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



 
                      REAUTHORIZATION REQUESTS ON


                U.S. PARTICIPATION IN THE INTERNATIONAL


                    DEVELOPMENT ASSOCIATION AND THE


                        AFRICAN DEVELOPMENT BANK

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

                                HEARINGS

                               BEFORE THE

                            SUBCOMMITTEE ON
                INTERNATIONAL MONETARY POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           JULY 19, 25, 2002

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 107-78








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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    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
STEVEN C. LaTOURETTE, Ohio           JANICE D. SCHAKOWSKY, Illinois
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         
SHELLEY MOORE CAPITO, West Virginia  BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio
             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
CHRISTOPHER SHAYS, Connecticut       CAROLYN B. MALONEY, New York
GARY G. MILLER, California           LUIS V. GUTIERREZ, Illinois
SHELLEY MOORE CAPITO, West Virginia  KEN BENTSEN, Texas
MIKE FERGUSON, New Jersey





                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearings held on:
    July 19, 2002................................................     1
    July 25, 2002................................................    47
Appendixes:
    July 19, 2002................................................    79
    July 25, 2002................................................   125

                               WITNESSES
                         Friday, July 19, 2002

Beckmann, Rev. David, President, Bread For The World.............    14
Lee, Thea, Assistant Director for International Economics, AFL-
  CIO Public Policy Department...................................    21
Offenheiser, Raymond C., President, Oxfam America................    17
Orr, James, Executive Director, The Bretton Woods Committee......    12

                                APPENDIX

Prepared statements:
    Bereuter, Hon. Doug..........................................    80
    Oxley, Hon. Michael G........................................    84
    LaFalce, Hon. John J.........................................    85
    Sanders, Hon. Bernard........................................    88
    Beckmann, David..............................................    93
    Lee, Thea....................................................    98
    Offenheiser, Raymond C.......................................   103
    Orr, James...................................................   112

                                WITNESS
                        Thursday, July 25, 2002

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

                                APPENDIX

Prepared statements:
    Bereuter, Hon. Doug..........................................   126
    Oxley, Hon. Michael G........................................   131
    LaFalce, Hon. John J.........................................   132
    Sanders, Hon. Bernard........................................   135
    Waters, Hon. Maxine..........................................   139
    Taylor, Hon. John............................................   141

              Additional Material Submitted for the Record

Bereuter, Hon. Doug:
Authorization Request for the African Development Bank...........   147
Authorization Request for the International Development 
  Association....................................................   150
Schakowsky, Hon. Janice D.:
``Leasing the Rain'' The New Yorker, April 8, 2002...............   153


                      REAUTHORIZATION REQUESTS ON



                U.S. PARTICIPATION IN THE INTERNATIONAL



                   DEVELOPMENT ASSOCIATION AND THE



                        AFRICAN DEVELOPMENT BANK

                              ----------                              


                         Friday, July 19, 2002

             U.S. House of Representatives,
            Subcommittee on International Monetary 
                                  Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee pursuant to notice, at 9:35 a.m. in Room 
2128, Rayburn House Office Building, Hon. Doug Bereuter, 
[chairman of the subcommittee] presiding.
    Present: Representatives Bereuter, LaFalce, Frank, Waters, 
Bentsen, Sherman, and Sanders.
    Chairman Bereuter. The subcommittee will come to order. The 
Subcommittee on International Monetary Policy and Trade meets 
today in open session to examine the International Development 
Association, IDA.
    I will divert a little bit from my prepared remarks because 
I need to convey that yesterday the administration did forward 
their request for the authorization with draft legislation. And 
it provides for--and I have seen it about 15 minutes ago--it 
provides for an authorization appropriation of $2,850,000 for 
the United States' contribution replenishment. The draft 
legislation is itself only 16 lines long and it asks for that 
authorization without fiscal year limitations.
    I would like to read briefly from the letter of transmittal 
to the Speaker, who they asked to lay the draft bill before the 
House of Representatives. And it is conveyed to us by the 
general counsel of the Department of Treasury. I quote:
    ``The U.S. leadership''--``with U.S. leadership, the 13th 
replenishment will carry two hallmark reforms. The first is the 
expansion of grants in IDA. For the first time in history, IDA 
will be given authority to significantly expand its grant 
program beyond the small post-conflict program it has in place. 
Consistent with congressional desires, the administration was 
able to negotiate an IDA agreement where over the next three 
years roughly one-fifth of IDA's resources will be made 
available to the poorest countries in grant form for key 
sectors, such as education, health, water, and sanitation, and 
HIV/AIDs. In addition, grants will be provided for post-
conflict situations, natural disaster recovery for the poorest 
countries most vulnerable to external shocks.
    The second major reform is the establishment of a monitored 
evaluation system that measures IDA borrowing countries 
progress against a set of key development indicators. The 
measurement system serves two important functions to provide 
development effectiveness and accountability function to better 
position the institution to receive and demonstrate more 
precise results from the resources invested and a learning 
function to improve project design and to direct resources to 
what works.
    In recognition of the importance of this initiative, the 
U.S. will condition a portion of its assistance, $100 million 
during the second year, and $200 million during the third year 
of the replenishment period on satisfactory progress toward 
select high-development impact objectives in areas such as 
health, education, and private sector development.''
    So the hearing today is the second in a series of three 
hearings on the subject of World Bank IDA. Previously, on May 
2, 2002, the subcommittee heard testimony from the General 
Accounting Office on the subject of converting World Bank IDA 
loans to grants.
    Today we will hear from a distinguished panel of private 
sector and non-governmental organization witnesses that I will 
introduce in a few minutes. Subsequently, on July 25th, the 
subcommittee is expected to hear testimony from Under Secretary 
John Taylor of the Treasury Department on the pending 
administration request for the multilateral development 
institutions. Actually, I am particularly pleased to have this 
panel first that we can use your comments and suggestions and 
consider them when we have our question period with the 
Treasury representative, Mr. Taylor.
    I am going to ask unanimous consent to extend my remarks 
and put the full statement in the record in a few minutes. I 
would say with respect however to the loan and grants debate, 
in July 2001, President Bush proposed that the World Bank and 
other multilateral development banks replace up to 50 percent 
of future lending to the world's poorest countries with grants. 
According to the GAO report, which was co-requested by the 
Honorable Jesse Helms, Ranking Member of the Senate Foreign 
Relations Committee, and myself, conversion of half of all IDA 
loans to grants would cost donor countries approximately $15.6 
billion in present value terms. The amount could be financed, 
they go on to say, if donor countries increased their IDA 
contributions by 1.6 percent for each of the next 40 years. The 
GAO also found that 50 percent grants would promote debt 
sustainability better than 100 percent debt forgiveness of old 
multilateral debt. According to GAO, this is largely because 
despite any one time full debt forgiveness, poor countries 
would continue to accrue new debt that would quickly become 
unsustainable.
    The administration's loan to grant proposal has been 
controversial among some IDA donors in borrowing countries. The 
British and Germans, for example, are concerned that the loss 
of loans re-flows would hurt the long-term viability of the IDA 
program without significant new commitments from donors.
    Similarly, Europeans more generally fear that the 
distribution of grants would create an unhealthy dependence on 
foreign aid and hinder the development of international credit 
worthiness. And poor countries fear grants would give the World 
Bank increased clout, which they could use to extract 
additional concessions from the borrowers.
    But in June of 2002, this month, IDA donors did agree to a 
complex plan that would ultimately result in converting 18 
percent to 21 percent of future IDA loans to grants. Under this 
plan, IDA-only countries will receive 100 percent of their 
assistance for HIV/AIDS projects in the form of grants and all 
IDA assistance for natural disasters reconstruction will be on 
grant terms.
    Further, post-conflict countries and debt vulnerable 
countries with a per capita income of less than one dollar per 
day will receive 40 percent of their assistance on grant terms 
separate from and in addition to the HIV/AIDS or natural 
disaster fund. All other countries with a per capita income of 
less than one dollar per day will receive 23 percent of their 
assistance in the form of grants, again separate from and in 
addition to the HIV/AIDS and natural disaster funds.
    There is general agreement among the donor countries that 
the grant money will be focused heavily in health, education, 
water supply, and sanitation projects. And then, of course, 
there is a substantial focus on performance funds but in order 
to expedite our consideration today and before I introduce the 
panel, I would like to recognize the distinguished gentleman 
from Vermont, the Ranking Minority Member for any comments that 
he might have in an opening statement.
    Mr. Sanders?
    [The prepared statement of Hon. Doug Bereuter can be found 
on page 80 in the appendix.]
    Mr. Sanders. Thank you very much, Mr. Chairman, and thank 
you for holding this very important hearing. And we thank our 
guests, distinguished guests for being with us today.
    As we all know, the International Development Association, 
the poor country lending arm of the World Bank, is up for 
reauthorization this year, and I look forward to working you 
and the committee on this legislation.
    The World Bank was originally set up to end global poverty. 
Unfortunately, many economists, labor unions, NGOs, religious 
groups, and others have strong concerns that the policies of 
the World Bank, which often support unfettered free trade, 
privatization, and slashing social safety nets of countries in 
order to balance their budgets, have contributed to increasing 
global poverty, not lessening it.
    Mr. Chairman, it is my view that the United States and the 
other wealthy nations of this world must radically change their 
attitude and policies toward the developing countries. It is 
neither moral nor in the long-term best interest of the United 
States that millions of poor people around the world lack 
health care and medicine and die from preventable diseases. It 
is neither moral nor in the long- term best interest of our 
country that large sections of humanity are unable to find 
clean water to drink or schools that can teach children how to 
read or write.
    Ultimately, in my view, a global situation in which a few 
countries have enormous wealth while a billion people live on 
less than a dollar day is not sustainable. Public policies that 
enable huge, multi-national corporations to exploit and control 
the poor of the world cannot be allowed to continue. 
International financial organizations controlled by wealthy 
nations cannot be allowed to undermine democracy and the 
interests of indigenous people.
    Here are just a few facts. According to the president of 
the World Bank, James Wolfensohn, ``Global poverty is getting 
worse. Some 1.2 billion people now live in extreme poverty.'' 
In 1990, the world's poorest 400 million people lived on an 
average of just 78 cents a day or less, which represents an 
actual reduction in living standards from 1990. At the same 
time, the world's 200 richest people have doubled their wealth 
in the last four years.
    According to former chief World Bank economist Joseph 
Stiglitz, ``Although world income increased 2.5 percent a year 
in the 1990's, an additional 100 million people fell below the 
poverty line. A growing divide between the have's and have-nots 
has left increasing numbers in the Third World in dire poverty, 
living on less than a dollar a day.'' According to a recent 
study by the United Nations, more than 100 million people in 
the world's poorest countries will be dragged below the basic 
subsistence level of a dollar a day by 2015 due to 
globalization.
    However, the UN study concluded that if countries were 
allowed to abandon the economic adjustment programs they were 
forced to adopt in the 1990's by the IMF and the World Bank and 
instituted other reforms, widespread poverty in the least 
developed countries could be cut by two-thirds over the next 15 
years.
    Importantly, even the World Bank has admitted to its 
failure to reduce poverty in Africa. According to an April 22, 
2002 front page story in The Washington Post, ``Forty countries 
south of the Sahara have over the past two decades adopted the 
free market reforms, structural adjustment programs, and 
development jargon prescribed by such lenders as the World Bank 
and International Monetary Fund but in the generation since 
independence, Sub-Sahara and Africa has never been so poor. 
Since Zambia's leaders embraced free market policies in the 
1990's, the countries manufacturing base has been eviscerated, 
leaving the government buried in more debt than it can repay 
and gradually replacing a full-time workforce with a growing 
and formal economy that offers low wages, no benefits, and no 
job security. World Bank officials acknowledge the collapse of 
Zambia's textile industry is an unintended and regrettable 
consequence of the free market policies promoted by the 
organization.''
    According to Foreign Policy in Focus, ``The policies 
dictated by the World Bank and IMF exacerbated poverty, 
providing fertile ground for the spread of HIV/AIDS and other 
infectious disease. Cut-backs in health budgets and 
privatization of health services eroded previous advances in 
health care and weakened the capacity of African governments to 
cope with the growing health crisis. Consequently, during the 
past two decades, the life expectancy of Africans has dropped 
by 15 years.''
    It is my strong belief that while the current process 
involved in the global economy may be working for multi-
national corporations, in many instances they are not working 
for the poorest people around the world and in many instances 
are not working for the middle class and lower income families 
in the United States.
    Obviously, there are a lot of issues to be talked about. 
But I think the events, Mr. Chairman, of the last number of 
months where we have learned about the lying of some major 
corporations, their concern only about the stock options and 
the huge compensation packages of the people who head those 
companies might suggest to us that some of the policies being 
advocated by these people for the global economy may really not 
be of value to the poor people of the world or in fact the 
working people of this country.
    There is a lot to be discussed, but I think we have to do a 
lot of fundamental rethinking about the direction and policies 
of the World Bank.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Bernard Sanders can be 
found on page 88 in the appendix.]
    Chairman Bereuter. Thank you, Mr. Sanders. Under the 
circumstances under which this subcommittee meets today, other 
members are entitled to up to five minutes. And I would 
recognize first the distinguished Ranking Member of the full 
committee, Mr. LaFalce, if he has an opening statement.
    Mr. LaFalce. I thank the Chair. I am very, very pleased by 
the outstanding panel that you have assembled this morning. 
Each of the organizations represented has played a critical 
role in the effort to alleviate poverty and bring prosperity to 
the developing world. Oxfam through its direct humanitarian 
education; Bread for the World through grassroots activism to 
fight global hunger and poverty; the AFL-CIO through their 
promotion of worker rights in all countries; and Bretton Woods 
through its advocacy role in support of the World Bank and the 
other multilateral institutions that serve as our primary 
tools, as they should be our primary tools for development 
policy.
    Let me just say a personal note. Mr. Orr of Bretton Woods, 
I remember so fondly when you were a staff assistant on this 
committee in the 1970's and sorry that I couldn't make that 
recent speech before the Bretton Woods gathering but there were 
a few votes, as I recall, I will try to make up for it.
    David Beckmann, Bread for the World has just been 
tremendous under your leadership. And I remember most fondly 
working in 1999 with Jim Leach, you, and Oxfam in the Year of 
the Jubilee 2000 in bringing about what I never thought we 
would be able to bring about, real debt relief. Not that we are 
finished but we got 10 times more than I ever thought we were 
going to and it was because of Bread for the World and Oxfam. 
And so it is great having you with us.
    And Thea Lee, if there is any hope for bringing all the 
people of the world up, I think it is going to be through a 
much stronger unionization effort. I think that is an 
imperative. I think that is one of the difficulties we have had 
in the United States, the number of unionized people has gone 
down. And as we have a global economy, either we are going to 
bring the rest of the world up or they are going to bring us 
down. And our job, working with you, is to bring the rest of 
the world up.
    And I know you emphasize international labor efforts, and I 
remember so many things we worked on but most especially the 
time when you and John Sweeney and I met with the Vatican's 
representative in Seattle pushing for a papal encyclical on 
that very subject. So I could talk so much more. I have got a 
bill this year with Chris Smith that I think is very, very 
important but for the sake of brevity--I don't think I can say 
for the sake of brevity--for the sake of not going too long, I 
better just submit the rest of my testimony for the record.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. John J. LaFalce can be 
found on page 85 in the appendix.]
    Chairman Bereuter. Without objection, all members' 
additional statements will be made a part of the record.
    Chairman Bereuter. Mr. Frank, I know you have got a crucial 
conference beginning this morning, House/Senate conference and 
you indicated you probably won't be able to stay for all of 
this, so as I recognize you, you may want to leave a question 
or two for the panel to address. And I recognize you.
    Mr. Frank. Thank you, Mr. Chairman. The Ranking Member and 
I both will be going at 10:30 to the conference on corporate 
accountability. So I appreciate that. And my staff aide, Mr. 
McGlinchey, will be here to hear the answer. And I will take 
advantage of that.
    First, I want to join in what my colleague from New York 
has just said. I do not think there is a more important moral 
question before us and probably not one that is more difficult 
intellectually than figuring out how to make sure that 
globalization goes forward in a socially responsible manner.
    We are faced internationally with exactly the challenge 
that this country faced 70 years ago when Franklin Roosevelt 
was elected president, namely, how do you get the maximum 
wealth-generating impact of a capitalist system while 
mitigating its inevitable effects to promote inequality and to 
give people perverse incentives? We worked that out within in 
the United States.
    The main reason for much of the New Deal was to put on a 
national level policies that would mean that you did not have 
states engaging in a race to the bottom in competing with each 
other to do too little. That is what we have to try to 
replicate internationally. It is of course much, much harder 
given the greater disparity by far in real conditions and given 
the absence of a unified sovereignty but that has to be the 
goal.
    IDA obviously plays a very important role in that. Now one 
of the questions I would ask is this and that is to a great 
extent it seems to me the debate over grants versus loans is an 
artificial one that could easily be resolved, and I would ask 
this of Secretary of the Treasury O'Neill, who had indicated 
support earlier, if we the United States would simply pledge 
that to the extent a policy of going to 100 percent grants 
generated some shortfalls in what we would otherwise would have 
had we will make it up.
    The numbers, as the chairman and others have produced, have 
had produced in reports are very small. So I must say the other 
arguments against loans seem to me to be insubstantial. The 
notion of ownership, telling poor people that they can show 
ownership by owing you money is unpersuasive to me that this is 
a good thing. I think that the case for grants is clearly 
there. The only problem is the re-flows and we can take care of 
that.
    I would ask the panel in my absence, if we don't get there, 
to comment. There is a proposal pending, and I have talked to 
George Soros about it and others, for us to act on I think five 
year old decision now to increase the SDR allocation at the 
IMF.
    Now this subcommittee has jurisdiction over that. It is not 
the topic of today's hearing but it is a relevant one. It is 
poverty alleviation. And I must say it seems to me that a 
decision to act on that agreement of five years ago and 
allocate those SDRs, allocate our share, has a lot of good 
sides and no bad sides. And I would be interested in your 
opinion as to whether or not that is something we ought to be 
doing. I think that could be very helpful. And, again, I want 
to say people tend to say, well, wait a minute new SDRs or debt 
forgiveness or going to grants, people tend to compare them. I 
do not understand why we should not be doing all the above. 
Debt forgiveness is not an alternative to going from grants--
from loans to grants. They are additive in my judgment. And all 
occur at a very low level of money.
    One of the things that we ought to remember is that if you 
talk about debt forgiveness and you accurately score that debt 
for what it is worth in the market, what you are likely to get 
from it, debt forgiveness is a pretty cheap way to go and it 
ought to be added on. But I would think the new SDRs would be a 
part of it.
    Finally, I did note, Mr. Orr, you particularly talked about 
the private sector, and I am wondering whether you would 
address, as I said Mr. McGlinchey particularly will be fully 
briefing me, the question of how might we improve or increase 
the involvement with the private sector obviously in ways that 
fully protect people's rights, that don't give rise to an 
argument of exploitation. But, again, these ought not to be 
either/or, they ought to be complementary. And what way could 
we implicate--do other elements of the bank, the IFC or others, 
have any kind of expertise that might be useful within the 
appropriate framework?
    Thank you very much.
    Chairman Bereuter. You are welcome, Mr. Frank. Mr. Bentsen, 
do you have an opening statement? The gentleman is recognized.
    Mr. Bentsen. Thank you, Mr. Chairman. And let me thank you 
for calling this hearing. I want to thank our panel for 
appearing today. I want to concur with the comments of our 
colleague from Massachusetts, which in part come off a hearing 
we had a couple of months ago on this subject.
    I am reminded in his comments about debt not being equity 
that about 20 years ago when I was a young staffer on the Hill, 
I had a chance to go to a meeting with the Mexican 
representative to the United Nations at the time of the Latin 
American debt crisis or the beginning of it, and he made a 
comment that if, ``I owe you $100 and can't pay you, I have got 
a problem. If I owe you $100 billion and can't pay you, you 
have got a problem.'' And I think that is in part where Mr. 
Frank is going.
    I will say that in the midst of all of the short- term 
crises that we deal with, today it is corporate accountability. 
A couple of years ago it was the Asian currency crisis or 
liquidity crisis. The other issues we deal with, financial 
modernization and trying to meet the marketplace, I continue to 
believe that our true long-term problem for the developed or 
industrialized world is how we bring along the lesser developed 
world and how we arrest the growing divide between rich and 
poor in this world because I think that too often a number of 
our colleagues in this body and too often a number of people in 
the industrialized world take a distorted view of how we are--
of why we need to address the needs of the poor. And I would 
just, if you cannot appeal to their moral sense, which is good 
enough to me, then I would appeal to their economic sense that 
it behooves all of us to try and close that gap and increase 
industrialization and economic self-determination in the lesser 
developed parts of the world. And if we don't, we will pay a 
much steeper price for it in the long run.
    So I appreciate the chairman calling this hearing and 
moving forward on the authorization. I yield back.
    Chairman Bereuter. Thank you, Mr. Bentsen. Ms. Waters will 
also be a conferee in the House-Senate conference beginning at 
10:30. I recognize her for her opening statement.
    Ms. Waters. Thank you very much, Mr. Chairman. I appreciate 
very much your holding this hearing for the reauthorization of 
our participation in the World Bank's International Development 
Association.
    Let me just start by saying I have been watching with 
horror the developing famine in southern Africa. Almost 13 
million people in southern Africa are in danger of starvation. 
The crisis is widespread, affecting the people of Lesotho, 
Malawi, Mozambique, Swaziland, Zambia, and Zimbabwe.
    The World Food Program estimates that 1.2 million metric 
tons of food assistance will be needed over the next nine 
months to meet the minimum food consumption requirements of 
these six countries. People in these countries are already 
turning to desperate measures, such as eating potentially 
poisonous wild foods to stay alive. And we saw this graphic 
depiction on ABC the other night of a man eating dirt and 
children eating bugs.
    Over the last three years, I have been working with members 
of the Financial Services Committee and supporters of the 
Worldwide Jubilee 2000 Debt Relief movement to end the crushing 
burden of poor country debts. Unfortunately, our efforts have 
only been partially successful and international debts have 
left several southern African countries unable to respond to 
crises such as this one.
    Zambia provides an excellent illustration of why deeper 
debt relief is necessary. Even before the current famine began, 
Zambia was a deeply impoverished country with a per capita 
income of only $330. The infant mortality rate exceeded 1 
percent of live births and 27 percent of Zambian children under 
five are malnourished.
    Almost 10 percent of the population is infected with the 
AIDS virus and 650,000 children have been orphaned by AIDS. Yet 
Zambia's debt payments were actually increased after its total 
debt stock was reduced. Moreover, Zambia still spends more than 
twice as much money on debt payments as it does on health care.
    Now in the case of Malawi, there is some evidence that 
indicates that the policies of the International Monetary Fund 
and the World Bank may have contributed to the famine. Malawi 
enjoyed bountiful harvests in 1999 and 2000. As a result, 
Malawi's Strategic Grain Reserve was stocked near its full 
storage capacity. By July of 2000, the Strategic Grain Reserve 
contained 174,000 metric tons of grain reserves. The IMF, I am 
told, argued that storing that much grain was too expensive and 
risked distorting the market.
    The World Bank agreed with the IMF that smaller reserves 
would be preferable. So the IMF, I am told, urged Malawi to 
sell some of its reserves to service its debt. Some of the 
grain was sold domestically in 2000 while domestic supplies 
were plentiful and prices were depressed. An additional 35,000 
tons was exported in 2001 to Kenya and Mozambique. Even in the 
face of the current food crisis, the IMF continues to view the 
Strategic Grain Reserve as a drain on Malawi's budget and a 
source of funds for making debt payments and not as a source of 
desperately needed food for Malawi's starving citizens.
    Last year, I introduced H.R. 1642, the Debt Cancellation 
for the New Millennium Act. This bill would require the IMF and 
the World Bank to provide complete cancellation of 100 percent 
of the debts owed to them by impoverished countries. Over 80 
Members of Congress representing both political parties have 
co-sponsored the bill.
    Earlier this year, H.R. 4525, the Debt Relief Enhancement 
Act of 2002, was introduced by a bipartisan group of Members of 
Congress, including Christopher Smith, John LaFalce, Spencer 
Bachus, and myself. This bill would require the IMF, the World 
Bank, and other creditors to provide significantly deeper debt 
relief to impoverished countries. Several members of the 
Financial Services Committee have co- sponsored the bill.
    Mr. Chairman, I am going to have to leave but I look 
forward to hearing about the testimony of these witnesses. And 
I am particularly interested in hearing their views on the 
extent to which the IMF and World Bank policies and 
international debts contributed to the current famine in 
southern Africa.
    I thank you, Mr. Chairman.
    Chairman Bereuter. Thank you, Ms. Waters. Mr. Sherman, do 
you have an opening statement?
    Mr. Sherman. Amazingly, I do.
    Chairman Bereuter. You are recognized.
    Mr. Sherman. I want to associate myself with Mr. Frank's 
advocacy for the important work of International Development. 
Ms. Waters has brought to our attention the dire situation in 
Africa. There is perhaps nothing more important that America 
can do then lead the world to greater not only political but 
also economic democracy.
    As for debt relief, let us remember that most of the time 
this debt is not paid except either through--and I am talking 
about debt to the poorest countries--either as part of a 
package in which monies lent or given and then comes back to 
the very people who give it or is paid in anticipation of 
receiving additional loans. And debt relief may be a very, very 
good thing to facilitate the credit worthiness of governments 
that need money for additional development projects.
    But we should regard debt relief, as we do any other aid, 
and that is a transfer to try to help people usually through 
the host government. And in a few cases, those host governments 
have no real connection with efforts to help their own people.
    Those of us who support more foreign aid, whether it be in 
the form of aid or in the form of loans, have a special duty to 
make sure that we can go to the American people and say that 
that money is well spent. And there are a few regimes seeking 
debt relief today so that they can borrow more tomorrow that 
would not spend those new loan proceeds effectively.
    But as we sit here, we have to recognize that the people on 
this committee favor foreign aid more than the rest of 
Congress. That is why we got on this subcommittee. And the 
Congress as a whole has favored foreign aid far more than the 
American people. And nothing is more dangerous to the 
inadequate congressional support for foreign aid than the plan 
of the World Bank to loan $755 million to the Islamic Republic 
of Iran or I should say the ``twin evils,'' the first evil 
being that plan and the second being the passive acceptance of 
this World Bank semi-decision by State Treasury and frankly 
this Congress.
    There are those that think that the Iranian government is 
somehow captured by moderates. They listen to the occasionally 
moderate statements of the powerless president, the figurehead. 
Yet, we all know that Iran is actually run by its supreme 
leader, hence the title, supreme leader. That is why our State 
Department has identified Iran as the number one source of 
state terror, and we should always remember that the government 
in Iran is working every single day to develop nuclear weapons, 
smuggle them into American cities, and kill Americans by the 
millions. The American people I think understand that. I think 
decision- makers in Washington occasionally forget it.
    And that is why it will be almost impossible to maintain 
over this decade support for foreign aid and international 
lending institutions if the United States does this year and 
next year what we did in the year 2000. In the year 2000, the 
World Bank lent $231 million to Iran. The United States voted 
no, voted no in a loud voice and then went for tea and crumpets 
for those who voted against us. I am not sure about the 
crumpets. But we simply shrugged our shoulders and did business 
as usual. Financing the nuclear destruction of American cities 
is not to be regarded as business as usual and yet $755 
billion--rather million dollars is the plan of the World Bank 
over the next two years. Its web site currently identifies a 
$112 million loan as right in the pipeline right now.
    Let us remember that money is fungible. The terrorists who 
operate the regime in Tehran spend as little as they can on 
domestic projects in order to hold on to power and everything 
that is left over is available for terrorism and nuclear 
weapons development. Everything. And we should not take lightly 
providing that government with that bit it needs to maintain 
power so that it has more of its oil and other revenues 
available for nuclear weapons development.
    I will be proposing legislation very soon. I hope to have 
as co-sponsors the most passionate supporters of foreign aid 
because this is the greatest danger to foreign aid--a bill that 
would say that the $847 million or such other amount--if I 
could have one more minute?
    Chairman Bereuter. Without objection, the gentleman is 
extended an additional minute.
    Mr. Sherman. Thank you. Or whatever other amount might 
otherwise be provided to the World Bank will instead be spent 
on fighting AIDS in Africa if the World Bank authorizes any 
additional loans to Iran.
    And, finally, let us not draw ultra fine distinctions 
between the IBRD and IDA. I don't have a constituent who knows 
the difference between those different pockets of the World 
Bank and the World Bank itself says that those are two 
organizations run by the same staff, basically money out of a 
different drawer. That is the World Bank position.
    I look forward to safeguarding America's foreign aid 
program by making sure not one penny goes to a World Bank that 
would loan money to this government and Iran, and I look 
forward to a better government in Iran in the future so I don't 
have to make these comments.
    Thank you.
    Chairman Bereuter. Thank you, Mr. Sherman. I appreciate my 
colleague's comments this morning. They are an important part 
of our hearing record.
    As mentioned previously, we have a distinguished panel with 
us here today. We are anxious to hear from them. I will first 
receive testimony from Mr. James Orr, who is co-founder and 
executive director of the Bretton Woods Committee, a 
bipartisan, nonprofit group organized to promote sensible 
reforms and increase public understanding of international 
financial and development issues in the global economy. And, as 
mentioned by Mr. LaFalce, from 1975 to 1983, Mr. Orr served as 
a legislative counsel for this subcommittee's predecessor.
    Second, we will hear from the Reverend David Beckmann, who 
will provide testimony on behalf of Bread for the World, a 
nationwide Christian citizens movement dedicated to eliminating 
world hunger. Reverend Beckmann served for several years on the 
board of directors of Bread for the World before becoming its 
president in 1991. In the interest of full disclosure, I also 
served on the Bread for the World board under his predecessor. 
Prior to his activities with Bread for the World, he spent many 
years as a World Bank economist where he played a prominent 
role in the Bank's heightened focus on poverty reduction.
    Third, we will hear from Mr. Raymond C. Offenheiser, 
president of Oxfam America and a member of the board of Oxfam 
International, a confederation of 12 non-governmental agencies 
working together in over 80 countries where he works to serve 
Oxfam International's goal for lasting solutions to poverty, 
suffering, and injustice. He is a part of Oxfam as a strategic 
funder of development projects, providing emergency relief in 
times of crisis, and campaign for social and economic justice.
    Finally, the subcommittee will hear from Ms. Thea Lee, 
assistant director for international economics in the public 
policy department of the AFL-CIO where she oversees research on 
international trade and investment policy. Previously Ms. Lee 
worked as an international trade economist at the Economic 
Policy Institute in this city and as an editor of Dollars and 
Cents Magazine in Boston.
    So with that kind of introduction, I want to say that we 
are anxious to hear from you. The House is unexpectedly not in 
session today. It means that we have less members here but it 
also means we have more time to hear from you and ask 
questions. And so we will extend from five to eight minutes to 
each member of the panel. And first we would like to hear from 
Mr. Orr. And I would say finally we will include your entire 
statements in the record and you may proceed as you wish. Mr. 
Orr?

