[House Hearing, 107 Congress]
[From the U.S. Government Printing Office]




                               BEFORE THE

                            SUBCOMMITTEE ON

                                 OF THE


                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION


                             JUNE 12, 2001


       Printed for the use of the Committee on Financial Services

                           Serial No. 107-23


73-338                     WASHINGTON : 2001

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                    MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa                 JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice      BARNEY FRANK, Massachusetts
    Chair                            PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska              MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama              LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware          NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma             KEN BENTSEN, Texas
ROBERT W. NEY, Ohio                  JAMES H. MALONEY, Connecticut
BOB BARR, Georgia                    DARLENE HOOLEY, Oregon
SUE W. KELLY, New York               JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                MAX SANDLIN, Texas
CHRISTOPHER COX, California          GREGORY W. MEEKS, New York
DAVE WELDON, Florida                 BARBARA LEE, California
JIM RYUN, Kansas                     FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama                   JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina      CHARLES A. GONZALEZ, Texas
DOUG OSE, California                 STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois               MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin                HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania      RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York              JOSEPH CROWLEY, New York
GARY G. MILLER, California           WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia                STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York       MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania         
             Terry Haines, Chief Counsel and Staff Director

        Subcommittee on International Monetary Policy and Trade

                   DOUG BEREUTER, Nebraska, Chairman
DOUG OSE, California, Vice Chairman  BERNARD SANDERS, Vermont
MARGE ROUKEMA, New Jersey            MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          BARNEY FRANK, Massachusetts
MICHAEL N. CASTLE, Delaware          MELVIN L. WATT, North Carolina
JIM RYUN, Kansas                     JULIA CARSON, Indiana
DONALD A. MANZULLO, Illinois         BARBARA LEE, California
JUDY BIGGERT, Illinois               PAUL E. KANJORSKI, Pennsylvania
MARK GREEN, Wisconsin                BRAD SHERMAN, California
PATRICK J. TOOMEY, Pennsylvania      JANICE D. SCHAKOWSKY, Illinois
GARY G. MILLER, California           LUIS V. GUTIERREZ, Illinois

                            C O N T E N T S

Hearing held on:
    June 12, 2001................................................     1
    June 12, 2001................................................    29

                         Tuesday, June 12, 2001

Schuerch, Hon. William E., Deputy Assistant Secretary for 
  Development, Debt, and Environmental Policy, U.S. Department of 
  the Treasury...................................................     7


Prepared statements:
    Bereuter, Hon. Doug..........................................    30
    Waters, Hon. Maxine..........................................    33
    Schuerch, Hon. William E.....................................    39

              Additional Material Submitted for the Record

Frank, Hon. Barney:
    United States Catholic Conference letter, June 5, 2001.......    35
Schuerch, Hon. William E.:
    Response to United States Catholic Conference, August 28, 
      2001.......................................................    43



