in 
city governments for responding to the destruction left by floods, 
earthquakes, and hurricanes. In 1998, for example, Hurricanes Georges 
and Mitch left millions homeless and without potable water and 
sanitation services. In such situations, city governments act as 
primary agents, not only in responding to the disaster themselves, but 
also in directing the influx of resources from international aid 
agencies. Under the new framework of decentralization, strong city 
government capacity in physical and financial management is crucial to 
rebuilding urban environmental infrastructure and planning for future 
disasters.

                 LATIN AMERICAN EQUIVALENT OF U.S.-AEP

    Question. The U.S.-Asia Environmental Partnership [U.S.-AEP] 
program is a USAID program that brings U.S. firms together with Asian 
governments and businesses to find solutions to Asian environmental 
programs, leveraging private sector cooperation and funds to increase 
the relatively low levels of U.S. government funds. Do you believe that 
a Latin American equivalent would be equally successful? Should this be 
considered for Latin America? Are U.S. efforts to promote 
environmentally preferable technologies leading to real market 
advantages for U.S. firms?

    Answer. The concept of bringing United States firms together with 
Latin America and Caribbean (LAC) governments and businesses to help 
solve environmental problems is an excellent one and one which USAID 
has been actively pursuing for several years through programs such as 
the Environmental Initiative for the Americas (EIA), the Hemispheric 
Free Trade Expansion (HFTE) Program, and the Environmental Pollution 
Prevention Program (EP3).
    Most recently, the USAID's LAC Bureau launched the U.S.-LAC 
Environmental Partnership (LACEP) program with the principal purpose of 
forging lasting partnerships between the U.S. and LAC public and 
private sectors to address the region's severe environmental 
degradation problems. LACEP embraces many of the U.S.-AEP principles 
and makes use of similar implementation mechanisms. For instance, LACEP 
seeks to enhance the performance of targeted LAC business by supporting 
U.S. and LAC private sector engagement in the application of 
innovative, market-based solutions to environment problems. LACEP also 
will strive to leverage the resources of other donors. In addition to 
introducing appropriate technologies such as industrial clean 
production, LACEP will work to identify and overcome the numerous 
institutional and financial barriers that hinder implementation and 
dissemination of sound technical solutions.
    According to the World Bank, during the last five years, the rate 
of increase for the demand of environmental goods and services for 
Latin America and the Caribbean (LAC) exceeded all regions of the 
world, including Asia and Japan. The annual growth rate for the region 
is 12 percent as compared to 2 percent for Japan and 10 percent for the 
rest of Asia. For instance, in the next decade, the demand for 
environmental goods and services in the water sector alone is expected 
to be about $220 billion. Additionally the amount of private investment 
capital flowing into LAC last year has, for the first time, exceeded 
that of Asia. USAID, through various mechanisms such as the Latin 
American Initiative for Environmental Technology (LA-IET) implemented 
in partnership with the Environmental Export Council (EEC) and our work 
with regional trade and environment committees, has been successful in 
introducing U.S. private sector ``know-how'' and expertise to this 
growing market and in identifying strategic opportunities for U.S. 
firms to capitalize on this demand.

                        ECO-REGIONAL APPROACHES

    Question. I understand that USAID's Center for Environment is 
working with NGO partners on conservation programs on an eco-regional 
scale in selected regions around the world. Does this mean that the 
agency intends to expand eco-regional-based conservation in other 
regions and cross border areas in other parts of the world where USAID 
is present, as well as more broadly in Latin America and the Caribbean? 
If so, can you identify the areas in the Latin American/Caribbean 
region that USAID has targeted for large scale conservation action at 
the eco-region scale?