 STATEMENT OF JAMES ORR, EXECUTIVE DIRECTOR, THE BRETTON WOODS 
                           COMMITTEE

    Mr. Orr. Thank you very much, Mr. Chairman, Mr. Sanders, 
and members of the subcommittee, it is a pleasure to be back 
with you today.
    As Mr. Bereuter mentioned, the Bretton Woods Committee is a 
public interest group with 700 members across the country who 
share an interest in seeing positive reforms adopted by the 
multilateral institutions and in increasing public 
understanding and support for their work. As a number of 
members have already commented, Mr. Sherman in particular, 
public support for multilateral institutions is particularly 
thin in the United States.
    I am here today to strongly endorse the replenishment of 
IDA. IDA is deserving of support from the Congress for many 
reasons. It is the main program that the United States has for 
helping the world's poorest countries, people who live, as has 
been mentioned, on a dollar or two a day. IDA pays for the bulk 
of infrastructure and social services in about 80 poor 
countries around the world, guaranteeing a basic level of 
social welfare that couldn't exist without IDA and paving the 
way ultimately for these countries self-sustaining growth, at 
least that is our hope. Moreover, much of the assistance from 
IDA goes to countries that are very important to us politically 
and strategically.
    Over the years, IDA has been a very effective vehicle for 
helping these countries. It has done an incredible amount of 
good. It is working on one of the most difficult problems of 
our era. Although there is widespread agreement on the kinds of 
results we want to see from the work of the World Bank and IDA, 
there is much less agreement on what is the appropriate 
approach to pursue to achieve these goals. But all of the donor 
countries to IDA, which include the major countries in the 
world and many emerging market countries, agreed in their 
document approving this replenishment of IDA that IDA is the 
most effective agency for helping poor people of all those in 
existence, bilateral and multilateral.
    One measure of the Bank's and IDA's effectiveness is that 
over IDA's 50 year history, there have been 32 countries which 
have graduated out of IDA and are no longer in need of 
concessional loans. They are able now to borrow either in 
commercial markets or from IDA's sister institution, the IBRD, 
which lends at commercial rates of interest.
    A second bit of evidence that IDA is very successful is 
what recipient countries think. I was privileged to accompany a 
group of eight ambassadors from IDA countries two years ago who 
went to call on members of the Foreign Operations Subcommittee 
and it was really moving to hear each of these ambassadors talk 
about the important work that IDA was doing in their country 
and how important it was to the welfare and benefit of their 
population.
    Clearly, the IDA and World Bank have made mistakes over the 
years. We have heard some referred to today. But in general it 
has learned from its mistakes and it is much more effective 
today than it has ever been before. There is certainly some 
skepticism about effectiveness. I think that is a good thing. 
It makes organizations like IDA constantly try to improve what 
they do and prove that they are in fact effective. And I think 
all supporters of IDA, including all of us at this table I 
think, would want to see the program held to very tough 
standards.
    Another point I would like to make is that IDA is evolving 
to meet current challenges. It has made great strides recently 
in a number of areas that have been a concern to this committee 
in years past. In the area of transparency in particular, there 
has been a huge change in the World Bank and the other 
multilateral institutions over the last 10 years. The way is 
now open for interest groups around the world and people in 
borrowing countries to closely track what it is the World Bank 
and IDA do to comment on projects and to involve themselves in 
shaping and influencing the work of IDA and the World Bank.
    I found it quite interesting that the draft agreement 
approving the new IDA was sent out and made available to NGOs 
around the world for comment months before the final document 
was agreed to. And many organizations, including some 
represented at this table today, took the opportunity to make 
suggestions for improving IDA and some of those suggestions 
were adopted in the final agreement.
    On the question of transparency, I think the onus now is on 
countries. There is no greater champion of transparency than 
the World Bank itself but it is sometimes prevented from moving 
more aggressively in this area by some borrowing country 
members who are reluctant to see more transparency. I think it 
is important to recognize who are the foot- draggers in this.
    The World Bank and IDA have made tremendous improvements 
recently in increasing ownership by borrowing countries. They 
have done this by mandating the participation of civil society 
in the preparation of loans, largely through the PRSP, Poverty 
Reduction Strategy Paper writing process and through other 
means.
    The Bank and IDA have had a huge impact on fighting HIV/
AIDS, the greatest problem of our era. The World Bank and IDA 
are the largest investor in AIDS projects of any institution in 
the world, over a billion dollars recently. And President 
Wolfensohn has pledged publicly on many occasions that no 
worthy project to fight AIDS will go unfunded as long as he is 
president of the World Bank.
    Another recent innovation at the Bank and IDA is the 
movement to grants, which some members of the subcommittee have 
already referred to. I think this is a very important 
innovation, not just because it will help reduce the debt 
burden that we all understand has been a very significant 
impediment to development, but it will also open the way to 
implementation of projects by civil society groups, some of 
whom are better, frankly, at working at grassroots levels than 
some huge multilateral institutions.
    Finally, I would like to say in the view of most members of 
the Bretton Woods committee, the new focus on private sector 
development is a very important realization by the Bank that 
the private sector ultimately will be the engine of growth for 
most countries that break out of the ranks of the poorest and 
achieve the status of an emerging market country, at least that 
has been the history of all of the 32 graduates from IDA in the 
past.
    I would like to plant a few ideas for possible initiatives 
which Congress might like to consider in advancing legislation 
for IDA. One of the things that I think would be important is 
to see if Congress could help devise ways to make the Bank 
somewhat tougher on borrowers. Despite conditionality, which is 
applied to all World Bank and IDA loans, I think over the years 
a certain closeness has developed between project officers at 
the World Bank and IDA and the officials in the countries that 
are borrowers from IDA to the point where sometimes the World 
Bank could be tougher in making demands of countries. Often in 
my own view they have been too forgiving. And I think that is 
why we have seen slow movement in many of the areas that we are 
all concerned about, fighting corruption, improving governance, 
and some other areas. So I think this is probably a fruitful 
area to look for innovations.
    I would also urge the subcommittee to keep pressure on 
Treasury to work on the issue of public education on the 
importance of the multilateral institutions. Treasury does 
virtually no public education and this is in stark contrast to 
what happens in many other countries. Every time I travel in 
Canada and turn the radio on, I hear public service 
announcements touting what Canadian development assistance 
through the World Bank means in terms of HIV/AIDS clinics in 
Southern Africa, for instance. If there were more U.S. public 
support for the work of IDA and the other multilateral 
institutions, it would open the way for potentially increasing 
contributions and doing the kinds of things that members of the 
subcommittee would like to see happen.
    I have reached the end of my time, Mr. Chairman. I look 
forward to answering your questions. Thank you.
    [The prepared statement of James Orr can be found on page 
112 in the appendix.]
    Chairman Bereuter. Mr. Orr, thank you very much. In light 
of Secretary O'Neill's recent visit to Africa, maybe this is 
the time to pursue the latter point and put it into place in 
some sort of an institutional basis.
    We are pleased now to hear from Reverend Beckmann, 
president of Bread for the World and a native of Lincoln, 
Nebraska.

  STATEMENT OF REV. DAVID BECKMANN, PRESIDENT, BREAD FOR THE 
                             WORLD

    Rev. Beckmann. Mr. Chairman, Mr. Sanders, and members of 
the committee, I am really honored by the chance to contribute 
to this hearing. I will focus my oral testimony on four issues 
related to IDA: my overall assessment of IDA, the issue of debt 
relief, the specifics of how Treasury is going to implement 
this reform in the area of monitoring and evaluation, and then 
the Millennium Challenge Account in relationship to IDA.
    The first thing I want to say is that I think IDA on 
balance is a really good institution. I really appreciated the 
opening comments and all of the members' emphasis on the 
importance of reducing poverty in the world. It is a bloody 
scandal that there is still as much poverty and hunger in the 
world as there is now. But on balance I think IDA contributes 
to the reduction in poverty.
    I have been involved in working for World Bank reform now 
for 26 years, for 15 years within the Bank and for the last 11 
years as an advocate outside the Bank, contributing to efforts 
to make the Bank and IDA better. And there is still a long way 
to go. I am struck that this committee has been a major force 
for reform for as long as I can remember. Since the early 
1980's at least, this committee has been pushing for the Bank 
to be more poverty focused and more open to democratic 
participation. And then all over the world a lot of people for 
the last couple of decades have been working to make the 
governments of some of the poor countries more democratic and 
more effective for development purposes. All these efforts have 
had some impact. The Bank was always a competent institution. 
And I think it has become more poverty-focused, more open to 
democracy. It has got a long way to go but, on balance, the 
bank is a good thing for poor people. And at this point in 
history, Bread for the World supports the replenishment of IDA. 
We hope that you pass the authorizing legislation.
    Second, with regard to debt relief. The Jubilee movement 
for debt relief was a huge explosion of popular interest and 
active interest in an international development initiative. 
This is the most popular multilateral development initiative in 
U.S. history.
    The data on U.S. public opinion show that in the last few 
years opinion has become markedly more favorable to effective 
initiatives to reduce poverty and hunger and help with health 
problems. And the Jubilee movement was a successful effort to 
mobilize some of that increasingly favorable public opinion 
into a political initiative.
    So I have three specific suggestions for the committee in 
terms of moving forward with what debt relief did for IDA and 
for poor people and for the politics of our own country.
    First I would suggest that the committee hold a hearing on 
debt relief implementation. From what Bread for the World has 
learned from official channels and from church channels, we 
think it is working pretty well. And tens of thousands of 
Americans actively work for debt relief. A committee hearing 
could help Congress and Americans see that it has worked pretty 
well, and a hearing would also push so that debt relief would 
work better. There are a lot of things that could be done to 
make debt relief and the poverty reduction strategy paper 
process more effective.
    Second, the G-8 Summit just agreed on an additional $1 
billion to continue the debt relief initiative that has already 
been agreed. That is necessary because of the global economic 
downturn. It is just more expensive to do what was originally 
planned.
    I really hope that Congress and the President will fund the 
United States' share of that billion dollars in Fiscal 2003 as 
an addition to what Congress would have otherwise done. Partly 
because of September 11th, the President has made a number of 
promises that our country is going to do more to reduce poverty 
around the world. But so far it is all money in fiscal years 
2004 to 2006. This agreement at the G-8 is an opportunity for 
Congress and the President to increase funding for poverty 
reduction in Fiscal 2003.
    Third, in the area of debt relief, Bread for the World 
supports the Smith-LaFalce bill, which would modify the 
criteria by which the international community decides how much 
debt relief a country needs to get to a sustainable level of 
debt payments. It modifies it in sensible ways, ways that also 
take account of the AIDS crisis in many countries.
    Mr. Chairman the Senate recently passed their version of 
the Smith-LaFalce measure in their AIDS bill. The most likely 
way that this could come to the floor of the House is through 
the conference on the AIDS bill. So I would urge you and the 
committee to look favorably on the Smith-LaFalce proposal. It 
would deepen debt reduction.
    Now let me turn to the question of the second major reform, 
monitoring and evaluation. It is really exciting that Secretary 
O'Neill is putting so much emphasis on how we know what is 
really happening in the lives of poor people in the poor 
countries; How do we monitor that? I don't see how it is 
possible for Treasury to evaluate whether IDA does a good job 
next year on the basis of whether poverty or education 
indicators change over a one year period. That doesn't make 
sense. But what does make sense is for Treasury to put emphasis 
on what the World Bank is doing, together with the whole 
international system, to improve data collection. There is a 
broader movement underway to focus on the millennium 
development goals, specific goals, and to develop good 
indicators. If the Bank can help us get reliable real-time 
indicators of education, health, poverty and hunger, that would 
help everybody. Treasury, the Bank, also, local people in poor 
countries know what is going on and hold the authorities 
responsible (not only IDA but all the way through the system.) 
So one focus for monitoring IDA's performance how well it helps 
in this broader effort to improve indicators of what is 
happening to poor people.
    Another area where I would focus year to year evaluation of 
IDA is on the question of transparency and democracy-
friendliness. The Bank has come a long way, but it has a long 
way to go. We have learned that the best way to improve the 
quality of Bank-supported policies and projects is to let local 
people know what is going on and give them a better chance to 
have an influence. That is more powerful than any indicator 
that somebody in Treasury is going to look at. What Treasury 
can look at is what is the Bank doing to become more democracy-
friendly, so that people in rural Tanzania can know what is 
going on and hold the Bank accountable.
    Finally, I would like to talk about the Millennium 
Challenge Account in relationship to IDA. President Bush and 
other heads of government have recently promised a major 
expansion of development assistance to the poorest countries, 
an additional $5 billion from the U.S. every year and an 
additional $7 billion a year from Europe. So as you are 
considering IDA, you should ask how the next replenishment of 
IDA will play out in what could be a dramatically improved 
context of overall development assistance.
    In particular, when Under Secretary Taylor comes, I hope 
you will ask him how the administration's is thinking the 
Millennium Challenge Account, and bilateral assistance 
generally are going to coordinate with IDA and the poverty 
reduction strategy process and with what the Europeans are 
doing with their promised additional $7 billion. My sense is 
that there has not been much conversation about how the U.S. $5 
billion and the European $7 billion, are going to work 
together. The MCA will be most effective if it is part of 
acoordinated international development effort, which means it 
needs to connect with IDA and the PRSP process.
    Bilateral assistance can be more frankly supportive of 
democracy and human rights than IDA by its charter is likely to 
be. The MCA can specifically focus on whether a country is 
respecting human rights, and they can fund things like 
technical assistance to legislatures, the media or civil 
society groups. If the MCA does that kind of democracy-focused 
funding in the context of the multilateral system, that would 
improve the impact of IDA and the whole development system.
    Thank you.
    [The prepared statement of David Beckmann can be found on 
page 93 in the appendix.]
    Chairman Bereuter. Thank you very much, Rev. Beckmann. We 
are very pleased now to hear from the representative from Oxfam 
and that is Mr. Raymond C. Offenheiser. You are welcome to 
proceed as you wish.