                         TUESDAY, JUNE 12, 2001

             U.S. House of Representatives,
 Subcommittee on International Monetary Policy and 
            Trade,6Committee on Financial Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 2:00 p.m., in 
room 2128, Rayburn House Office Building, Hon. Doug Bereuter, 
[chairman of the subcommittee], presiding.
    Present: Chairman Bereuter; Representatives Roukema, 
Biggert, Green, Shays, Capito, Sanders, Waters, Frank, Carson, 
Schakowsky, and C. Maloney of New York.
    Chairman Bereuter. The hearing will come to order.
    The Subcommittee on International Monetary Policy and Trade 
meets today in open session to receive testimony from the 
Department of Treasury on the fiscal year 2002 authorization 
request for the international financial institutions and on 
activities in Africa of the African Development Bank and Fund, 
the World Bank, and the International Monetary Fund.
    The International Monetary Policy and Trade Subcommittee 
has jurisdiction over the international financial institutions. 
The Congress has on its agenda this year the authorization of 
the following: $165 million in multilateral funding for the 
Heavily Indebted Poor Countries (HIPC) trust fund, $412 million 
for the Asian Development Fund, and $30 million for the 
International Fund for Agricultural Development, (IFAD).
    This also will be the third subcommittee hearing this year 
which will focus significant attention on Africa. The first 
hearing gave us a private-sector perspective on the activities 
of the African Development Bank and Fund. The second hearing 
included a private-sector panel on the World Bank and IMF 
activities in Africa, with particular emphasis on poverty 
reduction, debt relief, and HIV/AIDS.
    Before introducing our witness from the Department of the 
Treasury, I'd like to provide the following background on these 
issues which are important to today's hearing, HIPC debt 
relief, the Asian Development Fund, IFAD, the African 
Development Bank and Fund, and HIV/AIDS.
    First, the HIPC initiative has provided both bilateral and 
multilateral debt relief to 18 countries in sub-Saharan Africa. 
This year, further authorization and appropriation for the 
multilateral debt is still needed to complete the U.S. pledge 
of $600 million to the HIPC trust fund.
    The Administration has requested $224 million be 
appropriated in fiscal year 2002, with $165 million to be 
required for authorization this year.
    Second, the Asian Development Fund, of which the United 
States is a non-regional member, is a concessional arm of the 
Asian Development Bank. The fund offers loans with a term of 24 
to 32 years, with an 8-year grace period. The interest rates 
are 1 percent to 1\1/2\ percent.
    This fund is focused on poverty reduction with particular 
emphasis on health and education. The fund provides loans to 29 
borrower countries, including Vietnam, Bangladesh, Sri Lanka, 
Pakistan, Nepal and Laos. India and China are not allowed 
access to the fund because of their access to the capital 
markets and due to the sheer size of their economies.
    Last September, the United States agreed to a 4-year, $412 
million contribution to the seventh replenishment of the Asian 
Development Fund. The Administration has requested authorizing 
legislation for this U.S. commitment of $412 million.
    This is approximately 14.3 percent of the total funding of 
the seventh replenishment.
    The Asian Development Fund is capitalized through both 
contributions from donor countries, as well as loan repayments.
    Third, IFAD provides loans and grants for agricultural and 
rural projects for the world's poor who live in rural areas.
    Almost 75 percent of the world's 1.2 billion poorest people 
live in rural areas.
    The mandate of IFAD is to increase the incomes of the 
small-scale producers and subsistence farmers. Since its 
founding, IFAD has made $609 billion in commitments to finance 
575 projects in 114 countries. Approximately two-thirds of IFAD 
loans are concessional.
    Last year, the U.S. negotiated the fifth 2-year 
replenishment for IFAD, which required $30 million for 
contributions as the U.S. share.
    The Administration has requested the Congress to authorize 
this fifth replenishment.
    Fourth is the African Development Bank and Fund, which were 
previously explored, as I mentioned, by the subcommittee in 
April. The U.S. is, of course, a non-regional member. At the 
earlier hearing, the subcommittee received testimony that the 
African Development Bank and Fund are the most fiscally 
troubled and perhaps the most managerially challenged of all 
the multilateral development banks.
    Since the annual meeting of the African Development Bank 
and Fund was held at the end of May, the subcommittee is 
looking forward to the testimony of the Treasury Department on 
both this annual meeting and to any comments as to how the 
African Development Bank and Fund is addressing these 
    Lastly, the subcommittee conducted a hearing in May which 
focused on the World Bank and the IMF activities in Africa. 
Undoubtedly, we will have more hearings on that subject and 
their activities in other parts of the world.
    A critical issue discussed at the hearing was multilateral 
efforts on HIV/AIDS.
    At this hearing, the joint United Nations program on HIV/
AIDS estimated that 36 million people are now living with HIV/
AIDS. Seventy percent of these people are in sub-Saharan 
    We are reminded that on May 11 of this year, the President 
pledged an initial $200 million to a global trust fund to 
combat HIV/AIDS, malaria, and tuberculosis. Furthermore, last 
year, Congress passed legislation, P.L. 106-264, which directed 
the Secretary of the Treasury to seek to negotiate the creation 
of a multilateral HIV/AIDS trust fund at the World Bank.
    The subcommittee is interested in the status of these 
negotiations. When Secretary O'Neill testified before the 
Financial Services Committee on May 22 of this year, he stated 
that the issue of where this HIV/AIDS trust fund would be 
housed is still undetermined, or at least it was at that point.
    To assist the subcommittee in examining these issues, I'm 
pleased that we'll have the opportunity to hear from William E. 
    Mr. Schuerch, is that correct? Schuerch?
    Mr. Schuerch. Schuerch, yes.
    Chairman Bereuter. The Deputy Assistant Secretary for 
International Development, Debt, and Environmental Policy for 
the Department of the Treasury. Mr. Schuerch has served in this 
capacity since September 16th, 1996, and he has responsibility 
for formulation of international debt policy and issues 
pertaining to U.S. participation in the regional multilateral 
development banks.
    Prior to his service at Treasury, Mr. Schuerch was a staff 
member of the House Appropriations Committee for a lengthy 
period of time. He received his Bachelor's and Master's degree 
from the Maxwell School at Syracuse University.
    Mr. Schuerch, we welcome you at the hearing. And I'll say 
that without objection, your written statement will be included 
in its entirety for the record.
    But before your testimony, I turn to the distinguished 
Ranking Member of the subcommittee, the gentleman from Vermont, 
Mr. Sanders, for any comments that he might make.
    [The prepared statement of Hon. Doug Bereuter can be found 
on page 30 in the appendix.]
    Mr. Sanders. Thank you very much, Mr. Chairman. And 
welcome, Mr. Schuerch. It's nice of you to be with us.
    Mr. Chairman, as this subcommittee considers the 
Administration's funding request for various international 
financial institutions, we should ask whether these 
institutions are using the funding they receive from American 
taxpayers as effectively as they should, and whether reforms 
are, in fact, needed.
    I believe there is a growing sense in Congress and the 
international financial institutions, especially the IMF and 
the World Bank, that they are not doing the jobs they were 
established to do, and that they have taken on new jobs and new 
responsibilities that they are not able to do.
    The area of public health and the HIV/AIDS crisis is a case 
in point.
    At a recent hearing of this subcommittee, Dr. Dyna Ahrin of 
Harvard pointed out that one of the main reasons many poor 
countries lack the resources they need to fight HIV/AIDS is 
that for 20 years, the IMF and the World Bank have been forcing 
poor countries to cut back on spending for public health and 
that many of their infrastructures for public health are in 
very bad shape.
    Debt relief for the poorest countries in the world is 
another case in point.
    A recent report by the U.S. General Accounting Office found 
that the IMF and World Bank debt reduction program for heavily 
indebted poor countries, known as HIPC, is likely to leave 
these poor countries in just as much debt as when they started 
the program.
    Most of the countries that are now participating in the IMF 
and World Bank debt reduction program spend more on debt 
service than they spend on health care for their people and the 
majority of the people in these countries subsist on less than 
a dollar a day.
    The most urgent needs of the poorest people in the poorest 
countries are not being met, so that the IMF and the World Bank 
can get their bad loans repaid.
    Might it not be time, Mr. Chairman, to require the IMF and 
the World Bank to use their own resources to cancel the debts 
that they are owed by the world's most impoverished countries?
    The international financial institutions are among the most 
powerful institutions in the world, with, in many ways, 
effective control over the economies of the poorest nations in 
the world. And yet, these institutions make major decisions 
that affect the lives of hundreds of millions of the most 
vulnerable people on our planet, as well as working people 
throughout the world in total secrecy.
    And that's a point that we want to underline.
    These organizations meet in total secrecy, making decisions 
which impact huge numbers of people.
    For years, several of my colleagues in Congress and I have 
offered amendments to legislation calling for the U.S. 
executive directors of the international financial institutions 
to use their votes to support reform, only to learn that there 
are almost never any votes taken at these institutions.
    There are no votes and there is little or no 
    You can't instruct somebody to use a vote if no votes are 
    Now it appears that the U.S. executive director at the 
World Bank and the U.S. Treasury Department may have largely 
ignored a very specific requirement enacted into law by 
Congress last year to stop the IMF and the World Bank from 
imposing user fees on primary health care.
    Mr. Chairman, the World Bank continues to support the 
imposition of user fees for basic health care, despite the fact 
that this policy has led to a decreased access to primary 
health care for the poorest people in the poorest countries.
    As a result, Congress last year passed legislation 
requiring the United States executive directors at the 
international financial institutions to oppose the imposition 
of user fees on poor people for primary health care and primary 
education as a condition for World Bank loans and grants.
    The conference committee that reported the law also 
directed that the U.S. Treasury Department notify the 
congressional committees on appropriations within 10 days if 
any loans requiring user fees are approved by any of the 
international financial institutions.
    But late last year, the World Bank appears to have approved 
financing for Tanzania, which included user fees on primary 
health, albeit, with an exception for poor people.
    It also appears that the World Bank did this without 
opposition from the U.S. executive director at the bank. And it 
further appears that the U.S. Treasury Department may have 
failed to notify the appropriations committees that this, in 
fact, had happened.
    Now I say that it appears that these things were done, Mr. 
Chairman, because, as you know, the proceedings of the board of 
the World Bank are secret. Their meetings are closed to the 
public and no minutes of the meetings are publicly available.
    Even a summary of the meeting is kept secret.
    However, according to a recent report by the Center for 
Economic and Policy Research, World Bank staff informed the 
World Bank board that the funding for Tanzania included user 
fees for health care and no objection was raised by the U.S. 
executive director at the World Bank, despite the requirement 
of U.S. law.
    And according to the same report, the U.S. Treasury 
Department failed to notify the congressional appropriations 
committees of the existence of user fees in the World Bank's 
financing for Tanzania.
    Mr. Chairman, I am troubled that the U.S. executive 
director at the World Bank and the U.S. Treasury Department may 
have largely ignored a U.S. law to prevent the imposition of 
user fees on primary health care in poor countries.
    I am also concerned about the entire cloak of secrecy that 
surrounds decisionmaking at the international financial 
institutions, which makes it so difficult to know whether U.S. 
law is, in fact, being followed or ignored.
    Perhaps it is time for this subcommittee, Mr. Chairman, to 
consider what reforms might be necessary to open these 
institutions to the public and to make these institutions 
accountabe to the public when we consider the Administration's 
request for funding.
    Thank you very much, Mr. Chairman.
    Chairman Bereuter. Thank you very much, Mr. Sanders.
    Under the subcommittee rules, other Members of the 
subcommittee are entitled to opening statements of 3 minutes.
    Are there Members who wish to be recognized?
    The gentleman from Massachusetts, Mr. Frank, is recognized.
    Mr. Frank. Thank you, Mr. Speaker.
    I want to focus on what I think is the overriding moral 
importance of building on the work this subcommittee really 
initiated in a bipartisan way on the debt relief for the highly 
indebted poor countries.
    Some issues are difficult. Some issues are complex. Taking 
loan repayments for loans that were imprudently made, sometimes 
for cold war political reasons, from the poorest people in the 
world is just wrong. And that's not a complicated question.
    I'm glad that we have launched debt relief. Clearly, people 
are better off with the debt relief than they would have been 
without it. But I think that is a good argument for going 
forward with it.
    I would ask at this point, Mr. Chairman, to insert into the 
record a copy of the letter that was sent from the United 
States Catholic Conference signed by the Cardinal Archbishop of 
Boston, Bernard Cardinal Law, who is Chairman of the 
International Policy Committee, to Secretary O'Neill, urging a 
better position on debt relief.
    Chairman Bereuter. Without objection, that will be the 
    [The information referred to can be found on page 35 in the 
    Mr. Frank. Thank you. And I want to stress, we had a debate 
in this Congress over how much of a tax cut we could afford. 
Some people wanted to hold it down under a trillion. Some 
people wanted to go to $2 trillion.
    A country which is fortunate and smart and efficient enough 
to be debating the disposition of a trillion or two dollars, as 
we legitimately do, oughtn't to be begrudging the relatively 
small piece of that, a small piece of a small piece of a small 
piece of that, that would go to alleviating desperate hunger 
and poverty.
    I believe we should be moving to mandate, to the extent 
that we can, that the international financial institutions get 
rid of 100 percent of the debt.
    I believe that we ought to be getting some of that debt 
relief done earlier.
    People will respond that some of these countries aren't 
well governed. That is true. But I do not understand how you 
improve the lot of people unfortunate enough to live in poorly 
governed countries by taking some of the resources out of those 
countries and paying off a debt that never should have been 
contracted in the first place.
    That is, I do not understand how it is going to make things 
better to extract more money from the societies.
    I am favor of the policies that try to make sure that we 
accompany this debt relief with the right kind of guidance. But 
it is overwhelmingly important that we do this.
    We had some skepticism about this. I think those of us who 
thought that debt relief was morally important and workable 
have been proven right. It has clearly had some very positive 
impact. There are some criticisms of debt relief. The 
criticisms basically come down to, it's not happening quickly 
    I would note that even as we talk about getting to the 100 
percent, the letter from Cardinal Law does mention within the 
existing framework adopting a principle that has been 
incorporated into the legislation introduced by the former 
Chair of this Full Committee, the gentleman from Iowa, Mr. 
Leach, and the recently retired Senator from Florida, Mr. Mack, 
which says that in no case should the highly indebted countries 
be asked to pay more than 10 percent of their government 
revenues annually for debt relief.
    It seems to me that we ought to be able to implement that 
one right away and, indeed, I think we ought to be able to 
implement the 100 percent.
    Thank you, Mr. Chairman.
    Chairman Bereuter. Thank you. Are there other Members who 
wish to be recognized for opening statements.
    The gentleman from Connecticut, Mr. Shays, is recognized.
    Mr. Shays. Thank you. Briefly, Mr. Chairman, I believe that 
there needs to be debt relief. I don't know if it should be 100 
percent, but it should be darned closed to it.
    My problem is that we are refinancing loans and extending 
debt so that they can pay debt. And it strikes me that the IMF 
must realize that some of this money simply isn't going to be 
    And I hope we address that.
    Chairman Bereuter. Thank you, Mr. Shays.
    Secretary Schuerch, we're ready to hear your testimony. You 
may proceed as you wish.