    Answer. USAID feels that conservation planning at the eco-regional 
scale is critical to conservation success. USAID's Center for 
Environment, as well as the Agency's regional bureaus, have been 
incorporating this approach into conservation efforts for the past 
decade, and are increasingly identifying opportunities to expand the 
tool where appropriate. Focusing on the sites, populations, ecological 
processes and threats that are relevant to an eco-region as a whole 
allows for an integrated approach to conserving biodiversity that 
transcends political boundaries. Eco-regional approaches use a number 
of priority criteria and include relevant stakeholders in the planning 
process, while considering the broader social, economic and political 
factors that are critical to long-term success.
    Specifically, in the Latin America and Caribbean (LAC) region, 
USAID has been working in partnership with NGOs in several sites to 
conserve biodiversity, several of these on an eco-regional or 
transboundary scale. USAID is currently working in the Southwest Amazon 
Ecological Corridor, the Atlantic Rainforest, the Guyanan Rainforest 
Corridor, the Cerrado and Pantanal eco-regions, the Yasuni-Napo Forest, 
a portion of the Northwestern Andes, and the Chaco eco-region.
    USAID has also targeted additional areas in the LAC region for eco-
regional conservation efforts, for example, the Central America 
Regional Program (PROARCA) is expanding efforts in the MesoAmerican 
Biological Corridor, including portions of the MesoAmerican Coral Reef. 
An eco-regional planning approach is underway in Paraguay, Brazil and 
Bolivia, which will expand the conservation efforts in the Pantanal 
eco-region. In addition, discussions are underway concerning the 
applicability of an eco-regional approach for the eastern slope of the 
Andes, a region that USAID has targeted for possible, large scale 
conservation efforts. USAID, in partnership with several NGOs, has also 
funded a number of eco-regional priority setting projects in the LLAC 
region, for example, ``A Regional Analysis of Geographic Priorities for 
Biodiversity Conservation in Latin America and the Caribbean'' and 
``Freshwater Biodiversity of Latin America and the Caribbean: A 
Conservation Assessment.''
    Although USAID is increasingly identifying opportunities to use 
eco-regional approaches to target threats to biodiversity and work 
across national boundaries, there are many cases where a site-by-site 
or policy specific approach is still the most effective conservation 
tool. For example, working with the local municipality in Quito, 
Ecuador, USAID supported a market-based, water-use fee pilot project 
for Cayambe-Coca Reserve, the watershed serving as the source of the 
city's potable water supply. The lessons learned and documented at this 
site will allow the user-fee model of watershed protection to be 
replicated in other areas containing critical watersheds.

                                 ______
                                 

  Response of Joseph E. Eichenberger to Additional Questions for the 
                       Record from Senator Chafee

    Question 1. What is the status of the World Bank-sponsored Clean 
Air Initiative? What results have been achieved to date, and what 
achievements are ultimately expected?

    Answer. The World Bank Institute in partnership with the Bank's 
Environmentally and Socially Sustainable Development unit in the Latin 
America and Caribbean (LAC) region and a number of other agencies and 
companies, launched the Clean Air Initiative in Latin American Cities 
in December 1998, as a three-year program. The Initiative covers issues 
of environment, urban, transport, health, energy, industrial pollution, 
and global emissions, as they relate to the quality of the air in the 
cities of the most urbanized region of the developing world. Its three 
goals are: (a) to promote the integrated development or enhancement of 
city clean air action plans based on the participation of all relevant 
stakeholders; (b) to advance the exchange of knowledge and experience 
among all partners; and (c) to foster public participation and the 
active involvement of the private sector in implementing innovations in 
the use of low-emissions, low-carbon technologies.
    The $1 million budget for calendar year 2000 includes funding from 
the World Bank, bilateral donor funds and contributions from the 
private sector Steering Committee members of the Initiative 
(DaimlerChrysler, Volvo, Renault, Shell). In addition, recipient cities 
also contribute. Activities being funded include:

   City Specific Workshops (Buenos Aires, Santiago) $190,000
   City Action Plans (Buenos Aires, Lima, Rio, Santiago, 
        Mexico) $450,000
   Distance Learning Course $80,000
   Web-site Update $70,000
   Other Communication Tools (brochure, progress report) 
        $80,000
   Information Pool for Clean Technologies $40,000
   Clean Air Toolkit $45,000
   Program Management $90,000

    With respect to operational investments, World Bank projects are 
either under preparation or implementation in most of the cities 
currently involved in the Clean Air Initiative (e.g., Mexico City Air 
Quality II, Buenos Aires Urban Transport, Lima Urban Transport, and Rio 
de Janeiro Mass Transit). Through the development or enhancement of the 
city action plans, which account for approximately half the 
Initiative's budget, cities will identify further areas requiring 
investment. This additional investment may come from a vanety of 
sources, including local, private sector, bilateral or multilateral 
financing.

    Question 2. A review of the Inter-American Development Bank (IDB) 
environmental programs shows a great deal of emphasis on wastewater 
treatment projects. Is this emphasis advisable, given the magnitude of 
other problems?

    More than 50% of Latin Americas poor live in urban areas and lack 
access to clean water and basic sanitation. Consequently, emphasis on 
water and sanitation generally reflects both borrower priorities and 
borrower needs. In 1999, IDB lending for water and sanitation accounted 
for 73% of environmental lending. In 1998 and 1999, the region, 
especially Central America, was struck by natural disasters that killed 
thousands and destroyed property and infrastructure. The IDB responded 
with natural disaster funding for rehabilitation and reconstruction of 
basic infrastructure that included funding for environmental mitigation 
measures to reduce vulnerability to future disasters, solid waste 
management, and water, and for strengthening emergency response 
capacity. Natural disaster loans accounted for around 21% of the 
environmental portfolio for 1999. The remainder of the environmental 
portfolio consists of support for natural resource conservation and 
environmental management.
    Other pressing environmental issues require attention by the IDB 
and its borrowers. For example, we have encouraged the Bank to do more 
in the field of energy efficiency and global public goods related to 
the environment. The IDB is in the process of establishing a Trust Fund 
with the U.S. Department of Energy to identify and prepare IDB projects 
that can benefit from U.S. energy efficiency technologies. It has also 
established a sustainable energy markets program, focussed on energy 
efficiency, which mobilized $5 million to prepare energy efficiency 
projects last year. The IDB recently signed an agreement with the 
Global Environmental Facility that will permit the Bank to access 
funding for activities related to global environmental issues. These 
activities relate to climate change, biodiversity, international 
waters, depletion of the ozone layer, and degradation of lands, mainly 
through desertification and deforestation.

