[Senate Hearing 107-796]
[From the U.S. Government Publishing Office]
S. Hrg. 107-796
REPLENISHMENT AUTHORIZATIONS FOR THE WORLD BANK'S INTERNATIONAL
DEVELOPMENT ASSOCIATION, THE ASIAN DEVELOPMENT FUND, AND THE AFRICAN
DEVELOPMENT FUND
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
POLICY, EXPORT AND TRADE PROMOTION
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 12, 2002
__________
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COMMITTEE ON FOREIGN RELATIONS
JOSEPH R. BIDEN, Jr., Delaware, Chairman
PAUL S. SARBANES, Maryland JESSE HELMS, North Carolina
CHRISTOPHER J. DODD, Connecticut RICHARD G. LUGAR, Indiana
JOHN F. KERRY, Massachusetts CHUCK HAGEL, Nebraska
RUSSELL D. FEINGOLD, Wisconsin GORDON H. SMITH, Oregon
PAUL D. WELLSTONE, Minnesota BILL FRIST, Tennessee
BARBARA BOXER, California LINCOLN D. CHAFEE, Rhode Island
ROBERT G. TORRICELLI, New Jersey GEORGE ALLEN, Virginia
BILL NELSON, Florida SAM BROWNBACK, Kansas
JOHN D. ROCKEFELLER IV, West MICHAEL B. ENZI, Wyoming
Virginia
Antony J. Blinken, Staff Director
Patricia A. McNerney, Republican Staff Director
------
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC
POLICY, EXPORT AND TRADE PROMOTION
PAUL SARBANES, Maryland, Chairman
BILL NELSON, Florida GEORGE ALLEN, Virginia
PAUL D. WELLSTONE, Minnesota CHUCK HAGEL, Nebraska
ROBERT G. TORRICELLI, New Jersey LINCOLN D. CHAFEE, Rhode Island
RUSSELL D. FEINGOLD, Wisconsin MICHAEL B. ENZI, Wyoming
(ii)
C O N T E N T S
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Page
Atkinson, Caroline, adjunct senior fellow in international
economics, Council on Foreign Relations, senior director,
Stonebridge International, Washington, DC...................... 23
Prepared statement........................................... 25
Ayittey, Dr. George B.N., distinguished economist in residence,
American University, Washington, DC............................ 38
Prepared statement........................................... 41
Beckmann, Rev. David, president, Bread for the World, Washington,
DC............................................................. 28
Prepared statement........................................... 30
Meltzer, Dr. Allan H., professor of political economy, Carnegie
Mellon University, Pittsburgh, PA.............................. 33
Prepared statement........................................... 36
Orr, James C., executive director, The Bretton Woods Committee,
Washington, DC................................................. 15
Prepared statement........................................... 18
Taylor, Hon. John B., Under Secretary of the Treasury for
International Affairs, Department of the Treasury, Washington,
DC............................................................. 4
Prepared statement........................................... 5
(iii)
REPLENISHMENT AUTHORIZATIONS FOR THE WORLD BANK'S INTERNATIONAL
DEVELOPMENT ASSOCIATION, THE ASIAN DEVELOPMENT FUND, AND THE AFRICAN
DEVELOPMENT FUND
----------
THURSDAY, SEPTEMBER 12, 2002
U.S. Senate,
Subcommittee on International Economic
Policy, Export, and Trade Promotion,
Committee on Foreign Relations,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:40 a.m., in
room SD-419, Dirksen Senate Office Building, Hon. Paul S.
Sarbanes (chairman of the subcommittee), presiding.
Present: Senators Sarbanes and Allen.
Senator Sarbanes. The subcommittee will come to order. We
apologize to all of our witnesses, but there was a vote. We do
not control when that happens. When it does happen, we have to
respond, so that explains our slight delay in starting the
hearing this morning.
The Subcommittee on International Economic Policy, Export,
and Trade Promotion of the Foreign Relations Committee meets
today to consider replenishment authorizations for three
important institutions of the multilateral development banks--
the World Bank's International Development Association,
commonly referred to as IDA, the African Development Fund, and
the Asian Development Fund. IDA is the concessional loan window
of the World Bank, and provides economic and technical
assistance to poor countries of the developing world.
Traditionally, those loans have been disbursed at no
interest with a 10-year grace period, and 30 to 40 years to
repay the loan with a marginal service fee to cover
administrative expenses. Actually, the repayment rate on IDA
loans has been quite good, at about 95 percent.
Last year, President Bush proposed that 50 percent of IDA
loans be converted into grants. This led to an extended
discussion with other participating countries in IDA and, after
extensive negotiations, an agreement was reached in June of
this year, just a few months ago, whereby 18 to 21 percent of
future IDA loans would be converted into grants.
The Treasury Department in late July, just before the
August recess of the Congress, sent up reauthorization language
for IDA, providing an 18 percent increase over the previous
replenishment in the amount of $2.85 billion over 3 years.
Obviously, we will be interested in hearing about this request
this morning from the Treasury and then from our panel.
The Treasury Department has also requested $354 million for
the 9th replenishment of the African Development Fund, the
concessional loan window of the African Development Bank. I
understand negotiations over this replenishment have not yet
been completed, and again I think there are discussions taking
place on the loan and grant issue, and also at the urging of
the United States, a push to increase the proportion of
resources devoted to health, education, agriculture, and
private sector development.
The third item on the agenda will be examination of the
replenishment for the Asian Development Fund, which is a
concessional loan window of the Asian Development Bank. The
Asian Development Fund operates in 29 countries, and is
involved in a number of projects aimed at poverty alleviation.
The Treasury Department has requested $412 million for this
replenishment, and the House passed legislation authorizing
this amount for the Asian Development Fund.
We have a distinguished group of witnesses to hear from
this morning to address these issues. The lead-off witness will
be the Under Secretary of the Treasury for International
Affairs, John Taylor, to present the administration's position.
Secretary Taylor has been at the Department since June of 2001
and has been very much involved in the recent replenishment
negotiations. He previously served as a member of the Council
of Economic Advisors under the previous Bush administration and
has been a professor of economics at Stanford.
Our second panel has five distinguished witnesses from the
private sector, but I will defer introducing them until we go
to that panel, and so we will hear shortly from Secretary
Taylor, but first I will yield to Senator Allen, the ranking
minority member of the subcommittee.
Senator Allen. Thank you, Mr. Chairman. I would first like
to begin by thanking you, Mr. Chairman, Senator Sarbanes, for
scheduling this hearing and, of course, for all the witnesses
who are here to testify and speak about this very important
matter.
I do thank you, Mr. Chairman, for having timely hearings on
these matters so we have the due deliberations, and to the
extent everyone else has slowed down, what you are doing here
with this subcommittee for our full committee is very helpful.
The chairman has eloquently described and summarized the
history and the issues of IDA and the African and the Asian
Development Funds. One thing I would like to share here with
the committee and those who are listening is my very strong
belief that political and economic performance criteria are
necessary and should apply to not just loan forgiveness matters
or transferring loans into grants, but also other types of
development assistance. I think that economic assistance to
states will only foster development if those states are
responsible and accountable for their actions.
We need to make sure that every dollar that is getting
allocated, whether it is our dollars or those from others who
are part of these development banks, needs to be utilized in a
way that is obviously beneficial, but you would also like to
see the underlying reforms and improvements made to those
countries.
Now, you can say that in a broad sense, but I think it is
important to have measurable results from all of these loans
and all of these grants. The assumption behind many of these
funding mechanisms is that if the international community would
help generate more financial capital, fiscal infrastructure,
and technical know-how, then the recipient countries would
develop. However, I think we ought to be exploring options that
would require recipient nations to meet certain attainment
criteria and incrementally offer aid based on that progress. In
other words, it is their incentive grants. It is not just a
grant to have a good time with it and do what you would like,
so long as it stays within these parameters of the purpose of
the loan, but have it over several years, and I know that Mr.
Taylor and I have talked about that, and that is to me a very
good idea, and a proper way of putting in criteria and reform
measures that will make sure that there are reforms.
As part of those criteria that I think we ought to develop
in evaluating nations in need of aid, it would be beneficial to
include the ideas of property ownership. Reform should include
encouragement for a country receiving funding to institute a
fair and equal policy for, say, land ownership, intellectual
property ownership for its citizens. I think land ownership or
private property ownership is a source, a good basis for people
caring about their business, caring about that property, and it
also is a key concept for individual freedom.
I also think it thereby makes the country more conducive
and desirable for others to come in and invest. Where that gets
to my last point is that these policies need to make sure that
these countries are putting into place a good, credible system
where they're operating under the rule of law, where there is a
fair and just justice system, or civil justice system, so if
there are disputes, contracts will actually be enforced, and
thereby make that country and the people of that country a more
desirable place for companies to come in and invest, not just
big companies, but even what we consider smaller investments.
They are not going to go into these countries unless contracts
are going to be upheld in a fair way.
So I know that Under Secretary Taylor shares many of these
views. We had the opportunity to discuss them last week, and I
do think the challenges that are facing these development funds
are important. I feel that you are bringing forth many good
ideas that I think should have support from the international
community as well, and whether they are grants, whether they
are loans, the multilateral development banks really can have a
tremendous influence, a greater influence than anyone else in
getting these reforms in place for the benefit of not just the
freedoms, but the economic opportunities for the people in
those countries, and I look forward to hearing from Secretary
Taylor this morning.
Again, thank you, Mr. Chairman, for holding this hearing.
Senator Sarbanes. Thank you very much, Senator Allen.
Secretary Taylor, we would be happy to hear from you.
STATEMENT OF HON. JOHN B. TAYLOR, UNDER SECRETARY OF THE
TREASURY FOR INTERNATIONAL AFFAIRS, DEPARTMENT OF THE TREASURY,
WASHINGTON, DC
Mr. Taylor. Thank you very much, Chairman Sarbanes and
Senator Allen, for inviting me to testify at this hearing on
the authorization of the replenishments for IDA, African
Development Fund and Asian Development Fund, and also to
comment on some of the Bush administration's reform efforts for
these institutions and the other multilateral development
banks. I have some testimony which I would like to enter into
the record and just summarize some key aspects of that.
Senator Sarbanes. The full statement will be included in
the record.
Mr. Taylor. Thank you very much. The reform of the
multilateral development banks [MDBs] has been a high priority
for the Bush administration's international economic agenda.
Raising the effectiveness of these MDBs is very important,
because it is a key way to raise living standards for people
around the world by improving their incomes through raising
economic growth. We believe that a greater effectiveness of
these institutions can do more to raise living standards than
in the past.
There have been three specific types of reform efforts that
we have focused on. One is an insistence on measurable results.
Secretary O'Neill has commented on this on many occasions and
given many examples, including examples from his travels to
developing countries.
The second is to have a greater degree of emphasis on
grants rather than loans as you indicated in your opening
statement, Mr. Chairman, and President Bush proposed that last
summer. And, through the negotiations, we have accomplished
pretty much what he asked for.
Then the third is to focus more on productivity growth.
Productivity growth is the way in which living standards are
increased. If you look at the countries that are rich and
countries that are poor, the difference is how productive the
workers are.
So I am very happy to say that these long negotiations that
took over a year have resulted in very good progress. The
Treasury staff has worked very hard for a very long time, and I
think this progress on these negotiations provides the grounds
for our request for the authorizations that you mentioned for
IDA as well as for the African Development Fund and the Asian
Development Fund.
We are requesting authorization of $2.85 billion, as you
indicated, for IDA. That is the 13th replenishment. We are also
indicating that that replenishment will involve three
components, $850 million appropriation in the first year, $950
million in the second year, and $1.05 billion in the third
year. Those are increments of $100 and then $200 million.
The idea of these increments is to have a greater focus on
measuring results as a part of IDA. This is the first time ever
that the increments will be based on very specific measures of
performance on the part of IDA. For example, we are creating a
whole new measurement system in IDA to measure performance, to
measure results, and are looking at particular performance in
three areas, immunization rates as a measure of improvements of
health, primary school completion rates as a measurement of
improvements in education, and the time and cost it takes to
startup a business as a measure of improvement in private
sector development. And if we do not see the improvements in
three areas, the administration is not planning to seek the
additional increments in the appropriations in the second and
the third year, that is, the $100 and $200 million.
We think this is just the start of a fundamental shift in
the focus of the multilateral development banks to measurable
results. It means stating in quantitative terms the expected
results in individual projects and in overall country
assistance before providing funding.
The agreement also includes a substantial increase in the
amount of funding in the form of grants, as we indicated, very
close to the proposal of President Bush last summer, and I
think importantly for the first time ever we can use part of
IDA to help private sector development in particular by working
through the IFC.
Just very briefly on the African Development Fund, the
negotiations for the 9th replenishment are not complete. We
have reached agreement on using measurable results. The
disagreements are still on the size of the components that will
go to grants, and the overall size of the replenishment, but at
this point we are very close to an agreement, and I expect it
to be close to the kind of agreement that was reached in IDA
13.
So let me just conclude. The multilateral development
banks, as I say, have been a very high priority for the
administration. I think we are making progress on our key
objectives within each of the institutions, and I think,
therefore, these reauthorizations are warranted, and I could
say personally I plan to work with the staff of International
Affairs at Treasury to endeavor to be demanding with the
institutions in setting high standards for these results, in
order that they are more effective in raising living standards
around the world.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Taylor follows:]
Prepared Statement of Hon. John B. Taylor, Under Secretary of the
Treasury for International Affairs, Department of the Treasury
Chairman Sarbanes, Senator Allen, Members of the Subcommittee,
thank you for the opportunity to testify today on the achievements made
to date on the Administration's Multilateral Development Bank (MDB)
reform agenda and our specific authorization requests.
My statement will cover the authorizations for the replenishment of
the World Bank's International Development Association (IDA-13), the
African Development Fund (AfDF-9), and the Asian Development Fund
(AsDF-8), which are the focus of the Chairman's letter of invitation,
Though not mentioned in the letter of invitation, I would like to urge
your support for the Administration's pending request for authorization
to implement reform of the North American Development Bank (NADBank),
along the lines agreed by Presidents Bush and Fox. I also strongly
encourage you to support the Administration's appropriations request
for the recently concluded replenishment of the Global Environment
Facility (GEF-3), for which authorization is provided by prior
legislation. I would be happy to answer any questions about these
requests today.
Reform of the MDBs has been one of the highest priorities of the
Bush Administration's international economic agenda. The MDBs are
important instruments in helping to raise economic growth and
prosperity around the world. But the effectiveness of the institutions
in making a difference in the lives of the poor can be substantially
improved. The MDBs can and must do a better job. I believe it is our
obligation to be demanding of these institutions, to point out their
successes and failures. It is our obligation not only to the people of
the developing world who desperately need these institutions to be more
effective, but also to American taxpayers. I believe that the American
public wants to see results from the funds that we devote to
development, and that their support for providing foreign assistance
will increase if we are convincing and straightforward in presenting
those results.
From the start of the Administration, we have pursued three
hallmark reforms--a greater focus by the institutions on increasing
productivity growth; an insistence on measurable results; and an
increased proportion of assistance to the poorest countries delivered
in the form of grants rather than loans. Steady progress has been made
on all these fronts, and this progress provides the grounds for the
Administration's authorization requests for the MDBs. Congressional
approval of these authorizations will allow us to continue our work to
improve these institutions.
President Bush's appropriations request for the MDBs in FY03 totals
$1.437 billion. In the case of the increment for IDA, the authorization
request is an 18% increase over the prior replenishment request.
Importantly, the requested increase entails a new focus on measuring
and achieving results from IDA funding. In fact, for the first time
ever, part of the replenishment is contingent on achieving real results
on the ground. Absent achievement of progress towards stated
objectives, the Administration will not seek appropriations for that
additional funding.
ida-13; reforms to raise economic growth in poor countries
When the International Development Association (IDA) was first
proposed by the Eisenhower administration in 1959, raising productivity
was the key goal of the institution. In the words of the very first
article of IDA's Articles of Agreement, ``The purposes of the
Association are to promote economic development, increase productivity
and thus raise standards of living in the less-developed areas of the
world. . . . The Association shall be guided in all its decisions by
the provisions of this Article.'' More than forty years later, we have
a long way to go in achieving these objectives. This Administration
believes making IDA more effective demands that, among other things, we
refocus IDA on this original mission of raising productivity growth.
The negotiations for the thirteenth replenishment of IDA concluded
in early July. This replenishment will enable the organization to
provide a total of $23 billion in loans and grants to the poorest
countries over the next three years. The Administration is requesting
authorization to contribute up to $2.850 billion over the next three
years. The FY03 appropriations request consists of $850 million for the
first payment under IDA-13 and $24 million to clear one-third of U.S.
arrears.
In the IDA replenishment negotiations, the United States achieved
agreement on three sweeping reforms fully reflective of the Bush
Administration's MDB reform priorities:
A significant increase in grant funding for the poorest
countries;
A contribution scheme that allows shareholders to link the
contribution of additional resources to the achievement of
results; and
A greater focus of IDA resources on key productivity-driving
activities, including private sector development.
First, the IDA replenishment achieves the President's vision of
last summer ``that up to 50 percent of the funds provided by the
development banks to the poorest countries be provided as grants for
education, health, nutrition, water supply, sanitation and other human
needs.'' In fact, this landmark replenishment agreement means that IDA
will provide nearly 100% of its assistance on grant terms for
education, health, nutrition, potable water and sanitation in countries
whose people live on less than a dollar a day. All of IDA's assistance
for HIV/AIDS will be in grant form for all IDA-only countries, and up
to 25% of such assistance to blend countries (those eligible for both
IBRD and IDA) will also be in the form of grants. Up to 100% of IDA's
assistance for natural disaster reconstruction will be in grant form.
And up to 40% of IDA's assistance to post-conflict countries will now
he delivered on grant terms.
This is a significant achievement in terms of achieving the
Administration's policy objective of helping poor countries make
productive investments without saddling them with ever-larger debt
burdens. Equally important, this approach will make a real difference
in meeting the basic needs of poor people around the globe without
significant costs to IDA.
While an increase in the amount of grants will mean a reduction in
IDA repayments over the next 40 years, it is important to note that for
the recipient countries, these additional saved ``costs''--which are
better referred to as ``foregone debt repayments''--provide real and
material benefits. Even in terms of foregone repayments, the amounts
are modest and spread out over an extended period of time. Given the
grace period attached to regular IDA funding, there is virtually no
reduction in the amount of IDA resources available to support borrowing
countries over the first ten years.
It will not take much to offset these foregone repayments even
after the first ten years. In its recent study on IDA grants, the U.S.
General Accounting Office (GAO) produced an excellent analysis, which
was very helpful. I referred to it many times as a way to explain the
financial impact of the grants proposal to other donors. It estimated
that donors would have to increase their contributions at an annual
rate less than the rate of inflation to offset the costs of grants--
that is a decline in real terms.
Second, another key achievement in the IDA replenishment is a
contribution structure that allows donors to increase their levels of
funding if concrete measurable results are achieved. Donors and
developing countries will benefit from routinely quantifying
development achievements and understanding the reasons for success and
failure. This will increase learning and accountability for development
results.
Donors agreed to measure progress towards two sets of results. The
first set involves getting the new measurable results system started.
This system must be established and other analytical underpinnings of
IDA's work expanded. Timely and high quality diagnostic analyses--such
as public expenditure reviews, financial accountability assessments,
and investment climate assessments--are important tools for identifying
the strengths and weaknesses in a country's ability to make the most
effective use of IDA resources. The U.S. will provide an additional
$100 million if IDA makes concrete progress in this area.
The second set of results is in the areas of education, health, and
private sector development. After careful consideration of both
measurability (do the data exist in most IDA countries?) and relevance
(do they reflect IDA's productivity growth and poverty reduction
mandate?), progress will be tracked toward the following results:
Education: Increase in aggregate primary school completion
rates across IDA countries as well as an increase in the number
of countries that have raised their completion rates.