    Mr. Schuerch. Chairman Bereuter, Ranking Member Sanders, 
Members of the subcommittee, I thank you for the opportunity to 
testify before you today for the specific authorization 
requirements requiring action today.
    Chairman Bereuter. Would you pull the mike a little closer, 
    Mr. Schuerch. OK.
    Chairman Bereuter. Thank you.
    Mr. Schuerch. Thank you also for already submitting my 
written statement for the record.
    I'll keep my opening remarks brief and allow time for 
questions and discussion, a full discussion.
    There are three authorizing requests, as you have 
reiterated, requiring action this year: a contribution to the 
seventh replenishment to the Asian Development Fund; a 
contribution to the fifth replenishment of the International 
Fund for Agricultural Development; a contribution to complete 
the total U.S. pledge of $600 million to the HIPC trust fund.
    We request the authorizations because they represent 
commitments negotiated by the United States Government that 
should be adhered to and they support United States' interests.
    Secretary O'Neill has said the Administration is working 
hard to ensure that hard-earned U.S. taxpayers' dollars go to 
the multilateral development banks (MDBs) more effectively, 
more efficiently, more accountably, and meet the core objective 
of improving living standards around the world.
    In that regard, you'll see us pushing for more rigorous use 
of results-based performance indicators, improve coordination 
among the institutions both at a country level and ensuring the 
best practice procedures, and better delineation of respective 
roles of the institutions.
    The Administration will strive to focus the banks on a more 
limited set of activities that yield high-impact productivity 
and poverty reduction gains.
    Now that the Treasury Department's undersecretary for 
international affairs, John Taylor, has been confirmed, he'll 
be working closely with the Secretary to develop, implement and 
coordinate the Secretary's international financial institutions 
reform agenda.
    As many of you on the subcommittee are aware, Africa 
presents a tremendous challenge in pursuing an effective, 
efficient, and accountable development agenda. Conflict, 
natural disasters, the plague of infectious disease, lagging 
growth, low productivity, unsustainable debt and unfavorable 
trends in commodity prices are the realities facing the design 
of a credible assistance program for most of Africa.
    But the overall economic picture in sub-Saharan Africa is 
not all bleak. Average growth in the region was an estimated 
3.3 percent in the year 2000, expected to rise to 4.3 percent 
in 2001.
    Those growth rates compare to estimated average growth of 
2.6 percent in the 10 years from 1992 to 2001.
    The main reason for the improvement appears to be the 
continuing pattern of reform in many countries, resulting in 
more flexible exchange rates, better fiscal control, greater 
economic stability, more open and transparent trade and 
investment regimes, and further reduction in the direct 
economic role of governments.
    There are still significant challenges, but the 
Administration is committed to facilitating growth and 
development in Africa.
    President Bush's pledge of a $200 million initial 
contribution for the new global fund to fight HIV/AIDS and the 
African Growth and Opportunity Act are important pillars in our 
partnership with Africa.
    Equally important is the continued U.S. leadership in the 
World Bank and the African Development Bank to shape operations 
and direct the resources to achieve higher productivity, growth 
and reduce poverty in the region.
    Now that Undersecretary Taylor is confirmed, he'll be 
striving to achieve the broad goals already laid out by the 
Secretary, in addition to more detailed policy proposals that 
are currently being developed and are evolving.
    I'm pleased to have the opportunity to hear your views 
today, provide additional background information that I can, 
and to stress the Administration's support for the 
reauthorization request before the subcommittee.
    Before closing, I'd also like to apologize for the written 
testimony's very late arrival.
    Thank you.
    [The prepared statement of Hon. William E. Schuerch can be 
found on page 39 in the appendix.]
    Chairman Bereuter. Thank you, Mr. Secretary. We will now 
proceed under the 5-minute rule.
    Mr. Schuerch, you recently led, or at least were involved, 
I think you perhaps led the delegation at the annual meeting of 
the African Development Bank group. I'd like to know what you 
were looking for in the way of results.
    But in particular, I wonder if you have any kind of an 
assessment as to whether or not the reforms undertaken by Bank 
President Kabbaj have translated into results.
    We've had a poor record overall compared to the other 
funds, but there was some optimism that his leadership would 
result in positive changes in the management of the bank and in 
the use of their resources.
    What can you tell us in the way of early conclusions about 
the recent meeting?
    Mr. Schuerch. Let me directly address the management issues 
that you've raised at the bank.
    First of all, I think we need to recognize that the African 
bank has a different history than the other institutions. It is 
one that was created by the regional countries and existed 
without contribution from developed countries, major developed 
countries for a considerable period of time.
    It got into a situation in the middle 1990s whereby 
management had got to a state where the major developed 
countries were unwilling to continue to contribute and, as you 
know, that resulted in the removal of the president, a modest 
fund program, and then followed up with significant management 
    Mr. Kabbaj was a candidate who came in on a reform agenda. 
He removed most of the upper management of the institution. He 
went through a process that scrubbed the bad loans out of the 
institution, about $2 billion worth of those loans.
    And since that point in time, we have moved forward under a 
new credit policy, one that mirrors the credit policy of the 
World Bank to support the institution both with a general 
capital increase for the bank and with a fund increase.
    We're now in the process of negotiating and at the annual 
meeting, or right after the annual meeting, was the first 
discussion on a new replenishment to be considered for the 
following budget year.
    I think Mr. Kabbaj has been an excellent president of this 
institution. He had done a very strong job of shaking it up, 
setting it on a path.
    I think the biggest criticism that is there is simply the 
starting point. It was a very difficult starting point and it 
takes quite a few years to set an institution on a path in 
terms of internal governance, but then also to move that 
forward into assuring that its programs on a country-by-country 
basis are effective and result in good outcome, development 
    Most of the large development programs take a considerable 
number of years. So, in fact, many of the early ones under his 
presidency are only now kicking in.
    So I think that, in terms of development outcomes, it is 
more of a future result that we're looking for, albeit, one 
that should be starting to kick in now.
    In terms of internal governance, I would say that there 
have been more reforms within this institution than any other 
development institution and honestly, that they were needed.
    I would also tell the subcommittee that he is in the 
process of looking at a reorganization of the institution to 
make it further effective.
    Thank you.
    Chairman Bereuter. Those are optimistic or encouraging 
comments. Making reforms at an institution that had been 
primarily an instrument for distributing money among the 
African country members is not necessarily a popular move.
    To what degree do you think he has gained the support of 
the African members himself? To what extent do the non-regional 
members like the United States need to do more to sustain and 
support and encourage his efforts and make sure that they're 
not reversed by what might be termed as a tendency to continue 
to want to go back to the old system of pork barrel 
distribution, I guess you'd call it?
    Mr. Schuerch. Let me say that in the capital increase for 
the bank itself, in the last cycle, we went after something 
that would assure the donors that we would not have backsliding 
in this institution.
    And in the context of negotiating a capital increase that 
increased the shareholding of the major donors to 40 percent, 
we also achieved agreement on what we refer to as a super-
majority voting structure.
    Basically, any executive director can choose to take 
advantage of a provision that would require a 70-percent vote 
of the board.
    That basically means that regional countries do not have 
the capacity within their own votes to change credit policy or 
push back the major reforms that have occurred.
    So I think we have assurance of this very stable base going 
forward. And, frankly, I think we have less disagreement, more 
cooperation, and more cohesion and unity in this bank than we 
have seen in the past by very substantial margins.
    This president has been very effective in working his board 
of governors, but more importantly, on a daily basis, his board 
of executive directors. And when there are sort of strong 
initial differences, he goes into individual meetings if that's 
    We've seen that happen. We've seen him effective in it.
    So I think we actually have not only a change in the bank, 
but a change in the attitudes from the regional countries.
    We have much less contentiousness in terms of, for example, 
the language of African character of the bank and much more 
joint dedication toward government structures and performance 
    In fact, this bank adopted a performance allocation system 
for its fund very rapidly with strong governance requirements 
within that allocation system.
    Thank you.
    Chairman Bereuter. That's very positive. Thank you very 
much, Mr. Schuerch.
    The gentleman from Vermont is recognized.
    Mr. Sanders. Thank you, Mr. Chairman.
    Mr. Chairman, it is more than appropriate that Members of 
Congress can debate policy and what they believe. But it is not 
acceptable if Congress passes laws, that those laws not be 
implemented by this Administration or any Administration.