 STATEMENT OF RAYMOND C. OFFENHEISER, PRESIDENT, OXFAM AMERICA

    Mr. Offenheiser. Thank you, Mr. Chairman. Chairman 
Bereuter, Ranking Member Sanders, committee members and guests, 
it is a distinct honor for me representing Oxfam to testify 
before the subcommittee today on the World Bank's International 
Development Association.
    By way of introduction and background, I would just like to 
comment briefly that Oxfam as an organization was founded here 
in the United States in 1970 and is based in Boston. And for 
the record, we accept no government or World Bank funding.
    The Oxfam network or family, Oxfam International, has broad 
experience in the developing world supporting some 4,000 non-
government partner organizations in some--120 developing 
countries, many of whom incidentally are IDA recipients.
    The replenishment of IDA is an especially opportune moment 
from our point of view to examine the operations of the World 
Bank and to push for reforms in its operations. The Congress, 
and this committee particularly, has been a leader in 
encouraging the Bank to reform. And it is clear to us as an 
observer and an advocate within this process, that when you 
speak, as committee and as Congress, the Bank indeed listens.
    By way of prefacing comments on the context in which this 
broader discussion is taking place, I would like to just simply 
open with a couple of broad observations about what has taken 
place over the last 10 years by way of re-framing the approach 
to development that actually Oxfam feels is very important to 
the directions that IDA and the general process of development 
is taking.
    First of all, we are heartened by the increasing emphasis 
on poverty alleviation, and as David has emphasized, real 
outcomes in people's lives. And the fact that this kind of 
language and this kind of emphasis is very evident in the way 
the World Bank and other international institutions today speak 
about their work and seek to measure it.
    Second, we have been heartened over the last 10 years by 
the increasing emphasis on citizens' democratic participation 
in setting agendas and providing citizen accountability for the 
performance of bank institutions. And we are particularly happy 
about the increasing use of the PRSP process as a way of 
focusing that debate and citizen participation.
    We also think that the emphasis in the past few years to 
take perhaps a tougher look at the results of the macro 
economic policies that have guided Bank and IMF lending over 
the last many decades has been healthy and salutary and it has 
led to innovative thinking that has brought forward the kinds 
of debt relief proposals and HIPC initiatives that have been 
debated in this committee.
    And, finally, we have been pleased by the greater emphasis 
on donor coordination and by country buy-in, which we think is 
particularly relevant to the MCA debate that will be emerging 
in the coming months.
    And we also recognize that these--you might call them 
drivers have led to substantial reforms in the way the World 
Bank and the IMF perform as members of the multilateral system, 
and we think those changes and reforms are palpable and visible 
in many ways. And we would like to open with giving some credit 
where credit is due to the World Bank leadership, particularly 
Jim Wolfensohn for his efforts to push these kinds of reforms. 
While recognizing that everything is not perfect in a real 
world, real initiatives have been taken, and we recognize that 
this kind of change on such a large scale is a long-term 
process. But we think some good first steps have been taken.
    Since my written testimony covers a diverse range of topics 
in some considerable detail, I am only going to review some of 
the high points of that broader testimony this morning.
    First, in the area of overall IDA effectiveness, it is 
clear to Oxfam that initiating IDA grants is a very, very 
positive step that we fully endorse. We strongly support the 
administration's position of providing grants for health and 
education in the public sector as long as the United States and 
other donor governments provide sufficient funds to make up for 
the decrease in loan repayments. This was Congressman Frank's 
point earlier today, that in fact we want to keep the IDA flows 
real and we think it won't cost that much money to do so.
    We regret in fact that the G-7 rebuffed the President's 
proposal of a 50 percent grants ratio and is limiting grants to 
only 18 to 20 percent. Nonetheless, from our point of view, 
converting some loans to grants will increase the likelihood 
that the poorest countries will be able to reduce their foreign 
debts to a substantial level over the long haul.
    Donor governments with the United States leading by example 
must provide sufficient funds for the poorest countries to meet 
the Millennium Development Goals. This is a major challenge put 
forward by Kofi Annan. We must also insist that the World Bank, 
IMF, and credit countries like ourselves provide deeper debt 
relief to impoverished countries.
    As was noted earlier by Congressman LaFalce, we made a 
great start with the HIPC initiative and the Debt Relief bill 
of 2000 but we have not finished the job as it were and perhaps 
that is what lies before us.
    Specific to the debt issue, we would like to encourage you, 
Mr. Chairman, and your subcommittee to demonstrate your 
commitment to effective development by examining and then 
supporting the Smith-LaFalce debt reduction bill that is 
currently before the Congress. If a heavily indebted poor 
country or HIPC country were to spend no more than 10 percent 
of its annual revenues, or in the case of a country suffering a 
severe public crisis, such as HIV/AIDS, not more than 5 percent 
of its budget, the bill estimates that between $700 million to 
$1 billion of additional debt relief will be provided.
    In addition to grants for basic services and debt relief, 
this subcommittee should insist also that all elements of the 
World Bank be dedicated to eradicating poverty or focus heavily 
on the human development indicators. Currently, the World Bank 
actively supports investments in oil, natural gas, and mining. 
These loans, in our view, do little to increase broad-based 
economic growth and poverty reduction in developing countries.
    A recent study commissioned by Oxfam reveals that these 
sectors may actually worsen poverty by creating little 
employment or opportunity for the poor and by contributing to 
corruption, conflict, and increased vulnerability to economic 
shocks. In our view, Congress should press the World Bank to 
prioritize investments other than those in extractive 
industries that might better respect the rights of poor 
communities and foster more equitable outcomes and diversify 
the economic base of the world's poorest countries.
    On the PRSP process, the Poverty Reduction Strategy Papers 
of the World Bank, we believe they have real potential for 
ensuring that all World Bank and other donor actions, including 
the new Millennium Challenge Account, are consistent with a 
coherent national poverty plan in each country that can succeed 
with local leadership and ownership. We believe that the PRSP 
process has given a coherence and a focus to the civil society 
debate that currently takes place in many of the countries 
around the world where these plans are in process.
    A developing country in our view should articulate one and 
only one national strategy that all donors buy into. 
Admittedly, the current PRSPs are still weak. We are cognizant 
of that in terms of both donor acceptance and quality of local 
participation. But we believe these areas can be improved. 
Almost all share a further weakness, the macroeconomic policies 
that create the basic architecture for the entire economy are 
still largely mass produced by the World Bank and its sister 
institution, the IMF.
    And our belief is there needs to be more flexibility in the 
thinking about the economic logic that underlies the PRSPs. 
Through the PRSP, the national government, along with its 
legislature, press, and civil society need to understand and 
buy into a coherent national approach for ending poverty.
    As politicians, you recognize that the PRSP approach will 
take time and several iterations to get it right. In the 
meantime, it is important that countries urgent needs for basic 
services and debt relief not await a perfect product, we might 
say. By way of example, we might ask how many of each of us 
would be willing to hold our six year old sons or daughters out 
of school for five or six years until the national government 
designed an education plan that some other folks decided was 
``good enough.''
    Oxfam maintains that all people have a right to basic 
services, such as health care and education. In the area of 
health, the HIV/AIDs crisis cries out for attention. Five 
thousand Africans die everyday for the lack of medicine. We and 
other donors have resources to fund both prevention and 
treatment programs. IDA provides a mechanism for us to act in 
concert to halt the 21st century's black plague.
    The World Bank developed an excellent assessment of the 
national education needs of the world's poorest countries. 
Unfortunately, the G-8 failed to take up the challenge to 
commit the essential funds to educate all of the world's 
children and to leave no child behind. It is an opportunity 
again through IDA and an obligation for this subcommittee to 
insist that there be full funding so that all the world's 
children receive a basic education.
    A surprising reality about the Bank's work in education and 
other basic services is the poor quality of data available for 
monitoring the effectiveness of its programs. It is our belief 
that the Bank must commit sufficient resources, both 
intellectual and financial, to ensure that data are collected, 
not on administrative and bureaucratic infrastructures of 
health and education ministries and programs, but rather on the 
number of well babies and healthy mothers and children reading 
and writing. Such data collection is essential if we are to 
ensure that IDA funds are well used and that performance-based 
development genuinely yields the kinds of results for the poor 
that we are really all after.
    My final point touches on the need for full disclosure and 
on the broader issue of transparency. The U.S. Congress was 
instrumental in insisting that the World Bank begin the process 
of letting the public see its decision-making processes. 
Regrettably, in our view, additional pressure is needed for 
this process to achieve greater results. Therefore, we would 
like to recommend that the committee require the Bank to open 
its board of directors' meetings to the public, disclose 
transcripts of these meetings, and release all key documents 
prior to board considerations of lending.
    Let me conclude by saying that the IDA replenishment 
discussions enable us to insist on greater development 
effectiveness by the World Bank. The United States Congress has 
a proud record of bringing reform to the Bank as you act on the 
people's voice--or act as the people's voice. We thank you for 
your work that you have done in the past and your dedication 
that you continue to show on these important issues. And I am 
very grateful for the opportunity to speak to you this morning, 
and I request permission to have my extended remarks submitted 
for the record, Mr. Chairman.
    Thank you very, very much.
    [The prepared statement of Raymond C. Offenheiser can be 
found on page 103 in the appendix.]
    Chairman Bereuter. That will be the case and thank you very 
much. In fact, all of your full statements will be made a part 
of the record.
    We are pleased now to hear from Ms. Lee, representing the 
AFL-CIO. You may proceed as you wish.