    Question 3. A World Bank analysis for Santiago found that reducing 
air pollution from cars, trucks, and buses, and converting wood burning 
industrial sources to other fuel would generate benefits that 
outweighed pollution control costs by at least a factor of 1.7. Even 
with a positive benefit-cost ratio, are such investments feasible in 
the region?

    Answer. The World Bank's cost benefit-analysis of an air pollution 
control scenario for Santiago, Chile, focused on: (a) fixed sources; 
(b) gasoline vehicles; (c) buses; and (d) trucks, resulted in a 
benefit/cost ratio of 1.7 and indicated that investments in these areas 
are highly economically justified. In fact, a number of these measures 
have been carried out in Santiago and other Latin American cities and 
have proven the high feasibility of such investments.
    The analysis for Santiago focuses on putting in place the 
appropriate emission standards for vehicles, fuels and stationary 
sources. To overcome obstacles to the successful implementation of 
these measures in the region, it is important to: (i) include all 
relevant stakeholders in the design and implementation of these 
activities (i.e., energy, transport and environment sectors, NGOs, 
civil society, etc.); (ii) strengthen compliance and enforcement 
capacity; (iii) raise public awareness through health studies; (iv) 
establish the necessary institutional coordination arrangements; and 
(v) complement these efforts through the use of economic incentives.
    The World Bank has worked with its clients in the region in the 
design and implementation of these measures. For instance, through the 
Transport Air Quality Management Project in Mexico City, the Bank 
supported the: (a) development and enforcement of emission standards; 
(b) implementation of an inspection and maintenance system for 
vehicles; (c) carrying out of health studies; (d) development of 
economic incentives (such as fuel pricing and vehicle taxation); (e) 
strengthening of institutional capabilities to implement air quality 
measures; and (f) establishment of an environmental coordination 
commission.

    Question 4. What are the major impediments to providing basic 
environmental infrastructure in urban areas?

    Answer. The impediments to providing basic environmental 
infrastructure in urban areas are complex and multiple. The expense of 
infrastructure is enormous making it very difficult for developing 
countries to finance the level of infrastructure needed to serve ever-
growing populations. Many developing countries lack the capital markets 
necessary to finance expensive infrastructure projects such as 
wastewater treatment facilities and urban sanitation. In addition, 
environmental infrastructure investments do not easily attract private 
sector finance, particularly in secondary cities. Many of these 
countries also maintain investment policies or have investment climates 
that severely impede private sector investment.
    Unlike the energy sector in Latin America, infrastructure is not 
considered by the private sector to be sufficiently profitable. In the 
case of a wastewater treatment plant, profits are relatively low and 
the consumers are generally quite poor. To have a positive profit 
margin, a company would need to set the tariff at a profitable level. 
This is difficult due to the limited incomes of consumers. In the U.S., 
such services may be priced at a reasonable level given the average 
income of its customers. In many of these countries, even small tariffs 
can surpass the level customers can pay, with one-quarter of the 
world's population earning less than one dollar a day.
    Beyond the financing obstacles, the lack of institutional capacity 
among municipalities is also a serious impediment to project 
implementation and successful operation in some cases. Cities must have 
the capacity to train workers. They must also have knowledge about 
project design, planning, construction, facility operations, and 
mechanisms to collect tariffs.

                                 ______
                                 

  Response of The Nature Conservancy to Additional Questions for the 
                   Record Submitted by Senator Chafee

    Question 1. Given that, ``Integrated coastal zone management (ICZM) 
and marine ecosystem management are recognized as urgent needs to deal 
with the off coastal resources in the LAC region.'' What do you believe 
would be needed to bring about more widespread integrated management in 
the Latin America and Caribbean (LAC) region?