    And for Mr. Schuerch's benefit, let me mention that the 
issues I'm going to raise right now, I raised quite as strongly 
several years ago under the Clinton Administration.
    So I wonder if you could help me provide us with some 
    Mr. Schuerch, as you know, legislation was passed requiring 
the Secretary of the Treasury to instruct the United States 
executive director at each international financial institution 
to oppose any loan of these institutions that would require 
user fees or service charges on poor people for primary 
education or primary health care, and so forth, and so forth.
    Mr. Schuerch, to the best of your knowledge, did the World 
Bank approve funding for Tanzania with a provision calling for 
user fees on primary health care and did the U.S. executive 
director do anything to oppose those user fees?
    Mr. Schuerch. First of all, on the broader issue, 
obviously, we're in full agreement on the need to comply with 
legislation as signed into law.
    On the specifics of the Tanzania case, as I understand it, 
the discussion in the bank board was a discussion about the 
poverty reduction strategy paper.
    That document is not a bank document. That document is a 
document that is a new document that we use for countries 
themselves to put together their own plans, nationwide plans 
with a lot of citizen participation for how they want to spend 
resources from a whole wide range of donors and specifically 
also savings under the HIPC program.
    So there was no vote in the World Bank board on a document 
that is owned by the government of Tanzania. There was a 
discussion of that document and I'm told that it does include 
user fees. But it is not a document or vote, because there was 
no vote that directly applies World Bank money.
    The U.S., discovering the user fees, had a discussion, a 
bilateral discussion, with the government of Tanzania, I'm 
told, and raised the questions of the user fees.
    The government told us that they permitted and would exempt 
the poor from the effect of the user fees. And my understanding 
is that within the context of that planned program, the medical 
officers that are involved in making the decisions can, in 
fact, waive those fees.
    Mr. Sanders. We have a couple of problems here. And again, 
this is not certainly just the work of this Administration, but 
previous Administrations as well.
    As I understand it, Mr. Schuerch, you're telling me there 
was no vote. But there very rarely is a vote.
    Isn't that the problem?
    Mr. Schuerch. Not in this case. I mean, I'll get to the 
broader issue of votes and how they do and don't happen.
    But in this case, there was no loan from the bank that was 
directly relevant at this time. There may be one that we will 
see in the future. But what we had was a planning document of 
the government of Tanzania that was created and was being 
    So there was no financial decisionmaking action related to 
a lending activity of the bank.
    Mr. Sanders. Because there was no loan at this point.
    Mr. Schuerch. Yes.
    Mr. Sanders. And will the Administration oppose any loan 
that includes user fees for health care and education?
    Mr. Schuerch. This Administration has the same policy as 
the past Administration and it is consistent with the 
legislation and with this subcommittee's views on user fees.
    The answer is yes.
    Mr. Sanders. The answer is yes. OK. Could maybe you give 
this subcommittee some advice?
    Several years ago, we had the United States executive 
director to the IMF before the subcommittee. And what we 
learned there is, in fact, that despite hundreds and hundreds 
of very important decisions, there were only a handful of 
    Now can you advice this subcommittee as to how they could 
get policy implemented at a time, say, with the IMF, where the 
U.S. has veto power if votes are not, in fact, taken? And 
further advise this subcommittee, if you might, about the issue 
of transparency and openness and what the Administration will 
be doing so that the Congress, the American people, and the 
people of the world will actually have an understanding of the 
kinds of discussion that takes place currently behind closed 
    Chairman Bereuter. The time of the gentleman has expired. 
But you may answer fully.
    Mr. Schuerch. Thank you. I think what I need to say is that 
before explaining the votes issue, there is a long history of 
the U.S. Government pushing for transparency in the 
institutions and there are a lot of specifics.
    I'll give you examples right now.
    We're starting a new International Development Association 
replenishment. Those discussions could be characterized by some 
as private discussions. We've made a new set of decisions. 
Documents that are provided to the IDA deputies at the request 
of the deputies are now on the World Wide Web so the public 
sees precisely what the deputies see.
    A summary of each meeting is made public on the World Wide 
Web as well.
    The draft, penultimate version of the draft donors report 
will go up on the World Wide Web for people to see and comment 
as well.
    I think by any standard, that's extraordinary transparency 
and openness. Comments that are made by the public on those 
documents are summarized and brought to the deputies' attention 
and in a meeting we had in Ethiopia last week, we were told 
there were 400 sets of such comments on the first set of 
documents that were made public.
    So progress is being made, albeit not in every area. We are 
pushing forward on a policy that will encourage significant 
more numbers of policy documents and draft documents and 
country assistance strategies to also be public.
    Let me step back and address the votes issue.
    I think it is a little bit of an oversimplification to say 
that we don't have votes in the institutions. But we certainly 
don't have votes in the nature that you do on the floor of the 
House or the Senate, where you have a tote board that has 
everybody's name and shows their voting on it.
    We take seriously all of the legislative directions that 
exist, and there are now a considerable list of them. I'm sure 
over 20 or more. And in each case, what happens in the board is 
there's a discussion about a particular loan.
    Each chair in that board is able to express their views. 
They don't say yes or no, per se. But it is clear from their 
views as to what their position is pretty much.
    So generally, there are not close votes, if you will.
    What we do in the institutions is we record a United States 
vote, even though no other government is recording a vote. So 
that indicates that we are opposed or an abstention or a pure 
no vote, in those cases where legislation requires it.
    Mr. Sanders. You record a vote when votes are not being 
    Is that what you're saying?
    Mr. Schuerch. When there is a discussion on a loan that we 
have reason to object to because of legislation and for other 
reasons, we request that the record show that the U.S. is 
abstaining or voting no, yes.
    Mr. Sanders. I ask the indulgence of the Chair.
    How often would you say in the last 5 years will the record 
show that the United States has voted no?
    Mr. Schuerch. We give a report to the Congress annually 
that goes down a long list of these.
    I would be shocked if in a 5-year period we're not in the 
several hundred range.
    Mr. Sanders. That you have recorded votes of no on several 
hundred occasions?
    Mr. Schuerch. Over 5 years, yes, I would be sure of that, 
    Chairman Bereuter. Thank you very much. The gentleman from 
Wisconsin, Mr. Green, is recognized.
    Mr. Green. Thank you, Mr. Chairman.
    At the end of May, you led the U.S. delegation to the 
African Development Bank Group annual meeting.
    Could you describe what the objectives were for the 
Administration at that meeting and what progress was made on 
those goals?
    Mr. Schuerch. Let me say that annual meetings are sort of 
interesting events.
    They are, in one sense, business meetings of an 
institution. But in another sense, they are much broader than 
    So we go to such a meeting. Each government has an 
opportunity to give an official statement, a speech, usually 5 
minutes or so, that gives them the opportunity to present a set 
of views.
    There's not a decisionmaking forum at that point in time. 
Most decisions that are discreet decisions are made in the 
boards of executive directors or are made in the context of 
replenishment increases.
    So we went with an agenda to continue to support the 
President's reform efforts in this institution, to continue to 
push it to coordinate particularly well with the other 
institutions. They are working on a further memorandum of 
agreement. It has been agreed to, and it is being worked on 
some more with the World Bank.
    There is also one being discussed with the International 
Fund for Agricultural Development.
    So to encourage them to continue on their reform program, 
to consult with them about their reorganization plans, which I 
think will be voted on the board in later July in the bank, and 
to push on the performance allocation system and on the sort of 
improved development effectiveness issues that are there.
    Mr. Green. You made some reference, as you have elsewhere, 
to the President's reforms at the African Development Bank.
    What tangible results have you seen from those reforms? 
What can we sort of hang our hat on in terms of progress being 
    Mr. Schuerch. You came in a little later. I had mentioned 
that in the process of reforming this institution, he had 
basically removed the upper management of the institution and 
replaced it.
    There has also been a considerable staff change since that 
at lower levels. I also said that they took the portfolio, 
which included significant numbers of problematic loans and 
scrubbed it and closed those loans off to the tune of as much 
as, I think, $2 billion over a several-year period.
    He has been very serious about credit policy and has 
aligned it with World Bank credit policy.
    So we no longer have countries who shouldn't be borrowing 
hard loans, getting hard loans from this institution. We no 
longer have hard-loan countries getting soft loans from this 
institution, as did occur in the past.
    At this point, he has been more focused on internal 
management and not on quality of implementation than probably 
any other president of an institution.
    Mr. Green. Good. Thank you. Thanks, Mr. Chairman.