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

    Ms. Lee. Thank you so much. Thank you so much, Mr. 
Chairman, Congressman Sanders, and Congressman Bentsen, for 
inviting me here today and allowing me to speak on this 
important issue of the IDA replenishment on behalf of the 13 
million working men and women of the AFL-CIO.
    This morning I also would like to offer some comments on 
behalf of a broader coalition of civil society organizations 
that the AFL-CIO has been working with in recent months and 
years on this positive reform package. Oxfam America and Bread 
for the World are also part of this broader coalition and so I 
think you will see that there is some overlap in some of the 
reforms and the policies that we have been talking about. The 
full report that the coalition wrote is called, ``Responsible 
Reform of the World Bank,'' and it is available on the web site 
of the Bank information center at www.bicusa.org and I think 
there are also some copies available here for anybody who is 
interested.
    I wanted to focus today on three things. First, increasing 
the amount of resources that poor countries can dedicate to 
development, as I think everybody has said here today, we are 
all in agreement on this, through the two roots of increased 
debt relief and the shift from loans to grants. Those are both 
crucial pieces of the changes in policy that we need to make.
    But I think it is also equally important that we emphasize 
the reforms that we need to see at the World Bank in current 
policies; We don't think it is appropriate just to give more 
money and step back; We need to both ensure that the World Bank 
is more effective and accountable through improved 
transparency, as Ray Offenheiser said, and through improved 
assessment mechanisms that really do go to the heart of the 
concrete benchmarks in development that we are looking for as 
opposed to kind of vague policy reforms that don't have a very 
good track record in our view.
    And it is crucial for us also that Bank policies and Bank 
resources are used to make productive investments in human 
development instead of being used to support policies that in 
our view in the past have harmed the environment, workers, and 
the poor. And we believe that this opportunity right now, the 
IDA replenishment, which, as you all know, comes up once every 
three years, is a crucial opportunity for the Congress and this 
subcommittee in particular to push for these meaningful reforms 
of World Bank policies.
    Congress should ensure that the hundreds of millions of 
taxpayer dollars or billions that are provided to the World 
Bank this year do not fund more failure at the institution but 
instead really go to cancelling debt, improving transparency, 
achieving positive health and education outcomes, ensuring 
respect for core worker and gender rights, and protecting the 
environment.
    Tying these essential reforms to congressional funding 
decisions is in our view the most effective way of ensuring two 
things. First, that our government convey effectively via the 
U.S. Treasury Department to the Bank what these concerns are. 
Second, that the Bank is motivated to comply. We have all had a 
lot of experience in the past, I know you have, but we in the 
labor movement too with working with Congress to put in place 
policy reforms at the international financial institutions, and 
I would have to say that our experience in that regard has been 
inconsistent at best and disappointing at worst. Congress has 
been in some cases very clear with the Treasury Department as 
to the kinds of policies we want to see and that Treasury in 
our view applies its own priorities to those concerns that are 
legislated by the Congress and sometimes drop some of them by 
the wayside. I will come back to that later in my remarks, but 
I think it is really important that Congress' role be 
meaningful in this regard.
    There are two kinds of reforms that we are talking about 
for the World Bank, and one is the positive set of improving 
transparency, participation as the PRSP program has made some 
efforts in that direction, and making more resources available.
    There are also negative reforms that need to be made. The 
Bank has in our view put in place policies in the past that 
have done harm to workers and the environment. The conditions 
that have been imposed in the name of structural adjustment in 
our view have yielded disappointing development results, 
poverty results, equity results, and also have had real adverse 
consequences on particular groups of people, particularly 
working people and the poor.
    We think it is important that Congress conditions future 
IDA funding increases on progress in adopting the 
congressionally-designated reforms, just as the Treasury 
Department itself has pledged funding increases conditioned on 
performance indicators. Like everybody else, I have submitted 
my written testimony, so I am just going to hit a few 
highlights today.
    First in terms of the grants versus loans issues, I think I 
agree with my co-panelists that this is a crucial reform, that 
it is important. We did support the move to the 50 percent 
grants for IDA funding so long as future contributions were not 
harmed by doing so. We think the move to 21 to 18 percent is a 
step in the right direction, and we hope that we will be able 
to build on that and build a successful program and show that 
the resources will be there to make up for the lost loan 
repayments in the future. But it is also crucial, as I have 
said, that the grants are really used for the pro- poor 
policies and that environmental and social safeguards and 
proper assessment benchmarks are put into place.
    Second and again the point has come up several times, the 
transparency issue. I just want to say I think that everything 
we talk about with respect to the World Bank is pivotal on 
transparency reforms being made. We applaud the progress that 
has already been made at the World Bank in this area. There has 
been some real concrete progress made but the reforms that are 
in the responsible reform report, and that Ray Offenheiser 
mentioned, are crucial, including the opening the directors' 
meeting, disclosing the transcript, and releasing key documents 
prior to board consideration.
    These are the same reforms, of course, that were legislated 
in H.R. 2604 with respect to the regional development banks, 
and we think that was an excellent step in the right direction. 
And particularly for working people and for unions, not having 
access to the draft documents of bank loans ahead of time 
really cuts their legs out from under them and makes it hard 
for them to participate in a meaningful way, whether it is in 
the PRSP process or in conveying to their governments whether 
they agree with or disagree with some of the elements of the 
World Bank policies.
    The other thing we would like to ask of Treasury is to set 
a good example for other countries by posting its own board 
statements immediately and reporting regularly to Congress on 
compliance with its mandates. Treasury can post its own 
statements today. We don't have the excuse that other World 
Bank members are resistant to these forms of transparency. It 
is something that can be done and it ought to be done, and we 
would urge Congress to ask Treasury to do that when they come 
to see you next week.
    And the last point I want to touch on is workers' rights, 
which is of course crucial to our members. We work closely with 
our brothers and sisters in trade unions in the developing 
countries, and we hear disturbing stories all the time about 
World Bank policies that actually weaken unions, lower wages of 
workers who are already at or below the poverty level, and 
undermine the core labor standards that the international 
community has time and again endorsed and agreed to, both at 
the ILO, at the United Nations, and at the WTO, believe it or 
not.
    But it seems to us that respect for core workers' rights, 
for freedom of association, the right to bargain collectively, 
and prohibitions on child labor, forced labor, and 
discrimination in employment are absolutely essential to the 
World Bank's core mission of reducing poverty and also building 
the kind of democratic, sustainable, equitable societies that 
can really take the money from debt relief and from the IDA 
loans and be able to ensure that they are benefitting a broad 
sector of society, that they are hearing from key civil society 
players in an effective way.
    We would like to see the United States and this Congress in 
particular use the IDA replenishment process to require the 
Bank to adopt enforceable and comprehensive policies to protect 
core workers rights, and we would like to see in particular a 
screening mechanism that the Bank would put in place for all of 
its lending, including the structural adjustment to ensure that 
loan conditions do not undermine core workers rights, as we are 
afraid they have done numerous times in the past. Also the Bank 
should assess the impacts of its loans on employment, wages, 
and income inequality. It should work with the ILO and with 
trade unions on the ground in a consistent way year after year 
in order to ensure that their participation and input is 
incorporated into Bank policies.
    And one final point on this, that the Treasury Department 
has been mandated by Congress to produce an annual report on 
workers' rights and how the various policies that have been 
legislated through this Congress to structure policies and 
programs so that they don't undermine workers' rights and so on 
to report on what kinds of progress they have made.
    Now even when Treasury makes those reports, sometimes they 
are not as transparent as we might like. There are conflicting 
claims that are made by different people and we hear different 
reports and, of course, since we don't have access to the 
meetings or the transcripts, it is hard for us to verify what 
is going on.
    But most troubling is that in 2001, Treasury did not even 
bother to issue this report. The report just didn't happen. And 
there has been I think not enough outcry and not enough outrage 
that Congress has asked Treasury to report on workers' rights 
and Treasury has simply decided it is not interested in doing 
that. And we object very strongly to that dropping off the 
agenda.
    So let me end there and look forward to your questions. I 
thank you so much for the opportunity to come. I thank my 
fellow panelists for their very interesting and thoughtful 
remarks. And I look forward to working with you and the 
subcommittee in the future on shaping this authorization 
program.
    [The prepared statement of Thea Lee can be found on page 98 
in the appendix.]
    Chairman Bereuter. Thank you very much, Ms. Lee. We will 
proceed under the five-minute rule but we will be able to 
proceed with as many rounds as members wish this morning to 
take maximum advantage of the expertise that is at the witness 
table today.
    And I will recognize myself first. Ms. Lee, your most 
recent comments, as you concluded your remarks, are bringing to 
our attention a very troubling aspect of Treasury's performance 
with respect to congressional mandates. It seems to me it 
doesn't matter which administration is in office, which 
Secretary is there, there is a degree of arrogance in Treasury 
that is almost unmatched in the Executive Branch. They seem to 
regard themselves as part of the Office of the President and 
therefore are not a line department like all the others that 
are to respond to appropriate policy initiatives. Within the 
Department, there is this culture of loving democracy but not 
respecting the role of Congress in this democracy and its 
appropriate public policy statements.
    I would like to--and I want my staff to follow up on some 
of your suggestions about the recent failures and how we can 
bring more transparency to Treasury itself. Perhaps this is the 
time for a major consideration of legislation related to 
Treasury in addition, as a separate item instead of just 
focusing on the reauthorization.
    One of the disappointments, and I think it must be somewhat 
embarrassing to the Europeans, is that when the United States 
takes the lead on trying to move a larger percentage of 
resources to grants, they oppose. They have always had a very 
superior attitude about their contributions and their 
assistance to undeveloped countries of the world and so I find 
their reluctance to move in this direction to be puzzling, at 
least. What do you think, gentlemen and lady of the panel, that 
we should consider in objective consideration of their 
statements and views that moving to a larger percentage of 
grants would actually weaken the governments of poor countries 
by contributing to a culture of dependency and hindering poor 
countries' ability to develop international credit worthiness?
    That is the line that we have heard repeatedly in the 
course of these negotiations. Is that something where there is 
legitimacy or is it something that you reject? Who would like 
to offer an opinion? Reverend Beckmann, you can start. I see 
several hands.
    Rev. Beckmann. I think it is nutty, the European position 
has just been nutty. But what it is about is not the issue. 
What it is about is a really dangerous lack of coordination and 
sense of common purpose on these international development 
issues.
    Over the last few months there was a sort of bidding war 
between the Europeans and the U.S. about who was going to 
embarrass the other at Monterrey. Both the Europeans and our 
own administration made remarkable commitments to increase 
development assistance, but I don't get any sense that they are 
talking to each other about how they are going to do this 
together. I don't want to exaggerate that, but as far as I can 
tell the conversation about the Millennium Challenge Account 
within the administration is not very well connected to what 
the Europeans may be planning.
    Just before the hearing began, I talked to John Sanford 
from Congressional Research Service. He just came back from 
Europe. John said this stand-off on IDA grants is partly 
because Europeans together have 30 percent of the votes in the 
multilaterals. They realize that if they can get their act 
together, they don't always have to follow the U.S. the way 
they have typically done.
    To me the issue is not just why were the Europeans wrong on 
this issue, but why aren't we working together better when on 
both sides of the Atlantic, people are promising to do more for 
poor people? If they don't work together on what could be a 
remarkable new initiative, then we will squander a lot of the 
potential of the moment.
    Chairman Bereuter. I think I saw two other hands, Mr. Orr 
and Mr. Offenheiser both. Mr. Orr?
    Mr. Orr. I am never eager to rise to Europe's defense, but 
I think it would be a mistake to dismiss too quickly this 
argument, which I associate more with the Japanese government 
that has resisted debt relief for fear that countries will 
adopt a culture that not paying debts is an acceptable 
practice.
    I think there is a feeling throughout Asia that Asian 
countries borrowed from these institutions and made the 
sacrifices necessary to repay the debts and that other 
countries should follow suit.
    I think in the case of Europe that that argument might have 
been a sham. My sense is that Europe was really worried that we 
would move the World Bank or IDA to a largely grants-based 
system and then legislatures, particularly this legislature, 
might not then follow-up with the additional resources that 
would be necessary to keep up the flows.
    There is a lot of resentment in Europe that the United 
States is the country that pushes hardest and loudest for 
reforms at all the multilateral institutions and then is often 
the country that is the lowest common denominator in agreeing 
to funding increases and then often the last country to 
implement those increases.
    So whether Europe is right or wrong, I leave to you to 
judge but I think that is perhaps the real concern with the 
move to grants.
    Chairman Bereuter. Mr. Orr, I am afraid that there is some 
validity in there, the last two expressed concerns that you 
reiterated.
    Mr. Offenheiser?
    Mr. Offenheiser. As a member of the broader Oxfam family, I 
spend a good deal of my time in Europe with my European 
colleagues who we have five Oxfam members, affiliate members 
who are European based. And, again, my perspective on this 
discussion about grants versus loans is that in Europe at this 
particular time, the deeper concern is not about credit 
worthiness and dependency of the developing countries. In some 
ways, I think that is a canard.
    The real issue is at this particular moment in history a 
deep distrust of the motives of the United States in putting 
that offer on the table, unfortunately. In its extreme, I think 
there is an assumption that behind it there is an intent in 
some sense to undermine or de-fund the multilateral 
institutions over the long haul by putting forward that kind of 
an agenda and then trying to push it and broaden it going 
forward. In some sense, it is about the Treasury Department. 
And the fact that there is a sense that our approach to these 
issues perhaps is more unilateral than multilateral and that we 
are less concerned about coordination than perhaps advancing a 
particular agenda.
    I actually believe that Congressman Frank is correct that 
to some degree if the United States were to come forward with a 
very strong statement about a commitment to replenishment and 
were actually to deliver on it, not just to argue for it, that 
in some sense it would allay a lot of the fears about this that 
there are other motives behind this gesture than good 
development practice.
    The other thing I would like to say about the grants versus 
loan issue is that there is some interesting history in the 
United States that I think sometimes we lose sight of and that 
has to do with our broader sort of philanthropic connection to 
the developing world.
    I spent 10 years prior to Oxfam working for the Ford 
Foundation in Asia and all over Latin America, and one of the 
things that was really quite striking to me, particularly 
during my tenure, five and a half years in Bangladesh, was the 
extraordinary contribution that institutions like Ford and 
Rockefeller Foundation had made to building institutions, 
teacher training institutes, universities, in some cases the 
actual ministries and planning institutes of these governments, 
all of this was done with grants through much of the 1950's and 
1960's. And really those institutions today are the backbone of 
what is really conducting a lot of the development debate with 
the United States throughout South Asia. All of which is to say 
that I think grants combined with loans actually gives 
institutions like the World Bank a multiplicity of tools to use 
creatively to solve problems that are extraordinarily complex.
    And so I would encourage the committee at some point 
perhaps to tap some of the knowledge within the foundation 
community to understand a little bit about that history and the 
use of grants in the developing world over the last 50 years.
    Finally, I think at the root of this discussion about 
grants versus loans there is an important question about 
accountability and leverage that I think is obviously of 
concern to bank lending officers. I think there is a sense that 
somehow if you switch from a loan mechanism where you have a 
lot of obligations for repayment and reporting requirements and 
so forth that are tight and very financially based to grants 
that somehow you lose leverage and there is no accountability.
    And I think the real question about switching to this 
mechanism is what are the accountability mechanisms and tools 
that you would use in a grant versus a loan framework. And I 
think there is a lot of experience out there that could assist 
the World Bank in thinking those issues through.
    Thank you, sir.
    Chairman Bereuter. Thank you very much. Thanks to all of 
you. Ms. Lee, you will let this one go? All right. The 
gentleman from Vermont is recognized.
    Mr. Sanders. Thank you all. I don't want to get into the 
issue of grants versus loans. That has been touched upon a lot, 
and I think there is nobody who is a Member of Congress who has 
been here today who is not in favor of substantially increasing 
U.S. aid and seeing the rest of the world do what it can to 
alleviate the horrendous poverty that exists in developing 
countries.
    But there is an issue that we have not gotten into terribly 
deeply this morning and that is the impact of globalization in 
recent years. I think there is sometimes an assumption, just as 
there is in the United States: free trade, no kidding, that is 
great. That always works. But you examine it and you find that 
it is a disaster for American workers. In my own state right 
now, we are at the lowest level of manufacturing in the last 33 
years. We have lost 10 percent of our manufacturing base. Real 
wages for many workers is going up. Guess what? Free trade does 
not work for American workers.
    And I happen to think that globalization, while everybody 
in a major corporation, ``It is obvious, trade not aid.'' It is 
obvious. It is a no-brainer says every intellectual and 
editorial writer in the United States. You know what? It may 
not work as well.
    Let me just ask, and Mr. Orr, maybe start with you. 
Worldwide, the total wealth of the globes three richest 
individuals is greater than the combined gross domestic product 
of the 48 poorest countries and the wealthiest 447 billionaires 
own more wealth than the bottom half of humanity, some 2.5 
billion people. What do you think about that, 447 individuals 
own more wealth than the bottom half of humanity? Is that an 
issue that we think we should put on the table?
    Mr. Orr. Well, on a personal basis, Mr. Sanders, I find 
that fairly shocking. I think all of us at the table and 
certainly all the members of the Bretton Woods Committee share 
concerns that you have expressed today about growing inequities 
and inequalities and problems with income distribution around 
the world. But I would like to think that those problems exist 
despite and not because of the World Bank and IDA. In fact, I 
think IDA is a very important tool for helping rectify the 
problem that you have pointed to.
    Mr. Sanders. What I wanted to do, if you will allow me is, 
I appreciate that and I know where you are coming from, but I 
wanted to get away from the IDA issue just a little bit, 
although I know that that is the subject of the hearing this 
morning, and to suggest that maybe there are broader issues out 
there in terms of globalization that are working against 
billions of poor people in this world and having to do with a 
philosophy exerted by multi-national corporations in this 
country that are working to the detriment of the poorest people 
in the world and in fact American workers. What we call the 
race to the bottom. In other words, playing off American 
workers who are losing their jobs against the very poor in the 
world to the detriment of both. Do you share that?
    Mr. Orr. I would say I guess, Mr. Sanders, my sympathies 
lie more with the editorial writers and others that you have 
described who see the glass as mostly full.
    Mr. Sanders. Thank you. Ms. Lee, what do you think?
    Ms. Lee. I would have to say that the general view, the 
generally accepted view within the economics profession or the 
editorial pages on globalization has missed a lot of really 
important pieces of the picture. I think if you look at the 
overall picture, of very slow growth, of stagnant or growing 
poverty, growing inequality, that it is not a successful global 
economy and that we do need to look at both the rules and the 
institutions that we put in place over the last 20 years and 
say what can we do differently, not how do we do more of the 
same? How do we change that set of rules and frameworks?
    We have in my view provided precisely the wrong incentives 
for both governments and for multi-national corporations that 
are trying to navigate in a global economy, a very difficult 
competitive, dynamic, global economy. What we have said to the 
corporations, what we have said to the governments is go out 
and make a lot of money, move around, pit governments against 
each other, pit workers against each other. Go get the best 
deal you can and there is no limit on how low you can go in 
terms of respect for workers, respect for the environment, and 
basic human concerns.
    We need to build that floor. We need to say, sure, we need 
a dynamic global economy. We need competition. Competition can 
be a very important force for growth and for change, but we 
need to put some limits on the kind of competition. We need to 
send a message, it needs to be an enforceable set of rules that 
will protect basic workers rights. And the global community has 
agreed that every worker in the world deserves the core 
workers' rights, the fundamental human rights of the workplace, 
the freedom of association, the right to bargain.
    Mr. Sanders. The global community, multi-national 
corporations agreed with that?
    Ms. Lee. The International Labor Organization, which has 
employers, workers, and governments from over 175 countries has 
agreed to that. Even the WTO at its first ministerial meeting 
in Singapore in 1996 agreed that all countries should promote 
the core labor standards. But they have made a rhetorical 
commitment and then the question is how do we make that real? 
Is it just enough to stand up in a room in Geneva and say we 
believe in core workers' rights?
    Mr. Sanders. But in many ways that is just words. Up until 
a few years ago in Mexico, Mexico, when workers tried to form 
free unions, they were destroyed, put in jail, right?
    Ms. Lee. Well, that is exactly the point. The trading 
system we have put in place--and I would say that the World 
Bank and the IMF have been also guilty of it, of having an 
ideology where they believe that if they just took care of the 
multi-national corporations, everything else would fall into 
place.
    But growth hasn't fallen into place. Poverty reduction 
hasn't fallen into place. And certainly we haven't seen that 
there is an inevitable improvement in workers' rights and 
environmental standards. Some countries do. Some countries 
trade, grow, invest and improve their workers' rights. Other 
countries, and I would say China is a prime example here, have 
been very much a part of the global economy, have benefitted 
from trade and investment flows and yet have allowed a really 
disgraceful human rights and workers' rights situation to 
continue and in fact worsen.
    So I would say that if we are going to get improvements, we 
need to put in place the rules and the institutions that will 
change the direction of the global economy so that we can 
really get some better outcomes for the people at the bottom, 
for workers all over the world, and for workers in the United 
States.
    And you said it, and I haven't talked that much about it 
today, but obviously for our members the direction of the 
global economy has been extremely damaging. It has just pulled 
the whole manufacturing sector to pieces in the United States 
with a lot of serious impacts for the distribution of wages, 
for the productivity growth in the United States over the long 
time, and even the trend of growing international debt, which I 
think is not sustainable, those are all pieces of the failure 
of globalization to date.
    Mr. Sanders. If I could, Mr. Chairman, let me just ask Mr. 
Offenheiser how he feels about that?
    Mr. Offenheiser. Thank you, Congressman Sanders, for the 
question and the opportunity to comment. Oxfam, about five 
years ago began to struggle with the fact that much of the kind 
of development and humanitarian work we were doing on the 
ground in poor countries in Africa and elsewhere we felt was 
not achieving the goals that we had hoped for. And increasingly 
in dialogue with the partner organizations that we work with, 
we became increasingly aware that we were dealing with a 
process and a problem that extended far beyond the national 
borders of the countries where most of our programs were 
concentrated. And I think what it led us to was actually the 
recognition that in some ways globalization has become the 
default development paradigm of this era and that as an 
organization we in some ways had to struggle to come to terms 
with what that in fact meant for many of the poor people of the 
world that we represent and work on behalf of.
    Having said that, as we have delved into the issue, we have 
recognized that, as one talks about globalization, many people 
mean different things when they use the word. I think very 
often here in Washington the term is used in a very narrow 
economic sense. But I guess from our point of view that 
globalization is probably more aptly described as the 
accelerated movement of people, money, ideas, images, 
knowledge, and technology around the world at a highly 
accelerated pace through sort of a seamless and almost 
borderless planet.
    Now, looking at that objectively even from within 
developing countries, you can actually see some things that are 
positive about globalization defined in those terms. And we 
want to be honest about those. The information flows that are 
going into many countries I think are good for democratization, 
good for promoting citizen accountability, and so on and so 
forth, and human rights.
    Mr. Sanders. But given the growth of all of that 
technology, computers, the Internet, all of those very positive 
things, why aren't we seeing a substantial increase in the 
standard of living of the poorest people? Why aren't we seeing 
people with health care and educational opportunity? And what 
endemic, what aspects of globalization are working the other 
way?
    Mr. Offenheiser. Well, just to pursue this a bit further. 
Oxfam, in trying to grapple with more of the economic side of 
this question, released in April a report on trade, which was 
an effort on our part to tackle the larger issue of 
globalization from the economic side. The study is entitled, 
``Rigged Rules and Double Standards: Trade, Globalization, and 
the Fight Against Poverty.'' And the fundamental premise of the 
study, which has gotten quite a bit of play in the global 
media, this report was released--this a 270-page report, this 
is the executive summary, we are happy to provide committee 
members with the full report or the executive summary as you 
would care.
    Mr. Sanders. Please do.
    Mr. Offenheiser. The fundamental premise was that trade in 
and of itself is not inherently bad for development or bad for 
the poor. In fact, it might actually deliver some greater 
economic benefits. But the rules are rigged against the poor 
and against poor countries. And the study attempts to try to 
explore in greater detail what exactly that might mean.
    For example, we struggled with the question of--we were 
looking at the issue of ending the use of conditions attached 
to IMF/World Bank programs which force poor countries to open 
their markets regardless of the impacts on poor people, the 
Zambia case being an example that was cited earlier in the 
hearing this morning. We are concerned about the whole issue of 
commodity pricing. As you may well be aware, the international 
price for coffee has collapsed and Central America is in a dire 
crisis at the moment.
    Mr. Sanders. But what does it mean if countries are forced 
to export if they give up their basic agriculture, which feeds 
their own people perhaps not in the best way but provides 
sustenance to their people, if they are transformed to an 
export economy, coffee or whatever it may be, and that market 
collapses, what happens to the people in those countries?
    Mr. Offenheiser. Well, the economic indicators or the 
social and development indicators would suggest we are going to 
get greater impoverishment and greater erosion of social 
welfare. I think that is pretty clear.
    And I guess what we through this trade report have found 
ourselves arguing for is a less of a rigid sort of cookie 
cutter approach to the kind of planning that goes forward 
through the PRSP processes that we talked about this morning 
and giving countries more of an opportunity to develop more 
diversified approaches to the development planning that would 
vary a bit from the more straitjacket free market policies of 
the World Bank.
    It is interesting, Joseph Stiglitz in a recent speech 
commented that if you actually look--or he actually posed a 
question to the audience which was what do India, Botswana, and 
Vietnam have in common, all countries with significant economic 
growth rates and reasonably good social welfare indicators or 
at least on the rise. And the answer to his rhetorical question 
was none of them have participated in a World Bank structural 
adjustment or policy program. And more to just make the 
example, that they have sort of exempted themselves and yet 
they are the good performers.
    Mr. Sanders. Right. I know I have gone on too long. Can we 
get Reverend Beckmann to say a few words? Please proceed.
    Rev. Beckmann. Well, I agree with the other people who have 
spoken, that globalization is a mixed bag for poor people. And 
there are a number of things that can be done. With all 
political realism, that would make globalization work better 
for poor people.
    One of those is to have a strong, well-financed IDA that is 
democratic, more democratic than it is now. That would help 
some of the poorest countries insert themselves into the global 
economy in a way that would be good for their people.
    Another one is the issue of worker rights or environmental 
standards or I would say food security standards. If we are 
going to go into a trade agreement and we know it is going to 
make some people hungry, then part of the agreement should be, 
no, we are going to do some things to keep that from happening. 
So I think there are a number of politically feasible reforms 
that in fact will make globalization work better for poor and 
hungry people. So that has been the focus of our effort.
    I do think it is important to recognize that globilization 
is a mixed bag. On the one hand, it seems to me that over the 
last 25 years, we have seen a fairly dramatic reduction in 
hunger and poverty in the world--
    Mr. Sanders. In what parts of the world?
    Rev. Beckmann. Well, especially in East Asia. And part of 
that, in my judgment, is because East Asia seized the 
opportunity of opening markets for manufactured goods. Europe 
and North America negotiated liberalization in manufactures, 
and countries like Korea, Indonesia, and Thailand jumped in. 
That is not the whole story. But the global economy I think 
arguably helped a lot of people in East Asia get out of 
poverty.
    At the same time, it is also clear that globilization has 
left a lot of people behind. I went to a meeting in Tanzania 
some years ago that had a really significant impact on my own 
thinking about this. This was church leaders in Tanzania and 
other English-speaking countries. And there was a guy there 
from the World Bank who talked about adjustment. He said, ``get 
used to it.'' Everybody has got to adjust. General Motors has 
got to adjust. This is a global economy. It is fast moving. We 
were meeting in a rustic hotel in Aroutia. And this guy would 
retreat into his hut, and he would be on the Internet. He said, 
``Tanzania has got to adjust to the fact that Malaysia is a 
more competitive coffee producer. The problem isn't North 
America. The problem is that you guys have got to get in shape 
and compete with the Malaysians. They are getting ahead of 
you.'' And these African church leaders had no answers. They 
said the reality you describe is exactly the reality that we 
are living, and we cannot cope with this. Our countries cannot 
cope.
    In fact, the only hopeful note was that those church 
leaders prayed together, and they said, ``God will not forget 
Africa,'' and they sang like nobody's business.
    Mr. Sanders. Thank you very much for that. Your last 
remarks. Mr. Chairman, you have been amazingly indulgent. You 
get five gold stars.
    Chairman Bereuter. Mr. Sanders, you and I have both asked 
excellent questions that have elicited substantial illuminating 
responses but Mr. Bentsen is entitled to a very generous five 
minutes.
    Mr. Sanders. Given how long we have gone on, give him a 
minute or two and that is it.
    Mr. Bentsen. I appreciate that, Mr. Chairman. I know my 
colleague from Vermont, who I agree with more often than I 
don't, won't cut me off if he starts to disagree with me. I 
actually enjoyed the last round of questions. And I have to 
say, Reverend Beckmann, I agree with your assessment of our 
partners in IDA in not going to the 50 percent grant level, I 
think ``nutty'' is probably the appropriate term. I don't know 
if that comes from your economics background or your divinity 
background. So I think just that in and of itself is rather 
interesting.
    But I do think that--I would also say I think it is absurd 
because the question of whether or not the United States will 
make a long-term commitment to IDA, either in the -- is equal 
either in the form of grants or loans. And from a budgetary 
standpoint, arguably in real terms, the loans as they are 
structured are really no better than grants themselves. Now, we 
use obviously a little bit different accounting but nonetheless 
I just think the risk exists one way or the other.
    I was actually--and Mr. Frank alluded to this as well, we 
had the Secretary of the Treasury here last year before the 
full committee and discussed the question of the HIPC program 
and the new administration's commitment to it and whether or 
not--what its response would be going beyond HIPC. It was at 
that time that the Secretary I think for the first time said, 
``Well, we probably would look at it going into grants.'' And I 
have been pleasantly surprised, quite frankly, with this 
administration that they have that commitment. So I think that 
would bode well for the long-term commitment.
    The other thing I would say is when we did the debt 
forgiveness program back in 1997 or 1998, I don't remember 
exactly when, one of the issues I was concerned about, and I 
think maybe perhaps misunderstood on, but I didn't lose in the 
committee nonetheless, was this whole idea that we would 
forgive debt and then immediately turn around and put these 
countries back in the hock again. It made absolutely no sense 
whatsoever. I think the first part of the proposal was on track 
but there had to be some form of a--and there is not a better 
term for it, but some form of a bankruptcy that you were 
putting these countries through and then providing them with 
capital so that they could go forward and restructure 
themselves to continue the process of what the original intent 
was for them to become at some point self-sustaining.
    And, Mr. Offenheiser, I appreciate--I think it was in your 
testimony--that you addressed the need to look at the various 
ratios that we are using. The 150 percent export ratio has 
always been--I have always had many questions about what the 
validity of that ratio really is in what we are trying to 
accomplish. So I am glad that you raise it. I am not confident 
that anything is going to be done about it in the near future, 
but I think the more that is talked about it and trying to look 
at self-sustainability of ratios is a better idea.
    I do have a few questions. Mr. Offenheiser, in your 