    Answer. To bring about more widespread integrated management in the 
LAC region there is a need for financial resources to be invested in:

   educational initiatives to build awareness of the important 
        and basic role of marine resources, their economic value, and 
        their nearly ubiquitous state of degradation;
   building the local capacity to manage these resources, as 
        many LAC nations lack the technical expertise for taking on 
        these complex management challenges;
   beginning and improving collaboration among the governmental 
        and nongovernmental entities in the LAC countries that have a 
        vested interest in marine resource management;
   initiating cross-border international collaboration, as the 
        marine ecosystems being managed are fluid in nature and cannot 
        be managed properly in isolation; and
   supporting U.S. Government initiatives, such as those 
        envisioned by USAID Caribbean Region Regional Office in 
        Jamaica, to improve coastal zone management.

    We have been working to support the objectives and provisions of 
the Cartagena Convention Protocol (1983) on Specially Protected Areas 
and Wildlife in the Wider Caribbean Region (SPAW). This has been 
accomplished in partnership with the United Nations Environmental 
Program (UNEP) Caribbean Regional Seas Program to implement training 
programs for coastal zone managers.

    Question 2. Are there successful models that can be replicated?

    At a multinational level, the USAID funded PROARCA project is a 
good place to begin. With The Nature Conservancy, World Wildlife Fund 
and the University of Rhode Island Coastal Resource Center leading a 
team of in-country partners, PROARCA has attempted to bring the 
government and non-government communities together to set common goals 
for ICZM. There has been work at the local level but also with a 
Central American Commission for the Environment, which has touched on 
regional issues including the harmonization of policies for marine 
resource management. A basic step here is seeing that all countries 
have similar calendars for closed fishing seasons, so fishermen don't 
just jump across borders from month to month (in which case the target 
species never get any relief to reproduce).
    As basic building blocks of ICZM, national parks should be 
established and managed for the protection value they present to many 
living and non-living marine resources. Our Parks in Peril program 
(PiP) demonstrates how progress can be made in this regard. Through the 
implementation of PiP in Parque del Este (PDE), Dominican Republic, 
many advances have been made toward achieving the balance between 
conservation and economic development. For example:

   there is now a vibrant constituency focused on protecting 
        the marine resources of the park, spearheaded by local 
        (Dominican) environmental NGO's, and regional organizations 
        like CAST, the Caribbean Alliance for Sustainable Tourism;
   large quantities of important ecological and resource 
        utilization information have been compiled and used in the 
        development of terrestrial and marine habitat maps and 
        recommendations for improving park management;
   local communities surrounding the park are much more engaged 
        in park management and resource-use issues, and work closely 
        with local partners;
   significant strides have been made in improving critical 
        park infrastructure to accommodate the thousands of tourists 
        visiting PDE on a monthly basis.

    The Nature Conservancy has contributed to the well being of marine 
natural resources by developing publications that document successful 
work. An examples is the ``Rapid Ecological Assessment Series: Parque 
Nacional del Este,'' that provides critical and new information on 
marine biodiversity conservation planing and management. Through the 
use of such documents, we are able to use our specific site-based work 
to leverage conservation training and education across the region.

    Question 3. Is the relative lack of Integrated CZM a question of 
financial resources alone, or are major changes in attitudes and 
approach needed by government and private sector interests in the 
region?

    Answer. It is not just a financial issue. The awareness of the 
public must be increased. The public needs to understand and appreciate 
that ICZM is important because coastal zones harbor flora and fauna 
important to countries' natural heritage, provide food, contain 
resources (that can be managed sustainably) used locally or exported, 
and attract tourists. At the end of the day, it is a quality of life 
issue. Life for the human population will be improved if the coastal 
zone is managed well.
    Government and private sector interests in the region need to set 
mutual long-term goals and work together to see the resources managed 
sustainably, not in short-term actions that degrade the resource base.
    The biggest change in attitude needed is a commitment to protect 
the resources for long term sustainability. Establishment of a series 
of marine parks in high priority coastal systems around the region 
would demonstrate a major positive change in attitudes. These parks 
would serve as places for general marine biodiversity protection, but 
would also serve to protect fishery resources. If these areas were 
chosen carefully, they would help significantly in both species 
conservation and fisheries. The fish would spill out of these habitat 
refuges and provide local fishermen with a resource and would be a 
highly prized resource by not only the local populations but also the 
growing tourism sector.

    Question 4. What do you believe are the coastal and marine areas 
and resources most at risk today?

    Answer. Coastal wetlands (marshes and mangrove forests) and shallow 
water marine ecosystems (like seagrass beds and coral reefs) are very 
sensitive to disturbance and over-fishing. They are at risk wherever 
they occur in Latin America and the Caribbean. Every country should 
have a strategy for protecting a significant percentage of them, as 
they form the basis of many food resources. Many of these areas are 
destroyed slowly through pollution and other go directly under the plow 
as coastal areas are developed rapidly.
    All the common fishery targets (finfish and invertebrates) in the 
region have been dramatically overfished and should be protected, as 
most populations are perilously close to crashing.
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