    Chairman Bereuter. Thank you, Mr. Green. And the Secretary 
also mentioned that a super-majority vote can be required by 
any member, which would then mean that the African members 
could not carry a vote on their own. They'd have to have the 
support of at least some of the non-regional members, as I 
understand it.
    The gentleman from Massachusetts, Mr. Frank, is recognized.
    Mr. Frank. Thank you. Mr. Schuerch, as I understand your 
statement, the position of Secretary O'Neill on behalf of this 
Administration is to be supportive of the HIPC program, as far 
as we have approved it, and to hold off on whether or not to go 
to the 100-percent phase based on, what?
    Mr. Schuerch. I think you're accurately characterizing 
where the Secretary is.
    He's come in. We have a program that has essentially had 
about 18 months since its first appropriation. We have now 23 
countries to decision points. We only have two countries to 
completion points.
    We have significant success with the help of this 
subcommittee and this Full Committee to get full funding last 
year, in particular, and we're moving forward.
    We have a request in front of you.
    Mr. Frank. No, no, Mr. Schuerch. Maybe I was inarticulate.
    Mr. Schuerch. OK.
    Mr. Frank. The question was, what will be the factors that 
will be taken into account by the Secretary in deciding whether 
to support an increase in the amount of debt relief?
    I'm familiar with the history that you're recounting. You 
do it well, but this ain't the History Channel.
    So what will lead to a decision about whether or not to go 
further? What factors will he be looking at?
    Mr. Schuerch. I don't know that I can fully second-guess 
the Secretary's thinking, personally.
    Mr. Frank. OK. That's a good answer.
    Mr. Schuerch. But I think that's probably the fairest 
    I think that as he has focused on implementation, they are 
committed to the existing program.
    Mr. Frank. No. OK. I don't mean to be rude, but we have 5 
minutes and I know what the program is.
    I'll tell you, I'm a little troubled by this and I'm glad 
to hear this affirmation of the existing program, because I 
read of the appointment of Ann Kruger to be the number-two 
official of the IMF. And as is appropriately the case, the U.S. 
Government, in power at a time when such an appointment is 
made, has some influence over it. And it was represented that 
Ms. Kruger was appointed with the support of this 
    I was troubled to read that she had expressed opposition to 
the debt relief program. Now that may have been a misreporting. 
If so, I think it would be useful to clear it up.
    But are you familiar at all with Ms. Kruger's position? Was 
she accurately reported as being opposed to debt relief?
    Can you enlighten me at all on this?
    Mr. Schuerch. I didn't catch that particular article. But 
if one observes closely, there are differences in views among a 
range of officials on a range of issues.
    That's not surprising.
    The President of the United States, however, has expressed 
himself on the HIPC program with full support.
    Mr. Frank. All right. That's reassuring. I would ask you, 
if we could, and maybe you can elaborate in writing, what are 
Ms. Kruger's views.
    If, in fact, it is accurate that she has been opposed to 
this, it would be disturbing to me if the Administration would 
have sponsored her appointment to the number-two position in 
the implementation of this.
    Let me ask you my final question.
    I quoted from a letter that Cardinal Law of Boston has sent 
on behalf of the Catholic Conference to Secretary O'Neill 
advocating that even without any upgrade in the amount of debt 
relief, that we should adopt the principle that Mr. Leach and 
former Senator Mack put forward, that in no case should there 
be a greater than 10 percent of government revenues drained 
from the HIPC countries to debt relief.
    What's your response to that proposal from the Catholic 
    Mr. Schuerch. I've seen the letter and of course it does 
support, as you said earlier, legislation.
    Mr. Frank. Mr. Schuerch, please don't just restate. We only 
have 5 minutes.
    Mr. Schuerch. OK.
    Mr. Frank. I know what the letter said. What do you think 
about the 10-percent proposal?
    Mr. Schuerch. We think it is an artificial trigger. There 
are many poor countries that do not qualify for HIPC that are 
using more than 10 percent of their debt service.
    There are many HIPC IDA countries that you would have to 
expand. Otherwise, there would be questions of fairness. There 
are differences among countries about how much revenue they 
raise out of their populations as well, which directly affects 
essentially the denominator of that equation.
    Mr. Frank. So you can't support a 10-percent limit on some 
poor countries, because that would be unfair to other poor 
countries that aren't getting the benefit of it?
    Can't we kind of level it down instead of leveling up?
    Mr. Schuerch. Yes, there is an equity question among poor 
countries when we've already given deep debt reduction to sets 
of countries that get them well below the average for other 
poor countries on debt service.
    Mr. Frank. Well, but you're comparing the HIPC to the non-
    I presume by putting people in the HIPC countries, we have 
all agreed that this is a separate set of countries and the 
comparisons ought to be made between and among those countries.
    So I would differ with your notion that you decide this by 
looking at the HIPC versus the non-HIPC. We've made a decision 
as to who ought to be in the HIPC. What about within the HIPC 
    Is there some great inequity? If you apply the 10-percent 
limit to all the HIPC countries, how could some of them then be 
treated unfairly? By definition, they wouldn't be paying more 
than 10 percent.
    Mr. Schuerch. Well, we've used three different sets of 
indicators on how to qualify countries for HIPC. And you could 
pick any one of them and you would have quite varied 
performance against that.
    So you can pick 10 percent and if you want to align 
everybody on that basis, you get one result that is different 
than exports and so forth.
    Mr. Frank. Right. And what the Cardinal is suggesting----
    Mr. Schuerch. But we've blended it.
    Mr. Frank. What the Cardinal is suggesting on behalf of the 
conference is that you use multiple criteria, but that in no 
case would it go above 10 percent.
    And again, your comparison of the HIPC to the non-HIPC 
seems to me, frankly, you're looking for a reason to say no to 
it, because we all agree that they're going to be treated, the 
HIPC countries, differently.
    And what he's saying is, yes, use whatever criteria you're 
using, but then put on a kind of a fail-safe--but in no case 
shall it be more than 10 percent of the government's revenues.
    What's the objection to that?
    Mr. Schuerch. The objection is an inequity objection as we 
look across the countries.
    But, no, we have not supported it. That was put forward in 
the course of the legislation last year.
    Mr. Frank. Right.
    Mr. Schuerch. Congress fully considered it and did not 
include it in the final legislation, either.
    Mr. Frank. I understand that. You're very good at stating 
facts as an alternative to opinions, and I appreciate that.
    But the purpose of this hearing is to try and get some 
policy opinions. You say it wouldn't be equitable, but----
    Mr. Schuerch. Well, an example. If you take one country 
that is raising revenue from its people at a significant rate 
and actually does the collection on its tax rates, so it has a 
good revenue flow, you get a very different reaction than one 
who does not.
    Mr. Frank. So that's why you think it might be a 
    Mr. Schuerch. In fact, you end up benefiting the one that 
fails to collect revenue.
    Mr. Frank. So you think this might be a disincentive in 
revenue collection?
    Mr. Schuerch. I'm sorry. I missed that.
    Mr. Frank. Do you think it might be a disincentive with 
regard to revenue collection? That would be a policy argument 
I'd be interested in.
    Mr. Schuerch. I'm not sure I'd argue it that strongly.
    Mr. Frank. All right. I'd appreciate it if you would also 
in writing elaborate on the reasons for rejecting that 
suggestion from the Catholic Conference.
    Mr. Schuerch. We'll come back on the record. In fact, given 
that you've put his letter in the record, if you'd allow us to 
put our response to his letter in the record.
    Mr. Frank. Yes, that's why I put it in. At that point, 
since it is in writing, you can give as long a history as you 
want. That will be OK. As long as you get to the other point as 
    Mr. Schuerch. OK. Thank you.
    [The information referred to can be found on page 43 in the 
    Chairman Bereuter. Thank you, Mr. Frank.
    Mr. Shays has returned and he's on the list. Mr. Shays, 
you're recognized for 5 minutes.
    Mr. Shays. Pass.
    Chairman Bereuter. Well, then, Ms. Capito is gone. And so, 
Mrs. Roukema is next.
    Mrs. Roukema. Pass.
    Chairman Bereuter. And she passes. Mrs. Biggert?
    Mrs. Biggert. Thank you, Mr. Chairman.
    Mr. Secretary, on page 4 of your testimony, you emphasize 
the need for multilateral development banks to focus on 
productivity-led economic growth. And you note that education 
is a necessary complement to growth.
    Can you be specific about what it is that you'd like to see 
the MDBs do different from what they are already doing relative 
to education?
    Mr. Schuerch. I think there's been a fair bit of press on 
this productivity issue. Some have tried to align it or 
contrast it to poverty alleviation. In retrospect, we might 
have written a speech or two slightly differently than they 
were written so that poverty alleviation words were also in the 
    We do not see the conflict between the concepts in any sort 
of extreme way. In Africa, in particular, we're dealing with 
countries that are under $800 per capita. In many cases, under 
$400 per capita, very poor areas.
    If you look at how one is going to raise people out of 
poverty, redistribution is simply not a significant way to 
achieve that result. You have to grow the economy of the 
    There are a fair set of issues about equitable growth that 
do deserve consideration. But fundamentally, you have to get 
growth rates up significantly higher than population rates in 
order to achieve that in Africa.