Wealth: Increase in measles immunization coverage across IDA
countries as well as an increase in the number of countries
with 80 percent coverage.
Private Sector Development: Reductions in both the number of
days and the official costs required to start businesses in IDA
countries.
Reflective of the importance of human capital investment and
vibrant private sectors to increasing productivity, the U.S. will
provide an additional $200 million if satisfactory results are achieved
in the above areas.
It is important to keep in mind that this is just the start of a
fundamental shift of focus in the MDBs to measurable results. A new
measurement system must be created to implement the results approach;
it will begin with a small but important set of indicators. And it will
evolve over time as the quality of data and evaluation systems in
recipient countries are strengthened and as the MDBs, other
shareholders, and developing countries realize that the U.S. priority
on measuring results reflects a genuine desire to ensure that the
lessons--both successes and failures--of 50 years of development
assistance result in more effective assistance and less poverty around
the world.
More broadly, pursuing a results-based approach in IDA and the
other MDBs will require real changes in operating style. It means
stating in quantitative terms the expected results of individual
projects and overall country assistance before providing funding. It
means measuring progress towards stated results and assessing the
reasons for success and failure. It means structuring projects in a way
that steps up or cuts back funding contingent on achieving results.
Third, IDA will devote significant resources over the next three
years to projects and programs that raise productivity. The logic
behind this approach rests in the simple fact that countries are poor
because productivity is low. This requires concentrating IDA funding on
addressing the basic causes of low productivity such as inadequate
education, low business investment, and inadequate health care. For the
first time, IDA funds can be used in the private sector, including
increased collaboration with the International Finance Corporation
(IFC), the arm of the World Bank Group that provides financial products
to private sector projects in developing countries.
african development fund
Negotiations for the ninth replenishment of the African Development
Fund (AfDF-9) are not yet complete. With strong U.S. leadership, the
AfDF negotiators have already agreed on an important set of policy
reforms including an enhanced focus on measurable results, an improved
link between financial support and results, and deepened coordination
with the World Bank and bilateral donors. The AfDF has a good record of
making information available to the public, and management has
committed to improving disclosure policies. The institution is also
developing specific expertise in the areas of regional integration and
governance, and will he adopting a new private sector strategy this
year.
Two issues remain--the overall size of the replenishment and the
proportion of assistance to be provided as grants. The AfDF is expected
to adopt a grants program which is similar to the agreement on grants
reached in IDA, with an emphasis on grants for urgent human needs such
as education, health, and water and sanitation, linked to country
performance and commitment to economic reforms. Discussions to date
project a replenishment size of $2.9-$3.2 billion to fund AfDF
operations over the next 3 years. The Administration is requesting
authorization to contribute $354 million over the next 3 years. This
represents an 18 percent increase in funding AfDF-8.
The African Development Bank has been using its comparative
advantage as a regional MDB to participate actively in the on-going
elaboration of the New Partnership for African Development (NEPAD)
initiated by African Heads of State. The Bank will he assisting, in
particular, on promoting economic regional integration and improved
banking and financial standards.
asian development fund
Important achievements were made during the last replenishment
negotiations on the Asian Development Fund (AsDF), including a
performance-based system for allocating resources and a Memorandum of
Understanding with the World Bank to strengthen collaboration and
minimize duplication. More recently, a strategy for combating money
laundering and terrorist financing has been developed by the AsDB.
The Asian Development Bank--including its concessional tending arm,
the AsDF--has moved quickly to assist Afghanistan, by participating in
the multi-donor trust fund and by pledging support to finance the
country's urgent reconstruction needs. The Bank has approved $15
million in grants to support critical capacity-building in key
ministries, such as health, education, and agriculture, and to assist
with disaster preparedness. In the road sector, we are working closely
with the Bank and USAID to accelerate the flow of donor assistance to
critical roads.
The Bush Administration intends to implement its MDB reform agenda
for the AsDF much as it has with IDA, including the use of grants. Our
ability to influence the policy direction of the institution will be
helped over time by a reduction in our arrears.
conclusion
MDB reform has been a priority of the Administration from the
outset. I believe that steady progress is being made in achieving our
key objectives within each of the institutions and that these
reauthorizations will allow us to make further progress. Working with
the international affairs staff at Treasury, I will endeavor to be
demanding and to set high standards for the MDBs in order to make them
more effective in raising living standards around the world.
Senator Sarbanes. Thank you very much, Secretary Taylor.
Concerning the $2.85 billion replenishment for IDA--if you go
from loans to grants and if you are not going to cut back on
the program, you are going to have to have additional
resources. Would that be correct?
Mr. Taylor. Because of the grants, rather than loans, there
is less payment back in the future, but, as you indicated in
your introduction, the IDA loans at this point have a 10-year
grace period, and they also have an effective interest rate of
.75 percent, and a 40-year duration, so these payments, these
reflows come back into the future, and therefore have no direct
implication immediately on the funding.
However, and I want to add, because this is very important,
a number of studies, a very significant one by the GAO showed
that the actual increase in the funding that is necessary to
make up for the difference that you are raising is very small,
and in fact all it requires is that IDA funding be increased at
a rate that is actually less than the inflation rate over the
years, and that is enough to make up for the lost inflow.
Senator Sarbanes. Can that be encompassed within the $2.85
billion request?
Mr. Taylor. Well, in a way the $2.85 billion is more than
enough of that. Because as you say, it is an 18-percent
increase, and according to the studies, if you have just a 2-
percent increase year after year, it is enough to make up for
the loss of reflows, so it is more than enough.
Senator Sarbanes. So in the IDA negotiations, where
agreement was finally reached, the replenishment figure covers
what is estimated to be the additional cost? I mean, are the
donor countries all agreed on that?
Mr. Taylor. No, it is not correct to say that the
replenishment we have agreed to covers the additional cost.
That additional cost, one way to think about it is, it is a 2-
percent increase year after year, say, for the next 40 years,
which is less than inflation that's projected, but the 18
percent just for this first 3 years. So it takes a good chunk
of that, but it does not make commitments for IDA 14, IDA 15,
IDA 16, et cetera, so the payments really in the future will
determine the offset of the reflows, but the 18 percent is just
for this replenishment.
Senator Sarbanes. I thought I read somewhere that the
donors were planning to meet in the near future to discuss the
additional resources necessary to cover going from loans to
grants. Is that correct?
Mr. Taylor. There will be continuing meetings through the
time where IDA 13 plays itself out, and then in preparation for
negotiations in IDA 14, we have agreed there will be a review
of the grants, the whole grants operation to see how that is
working in plenty of time before IDA 14. And one of the
elements to consider would be to review the cost, if you like,
of the loss in the reflow. But the whole grants proposal is
going to be reviewed on an ongoing basis.
Senator Sarbanes. Well, I am having difficulty getting an
answer to my question. Let me continue to pursue it.
Does the shift from loans to grants, is that funded by this
replenishment, or does it remain unfunded as a matter that
continues to be on the agenda of the donor IDA members?
Mr. Taylor. The 18-percent increase alone does not fully
make up for the lost reflows from the loans.
Senator Sarbanes. Is it intended to make up for any of it,
or is it intended to be an additional replenishment? With the
funding of the loan-to-grant shift being dealt with separately?
Mr. Taylor. It is being dealt with separately. The 18
percent is a good chunk of it, but the rest of it will be dealt
with separately into the future, so when IDA 14 is considered,
and IDA 15 is considered, then a deliberation will take place
on whether additional contributions are appropriate at that
time. And it is going to be based on many things in addition to
the lost reflows, I think most important how measurable results
are working, how effectively the institution is working. All
those things will come into play, just like how big IDA 14 will
be.
And if I could just say one other thing on this, the lost
reflows are a reduction in the payments that the poorest
countries in the world have to make, so the grants are a way in
which we can provide more resources in the future by having
less in the way of interest payments from these very poor
countries to help make them more sustainable.
Senator Sarbanes. I understand. The question now is whether
you are borrowing from the future to cover the present, or
whether there is going to be a flow of resources that will
assure that the level that is going in for program purposes
remains constant or, indeed, continues to increase.
Mr. Taylor. We are trying to make the resources effective
right now.
Senator Sarbanes. I understand, but are you doing that by
pulling in from the future, or providing the resources?
Mr. Taylor. We are providing more resources as a result of
the grants. We have not reduced the amount we are putting in.
We have actually increased the amount we are putting in and
converted that from loans to grants, which is an increase in
funding, so not only are we increasing funding by 18 percent,
we are providing more funding in the form of grants rather than
loans. Those are more resources.
Senator Sarbanes. What was the basis of the resistance that
you encountered in shifting from loans to grants?
Mr. Taylor. I would say that it's, as any new idea there is
resistance. It came from positions that were held for many
years. As you know, the World Bank has been thought of as a
bank that makes loans.
Senator Sarbanes. So you think there was no rational
argument on the other side. It was just the resistance to a new
idea.
Mr. Taylor. In my opinion as an economist and economic
financial analyst, the arguments in favor of the grants
proposal were overwhelming, and it eventually carried the day.
Senator Sarbanes. What were the arguments against it? Let
me ask you to think as a lawyer, instead of an economist, who
tries to see the arguments on both sides, and therefore has to
be careful not to be absolutely convinced of the rightness of
his cause, since he has to understand where the other side is
coming from. What was their rationale? Because you encountered
considerable resistance.
Mr. Taylor. Yes. I was involved in the negotiations. I know
it is important to understand the other side's perspective as
best as possible. One perspective was that in some countries
the institutions of government get in the way of changes.
For example, the distinctions between loans and grants is
sometimes a distinction between finance ministry operations and
foreign affairs ministry operations, or development ministry
operations, where the loans tend to be from finance ministries,
so shifting from loans to grants is effectively in some
countries shifting from one ministry to another. You can
understand how that can get in the way of change. That is an
example of a reason.
Another reason are the things you just mentioned, Senator,
that what would be the cost of this operation. And as I say,
thanks to a lot of good work, including that of the GAO, people
pointed out that there really were not costs in any sense of
the word, because you can make up for the loss reflow simply by
keeping the contributions growing at a very small nominal rate,
less than the rate of inflation. So that was very serious and
good discussions about those technical issues, but ultimately
when people looked at the numbers, the proposal made a lot of
sense.
I think another thing that eventually carried the day here
was the recognition by many people who are concerned about the
debt burden in poor countries, realized that grants would be a
way to reduce debt burdens in the future, and that became very
important in the end for all parties.
Senator Sarbanes. Now, I gather you went to a range of 18
to 21 percent grants?
Mr. Taylor. Yes, out of total IDA funds, that is exactly
right.
Senator Sarbanes. But your proposal was for 50 percent?
Mr. Taylor. The President's proposal was for 50 percent of
funding to the poorest countries, for areas in social services,
health, education, and water, and that is pretty close to what
the agreement was.
IDA funds are also used for projects, for roads, which will
be in the form of loans in the future.
Senator Sarbanes. Is the performance standards that you
mentioned--you have this stepped-up contribution over a 3-year
period, the performance targets. Were they adopted by IDA? Are
they part of its framework, or are they a separate U.S.
determination?
Mr. Taylor. It is a combination. If I can answer your
question as best I can, it is a combination. The overall
framework is provided by IDA. That is, the performance
measures, the improvement in completion rates of schools, et
cetera, the agreement to provide a new measurement system for
measuring. That is part of IDA and part of the agreement. The
World Bank will be creating this new measurement system.
The United States is the only country which will, at this
point in time, gear its contributions of $100 million and $200
million to this amount. I believe it is the only one at this
point.
Senator Sarbanes. Now, was that accepted by IDA? As part of
the----
Mr. Taylor. Yes. We have an agreement. The whole document
that is agreed to this, that is exactly right.
Senator Sarbanes. Has agreed to what now, specifically?
Mr. Taylor. To these performance measures and to the U.S.
proposal that the United States will provide $100 million more
only if these goals are achieved, and then in the second year
$200 million more only if the goals are achieved. They agreed
to that as part of the framework.
Senator Sarbanes. Are other countries coming in
conditionally, in the same way?
Mr. Taylor. No. I believe no other countries have, just the
United States, but the other countries have agreed to the
United States proceeding that way, and also to the new
measurement system that is going to be developed.
Senator Sarbanes. Senator Allen.
Senator Allen. Thank you, Mr. Chairman. In following
through some of the questions, in order for the taxpayers to
support and for the Congress to support additional funds that
the President has generously put forward, I think we need to
know that these funds will not be squandered, and that there
will be some positive changes made in these countries. You
specified, some of the educational and health matters that
obviously are important.
And you mentioned performance criteria and measurable
results. Could you please tell us, elaborate more on what will
be the performance criteria, what will be the measurable
results? So the American taxpayers know that these grants, and
how many of them are going to be grants, obviously paid out
over a period of years is your proposal, but what will be those
measurable results, tangibly, that we could see, that look at
this investment of however many dollars it may be, here is how
this has impacted this country, benefited their lives, maybe
their education, maybe their health, but also making those
countries, allowing the people of those countries to have
greater opportunity for economic success in life, as opposed to
just worrying about the bare necessities.
Mr. Taylor. We are just beginning this process of insisting
on measurable results, and so ultimately I hope that there is
much more in the way of a good answer to your question,
Senator, but thus far I think the answer can be good.
We are agreed that there should be an improvement in
education as measured by completion rates in primary education,
so that means more kids are completing primary school. We have
agreed that there should be some improvement in immunization in
the area of measles. That is actually a good measure, because
you have to have a good health system, delivery system,
refrigeration, et cetera, in order to make this improvement.
And third, improvement in the time and cost to startup a
business.
So those are a start. All those are important for the well-
being of people, and for economic growth to be started.
Ultimately, I would like to see even more of these kinds of
measures in the programs, and as we go forward in order to
achieve those goals, of course, there is going to have to be in
each grant and each loan specific performance measures by time,
what happens each quarter, what happens each year, and that
will be a process that will be taking place in the months and
years ahead, but the specifics that I indicated are actually in
the IDA agreement now.
Senator Allen. I think all those are fine. Obviously,
education is important for any individual. Of course, what they
are being taught is another matter. I am not sure that we care
to get into the details of the curriculum of their countries,
but nevertheless, what you find in some countries is, if people
are illiterate, the basic things that we care about in their
country, if they are illiterate they are going to have very few
opportunities in life.
Now, the prompt permitting I think is fine, and that is
good, but you still could have prompt permitting for business
startups, but in the event that contracts are not being adhered
to, if there is not fair adjudication of disputes, if that
prompt permit is given to someone whose property is
capriciously taken, or the value of it diminished without
compensation or due process, then that is a problem, and I
would hope that beyond those things of prompt permitting for
business startups and so forth, that you get into some of the
underlying aspects.
I know that the Meltzer Commission has proposed that the
World Bank adopt a results-oriented, or results-based
performance system, where organizations implementing bank
programs would be paid only if they achieved the goals
specified in their program plan. The new IDA 13 plan says the
World Bank will establish a results-based system for measuring,
monitoring, and managing its development programs.
Now, will it look anything like the procedure proposed by
the Meltzer Commission as you go forward, and if not, how does
the International Development Bank, or Association plan to
maintain accountability and avoid putting money into failed
programs?
I know there are a lot of questions in there.
Mr. Taylor. The measures are important to quantify and
meet, and I think we have made good progress on that. As I
indicated. There are additional measures, as your examples
indicate, Senator, that could have to do with test scores for
kids, rather than simply completion rates. Completion rates, as
you know, is not the best measure when you can promote kids
easily. And with respect to other kinds of measures, the
question is, what is the penalty if you do not meet the
measure?
I think that is implicit in your question, and I think for
particular grants, if there is a grant and the performance
results are not being achieved, then the grant should be
pulled. We should stop. If things are not being accomplished as
planned, then someone has to say no, this is not going to the
right place, it is not being done in the right way, and so you
move in a different direction, so that is the kind of carrot
and the stick that goes along with the actual measures
themselves.
Senator Allen. Well, I think what you are trying to do is
in the right direction. I want to work with you in the years to
come. I think some of the initial criteria may not be as strict
as I would like, but you also have to be understanding. This is
a new approach, and I think it is a refreshingly new approach
of reform to make sure that if our money, our taxpayers' money
is being used, we want to make sure it is being used in the
right way. And it is not just for our benefit; it is for the
benefit and the foundational changes that need to be made,
fundamental changes as well in some of these countries.
And so count me as somebody 100 percent behind performance-
based results, performance-based lending, and I think that your
concept of paying out over the years to see if progress is
being made in education, you are not going to do it quarterly.
That is going to have to be more of an annual or long-term
situation. You cannot turn an education system around in 1 year
in another country, any more than you can turn it around in our
States in our Union, but some of these ideas that the Meltzer
Commission has put forth, I am glad to see that you are fairly
well parallel with them, and commend you and want to work with
you in the years to come.
Mr. Taylor. Thank you. Senator, could I just say one thing
in response to that?
Senator Allen. Sure.
Mr. Taylor. There is another very important change that is
going on in U.S. foreign aid policy, and that is the
President's proposal for the Millennium Challenge Account. That
is not part of these proposals, of course. These are
multilateral, and therefore it requires multilateral
negotiations and all of the donors to these institutions to
participate in, but in the Millennium Challenge Account which
the President proposed and we are working to implement right
now, it does include rule of law issues, it does include
contracts being enforceable, so it actually is beginning to
move even further in the direction that you indicate is
important, and we think is important as well.
And that is not the subject of this testimony, but I think
that is another example where there is an increase in funding
being proposed of substantial magnitude, in this case a 50-
percent increase in our foreign assistance, but only when it
goes to countries that are performing well in terms of the
policies you indicate, and getting good results, so that,
combined with this 18-percent increase in IDA I think
demonstrates the philosophy that there can be increased support
for developing countries, and it is going to be effective if we
have this approach that we are proposing to take.
Senator Allen. Well, I am glad you added that, too, because
while it is not the specific focus of this hearing, the larger
question is, how are we going to help developing countries
develop so that they live healthier, better, more prosperous
lives; and thank you for bringing that up, because I do think
that is an important part of our overall foreign aid policy.
Thank you, Mr. Chairman. I have no further questions.
Senator Sarbanes. Mr. Secretary, I understand that we are
running considerable arrearages to the multilateral development
banks, is that correct?
Mr. Taylor. Yes, that is correct.
Senator Sarbanes. And even on IDA, and both the Asian
Development Fund and the African Development Fund, we are in
arrearages as well, is that right?
Mr. Taylor. That is correct. The amounts vary by
institution, but that is correct, and I would say, Senator,
that one of, I think, the other important things to mention
about our proposals for appropriations in the 150 account is a
3-year plan to clear all of our arrears. We think these arrears
are a mistake. It is not good budget policy, and we have laid
out a plan in the next 3 years to clear those arrears out, and
the first year a third of them are proposed to go as a part of
our appropriations.
Senator Sarbanes. Does it handicap our efforts in these
multilateral development banks, the fact that we are in
arrearages when we try to impact the direction of policy?
Mr. Taylor. Sure. It is an issue people raise, I think
therefore it is important to clear them out.
Senator Sarbanes. And how unusual is it? Are there many
donor countries that are in arrearages, or do we tend to stick
out in that regard?
Mr. Taylor. Because of our system, we tend to have more of
an issue than other countries. The parliamentary systems, it is
easier just to have the funds go exactly as negotiated by the
government, but I would have to get a more specific answer to
you, if you would like the details on that, Senator.
Senator Sarbanes. Well, we thank you. Mr. Secretary, we
thank you very much for your testimony.
Mr. Taylor. Thank you.