testimony you state that we should work to de-link the HIPC 
program from the PRSP. Is your concern that the PRSP will just 
be another means by which to hold up the HIPC program as those 
papers are being developed and reviewed, as just yet another 
condition that is set?
    Mr. Offenheiser. That is precisely the concern. In other 
words, that the promise of the PRSP is an extraordinarily 
ambitious one but it requires a lot of citizen participation 
and citizen consultation to do it right and do it well. And, as 
I said in my testimony, we haven't quite got it right yet but 
we are getting there. And the concern was really that we might 
be delaying the delivery of debt relief benefits to countries 
if the PRSP process is too onerous.
    That has been partially addressed by the acceptance of the 
notion of an interim PRSP which then was able to trigger debt 
relief to a number of countries. And I think we are at a place 
now where we are finding our way through it, but I think we 
want to just underline in the testimony that we don't want to 
hold up debt relief. We think deeper and broader debt relief 
should be a critical priority and along side it delivering on a 
good PRSP is equally important but not to conflate the two to a 
degree to which it slows down the debt relief process. That is 
really the core point.
    Mr. Bentsen. Mr. Orr, in your testimony, you discussed, if 
I understood it correctly, you talked about the close 
relationship between Bank staff and Development staff in the 
recipient--in the beneficiary countries. Are you asserting I 
guess that this long-term relationship I guess creates too much 
coziness that there is not sufficient oversight from the Bank 
staff?
    Mr. Orr. The point I was trying to make, Mr. Bentsen, is 
that I think in certain instances there is room for the World 
Bank to be tougher on its clients than it has been, 
particularly in areas of governance and ending corruption. If 
you take a long-term look at performance of some of these 
countries, it is disappointing that more progress hasn't been 
made in some of these areas. And I think the reason, part of 
the reason is that too many allowances are made for failure or 
slow progress in some instances.
    Now, it has occurred to some people that maybe multilateral 
institutions ought to threaten to cut off funding to 
governments that don't make important strides in these areas. 
But that, of course, would have a very harsh impact on the poor 
people that IDA serves. But I think maybe it is worth thinking 
about, are there other ways to deliver benefits to the same 
recipients, perhaps not using governments that are resistant to 
change, either using civil society or some other mechanism to 
deliver the benefits.
    Mr. Bentsen. Well, if I might, Mr. Chairman, if we went to 
a larger grant program, wouldn't that in some ways allow for 
greater oversight and greater involvement as those grant monies 
are disbursed? If you think about some of our own federal 
programs, it is certainly not true in all, that there are 
compliance mechanisms in place. And going to a grant program, 
one, would allow you to--it seems to me it would allow you to 
do that with the government. But it also would allow you, 
whereas in trying to structure a loan with-- you have to 
structure a loan with a sovereign entity, a grant program would 
be, and similar to Mr. Offenheiser said with the Rockefeller 
Foundation and the Ford Foundation and others were able to do 
perhaps with non-governmental entities. So would that be 
something that we could pursue on the grant side of the ledger?
    Mr. Orr. Certainly grants will involve less local 
government involvement than the current lending process, where 
all the loans have been from the World Bank and IDA to the 
local government. But, of course, there will be other oversight 
problems. Instead of watching one ministry in borrowing Country 
X, the World Bank will have to monitor 15 or 75 civil society 
organizations that are implementing smaller aspects of the same 
project. So I mean there will still be plenty of room for 
oversight.
    Mr. Bentsen. If I could with the chairman's indulgence ask 
one quick final question. A number of you all talked about the 
problem of the cookie cutter approach to whether it is the 
structural adjustment programs or view towards dealing with the 
IDA countries. There aren't that many of them. There are a lot 
of people within the various nations but there aren't that many 
clients if you look at the individual countries themselves.
    Is it possible within the structure of the Bank and its 
sponsors, including the United States, that the Bank can become 
more I guess client-specific? I don't know if that is the 
appropriate term or country-specific in developing structures 
or is it something inherent in the view of the donor states 
that precludes that or the culture of the Bank? Whoever is 
fine.
    Rev. Beckmann. For myself, I am not convinced that the Bank 
has a cookie cutter approach. They are trying to learn from the 
experience of one country for another country, and they are 
making some generalizations about what works. Maybe at a 
certain point in time it is too much market-oriented. Or it is 
too statist. The Bank has swung back and forth on those issues 
a little bit. But an advantage of the Bank is that they are 
sharing from the experience of one country to another, and that 
may mean that an idea that really has worked in one country 
gets channeled through the Bank to another country and so there 
is a certain parallelism to it.
    As I look at specifics of the Bank's dialogue with 
particular countries and projects in different countries, it 
seems to me they do a pretty good job of adapting their advice. 
At any one time, if you think they are too gung ho on the 
markets (as I think they were in the early 1980's), they may go 
that way in a bunch of countries at the same time. On the other 
hand, in the 1960's and 1970's, they promoted governmental 
development finance companies all over the world.
    So if, let's say, it is the early 1980's and you think, 
they are wrong, well, they are wrong everywhere. There is a 
certain amount of similarity across countries. But I think it 
is an unfair criticism to say that it is rote and unthinking 
and completely insensitive to local reality.
    One other thought though is about the whole emphasis on 
participation and democracy and letting people in on the 
discussion with the PRSP's. In fact, there is still very little 
civil society participation on the big issues of national 
economic policy. And to a great extent in the poorest 
countries, civil society organizations don't have much capacity 
on these issues. When they are ushered into the finance 
minister's office, they don't know what to say about some of 
the issues of national economic policy.
    Moving in the direction of openness and capacity building 
for local democratic discussion of the biggest issues--of the 
questions of markets versus state, for example allows for local 
democratic discussion of precisely the issues that this 
Congress debates all the time for our own country.
    Chairman Bereuter. Mr. Bentsen, I think Mr. Offenheiser 
would like to respond.
    Mr. Offenheiser. Well, I am going to disagree with my very 
good friend David here for once. I recently was at the World 
Social Forum in Puerto Alegre, Brazil in southern Brazil where 
there were some 60,000 civil society representatives from all 
over the world meeting to debate actually these issues about 
globalization. And in one rather sort of heated exchange over 
coffee early one morning with one of the sort of leading 
spokespersons in these events, when we were talking about 
precisely these issues, he said to me, ``You know oftentimes it 
is really hard to get the leaders of the multilateral 
institutions and particularly Americans to understand we want 
in our countries the same thing that you had.'' And I said, 
``Well, what do you mean by that?'' And he said, ``Well, if you 
study your own history, you will realize that you had 200 years 
of managing your economy with tariffs and developing strong 
institutions to manage sort of the internal operations of your 
economy and you carefully managed your trading relationships 
with others and developed a very strong internal economy.''
    The point he was really making was that in his own country 
and the country of many of the others around the table, the 
institutions are weak and the model of export-led development 
and free trade that I think is at the core of the cookie cutter 
approach, if you will, is really what worries many of the 
advocates for less of a cookie cutter approach, if we can put 
it that way, from the developing world. And what they are 
really arguing for is the opportunity to manage their 
sovereignty on their own terms, to open to the global economy. 
And the interesting thing is they are not anti-globalization in 
the pure sense.
    They want to open to the global economy but they want to do 
it on their own terms and in a way that they can sort of pace 
reasonably so they can address the kinds of food security, 
internal food security issues that Congressman Sanders was 
talking about. They want to build strong infrastructures in 
their country. And they feel they have a right to manage tariff 
regimes if that is a tool that might be appropriate for them at 
a given point in time or they might want to preserve the right 
to manage capital flows in ways that would disagree with IMF/
World Bank policy on those particular issues.
    So I think that is really at the heart of this issue, can 
an institution like the World Bank and the IMF vary a bit from 
its export-led development free trade model and accept that the 
countries that have succeeded like South Korea and the Vietnams 
and the Botswanas have in fact managed their opening to the 
global economy more on their own terms with strong civil 
society participation, building institutions, and using macro 
economic instruments in a reasonable way. And that is I think 
where the nub of the problem is.
    Chairman Bereuter. You are going to have the last word on 
this question, Ms. Lee.
    Ms. Lee. Okay, I will be brief. I think the whole concept 
of the PRSP of course is designed to address that. And the 
rhetoric of the PRSP is terrific, that countries will own their 
development strategies. They will have broad-base stakeholder 
participation. And that sounds very good. And I think the 
reality, not surprisingly, as it gets off the ground has been 
less than that. It has not yet reached its potential.
    The points you make I think are exactly right, that there 
is a capacity problem in very poor developing countries. We see 
this with the trade unions and we work very closely with our 
trade union counterparts in helping to build the capacity to 
participate effectively in the PRSP and also trying to take 
their stories back to the IMF and World Bank headquarters in 
particular when they tell us that they have been excluded from 
that process. I think it takes time and it will take time to 
get that process up, and we need to keep a lot of very close 
scrutiny on whether that is working out.
    And I think the point you raise, Ray, in terms of the 
export-led development is also very important. That when you 
talk about a cookie cutter approach and you tell every country 
to do the same thing, export to the U.S. market and that is how 
you are going to get rich, it can't work for all those 
countries at the same time in the same way and that they need 
to make sure that they are taking steps to develop internal 
markets, to develop strong middle classes, and that is where 
the role of trade unions we think is so important, in raising 
wages and building a middle class in developing countries so 
that they can not be totally reliant on always selling to an 
export market. And if that market is always going to be the 
United States of America, we have a $400 to $500 billion 
merchandise trade deficit.
    We have fairly low tariffs to begin with. And it is not 
clear to me that we can just double our trade deficit and take 
in more goods and be a consumption engine for the entire 
developing world. That is not probably a viable option overall, 
and I think that goes to whether the development advice that 
the World Bank and the IMF have been giving out is actually 
likely to work or not.
    Thanks.
    Mr. Bentsen. Thank you, Mr. Chairman.
    Chairman Bereuter. I am going to grant a little time to Mr. 
Frank in absentia because he wanted to address a series of 
related questions to you, Mr. Orr. And I am going to read it as 
he has written it here.
    In 1997, the IMF member finance ministers and central bank 
governors, including Bob Rubin and Alan Greenspan, agreed to a 
special one-time allocation of SDRs, special drawing rights, 
which is an international reserve asset issued by the IMF. 
Failure of the U.S. Congress to ratify this allocation has held 
it up.
    Would this not be a good time to have the increase of 
international liquidity? Wouldn't it complement the IDA 
replenishment and the increase in bilateral aid the President 
has promised for next year and give at least a small additional 
stimulus to global growth?
    Would you like to try to respond to his two related 
questions?
    Mr. Orr. Yes, Mr. Chairman. Mr. Frank is alluding to an 
amendment to the Articles of Agreement for the IMF that the 
United States pushed at the IMF, primarily to give countries 
that weren't in existence when SDRs were originally issued, 
many states of the former Soviet Union in particular.
    It would increase SDR allocations to 40 or 50 countries to 
about $30 billion, if I remember correctly, which is a pretty 
large number. It is 10 times or so as big as the IDA 
replenishment that we are discussing today. Much of that money 
would go to some of the poorest countries, including some of 
the front-line countries in the war on terrorism, countries in 
Central Asia, Afghanistan, Pakistan.
    From my vantage point, for reasons of good government, this 
is something the United States should do. We pushed this 
amendment at the IMF. The last time I checked I think it 
requires an 85 percent approval in terms of vote share, the 
United States having 19 percent more or less. Seventy-two 
percent of the members have approved it. It can't be approved 
without the United States. And I don't believe that Treasury 
has even submitted it to the Congress. The Clinton 
Administration, when the time came, chose not to, for whatever 
reason.
    But in terms of maintaining respect for U.S. initiatives 
within these institutions and out of respect for the other 
governments that have already approved this, I think it is 
probably an important thing to do. And I think the additional 
liquidity would certainly be of use to many of the poor 
countries that would be receiving it.
    Chairman Bereuter. Thank you very much. I wanted to ask two 
questions in a second round here. And one can be relatively 
brief. It is for you, Mr. Offenheiser. And the other one 
perhaps all of you can try to respond to if you care to.
    You mentioned, as I understood it, that investments ought 
to be focused on in other areas. And I think you mentioned, 
among others perhaps, I didn't quite get it all, extractive 
industries. And then my staff showed me the report that Oxfam 
did on extractive sectors and the poor. In a minute or two, 
could you enlarge upon that statement and see if I have it 
correctly stated?
    The second thing, I would welcome comments from any of you 
for a comment that Mr. Orr made and he said we as a Congress 
need to pressure treasury on the subject of educating the 
public with respect to the multilateral development 
institutions. That rang a bell with me. He said, ``There is 
virtually no public education conducted by Treasury over the 
years on this subject.'' And I would like to have your thoughts 
about what specifically could and should be done if you agree 
that it is desirable, and I would think you would?
    So let's go to Mr. Offenheiser first for the first question 
and then I will let the others respond, and then we will move 
to Mr. Sanders.
    Mr. Offenheiser. Yes, in the particular area of mining 
extractives, Oxfam has been giving some attention to this, 
driven actually by experiences we have been having in countries 
where we work where we have seen an extraordinary increase in 
bank lending and also foreign direct investment from mining 
companies stimulated by actually concessionary lending from the 
Bank.
    What has concerned us is what we have seen as relatively 
limited employment benefits, welfare improvements, and other 
broader sort of social development impacts that are a 
consequence of this kind of lending and at the same time, 
extraordinary negative environmental impacts and little net and 
economic benefit for the regions or communities that are 
actually the sites for these major projects. And it raised in 
our mind really the question is this the best approach to 
development lending when significant amounts of money are going 
into this particular area?
    The general question we are raising is if we look at this 
from a development point of view, while it might make sense for 
a country to exploit a particular resource, and we are not 
against the mining of extractive activities per se but when 
measured against other types of investments, either to 
stimulate private sector investment or to promote other kinds 
of human development, we would question whether this was the 
best use of Bank funding.
    Chairman Bereuter. Thank you. And now it is for the public 
education responsibilities of Treasury. What specifically would 
you recommend that the Congress might encourage or mandate, any 
of you? And, Mr. Orr, you may start since you brought up the 
subject.
    Mr. Orr. I didn't come with a solution. I think the problem 
is, if it is a problem, the problem is that Treasury doesn't 
think this is its mandate. But I remember back three or four 
administrations ago a very aggressive assistant secretary of 
Treasury for international affairs made it his business to do a 
great deal of public speaking about the important work of the 
multilateral institutions, and I think it had an important 
impact on raising public understanding and support. So 
potentially a mandate from Congress to do this and some funding 
to do it with. Perhaps it is the Department of Commerce, the 
Department of Commerce should have a role in this as well.
    Chairman Bereuter. You may as well mention, if you recall, 
is it--
    Mr. Orr. I was thinking of Fred Bergsten, Assistant 
Secretary Fred Bergsten in the Carter Administration.
    Chairman Bereuter. Perhaps he will give us some 
suggestions. We will go right down the line. Reverend Beckmann?
    Rev. Beckmann. Well, I would encourage you to just commend 
Secretary O'Neill. He did a great job of development education 
going to Africa with Bono, precisely because it was so 
unlikely. And why did he have to play straight man to Bono? He 
did this because he cares about the issue. And I think he is 
really learning a lot about development and seems to really 
care and want to do more.
    I don't know what his next moves will be, but what he did 
achieved a lot. He articulated precisely the questions of a lot 
of people in Nebraska, ``We spend a lot of money on this, but 
what are we getting for it?'' He asked these questions, but 
then was willing to go to Africa with Bono and say, yes, we 
ought to do more about AIDS and water supply and opening up 
enterprise here. He did an extraordinary service to the world. 
So just commend him for what he has done, and ask him what his 
next moves are going to be in this area.
    The notion that Treasury is going to have a program of 
development education strikes me as implausible. But they could 
do a couple of things. Clearly, they can do more speaking and 
that sort of thing. I think that over the years they have 
really discouraged the World Bank itself from spending money on 
speaking to Americans.
    I used to work at the Bank and there were serious partly 
financial constraints on the extent to which the Bank itself 
could do development education. My understanding at the time 
was that the U.S. opposed spending by the Bank to tell its 
story within our own country, partly because of the fear that 
the Bank might have a slightly different line and would in 
effect propagandize against the administration's policy on a 
particular issue. But the Bank could do more to talk about 
development to Americans and would probably do a better job 
than Treasury.
    And then within the U.S. government, I think the Biden-Pell 
program is where it belongs. The Biden-Pell program could be 
five times the size that it is. That is within AID. The ads 
within Canada probably come out of CIDA and most of the other 
industrialized countries also have very substantial programs of 
government funding for development education.
    Mr. Sanders. If I could just interrupt and just ask, if I 
could, don't you think part of the problem is that there is 
probably 25 or 35 percent of the United States Congress that 
doesn't believe in the United Nations?
    Rev. Beckmann. Sure.
    Mr. Sanders. Let alone AID?
    Rev. Beckmann. Sure. That is part of the problem.
    On the other hand, there is a movement afoot within 
American life; the public opinion polls show it clearly. It is 
a political movement that leads President Bush to propose a 
bigger expansion in development assistance than President 
Clinton ever proposed, and Senator Helms this year has made a 
big push for an extra half billion dollars for AIDS. There may 
be a movement in our nation's life and in international life 
that would make it possible to do some new things. And one new 
thing that would have a long-term impact would be to increase 
funding for the Biden-Pell Program. It wouldn't cost Congress 
very much, and it would have a multiplicative effect over a 
period of 5 or 10 years.
    Chairman Bereuter. Mr. Offenheiser?
    Mr. Offenheiser. I very much welcome this recommendation 
from Mr. Orr and wanted to share with you that, stimulated in 
some sense in the aftermath of 9-11, there is a whole series of 
groups that are actively meeting, trying to evaluate the impact 
on public opinion and sentiment in the United States about 
alternative forms of U.S. engagement overseas.
    In other words, what is the sentiment of the American 
public about internationalism, about investment in development 
programming, and how that connects back to the whole larger 
discussion of U.S. security going forward. And the surveys that 
have been done, and actually there are quite a number of them, 
there are probably four or five, and we can certainly--I would 
be very happy to provide these to the committee if there is 
interest, are really quite striking in I think all sharing the 
numbers that would suggest that the public is in fact--the 
public attitude on these issues has really shifted to some 
significant degree. And there is more awareness in the broader 
public or more thinking going on about should we be addressing 
these issues of poverty and AIDS and isn't that perhaps linked 
in some way, although the public isn't real clear how, to these 
broader issues of terrorism that we are confronting.
    Now, these polls would suggest that the public in general 
supports the war on terrorism, as the President has articulated 
it, but it also supports I think a more long-term view about 
rethinking U.S. engagement in the world and about the 
obligations of Americans to address issues of poverty and 
injustice. The question of how we do that is another matter. 
But I think what this survey material really represents is an 
opportunity I think for the Congress and the administration and 
programs like the Biden-Pell program to expand its reach and 
perhaps challenge the American public and these sensibilities 
and see what the American public attitude is. I think the 
surveys might suggest that the public attitude might be ahead 
of the congressional leadership on these issues. That might be 
just one sort of line I would close with.
    Chairman Bereuter. That would be really shocking but I 
would be pleased to hear from Ms. Lee again in the final spot 
on the response panel.
    Ms. Lee. Thank you. I think it is important to have a broad 
public discussion and debate over U.S. development aid and the 
role of the United States in the world along those lines.
    I guess I am not quite as enthusiastic about the idea of 
the Treasury Department sort of leading what might be sort of a 
cheerleading public effort just on behalf-- uncritically on 
behalf of the multilateral development agencies, that there are 
so many issues that we are debating in terms of the direction 
of these institutions that what I think would be more important 
is the transparency reforms that we have talked about. That if 
it were easier for Americans to understand where the policies 
are and who they are helping and what the conditions have been 
and so on, I think that would be a really important piece.
    Obviously, that takes a lot of doing and that information 
needs to be made accessible to the public. It can't just be in 
World Bank-speak or its not going to be all that relevant. So I 
think certainly the idea of broadening the public debate is 
very important and broadening information.
    I think one of the tragedies, when we see the poll results 
that Americans that we are already devoting an enormous 
percentage of our budget to foreign aid and that it is probably 
not quite enough. But they are way off the mark in terms of 
that percentage.
    Chairman Bereuter. Every two years the Chicago Council on 
World Affairs demonstrates that. And the American public think 
we ought to reduce our foreign aid to about 5 or 6 percent.
    Mr. Orr. We are for it.
    Chairman Bereuter. The gentleman from Vermont is 
recognized.
    Mr. Sanders. Thank you for that point. Let me just ask a 
very simple question but obviously a question with huge human 
ramifications.
    We all know what the AIDS epidemic is doing throughout the 
world and in Africa and so forth. I think something like 5,000 
people a day are dying in Africa from AIDS. We also know that 
there are medicines and prescription drugs that are available 
that certainly can play a significant role in extending life 
and protecting people. And we also know that these drugs are 
extremely expensive. We know that here in the United States the 
pharmaceutical industry is the most powerful lobby. And the 
United States Congress is unable to take them on. They are too 
powerful for the United States Congress let alone poor African 
countries.
    What would you do if you were seated where we are seated in 
terms of understanding that God knows how many people will die 
because they don't have medicine, that the pharmaceutical 
industry is making certain to as great a degree as possible 
that they will not get medicine at a price that poor people can 
afford around the world, what strategies would you utilize? Mr. 
Orr?
    Mr. Orr. I think I have seen somewhere, Mr. Sanders, the 
statistic that something like $10 billion in additional 
resources is needed to combat AIDS and to treat-- to do more in 
prevention and to treat current HIV/AIDS- inflicted people. I 
think one of the most important things Congress could do is add 
pressure on administrations and other governments to increase 
funding for this objective.
    Mr. Sanders. But should we pay the prices that the 
pharmaceutical--you are right in one sense, obviously. But 
should we pay the prices that the pharmaceutical industry wants 
or is there some moral obligation to make sure that poor people 
around the world get drugs at a price that they can afford?
    Mr. Orr. I am by no means an expert on this, but my 
impression was that pharmaceutical companies had promised to 
make a number of price concessions to developing countries.
    Mr. Sanders. Yes, but if you are living on a dollar a day, 
price concessions. Yes, you can cut your prices in half or by a 
third but it is still like--
    Mr. Orr. Clearly, it has to be the international community 
that finances this at this stage for the poorest countries.
    Mr. Sanders. But what is the responsibility--my question is 
we can pay for these things. We can go to the American 
taxpayers and say, hey, it is $50 billion. Buy the drugs from 
the pharmaceutical industry at the price they want or maybe get 
a little discount. But what is the moral responsibility, what 
should we do about the pharmaceutical industry that make huge 
profits while people die?
    Mr. Orr. I don't think I have the answer.
    Mr. Sanders. Okay, thank you. Yes?
    Mr. Offenheiser. Well, Oxfam, along with Doctors Without 
Borders over a year or two ago began a global campaign to 
challenge the pharmaceutical industry on precisely these 
questions. And what we were fundamentally arguing was that the 
industry per se was making less than 1 percent of its profit on 
sales of these critical drugs in the developing countries.
    And that from our point of view, we could not see why there 
could not be approaches to what is commonly called tiered-
pricing for these markets where per capita income annually is 
very low as one approach. Or where you had extreme AIDS crises 
invoking what is already part of the WTO rules for clearing of 
public health emergency and producing generic drugs at lower 
prices. We were pleased with the progress made on this issue at 
Doha but were troubled that the industry seems to want to kind 
of reel it back a bit and tighten up the application of these 
rules in the developing countries.
    The industry I think for its part is struggling to find 
ways forward. And, unfortunately, some of the ways forward that 
they are opting for are more philanthropic approaches. While we 
are heartened that they are willing to distribute drugs in 
various countries, free in some cases, we think that is 
laudable, in our view it is not a systemic solution to the 
problem.
    In our view, what we do need when faced with a global 
pandemic of the sort that AIDS presents to us and TB as well, 
we need more systemic approaches to these kinds of problems 
that will make these kinds of pharmaceuticals available on a 
more routine basis in all of these developing country markets. 
And we are not sure if philanthropy is an adequate and 
sufficient response.
    Mr. Sanders. Do you support the right of countries like 
Brazil and India, I think it is compulsory licensing is what we 
are talking about?
    Mr. Offenheiser. Yes, we do. We very actively have 
supported the Brazil--we think Brazil is an exemplary case of a 
country that has responded to this public health crisis in ways 
that I don't know what else the international community could 
ask a country to do. And we think that in their case they have 
every right to invoke the compulsory licensing provisions and 
produce generics to address the problem, yes.
    Mr. Sanders. Okay, Reverend Beckmann, your thoughts on 
that?
    Rev. Beckmann. I would like to second what Ray just said. 
The only addition I would make is on the question of financing. 
The coalition around AIDS is particularly strong, partly 
because the problem is so severe but also partly because it is 
easier for us to empathize about people who are dying from AIDS 
than say, people who are dying because many girls never get to 
go to school.
    We can't imagine all the deaths that are taking place for 
all the other reasons. The international community ought to do 
everything possible to deal with the AIDS pandemic. It is 
really huge. But it is not the only problem. And so also the 
broader approach to helping get girls in school, providing 
agricultural development assistance, dealing with TB and 
malaria and all--
    Mr. Sanders. I absolutely agree but I was--but I think that 
the issue of the role of the pharmaceutical industry, in a 
sense withholding life-saving drugs, while they are the most 
profitable in the United States, raises very broad 
philosophical and moral issues, which--
    Rev. Beckmann. Makes sense to me.
    Mr. Sanders.--we have got to deal with. Ms. Lee?
    Ms. Lee. I just had a quick point to make in terms of the 
leverage of trade agreements and how we have written the 
intellectual property rights provisions into trade agreements 
like NAFTA and also the Vietnam bilateral trade agreement. The 
pharmaceutical companies I think have been very influential in 
shaping the trade agreements and using the leverage of access 
to the U.S. market in order to force other countries not to put 
in place the kinds of policies like compulsory licensing that 
would save a lot of lives but would cut into the profits of the 
pharmaceutical companies.
    And I think it is very important--Ray, you mentioned Doha 
and the declaration there, which we were very supportive of. 
And it is worth noting that the TPA bill before the U.S. 
Congress right now in fact contradicts the Doha declaration. 
That on the one hand the Doha declaration says that developing 
countries should have a longer implementation period for trips 
and the TPA bill instructs the U.S. negotiators to seek quicker 
implementation of trips even for the least developed countries. 
And these kinds of contradictions I think haven't been well 
resolved.
    We are putting a lot of priority into achieving, into 
getting developing countries to agree to enforce intellectual 
property rights in a way that will profit pharmaceutical 
companies but maybe take life-saving medicines out of the hands 
of people who desperately need them. And we think that is a 
real backwards way of using the negotiating leverage that we 
have in these trade agreements.
    Mr. Sanders. What I have found interesting, and it gets 
back to the issue of globalization and how it is manipulated 
and for whom it works and whom it doesn't work, everybody 
around here believes--not everybody but many people believe in 
unfettered free trade. Some of us for years, I don't believe in 
it, some of us for years have said, ``If you believe in free 
trade, why do American pharmacists and prescription drug 
distributors re-import drugs from Canada where they are sold--
the same exact drug is sold for 50 percent or in some cases 10 
percent of the price?'' The pharmaceutical industry fought us 
successfully.
    So I think your point is very well taken. But I would hope 
that this issue and the responsibility of the pharmaceutical 
industry, which has a product that can keep millions of people 
alive but is fighting hard to prevent that product from getting 
to the people at a price they can pay has got to be one of the 
great moral issues that we are addressing and the Congress has 
got to deal with that.
    Thanks very much for your comments.
    Chairman Bereuter. You will remember, Mr. Sanders, that the 
House has approved re-importation of drugs and the Secretary of 
HHS, both the Clinton and the Bush administration has refused 
to implement it. And yesterday or the day before, the Senate 
re-approved it and I think if it is brought to the House, we 
will re-approve it again.
    Mr. Sanders. But it will not be implemented because there 
will be loopholes in it and because the pharmaceutical industry 
makes huge contributions to the Republican Party, and all due 
respect. I know something about that issue because I first 
introduced it here in the Congress and basically the industry 
is too powerful for Congress to pass it.
    Chairman Bereuter. Well, Mr. Sanders, let's prove them 
wrong.
    Mr. Sanders. Good.
    Chairman Bereuter. There is too much--
    Mr. Sanders. I look forward to your vote when I bring that 
up.
    Chairman Bereuter. Absolutely. You have always had it. 
International cost shifting is an egregious abuse of the 
American public. International cost shifting gets worse and 
worse. They are charging what the market will bear here as the 
other countries across the world impose restraints. But that is 
a side issue that is related as you brought it up.
    One bit of advice in a sentence or two from you if I could 
get it and that is is it practicable for the U.S. to withhold a 
fixed amount of money as a rejection of aid to Iran? And I 
bring this up because of legislation introduced by Mr. Sherman 
and about which he talked today? Is it practicable because this 
will be a significant issue for us to address on the floor, if 
we bring this to the floor?
    Mr. Orr?
    Mr. Orr. I think there are ways that legislation can be 
written to have the same effect that Mr. Sherman wants to do, 
have the impact that Mr. Sherman wants to have. But a law that 
said the World Bank cannot lend to Iran or an appropriation 
that came with that stipulation would traditionally be rejected 
by the World Bank because of precedents dating back 30 or 40 
years.
    So attempts to condition funding against certain countries 
directly probably won't work but there are ways to do it. 
Legislative Counsel has found interesting ways to have the same 
impact.
    Chairman Bereuter. I will appreciate having your ideas in 
private on that because the conditionality has never been 
successfully pursued here in the past but it makes a big hurdle 
for those of us who might be advocates for the replenishment.
    Mr. Offenheiser?
    Mr. Offenheiser. I would just only make one brief comment 
and that is as the representative of a global humanitarian 
organization, we oftentimes find ourselves working in highly 
difficult national settings because of all sorts of 
humanitarian crises. And I guess what would trouble me a bit 
about the way that proposition goes forward, particularly if it 
can be replicated in other contexts, is where you have post-
conflict regimes that may not meet everyone's expectations in 
terms of quality, are we precluding responding to humanitarian 
need or to the needs of impoverished populations by issuing 
sort of blanket positions like that? So I guess I am a little 
reluctant to kind of support such a strong position that might 
be more binding than our initial intent.
    Chairman Bereuter. Thank you. Mr. Sanders, do you have 
anything else?
    Mr. Sanders. No, I have got a plane to catch.
    Chairman Bereuter. All right, I ask unanimous consent that 
the statement on behalf--a statement by Chairman Michael Oxley 
be a part of the record. And I did want to read one paragraph 
to the public here and to members of the committee and to 
witnesses.
    He says, ``I am encouraged by the proposal to change the 
way IDA gives aid to developing countries to a mixture of both 
loans and grants. This is perhaps the most creative approach to 
improving the operations of the development institutions that 
has arisen in some time. I believe that this proposal will 
result in not only better access to critical services but also 
could help reduce the crushing debt burden that the developing 
countries face.''
    [The prepared statement of Hon. Michael G. Oxley can be 
found on page 84 in the appendix.]
    Chairman Bereuter. In light of that statement and a very 
similar statement in the written statement of the Ranking 
Minority Member, Mr. LaFalce, I think that is an encouraging 
expression of viewpoints by the leaders of the full committee.
    I don't recall a hearing which I have found more 
interesting or stimulating for a very, very long time. So I 
want to thank the witnesses for their excellent testimony and 
your responses to our questions. They have been very helpful.
    Mr. Sanders. Let me concur in that. Thank you all very 
much.
    Chairman Bereuter. Thank you gentlemen and lady. And the 
hearing is adjourned.
    [Whereupon, at 12:15 p.m., the subcommittee was adjourned.]