    Education is clearly one of the identified sort of main 
building blocks of productivity that the Secretary has focused 
on repeatedly.
    Thank you.
    Mrs. Biggert. Could you just be a little more specific in 
the kind of education that you envision?
    Mr. Schuerch. Well, we have always for development 
purposes, I think you'll find the whole development community 
primarily focuses on primary education and women and girls' 
education as the most effective components of where to target 
in discrete resources.
    The other area is obviously, we focused on basic health as 
    Mrs. Biggert. OK. So, then, in practical terms, what would 
an emphasis on productivity mean for future directions of the 
bank and the fund?
    Mr. Schuerch. Well, it is an emphasis on working with the 
core economies to get growth rates up. It does exclude 
investment in social areas. But one has to get an economy 
going. That means open trading regimes. That means floating 
exchange rates. But it also means focusing strongly on 
performance when one puts resources in, as well as the policy 
reform structures that are there.
    Mrs. Biggert. Thank you. Thank you, Mr. Chairman.
    Chairman Bereuter. Thank you.
    The gentlelady from Illinois, Ms. Schakowsky, is 
    Ms. Schakowsky. Thank you, Mr. Chairman. I have a couple of 
    But I just want to say, as a relatively new Member of this 
Congress, it weighs so heavily on me when I realize how little 
money relative to the wealth of this country and the budgets 
that we propose and the tax breaks that we give, how relatively 
little money it would take to address problems that have been 
acknowledged even as security issues, like the AIDS pandemic 
around the globe, and that we have to struggle so hard over 
what are, in fact, minuscule amounts relative to many other 
    Mr. Sanders referred to U.S. law that now requires United 
States executive directors to the international financial 
institutions to oppose any loan that includes user fees.
    Is there any intention by the Administration to delete 
Section 596, which does have that requirement?
    Mr. Schuerch. The appendix of the budget pretty typically 
goes through and strikes, and has for decades, most of the 
insertions that are policy-related in the Congress on various 
provisions. This one, along with, I think, virtually all the 
others in the foreign aid bill, have been struck in the 
    That striking is not reflective of an intent by the 
Administration to change the policy.
    Ms. Schakowsky. Well, can you declare, then, that it is the 
intent of the Administration to maintain that policy?
    Mr. Schuerch. I can declare two things. I cannot declare 
that we will support it being reinserted. But I can declare 
that we intend to support that policy, yes.
    Ms. Schakowsky. So, then----
    Mr. Schuerch. The reason for the two, which seems odd, is 
simply most administrations desire to have flexibility across a 
range of policy issues, so don't support inclusion of broadly 
this kind of directive language.
    But it is not indicative of an intent to change the policy.
    Ms. Schakowsky. And how would that policy be played out 
when there are discussions about user fees, whether or not 
there are votes?
    Does that mean--maybe that question was answered, but I 
didn't quite get it. Are there instructions for our 
representatives to proactively argue against those?
    Mr. Schuerch. We do instructions sort of loan by loan as 
decisions come up that require a vote.
    So there is standing policy instructing executive directors 
that the policy of the United States Government is against the 
imposition of user fees for the poor on basic health and 
education, and we do look at it, when we find strategy papers 
or policy documents, as well as loans, and do directly talk 
with EDs and have them intervene, yes.
    Ms. Schakowsky. Although my understanding in the Tanzania 
case, in fact, there was no effort on the part of the United 
States that we could see to oppose.
    Again, if I'm asking the same question, I'm sorry.
    Mr. Schuerch. Yes, we're covering some of the same ground, 
but very quickly, the discussion in Tanzania was not about a 
loan from the World Bank. It was about a planning document of 
the government of Tanzania.
    So it was not subject to a vote.
    Ms. Schakowsky. No, no, I understand that. I guess I'm 
trying to understand the difference between the spirit and 
perhaps the letter, and if we are serious about trying to have 
a policy for these countries not to impose user fees.
    It seems to me so critical. All the evidence is in that 
when those fees are added, that the access to that particular 
education or health service plummets.
    And so, it would seem if it is part of our furtherance of a 
policy, that we want to make sure that we advocate at every 
moment that we can.
    And so, I understand the differences that you pointed out. 
I'm just trying to understand what people are instructed to do.
    Mr. Schuerch. Let me just have a minute, because not only 
was it raised in the discussions at the bank in this instance, 
but the U.S. directly went to the government of Tanzania to 
have a discussion about this issue, because it was a decision 
of the Tanzanian government to put it in its planning document. 
It was not a World Bank document or imposition.
    The result of that discussion was they pointed out that 
user fees in this particular case were waivable by the medical 
profession for the poor so that the document itself and their 
plans would enable them to proceed in a way that was totally 
consistent with the language of the U.S. law.
    Ms. Schakowsky. And getting back to how the language of the 
law may be changed.
    When you say that you want to maintain, or the 
Administration wants to maintain flexibility, what does that 
mean vis-a-vis user fees if we don't say it--what is so 
binding--not so binding, but what is so limiting in terms of 
applying U.S. policy by including language that says, we're 
against user fees?
    Mr. Schuerch. I spent 15 years working on staff in the 
Congress on appropriations bills and virtually every year, you 
look at the budget appendix and all legislative language on 
policy instructions is struck in the proposed new budget, 
    So there's no difference in what's been proposed that way. 
The Congress has the right, obviously, to reinsert any of that 
language as they choose and often does. But all I'm telling 
    Ms. Schakowsky. Would that be opposed? Would reinsertion of 
that language be opposed by the Administration?
    Mr. Schuerch. I don't know. When we get a document, we'll 
take a look at it. It is not a major focus of the 
Administration. It is not a strong difference in policy here at 
    So I would be surprised if people spend a lot of effort on 
this subject in terms of opposition.
    Ms. Schakowsky. Thank you.
    Mr. Frank. Would the gentlewoman yield?
    Ms. Schakowsky. Yes, I would.
    Mr. Frank. I would appreciate that. I appreciate the spirit 
of that. And if you would send us a list of other parts of the 
President's budget we should feel free to ignore, I would be 
glad to have it.
    Chairman Bereuter. Thank you, Mr. Frank.
    The gentlelady from West Virginia--all right. She's not 
    The gentlewoman from New York, Mrs. Maloney, is recognized.
    Mrs. Maloney. Thank you. Several Members have mentioned 
Secretary O'Neill's call for improved living standards through 
increased productivity as the primary objective of our 
Treasury's work through the MDBs.
    Yet, many of the Members have raised questions and, 
actually, the GAO raised questions as to whether many of these 
countries can realistically expect economic growth, and 
certainly sustained economic growth, because of the large 
amount of debt that they carry, even with the enhanced debt 
relief initiative.
    So I believe that there's an argument that can be made that 
to truly spur economic productivity, as Secretary O'Neill has 
testified that he wants, that we truly need 100 percent debt 
relief to make that happen.
    So he must not be truly sincere about increasing 
productivity, unless you're willing to increase debt relief.
    Mr. Schuerch. That's an interesting argument. But I also 
would observe that countries with the greatest sort of--what 
should I say?--per capita debt, are also those that are most 
    The issue is not debt. It is the effective use of capital 
for development and for growth. You need a return on your 
    The difference between--well, let me put it this way.
    Mrs. Maloney. Isn't it hard to have a return on your 
investment when you have so much debt that you don't have money 
to invest, even the needs that the countries have.
    Mr. Schuerch. The HIPC program, when it is fully 
implemented, has a very deep debt reduction. We have gone 
through years of reduction. We've done bilateral aid reduction 
at 20 percent and 30 percent and 50 percent and 67 percent, and 
then we went into HIPC in 1996 and we started doing debt 
reduction above that level for the multilaterals and for 
bilaterals at 80 percent as well. And now under the enhanced 
program, we're up in the 90 and above.
    The bilateral aid is 100 percent reduction. Literally, 
we're looking at a world where the only remaining debt for some 
of these countries is that portion which has not yet been 
reduced at the bank and the fund, and the other multilaterals.
    So I would suggest to you that if you look at the 
quantities that are being reduced by country by country, and 
we're more than happy to come up and work with your staff on 
that, that you will find the depths of this debt reduction 
quite extraordinary.
    Mrs. Maloney. Thank you.
    Chairman Bereuter. Ms. Carson, we'll recognize you. But 
we're about to start a new round. Do you want to go at this 
    If you're ready, please proceed.
    Ms. Carson. Well, I would appreciate that very much, Mr. 
    Chairman Bereuter. You're recognized.
    Ms. Carson. Thank you very much. And I apologize abundantly 
for my delay. And thank you very much for having this hearing.
    I hope I'm not redundant, given my delay in getting here.
    But I'd like to ask, when the World Bank board discussed 
poverty reduction strategy papers for Tanzania, the staff 
acknowledged the concern of nongovernmental organizations about 
user fees on health care.
    Yet, based on a World Bank staff summary of the board 
meeting, the U.S. representative did not raise the issue of 