Senator Sarbanes. If the panel would now come forward, our
second panel features five witnesses from outside the
government, James Orr, the executive director of the Bretton
Woods Committee, a group of chief executives, former Cabinet
officials and others who joined together to promote reforms and
increase public understanding of the World Bank, the IMF, and
the multilateral banks. Jim Orr actually served for 8 years as
legislative counsel for the International Trade and Development
Subcommittee over in the House of Representatives.
Ms. Caroline Atkinson, adjunct senior fellow in
international economics at the Council on Foreign Relations,
and senior director of Stonebridge International, a consulting
firm. Ms. Atkinson from 1997 to 2001 was senior advisor to the
Secretary and Senior Deputy Assistant Secretary for
International Affairs at the Treasury, and she has worked at
the IMF, and as an economics writer and columnist for the
Washington Post, the Times of London, and the Economist.
Reverend David Beckmann, president of Bread for the World,
a leading NGO dedicated to eliminating world hunger. Bread for
the World is a member of the Coalition for World Bank Reform,
an umbrella organization of NGOs. Reverend Beckmann served for
several years on the board of directors of Bread for the World
before becoming its president in 1991.
Actually, prior to that he spent some time as a World Bank
economist focusing, or trying to move the bank in the direction
of poverty reduction.
Dr. Allan Meltzer, who has been here with us a number of
times before, professor of political economy at Carnegie Mellon
University in Pittsburgh. He has been there now a very long
time----
Dr. Meltzer. For 46 years.
Senator Sarbanes [continuing]. And is a visiting scholar at
the American Enterprise Institute. Dr. Meltzer was a member of
President Reagan's Council of Economic Advisors, and of course
he has authored a number of important academic studies.
George Ayittey, and I hope I pronounced that correctly, is
distinguished economist in residence at American University,
previously a fellow at the Hoover Institution, and was a
Bradley Resident Scholar at the Heritage Foundation. And we are
very pleased that all of you could come and be with us this
morning, and I think I will simply begin with Jim Orr, and we
will move straight across the panel.
STATEMENT OF JAMES C. ORR, EXECUTIVE DIRECTOR, THE BRETTON
WOODS COMMITTEE, WASHINGTON, DC
Mr. Orr. Thank you very much, Chairman Sarbanes, Senator
Allen. It is a pleasure to be with you today. As Senator
Sarbanes mentioned, I am here representing the Bretton Woods
Committee this morning, which is a group of 700 opinion leaders
across the country who have banded together to work to help
improve the effectiveness of the World Bank and the IMF and to
support them where they need support.
Senator Sarbanes. Self-proclaimed, or so designated by
others?
Mr. Orr. Self-proclaimed, Senator, but perhaps you could
fit a line designating us congressionally in the next
authorization bill.
Senator Sarbanes. I doubt that is going to happen.
Mr. Orr. I am going to talk mostly about IDA because that
is the program I know more about, and briefly about the African
fund and the Asian fund.
Our sense, Mr. Chairman, is that IDA is deserving of
continued strong support from the Congress for a number of
reasons. First of all, it is the main program that the United
States has to help the world's poorest countries. As we all
know, many of these people live on a dollar or two a day. IDA
and the other soft loan programs at the regional development
banks pay for the bulk of the infrastructure development and
social services in 80 or 90 of the poorest countries in the
world, and it helps guarantee a basic level of social welfare
that could not possibly exist without these programs.
Ultimately IDA paves the way for self-sustaining growth, and
that is its purpose. It is also worth pointing out that much of
the assistance goes to countries that are strategically very
important to the United States.
I am going to comment briefly on the effectiveness of the
World Bank. We have already heard a great deal about this
subject this morning. I have to say I bristle slightly when I
hear these discussions, because it is possible for someone who
joined us today for the first time to get the idea that no one
has ever thought about World Bank effectiveness until the last
few years, and that is just not true. I would say that of all
the bilateral and multilateral programs in existence, IDA and
the World Bank have been the most effective in promoting
development over the last 30 or 40 years.
Clearly, improvements in effectiveness need to be made. We
are all supportive of that, but we have to remember that IDA
works on one of the most challenging problems that faces
mankind today. It is not for lack of great talent or serious
effort that there are still many countries that lag way behind
in development. It is just a very hard business. No one knows
exactly how to do it. IDA and the other development
institutions have changed strategies a dozen times over the
last 50 years trying to do a better job, but I would not want
the impression left that the institutions have been ineffective
until now, because that is not the case.
I think one of the best measures of effectiveness is the
fact that over the lifetime of IDA 32 countries have graduated
out of eligibility for soft loans into eligibility for hard
loans, loans based on market rates of interest, and that is an
impressive statistic. We all wish that 100 countries had
graduated, and perhaps they will.
Certainly, it is appropriate to be skeptical about
effectiveness, and all of us welcome the innovations made by
the Bush administration and this Treasury Department, many of
which had their roots in proposals by the Meltzer Commission,
which I am sure you will hear more about. Supporters of IDA
certainly welcome the demand that IDA and the other regional
development banks' soft fund window should be subjected to
tougher standards.
Another point I would like to make is that people often do
not feel that IDA recipients are grateful for this support, and
I had a personal experience which perhaps is worth relating in
this regard. Two years ago, I accompanied a group of nine IDA
Ambassadors to visit lawmakers, mostly on the House side, I am
sorry to say, but it was remarkable to hear these Ambassadors
talk about how IDA funds had been used in countries from Haiti
and Nicaragua in our hemisphere to Africa and South Asia and
East Asia. They were extremely grateful for the sacrifice of
the American taxpayers to fund IDA, very positive about the
work of the World Bank, and I think this is something Congress
should hear more, because I sense they do not hear it very
often.
IDA is evolving in many ways to meet the challenges of
today. Transparency has been one of the main areas where I
think the World Bank and IDA have made the most progress in the
last 10 years. It is quite startling to see how much
information about what the World Bank is doing is now available
to the public.
A good example is the IDA replenishment agreement that you
talked about with Under Secretary Taylor. When the agreement
was still in draft form, it was circulated to the NGO community
and put up on the World Bank's Web site, and NGOs were given an
opportunity to comment on it and suggest improvements, and
scores of NGOs took the World Bank up on this offer and made
constructive criticisms, many of which were embodied in the
final IDA replenishment proposal, so we have come a long way
with transparency. There is certainly more to be done in this
area.
Another place where I think this administration has been
pushing the bank that is very important is the emphasis on
private sector development. I think most members of the Bretton
Woods Committee would agree that private sector development is
the key to self-sustaining growth, and it cannot be emphasized
enough.
Sometimes help for the private sector gets lost among a
list of very worthy objectives at the bank, like education and
gender equality and fighting environmental problems and
infectious diseases, but the private sector is ultimately the
best hope for these countries. I cannot think of a single
country that has graduated from the ranks of the poorest
countries to the ranks of emerging market countries without
having first established a vibrant private sector.
John Taylor mentioned briefly this--may I finish my
sentence?
Senator Sarbanes. Sure. Why don't you just view the timer
as an indication that you should start drawing to a conclusion.
It is not as a guillotine.
Mr. Orr. Thank you, Mr. Chairman. John Taylor mentioned
that one of the performance criteria for IDA to get the
remaining money in the next 2 years is improvements in poor
countries in the amount of time it takes to start a business. I
had the privilege of visiting Nicaragua last spring, the
poorest country in Latin America. A new World Bank study shows
that in Latin America it takes three times as long and costs 15
times as much to establish a small business as it does in an
OECD country like the United States, and I think in that
statistic, and in the fact that Nicaragua still lacks a fully
functioning vibrant private sector is part of the reason why
that economy lags behind.
I will save the rest of my comments for questions.
[The prepared statement of Mr. Orr follows:]
Prepared Statement of James C. Orr, Executive Director, The Bretton
Woods Committee
introduction
Mr. Chairman, Ranking Senator Allen, and members of the
Subcommittee, it is an honor and pleasure to appear before the
Committee today. My name is Jim Orr.\1\ I am Executive Director of The
Bretton Woods Committee, a public education foundation dedicated to
promoting sensible reforms and building understanding for the work of
the Bretton Woods institutions--the World Bank, the International
Monetary Fund, the World Trade Organization and the regional
development banks.
---------------------------------------------------------------------------
\1\ In compliance with Congressional rules, a brief biographical
statement appears at the end of this statement.
---------------------------------------------------------------------------
The Bretton Woods Committee is comprised of about 700 members from
across the country. Typically, they are opinion leaders: heads of
businesses, universities, labor groups and NGOs and former government
officials. We are proud of the fact that all the former Secretaries of
the Treasury and State are members, as are a good number of former
Members of Congress. Our co-chairmen are former Congressman Bill
Frenzel and Gerald Corrigan, the one-time president of the New York
Federal Reserve.\2\
---------------------------------------------------------------------------
\2\ Truths in Testimony rules require a statement about the receipt
of any federal grants or contracts. As a matter of policy, The Bretton
Woods Committee accepts no government support of any kind. Nor does it
accept funding from the international financial institutions. It is
supported solely by voluntary contributions of its members.
---------------------------------------------------------------------------
I am here today to express our strong support for continued U.S.
funding of IDA--the International Development Association of the World
Bank, and in addition to support replenishments for the Asian
Development Fund and the African Development Fund. In line with my
experience, however, I will speak mostly about IDA, but in many cases
my comments can be applied to all three institutions. In my testimony,
I will stress the historical and future significance of IDA and discuss
some of the ways it advances U.S. interests.
what is ida?
The International Development Association is the World Bank's
concessional lending window. Designed to be a channel for the ``haves''
of the world to help the ``have-nots,'' IDA provides long-term loans at
zero interest to the poorest among the developing countries. These
loans carry maturities of 35 or 40 years with a 10-year grace period on
the repayment of principle. IDA lends to countries that have a per
capita income of about $900 or less and lack the financial ability to
borrow from the World Bank's primary lending institution, the
International Bank for Reconstruction and Development, or IBRD. At
present, 79 countries, comprising over 2.5 billion people and more than
half the total population of the developing world, are eligible to
borrow from IDA.
history of ida
IDA was created in 1960 at the initiative and insistence of the
United States, and today it remains the single largest source of donor
funds for basic social services--health, education, clean water,
sanitation, infrastructure, etc.--to the world's poorest countries.
During the 1950s it became increasingly evident to World Bank
shareholders that the Bank must turn its attention beyond its primary
mandate--postwar reconstruction of Europe--toward assisting the world's
poverty-stricken nations, many of whom were newly independent from
colonial rule, plagued by economic and political instability, and
unable to afford the development loans on commercial terms
traditionally offered by the World Bank. To fill this void in
development financing, U.S. President Dwight D. Eisenhower urged World
Bank shareholders to create the International Development Association
(IDA), giving the Bank the resources and mandate it needed to address
the problems of the poorest nations and their citizens. Since 1960, IDA
has lent $107 billion to 106 countries to address the basic needs of
billions of people surviving on less than a dollar or two per day. It
uses the same criteria to evaluate loans as that of the World Bank's
IBRD facility, and aims to fund projects that build needed
infrastructure, protect the environment, improve conditions for private
industry to develop, and support reforms aimed at liberalizing
countries' economies.
As the members of this Committee know, whereas the IBRD raises most
of its funds on the world's financial markets, IDA is funded largely by
contributions from the governments of the more wealthy member
countries. Donors get together every three years to replenish IDA
funds. IDA lending is a cost-effective way for the U.S. government to
promote its development goals, since each dollar contributed by the
United States is matched by over seven dollars from other donors and
repayments from borrowing countries.
As the Committee is also well aware, there has been a consistent
record of bipartisan congressional support for IDA, dating back to the
1950s. Interestingly, it was a Republican Senator who initially
proposed creation of the program. It has been supported by every
president since Dwight Eisenhower. It also enjoys support from a broad
array of interest groups, ranging from poverty and church groups to the
business community.
America's business community has a strong interest in seeing the
IDA program succeed. By advancing living standards from one generation
to the next, peace and stability are more likely, and thus, IDA helps
promote a more stable world economic environment. IDA borrowers are
precisely the countries that have the greatest need for the exports the
United States specializes in, such as animal feed to upgrade diets,
technologically-enhanced crops, renewable fuel sources, and modern
capital equipment to improve countries' manufacturing base. Many of
today's IDA countries will be tomorrow's emerging markets.
impact and success of ida
Over more than forty years IDA has, by and large, been successful
in achieving its objectives. IDA lending has impacted the global
development community on a major scale, and its success rate compares
favorably with private and public sector investments around the world.
Over the years, thirty-two IDA borrowing countries have seen their
economies develop and grow beyond the point where they are no longer
eligible to use IDA funds, thus enabling them to ``graduate'' from IDA
to reliance on commercially-priced lending. The list of graduates
includes Chile, China, Costa Rica, Egypt, Morocco, Thailand and Turkey.
Other former IDA borrowers, such as Korea, have made enough progress
that they now contribute funds to IDA as donors.
Further, living conditions and basic services have improved
dramatically in most IDA borrower countries. On the whole, life
expectancy, literacy and nutrition have increased over the past
generation. While there have been development failures among IDA
borrowers in parts of Africa, for instance, it is important to note
successes in regions like South Asia, where IDA funds and policies
helped fuel the Green Revolution. Thanks to IDA, over 6,700 health care
facilities in Asia were constructed or upgraded, and then equipped and
staffed to provide basic healthcare to rural populations.
In the Caribbean, IDA policies have helped turn around Haiti's
devastated power sector--giving users access to about 20 hours per day
of electricity, in contrast with only 6 hours per day just a few years
ago. IDA lending has succeeded in parts of Africa too, over 45,000
primary school classrooms in African countries have been constructed or
refurbished, and more than 5 million textbooks (most locally developed
and produced) were supplied to primary schools, enabling about 1.8
million children to benefit from access to primary education.
A recent empirical study performed by the World Bank's research
department measured the effectiveness of development aid throughout the
1990s and found that the effectiveness of IDA resources improved over
the course of the decade, and was far more effective than the overseas
development assistance (ODA) in general. The study concluded that IDA
funding was better targeted to the specific needs of poor countries
that maintain reasonably good policies.\3\
---------------------------------------------------------------------------
\3\ Dollar, David. ``Has Aid Efficiency Improved in the 1990s?''
Revised Draft, World Bank Development Research Group. Washington, DC,
March 15, 2000.
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A major, independent evaluation of IDA's record between FY1994-
FY2000 performed by the World Bank's independent audit agency (the
Operations Evaluations Department) recently found IDA's compliance with
more than 150 undertakings to be satisfactory, with some modest
qualifications. The report cited that over the seven-year review
period, IDA significantly enhanced its relevance and the performance of
its portfolio became a more selective lender and more responsive to
borrowers, and recast its mission to address new concerns of poverty
reduction. IDA also improved its presence in the field and diversified
its policy instruments. The report concluded that, with IDA's help, ``a
number of poor countries are in a better position now than at the
beginning of the evaluated period to achieve broad-based growth and
poverty reduction.'' \4\
---------------------------------------------------------------------------
\4\ Gwin, Catherine. ``IDA's Partnership for Poverty Reduction: An
Independent Evaluation of Fiscal Years 1994-2000.'' World Bank
Operations Evaluation Department, Washington, DC, 2002.
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concerns
However, a number of legitimate criticisms about IDA resources,
policies and effectiveness have been raised by members of the IDA
community, including some of IDA's most ardent supporters. For one,
IDA's track record needs to be better: progress in poverty reduction
has been disappointing in some pockets of the world, particularly
Africa, where living standards have barely kept pace with population
growth. Neither donors nor borrowers must become complacent or be left
unaccountable for such failure. Although IDA's effectiveness is
increasing the translation of key IDA objectives into successful
programs must become more clear and demonstrable.
Key areas where IDA needs to focus new efforts include private
sector development and gender, environmental and social development
strategies. Some of the Bretton Woods Committee's members from the
business and finance communities have taken a special interest in the
need for more private sector development efforts. Most observers take
for granted the fact that poor countries that reach the level of self-
sustaining growth will increasingly rely on private sector resources,
primarily internally generated, but also foreign direct and portfolio
investment.
No country has broken out of the ranks of the ``poorest'' to
achieve the status of an ``emerging market'' without first creating a
well functioning private sector to permit capital formation and the
building of local businesses, which employ workers and pay taxes to
support other governmental services. At the same time, there is a
critical need for an active civil society to keep pressure on the
government for sound policies and regulations and help keep local
institutions responsive and up to date.
The Bretton Woods Committee recently established a working group
called the Group to Assist Private Sector Development, or GAPS, to
assist poor country governments and multilateral institutions in
strengthening their private sector development strategies. After only
five months of operation, GAPS members have launched numerous efforts
to promote local and foreign businesses and capital formation in poor
countries, and to offer advice on bilateral and multilateral assistance
programs to help foster growth and competitive enterprises in IDA
borrower countries.
GAPS ideas have already been well received in official development
circles. Its members are working now with various cabinet departments
on a proposal to establish a U.S. Government-sanctioned Private Sector
Volunteer Office to help harness volunteer efforts from the U.S.
private sector to assist other low-income countries. Ultimately, we
hope we can organize a major effort to allow U.S. executives to deliver
pro bono advisory services on local governance, corporate reform and
capital market development plans to a few selected IDA countries.
ida-13 replenishment
IDA donor countries addressed these and other concerns when they
concluded negotiations in June on the thirteenth replenishment of IDA.
The new replenishment prioritizes the following four objectives:
To promote sound policies that will lay a secure basis for
productivity growth and poverty reduction in IDA borrowing
countries;
To ensure IDA assistance is effective and delivers
measurable results;
To improve IDA's coordination, transparency and consultation
to increase operational effectiveness; and
To provide for a substantial replenishment of IDA resources
to support countries demonstrating commitment to good policies
and sustainable growth.\5\
---------------------------------------------------------------------------
\5\ lnternational Development Association. Additions to IDA
Resources: Thirteenth Replenishment. The World Bank Group, July 9,
2002. Washington, D.C.
---------------------------------------------------------------------------
Donors agreed IDA policies must be more closely tied to countries'
overall poverty reduction strategies, and that greater emphasis should
be placed on improving policies toward education, gender, infectious
disease, private sector development, rural development, and governance.
New to the agreement is an emphasis on lending effectiveness and
tying aid to performance by rewarding countries that make the most
progress by granting them access to additional resources. Donor
representatives called for a results-based system employing specific
indicators to measure and enhance effectiveness and improve borrower
accountability performance. They also arranged to include an incentive-
based supplemental financing mechanism to allow additional donor
contributions to be added based on progress to be tracked during this
three-year IDA cycle.
Finally, donors recommended that IDA continue to build on its
progress with respect to strengthening elements of transparency and
coordination within its programs.
grants versus loans
A final issue of contention during the discussion of increasing IDA
resources has been whether to replace IDA loans with grants. The United
States has pressed IDA donors to convert a greater percentage of IDA
loans to grants. The Bush administration has argued that chronically
indebted and impoverished countries cannot afford additional debt
build-up. Those opposed to the administration's proposal have worried
that, without substantial new resources sustained over many years, a
significant increase in grants would eventually deplete IDA resources.
Under the compromise reached in the IDA negotiations, donors agreed
to convert between 18-21 percent of IDA instruments into grants,
recognizing the special difficulties facing some of the poorest and
most vulnerable IDA-eligible countries. The use of grants will be
expanded for education, health, nutrition, sanitation, HIV/AIDS, and
natural disaster reconstruction programs, as well as for countries
recovering from conflict.