                      REAUTHORIZATION REQUESTS ON



                U.S. PARTICIPATION IN THE INTERNATIONAL



                    DEVELOPMENT ASSOCIATION AND THE



                        AFRICAN DEVELOPMENT BANK

                              ----------                              


                        Thursday, July 25, 2002

             U.S. House of Representatives,
                     Subcommittee on International 
                         Monetary Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 1:55 p.m., in 
Room 2128, Rayburn House Office Building, Hon. Doug Bereuter 
[chairman of the subcommittee] presiding.
    Present: Representatives Bereuter, Ose, Sanders, Frank, 
Watt, Carson, Schakowsky, Gutierrez, and Bentsen.
    Chairman Bereuter. The Subcommittee on International 
Monetary Policy and Trade today is meeting in open session to 
examine the administration's authorization request for the 
International Development Association, IDA, and the African 
Development Fund.
    I apologize for the late start. We have been involved in a 
series of three votes. Mr. Secretary, I appreciate your 
patience and those of you in attendance. Mr. Sanders has been 
here. He will be back shortly, but I think we have been 
authorized to go ahead with the agreement of Mr. Watt and Mr. 
Bentsen, too, now.
    On July 18th, 2002, the administration submitted the 
following two authorization requests to House Speaker Dennis 
Hastert, copies of which are at each member's desk, $2.85 
billion for the thirteenth replenishment of IDA and $354 
million for the ninth replacement of the African Development 
Fund.
    [The following information can be found on page 147 and 150 
in the appendix.]
    Chairman Bereuter. Earlier this week we also received the 
administration's request for the North American Development 
Bank, and that is now being distributed to members.
    Chairman Bereuter. So this hearing is the fourth in a 
series of subcommittee hearings on IDA and the African 
Development Fund.
    I ask unanimous consent that my entire statement be made a 
part of the record and I will summarize it. And all members may 
have their entire statements printed in the record, including 
that of the ranking Democrat member of the full committee John 
LaFalce. Is there objection?
    Hearing no objection, that will be the order.
    First, I would like to go to the thirteenth replenishment 
of IDA and give some preliminary remarks on four areas.
    The first, as I said, is on the thirteenth replenishment of 
IDA. For fiscal year 2003, the administration is requesting 
$850 million for the first of three U.S. scheduled 
contributions under IDA 13, plus 24.3 million to pay one-third 
of the outstanding U.S. arrearages.
    The total 3-year U.S. commitment to IDA 13 is 2.55 billion, 
with a possible increase up to 2.85 billion based on IDA's 
satisfactory achievement against key performance measures. With 
these increases, the annual average U.S. commitment to the IDA 
13 replenishment would represent an 18.2 percent increase over 
the U.S. annual commitment under the previous IDA 12 
replenishment.
    The agreement for the thirteenth replenishment of IDA 
includes two major reforms which were initiated by the United 
States--conversion of loans to grants and the establishment of 
performance standards. With respect to the issue of loans to 
grants, in July of 2001 President Bush proposed that the World 
Bank and other multilateral development banks replace up to 50 
percent of future lending to the world's poorest countries with 
grants. This proposal was controversial with some IDA donors 
and borrowing countries. The British and Germans, for example, 
were concerned it said that the loss of loan reflows would hurt 
the long-term viability of the IDA program without significant 
new commitments from donors, and Japan feared the broader use 
of grants would create an unhealthy dependency on foreign aid 
and hinder the development of international creditworthiness.
    In early July of this year, IDA donors agreed to a complex 
plan to convert 18 percent to 21 percent of future IDA loans to 
grants. Under this plan, IDA-only countries will receive 100 
percent of their assistance for HIV/AIDS and natural disaster 
reconstruction projects on grant terms. Further, post-conflict 
countries and debt-vulnerable countries with a per capita 
income of less than $1 per day will receive 40 percent of their 
assistance on grant terms separate from and in addition to HIV/
AIDS or natural disaster funds. All other countries with a per 
capita income of less than $1 per day will receive 23 percent 
of their assistance in the form of grants, again separate from 
and in addition to HIV/AIDS and natural disasters.
    With regard to performance standards, the second major 
reform, IDA 13 directly links multilateral development aid to 
meaningful governmental and social reform.
    The U.S. administration has promised a $100 million 
increase in year 2 funds and a $200 million increase in year 3 
funds if IDA demonstrates progress in developing reliable 
measuring tools, advancing specific health and education 
programs, and increasing steps taken toward market 
liberalization. This U.S. plan to increase donations in return 
for certain broad results incentivizes the systemic change 
necessary for sustainable development.
    Number two, the ninth replenishment of the African 
Development Fund--a lot of attention on this subject by members 
of this subcommittee. Here, we have to consider not only the 
ninth replenishment of the African Development Fund, the 
concessionary lending, an affiliate of the African Development 
Bank; the Fund also, it needs to be said, provides loans on 
consensual terms, 40 to 50 years maturity, including a 10-year 
grace period, zero percent interest, 0.75 service charge, and 
0.50 percent commitment fee to Africa's poorest countries.
    In fiscal year 2003, the administration is requesting 118 
million for the first installment of a 3-year commitment under 
the ninth replenishment of the African Development Fund. In 
addition, they are seeking--I am not sure I have the complete 
number here. Is that in fact the case? I will simply pass that 
number up and say they are seeking to clear one-third of 
outstanding arrearages.
    This committee has looked with some particular attention at 
the African Development Bank and Fund because, by all accounts, 
it has been the weakest of the regional multilateral 
development institutions. At the subcommittee's hearings on 
this subject on April 25th of last year, we learned that the 
African Development Fund suffered both a serious fiscal and a 
managerial crisis in the early 1900s. From 1993 to 1997 the 
U.S. made virtually no contributions to the African Development 
Bank and Fund. The U.S. Also led other nonregional members in 
suspending negotiations for a new replenishment until reforms 
had been implemented.
    However, in 1995 the African Development Bank and Fund 
elected Omar Kabbaj, a Moroccan finance official, as the new 
president. He has implemented fiscal and managerial reforms and 
as endorsement of Kabbaj-initiated reforms, U.S. contributions 
to the African Development Fund resumed in 1998 and to the 
African Development Bank in fiscal year 2000. And President 
Kabbaj was unanimously appointed to a second 5-year term in May 
of 2000.
    The third element of points I would like to cover, the 
third replenishment of the Global Environmental Facility. I 
won't go into the responsibilities of the fund. I think they 
are fairly well known by members.
    One thing we would note here, I don't know if it has come 
to the attention of all members, but according to a 
Congressional Research Service legal opinion, which I 
requested, authorization for the GEF appears to be provided by 
prior appropriation legislation, Public Law No. 103-306.
    As the chairman of the subcommittee which authorizes GEF, 
and perhaps speaking for all authorizers in the Congress, I am 
upset, concerned about the fact that this is said perhaps to be 
a permanent authorization provided through an appropriation 
bill.
    Fourth, the Regional Multilateral Development Bank 
legislation. As you know, we have legislation pending before 
the Senate at this point. I will hope other members will join 
me in pushing for action with Chairman Biden.
    With that background, I would like to introduce Dr. John 
Taylor, the Under Secretary of Treasury for International 
Affairs, who will, I am sure, assist the subcommittee in 
examining these important issues. This is the second time that 
Dr. Taylor has appeared before the subcommittee. On February 
6th, 2002, he testified on the Argentina financial crisis. And 
without exception, Secretary Taylor has been very helpful, 
cooperative, forthright in all of his contacts with the 
committee.
    He has a very distinguished academic and professional 
record. He received an undergraduate degree from Princeton 
University and a Ph.D. From Stanford University; he has taught 
economics at Columbia, Yale, Princeton and Stanford 
Universities. He also has directed the Monetary Policy Research 
Program at the Stanford Institute for Economic Policy and 
Research.
    In addition to these academic positions, Dr. Taylor was a 
member of the President'S Council of Economic Advisors during 
the administration of President George Herbert Walker Bush.
    We are going to permit you to speak in a couple minutes, 
Mr. Secretary, but I want to now turn to the distinguished 
ranking member of the subcommittee, the gentleman from Vermont, 
Mr. Sanders.
    [The prepared statement of Hon. Doug Bereuter can be found 
on page 126 in the appendix.]
    Mr. Sanders. Thank you, Mr. Chairman. And I apologize for 
being late. I am going to have to be running in and out. But I 
thank you for holding this important hearing.
    We welcome Mr. Taylor. Thank you very much for being with 
us.
    As we all know, the International Development Association, 
the poor countries' lending arm of the World Bank is up for 
reauthorization this year, and we look forward to working with 
the chairman and other members of the committee on that 
legislation.
    The World Bank was originally set up to end global poverty. 
Unfortunately, many economists, labor unions, NGOs, religious 
groups, and others have strong concerns that the policies of 
the World Bank and the IMF, which often support unfettered free 
trade privatization and slashing social safety nets of 
countries in order to balance their budgets, have contributed 
to increasing global poverty.
    Mr. Chairman I would like to briefly quote, I don't know if 
some of--if you saw an article that appeared on the July 19th 
front page of the New York Times. Let me just quote some of 
that article. I think it is important for us all to hear this.
    ``Across Latin America millions of others are also letting 
their voices be heard. A popular and political ground swell is 
building from the Andes to Argentina against a decade old 
experiment with free market capitalism. The reforms that have 
shrunk the state and opened markets to foreign competition many 
believe have enriched corrupt officials and faceless multi 
nationals and failed to better their lives.'' .
    The article continues, and I quote the New York Times:
    ``Indeed 44 percent of Latin Americans still live in 
poverty and the number of unemployed workers has more than 
doubled in a decade. Tens of millions of others, in some 
countries up to 70 percent of all workers, toil in the region's 
vast informal economy, as street vendors, for instance, barely 
making ends meet.
    Economic growth has been essentially flat for the last 5 
years. Popular perceptions revealed in street protests, opinion 
polls and ballot boxes are clearly shifting against the 
economic prescriptions for open markets, less government, and 
tighter budgets than American officials and international 
financial institutions have preferred.''
    I hope everybody heard that.
    In fact, a regional survey supported by the InterAmerican 
Development Bank found last year that 63 percent of respondents 
across 17 countries in the region, that is, Latin America, said 
that privatization had not been beneficial.
    And this, by the way, is Latin America. I think the same 
tale is being told in many countries throughout the world.
    I won't--I will just introduce my statement for the record, 
Mr. Chairman. I won't read the whole thing. But I think it is 
time not to keep saying the same old things. Year after year, 
we hear people saying free trade is just great, it is 
wonderful. But you know what, unfettered free trade has been a 
disaster for American workers. We have lost 10 percent of our 
manufacturing base over the last 4 years. It has equally been a 
disaster for many, many poor people throughout the Third World. 
Privatization has not been a miracle.
    What you are hearing here is, people in Latin America do 
not necessarily think it is a good idea when most industries 
are given over to foreigners who could care less about their 
existence and jobs in their own country.
    Free market competition has not necessarily been good for 
agriculture. When poor countries are forced to develop crops 
that export and those prices go up and down, when they go down 
as they have in recent years, it is a disaster. And it is a 
very scary situation that many poor people around the world are 
unable to grow the subsistence in food that they need, and on 
and on it goes.
    So I think, Mr. Chairman, what you are increasingly seeing 
all over the world--and I think is even trickling into the 
United States Congress when Republican leadership really had to 
twist some arms severely for the last fast track agreement that 
passed by one vote--that a lot of people are beginning to 
rethink what the IMF and the World Bank has told us in the 
sense it is not working for poor people around the world nor is 
it working for American workers.
    With that, I would ask unanimous consent to submit my full 
statement into the record.
    Chairman Bereuter. Thank you, Mr. Sanders. I have received 
unanimous consent for all members already.
    [The prepared statement of Hon. Bernard Sanders can be 
found on page 135 in the appendix.]
    Chairman Bereuter. Are there other members of the committee 
who wish to have opening statements? Under the rules, you are 
entitled to 3 minutes.
    The gentleman from Texas, Mr. Gonzalez.
    Mr. Gonzalez. Thank you, Mr. Chairman. And I do thank you 
for calling this hearing today. I am particularly interested in 
what Under Secretary Taylor has to say concerning the North 
American Development Bank. As you may know NAD Bank, is located 
in my district, it is the only multilateral development bank 
dedicated to the United States-Mexico border.
    This past May, this subcommittee did in fact hold hearings 
on that bank. It is apparent from that hearing that NAD Bank is 
critical to the economic development of the United States-
Mexican border and that, in my view, Treasury has not been 
especially forthcoming either with this committee or with 
border communities as to what their specific reform proposals 
are concerning NAD Bank.
    I will hope, and do hope, that Under Secretary Taylor will 
use today's hearing to open the doors to what exactly the 
administration's plans are with NAD Bank, and start to open a 
full dialogue with Congress and other communities as to how 
best to improve this important situation. I would hope that he 
would expand on the latest initiative and what would be in 
store later in the year around September.
    I yield back. Thank you very much.
    Chairman Bereuter. Thank you, Mr. Gonzalez. To be fair, to 
be up front about this, we did not request Secretary Taylor to 
present testimony on the North American Development Bank 
because we didn't know that the authorization request would be 
coming to us this week. Now, if he wishes to give some 
preliminary comments today, that would be most welcome. But he 
has not been asked to be prepared on that subject.
    Mr. Gonzalez. The only reason I bring it up, sir, is that 
we were informed that he was going to address it. And that 
may--it may not be good information, but if we have that 
opportunity, I would welcome it and would seek the Chair's 
indulgence. Thank you very much.
    Chairman Bereuter. You certainly have that. And Secretary 
Taylor will be invited to make any comments on that subject, 
but it was not in the invitation. I just wanted that to be 
known.
    Secretary Taylor, again thank you for the cooperative 
attitude and spirit that you have always displayed since you 
have come to your position with respect to the subcommittee and 
committee. Your entire written statement will be made a part of 
the record and you may proceed as you wish.

  STATEMENT OF THE HONORABLE JOHN TAYLOR, UNDER SECRETARY FOR 
       INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF TREASURY