health user fees. Nor did she oppose the PRSP for Tanzania as 
required by U.S. law.
    You may have already addressed that. If you have, I 
apologize. But could you give me a brief response?
    Mr. Schuerch. Let me very quickly tell you that U.S. law 
does not require the U.S. to do this on a PSRP. It does require 
the U.S. to respond on user fees and loan instruments.
    A PSRP is a document of the Tanzanian government and it was 
subject to a discussion in the bank. The U.S. Government did 
talk to the Tanzanian government directly about the user fee 
element. We were assured that, in fact, it could be waived and 
would be waived in the medical community for the poorest 
    So, actually, their intent was in compliance with U.S. law.
    But in terms of bank policy, when there is an individual 
loan that comes up, we will have an opportunity to take a close 
look at it and assure that user fees are not being imposed on 
the poor.
    Ms. Carson. OK. Most of the nation is poor, anyway. So that 
would be kind of hard to distinguish between who's poor and who 
isn't, given the high rates of poverty.
    Help me. Did we pass a law last year, an amendment to the 
appropriations bill, that denied America's physicians to 
support user fees?
    Mr. Schuerch. There is an amendment in the appropriations 
bill on user fees that requires that U.S. executive directors 
vote against when they are imposed on the poor, yes.
    Ms. Carson. So it just says we would vote against it if it 
came up.
    Mr. Schuerch. Yes.
    Ms. Carson. So is your department, State Department, 
opposed to user fees, then, in general?
    Mr. Schuerch. I'm sorry. I missed that.
    Ms. Carson. Are you opposed to user fees?
    Mr. Schuerch. Yes. The Administration is fully in agreement 
on that policy with the Congress, yes.
    Ms. Carson. Thank you.
    Thank you, Mr. Chairman.
    Chairman Bereuter. Thank you very much.
    I'd like to begin a second round of questioning. I want to 
go to the HIV/AIDS fund, where the Congress, by an enactment 
last year, directed the Treasury to attempt to negotiate the 
fund to be housed in the World Bank.
    Of course, we can't mandate that, but our direction was to 
negotiate in that direction.
    One of my concerns is that a decision could be made that 
the fund be housed and managed by the United Nations. I don't 
think they have the capacity to adequately do that in a timely 
    Now what the legislation proposed is that it would have a 
separate board of donors, which of course would include the 
United Nations or its affiliates and the other major national 
    The G-8 meeting is coming up soon in July in Genoa, where I 
think the final decision will be made on that issue. My 
understanding is that the Administration has not decided at 
least what they will push for in that respect.
    But I would like to urge that regardless of what the United 
Nations' involvement may be, that the World Bank be the 
delivery instrument.
    I think it is essential that the funds flow no later than 6 
months after the Genoa meeting. If we have a long delay, we are 
dramatically reducing the ability to do good with the funds 
that would be provided by the various donors.
    So my hope is that you'll take this message back from this 
Member and I will try to solicit bipartisan support urging the 
Administration to push hard for the delivery mechanism to be 
the World Bank, regardless of how the donor board is 
    Is there any clarification you'd like for me or anything 
you'd like to comment upon?
    Mr. Schuerch. I'd like to comment. One, I'll assure you 
that we will certainly take the message back, clearly. And also 
the message that you bring from your colleagues on the subject.
    I would say it is complex, a more complex problem and issue 
than one sort of immediately thinks on the surface.
    We've been dealing in an international context with the 
views of a range of U.N. institutions and officials, as well as 
a range of G-8 countries and government officials and 
differences within countries as well.
    Obviously, the G-8, in terms of where we deal, is financial 
ministries and treasuries. Development ministries don't have 
the same sort of say in that process. Development ministries 
and foreign ministries have a greater say in the U.N. process.
    But we've heard your message. I would say there's a 
discussion about sort of policy control versus sort of the 
fiduciary role of handling the resources and vouchering and so 
on and so forth.
    I think when we're done, it is clear in my mind that we 
will have a board that is making independent decisions. There 
are discussions about how strongly medical doctors and 
technicians and professionals in the medical field will be 
vetting proposals and making those decisions. And the U.S. 
feels strongly on that respect.
    Chairman Bereuter. The donor board is a complicated issue 
and we need the best expertise we can generate there.
    But I am really more concerned about the delivery 
mechanism, because I think the delivery mechanism is existent 
in the World Bank.
    And if we didn't use it, we'd be probably not using a 
resource that we really need to consider. And we will also 
provide this advice to the State Department as well, of course, 
because you point out that the foreign ministers or the 
Secretary of State will have a significant role in this at the 
    Mr. Schuerch. Let me be clear about your communication, 
because it's actually important to the issue.
    When you say that as a delivery mechanism, do you mean that 
you desire the financing for the trust fund, in fact, to go 
through World Bank loan processes as opposed to simply the 
World Bank acting as the fiduciary agent to, in fact, handle 
all the money and resources to do that job?
    They're quite different things.
    Chairman Bereuter. It's the latter.
    Mr. Schuerch. Thank you. OK.
    Chairman Bereuter. I'd like to move to Asia. The U.S. 
currently has arrearage of $128 million to the Asian 
Development Fund.
    How do the arrearages accumulate? And what effect does that 
have on our influence on the operations of the fund? I know 
I've pretty much exhausted my time here, but please proceed if 
you care to respond.
    Mr. Schuerch. Let me say, it is a question that I sort of 
lose on either answer.
    Arrears are important. And we've spent much of the last 5 
years in dealing with the banks, reducing U.S. arrears from a 
billion and a half dollars down to about $335 million 2 years 
ago and then losing ground the last 2 years.
    Five years ago, our arrears in the Asian bank were about 
$350 million. Today, they're about $128 million.
    There's no question that having arrears hurts influence. 
And there's no question you can get to critical levels in that 
    When I first took this job in IDA, the U.S. had a full 
year's worth of arrears and IDA 11 was affected. And you 
couldn't have a policy discussion, because the entire 
discussion in the international arena was, would the U.S. pay 
out that IDA?
    We are not important as it is to clear arrears at that 
level of critical situation in the Asian bank. We have 
substantial influence. We've been very effective in that 
regard. But I don't want to leave the impression in the context 
of being sort of equal shareholders with the Japanese that it 
isn't critical we live up to the commitments we've made.
    It is absolutely critical and the resources are needed for 
the poorest application to the fund for the poorest people in 
the region.
    Thank you.
    Chairman Bereuter. Mr. Sanders, I'm going to ask for your 
indulgence for just one follow-up question here, and to the 
minority as well as Ms. Biggert.
    Why did the Administration not request authorization to pay 
the arrears for the Asian Development Fund?
    Mr. Schuerch. The arrears are fully authorized. We did not 
request an appropriation this year for any of arrears.
    Chairman Bereuter. I see. Let me redirect the question, 
    Why did the Administration not request appropriations?
    Mr. Schuerch. I think it was a matter of coming in in the 
first year, taking a look at a broad budget envelope and 
picture, and deciding that it was inherently important that the 
U.S. live up to the commitments it has made internationally. 
And that was focused on primarily the annual commitments that 
had been made.
    To some degree, the existing arrears were viewed as an 
existing situation carrying in from a prior administration. And 
arrears in every case have been requested by the Executive 
    So that there's a sense that the causes of lack of 
financing coming through the budget process.
    I think it is best for me to say that it has been a policy 
that--Treasury is very much aware of the arrears and very much 
aware that in the context of looking at the next budget and the 
following budgets, that we have to face up to the arrears 
situation. And that means working on a clearance plan.
    We'll be doing that process during the fall, working into 
the next budget.
    Chairman Bereuter. Thank you very much. I thank my 
    The gentleman from Vermont is recognized.
    Mr. Sanders. Thank you. Thank you, Mr. Chairman.
    Two questions. One, a general question on the IMF and the 
other a question about AIDS and the pharmaceutical industry.
    Mr. Schuerch, there are many economists and many Members of 
Congress who think that in many ways, basic IMF policy of 
austerity measures, forcing countries to open up their 
economies, forcing cutbacks in education, health care, 
nutrition, has had a disastrous impact on low-income people 
throughout the world and has primarily benefited the wealthy 
and the powerful and multinational corporations.
    Russia is an example which some people say is an 
ahistorical situation where never before in history has a 
first-world country descended into third-world poverty under 
the guidance of the IMF.
    The support of the IMF for dictators like Suharto and 
dictators in Africa who did terrible things to their own people 
and left with huge debts that these people now have to pay out, 
is another example of some of the failed policies of the IMF.
    Given the fact that throughout the world, IMF policy has 
often resulted in a lowering of the standard of living of poor 
people, while the wealthy in those countries and multinational 
corporations have done well.
    Is the Administration giving any thought to rethinking some 
of the basic tenets of IMF policy?
    Mr. Schuerch. I wouldn't want to leave anyone with the 