Initially, The Bretton Woods Committee expressed concern about the
proposal to convert up to 50 percent of IDA loans to grants. While
grants make great sense, we were worried about the feasibility of the
proposal for two reasons. First, a large-scale move to grants ran
somewhat contradictory to the original intention of the IDA to create a
culture of investment and credit within developing countries. Second,
and more important, given the declining trend of official U.S.
development assistance over the last two decades and the large increase
in IDA contributions that would be required to sustain future resources
in the face of lost future income (reflows) caused by replacing loans
with grants, we were not convinced that the United States and other IDA
donors would commit the financial resources needed to sustain a healthy
IDA program. Our concerns about the viability of this proposal were
strengthened by a CRS study by Jonathan Sanford detailing the
significant donor contribution increase that would be required to
maintain IDA resources should IDA donors adopt the Bush
administration's 50 percent grants proposal.
However, the new compromise to convert approximately 20 percent of
loans to grants appears feasible, so long as the U.S. and other major
IDA contributors continue to replenish IDA funds in the future.
The Bretton Woods Committee also considers the U.S.-initiated
recommendations in the new IDA agreement to establish an accountability
function for borrowers and a monitoring and evaluation system to be
important steps toward improving IDA effectiveness. We urge that
framers of this proposal include indicators of private sector
development, which can help in alleviating poverty. The Committee
stands willing to offer its advice and support to help make this
possible.
The significant strides that IDA has made over the past decade has
helped it to become the most efficient international institution in
terms of lending based on country performance. IDA has proven itself as
the most cost-effective way to fight extreme poverty on a large scale.
The proposals that IDA donors have made for this replenishment will
further strengthen IDA's capacity, sharpen its focus on policy and
institutional performance, and equip it to meet future challenges.
Just as important, IDA squares with U.S. strategic and humanitarian
interests, directly serving and supplementing America's own aid
objectives. Moreover, it helps the United States solve devastating
global and regional problems that have taken on an added importance to
the Nation in the last year.
Now, Mr. Chairman, let me make a few, brief remarks about the
African Development Fund and the Asian Development Fund. The African
Bank and Fund have made tremendous strides in recent years to close the
gap between that institution and its sister institutions. AFDB
President Omar Kabbaj deserves a great deal of credit for overcoming a
bureaucracy resistant to change and in helping modernize the Bank and
institute many reforms. Friends who have visited Bank headquarters
recently say there is a new sense of optimism on the staff that the
Bank can make an important contribution as an African institution.
The Bank has adopted an impressive new strategic plan for 2003-
2007. It is carving out the special niches where it believes it has a
comparative advantage in African development. The African Bank is
making a new effort to implement results-based management, tracking
what the Bank is actually achieving through its loans and technical
assistance efforts. This includes building into all projects and
programs from the beginning specific statements regarding what is
expected to be achieved in the development area, monitoring the
implementation of the project and finally measuring and evaluating what
was actually achieved.
As members of the Committee know, Bank governors will soon adopt a
replenishment of the Fund's resources. The U.S. Treasury is using this
negotiation to advance its policy agenda at the Bank, including more
selectivity and focus in project selection and making new strides in
improving Bank effectiveness, in addition, the African Bank should beef
up its inspection function and perhaps implement an independent
evaluation system.
It remains true that some management systems at the African Bank
remain well behind best practices at other regional development
institutions. Lack of funding for training is one of the reasons for
this. Perhaps Congress might want to consider making a special
technical grant to the African Bank to help it pay for new training and
other improvements in this area, I am sure such a grant would be well
received by the Bank and put to good use.
As for the Asian Development Bank, it remains a very efficient and
well-run institution, despite having been slower than some other
regional institutions to adopt the next generation of approaches to
development lending. Many of its members feel it remains too much a
``project driven'' institution, and that the time has come for it to
concentrate more on increased participation, transparency, governance
and other current imperatives.
It should be noted that the Asian Bank is very active in
Afghanistan now, helping finance the reconstruction efforts. In
addition, the Bank has been very helpful in funding projects relating
to APEC, an important U.S. priority.
One of the biggest problems I see with respect to the ADB is the
failure of the Congress to provide sufficient backing for it. It is
something of an embarrassment that the United States--the member
country that is the most active in pushing the Bank in new directions--
has yet to authorize or fund the newest ADF replenishment, which was
negotiated two years ago. Similarly, Congressional appropriators for
years have raided the ADB's accounts to pay for what they view as more
pressing development priorities. When this happens and arrears build
up, other countries take notice. Ultimately, this will undermine U.S.
influence in the institution in ways the United States will not like. I
would therefore urge Congress to authorize and fully fund the Asian
Bank and other MDB windows, including making up the arrears.
Thank you.
______
Biographical Statement for James C. Orr
James C. Orr is co-founder and Executive Director of the Bretton
Woods Committee, a group of 700 corporate chief executives, former
cabinet officials and other prominent Americans who have joined
together to promote sensible reforms at and increased public
understanding of the World Bank, the International Monetary Fund, the
World Trade Organization and the regional development institutions.
Mr. Orr has worked for thirty years in government and the private
sector in international finance and development. In addition to his
position with the Committee, he is also managing partner of James Orr
Associates, a Washington, D.C. based policy consulting firm. In this
capacity, Mr. Orr advises the firm's clients, which include
international finance companies and corporations and government
entities in the United Stares, Europe and Asia.
Prior to the formation of his firm in 1983, Mr. Orr served both
Republicans and Democrats during eight years as legislative counsel for
the International Trade and Development Subcommittee of the U.S. House
of Representatives. He holds an undergraduate degree in economics from
Wesleyan University (1968) and a master's degree in international
economics from the School of Advanced International Studies, Johns
Hopkins University (1974).
Mr. Orr has advised a number of national and international
commissions dealing with aid and trade issues. He has performed
specialized consulting assignments for major public and private
financial institutions around the world. He is a frequent speaker on
development and finance issues, international affairs, and trade
issues. His writings include books and articles on the regulation of
the U.S. financial sector, the activities of the multilateral
development banks, Third World debt, international currency markets,
etc.
Mr. Orr serves pro bono on a number of boards of directors,
including TechnoServe, Inc, a company working to create business
solutions to rural poverty. He has inspected dozens of development
projects in Latin America, and in Asia and Africa, both as a member of
U.S. Congressional delegations and as a private businessman. He
currently serves as a member of the Panel of Independent Experts, a
group charged with assisting the Asian Development Bank in reviewing
controversial development projects in Asia.
Senator Sarbanes. Ms. Atkinson.
STATEMENT OF CAROLINE ATKINSON, ADJUNCT SENIOR FELLOW IN
INTERNATIONAL ECONOMICS, COUNCIL ON FOREIGN RELATIONS, SENIOR
DIRECTOR, STONEBRIDGE INTERNATIONAL, WASHINGTON, DC
Ms. Atkinson. Mr. Chairman, thank you for the opportunity
to appear before the subcommittee. As you mentioned, Mr.
Chairman, I had the honor of serving in the U.S. Treasury in
the previous administration, and for those of you who are
puzzled by the strange way I talk, I am actually an American
born in the District of Columbia, and that was where I was able
to work in the U.S. Treasury.
While there, I had opportunity to see the importance for
the United States of a well-functioning global economy and the
contribution that can be played by the World Bank and other
international financial and development institutions. I also
saw the key role that the United States, often pushed by
Congress, can play in helping to make these institutions as
effective as possible.
As Under Secretary Taylor and you have discussed, the IDA
13 replenishment that you are now considering includes many
important reforms in measurement and in policy objectives that
were pressed by the United States.
Following up on Jim Orr's comments, I would just like to
note that the 79 countries that are IDA recipients, some of
which also get support from the Asian and African Development
Funds, are home to 90 percent of the world's very poorest
people, who survive on less than $1 a day, and they include
amongst them 1 billion children.
Meeting essential human needs with the provision of basic
health care, access to clean water, and education is, of
course, critical to the hope of a better life and, as you on
this subcommittee know all too well, development in the poorest
countries is needed to make the world a stronger and safer
place as well as a fairer one.
The highly concessional terms that are provided by IDA and
the other funds are essential to avoid adding dangerously to
the debt burdens. They are also only possible because of the
decision by the United States and other donors to provide our
own budgetary funds in support of that.
A lot of people have suggested recently, although as Jim
says there has been a lot of talk over 50 years about how to
make development succeed, and some feel that the evidence that
we have seen that past foreign aid has been misused suggests
that it is all ineffective and not worth taxpayers' money, but
broadly accepted research and our experience does show that
well-focused assistance, channeled as Senator Allen was
stressing, to countries that own and champion reform, can make
a huge difference, and IDA has been shown to be the most
effective channel for making this linkage.
A list of early IDA recipients who have now graduated
includes such key U.S. allies and economic success stories as
South Korea, Chile, Thailand, and Turkey. In fact, more than
half of all the repayments that are now made back into IDA come
from countries that no longer need to use these taxpayer funded
programs. Some of them are even in a position to contribute
back into IDA as donors, such as Korea. It is important to
continue the full funding of these programs to allow other
countries the opportunity to escape also from poverty.
This subcommittee has traditionally recognized the enormous
stake for the United States as the world's leading global power
and a champion of freedom and openness in the further
integration of the poorest into the world's economy, and just a
couple of points on that. As we cannot help but remember this
week, the United States is not impregnable to outside threats.
There is, of course, not a simple equation between poverty and
terror, but poverty, hopelessness, and failed states such as
Afghanistan before September 11 last year provided a breeding
ground for terrorism.
The new focus in the multilateral development banks on
governance and institution-building and legal reforms, largely
at U.S. insistence, is critical for fighting corruption and
helping to establish decent, more open, and better-functioning
societies. The World Bank has launched for example, more than
600 anticorruption programs and government initiatives in about
100 client countries in recent years. IDA credits presently
support governance reforms and legal reforms in Azerbaijan,
Bangladesh, Mongolia, and other countries.
More broadly, the United States is obviously a natural
champion and a beneficiary of a vibrant and successful world
economy with the openness and competition, trade, and capital
markets that has marked our own success. Succeeding in the
battle against global poverty is in the interests of all
Americans, and it is, of course, critical that development go
hand in hand with strong environmental standards and other
hallmarks of a healthy society as, again, the United States in
its contributions has pressed for.
American leadership in the multilateral effort to attack
poverty is both good economics and good politics. The money
contributed by the United States to IDA in the comparable funds
leverages resources many times that amount. Moreover, and I
believe that Chairman Sarbanes is referring to this in his
questioning with Under Secretary Taylor, an active leadership
role and full funding and full payment gives the United States
a more effective voice in determining the best use of that
money.
Finally, many of the new global challenges being addressed
by the multilateral development banks can affect Americans
directly. With two teenagers nearby in Loudoun County
contracting malaria without leaving this area, we do not need
much more convincing of the dangers to Americans of
communicable diseases which thrive in the poorest countries.
The impact of pollution and poor environmental standards in
individual countries also, of course, can be felt far beyond.
Often, the poorest countries can only move to address these
global threats with the advice and financial support of others.
IDA, for example, is committed to spend $1 billion to help
African countries expand their HIV/AIDS programs, $500 million
of which was spent in 12 countries last year. Money, in
combination with strong government action, can work, as in
Uganda and Senegal, for example, there is evidence that this is
beginning to turn the tide on the epidemic of AIDS.
I just wanted to speak briefly about the reform initiatives
in the current replenishment. First, as Mr. Orr mentioned, the
process by which agreement was reached was much more
transparent and open than any before. Representatives of
borrowers were in the discussions, and NGO comments were sought
and taken account of.
Second, the United States call for a greater share of
grants has, indeed, led to a significant expansion in
particular for the poorest countries for AIDS and HIV programs
and for recovery from conflict and natural disasters. I think
these additional grants can help to break the cycle of rising
indebtedness and impoverishment. At the same time, IDA's
ultimate aim is obviously to lift countries out of poverty and
into participation in the global market, including the capital
markets, and repayment of IDA loans is often a first step. I
think the balance in the IDA replenishment is a good one.
Finally, the critical push from the United States for
linking finance to results gives much greater assurance that
money will be well spent. I think it also helps to reinforce
good governance. There is evidence where people in local areas
know what money is being provided and what the goals of the
finance are. They are much better at pushing for accountability
in their own political regions, and that is obviously what is
critical for successful development.
Thank you very much.
[The prepared statement of Ms. Atkinson follows:]
Prepared Statement of Caroline Atkinson, Adjunct Senior Fellow in
International Economics, Council on Foreign Relations, Senior Director,
Stonebridge International
introduction
Mr. Chairman, Senator Allen and other Members of the Subcommittee,
it is an honor to appear before you to testify on the World Bank's
International Development Association, the Asian Development Fund and
the African Development Fund. My name is Caroline Atkinson I am an
adjunct Senior Fellow at the Council on Foreign Relations and Senior
Director of Stonebridge International, a global strategy group. Until
January 2001, I was the Senior Deputy Assistant Secretary for
International Monetary and Financial Policy in the United States
Treasury, and a Senior Adviser to Treasury Secretary Lawrence H.
Summers.
In that position, I had ample opportunity to see the enormous
importance for the United States of a well-functioning global economy
and the contribution that can be played by the World Bank and other
international financial and development institutions. I also saw the
key role of the United States in making these institutions as effective
as possible. Often led by Congress, the U.S. has pushed--successfully
in many cases--for important reforms to promote aid effectiveness, to
focus the World Bank and other Multilateral Development Banks on their
main task to poverty alleviation, and to address new global problems,
notably communicable diseases such as HIV-AIDS, that reflect increasing
global interdependence.
I am thus part of the bipartisan consensus that has supported IDA
since it was first created over 40 years ago, under the leadership of
President Eisenhower. I would like to speak today in favor of the
replenishment authorizations for the World Bank's International
Development Association, the Asian Development Fund and the African
Development Fund.
the role of ida and other multilateral aid programs
The World Bank's IDA is the main source of development assistance
to the poorest countries of the world that are unable to borrow from
private capital markets and so are dependent on foreign aid for much-
needed capital. Indeed, IDA is now the single largest source of donor
funds for basic social services in the poorest countries. The vast
majority of the 3.6 billion people who live in the countries that
receive funds from IDA, AsDF and AfDF have an income of less than $2
dollars a day. The 79 IDA recipients are home to more than 60 percent
of the world's population, and 90 percent of the very poorest people,
defined as those surviving on less than one dollar a day.
Looking to the future, there are now one billion children who live
in countries that receive development assistance from IDA and the
comparable funds linked to the Asian and African Development Banks. For
these children in particular, meeting essential, basic human needs
through provision of basic health care, access to clean water, primary
and literacy education, is critical to provide a hope of a better life.
As members of this committee know well, growth and development in the
poorest countries are in turn needed to make the world a stronger and
safer place, as well as a fairer one.
The money provided to desperately poor countries by IDA, and by the
Asian and African Development Funds, is only available because of the
decision by the United States and other donor countries to provide
their own budgetary funds to support these programs. Unlike the main
World Bank lending agency, the International Bank for Reconstruction
and Development (IBRD), IDA does not borrow money from capital markets.
IDA's continued financing on highly concessional terms--essential to
avoid adding dangerously to the debt burden of the poorest countries--
is possible because of the regular replenishment to its resources by
the United States and other donor countries, now numbering 39. These
countries also set the guidelines for IDA's policies. The IDA 13
replenishment now under consideration incorporates important reforms to
these guidelines, agreed by the donors.
As global poverty has remained a scourge and it has become clear
that substantial foreign aid in the past has been misused, with little
or no impact on improving the lives of those in recipient countries,
some have decried all such aid as ineffective. But careful research
shows that well-focused assistance, channeled to countries and users
that own and champion reform, can make a huge difference. A list of the
early recipients of IDA aid includes such key U.S. allies as South
Korea, Chile, Thailand, and Turkey. These and many others around the
world have since made enormous strides in conquering poverty and
diversifying their economies. More than half of the reflows of
repayments into IDA now come from countries that no longer need these
tax-payer funded concessional resources, and are paying back into the
program that helped them to escape from poverty. In some cases, former
IDA recipients, such as Korea, are even in a position to contribute as
donors.
Of course, there have also been many development and aid failures.
But on the basis of widely accepted research by Paul Collier and David
Dollar of the World Bank, IDA has been shown to be the most effective
channel for linking foreign aid to sensible policies and good
governance.
the fight against poverty: the stake of the united states
This Committee has traditionally recognized the enormous stake of
the United States--as the world's leading global power and a champion
of freedom and openness--in the further integration of the poorest in
the world economy.
As we cannot fail to remember this week, the United States is not
impregnable from outside threats. There is not a simple equation
between poverty and terror. But dreadful poverty, hopelessness, and
failed states, such as Afghanistan before September 11 last year,
provide a breeding ground for terrorism. The United States thus has a
huge interest in supporting multilateral reform efforts to deliver
economic growth and basic human services, alleviate poverty and
disease, and help to build functioning societies. The new focus in the
multilateral development banks on governance and institution building--
largely at U.S. insistence--is critical for fighting corruption in
failed states and promoting decent and open societies. The World Bank
has launched more than 600 anticorruption programs and governance
initiatives in almost 100 client countries in the past six years.
Earlier this year, IDA announced funding for measures to improve
accountability and transparency in the public sector in Azerbaijan,
crucial for monitoring expenditures targeted to poverty reduction.
Legal and judicial reform in Bangladesh and Mongolia are also supported
by IDA credits.
More broadly, the U.S. is a natural champion as well as a
beneficiary of a vibrant and successful world economy, based on the
openness to competition, trade and capital markets that have marked its
own success. Success in the battle against global poverty is in the
interests of American workers and consumers, farmers and businessmen.
All stand to gain as poor countries join the world economy, providing
new markets for American goods and new products for Americans to buy.
It is of course critical that development go hand-in-hand with strong
environmental standards, protection of essential labor rights and other
hallmarks of a healthy society.
American leadership in the multilateral efforts to attack poverty
is both good economics and good politics. The money contributed by the
U.S. to IDA and the comparable Asian and African Development funds
leverages contributions many times that amount. Every dollar that the
U.S. puts into IDA is matched by seven from other sources. Moreover, an
active leadership role gives the U.S. a more effective voice in
determining the best use of that money. The United States, with
Congress playing a key role, has called for, and achieved, important
reforms in the World Bank and the other development banks, including a
clearer focus on measures to fight poverty. Successful IDA programs
range from microfinance for small enterprises in Asia and Africa to
scholarships for Bangladeshi families who keep girls in school. In
India, IDA is supporting the District Primary Education program to help
areas where female literacy is below the national average. In Mali, an
IDA financed health project helped to establish 300 new community
health centers.
Finally, many of the new global challenges being addressed by the
multilateral banks can affect Americans directly, even if they stay far
from the rural poverty or urban slums of the poorest countries. With
two teenagers in nearby Loudon county contracting malaria without
leaving this area, it is hard to ignore the dangers of communicable
diseases. The impact of pollution or poor environmental standards in
one region can also be felt far beyond.
Often, the poorest countries can only move to address such global
threats with the advice and financial support of others. The World Bank
and other MDBs are playing a leading role in this field, with strong
bipartisan support. In Africa, the Bank has launched a multi-country
initiative to combat HIV/AIDS (MAP), recognizing that the disease does
not respect national boundaries. IDA is committed to spend $1 billion
to help African countries expand their prevention, care and treatment
programs. Some $500 million was spent last year in 12 African countries
and a further $500 million is slated for an additional 15 countries.
The battle against HIV/AIDS is an example where the combination of
external finance and advice with strong domestic commitment is key. In
Uganda and Senegal for example, there is evidence that strong
government action with financial backing from IDA is turning the tide
on the epidemic.
The World Bank has now committed $16 billion to projects with clear
environmental objectives, IDA support for a biodiversity initiative in
Uganda--with a $27 million credit approved in July to help the
government manage its wildlife and cultural resources--is one example
of a welcome shift in environment strategy towards a focus on climate
change, forests, water resources and biodiversity.
reform initiatives
Addressing poverty and making globalization work are crucial
objectives. But if they are to be met, there must be a renewed focus
not just on the quantity of development assistance but, just as
importantly, on its quality. Americans need to see their money well
spent, in pursuit of the goals they support. The U.S. Congress,
together with this Administration and the one in which I served, have
pressed hard for reforms in the MDBs so that the money the U.S. commits
works to achieve success.