    Mr. Taylor. Thank you very much, Chairman Bereuter, for 
your kind remarks and for inviting me to this hearing, along 
with the other members. As I understand, the topic of the 
hearing is the reforms we are trying to put through the 
multilateral development banks, as well as the reauthorization 
request for the International Development Association, IDA, and 
the African Development Fund.
    My testimony does touch on the North American Development 
Bank in the written version. I wasn't planning on discussing it 
in my opening remarks, but I would be very happy to answer any 
questions that Mr. Gonzalez might have. I would like to focus 
my opening remarks on IDA and the African Development Fund.
    The reform of the multilateral development banks has been 
one of the highest priorities of the Bush administration's 
international American agenda. Improving the effectiveness of 
these development banks means making them more effective in 
raising economic growth and improving the lives of the poor in 
all parts of the world. We think that they can improve a lot in 
these regards, and have put forth a number of specific reforms, 
some of which you mentioned in your opening remarks, Mr. 
Chairman.
    I would mention three specific reforms that we pursued most 
actively: first, an insistence on measuring the results of 
their activities; second, a conversion of grants to loans to 
the very poorest countries; and third, a focus on increasing 
productivity growth, which is the ultimate source of poverty 
reduction.
    I am happy to say, after long negotiations and very hard 
work by the Treasury staff, that we have made progress on all 
of these fronts; and I think this progress provides grounds for 
our request for authorization and for appropriations for the 
MDBs. Total appropriation requests for fiscal year 2003 is 
1.437 billion for all the MDBs.
    In the case of IDA, the authorization request is for an 18 
percent increase over the previous replenishment. In fact, it 
is an 18 percent increase over the replenishment before that. 
So it is a substantial increase compared to recent history. I 
think it is very important that this requested increase entails 
a new focus on measuring and achieving results from our IDA 
funding.
    For the first time ever, part of the requested funds will 
be contingent on achieving results in particular areas, first, 
creating a new measurement system--believe it or not, a 
measurement system has not been developed yet so that we can 
measure results--but, in addition, to look for real 
improvements in certain particular areas such as health, and 
here we are looking at immunization rates improvement; and 
education, and here we are looking for improvement in primary 
school completion rates; and in private sector development, 
here we are looking for reductions in the cost it takes to 
start up businesses.
    I will say that without achievement of these stated 
objectives the administration will not seek appropriations for 
that additional funding which amounts, over 2 years, to $300 
million. I think this is just the start of a fundamental shift 
of focus on the multilateral development banks to measure 
results. It means stating in quantitative terms the expected 
results of individual projects that we support and overall 
country assistance before providing the funding.
    This agreement also includes a substantial increase in the 
amount of funding in the form of grants--as you stated, Mr. 
Chairman, grants going to the poorest countries--and it largely 
fulfills the vision that President Bush put forward last 
summer. It is a real victory which will make a difference in 
the operation of IDA.
    In addition, there is another first-time accomplishment, 
and that is that part of IDA funds can be used to help private 
sector development. Here the idea is that IDA can work along 
with the International Finance Corporation, the arm of the 
World Bank Group that provides financing to the private sector. 
So that it can develop in ways that we couldn't before the 
private sector itself.
    Let me briefly say some--give some remarks on the African 
Development Fund. Negotiations for the ninth replenishment are 
not complete unlike the negotiations for IDA 13. We have 
reached agreement on certain things, such as the importance of 
measurable results and the importance of better coordination 
with the other multilateral development banks, and in 
particular, the World Bank in Africa, as well as bilateral 
donors.
    Two issues remain which are not settled in these 
negotiations; one is the overall size of the replenishment, and 
second is how much will be in the form of grants.
    President Bush's proposal was that all the MDBs would shift 
a substantial amount of their funding towards grants, and we 
expect that the African Development Fund will adopt a grants 
program which is similar in its characteristics to that which 
we successfully negotiated in IDA.
    Let me say, just to conclude my opening remarks, Mr. 
Chairman, to say that MDB reform has been a very high priority 
to us. I believe that steady progress is being made in 
achieving our objectives with each of the institutions, and 
that, for that reason, these authorizations will allow us--
should be approved and will allow us to make further progress.
    I would like to say that I want to work hard, along with 
the staff of International Affairs at Treasury, to pursue these 
goals. I will endeavor to be demanding of the institutions, to 
set high standards for them in order to make them more 
effective in raising living standards around the world.
    Thank you, Mr. Chairman. I will be happy to answer any 
questions, and I hope you can put my full testimony in the 
record.
    Chairman Bereuter. That has been ordered. Thank you very 
much Mr. Secretary for your remarks and for your statement.
    [The prepared statement of Hon. John Taylor can be found on 
page 141 in the appendix.]
    Chairman Bereuter. We will now proceed under the 5-minute 
rule, and I will recognize myself, then Mr. Sanders when he 
returns, if he is here at that time; then Mr. Bentsen and Mr. 
Watt were also here at the beginning of the hearing. Then we 
will take members as they appeared. We think we have an 
accurate record of that.
    Mr. Secretary, my first question would be how IDA 13's 
program, with its new performance standards, would be 
reconciled, coordinated with the Millennium Challenge Account. 
And how would you see any kind of coordination or effort 
between our bilateral programs, which are handed out of the 
State Department, and what you are attempting to accomplish 
through multilateral institutions and Treasury's dominant role 
in the U.S. participation in those multilateral development 
banks?
    Could you speak to the Millennium Account and the bilateral 
aid and what you are attempting to accomplish.
    Mr. Taylor. There are some similarities between our reform 
efforts in the multilateral development banks and the 
President's proposal for the Millennium Challenge Account. One 
similarity is the emphasis on measurable results. Another 
similarity is the emphasis on policy performance.
    In the multilateral development banks we have been working 
towards an allocation of resources to countries who have 
policies that are more conducive to economic growth. But that 
really is the most important aspect of President Bush's 
proposal for the Millennium Challenge Account. As you know, he 
wants to increase funding on bilateral assistance by 50 
percent. It is not decided what the form of that will be, but 
the total is there; and the way in which it was delivered will 
be there, and that is by policies that endeavor to invest in 
people that encourage economic freedom and that encourage good 
governance to rule justly.
    Now, the interaction between these, I think is something we 
need to focus on very much. My observation from traveling and 
observing on the ground the operation of the MDBs and the 
operation of our bilateral systems, other countries' bilateral 
assistance, is there is an enormous amount of improvement we 
can do in coordination. We want to work towards that.
    I can assure you, as we develop the MCA, how they are 
actually used and disbursed, it will be very high priority for 
to us get that coordination right.
    Chairman Bereuter. Thank you. I think the disbursement 
coordination is a major problem. If we just, at least, manage 
to coordinate our involvement through the MDBs, those 
disbursements with our own bilateral, that would be a major 
step forward.
    Mr. Secretary, during our hearing last week a number of 
witnesses suggested that the Treasury Department ought to take 
a more active role in promoting the successes of IDA and 
highlighting the positive role that the U.S., through such 
multilateral institutions, has played in improving conditions 
throughout the world. Others felt this was an inappropriate 
task for Treasury and that public education funds should be 
handled elsewhere.
    I would be interested to see, to hear, if you have any 
comments on that suggestion.
    Mr. Taylor. Well, my comments are that we should do our 
very best to communicate what we are doing with these 
institutions and to lay the facts out, both the successes and 
the failures of the institution, so that we can improve them. I 
think the obligation here is to show how foreign aid can be 
useful, and in particular, this kind of foreign aid; but also 
to be very demanding.
    I think the position that we have been taking is to be 
demanding of the institutions, to point out successes and 
failures. That is what I think is the most effective thing we 
can do to the American public and to the voters. They want to 
see results from the funds, from the taxpayer funds. If we are 
convincing and straightforward in presenting the results, I 
think that is the best thing we should do.
    Chairman Bereuter. Thank you, Mr. Secretary.
    I yield the balance of my time to Mr. Watt, who was here at 
the beginning.
    The gentleman is recognized for 5 minutes.
    Mr. Watt. Mr. Chairman, I think I will pass.
    Chairman Bereuter. Then we will recognize Mr. Bentsen.
    Mr. Bentsen. Thank you, Mr. Chairman.
    Mr. Secretary, I want to say at the outset that I am 
actually pretty pleased with the administration's proposal to 
expand the use of grants and to do so, hopefully, in 
conjunction with debt forgiveness, because I think it is a 
mistake to go through a period of debt forgiveness and then 
just go straight back to the soft window. And then, in fact, 
the studies you referenced, the GAO study and others, have 
shown that that would be meaningless because we would be back 
in debt forgiveness again.
    You mentioned that it is the administration's intent to 
increase bilateral assistance by 50 percent over a period of 
time, if I understood you correctly; and I assume this would be 
related to the--in large part, to the grant program to the 
extent, at least, of meeting the new level that has been worked 
out in IDA 13, and then hopefully getting our partners to agree 
to a higher ratio.
    I personally think it is ludicrous that our European 
partners have objected to this thinking that we would not be 
putting up the money. But I am eager to hear from you exactly 
how the administration plans to fund this increase over the 
next several years.
    We are in a pretty tight budgetary situation. It doesn't 
appear to be getting all that much better. As you know, this is 
probably the hardest money to get from Congress, but I do think 
it is important.
    Is the commitment from the administration as strong as it 
ought to be?
    Mr. Taylor. Thank you for your remarks about the grants. It 
is indeed related to the debt forgiveness operation, because 
one of the advantages of grants is, it provides assistance 
without adding to the debt burden of countries, especially in 
areas where the effect of a loan would not be something that 
would generate revenue.
    So, for example, support for HIV/AIDS, which will be 100 
percent grants from now on instead of loans, makes so much 
sense.
    The 50 percent increase in funding I mentioned wasn't 
particularly associated with the Millennium Challenge Account. 
The Millennium Challenge Account will--over a period of 3 years 
will rise to 50 percent of our current foreign assistance. It 
is separate; it is over and above the amount that would be 
going to the IDA, into the other existing foreign assistance.
    Your question about funding for the grants is a very 
important one. I agree very much with the General Accounting 
Office study which showed that because of the fact that the 
loans are now very concessional and payments occur years in the 
future, it actually requires a very small increase in funding 
to offset the loss from the reflows of the loans. In fact, it 
is quite remarkable; GAO showed that even for a larger grant 
program than we ultimately negotiated, it would require an 
increase in IDA less than the rate of inflation over the coming 
years. So it is--actually it could even be a decline in real 
terms.
    So I feel very confident that as long as we continue 
support for IDA at the levels that we have been--and I hope 
with the achievement of results that we can do more than that--
that we will be able to support this grant program. And that is 
the arithmetic.
    Mr. Bentsen. I agree with your arithmetic.
    I want to ask you--I am not sure what the arithmetic is at 
the Office of Management and Budget and whether or not, because 
of the way that these items are scored, and I honestly don't 
know--whether there is a different scoring mechanism. You may--
between the grants and loans, whether or not you have to score 
the grant allocation up front, as opposed to loans and being 
able to amortize it and spread it out over time. So that is one 
concern I have, if you could address it either now or for the 
record.
    And the other is--you probably can address this--the 
political question, again with the Office of Management and 
Budget, because we hear a lot of folks within the 
administration say things they are for, and then your 
colleague, Mr. Daniels, comes up and seems to be saying 
something different.
    And so I just hope that the commitment really is there.
    Let me ask in my remaining time two things. One is, you 
talk about going to a results-oriented approach as well; and I 
think that is good. The recent IDA conference came up with the 
idea of the PSR, the country-specific paper of what the 
country's plan would be.
    What goals does the United States have for ensuring that 
there is sufficient NGO and public involvement, as opposed to 
all governmental involvement in preparing that document; and 
what goal--what is the administration's plan for ensuring that 
we don't--that this just isn't a new plan like the old plan, 
and we end up with either a one-size-fits-all or another ESAF-
save or something like that.
    Mr. Taylor. Well, the poverty reduction strategy papers do 
involve NGOs in a wide community input. I think the purpose is 
to have ownership of this from a broad segment of society. I 
think what we have tried to do is emphasize ownership, in the 
countries, of the programs and policies they want to follow. We 
will continue to do that as best we can.
    The measurable results are more for what the country 
decides what they want to do. So, for example, increase 
enrollment in schools; once that is decided, then we want the 
grant or the loan to have the specifics of how much the 
enrollment will increase by what dates. And those results will 
be monitored, and we will hold the institutions to those 
results. So that is how it fits in.
    The concept that what should be done, whether it is 
education, health or particular kinds of help will be over this 
overall process where we emphasize the full participation in 
the democracy, as well as the ownership of the countries. But 
once it is decided, then we want to be very specific that this 
is what you are getting for your money, this is what we want to 
get for our money, and this is the time line.
    Mr. Bentsen. My time is up, but if I could interpret what 
you said, then it would be the administration's position that 
you would set your goals based upon PSR in consultation with 
the beneficiary country?
    Mr. Taylor. Yes.
    Mr. Bentsen. Thank you, Mr. Chairman.
    Chairman Bereuter. Thank you, Mr. Bentsen.
    The gentleman from Vermont, Mr. Sanders, is recognized.
    Mr. Sanders. Mr. Chairman, I apologize again for having to 
run out.
    Mr. Taylor, let me just change the direction of the 
discussion a little bit. I want to get your point of view on 
the administration's point of view. You heard me a moment ago 
read an article from the New York Times. Let me read again the, 
quote, ``popular perceptions''--this is dealing with Latin 
America, but the truth is, this is, I think, a sentiment which 
exists increasingly around the world.
    ``popular perceptions revealed in street protests, opinion 
polls and ballot boxes are clearly shifting against economic 
prescriptions for open markets, less government, and tighter 
budgets that American officials and international financial 
institutions have preferred. Sixty-three percent of respondents 
across 17 Latin American countries felt that privatization had 
not been beneficial.'' .
    Is the growing opposition to the formula of the World Bank 
and the IMF the fact that more and more people think that that 
is working to benefit the wealthy and corrupt officials, rather 
than ordinary people? Does that have any impact on the 
administration's thinking?
    Mr. Taylor. I don't know the survey explicitly that the 
article refers to. I would like to look at it carefully. It 
seems to lump in things which some people can like and some 
people could not like. ``Tighter budgets'' has a connotation 
that maybe it is too tight, maybe it is not providing the 
services that it might. If someone asked me if I am in favor of 
tight budgets, I guess it depends on what is being tightened.
    ``open markets,'' I think what I observe from traveling 
around the world and talking with people is that there is a 
perception of a great benefit from opening markets. And in 
terms of Latin America, the Chilean economy is doing very well 
by opening. And even closer to home, America, Mexico is a much 
different economy now. It is one of the real stars in Latin 
America, getting investment grade rating.
    Central America, El Salvador, is opening and emphasizing 
the private sector. And as I go around and look, I see the 
private sector as really the source of poverty reduction. The 
private sector is creating jobs. Everywhere you go, if you want 
to see a job created that is higher wage or raising 
productivity, it is in the private sector.
    That is just trying to answer your question.
    Mr. Sanders. That is fair enough. You are right in pointing 
out in some countries, actually some of these neo-liberal 
reforms have been successful. But in many other countries, and 
you have cited some of them, Chile being a good example--in 
Mexico, I don't have the statistics in front of me, but my 
understanding is that poverty, while some good things have 
happened in Mexico, there is an increase in poverty, an 
increase in child labor. And then, in fact, the average Mexican 
worker, as I understand it, is worse off today than they were 
before NAFTA, for example.
    So it is working to some degree, but in many, many 
countries it is not working.
    What I think you are seeing is that people are saying, 
well, opening up our markets, completely moving toward 
privatization, cutting back on health care, education, food 
subsidies in order to get IMF loans and World Bank assistance 
may not be doing so well. And, you know, in Argentina we have a 
disaster; in Venezuela you have a disaster; and there is 
growing sentiment against it.
    So I am just kind of curious if these types of political 
sentiments have had an impact on your feeling about the wisdom 
of the IMF and World Bank approach.
    Mr. Taylor. I am disappointed that growth is not more rapid 
in Latin America. The best measure of growth I know is 
productivity growth; it is how much more workers can produce 
and, therefore, get paid per hour. And it is--productivity 
growth in Latin America is lower than the United States. They 
are way behind in terms of income per capita. It should be 
higher.
    But I am also disappointed about productivity growth not 
being higher in Africa. In China, it is much better.
    But we can do a lot better. We can do much better than we 
are, and that is why we are trying this reform effort to do 
what we can.
    Mr. Sanders. People very often, when they talk about 
developing countries, they talk about China. But China has done 
everything in the last--with the exception of the last few 
years, they have done an entire process in opposition to what 
the IMF and the World Bank do. They have closed their 
boundaries, they have heavy state involvement in their economy. 
The people say, Isn't it interesting how China has gone a long 
way to eliminate poverty? But they have not accepted the IMF 
and World Bank formula.
    Mr. Taylor. I think there is lot of advice that the World 
Bank and IMF give that you can criticize from time to time, and 
some advice you can say makes a lot of sense. The fact is, the 
World bank feels they made a lot of positive suggestions with 
respect to China. The Chinese have pointed out it is good 
advice they have been getting. I think if you go to Shanghai, 
you see the private sector thriving, you see foreign investment 
thriving, you see the great possibilities because of openness, 
because of the WTO. It is exciting.
    It seems to me the things you see are this openness and 
this emphasis on the private sectors and markets.
    Mr. Sanders. But China has been in the WTO for 3 months or 
5 months. They have been doing what they have been doing for 
decades and doing exactly opposite of what the IMF recommends 
to many other poor countries. And people say, Look at China, 
look at well their economy. It doesn't make a lot of sense to 
me.
    I would end my questions by suggesting that laissez-faire, 
unfettered capitalism does not always work for all people 
around the world and, in fact, has caused a lot of suffering. I 
would hope we rethink some aspects of that.
    Thank you very much.
    Chairman Bereuter. Thank you, Mr. Sanders.
    The gentleman from Texas, Mr. Gonzalez, is recognized.
    Mr. Gonzalez. Mr. Chairman, I would be glad to defer to the 
other members that are here to pose questions to the Secretary 
on those matters that he was noticed on; but I would reserve 
the right and the privilege to ask questions regarding NAD Bank 
at the conclusion of the other members' questions relating to 
those topics.
    Chairman Bereuter. Thank you. That is very courteous. Then 
we would move to Mr. Frank.
    Mr. Frank. Mr. Secretary, I am very pleased that we appear 
to be reaching what I think is a consensus, namely that 
substituting grants for loans makes a great deal of sense when 
you are talking about very poor countries, as long as there is 
a commitment to prevent that from leading to a lower level of 
activity.
    And your reference--when Secretary O'Neill testified here 
earlier, I asked him that. I have a letter from him, March 
28th, which isn't as categorical as I would like--unusual for 
Mr. O'Neill for being less categorical than people want, but I 
think your comments reassure me, namely, am I correct to say 
that our position is that, assuming you get agreement on the 
poverty measurement, the effectiveness measurement, assuming 
things are being done well, our position would be that we would 
be prepared as a country--and you mentioned how relatively 
small the amounts are under the GAO study--that we are in fact 
prepared to put our money where our mouth is, and that to the 
extent that we get what we think is appropriate and we 
substitute grants for loans, we would make up any difference 
that there might be from the lack of reforms? Is that accurate?
    Mr. Taylor. Yes.
    Mr. Frank. I appreciate that. I think that very much 
advances where we are.
    The next specific question I had has to do with, you 
mentioned the private sector, and I know there was a meeting of 
the deputies at IDA dealing with this. And one of the things we 
are talking about up to this poverty reduction and health and 
education, there is also the infrastructure question, and I 
guess one of these days we have to deal with it.
    And I share Mr. Sanders' skepticism that unrestrained, 
unregulated capitalism is the answer to everything. It does 
seem to me there is clearly a private sector role in the 
provision of some essential services, and the question is, how 
do we structure that in the utility area and in infrastructure.
    You talked about some ways of doing that. One of the ways 
you talked about was drawing on the International Finance 
Corporation as part of this.
    I want to make a declaration. I have a personal 
relationship with an employee of the IFC, so I want to get the 
record clear here. But that does seem to me to have something 
to do--how would you see that being worked out in conjunction 
with this? How could we most make some kind of synergy possible 
there, without raising the kind of flags that the people would 
be troubled by?
    Mr. Taylor. Well, let me give you an example of something 
that we are working on. It hasn't been completely developed 
yet, but I think it is a good answer to your question.
    One of the most difficult areas in terms of our helping the 
development of the private sector, small-, medium-sized 
businesses is really where a lot of jobs are created, and in 
many developing countries, it is very hard for this 
entrepreneurial sector to get financing. So one of the 
proposals we are working on is where IDA could contribute some 
small funds for small loans in some financial institutions--
more ``microlending,'' as it is uniquely called--and the IFC 
could help organize that as part of their emphasis on the 
private sector. So that is an example.
    Also, some of the IDA assistance could be for technical 
assistance to make this micro--.
    Mr. Frank. So IDA funds do utilize the expertise of the IFC 
in distributing these funds? I must say that sounds plausible 
to me, the great deal of support for the small and medium 
enterprise.
    You mentioned microlending, but by the time you get to 
them, you are beyond microlending. But the notion of increased 
lending to smaller entrepreneurs drawing on IFC's--I would be 
interested, not necessarily now, but as we get to a marking up 
stage, in any suggestions you might have about how we could 
best implement that.
    Mr. Frank. My last point a more general one. I am pleased 
that we are talking about a 50 percent increase; I just want to 
know whether it is enough. We are the richest society in the 
history of the world. When we need to find money, we can find 
it. It isn't totally free, but it does seem to me, if we were 
talking about leveraging some money, a relatively small amount 
in terms of the Federal budget going to places of desperate 
poverty would be very important.
    Now, we are talking about economic development, but we are 
also talking about poverty reduction. We read about famine now 
in Africa and, of course, the devastation of AIDS. Is there any 
reason why we shouldn't just--when you say, ``I am 
encouraged,'' you appear to be telling us that there is 
increased confidence on the part of the administration that we 
are able to send money with some confidence that it is being 
spent well, we have a new organization in Africa trying to put 
more focus in the way we want.
    Given that, is there any reason why we don't significantly 
increase by a couple of billion dollars to try and alleviate 
the abject human misery that we see over there? Are there ways 
that we could even go beyond this to encourage, both 
bilaterally and multilaterally? I think none of us--obviously 
we are the richest country in the world, and there are kids 
starving to death. Can we do more about that?
    Mr. Taylor. Our proposals are to increase substantially the 
foreign aid. They are matched, substantially. You compare--
historical comparisons, whatever you want to do, and they are 
matched with this assistance on measuring results and getting 
something for the funds, which I think is essential if we are 
to be successful in getting the appropriations and the 
authorizations that are necessary. The taxpayers will be 
looking carefully, your constituents, so I think they go right 
together.
    But we are increasing it. And I guess in terms of very--you 
know, some specifics again: I have been spending a lot of time 
on Afghanistan reconstruction. We have had a very successful 
fund-raising conference in Japan, got pledges for $1.8 billion 
for this year, 4.5 over several years. It is a global--.
    Mr. Frank. How much have we disbursed so far?
    Mr. Taylor. The United States has disbursed just about all 
of what we have pledged. There have been some more funds--.
    Mr. Frank. How much is that?
    Mr. Taylor. The United States, in the first year, has 
pledged 296 million, and approximately over 90 percent of that 
has been disbursed. There are some additional funds that are in 
the supplemental, which will be able to go directly to the 
operating budget of Afghanistan; and that will be, hopefully, 
going very soon.
    Mr. Taylor. We need to work harder on other countries' 
fulfilling their pledges. That is one of the things that I am 
trying to do.
    Chairman Bereuter. The time of the gentleman has expired.
    The gentlelady from Indiana, Ms. Carson.
    Ms. Carson. Thank you very much, Mr. Chairman. I will be 
brief. Thank you very much, sir, for preparing me for the 
committee.
    Mr. Taylor, some time ago the Treasury committed to 
implementing the law passed by Congress to oppose any loans or 
other agreements that include user fees for children going to 
primary school or for basic health care.
    Should not the U.S. Lead the way in pushing to eliminate 
these fees that harm poor people and don't raise much money?
    Mr. Taylor. Yes. I am not quite sure what legislation you 
may be referring to, but we agree that user fees for people, 
very poor people that can't afford the services, is not 
something that we are supporting.
    In fact, the World Bank doesn't have a position that there 
should be user fees in any particular case. There is some 
legislation that says there shouldn't be user fees at all, of 
any kind, in poor countries. What we emphasize is that there 
shouldn't be user fees for poor people, because even poor 
countries have people that are quite well off.
    Ms. Carson. Further question, Mr. Taylor.
    Do you have an index in terms of what constitutes quote, 
unquote, ``a poor person''? Is there some level of poverty that 
you determine as being the poorest of the poor? I guess that 
would be--
    Mr. Taylor. That is a good question. There are measures of 
poverty. The World Bank sometimes uses $1 a day; 1.3 billion 
people earn less than $1 a day in the world. The goal is to 
double that to $2 a day. That still seems awfully poor to me.
    I see a lot of poverty, even by those measures. And it is 
well below what we use as measures here. So one of the reasons 
we are pursuing all of these reforms and being so demanding on 
institutions is, we want to make faster progress than has been 
made in the past to reduce poverty.
    Ms. Carson. Do you have some tracking mechanism, Mr. 
Taylor, that would sort of follow through the kinds of grants 
and supports that the United States makes to ensure that it 
does, in fact, reach the human beings for which it is intended?
    Mr. Taylor. Well, that is one of the things that this 
measurable results proposal should do.
    I have been very disturbed to find out sometimes that a 
very small fraction of the aid goes to the people who it is 
meant for, sometimes less than 50 percent, sometimes less than 
30 percent. We just can't let that stand anymore. But it 
requires a lot of work; there are a lot of people out there. We 
are talking about coordination of assistance with NGOs and all 
of the different donors.
    But we really want to work very hard on that. I think it 
makes no sense to be spending money and so little of it goes to 
the people who need it.
    Ms. Carson. Is there in place now some auditing process, 
some ongoing auditing process?
    Mr. Taylor. Yes. The auditing process, or monitoring 
process, for this kind of thing is already being developed and, 
in fact, has been successful in detecting some of the real 
outrages.
    In Uganda, these review mechanisms have discovered that a 
very small fraction of the aid, I believe, in this case, 
education, went to students. As a result of that, it has 
changed. There is now a much larger fraction.
    So some of these performance evaluation reviews--I believe 
is the name that is most frequently used, kind of a budget 
review process--have been tracking it down and trying to expose 
these problems and then trying to fix them.
    But more needs to be done, in my view.
    Ms. Carson. Thank you, Mr. Chairman.
    Chairman Bereuter. Thank you, Ms. Carson. Good questions.
    The gentleman from California, Mr. Ose, is recognized.
    Mr. Ose. Thank you, Mr. Chairman.
    Mr. Taylor, welcome to our meeting. Last May, the witnesses 
who came before us to talk about the North American Development 
Bank talked about the merging of the boards of directors on the 
environmental side and the bank itself. And what I am curious 
about is, how do you see the fair and equal representation of 
the two organizations being reflected in that board?
    Mr. Taylor. Well, the board members themselves are 
representative. There are representatives from the region, 
representatives from the different agencies of the government 
on both sides. And the merging of these two entities I think is 
essential to make NAD Bank more effective in delivering 
assistance.
    It is unusual to have kind of the certification separate 
from the funding in these kinds of institutions. Mr. Gonzalez 
was saying that the North American Development Bank is the only 
bank of this kind operating with Mexico and the United States. 
Well, it is also the only the only bank of its kind that 
separated out these two functions. So we think that by merging 
at least the boards on this, we will be able to coordinate and 
do a better job.
    Mr. Ose. One of the concerns that I have had since we got 
here is that Mexico remains one of our largest trading 
partners, and to the extent that we can frankly facilitate the 
amelioration of environmental challenges that they face and 
what have you, we prosper and they prosper, because, frankly, 
air pollution or water pollution really doesn't know national 
boundaries in this sense.
    What kind of assurance do you have under the agreements or 
discussions between President Bush and President Fox that we 
are going to have true, measurable improvements within that new 
300 miles or 300 kilometers--.
    Mr. Taylor. Kilometers.
    Mr. Ose. --300-kilometer band?
    Mr. Taylor. Well, part of the reform is to extend it from 
100 kilometers to 300 kilometers. The NAD Bank's mandate is 
also, part of it will be in the form of grants. That is 
actually somewhat related to our other reforms.
    I always think of grants, you are able to bring in 
monitoring and measurable results even more than you can in the 
case of the loans. But the main reason to provide the grants, 
in this case, is that a greater amount of subsidies seem to be 
necessary to make those projects work.
    NAD Bank really has not provided much assistance in a loan 
form since its existence. So putting it in grant form, we hope 
will improve that. But in terms of measurable results, I guess 
it may be best just to appeal to this general cultural change 
which we are trying to institute in all of these institutions, 
which is, write down what is meant to be achieved, on dates, by 
quantified form, and make sure it gets done.
    Mr. Ose. I am very pleased to see the administration 
focusing on this to the degree that they are. I want to 
encourage you--I think the message that I would like to convey 
both to the administration and to our trading partners is that 
when you are a good trading partner, when you pay your debts in 
the past and you trade fairly and equitably, there is 
transparency in your system and what have you, the United 
States will look at you as a premier trading partner, if you 
will, and make it possible for so many other things.
    I think there ought to be a premium attached to those of 
our trading partners who have paid their debts and who have 
worked with us in this way. And I would hope that, given the 
difficulty Mexico went through that caused the genesis of the 
Brady Bonds and what have you, and the fact that they repaid 
those, would give us the opportunity to provide our friends to 
the south in Mexico the opportunity to, frankly, get a little 
of a premium in the evaluation of their grant applications.
    And I just think that is good policy, to reward positive 
behavior. With that, Mr. Chairman, I yield back.
    Chairman Bereuter. Thank you, Mr. Ose.
    For the information of the members, I have been calling on 
members that are members of the subcommittee. And Mr. Hinojosa 
and Mr. Gonzalez are not members, as I understand it, but they 
have been here very early. If you have a scheduling problem, 
you would just have to ask unanimous consent that you be 
allowed to go next and you would probably find a cooperative 
attitude.
    Mr. Hinojosa. I would like to ask unanimous consent to be 
able to address--.
    Chairman Bereuter. Is there objection? Hearing none, the 
gentleman is recognized under the 5-minute rule.
    Mr. Hinojosa. Thank you. I appreciate, Mr. Chairman that 
you have called this hearing. And I also want to voice my 
skepticism as to what I just heard regarding the amendments, to 
some of these documents that you all wish to approve.
    My first question is with regard to the U.S. Participation 
in the International Development Association and the African 
Development Fund: In looking at and listening to your 
statement, you talk about the three hallmark reforms, and that 
is to help countries, poor countries, in the areas of health, 
education, and creating small businesses.
    The reason I have such skepticism is that just in January 
of 2002, President Bush signed the bill on ESEA, which has a 
component of trying to improve the graduation rate of students 
in our country. I represent border communities in Texas. We 
have an Hispanic performance of students graduating at only 70 
percent. And Senator Jeff Bingaman included in the EASE bill 
that the President signed a bill that is designed to improve 
graduation rates.
    We received $25 million in this 2002 budget, and yet, for 
the 2003 budget, the President zero funded it. So how can we 
believe, if we can't take care of the domestic problems in our 
country with the fastest growing minority group in this 
country, and that we are asking for $125 million to fund those 
programs, exemplary programs that work, to graduate Hispanic 
students, and we get a zero funding, what is going to be 
different in this international program to help all of those 
countries improve their graduation rate when we can't even do 
it in our own country?
    And certainly there is no political will in the 
administration, or they would have funded at $125 million as 
both the House and the Senate had requested. Could you answer 