impression that the Administration shared your views on the 
subject of the history of the contribution of the bank and the 
fund to development since the war.
    Mr. Sanders. Well, why don't you tell me? Do you think the 
IMF has done a pretty good job for the poor people around the 
    Mr. Schuerch. I think that if you look at the range of 
developing countries and you look at the range of countries 
that are far better off today than they were before, that one 
can find in the last 50 years there's greater growth in the 
world in a whole range of countries than has ever occurred 
before in the history of the country, including in Africa and 
other locations, yes.
    Mr. Sanders. You use the word growth. That wasn't what I 
asked you.
    I asked you about what happens to poor people who, in fact, 
are generally the bulk of the population in those countries.
    You could have growth and the rich could make out like 
bandits. You've got an increase in hunger and economic misery.
    So growth was not the question. My question was----
    Mr. Schuerch. Well----
    Mr. Sanders. Excuse me. My question was, IMF policy 
regarding the poor people in Africa, Asia and Latin America.
    Are you going to tell me that you think that those policies 
have basically been a success?
    Mr. Schuerch. I will tell you that life expectancy in 
Africa has increased, prior to the HIV/AIDS crisis, by probably 
15 or 20 years over the last 50 years. That's an overstatement. 
But there have been a substantial improvement in life 
expectancy in Africa.
    If you look at the social statistics as opposed to 
financial statistics, you will find a better picture actually 
prior to HIV/AIDS than you might think, yes.
    Mr. Sanders. So your basic conclusion in general is that 
you think that IMF has done pretty well by poor people around 
the world?
    Mr. Schuerch. I don't think that the IMF can be used as 
sort of the whipping boy for everything that hasn't happened 
that we wish would have happened better around the world, nor 
the World Bank, either.
    Mr. Sanders. OK. My second question deals with the 
pharmaceutical industry.
    As you know, there has been a lot of controversy about the 
role of the pharmaceutical industry in dealing with the AIDS 
crisis in Africa and elsewhere in the sense that, for many very 
poor people, the kinds of prices that the pharmaceutical 
industry charges to deal with AIDS is prohibitive.
    What is the Administration's thoughts about how we can get 
the pharmaceutical industry to substantially lower the prices 
in Third World countries?
    Mr. Schuerch. I think the Administration welcomes the 
actions that the pharmaceutical industries have been taking in 
reducing price.
    I think I want to probably stop there on the subject.
    Mr. Sanders. Well, as a result of massive public pressure 
in countries like South Africa, the pharmaceutical industry has 
made some concessions. We will see how they play out.
    My question is that's what the people in South Africa have 
demanded. What about the United States Government?
    What are we demanding?
    Mr. Schuerch. I don't know what has happened in terms of 
private conversations with pharmaceutical industries. I am 
unaware of a public policy of the U.S. Government that would 
have consistent demands of that nature.
    We have watched public pressure move pharmaceutical 
companies to reduce prices on HIV/AIDS drugs and it is broadly 
across Africa, but it is a very significant change in prices. 
That is a welcome change at this point in time.
    But as a matter of U.S. Government policy, we have, to my 
knowledge, not been demanding that change.
    Mr. Sanders. I would appreciate if you could write to me. 
It is one thing when the people of Africa stand up and demand 
lower prices and the industry responds to that.
    But I think the United States Government should be joining 
the people of Africa and elsewhere in demanding lower prices.
    I would appreciate it if you could write to me what the 
official policy of the Administration is regarding the 
pharmaceutical industry and how they're going to respond to the 
AIDS crisis.
    Thank you very much.
    Mr. Schuerch. Thank you.
    Chairman Bereuter. Mr. Sanders, would you like that 
response in the record?
    Mr. Sanders. Yes.
    Chairman Bereuter. We'll ask unanimous consent that the 
Treasury response to this question and to the letter presented 
by Mr. Frank be a part of the record when their responses 
    The gentlelady from Illinois, Ms. Schakowsky, is 
    Ms. Schakowsky. Thank you, Mr. Chairman.
    I wanted to follow up a bit on the AIDS issue and get to 
what, in fact, has been U.S. policy. I wanted to check and see 
if it still is U.S. policy.
    The Executive Order, I think, is still--or if there is 
another one or whatever--that deals with supporting compulsory 
licensing and parallel importing of drugs.
    That is, the United States not standing in the way of 
countries that would choose to either manufacture or shop the 
world market for lower-cost AIDS drugs.
    Is that still the policy of our Government?
    Mr. Schuerch. I'm not sure I can answer completely. I'm not 
aware of a change in an executive order in this area. 
Certainly, sort of open price competition has always been the 
policy of the Government in this regard on drugs.
    But I'd have to give you something more accurate for the 
record, I think, on this.
    Ms. Schakowsky. OK. The United States has forgiven the HIPC 
debt owed to it bilaterally. But the HIPC countries owe 
billions more to most of the world. It's about a $14 billion 
face value. And of course, that is the money that we're talking 
about that could go to anti-poverty measures, including 
fighting the AIDS pandemic and education.
    Do we have a posture of trying to convince the rest of the 
world, our allies, to forgive any debt, forgive that debt?
    Mr. Schuerch. I'm not sure how the $14 billion figure works 
particularly. But let me say, the HIPC program is fundamentally 
a multilateral program where all the major donor countries have 
worked together, the G-7 has worked together. It started with a 
lot of U.S. leadership and then agreement of the G-7 and the 
Cologne Summit.
    So, basically, we have a situation where the major donors--
France, Germany, Japan, Italy, U.K.--are all reducing bilateral 
debt as the U.S. is reducing bilateral debt.
    There is some difference among them on whether they're 
doing 100-percent debt reduction above and beyond what's 
necessary for meeting the HIPC criteria. But overwhelmingly, 
it's a joint effort and, frankly, the U.S. has had an 
advantaged position in the sense that it has less exposure to a 
lot of the HIPC countries, because its' aid programs moved to 
grant programs many years earlier than some of the Europeans.
    But, yes. We have used it on what we call a burden-shared 
basis to include not only other governments, but well beyond 
the mean multilateral development banks and the IMF, to a list 
of 20 or so smaller subregional multilateral organizations as 
    Ms. Schakowsky. When Secretary O'Neill was here, and I only 
saw part of that, and I don't have that testimony in front of 
me, as I recall, he said things about HIPC country debt that, 
something like, we didn't force them to take it, and he talked 
about moral hazard.
    How would you characterize our attitude in general about 
multilateral debt reduction? Or at least the Secretary's 
position on it.
    Mr. Schuerch. I'm not sure precisely what he said about 
multilateral debt in that hearing.
    I was here. There was in the hearing a fair bit of 
miscommunication, I would say, on sort of the numbers of debt 
reduction vis-a-vis certain proposals that are out in public 
and whether it is 22 countries or 41 countries or 36 countries 
or 32 countries, and there was a fair bit of that back and 
    Ms. Schakowsky. That's why I'm really more interested in 
getting how you would characterize our policy in general toward 
debt reduction.
    Are we looking toward moving toward 100 percent debt 
reduction? Do we think that's unwise?
    Mr. Schuerch. What we're doing at the moment as a matter of 
policy is fully committed to the existing enhanced HIPC 
initiative and fully committed to getting it implemented in a 
quality way so that we have both the reduction and the economic 
reform components of it.
    It is actually pretty much of 3-year program. We have money 
requested this year that we'll be fighting for in the budget 
process and that we're asking for a component for 
    So it is really a focus on implementation.
    The question of whether one moves further is a question 
that's a reasonable policy question to take a look at it, and 
we'll have to do that as we go forward.
    I would not project a decision one way or another on that 
particularly. I think there are a lot of concerns about it. 
There are many people who have expressed support for it. But we 
have not, to my knowledge, gone on the record formally against 
or for at this point in time, other than to say, we would hate 
to have a move to 100 percent get in the way of actually 
implementing what we have at the moment and we're trying to 
implement, which is very deep and substantial debt reduction 
for the same countries.
    Ms. Schakowsky. Thank you. Thank you, Mr. Chairman.
    Chairman Bereuter. Mr. Secretary, thank you very much for 
your testimony today. I think we've made some progress. And we 
look forward to your responses into subject issues that have 
been brought up by two Members.
    I think it's a good start today to learn more about the 
Administration's initiatives.
    I appreciate the clarification on several issues. For 
example, with respect to the issue related to Tanzania and what 
happened there.
    Mr. Schuerch. Thank you very much. I appreciate the 
    Chairman Bereuter. Do you have any final comments?
    Mr. Schuerch. No. Not broadly, other than I think, one, we 
need to recognize and thank this subcommittee and the broader 
Full Committee for their role both in HIPC and in pushing 
pressures publicly to move forward on the HIV/AIDS initiative 
as well.
    It has really been a shared experience and a positive one.
    Chairman Bereuter. Thank you very much. We'll close on that 
    The hearing is adjourned.
    [Whereupon, at 3:30 p.m., the hearing was adjourned.]
                            A P P E N D I X

                             June 12, 2001