The IDA 13 replenishment, which the Subcommittee is now
considering, incorporates a number of key reform initiatives. First,
the process by which agreement was reached was far more transparent and
open than any before. The world has moved a remarkable distance towards
the traditional United States' view in favor of openness and
transparency. Representatives of borrowers and civil society were
included in the replenishment discussions and documents were regularly
posted on the World Bank Web site.
Secondly, the U.S. call for a greater share of grants has resulted
in a significant expansion of grants in particular for HIV/AIDs
programs, recovery from conflict and natural disasters, and for the
poorest indebted countries. There has been strong bipartisan support
for additional grants to help break the cycle of rising indebtedness
and impoverishment. I believe that a combination of grants and
concessional loans is a good approach. Grants will help to tackle
exceptionally severe circumstances and establish a basis for economic
progress without adding to debt burdens.
At the same time, IDA's ultimate aim must remain to lift countries
out of poverty and towards participation in the global market,
including the capital market. For some countries, managing their
finances responsibly and paying back IDA loans is a first step in this
process. There have already been success stories of countries that have
made this step as they outgrew the need for the highly concessional
help that taxpayers in donor countries provide through IDA and the
other multilateral funds. Loan repayments (which only begin after a
long grace period) also ensure that more money becomes available for
new needs, bolstering the resources made available by donor
contributions. I believe that the balance struck in the IDA 13
replenishment--with 18-21 percent of new finance in the form of
grants--is a good one that deserves support.
Thirdly, the critical push from the United States for linking
finance to measured results gives a much greater assurance that money
will be well-spent. It is already leading to changes not just in the
World Bank but in the way that other development organizations manage
their lending. It will be crucial that this initiative be maintained so
that good policies, access to increased finance and proper measurement
of results are integrated in countries' own policies and programs. A
better understanding of what works and how money has been spent will
also reinforce good governance. When people in local areas can see what
new funding has been received they will press more effectively for
delivery of the promised services that it is supposed to finance. It is
inevitable that the performance targets first chosen are those that are
relatively easy to measure. Going forward, countries need help to
develop better data to measure desired outcomes. This will require not
just technical support but also financing, and backing from the U.S.
and other key bilateral donors in their own programs.
conclusion
I respectfully submit that I believe that full funding of the
replenishments of IDA, AsDF and AfDF, as requested by the
Administration, would be in the best interests of the United States. It
would support the continued leadership role of the United States in
these institutions and play a crucial role in alleviating poverty
around the world. The new objectives laid out for IDA 13 largely
reflect those that the U.S. has pushed for. Congressional support for
this development assistance would continue the record established by
the far-sighted bipartisan support for the debt relief program for
Highly Indebted Poor Countries (HIPC) all of which are IDA recipients.
Senator Sarbanes. Thank you very much. Reverend Beckmann.
STATEMENT OF REV. DAVID BECKMANN, PRESIDENT, BREAD FOR THE
WORLD, WASHINGTON, DC
Reverend Beckmann. I am honored to testify. Senator
Sarbanes, you have been helpful on poverty and hunger issues
around the world for many years, and Senator Allen, I am a
Virginian, and so I am especially glad for this opportunity to
speak before you. I want to make four points.
First, Bread for the World supports this authorization.
Second, we are especially enthusiastic about debt relief, and
think that some things could be done to make debt relief work
better. Third, we have some ideas about the performance
indicators, how to improve the performance of IDA and
development assistance generally, and then fourth, it is
important that Congress and the administration think about IDA
and the Millennium Challenge Account, other development
assistance, in a coordinated way.
On the first point, we support this authorization. Bread
for the World has not always supported IDA, but over the years
we think that the institution has improved, and we do support
it. As Senator Sarbanes mentioned, we are part of a coalition
of NGOs that advance a lot of criticisms of IDA and the World
Bank, and I have submitted my own written testimony and a
report \1\ of that coalition to you for the record.
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\1\ The report referred to is maintained in the committee files.
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My own views about IDA reform have been shaped by working
for 26 years on IDA. I worked in the bank for 15 years in
various ways to try to make IDA more effective for poor people.
Then I have been at Bread for the World for 11 years, where we
have continued to work on IDA reform. I think there is a lot of
scope for continued reform.
At the same time, the basic thing I want to say is that I
think IDA is a very good institution. It has always been a
competent institution, and it has improved in terms of
transparency and poverty focus over the last 10 to 15 years,
partly because of the work of this subcommittee.
I am less familiar with the Asian Development Fund and the
African Development Fund, but the dealings I have had with
them, and that we as an institution have had with them, has led
us to be supportive. We are pleased that the management
problems that the African Bank had seem to be being addressed.
So our bottom line is, we support this authorization. We
think it is important for feeding hungry people around the
world.
Second, we are especially enthusiastic about debt relief
for the poorest countries. A lot of church people all over the
country and other people of goodwill worked hard for debt
relief. It is probably the most popular initiative in
international development assistance ever, and we have tried to
follow, now, whether it is really working for poor people. We
have followed through the official reporting processes. We are
also in touch with church groups in some of the poorest
countries to see from their perspective whether it is working,
and we are encouraged.
It is very clear that in at least 10 countries there have
been dramatic increases in the number of kids in school, and
the availability of medicines in rural clinics. In a few
countries at least, there have been improvements in democratic
participation, reductions in corruption.
Senator Sarbanes, I would encourage you to hold a hearing
on debt relief, because it is important for a lot of Americans.
It is important that Congress know that it is working pretty
well, and also if you shine a spotlight on it you will make it
work better, because there are some problems.
One way to make it work better has to do with additional
funding. The President agreed at the G-8 to some additional
funding to meet the goals that were set a few years ago,
because with the world economy in a slump, it is harder to get
those countries to the level of debt sustainability.
Another specific idea, which is pending in Congress, is the
Biden-Santorum proposal to modify the way that the bank and the
fund calculate debt sustainability. The proposal is to take
into account the ratio between debt service and government
revenues, and to give special consideration to countries that
have unusual payment financing problems because of severe
health and AIDS situations.
The Biden-Santorum proposal passed the full Senate as a
part of the AIDS bill, but I would also encourage you to put it
in this authorization so that it has a better chance of
actually becoming law.
My third point has to do with the review of performance. We
welcome the Bush administration's insistence on making sure
that development assistance really results in a better life for
poor people. We would put the emphasis on monitoring how well
the bank is doing in continuing to move toward transparency,
accountability, and fostering democracy, because we have seen
over 15 years that people in rural Tanzania can monitor the
effectiveness of IDA in ways that people at 15th and
Pennsylvania are never going to be able to do.
The issues that you raised, Senator Allen, regarding
property rights and so forth, those issues are conditions in
some IDA credits. If local people know that they are
conditions, that the government has agreed to do some things in
those areas, and then it does not do them, or does not live up
to its agreements, those local people can insist on real
progress.
So this system of measurement really should not be so much
a system of reporting up to the Treasury or to you, even, or to
us, it should be better systems of letting everybody in the
world, including people in those countries, know what is going
on.
Then the last point I would like to make is about the
connections among IDA, the multilateral development banks, the
Millennium Challenge Account, and the whole development system.
I was really pleased that Secretary Taylor talked about the
MCA.
We are thrilled by the President's proposal for a major
increase in funding for poverty reduction in the poorest
countries linked to performance, and the administration is
working hard to be able to bring to Congress detailed
proposals. But I think their planning regarding on coordination
with the rest of the system is probably the least well
developed aspect of their thinking. If the MCA is going to make
the maximum impact, it should be coordinated with IDA and with
the other MDBs.
Also, the Europeans have committed to an increase of $7
billion a year in their development assistance, and to my
knowledge there has been very little serious discussion about
how that $7 billion and our proposed $5 billion are going to
work together. If the MCA is planned as a part of the
multilateral development system, and all these elements work
together, we are more likely to get good results.
[The prepared statement of Reverend Beckmann follows:]
Prepared Statement of Rev. David Beckmann, President, Bread for the
World
Mr. Chairman, I'm grateful for your leadership over the years on
many issues of importance to hungry and poor people around the world.
You are a good friend to Bread for the World. Since I am a Virginian, I
also especially welcome the opportunity to testify before Senator
Allen.
Thank you for this opportunity to offer some comments about IDA,
the Asian Development Fund and the African Development Fund. Basically,
there are four points I would like to emphasize.
First, while Bread for the World favors continuing efforts to
improve the multilateral development banks, we wholeheartedly support
the authorization of the replenishment of IDA and its counterparts in
the regional development banks.
Second, the shift to grants for a portion of IDA funding is a
welcome modification of IDA and will help prevent already indebted
countries from taking on new debt. However, much more needs to be done
to reduce the debt countries already hold. Debt relief is working for
poor and hungry people but it can be done better and needs to be
deepened.
Third, I support the administration's focus on results. Through
participation, monitoring and evaluation, and improved data collection
and analysis, much can be done to make IDA programs more effective.
Finally, the administration is looking to the new Millennium
Challenge Account, MCA, to address many concerns about traditional
development assistance. But to be truly effective, it has to be
coordinated with what other donors are doing. In reauthorizing IDA's
replenishment, Congress ought to work with the administration to think
about how the MCA relates to IDA and other development assistance
programs.
support for ida
I was on the staff of the World Bank for 15 years. I worked in
various ways to make the Bank a more effective instrument in reducing
poverty, I then moved to Bread for the World, where I've worked on
World Bank reform from the outside for another 11 years. While I'm
always pushing to improve the Bank, I want to affirm that the Bank is
an excellent development institution. Moreover, the Bank has gradually
become more focused on poverty and more responsive to democratic
participation, partly because this subcommittee has pushed in these
directions for two decades. In my judgment, IDA is one of the best
international instruments in support of poverty reducing development.
Although I am not as familiar with the regional development banks,
I am impressed with what I know about the Asian Development Bank. Its
expertise in Asia's specific development needs is important. In the
past, I too shared concerns about the management of the African
Development Bank but have been encouraged by the role Treasury has
played in reforming the institution. While continuing to push for
reform, I believe we should support the African Development Fund.
Bread for the World is part of a coalition of non-governmental
organizations that are critical of the World Bank in various aspects. I
submit for your attention a report prepared by the U.S. Civil Society
Coalition on ``Responsible Reform of the World Bank''. Bread for the
World doesn't share all the views expressed in the report but you will
want to be aware of the issues and the debate.
debt relief
Bread for the World has been following the implementation of debt
relief, and I urge the subcommittee to do its own monitoring of debt
relief implementation and the effectiveness of the Enhanced Highly
Indebted Poor Country (HIPC) Initiative in reaching poor people. Based
on what Bread for the World has gathered through both church and
governmental channels, we believe that debt relief is indeed helping to
reduce poverty and, at least in a few countries, empowering citizens to
make their governments less corrupt and more responsive.
The Jubilee campaign to reduce the debt burden of the world's
poorest countries mobilized more public support in the United States
than any other international development initiative in U.S. history--
certainly more public support than anything else related to the World
Bank or IDA. So it is really important that this subcommittee help to
inform Congress and the U.S. public that debt relief is working--and
that, in the process, you push to make this popular program work even
better.
the poverty reduction strategy paper process
One of the great things that came out of the debt relief movement
was the Poverty Reduction Strategy Paper (PRSP) process. In principle,
the PRSP gives countries ownership of their own development process,
and it focuses policies and resources on the goal of poverty reduction.
Indeed, the PRSP process has directed new investment to basic health,
education, and poverty reduction in many countries, and it has opened
new opportunities for democratic participation in some countries.
Because of this, in a few countries, it has helped reduce corruption
and improve governance and could have this effect in other countries as
well.
But much has been learned in the few years since the PRSP was
introduced about how to improve the process. The PRSP is supposed to
come out of a consultative process that allows for full participation
of the country's civil society. But this is not easy where democratic
institutions are weak. In any case, public consultation takes time and
entails financial costs, and it is hard to reach people in remote
areas. Finally, civil society has often been excluded from the
discussion of major issues of national economic policy. All these
factors often result in PRSPs that are not based on full participation
and therefore full ownership, and that have taken longer to complete
than originally anticipated, slowing down debt relief
One of the criticisms of the PRSP process is that it sometimes
seems that World Bank and IMF staff have written the PRSPs in
Washington. It's important that the Bank be respectful of the
governments with which it deals. But it's not enough that the
government really ``owns'' Bank-supported policies and projects. The
wishes of people outside government are also important. Social and
environmental conditions that could seem onerous to an official might
be important in securing broader popular ownership.
Additional technical and financial assistance would help to enable
broad, informed and timely participation by civil society in all
aspects of the design, implementation, monitoring and evaluation of the
PRSP. Donors could also do more to monitor PRSP processes and
coordinate their funding activities. As the PRSP has been widely
embraced by donors and will be the basis for IDA lending in the future,
it is important that we get it right.
grants vs. loans
Last year the United States made an important intervention in the
history of IDA when President Bush proposed to shift 50% of IDA lending
to grants. Bread for the World supports the agreement that IDA will
provide grants for some types of projects. The grants proposal is a
step forward in addressing some of the concerns that were raised by
Bread for the World members and other grassroots groups around the
country during the Jubilee movement. A shift toward grants for the
social sectors will help to improve living conditions and prospects for
poor people without further increasing the indebtedness of low-income
countries. This proposal makes a lot of moral and practical sense.
In one of my early jobs at the Bank, I worked on slum improvement
projects in East Africa. These projects reduced poverty and usually
achieved high economic returns. But slam improvement doesn't generate
the foreign exchange needed to pay back an international credit, so in
retrospect we were contributing to Africa's accumulation of unpayable
debt.
Bread for the World also applauds the administration's proposed 18%
increase in funding for IDA. We hope the United States will continue to
increase its contribution to shore up IDA in light of the agreed shift
of between 18-21% of IDA funding to grants.
deeper debt relief
There is clearly an urgent need to deepen debt relief. The global
economic downturn and falling commodity prices have hit sub-Saharan
African countries hard. A World Bank study on the economic impact of
September 11 estimated that a one percent decline in the global rate of
economic growth would push an additional 2-3 million Africans into
poverty. African economies are heavily dependent on commodity exports,
so the debt-to-export ratio has risen for many HIPC countries. These
countries have demonstrated good economic management and a commitment
to investing in their people, but the debt relief they are receiving is
no longer enough. Deeper debt relief is needed for them to achieve some
financial stability, confront the HIV/AIDS epidemic, and invest in the
human and institutional capacity needed to lift themselves out of
poverty.
The G8 Summit in June agreed to ``top up'' the Enhanced HIPC
Initiative by $1 billion to compensate for the impact of the decline in
commodity prices and to cover the shortfall in HIPC funding. This is an
important step and we urge Congress to approve the additional funding
needed to implement current debt relief policies.
Further, the debt-to-export ratio is not an adequate measure of
debt sustainability. There are companion bills in the House and the
Senate--Smith-LaFalce in the House and Biden-Santorum in the Senate--
that would amend the HIPC framework to lower debt service of HIPC
countries to no more than 10% of government revenues, 5% for countries
suffering a severe health crisis. This modification in the HIPC
initiative would yield an additional $1 billion in debt relief, with a
relatively small cost to the U.S. The Senate passed an AIDS bill that
includes the Biden-Santorum language. I urge you to also include that
language in the reauthorization of IDA.
performance goals
The Bush administration has put a lot of emphasis on performance
goals and preconditions. Both the grants proposal and the recent
Millennium Challenge Account (MCA) proposal share the goal of measuring
results and setting performance indicators. The World Bank has insisted
on goals and preconditions for many years (sometimes too much so), and
the Bank already does a relatively good job of reporting to its member
governments on its own performance. But we welcome the administration's
determination to make sure development assistance really makes a
difference in the lives of struggling families.
The U.S. Treasury has not yet announced what performance indicators
it will use to decide on whether to propose increased funding for IDA
in the second and third year of this replenishment. We have three
suggestions.
First, Treasury could do an annual assessment of the Bank's
progress on issues of transparency and participation, because the best
way to strengthen the performance of Bank-supported policies and
projects is to make it easier for local people, especially poor people,
to have some influence. Far-off officials will never be able to monitor
development activities as effectively as local people can.
Second, we would like to see the World Bank and IMF undertake ex-
ante social, economic and environmental impact assessments for all
their lending to ensure that policies and projects they support are not
harmful to poor people, both in the short and long term.
Third, Treasury could assess how well the Bank is working with
other institutions to upgrade the international systems that monitor
trends in poverty, hunger, and others aspects of basic well-being in
poor countries. More accurate and current data would help everybody--
beginning with citizens in poor countries--to evaluate development
efforts.
ida and the millennium challenge account
Finally, I urge the subcommittee to think about the next
replenishment of IDA in the context of the major increases in
development assistance that President Bush and European authorities
have recently proposed. I am tremendously enthusiastic about President
Bush's proposal for a Millennium Challenge Account. The MCA can have a
meaningful impact on global poverty reduction and can be a significant
step toward the Millennium Development Goals. But the MCA should be
limited to IDA-eligible countries, and it should be coordinated with
IDA and with what other donors are doing. One of the lessons on
development effectiveness is the importance of donor coordination. The
PRSP process is an attempt at improving donor coordination, and
Congress should counsel the administration to use countries' national
development strategies or PRSPs as a basis for allocating all
development assistance funds, starting with the MCA.
The MCA will put more emphasis on democracy and human rights than
the Bank and Fund can do (in keeping with their charters). This
emphasis on democracy and some MCA funding to strengthen democratic
institutions could very much improve the Poverty Reduction Strategies.
That would enhance the impact of IDA and many other development efforts
that are guided by the Poverty Reduction Strategies.
______
David Beckmann
The Rev. David Beckmann is president of Bread for the World, a
nationwide Christian citizens' movement against hunger. Bread for the
World mobilizes about a quarter of a million letters to Congress each
year on issues that are important to hungry people in the United States
and worldwide. In recent years, Bread for the World has worked for debt
relief, increased development assistance, and other changes to
strengthen food security in Africa. Bread for the World has also
lobbied to strengthen the Food Stamp Program and make Temporary
Assistance for Needy Families more effective in reducing hunger and
poverty in the United States.
Beckmann is a Lutheran pastor as well as an economist. After a term
with Lutheran World Relief in Bangladesh, he worked at the World Bank--
on urban poverty projects, then as a speech writer for the president of
the Bank, and then as senior advisor on nongovernmental organizations.
He led the Bank's early thinking about popular participation in
development.
Beckmann became president of Bread for the World and Bread for the
World Institute (a related educational organization) in 1991. Bread for
the World Institute does research and education on World Bank and
International Monetary Fund reform issues.
Senator Sarbanes. Very good. Right on the button. Thank you
very much.
Reverend Beckmann. I am a preacher. I am used to it.
Senator Sarbanes. Dr. Meltzer.
STATEMENT OF DR. ALLAN H. MELTZER, PROFESSOR OF POLITICAL
ECONOMY, CARNEGIE MELLON UNIVERSITY, PITTSBURGH, PA
Dr. Meltzer. Thank you, Senator Sarbanes, Senator Allen. I
am pleased to have an opportunity to testify on the
replenishment of appropriations for the World Bank's
International Development Association, IDA, and the African and
Asian Development Banks.
The United States has taken leadership since World War II
in developing and fostering economic growth, political freedom,
and social progress. The development banks have at times had
prominent roles in assisting development in the newly
developing countries, in emerging market economies, and IDA has
worked at times to improve the quality of life for the poorest
on the planet.