that question?
    Mr. Taylor. I am not familiar with the particular line item 
you are referring to at all. And I would like to look into it 
and try to answer your question.
    Mr. Hinojosa. I would appreciate it.
    Mr. Taylor. With respect to the portfolio that I have, I 
think the goals of raising completion rates are ones that we 
are going to take very seriously and that the amount that is 
there in the first year is not as large as I would like, but it 
is moving in the right direction. And, you know, 70 percent is 
too low; that is obvious. We need to work to make it higher, 
but I don't know why this one was--this line item was affected 
the way that it was.
    In the international case, which I can speak to, we want to 
make sure it gets done. The resources are limited. We have 
indicated a request of $850 million for the whole world in the 
IDA program for the current fiscal year. So some very hard 
choices will have to be made about how to use it effectively. 
And we will participate in that choice and try to make sure it 
is used effectively.
    Mr. Hinojosa. Well, Mr. Taylor, I look forward to getting 
some kind of response on this.
    The second question that I have, and the last one, this is 
on NAD Bank, and I follow up on some of the questions that my 
friends from Texas, Ken Bentsen and Charlie Gonzalez, have.
    That is that you know that in South Texas we are currently 
suffering a severe drought and a water shortage crisis that is 
compounded by the lack of Mexico repaying its water debt to the 
United States.
    It has been said in the newspapers that President Bush 
agreed to fund water conservation projects in Mexico in 
exchange for their speedy repayment of the water debt. Do you 
know if the Texas projects to improve its water distribution 
system, which we have been asking $60 million for, are going to 
be funded before we ask the NAD Bank with its amendments and 
improvements that are being proposed, before the loans or 
grants are given to the Mexico water projects--which, to my 
understanding, have not been planned, no engineering has been 
done; whereas we have, in Texas, for 3 years been working on 
that, but have not been able to get the funding?
    Mr. Taylor. The proposed amendments that we have would take 
the current retained earnings in NAD Bank, which is 
approximately $80 million, put those into a trust fund of which 
equal amounts could be used on both sides of the border, Mexico 
and the United States. So that is $40 million that, once it is 
in that fund and--that the intent is to put it in that fund, 
could be used in Texas or wherever it is allocated.
    I would think, if there are proposals and plans already 
worked out, that you would be first in line to be able to use 
those funds as soon as they are available.
    With respect to the other amounts that you are indicating, 
I don't know. It doesn't sound like it is related to NAD Bank, 
but other sources of funding from the United States.
    But with respect to this proposal of taking $80 million of 
retained earnings, it is meant to be used equally on both sides 
of the border.
    Mr. Hinojosa. Well, I hope that that equal parity is 
respected because everything that we read in the papers, our 
water users, farmers and ranchers and municipalities are very 
unhappy with the agreement on that Order 308 that was signed 2 
weeks ago. Farmers and ranchers are expected to be here in the 
next week to voice their--how upset they are with regard to 
this, and certainly we hope that equal parity will be 
respected.
    Mr. Taylor. Well, our part of this--my own part had mainly 
to do with the NAD Bank component and the use of these funds. 
But, of course, it is not just for Mexico; it is for the United 
States.
    I understand that Mexico has pledged and will be delivering 
90,000 acre-feet of water that is due under the treaty. So that 
will, I hope, have a positive impact on the farmers suffering 
from the drought in your area.
    Mr. Hinojosa. But the other amendment to that agreement is 
that, if they don't get rain in October, we have to repay those 
90,000 acre-feet of water. So it is not good for south Texas 
where we have--at least half of our farmers and ranchers have 
gone out of business.
    So, again, I thank you for giving some clarification on the 
amount of money, and that it is available to both sides. We 
thank you.
    Thank you, Mr. Chairman.
    Chairman Bereuter. Mr. Hinojosa, thank you. You went beyond 
your time, but I have a drought-stricken State as well, so I 
have an understanding.
    Next I have on the list the returning Mr. Sherman, 
Schakowsky, Mrs. Waters, then to Mr. Gonzalez if that is--Mr. 
Sherman.
    Mr. Sherman. Thank you. We have to go back to our districts 
and explain why we are for more foreign aid, and I want to do 
that.
    I have got one problem, and I am about to mention a word 
that I don't think has been spoken at this hearing. It may be 
because it is considered an obscenity, and I hope my words are 
not taken down. The words or phrase is ``World Bank.''
    Now, we can call it IDA. We can keep repeating IDA. But my 
constituents are smart enough to know it is the World Bank. The 
World Bank is smart enough, or at least honest enough, to say 
on its own Web site, the IBRD and IDA are run on the same 
lines. They share the same staff, the same headquarters, report 
to the same president, and use the same rigorous standards when 
evaluating projects. IDA simply takes its money out of a 
different drawer.
    That is not Sherman railing about the World Bank, that is 
the World Bank about the World Bank. And my colleagues on this 
committee know where I am going.
    The World Bank is about to loan $755 million to the 
government in Tehran. So we have a President that tells us that 
this is a government insistent upon developing nuclear weapons 
and smuggling them into American cities, and a bureaucracy that 
doesn't mind very much that our tax dollars, or our capital 
investment dollars, to draw fine distinctions that matter only 
in Washington, are about to allow that government to meet the 
minimum domestic expenditures it needs to make to retain power, 
and then use money which is fungible, use its other money that 
they would otherwise have to spend on domestic programs, to 
develop the nuclear weapons that will be smuggled into American 
cities--not to mention that that government is identified as 
the number one state sponsor of terror in the world.
    So, Mr. Secretary, would you support a provision in this 
authorization bill that says that in the event that the World 
Bank approves future loans to Iran, that we will thereafter not 
disburse a single penny to the World Bank? Or would you, 
instead, like to come to my district and explain how it is okay 
to put money in one drawer if it is another drawer that is 
financing the nuclear destruction of American cities?
    Mr. Taylor. Well, I would like to explain our position in 
the following way. IDA, which is an arm of the World Bank, 
focuses on the poorest countries, provides funds to Africa, to 
the poorest countries in Asia, poorest countries in Latin and 
Central America. So to take money away from that--.
    Mr. Sherman. If I can interrupt you, sir, my bill will 
provide, or amendment will provide, that any penny otherwise 
taken away from IDA is used to help the poorest countries in 
Africa deal with HIV/AIDS; and I am open to other amendments as 
to some other difficulties, as well. I am not for spending a 
penny less on helping the poorest countries with the worst 
problems.
    I want to know whether you think that the only way we can 
help poor countries is to take money from my constituents and 
put it in a drawer at the World Bank?
    Mr. Taylor. It is not the only way. And, in fact, we are 
helping poor countries, humanitarian assistance bilaterally in 
the U.S., in the Millennium Challenge Account. There will be 
more of that. But it is an effective way.
    The advantage of the multilateral assistance is, other 
donors contribute too. And we--basically it is--sometimes 
people refer to it as a leverage. Our request for $850 million 
this year is only part of the total. It multiplies by a factor 
of five, roughly, so we get more as a result of that.
    Mr. Sherman. Are you saying that if we spent that $850 
million helping poor people deal with AIDS in Africa, that 
Europe would turn off the spigot and not help those same 
people, either through the World Bank, if they chose, or in 
some other way; that the generosity of the Japanese or the 
Europeans is dependent upon the willingness of this 
administration to put money in the hands of those who want to 
finance Iran; that anything else we do to help the world would 
be ignored by our other developed friends?
    Mr. Taylor. No.
    We, as you know, are working hard on, and the President has 
focused on, Iran and the problems there. We will continue to do 
so. My only point is that attacking IDA is not going to help 
that. And what I--.
    Mr. Sherman. So do you have another strategy that will 
prevent the World Bank from making those loans?
    Chairman Bereuter. The time of the gentleman has expired.
    Mr. Sherman. I would ask that he be allowed to answer the 
question about whether we have a strategy to prevent American 
dollars from financing the nuclear destruction of American 
cities.
    Mr. Taylor. Well, of course we would never vote for that 
and don't vote for it. And we try to persuade others not to 
vote for it. And, overall, it seems to me that the mechanism 
that you are suggesting would be harmful to our foreign policy 
interests; and we should therefore focus on ways, such as the 
President is pursuing, to deal with the terrorism and the 
proliferation issues, very serious ones that you mention, in 
Iran.
    Mr. Sherman. In other words, the same strategy that failed 
completely in the year 2000.
    Thank you. I yield back.
    Chairman Bereuter. The gentlelady from Illinois is 
recognized.
    Ms. Schakowsky. Thank you, Mr. Chairman. I wanted to talk 
about water.
    My former U.S. Senator, Paul Simon, is spending a good deal 
of his time and energy dealing with the international water 
crisis and wrote a wonderful book called ``Tapped Out, the 
Coming World Crisis in Water and What We Can Do about It.''
    A couple of things that he points out are that late in 
2000, U.S. Intelligence agencies were asked to project what 
challenges the world might face in 15 years. And, not 
surprisingly, one of them was that the world will be threatened 
by wars over water. And another source said the national 
security issue of the 21st century is water.
    And you are probably aware that about--well, actually when 
he wrote this book, so it is now more, 9,500 children die every 
day due to poor quality water; at least 1.5 billion people do 
not have access to a minimally adequate supply of safe water--
1.5 billion; 3 billion lack sanitation facilities, which is 
really tied to water quality.
    The World Bank estimates that 80 nations have water 
shortages severe enough to retard agricultural production.
    This book is a plea really for the United States to get 
more involved. Let me just read a couple of words he says.
    ``The massive numbers dying for lack of both food and water 
will be seen by us over and over again if the world does not 
act, and action requires U.S. Leadership. No other nation has 
our capability and resources to lead. The question is whether 
we will.''
    So I just wanted to ask, one, what level of priority--one 
of the senses that I get from this book is his feeling that no 
one is really--that no entity--that there is not a concerted 
international effort or U.S. Effort to really focus in on the 
problem of this looming water crisis, or in some places, extant 
water crisis. And just your views on this.
    Mr. Taylor. Well, thank you very much for the question and 
for the information about the book. Secretary Paul O'Neill has 
actually focused attention on this issue in a very constructive 
way. I think that is the best way for me to answer this 
question.
    He has, as you may know, traveled to Africa--.
    Ms. Schakowsky. With Bono?
    Mr. Taylor. Yes. And at every stop asked about water and 
the issues that you are raising, and really would like to try 
to improve the situation in a dramatic way by providing more 
water to people, fresh water to people who don't have fresh 
water, and to deal with the problems, especially, in the rural 
areas. So it turns out it is a high priority for us at this 
point in time.
    It will require an international effort. There will be a 
discussion of it at the World Summit on Sustainable Development 
in Johannesburg. There is a meeting at the State Department 
tomorrow on the subject. So, fortunately, I can answer your 
question in a very positive way. We are trying to move ahead on 
this important issue.
    Ms. Schakowsky. What kind of money are we putting into 
desalinization, for example? Have there been any concrete 
efforts to spend more money on things that will actually 
alleviate the problem?
    Mr. Taylor. Well, money is being spent. I don't think it is 
being spent in the most effective way. I have no idea how much 
is spent on desalinization, but I will try to get the 
information for you.
    What Secretary O'Neil has emphasized is how to be more cost 
effective in getting it. He observes that with the same amount 
of money we are spending now, we could do a lot better; not to 
say that we shouldn't spend more money, in fact, my guess is 
that we will have to spend much money to reach the goals of 
reducing the number of people that don't have fresh water.
    But with respect to desalinization, I will get some 
information for you.
    Ms. Schakowsky. In the remaining couple of seconds, the 
emphasis of the World Bank has been heavily on the issue of 
privatization of water. In many cases, as cited, I can also 
share a wonderful article in the New Yorker, April 8th, 2002, 
that talked about some of the serious problems that water 
privatization projects have wreaked on the poor inhabitants of 
communities. And those projects are beginning to backfire all 
over Latin America.
    [The following information can be found on page 153 in the 
appendix.]
    I see that my time is up. But I hope that I can work more 
closely with the Secretary of the Treasury and try and help to 
promote more focus on this issue.
    Mr. Taylor. Good. Thank you.
    Chairman Bereuter. I thank the gentlelady for her 
questions.
    The gentlelady from California.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I have a number of questions, and the first ones that I 
ask, I am not asking for a long answer. I just want to quickly 
try and understand. I will do my research later.
    Is World Bank funding an oil pipeline from Uzbekistan down 
through Afghanistan into some Gulf or Pakistan?
    Mr. Taylor. A particular pipeline you are referring to, or 
simply the funds?
    Ms. Waters. Pipeline.
    Mr. Taylor. I will have to look into the particular 
pipeline from Uzbekistan to Afghanistan.
    Ms. Waters. You don't know about it, though?
    Mr. Taylor. I don't know enough about it to answer your 
question.
    Ms. Waters. Do you know anything about it?
    Mr. Taylor. I was just in Uzbekistan. We talked about gas, 
we talked about oil, we talked about water. But this particular 
project, I don't--.
    Ms. Waters. Are there any projects that you know, any 
pipeline projects at all from Uzbekistan down through 
Afghanistan, that the World Bank is involved in?
    Mr. Taylor. Not that I know of.
    Ms. Waters. You are talking about getting involved in 
something?
    Mr. Taylor. There was talk about natural resources, energy 
and water, when we visited Uzbekistan, Yes.
    Ms. Waters. Okay. Obviously you are very cautious about 
this discussion for some reason; I don't know why. But 
evidently, whatever is going on, we will find out about it. I 
will talk about it later.
    How much is spent on the Chad/Cameroon pipeline at World 
Bank, how much do you have in that?
    Mr. Taylor. I have to look up those numbers for you.
    Ms. Waters. Okay. This discussion on Iran was very, very 
interesting. If you can't prevent loans to Iran, how did you 
prevent loans to Haiti? How did you do that?
    Mr. Taylor. The loans to Haiti in question are from the 
IDB, the Inter-American Development Bank. We are trying to get 
those loans moving. They were approved 4 years ago. There are a 
lot of troubles, as you know, in Haiti, and the IDB is sending 
a team, I believe, on--next week, July 29th, to Haiti to try to 
work this out.
    Ms. Waters. Okay. So the mission is on its way to do the 
assessment, and you support that?
    Mr. Taylor. I certainly support that.
    Ms. Waters. All right.
    Now, what I really want to talk about are the six countries 
where there is a famine in southern Africa--Malawi, in 
particular. I am told, and again it has been reported, that the 
IMF basically advised or forced, coerced, or what have you, 
Malawi into selling its excess grain, because they had a 
surplus and now the silos are bare and the famine is on. It is 
a fact of life.
    Did you in any way get involved in causing the selling of 
that grain from Malawi to be exported to other countries for 
sale?
    Mr. Taylor. No. I have not been involved in that at all. 
Before the hearing, someone mentioned this to me; and I was 
told that the IMF did not, in fact, instruct that the grain be 
sold. But I will look into it and see if I can get more 
information for you.
    Ms. Waters. Would you please do whatever you have to do and 
share that information with us, because we want to know how 
those decisions are made.
    Now, given that there is a drought and there is famine and 
there is a crisis in these six countries in southern Africa, 
what can you do? Given that you are exploring the possibility 
of giving more grants, how can you make an impact on this 
drought, this crisis; and given what you can do, why haven't 
you done something about the water needs of those southern 
countries, these southern African countries?
    We have this drought. There is a need for both water and 
wells, and these water projects, that can be done for $12-, 
$13,000, $14,000 each that could help irrigate land and supply 
food--they need seed, they need water, and we need food for the 
crisis. What can you do now to help with this?
    Mr. Taylor. With respect to the water, we can get started 
putting forth a water program to provide water to people that 
don't have it. As I said just a few minutes ago, that is 
something that Secretary O'Neill has focused on, he speaks 
about; and I believe that we will really make a difference. So 
what we can do is go ahead and do something.
    Ms. Waters. So what would your next step be from this 
conversation? What would your next step be?
    Mr. Taylor. Well, we already are costing out how much it 
would take to deliver water to areas. We have had a round table 
with water experts to come into Treasury. Water is very much on 
our minds these days in the Treasury, and I hope it will really 
make a difference.
    As I mentioned, at the World Summit for Sustainable 
Development, it will be a subject. We have talked about it in 
the State Department and in the Treasury.
    But what we can do is get started. As you say, why have I 
done anything? Well, I am doing something, and Secretary 
O'Neill has.
    Ms. Waters. I would like to set up a meeting with you and a 
U.N. representative whose name I can't recall, who has made me 
very much aware of the cost of these small water projects, to 
talk with you about water and seed. We are trying to think 
beyond the drought, so that people can become more independent. 
That is one of the goals.
    Mr. Taylor. I would like to work with you.
    Ms. Waters. I would like to meet with you on that. I would 
like to help organize a meeting so that I can do everything 
that I can to support, you know, getting into these projects as 
quickly as possible.
    Secondly, in terms of the immediate drought, what role can 
you play?
    Mr. Taylor. With respect to humanitarian assistance, USAID 
is quite effective in getting on the ground with food aid fast. 
I know most about their recent activities with the droughts in 
Afghanistan, which I think were very impressive, and they 
worked quickly, both before the Taliban and after the Taliban.
    But my sense is that we do have a very effective operation 
with respect to humanitarian assistance in the case of 
droughts. But this is perhaps a little longer term than your 
answer--your question indicates. But I think raising the 
capability of agricultural production in Africa is a very high 
priority, should be a very high priority.
    Right now the potential to produce grain or simple food 
products is very low. The productivity in Africa is like a 
hundredth of what it is in the United States. So what we need 
to do, I guess, is go to Ethiopia. And I saw the huge potential 
from simply getting a different breed of cow in terms of 
producing milk, they could increase the productivity of a 
single animal by 700 percent by just a different breed.
    Ms. Waters. I ask for 30 seconds.
    Chairman Bereuter. No objection.
    Ms. Waters. I don't know if you have been seeing the 
reports about this famine and the fact that people are dying 
now. And at first I had confidence that USAID could get ahead 
of this problem and stop this impending crisis, but they 
haven't, and people are dying. And ABC and the world reports 
are coming in, we are going to see more images of dying people 
on television.
    It appears to me that they need some additional things that 
I want to get more money for. But if in fact they needed more 
trucks to truck food up into the villages, and they needed 
money for security for the trucks to keep starving bandits from 
robbing the trucks on their way to the villages, could you 
assist in that from the--from your operation? Could you do 
that? Is that something that is possible by the way grants for 
immediate--.
    Mr. Taylor. Security is not something that we have focused 
on, international security, in the Treasury.
    Again, let me look into this issue and see what I can do. 
But we usually--usually the security is needed, as you say, for 
delivery of humanitarian assistance. If it is dangerous to go 
into areas, or the products are being stolen, it is not being 
effective. But with respect--I personally am not involved in 
providing security assistance.
    Ms. Waters. I know. We need your money. We just need some 
money, it seems like.
    I would like to again, in addition to the meeting I am 
talking about with the U.N. representatives and others, with 
Mr. Natsios at USAID and you and some others, I would like to 
talk about--I am trying desperately to stop what happened in 
Ethiopia. I am trying desperately not to have us 6 months from 
now looking at these starving, dying people on television and 
saying, oh, isn't that a shame--we are doing all we can.
    So I would like to follow up with you.
    Chairman Bereuter. The time of the gentlelady has expired. 
To the extent that you provide answers to Mrs. Waters on her 
previous questions, I would appreciate it if you would put it 
to the committee, as well, so we have it as part of the record.
    If I may make a personal suggestion, I think the gentlelady 
ought to have Mr. Hyde and Mr. Lantos try to get you an 
immediate meeting with AID, because if they are not providing 
assistance, then the only logical source of this kind of 
assistance is not working. I appreciate the desperation that 
faces these people.
    Now, the gentleman from Texas, Mr. Gonzalez, has been 
waiting for some time. I appreciate that. He is recognized for 
5 minutes, at least.
    Mr. Gonzalez. Thank you, Mr. Chairman. I do appreciate the 
opportunity and the courtesies that you have extended me to 
discuss NAD Bank.
    And Mr. Secretary, as we know that OMB Director Daniels in 
his letter of July 19th to Vice President Cheney and Speaker 
Hastert had a draft of a bill regarding some changes to the 
cooperation agreement that created NAD Bank. And, of course, 
part of it has already been alluded to, and that is the 
extension of the jurisdictional area within the Mexican border 
to 300 kilometers.
    We would commend Treasury, and we join you; it is something 
that we have been discussing for some time. However, the bill 
does mention--and I wanted some explanation--a system of 
financial differentiation whereby grants and subsidized loans 
would be restricted to the current 100-kilometer region.
    There is very little borrowing capability and environmental 
projects throughout Mexico, even at the subsidized interest 
rates. What impact would you expect then of a market rate 
lending program in the additional 200 kilometers, given 
whatever you--you propose regarding this differential rate?
    Mr. Taylor. The reason to differentiate really was because 
of the limited resources, in the sense that the funds closer to 
the border were ones that--100 kilometers, I think it is--were 
ones that should be used for grants.
    If you had grants--and I think this is what you mean in 
your question. If you had grants that could go all of the way 
to 300 kilometers, it might not be enough. We have limited 
resources for the grants, so we had to limit it to go further, 
but not to have this very concessional support go further.
    If there are other ways to think about this, I haven't been 
informed about it; but that seemed to make sense to me as a way 
to allocate it. I could imagine that there would be other ways, 
based upon need or based on population or something like that, 
but this one made sense to me.
    Mr. Gonzalez. Part of the question is--I understand on the 
grant part of the equation, but if we are still talking about 
extending some sort of credit, loans, whatever, in this 
expanded region, we still have the same problems that we have 
always had, haven't we?
    I guess I am just asking, what do you see, other than 
grants? Because I think your whole focus has been--and that has 
been part of some of the difficulty--is, what can we do 
regarding accommodating a loan relationship?
    Mr. Taylor. When we thought about this, we thought about 
extending the scope in terms of the area as one way that the 
funds could be used. In other words, there may be some projects 
beyond 100 kilometers which could benefit from the loans with 
interest rates.
    The second way we looked at was to make the support more 
concessional, that is, through grants. So both the distance 
from the border and the form of finance, we looked at ways to 
make NAD Bank more effective or make it more usable to people.
    And I think what you are saying there is a combination of 
those, increasing the distance from the border, you can use the 
money in increasing grants; but just because of the limitation 
on the resources, we didn't do both of those on top of each 
other. We did a little bit of each.
    Mr. Gonzalez. And the nonmarket rate loans aspect of it, 
again, are we looking at treating that aspect of your 
recommendation differently for those--for the area within 100 
kilometers and those outside of 100 kilometers?
    Mr. Taylor. I just had a note passed to me. Some of the low 
interest loans can be used between 100 and 200 kilometers, that 
is, 25 percent. So it is actually like a graduation, or an 
incline, if you like. The further you are away, the less 
concessional it is.
    But it is not like it is a once-and-for-all thing. Between 
100 and 200 kilometers, you get this somewhat more concessional 
rate than between 200 and 300.
    Mr. Gonzalez. The second question--and obviously this has 
been around for discussion for some time, and I appreciate the 
opportunity of discussing this with you today; that is that the 
lending experience regarding environmental projects in every 
multilateral development bank, including the World Bank, around 
the world is extremely limited. Their lending to such projects 
is, at best, 6 percent of their total portfolios.
    The challenge is to increase the creditworthiness of 
service utilities through technical assistance, which we 
already know that NAD Bank is engaged in doing. But that 
process takes a long time and is subject to legal and political 
reforms controlled by Federal and local governments. In the 
meantime, NAD Bank's sectorial mandate continues to be 
constrained to environmental projects.
    How can the bank use its capital more productively and 
service broader and equally urgent infrastructure needs along 
the border to include energy, transportation and 
communications, as the Mexican side has been demanding for some 
time, if its mandate continues to focus only on projects with a 
direct environmental component?
    Mr. Taylor. We also considered those kinds of proposals to 
expand the scope of NAD Bank beyond where it is now, in terms 
of types of projects. And many people we talked to--and it was 
a very open process--suggested that.
    We also recognize that this is a package which requires an 
enormous amount of consensus from different parties with 
different perspectives. And what we felt, in consultation with 
many people, was that if we tried to work with the grants and 
increasing the distances from the border within roughly the 
current environmental mandate, we should try to do that and 
make it work.
    We will try to do that, and I think it will work. But 
believe me, if it doesn't work, we are going to look for 
alternatives to make it work.
    I think those are some of the things that were discussed. 
But for right now we have got a good reform package in place 
that balances a lot of different interests--and there are many 
different interests--and I think it will work. And we would 
like to pursue it and hope that the legislation is passed.
    Mr. Gonzalez. Mr. Chairman, if I can have just one short 
question, and that is, I realize this has been proposed as of 
July 9th. Our understanding is that Treasury would have a more 
comprehensive proposal that would be forthcoming. And if so, 
can you give me an idea when it would be presented for our 
consideration, because at every step of the way, we have always 
asked that we be kept informed. And the honest truth is, that 
we have not been.
    We will take that up some other time.
    What do you perceive again as your next proposal affecting 
NAD Bank, and when would it be coming?
    Mr. Taylor. Well, the proposed legislation, as submitted, 
are the things that we need legislation for. Other parts of the 
reform package we don't need legislation for. But you should 
know about those now, as much information as we have; and I 
will try to make sure that you get it.
    Mr. Taylor. There is a process that is being put in place, 
called a business review process, where the whole operations of 
NAD Bank and back are going to be examined. There may be 
additional ideas that come out of that. So I don't want to say 
this is completely settled about how we--maybe there are some 
new ideas that will come up.
    But in terms of where we are now, and the rationale for the 
legislation and the rationale for the other changes, I would 
like to keep you completely informed, and I will try to make 
sure that it happens.
    Mr. Gonzalez. Any time line?
    Mr. Taylor. Let's set up a meeting as soon as we can.
    Mr. Gonzalez. Talking about, as far as any proposals, 
nonlegislative in nature, you don't require us, initially 
anyway. Do you have any idea when all of that is coming to a 
head?
    Mr. Taylor. As far as I know, we have--except for this 
business process review, we are ready. We have all of the 
information. Okay, so we will sit down with you, or my staff 
can sit down with your staff, however you want to proceed. If 
you don't perceive it as enough, or if they don't perceive it 
as enough, let me know, and we will see what the problem is.
    But, I have got a good fix in my head about what we are 
proposing on the legislative and administrative side. I am 
going to go to San Antonio in the middle of the month. I am 
going to participate in one of the NAD Bank board meetings, 
with my counterpart from Mexico--from their hacienda. The two 
of us have talked a lot about how to expedite this and work 
hard together to make--make the whole process work.
    I can perhaps provide with you some more information after 
that meeting, after I am down there for a few days.
    Mr. Gonzalez. I look forward to it. Thank you very much.
    And thank you, Mr. Chairman.
    Chairman Bereuter. Mr. Gonzalez, if you will look at the 
bill, I want to make sure that you have a positive reaction.
    Mr. Gonzalez. I think there are a couple of items in there 
that are encouraging, regarding sanctions jurisdiction. Again, 
I am not real clear on some of the provisions, Mr. Chairman. We 
will be talking to staff at Treasury to get some clarification.
    All of these things are, hopefully, proposals to make the 
bank something that it is really a viable international 
financial institution, and not necessarily just a conduit or 
agent for grants.
    I mean, that is really the whole problem, Mr. Secretary. We 
would really love to work with you. We would like to see it be 
a robust and vibrant instrument.
    Mexico is different from most other countries with which we 
have these types of relationships. Grants are necessary. But 
the potential to have a really good business relationship with 
some of these communities taken into the character of the 
Mexican people, their history with the United States, and of 
course the fact that they are our neighbors, really does come 
into play. And it is going to take--maybe it is a different 
philosophy as we go in there and we deal with our Mexican 
neighbors. So I look forward to it.
    Thank you again, Mr. Chairman, for your interest.
    Chairman Bereuter. If you work with Treasury, you and 
anybody else that you want to be involved with that, I won't 
promise to take it up, but I will give it very strong 
consideration to take it up and move it in a separate bill.
    Mr. Gonzalez. I express my appreciation, sincerely. I look 
forward to that day.
    Chairman Bereuter. We are going to conclude with questions 
from Mr. Bentsen. I heard some bells ringing. This is an 
appropriate time.
    Mr. Bentsen. Thank you, Mr. Chairman. I will be brief. You 
caught me off guard earlier. I thought Mr. Watt was going to 
ask questions. I did have some.
    Last week we had some of the NGOs testify before the 
committee. And they raised some issues that I wanted to raise 
with you. One goes back to the PRSP. And one of the groups 
argued that Congress should work to have the U.S. Propose to 
delink the PRSP from the ongoing debt relief program and--I 
believe the fear there being that we have already been through 
a series of debates with our partners in IDA, in the bank, and 
in the fund on the debt relief and conditions that are set, 
that need to be set, and that that should not be extended any 
further, the debt relief program is ongoing.
    I would like to get the position of the administration with 
respect to that.
    And the second question that was raised, as well, is that 
as part of the conditionality that the administration is 
seeking in its new view of the IDA programs, both loans and 
grants, and the proposal to put more money in, assuming 
conditions are met, is the concept that the guidepost or 
measures should change. And one of those raised--it caught my 
attention because I have always been curious about it--is the 
debt-to-export ratio, and what the administration's position is 
with that.
    Is it your intention to maintain that as a key factor of 
determining poverty level or to discount that?
    Mr. Taylor. I don't know of any proposals to delink the 
PRSP, or the other mechanisms that were put in place in recent 
years, to broaden the discussion about how our assistance can 
be used and broaden the coordination in order to delink this 
from any kind of program that we are doing.
    So I have tried to learn as much as I can about the PRSP 
process since I have been in this job--talked to a lot of 
people, read a lot of documents--and my sense is that it does 
bring together different parties in a healthy way. It is 
positive.
    I don't think it is the only thing that we should be doing, 
however. I think, as I said before, that once something is 
decided upon and it is viewed as something that is going to be 
helpful to the country with their leadership and their people, 
then we ought to make sure that is the most effective that we 
can, that is, with measurable results.
    Mr. Bentsen. I think the concern--if I understood it 
correctly in the testimony that was given last week, the 
concern was not so much with the PRSP program, assuming that it 
works the way everyone wants it to--that is a matter of 
interpretation--but rather that it raises the bar for the debt 
relief program, and thus could act as a delay.
    With the assumption of many parties and the NGOs that that 
program has been decided, it is just a question of process at 
this point in time. And the PRSP is really a more forward 
program as it relates to new loans and grants.
    Mr. Taylor. All I can say is that I haven't even heard that 
proposal. Almost all of the NGOs I talk to are positive about 
the PRSP process. I don't hear about delays that it may be 
causing. Let me look into it.
    Mr. Bentsen. That is all I ask.
    Mr. Taylor. With respect to the different measures of debt, 
sustainability is the way that I would put it. Debt-to-exports, 
for example, I don't think there is any one single measure that 
is sufficient. We are now using debt-to-exports, and I think we 
should continue with that. It is something that people are 
familiar with. But I think we should look at the whole process 
of sustainability of these countries, debt sustainability, in 
the broadest way that we can.
    What I am concerned about is the HIPC process not 
completely bringing the countries to a sustainable situation, 
so that they can get favorable credit ratings and function as 
good, healthy developing economies so they can grow.
    There is going to be a review of the HIPC process--it is in 
process now; it will be finished in the fall--by the World Bank 
and the IMF. They are looking at the measure you mentioned, 
debt-to-exports, seeing how things are going, whether the 
country is really fiscally sustainable.
    I want to look at that, and the rest of our government is 
looking at it very carefully, to see whether there are some 
improvements that we can make in the process. Maybe there are 
some other measures.
    Some people suggest--in fact, there is some legislation 
that says we should look at interest payments compared to 
revenues. But there are a whole bunch of indicators. Right now 
we have that one; it seems fine to continue using. But I don't 
think it is the end or the last word on the story.
    Mr. Bentsen. Thank you.
    Thank you, Mr. Chairman.
    Chairman Bereuter. Thank you, Mr. Bentsen.
    Mr. Secretary, it is nice to give the executive branch a 
look at the diversity of views and interests of the Congress. 
Thank you for taking a variety of questions here. We very much 
appreciate your time today.
    We will look back to you from time to time for some advice 
as we try to move forward.
    Mr. Taylor. Thank you, very much.
    Chairman Bereuter. The subcommittee's hearing is adjourned.
    [Whereupon, at 3:40 p.m., the subcommittee was adjourned.]
                            A P P E N D I X



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