The United States has continued its leadership role. This
year, the administration, led by Treasury Secretary O'Neill and
Under Secretary Taylor, worked very hard to change some of
IDA's concessional role to performance-monitored grants. This
proposal, initiated by a bipartisan congressionally appointed
commission that I chaired, can be of major importance if
performance monitoring succeeds in increasing the effectiveness
of foreign aid and improving the quality of life in poor
countries. I believe it will.
I support the appropriation under consideration today,
subject to two provisions that I urge the Congress to adopt as
part of the appropriation bill. First, a portion of the
appropriation should be set aside for an independent
performance evaluation of past loans by IDA and the development
banks.
Second, IDA and the two development banks should agree to
have an independent performance evaluation of their record of
accomplishments and failures for the past 10 years as a
condition of receiving the appropriation. The GAO, the Swiss
SGS or a private consulting firm could perform the evaluation.
I think it is well known that the African Bank under its new
leadership has made progress, but problems remain.
Time is limited, so I will restrict my comments to IDA,
although some will apply to all three institutions. I will
answer any questions I can about the Asian and African
Development Banks. I urge the subcommittee, however, to ask and
get answers to questions about these banks.
Why do we continue to have so much duplication between the
World Bank group, including IDA, and the regional development
banks? Why is the International Monetary Fund expanding its
poverty program, adding to overlap and duplication? I believe
the Congress should require the administration to submit a
coherent plan for rationalizing the current structure to reduce
overlap and make better use of scare resources.
In the year 2001, IDA made $6.8 billion of new loans and,
based on World Bank data, allocated $550 million for
administrative expenses charged to IDA. This 8 percent cost of
lending is typical of IDA's cost in recent years. It includes
travel, lending, and hiring consultants. This is large, but it
might be justified by the difficulty of lending or granting to
poor countries with inadequate infrastructure and information,
if we had reason to believe that generally the lending programs
were effective and the objectives realized. We do not have such
information, and we cannot get it from IDA or the World Bank.
The information the World Bank supplies shows that program
failure rates are highest in the poorest countries, perhaps as
high as 70 percent in Africa, in the recent past.
Discouraging as these data are, they are suspect for at
least two reasons. First, they are provided by the bank's
operations evaluation department, OED. The head of this
department reports directly to the bank's directors, but his
staff consists of bank employees on loan to OED. Second, and
more important, OED does most of its evaluations 6 months to 3
years after the disbursement of the last payment on the loan or
grant.
On the public record, I asked President Wolfensohn of the
World Bank why the bank audits and reports soon after lending
has been completed. Why does it not routinely audit performance
to learn whether the project succeeded in raising living
standards or improving the quality of life several years after
funding stops?
He agreed that this was desirable, and said that he had
asked the same question, but nothing has been done in his 7
years at the bank. The Congress and the public ought to know
what works well, what can be improved, and what should the bank
and IDA stop doing because it is ineffective or wasteful of
scare resources. That is why the Congress should insist on
independent performance evaluation.
Chairman Sarbanes, you led the Congress and the country
toward improved accounting standards and transparency in the
private sector. Should you not expect and require the same
degree of transparency when we allocate the public's money to
foreign assistance? Are not the poorest entitled to the
protection that greater transparency would provide? Can we not
shift emphasis to performance, not lending?
There is evidence that the World Bank and IDA are
ineffective. President Wolfensohn often shows a card listing
the number of people living on less than $1 a day. This is the
bank's measure of extreme poverty. Between 1987 and 1998, the
number of people living on less than $1 a day remained the
same. Their proportion of the world population declined
modestly from 28 percent to 24 percent. This is not much of an
accomplishment for an expenditure of about $200 billion in
current dollars.
Last year, the press reported on a memo written by the
staff of one of the bank's major divisions in response to a
request from President Wolfensohn for a discussion by all
divisions of the bank's problems. A staff member sent me the
memo. The memo was unsigned, but it states that it represents,
``consensus views that emerged from discussions among the
managers and staffs of the divisions.''
A reader of the internal memo gets a picture of an
ineffective organization with low morale and uncertain
direction. The memo lists five major problems at the bank, the
president's management and leadership style, an overload of
institutional mandates and a lack of clear direction, problems
at senior management levels, inadequate resources for the work,
and the high degree of negativity among the staff.
To amplify these charges, the memo says that the
president's proposals, ``while perhaps individually worthwhile,
have tended to diffuse the bank's focus. Their importance in
individual countries is often unclear. The ideas have not been
accompanied by adequate resources for implementation.''
In other words, the bank is not organized to assist
countries to develop their economies and improve the quality of
life for their citizens.
Further, the internal memo charges, ``The bank today has no
focus and is driven by an ever-growing list of mandates imposed
on it through a variety of means, the president's favorite
subjects, board sentiments, public pressures, ideas generated
by internal constituencies, and even fads. No initiative that
starts as a pilot is ever considered a failure, because of a
lack of any honest evaluation.''
I do not underestimate the difficulties in project
evaluation. Money is fungible. Countries can offer the most
attractive programs to IDA and the development banks but use
the money to finance a marginal project that is difficult to
identify. Evaluation can establish that children can read and
do arithmetic, that water is potable, and that inoculations for
disease are carried out, and that sanitary sewers are
available. It cannot always show a direct link to IDA funding.
No less important, project evaluation can both create
incentives for improved performance, and show that some
projects fail repeatedly and should be abandoned. How can we
expect to improve the living standards and quality of life of
the poorest on the planet if we do not learn what works and
what fails? What lessons do we teach if we provide money to
corrupt governments and do not ask whether the projects they
proposed were completed, function, and contributed to a better
quality of life?
When traveling to countries that received IDA and bank
assistance, I have heard many stories of money wasted, money
taken, projects never completed, schools without books,
consultants paid handsomely, but no apparent outcome. These are
anecdotes, disturbing, if true, but at best, suggestive. The
Congress should want more, and should demand more. It should
require performance evaluation to raise the standards of
international aid and the living standards of the poor.
With this proviso, I strongly support funding for IDA and
the development banks. The United States should give generously
when there is greater assurance that its contributions support
effective programs, programs that improve living standards,
increase productivity, and improve the quality of life for the
unfortunate, many for whom life remains nasty, brutish, and
short.
Thank you, Senator.
[The prepared statement of Dr. Meltzer follows:]
Prepared Statement of Dr. Allan H. Meltzer, Carnegie Mellon University
and the American Enterprise Institute
replenishment of the multilateral banks
Senator Sarbanes and Members of the Foreign Relations Committee:
I am pleased to have an opportunity to testify on the replenishment
of appropriations for the World Bank's International Development
Association (IDA) and the African and Asian Development Banks. The
United States has taken leadership since World War II in developing and
fostering economic growth, political freedom, and social progress. The
development banks have, at times, had prominent roles in assisting
development in the newly developing countries and emerging market
economies, and IDA has worked at times to improve the quality of life
for the poorest on the planet.
The United States has continued its leadership role. This year the
administration, led by Secretary O'Neill and Undersecretary Taylor,
worked very hard to change some of IDA's concessional loans to
performance monitored grants. This proposal, initiated by a bipartisan,
Congressionally appointed commission that I chaired, can be of major
importance if performance monitoring succeeds in increasing the
effectiveness of foreign aid and improving the quality of life in poor
countries. I believe it will.
I support the appropriations under consideration today subject to
two provisions that I urge the Congress to adopt as part of the
appropriation bill. First, a portion of the appropriation should be set
aside for an independent performance evaluation of past loans by IDA
and the development banks. Second, IDA and the two development banks
should agree to have an independent performance evaluation of their
record of accomplishments and failures for the past ten years as a
condition for receiving the appropriation.
The GAO, the Swiss SOS, or a private consulting firm could perform
the evaluation. I think it is well known that the African bank, under
its new leadership, has made progress, but problems remain. Time is
limited so I will restrict my comments to IDA, although some will apply
to all three institutions. I will answer any questions that I can about
the Asian and African Development Banks. I urge the committee, however,
to ask and get answers to questions about these banks: Why do we
continue to have so much duplication between the World Bank Group
(including IDA) and the regional development banks? Why is the
International Monetary Fund expanding its poverty programs, adding to
overlap and duplication? I believe the Congress should require the
administration to submit a coherent plan for rationalizing the current
structure to reduce overlap and make better use of scarce resources.
In the year 2001, IDA made $6.8 billion new loans and, based on
World Bank data, allocated $550 million for administrative expenses
charged to IDA. This 8 percent cost of lending is typical of IDA's
costs in recent years. It includes travel, lending, and hiring
consultants. This is large, but it might be justified by the difficulty
of lending (or granting) to poor countries with inadequate
infrastructure and information, if we had reason to believe that
generally the lending programs were effective and the objectives
realized.
We do not have such information, and we can not get it from IDA or
the World Bank. The information the World Bank supplies shows that
program failure rates are highest in the poorest countries, perhaps as
high as 70% in Africa in the recent past. Discouraging as these data
are, they are suspect for at least two reasons. First, they are
provided by the Bank's Operations Evaluations Department (OED). The
head of this department reports directly to the Bank's directors, but
his staff consists of Bank employees on loan to OED. Second, and more
important, OED does most of its evaluations 6 months to three years
after disbursement of the last payment on the loan or grant.
On the public record, I asked President Wolfensohn of the World
Bank why the Bank audits and reports soon after lending has been
completed. Why does it not routinely audit performance to learn whether
the project succeeded in raising living standards or improving the
quality of life several years after funding stopped? He agreed that
this was desirable and said that he had asked the same question. But
nothing has been done in his seven years at the Bank. The Congress and
the public ought to know what works well, what can be improved, and
what should the Bank and IDA stop doing because it is ineffective or
wasteful of scarce resources. That's why Congress should insist on
independent, performance evaluation.
Chairman Sarbanes, you led the Congress and the country toward
improved accounting standards and transparency in the private sector.
Should you not expect and require the same degree of transparency when
we allocate the public's money for foreign assistance? Are not the
poorest entitled to the protection that greater transparency would
provide? Can we not shift emphasis to performance, not lending?
There is evidence that the World Bank and IDA are ineffective.
President Wolfensohn often shows a card listing the number of people
living on less than a dollar a day. This is the Bank's measure of
extreme poverty. Between 1987 and 1998, the number of people living on
less than a dollar a day remained the same. The proportion of the
population declined modestly, from 28 percent to 24 percent. This is
not much of an accomplishment for an expenditure of about 200 billion
current dollars.
Last year the press reported on a memo written by the staff of one
of the Bank's major divisions in response to a request from President
Wolfensohn for a discussion by all divisions of the Bank's problems. A
staff member sent me the memo. The memo is unsigned, but it states that
it represents ``consensus views that emerged from discussions among the
managers and staffs of the divisions.''
A reader of the internal Bank memo gets a picture of an ineffective
organization with low morale and uncertain direction.
The memo lists five major problems at the Bank: the President's
management and leadership style; an overload of institutional mandates
and a lack of clear direction, problems at senior management levels;
inadequate resources for the work; and the high degree of negativity
among the staff.
To amplify these charges, the memo says that the President's
proposals ``while perhaps individually worthwhile, have tended to
diffuse the Bank's focus. Their importance in individual countries is
often unclear. The ideas have not been accompanied by adequate
resources for implementation.''
In other words, the Bank is not organized to assist countries to
develop their economies and improve the quality of life for their
citizens.
Further, the internal memo charges, ``the Bank today has no focus
and is driven by an evergrowing list of mandates imposed on it through
a variety of means: President's favored subjects, board sentiments,
public pressures, ideas generated by internal constituencies, and even
fads. No initiative that starts as a pilot is ever considered a failure
because of a lack of any honest evaluation.'' (Emphasis added.)
I do not underestimate the difficulties in project evaluation.
Money is fungible. Countries can offer their most attractive programs
to IDA and the development banks but use the money to finance some
marginal project that is difficult to identify. Evaluation can
establish that children can read and do arithmetic, that water is
potables, that inoculations for disease are carried out, and that
sanitary sewers are available. It can not always show a direct link to
IDA funding.
No less important, project evaluation can both create incentives
for improved performance and show that some programs fail repeatedly
and should be abandoned. How can we expect to improve the living
standards and quality of life of the poorest on the planet, if we do
not learn what works and what fails? What lessons do we teach if we
provide money to corrupt governments and do not ask whether the
projects they proposed were completed, functioned, and contributed to a
better quality of life.
When traveling to countries that received IDA and Bank assistance,
I have heard many stories of money wasted, money taken, projects never
completed, schools without books, consultants paid handsomely but no
apparent outcome. These are anecdotes, disturbing if true, but at best
suggestive. The Congress should want more and should demand more. It
should require performance evaluation to raise the standards of
international aid and the living standards of the poor. With this
proviso, I strongly support funding for IDA and the development banks.
The United States should give generously when there is greater
assurance that its contributions support effective programs, programs
that raise living standards, increase productivity, and improve the
quality of life for the unfortunate many for whom life remains ``nasty,
brutish, and short.''
Senator Sarbanes. Dr. Ayittey, we would be happy to hear
from you.
STATEMENT OF DR. GEORGE B.N. AYITTEY, DISTINGUISHED ECONOMIST
IN RESIDENCE, AMERICAN UNIVERSITY, WASHINGTON, DC
Dr. Ayittey. Mr. Chairman and Senator Allen, first of all I
would like to thank you for giving me this opportunity to
testify before your subcommittee. I would like to make some
short remarks, and then I would later on submit a much longer
version for the record.
I would like to make three points, the three points being,
speaking specifically in reference to African World Bank
policies, IDA policies in Africa, first of all I think you
should know the Continent of Africa is in a mess. It is a
tragedy. It is a sad story, and a tragedy in more ways than
one.
We are talking about a continent that had vast development
potential. Its mineral wealth is immense, but the mineral
wealth of Africa is not being utilized to lift its people out
of poverty. This past February, Prime Minister Tony Blair
warned that unless poverty in Africa is tackled vigorously, the
continent will become a new source of international terrorism.
Now, the second point which I would like to make, and I was
somewhat touched by the testimony of the Under Secretary, James
Taylor, and also some of the witnesses on the panel who want to
help Africa, and I am sure that there are Senators who
sincerely do want to help Africa, but past programs in Africa
simply have not worked.
I would like to give you some kind of an idea of the
involvement of Western governments, donor governments, IDA, and
international development banks. Since 1960, they have pumped
in more than $400 billion into Africa; and the standard of
living in Africa continues to deteriorate. Even the World Bank
itself, 2 years ago, the World Bank came up with a report, and
the report, the title of the report is, ``Can Africa Claim the
21st Century,'' and I would like to quote a section of that
particular report that says: ``Sub-Saharan Africa enters the
new century with many of the world's poorest countries.''
Now, it is a fact that many Africans, the vast majority of
them are now poorer than they were in 1960. The irony is that
the World Bank has been involved in Africa's development for
the past three decades. Now, instead of admitting the
ineffectiveness of its policies, the World Bank chooses to
focus on phantom economic success stories. The reason why I am
saying phantom economic success stories is because this list
continuously shrinks, and some of the countries on this list
simply vanish.
In 1994, the World Bank came up with a report about
adjustment lending in Africa. It evaluated the performance of
29 African countries, 29, after spending $20 billion to support
structural programs in Africa. And out of the 29, the World
Bank said only 6 of them were successful. Now, 6 out of 29
gives you a failure rate of more than 80 percent.
Now, since 1994, the World Bank has added some other
countries like Uganda. It has also added Guinea, Lesotho,
Ethiopia, Eritrea, but even then within a very short period of
time, Ethiopia and Eritrea were taken off the list because of
the senseless civil war between those two countries. Now,
Uganda is also reeling under huge bureaucratic red tape, and
also the Danish Government has even suspended aid to Uganda.
Now, of the success stories that the World Bank listed in
1994, Ghana was one of them, Zimbabwe was one of them, and I am
sure we are all aware of what is going on in Zimbabwe right
now. Now, in the case of Ghana, the World Bank's director who
is now leaving the country says that it was a mistake to list
Ghana as a success story.
Now, there is more. This success story 2 years ago was
placed on HIPC, that is, the Highly Indebted Poor Country, so
how can the success story in 1994 all of a sudden go into the
intensive care unit on HIPC in the year 2000?
There is also more. Two years ago, the IMF demanded a
refund of $38.5 million. The IMF claimed that the Government of
Ghana fraudulently obtained as a loan by providing the IMF with
false information, which means that many of the recipients of
IDA loans simply cooked their books in order to receive their
loans.
Now, the problem which disturbs many of the African people
is that they have loans which have been taken by governments
which do not represent the people. These governments do not
represent the interests of their people, the welfare of their
people, and do not respond to the needs of their people, and
they are not accountable to their people.
Now, in the case of Ghana, for example, the World Bank IDA
loans exceeded $5 billion within that period from 1983 to 1992.
Nobody knows what the money was used for. Now, I have heard
that some of these loans are to be converted into grants. Maybe
that might help, but if the loans are squandered, do we have
any guarantee that the grants will not be squandered? And who
will be held accountable?
In the case of Ghana, finally we have had some
accountability. The Deputy Finance Minister of the previous
government was prosecuted and jailed for 8 years for
squandering $1.2 million of World Bank loans.
Mr. Chairman, there are many, many horror stories, and the
African people are in pain. A lot of money has been borrowed on
their behalf without them knowing what the money or the loans
were used for. Now, I would recommend replenishing or
reauthorization of IDA funding, provided certain conditions are
met. One of those conditions, and this is a strong
recommendation, is that the World Bank operates on the false
premise that in many African countries there is something
called a government which cares about its people, represents
the interests of the people, and also responds to the needs of
the people. This simply confutes reality.
Now, what we have in many African countries is a pirate
state, governments which are corrupt and squander money. We
cannot hold them accountable. The African people cannot hold
them accountable.
Now, second, and I would like to make two brief comments in
order to wrap up. Second, the loan agreements are often
shrouded in secrecy. There needs to be some sunshine on this
particular process so that at least the people would know what
is being conducted behind closed doors on their behalf. And
finally, there is a complete lack of accountability in country
after country. What we find is no accountability in the
disbursement and also in the use of these loans.
Now, Mr. Chairman, I would like to remind you that there is
a certain doctrine which was applied by the United States; it
is called the Doctrine of Odious Debt. The United States itself
in 1898 applied this doctrine to the Spanish Government,
refusing to pay the debts owed by Cuba to Spain, arguing that
the debt was contracted by the Spanish Government without the
consent of the Cuban people.
Now, there are angry African groups and organizations,
especially in South Africa, who are arguing that many of the
loans which are taken from the World Bank were done so without
the consent of their people, and if so, if these loans are
illegitimate, then the people should not be held accountable to
repay those loans.
Mr. Chairman, there is much that can be done to help
Africa, but the old way simply will not work.
Thank you.
[The prepared statement of Dr. Ayittey follows:]
Prepared Statement of George B.N. Ayittey, Ph.D.,\1\ Distinguished
Economist in Residence, American University
---------------------------------------------------------------------------
\1\ The author, a native of Ghana, is an Associate Professor of
Economics at the American University and president of The Free Africa
Foundation, both in Washington. He is the author of Indigenous African
Institutions (1991), Africa Betrayed, which won the 1993 H. L. Mencken
Award for ``Best Book,'' and Africa in Chaos, which was published this
year.
---------------------------------------------------------------------------
the failure of world bank policies in africa
Mr. Chairman, Ladies and Gentlemen. Thank you for the opportunity
to testify before the Economic Affairs Subcommittee. As I understand
it, the purpose of this hearing is to determine replenishing and
reauthorizing Development Assistance funds to the World Bank, as well
as U.S. contributions to the Asian Development Bank and the African
Development Bank over the next three years. I would like to speak
specifically in regard to World Bank programs and Africa's development.
africa's bleak prospects
Africa is a sad story--a tragedy in more ways than one. The
continent's development potential is vast. Its untapped mineral wealth
is immense. As an old continent, it is the source of strategic
minerals, such as tantalite, vanadium, palladium, uranium and chromium.
It has the bulk of the world's gold, cobalt, diamonds, and manganese.
Africa could well be the next and final frontier for roaring market-
based capitalism. Yet, paradoxically, a continent with such abundance
and potential is inexorably mired in steaming squalor, misery,
deprivation, and chaos. At the Organization of African Unity Summit in
Lome, Togo, on July 10, 2000, U.N. Secretary-General, Kofi Annan, was
blunt: ``Instead of being exploited for the benefit of the people,
Africa's mineral resources have been so mismanaged and plundered that
they are now the source of our misery.'' (Daily Graphic, July 12, 2000;
page 5).
On February 5, 2002, British Prime Minister, Tony Blair, warned
that unless poverty in Africa is tackled vigorously, the continent
could become the new source of international terrorism. ``More states
would collapse into anarchy and mayhem,'' he added (BBC World Service,
Feb. 6, 2002).
There are many country horror stories, which, I am sure you know
of. The Congo Basin is extremely rich in minerals but its people are
yet to derive any substantial benefit from that wealth. Instead, they
have slipped with indecent haste back to near stone-age existence.
Provision of basic social services--such as education, health care,
sanitation, clean water and roads--is non-existent. In the eastern part
of the DRC, particularly in Goma, there is no government. Free-lance
banditry and pillage are the order of the day.
Equally mired in such Neanderthal existence are the people of
Angola, Sierra Leone and vast stretches of the Niger Delta in Nigeria.
Today, one of every five Africans lives in a country severely disrupted
by conflict. And the wealth that once enriched Europe's colonial powers
now fuels many of those wars.
Independence and freedom did not bring the prosperity promised by
the nationalist leaders. Poverty levels instead increased sharply in
the post-colonial period. By the early 1990s, many Africans were
economically worse off than they were at independence and prospects for
the new millennium are bleak. Sub-Saharan Africa, consisting of 48
countries, is the least developed region of the Third World despite its
immense wealth in mineral and natural resources. Indices of human
development have performed abysmally.
Two years ago, the World Bank released a book with the title, Can
Africa Claim the 21st Century. I would like to quote a section of that
book:
Sub-Saharan Africa enters the new century with many of the
world's poorest countries. Average income per capita is lower
than at the end of the 1960s. Incomes, assets, and access to
essential services are unequally distributed. And the region
contains a growing share of the world's absolute poor, who have
little power to influence the allocation of resources.
Moreover, many of the development problems have become largely
confined to Africa. They include lagging primary school
enrollments, high child mortality, and endemic diseases--
including malaria and HIV/AIDS--that impose costs on Africa at
least twice those in any other developing region. One African
in five lives in countries severely disrupted by conflict.
Making matters worse, Africa's place in the global economy has
been eroded, with declining export shares in traditional
primary products, little diversification into new lines of
business, and massive capital flight and loss of skills to
other regions. Now the region stands in danger of being
excluded from the information revolution. (World Bank, 2000;
p.1).
the world bank and africa's development
The irony is that various Western governments, development
agencies, and multi-lateral development banks (MDBs) have been involved
in Africa's postcolonial development and have provided generous
assistance, pouring in more than $400 billion since 1960 support
Africa's development efforts. For its part, the World Bank has provided
more than $50 billion to fund various projects and programs--in
particular, Structural Adjustment Programs--over the past 30 years.
However, the consensus everywhere is that World Bank programs in Africa
have failed miserably in alleviating poverty in Africa. Adjustment
lending has been a miserable fiasco in Africa. According to UNCTAD
(1998), ``Despite many years of policy reform, barely any country in
the region has successfully completed its adjustment program with a
return to sustained growth. Indeed, the path from adjustment to
improved performance is, at best, a rough one and, at worst,
disappointing dead-end. Of the 15 countries identified as `core
adjusters' by the World Bank in 1993, only three (Lesotho, Nigeria and
Uganda) are now classified by the IMF as `strong performers' ''
(p.xii). This year (2002), Nigeria decided to leave the World Bank
program, although there is strong political pressure to return and
Denmark suspended aid to Uganda, citing massive corruption, Uganda's
involvement in the plunder of Congo's riches and a festering civil war
in northern Uganda.
To deflect attention from the ineffectiveness of its own programs,
the Bank persists in focusing on phantom economic success stories in
Africa. The Bank itself evaluated the performance of 29 African
countries it had provided more than $20 billion in funding to sponsor
Structural Adjustment Programs (SAPs) over a ten-year period, 1981-
1991. Its Report, Adjustment Lending in Africa, released in March 1994,
concluded that only six African countries had performed well: The
Gambia, Burkina Faso, Ghana, Nigeria, Tanzania, and Zimbabwe. Six out
of 29 gives a failure rate in excess of 80 percent. More distressing,
however, the World Bank concluded, ``no African country has achieved a
sound macroeconomic policy stance.'' A year later, however, this number
had shrunk. In The Gambia, a military coup toppled Sir Dawda Jawara on
24 July 1994, quashing any hopes of economic recovery. Continuing
political turmoil in Nigeria throttled economic reform. In the
remaining four ``success stories,'' reform was on the verge of
collapse--Ghana in 1995 and Zimbabwe in 1999 with President Robert
Mugabe's ill conceived involvement in Congo's war for mercenary motives
and violent seizures of white farmlands. On Ghana, the World Bank's own
Operations Evaluation Department noted in its December 1995 Report
that, ``although Ghana has been projected as a success story, prospects
for satisfactory growth rates and poverty reduction are uncertain.''
In 1998, four new countries were added (Guinea, Lesotho, Eritrea
and Uganda) were identified as the new ``success stories.'' However,
the senseless Ethiopian-Eritrean war, the eruption of civil strife
following an army take-over in 1998, and the eruption of civil wars in
western and northern Uganda have knocked off most of the new ``success
stories.'' The following table provides the list of the African
``success stories,'' whose economic performance can at best be
characterized as ``mediocre'' to ``abysmal.''
Table 2: The Success Stories--GNP Per Capita
[In U.S. dollars]
----------------------------------------------------------------------------------------------------------------
1980 1990 1991 1992 1993 1994 1995 1996 1997
----------------------------------------------------------------------------------------------------------------
Burkina Faso............................ 260 290 310 280 230 200 210 230 240
Gambia.................................. 430 320 330 350 350 340 340 340 350
Ghana................................... 430 390 410 430 410 360 350 360 370
Guinea.................................. -- 460 470 480 500 520 540 560 570
Lesotho................................. 440 540 530 590 590 620 660 690 670
Nigeria................................. 710 270 270 280 250 230 220 260 260
Tanzania................................ -- 190 180 160 170 160 170 180 210
Uganda.................................. -- 340 260 200 190 190 250 300 330
Zimbabwe................................ 950 920 910 740 670 650 650 710 750
----------------------------------------------------------------------------------------------------------------
Source: African Development Indicators, 1998-99; p.35.
Of the 9 African ``success stories'' listed above, 6 of them had
income per capita in 1997 that was less than in 1980. Declining income
per capita, used as an indicator of standard of living, can hardly be
considered a ``success.'' Prospects for the new millennium remain bleak
(Schwab, 2001; p. 5).
To be fair, the World Bank has periodically admitted that its
projects and programs have performed poorly. In 1989, for example, it
conceded that: ``There are countless examples of badly chosen and
poorly designed public investments, including some in which the World
Bank has participated. A 1987 evaluation revealed that half of the
completed rural development projects financed by the World Bank in
Africa had failed. A cement plant serving Cote d'Ivoire, Ghana, and
Togo was closed in 1984 after only 4 years in operation. A state-run
shoe factory in Tanzania, the Morongo Shoe Factory, has been operating
at no more than 25 percent capacity and has remained open only thanks
to a large government subsidy'' (p. 27).
By the mid-1990s, the World Bank has undertaken more than 2,200
projects in Africa with nearly all of them seriously undermined by poor
Bank supervision, lack of domestic maintenance or neglect. Mr. E.A.
Sai, member-Secretary of Ghana's Committee of Secretaries, echoed these
observations: ``Apart from a few success stories in the management of
public enterprises in Africa, such as in the Kenya Tea Development
Authority, Botswana's Meat Commission, Tanzania's Electricity Company,
The Guma Valley Water Company of Sierra Leone and Ghana's Volta River
Authority, the record of state enterprises has been poor'' (West
Africa, 16 May, 1988; p. 897).
In September 2000, the World Bank again admitted that its policies
have not worked. Acknowledging that its traditional prescriptions of
balanced budgets, sound currency and free trade have failed to
significantly reduce poverty around the world, the World Bank recently
called for a fresh approach that puts equal emphasis on giving the poor
more power and more income security in times of crisis (The Washington
Post, Sept 13, 2000; p. E1).
world bank economic success stories
1. Ghana: A Fallen Star
Ghana adopted the World Bank's Structural Adjustment program in
1983, after inane economic policies of the regime of Fte.Lte Jerry
Rawlings sent the economy reeling. Seduced by the charisma and rhetoric
of Rawlings and the chance to snatch Ghana from the Soviet orbit, the
West poured in billions. The World Bank, in particular, pumped more
than $4 billion into Ghana, declaring the country an ``African economic
star'' in 1993. Ghana was also the first country on President Clinton's
itinerary, during his historic visit to Africa in 1998. By the year
2000, Ghana's economy was in crisis.
Ghana's income per capita in 1981, which economists take as an
index of the average standard of living, was $410 when Rawlings seized
power in 1981. In 2001, it was $360. Ghana's economy was in a coma and
the World Bank-sponsored Economic Recovery Program (ERP) or structural
adjustment a miserable failure. Inflation raged at 60 percent;
unemployment hovered around 30 percent; interest rates had reached 50
percent and the currency, the cedi had virtually collapsed. In 1981,
the exchange rate was 2.85 cedis to the dollar; in 2001, it was 7,200
cedis to the dollar.
Fed by huge expenditures on security, corruption and wanton wastes,
government expenditures had careened out of control. The distinction
between government and Rawlings' ruling party (National Democratic
Congress, NDC) funds had vanished and looting was open and brazen. Mr.
Vincent Assisseh, the press secretary of the ruling party, built a
multi-million dollar empire, acquired several mansions and a fleet of
expensive automobiles. Even Rawlings himself, the Marxist
revolutionary, cruised around in a Jaguar convertible.
The regime, which preached World Bank gospel of ``accountability''
and ``transparency,'' never accepted responsibility for its failures,
choosing to blame foreigners and ``external factors'' for the country's
worsening economic crisis and even corruption. At the United Nations
General Session in New York on September 8, President Jerry Rawlings
blamed Western countries for much of the monumental corruption in
Africa, saying they have a responsibility to curb the menace so as to
promote good governance on the continent (Panafrican News Agency,
September 8, 2000).
At least 40 percent of World Bank loans and Western aid were
squandered. According to Goosie Tanoh, who broke with the ruling regime
to form his own National Reform Party, ``many grants from Japan,
Canada, USA and Britain, given to NDC party functionaries, were
misapplied or misappropriated'' (The Ghanaian Chronicle, August 14,
2000). There were cases upon cases. I have provided details in my
lengthy report but one stands out.
Court Computerization Program: The World Bank granted a loan
of $1,297,500 to help disseminate all legal information and
court cases through computerization of Ghana's court system.
The project could not be implemented and therefore the
coordinators could issue an impact report.
The new Ghanaian government successfully prosecuted the
former Deputy Minister of Finance, Mr. Victor Selormey, and
jailed him for 8 years for misappropriating the money. The
money was said to have been transferred to Dr. Frederick Boadu,
a Consultant in the United States, and there was no record to
show that the consultant had been contracted to work on this
project for either the Ghana government or the World Bank.
(Source. Serious Fraud Office Report, Ghanaian Times, and Daily
Graphic)
In March 2001, the incoming Kufuor administration place Ghana on
the Heavily Indebted Poor Country (HIPC) list. In the same month, the
IMF demanded a refund of all loans and grants, totaling $38.5 million,
given to the Ghana government between August and September 2000. The
refund is a penalty the country has to pay for providing false
information.
On July 5, 2002, the outgoing World Bank Resident Director in Ghana
admitted that the bank probably made a mistake in tagging Ghana a
``Star Pupil'' at a time when the country was just beginning to
restructure its economy. ``One of the mistakes our institution made is
building these tags. Ghana was reported as a Star Pupil between 1985
and 1991. It is because Ghana chose to adopt the same policies that the
bank and the IMF were advocating all the time. There was a period in
1992 to 1996 when that status changed a lot. Ghana abandoned some of
the medicines. Classic structural adjustments were abandoned,''
according to the Director (Public Agenda, July 5, 2002).
2. Uganda: Teetering
Relations with the World Bank under the Museveni regime were
relatively satisfactory. Uganda's macroeconomic performance showed an
average real growth rate close to 7 percent per year. The Bank of
Uganda reported that the rate of inflation dropped to 2.4 percent per
annum by June 1993, but rose suddenly to 4.1 percent in December of the
same year. Substantial progress was however made in adjusting the
economy.
Recent information is that a bloated government with a huge
expenditure characterizes Uganda. Contrary to efforts to implement
measures for improving the efficiency and transparency of the
privatization process, progress in this area was significantly slow,
including measures for reforming the ministries and the civil service.
Revenue receipts have been inadequate to meet rising expenditures.
Indeed, tax collection was characterized by highly corrupt and
inefficient tax administration. The budget recorded deficits largely
reflecting ad hoc expenditures stemming from defense spending. The
banking system also came under severe pressure due to weak prudential
regulations and supervision. Those insolvent ones were ultimately
closed. In an uncertain economic environment reflecting poverty, modest
gains in human and social development, Uganda is now ravaged by the
HIV/AIDS epidemic. This has led to a reduction in life expectancy that
has adversely affected the working population, and created a large
number of orphans, as well as great pressure on the government's health
budget.
Corruption is rampant in Uganda, not to mention the involvement of
Ugandan soldiers in the plunder of the Congo. In early September 1999,
a senior Ugandan police officer appeared before a commission of inquiry
into police corruption in Uganda. He explained that he could not
account for a large chunk of the money allocated to the police because
such payments were regularly passed on to the Ministry of Defense.
``The commission summoned the head civil servant at the defense
ministry, who promptly corroborated the story, saying the defense
ministry disperses its expenditure among other ministries, because the
government does not want trouble from aid donors who insist on limits
to military spending'' (The Economist, Oct. 9, 1999; p. 52).
recommendations
Mr. Chairman, Ladies and Gentlemen. Let me reiterate that we cannot
pin the blame for Africa's current economic mess on the World Bank and
the IMF. Much of the blame resides with African leaders and
governments, who pursued wrong-headed policies in the post-colonial
period. Specifically, the vast majority established statist economic
systems and one-party state political systems under the guise of
socialism. The statist economic systems entailed state-ownership of
business enterprises, massive government intervention in the economy
and the institution of a plethora of government regulations and edits.
The political systems admittance of no democratic pluralism, the
banishment of opposition parties, intolerance of dissent and the
ultimate degeneration into dictatorships. These defective systems were
in a large part, responsible for the economic crisis that emerged in
the early 1980s. However, in helping Africa to manage or resolve this
crisis, the World Bank and the IMF have made matters worse.
I am not suggesting that the World Bank and the IMF should pack up
their bags and leave Africa. Given their record in Africa, this would
probably not be a bad idea. However, if they are to continue to operate
in Africa, then their own approach to Africa needs a major ``structural
adjustment'' or reform. This is needed in three key areas.
1. Flawed Presumptions
Somewhat the World Bank persists in a rather naive presumption--in
the teeth of all evidence to the contrary--that there exists in a loan-
recipient African country a ``government'' that represents the people,
cares for the people, responds to their needs, and is accountable to
them. This confutes reality. What exist are ``pirate states''--a
government hijacked by a phalanx of kleptocrats and megalomaniacs who
employ the institutions of the state to enrich themselves, their
cronies and kinsmen, excluding everyone else. The richest persons in
Africa are often the heads-of-state and their ministers. The chief
bandit is often the head of state himself. Congo's Mobutu Sese Seko was
a leading example when he appropriated to himself billions of dollars
of World Bank and foreign aid funds. The Bank ought to be aware of
this.
Most African governments were simply not interested in economic
reforms when these became urgent because their efficient implementation
would strip them of their power to allocate foreign financial resources
to themselves, their cronies, and relatives. For Western donors and
MDBs to continue to believe, that dishonest African governments are
capable of reform is only to set themselves up to be duped. African
governments restructure not to save their economies but their regimes.
Further, restructuring proceeds in cycles, aborted when the crisis
abates and reinstated upon reemergence (Sudan, Equatorial Guinea,
Zaire, and Liberia). Even during restructuring, measures are often
implemented perfunctorily without the conviction and the dedication
needed to carry them through.
2. Loan Agreements Shrouded in Secrecy
The most infuriating aspect of World Bank loan agreements with
corrupt and despotic African governments is that the loan agreements
are often conducted in secret. World Bank directors meet with high-
ranking African government officials to conduct negotiations behind
closed doors. The media is not invited; nor is the public--or the
people on whose behalf billions of dollars are being borrowed and who,
ultimately, are liable to repay the loans. This must change.
The loan grant process needs to be opened up and information
provided to the public to learn more about Bank policies and the
projects that it funds and how these impact their lives. Further, it is
recommended that, in non-democratic African countries, the Bank should
hold a public hearing before approving loans for specific projects.
3. Lack of Accountability
In country after country in Africa, there has been no
accountability in the use of World Bank loans. No single government in
any African country--not even star pupil Ghana--has been called upon to
account for the loans it took from the World Bank. Billions in World
Bank loans have been squandered in Africa and rarely anyone is held
accountable and prosecuted. (Victor Selormey's case in Ghana appears to
be the first.) This is an outrage. Yet, the African people must
shoulder the responsibility of paying back these loans.
Sir, some African groups and organizations are demanding that much
of Africa's debt to the World Bank be canceled. Some groups are even
more irate, demanding a repudiation of Africa's debt. They claim that
it is immoral to demand repayment of loans that did not benefit the
African people--loans that the World Bank knew were being
misappropriated. Take the case of Zaire--now the Democratic Republic of
the Congo. These civil organizations argue that Zaire's $14 billion
national debt should be treated as Mobutu's personal debt. Foreign
creditors should hold Mobutu personally liable and go after his assets.
The Congolese did not benefit from those foreign loans. Neither did
they give Mobutu any authorization to contract any foreign loan on
their behalf. The late Julius Nyerere, ex-head of state of Tanzania,
had this to say on Zaire's debt in an October 9, 1997 speech at the
University of Edinburgh:
The new Government of the Democratic Republic of the Congo,
formerly ZAIRE, has inherited an external Debt of $14 billion.
That country is totally dilapidated. That money did almost
nothing for the people of the Congo. It was stolen by Mobutu
and his close friends with the assistance or connivance of his
American and European Allies. We all know where that money is;
not in the Congo, but in Europe, in the form of cash or
property. It is being used in Europe, to make money in Europe.
Is it not IMMORAL to ask the poor people of the Congo to pay
that Debt?
What is being applied here is an international legal instrument
known as the ``doctrine of odious debts.'' Odious Debts is about a tax
revolt. ``Third World's debts were accumulated without public knowledge
and consent, with most people benefiting not one whit. Having paid once
with their environment as the loans financed destructive development
projects--among them hydro dams flooding rainforests and irrigation
schemes destroying farmland--the Third World populace finds odious the
proposition that it pays one more'' (Adams, 1991, inside flap). As
Patricia Adams of Probe International, a Toronto-based environmental
group, charged: ``In most cases, Western governments knew that
substantial portions of their loans--up to 30 percent, says the World
Bank--went directly into the pockets of corrupt officials, for their
personal use'' (Financial Post, May 10, 1999).
This doctrine originated in 1898 when the Americans captured Cuba
from Spain in 1898, the Spanish demanded that the U.S. repay Cuba's
debts. The U.S. refused, arguing that the debt had been ``imposed upon
the people of Cuba without their consent and by force of arms . . . The
creditors, from the beginning, took the chance of the investment'' (New
Internationalist, May 1999; p. 23). The proceeds of the debt prevented
the Cuban people from revolting against Spanish domination. ``They are
debts created by the Government of Spain, for its own purposes and
through its own agents, in whose creation Cubans had no voice,'' the
U.S. said (Financial Post, May 10, 1999).
The doctrine was first applied in 1923 when the Royal Bank of
Canada sought to recover debt from a new government in Costa Rica in a
landmark case, Great Britain v. Costa Rica. The new Costa Rica
government successfully argued that the debt had been incurred by the
former dictator, Frederico Tinoco, and not by the country's people.
Chief Justice Taft of the U.S. Supreme Court, sitting as an arbitrator,
agreed that the debt was not legitimate because ``the Royal Bank of
Canada knew that this money was to be used by the retiring president,
F. Tinoco, for his personal support after he had taken refuge in a
foreign country'' (Financial Post, May 10, 1999). Thus, ``If a despotic
power incurs a debt not for the needs or interest of the state, but to
strengthen its despotic regime, to repress the population that fights
against it . . . this debt is odious to the population of the state,''
said the doctrine. ``The creditors have committed a hostile act with
regard to the people, they can't therefore expect that a nation freed
from a despotic power assume the odious debts, which are the personal
debts of that power,'' it added.
This principle is being resurrected in South Africa, which is
laboring under a debt of $71 billion which is expected to reach $110
billion by the turn of the century. Millions of South Africans lacking
basic services such as housing, decent schools and hospitals toil daily
to pay back the billions of dollars borrowed by former apartheid
regimes to oppress them. When apartheid fell in 1994, it left behind a
debt which is now the second largest component of South African annual
expenditure after education. In the 1997/98 budget, debt service
payments were projected at $8.8 billion. But the Alternative
Information and Development Center (AIDC), a non-governmental
organization based in Cape Town said South Africans should not shoulder
the burden and be penalized for the debts of a system that oppressed
them. In June 1997, AIDC launched a campaign against this odious debt.
``Our targets will include international financiers such as the World
Bank and the IMF,'' says Brian Ashley of AIDC, who plans to make a
submission on South Africa's ``odious debts'' to the Truth and
Reconciliation Commission. The TRC's Christelle TerreBlanche says the
Commission is willing to listen to the AIDC submission'' (The African
Observer, 15-21 May 1997, 7).
In South Africa, apartheid was defined by the U.N. as ``a crime
against humanity.'' By 1982, as the campaign for international
sanctions grew, lawyers for U.S. banks publicly warned that a majority
government might not repay apartheid debts: ``If the debt of the
predecessor is deemed to be `odious' and the debt proceeds are used
against the interests of the local populace, then the debt may not be
chargeable to the successor.'' (New Internationalist, May 1999; p. 21).
Archbishop Njongonkulu Ndungale, who took over the TRC after Bishop
Desmond Tutu, argued that: ``South Africa's foreign debts were largely
incurred under the apartheid regime to suppress the majority
population. Thus, they should be declared odious and written off''
(Financial Post, May 10, 1999). Indeed, South Africa itself set an
example when its first black government took office. It canceled
Namibia's debt to South Africa. ``We did not ask whether the debt was
payable or unpayable. Nor did we impose any condition on our neighbor.
We merely declared those debts as immoral, odious debts incurred while
Namibia was occupied by the apartheid regime,'' said Archbishop
Ndungane (Fianancial Post, May 10, 1999).
Earlier in 1999, the Latin American and Caribbean Jubilee 2000
Coalition described the foreign debt of member nations as
``illegitimate because in large measure, it was contracted by
dictatorships, governments not elected by the people, as well as by
governments which were formally democratic but corrupt. Most of the
money was not used to benefit the people who are now being required to
pay it back'' (Financial Post, May 10, 1999). activist want legitimate
debts to be repaid, illegitimate debts ones repudiated.
Loans should not be granted to just ``any'' government. If the
World Bank is not willing to uphold accountability, then the African
people themselves would do so by repudiating loans taken on their
behalf without their consent or approval.
Thank you.
Senator Sarbanes. Thank you. Senator Allen has another
engagement. I am going to yield to him first so he has an
opportunity to ask his questions.
Senator Allen. Thank you so much, Mr. Chairman, and thank
you all, each one of you, for your testimony and your insight.
It is very beneficial to us.
I liked what you said, Mr. Orr. The bottom line is, the key
is private sector development. If you do have private sector
development, property rights, contractual rights, and so forth,
every one looks at those as economic rights, but they also are
political rights.
And Ms. Atkinson, thank you for your testimony. The point
of all this that I gleaned from it is, while there are varying
degrees of commentary and views here, they are all supportive
of this proposal, and that is very, very important, regardless
of the past, regardless of some allegations and assertions that
money has been misspent in the past, and so forth. All of your
testimony was very helpful to us.
I would like, I guess, to ask you, Reverend Beckmann, in
your four points, you were mentioning all of your support, and
it kind of fits in with what Dr. Ayittey was mentioning, and
you are working on hunger as a primary focus. Here you have a
country in Africa that has people starving in it. We are trying
to provide American grain to them, and they deny it to their
people because it is a hybrid grain that they do not like. Can
you explain the logic of such a regime?
Mr. Beckmann. Well, that has been an issue recently. I
think it is a little bit more complicated. There is a big
disagreement between the United States and Europe on the issue
of agricultural biotechnology, and some of these countries
export to European markets. Their agriculture goes much more to
European markets than to U.S. markets, and they have a
commercial interest in being genetically modified [GM] GM-free,
because a lot of European governments and European consumers
will buy their stuff if they are a GM-free country.
Senator Allen. Was this grain going to be used for seed, or
was it going to feed starving people?
Reverend Beckmann. It can be used for seed, so one reason
for their concern about the GM corn in the U.S. shipments was
that it then makes it difficult for them to say to their
European markets that they are GM-free. Another part of the
debate is that, Europeans see this as a U.S. move to spread the
use of agricultural biotechnology, so there was some of their
voice in the criticism of the U.S. grain.
Just to complicate the issue a bit more, one State
Department staff person told my staff that they saw this as a
good opportunity--to mix some GM grain into those shipments to
demonstrate to the Africans that it is not dangerous. Well,
when they are flat on their back, when they have got hungry
people, is that the time to carry on that debate? So there are
two sides to the story.
On the other hand, Bread for the World has done a lot of
work to think about agricultural biotechnology and hunger in
Africa, and our considered view is that biotechnology holds
real promise for a lot of African farmers. It is important not
just that they take it in a grain shipment, but that they have
the capacity to do the research, to do the extension, and to
make their own safety judgments.
We are broadly supportive of the dispersion of this new
technology. We think it can help to reduce hunger in Africa.
But the current controversy is a little bit more complicated
than thinking they are obtuse, or wondering how they could
possibly not take our corn. There is more to it than that.
Senator Allen. I knew there was, and I knew the Europeans
were a concern. I just wanted you to say it, since you provide
bread to the world, and in your testimony you apparently find
genetically modified, which is a new term for hybrid corn,
which in many cases would require less insecticides, or
pesticides, and other aspects of some drought-resistant crops,
that as far as you are concerned it is safe and nutritious.
Reverend Beckmann. Obviously, there are concerns about
environment and health, and different countries will handle
those differently. But we think that there is a lot of
potential for biotechnology in African agriculture, so it is
important to give them the capacity to do the research,
extension, and also to have systems so that they can say to
their own people, ``We have looked at this, and we think it is
safe for Uganda to use biotechnology in bananas'' or whatever.
Senator Sarbanes. Have the Europeans been better about
taking African agricultural products than we have?
Reverend Beckmann. I do not think so. It is just proximity.
They are closer. Much more of Africa's agricultural products go
to Europe. Well, there are, of course, trade restrictions in
agriculture. I am not sure how much of the difference is due to
that. I will check and get back to you, Senator.
Senator Allen. Dr. Ayittey, following up on what Reverend
Beckmann was talking about, I think it is great, and it follows
in with what you did, Mr. Chairman, as far as the transparency
of the financial conditions of companies, that we ought to not
just have us all theoretically talking about the reforms and
private property and the rule of law and so forth. Let the
people of those countries know what is going on to hold their
so-called leaders accountable for their actions. That is a
great comment that follows in what Dr. Meltzer mentioned as
well in his compliments of you.
I would ask Dr. Ayittey, you were talking about some of, in
your view, the failures of various countries in Africa, and
really while you were critical of some of the past evaluations,
it seemed to me you are supportive of these ideas of
performance and results and measurement to make sure that
countries are actually making progress. Could you share with us
any countries that you think in Africa that could benefit from
performance-based lending, and the Bush administration's soon
to be released Millennium Challenge Account? Give us some hope,
hopefully.
Dr. Ayittey. Please do not misinterpret my comments as
being pessimistic. The thing is, many Africans will realize
things have gone wrong and we are not trying to pin the blame
on the World Bank. Our governments pursued misguided policies.
We set up defective economic and political systems in the post
colonial period, so these governments and leaders are likely
responsible for the mess in Africa.
Now, the positive, and the hope here is that when Africans
themselves realize that their leaders and governments have made
mistakes, then the people themselves will demand
accountability, and all put in place measures by which they can
hold these governments accountable and also bring about the
solutions. The solutions have to come within Africa itself, not
imposed from the outside.
So it is nice to hear all this talk about performance-based
results, that is fine, but the other half of the story is in
Africa, and the other half of the story is that people cannot
hold their leaders or governments accountable. Nobody knows who
borrowed what or what the money is used for, and this is why
several organizations now, some of them are demanding that the
debt be canceled, or the debt be repudiated, because there are
many people in Africa who are angry, angry. Look, Africa's
total foreign debt right now is $350 billion.
Take the case of Congo, or Zaire, for example. When Mobutu
was there, this man had a personal fortune of $10 billion. His
country's foreign debt was $7 billion. That man alone could
have written a personal check to pay off his country's entire
foreign debt. Now, look at Zaire or Congo right now. The
country has degenerated into Stone Age existence. Must the
Congolese people be held responsible to repay the debt of
Mobutu, for example?
So while it is nice to hear that the U.S administration and
Treasury is talking about ways in which they can reform and, of
course, ensure that performance-based results are actually
implemented, the other part in my view also lies in Africa, and
I think this is why we have to find a way by which we can
either empower the African people so they can demand
accountability from their own governments, or also put in place
in Africa measures by which we can ensure that the grants are
utilized effectively.
Senator Allen. Thank you. Thank you, Mr. Chairman. If I may
be excused, I have a meeting at noon, although for your
testimony and for your concern I want to thank you. I think
there may be slight variations, but I think we are all going
toward the same goal, and I think this is a positive step
forward.
Thank you, Mr. Chairman. Thank you all.
Senator Sarbanes. Thank you very much, Senator Allen.
To what extent do the World Bank and these other
multilateral institutions work through the NGOs in carrying out
their programs? Does anyone on the panel know the answer to
that?
Reverend Beckmann. When I was in the bank, my last job at
the bank was to lead the bank's NGO unit. In fact, when I
started working on NGOs in the bank there was virtually no
relationship between the bank and the NGOs, and in retrospect
it is just incredible how little bank staff knew about civil
society. But there has been a lot of change. The efforts we
were making in the bank at that time worked like gangbusters,
partly because--we did not know it--we were getting up on a
surfboard just before the wave came in. The wave was the
democratization of developing countries.
All over the world--also in some African countries--a lot
of people worked really hard to get more democratic
governments. If the World Bank was working in Mobutu's Zaire,
the notion that a World Bank official was going to go talk to a
church leader was crazy, because the church leader was probably
considered subversive in Mobutu's Zaire, or in other
dictatorships at the time.
But as developing countries have become more democratic,
many governments want to involve their people and organizations
of civil society. So they have welcomed help from the World
Bank and other aid assistance agencies in engaging
organizations of civil society--NGOs and just ordinary people--
in projects--in implementation and, maybe more importantly, in
design and monitoring. That is, helping to think about what
kind of government program is really going to work, and then
monitoring that it gets carried out in a good way.
Since about 1980 the bank has moved light years in its
engagement with NGOs, most importantly nongovernmental
organizations in the developing countries. There is still a
long way to go. I was on a telephone conversation recently with
a number of U.S. PVOs, and they are still talking about all
kinds of frustrations. The bank is bureaucratic. They find it
hard to work with the bank.
I was struck--these are big institutions like World Vision
and Save the Children, and they still have trouble working with
the bank. But I do not think it is for lack of trying on either
side. The bank's response to the recent complaints of U.S. PVOs
was right away, ``Let's set up a joint task force and look at
specific problems.'' Why do these organizations have trouble
working with the bank?
I am pretty optimistic that the bank will continue to move
in this direction of opening the doors to public participation
in thinking and monitoring and carrying out programs. This is
the direction of change that I think will do the most to
improve the quality of the bank's development results.
Senator Sarbanes. Did you want to add something?
Ms. Atkinson. I agree with much of what Reverend Beckmann
has said. I thought your question was also aimed a little bit
at, to whom does the World Bank lend its money, I mean, who
actually gets the money? And generally that is still to
governments, or they may be governments that are lower than
Federal level in some cases, to states and so on.
And so I agree with Reverend Beckmann that the critical
role of the NGO relationship is to help in the monitoring, and
the kind of pressures toward better governance that we all
spoke about before, when the people know what money is being
borrowed, what it is supposed to go toward, and has some
involvement in seeing whether it has been well spent, and the
results. And I think I agree, there has been a transformation
in the role of the NGOs working with the bank, as with the
donor countries.
Dr. Meltzer. Can I add a note of caution here? There are
two down sides to this. Much as one can recognize that the NGOs
play a very useful role in many areas, they are not the local
people, and they often have their own objectives that may
differ very much from what a democratic society might choose to
do, and they tend to emphasize single issues that they are most
concerned with that may not be the most important issue to the
people who live in the country. That is one.
The second is, there is not any substantial evidence of
increased improvement in the effectiveness of the programs over
these years. There are some numbers that have improved, but it
is not clear that those number improvements that the World Bank
reports actually represent real, on the ground improvement in
the quality of programs or their effectiveness.
Senator Sarbanes. Do you all address the same criticisms
toward the Asian Development Bank and the African Development
Bank that you addressed toward the World Bank here this
morning?
Ms. Atkinson. Well, we may know less about those. I think
each of us probably for various reasons may know less about
those institutions. I think that the World Bank's IDA is the
longest running, has had probably the best record, mixed as
that might be, and I think sometimes there are joint programs,
so Professor Meltzer referred to some of the difficulties that
there have been in the African Development Bank, in the African
Development Fund in the past, and there are now steps being
taken to address that. So I would think the record of IDA is
probably somewhat better than those of the others, but they are
all operating in a fairly similar way.
Dr. Meltzer. I agree with Caroline to a degree. The African
Development Bank had a very serious problem about the
effectiveness, the corruption issue. Mr. Kabajj, who has taken
leadership of the African Development Bank in the last few
years, has really done a lot, I think, quite a superhuman
effort to clean up some of those problems. They still have a
long way to go, but they certainly understand their problem and
are headed in a better direction.
I think, probably on a pure efficiency basis, it was the
conclusion of my commission that the Asian Development Bank on
a pure efficiency basis, that is, making sure that the money
goes where it is supposed to go and all that, is probably the
best of the group. It has other defects that one might comment
on, but probably in terms of making sure that the dollars or
yen end up where they are supposed to end, they probably do the
best job of that, and do the most extensive monitoring of their
programs.
Dr. Ayittey. The African Development Bank, it is nice to
get some reforms under Kabajj. Before, it was just a hopeless
organization. It was financing specific projects, but it had no
eligibility criteria. If you were an African country, they
would loan money to you, and much of the loans that were loaned
out were not paid back.
Nigeria, for example, owes a huge amount to the African
Development Bank, and a lot of their projects were also sort of
placed in countries which were subsequently engulfed, like
Liberia and Sierra Leone, engulfed in civil war, so the
projects never showed a return, or did not even become
sustainable, so there were a lot of problems there.
Senator Sarbanes. Did you want to add something?
Mr. Orr. Just to say, Mr. Chairman, that people I know who
have been to the African Bank recently have come back
expressing a new sense of optimism that is felt on the staff
that the African Bank has turned the corner. They have adopted
a new strategic plan which many people think will help them a
great deal in the future. They are beginning the process of
loan monitoring, and trying to increase their effectiveness in
the way the other institutions are, so I think it is heading
toward a brighter future.
The Asian Fund and the Asian Bank are doing very well, as
Dr. Meltzer said. It still has a reputation of being a project-
driven institution, and it is very good at projects. It lags
behind some of the other institutions, however, in some of the
newest priorities like transparency, focus on governance, some
of the other current priorities in this area.
Dr. Meltzer. You should know, Senator, we have the least
influence over the Asian Development Bank because of our share
of ownership, and it is very much driven by the Ministry of
Finance in Tokyo.
Mr. Orr. We probably have the least influence in that
institution, too, because the Congress, the appropriators cut
their funding as a matter of course almost every year to gain
$50 or $100 million that they need for some other program.
If there is one message--I know I am talking to the wrong
committee here, but if there is one message I could leave with
the Congress today, the best way to improve U.S. effectiveness
at these institutions, or U.S. influence at these institutions,
would be to clear up the arrears, as Secretary Taylor asked,
and make sure that the United States approves authorization and
appropriation measures on time.
It is ironic, and the Europeans particularly are unhappy
about this, that the country that makes the most demands on
these institutions in terms of adopting new strategies is often
the country that is the slowest and the latest to approve
funding measures.
Senator Sarbanes. Well, it just hands others a very
effective weapon to use against us in these discussions that
take place in these institutions, and it extends across the
board. We have this extraordinarily severe problem at the
United Nations, of course, and we have the French and the
British actually sort of scoring off the United States because
we were lagging so far behind.
I agree with you completely, once we enter into the
agreement, and undertake to do it, and we approve all of that,
then we ought to deliver on the obligation that we assume. It
is a different question from how much more of an obligation we
ought to undertake the next time there is a replenishment and a
negotiation. Those are two separate questions. But once we sign
on and we are aboard along with the others, then we ought not
to be the laggards. I think that puts us in an extraordinarily
difficult and awkward position.
Reverend Beckmann. Sir, referring back to your question to
Secretary Taylor about the grants proposal, in my judgment the
real issue was that some of our European allies see us as
consistently stingy and laggard in paying up when we have made
commitments. Our overall level of development assistance as a
proportion of national income is so low compared to them that
they get tired of the United States popping in with new ideas.
The idea of IDA grants came up in a hurry. The President
was going to the G-8 in 2001. The administration needed
something for him to talk about that wouldn't really cost much
money. They put the idea of IDA grants on the table, and the
Europeans called them on it and said ``Look, this is going to
cost money 10 and 20 years out. You are getting credit for
being liberal or progressive, and 10 or 20 years out we are
going to be the ones picking up the check.''
I think that was the real issue. It was a proposal to be a
little bit more generous now at the expense of later costs. The
United States came back later and said, ``Look, we will agree
to an 18-percent increase in this replenishment, and we have
this idea for the Millennium Challenge Account.'' That changed
the framework of the debate and helped us get to an agreement
on IDA grants.
Senator Sarbanes. Well, this has been a very helpful panel.
We very much appreciate your testimony, and also the prepared
statements. Thank you all very much. The committee stands
adjourned.
[Whereupon, at 12:30 p.m., the subcommittee adjourned, to
reconvene subject to the call of the Chair.]
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