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111th Congress  }                                            {  S. Prt.
  2d Session    }          COMMITTEE PRINT                   {   111-43
_______________________________________________________________________
 
                           THE INTERNATIONAL 

                        FINANCIAL INSTITUTIONS: 

                           A CALL FOR CHANGE 

                               __________

                                A REPORT

                                 TO THE

                     COMMITTEE ON FOREIGN RELATIONS

                          UNITED STATES SENATE

                     One Hundred Eleventh Congress

                             Second Session

                             MARCH 10, 2010

                                     
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                 COMMITTEE ON FOREIGN RELATIONS        

             JOHN F. KERRY, Massachusetts, Chairman        
CHRISTOPHER J. DODD, Connecticut     RICHARD G. LUGAR, Indiana
RUSSELL D. FEINGOLD, Wisconsin       BOB CORKER, Tennessee
BARBARA BOXER, California            JOHNNY ISAKSON, Georgia
ROBERT MENENDEZ, New Jersey          JAMES E. RISCH, Idaho
BENJAMIN L. CARDIN, Maryland         JIM DeMINT, South Carolina
ROBERT P. CASEY, Jr., Pennsylvania   JOHN BARRASSO, Wyoming
JIM WEBB, Virginia                   ROGER F. WICKER, Mississippi
JEANNE SHAHEEN, New Hampshire        JAMES M. INHOFE, Oklahoma
EDWARD E. KAUFMAN, Delaware
KIRSTEN E. GILLIBRAND, New York
                  David McKean, Staff Director        
        Kenneth A. Myers, Jr., Republican Staff Director        

                              (ii)        
















                            C O N T E N T S

                              ----------                              
                                                                   Page
Letter of Transmittal............................................     v


Introduction.....................................................     1


Executive Summary................................................     1


Recommendations..................................................     5


Discussion.......................................................    12


    Senator Lugar's Ongoing Oversight Effort.....................    13

    United States Benefits From Involvement......................    18

    More Money for the Development Banks?........................    19

    United States in Arrears to the Development Banks............    21

    Linkage Between Corruption and Debt..........................    22

    Monitoring and Evaluations Vary..............................    23

    Need More Focus on Transparency..............................    23

    Coordination Could Be Improved...............................    24

    Questions Around Budget Support..............................    25

    Focus on Low-Income Countries................................    26

    Ability To Do Independent Investigations Uneven..............    26


Case Studies.....................................................    27

    Chile and the Inter-American Development Bank: Lessons from 
      the Transantiago...........................................    27

    India and the World Bank: The Detailed Implementation Review 
      Fallout....................................................    28

    The International Monetary Fund in Indonesia.................    29

    Development Banks in Kenya: Monitoring and Procurement 
      Challenges.................................................    31

    Lebanon: Manipulation of Crises..............................    32

    Lesotho: Demonstrating the Need to Support Investigations and 
      Prosecutions...............................................    33

    The Asian Development Bank's Lack of Success in the 
      Philippines................................................    35

    The European Bank for Reconstruction and Development's 
      Overexposure to Russia.....................................    36

    Sri Lanka: The Need for Concerted Conflict Sensitivity.......
                  ...............................................

    The Asian Development Bank's Inspection Panels...............    42

    Yemen: Empowering Reform From Within.........................    44

    Transparency and the European Bank for Reconstruction and 
      Development................................................    46

    The Inter-American Development Bank's Need to Strengthen 
      Financial Management.......................................    47


                               Appendixes

Appendix I.--U.S. Engagement.....................................    51

Appendix II.--The International Financial Institutions...........    53

    International Monetary Fund..................................    53

    World Bank...................................................    54

    Inter-American Development Bank..............................    55

    African Development Bank.....................................    56

    Asian Development Bank.......................................    57

    European Bank for Reconstruction and Development.............    58

Appendix III.--World Bank Lending and Parliamentary Approval.....    61

Appendix IV.--Inter-American Development Bank List of Countries 
  that Require Legislative Authorization or Ratification of IDB 
  Loan Contracts.................................................    63

Appendix V.--Tables..............................................    65

    Table 7.--U.S. Contribution and Voting Shares in the 
      Multilateral Development Banks.............................    65

    Table 8.--Development Bank Management's General Capital 
      Increase (GCI) Requests as of January 13, 2010.............    66

    Table 9.--Projected Net Private Financial Flows to the 
      Emerging Markets and Estimates of MDB Lending, With and 
      Without Implementation of Management's General Capital 
      Increase Requests..........................................    66

    Table 10.--Regional MDB Commitments..........................    66

Appendix VI.--Senate Foreign Relations Committee Hearings Chaired 
  by Senator Lugar...............................................    67

Appendix VII.--Acronyms and Abbreviations........................    69

    References...................................................    71

?

                         LETTER OF TRANSMITTAL

                              ----------                              

                              United States Senate,
                            Committee on Foreign Relations,
                                    Washington, DC, March 10, 2010.
    Dear colleague: The International Monetary Fund, World 
Bank, African Development Bank, Asian Development Bank, 
European Bank for Reconstruction and Development, and Inter-
American Development Bank are foreign policy tools that allow 
the United States to leverage the contributions of other 
countries to promote our national security and humanitarian 
interests in alleviating poverty and promoting progress around 
the world. For this reason, the U.S. Congress regularly 
supports appropriations for subsidized loan and grant programs 
through the multilateral development banks and recently 
provided a loan to the IMF. As one of the largest shareholders 
in these institutions, the United States enjoys an opportunity 
to influence their policies and programs. We must be cautious 
about forfeiting our leadership positions at these 
institutions.
    Seven years ago, I began an oversight project on the 
multilateral development banks, focused on ensuring that their 
financing reached the intended people and projects. I chaired 
six Senate Foreign Relations Committee hearings that included 
reviews of individual projects and policies of the respective 
development banks. I met with international financial 
institution leaders and my staff examined projects in many 
countries. The attached report provides fifty recommendations 
for eight different organizations to improve the 
accountability, transparency and effectiveness of the World 
Bank, the IMF and the other development banks. The American 
people must have confidence that our funds will be managed 
effectively, efficiently, and transparently. Given our domestic 
budget and employment situation, it is all the more critical 
that we ensure that our contributions successfully promote 
United States interests.
    The United States and the G-20 are evaluating changes to 
the relative power countries wield at the international 
financial institutions while considering requesting billions in 
additional funds for the multilateral development banks this 
spring. This report suggests that contributions to the 
development banks should be a consequence of, not a precursor 
to, needed reforms given that financial flows to development 
countries are rebounding sharply from their 2009 lows.




                                  (v)

    This Senate Foreign Relations Committee report, written by 
Nilmini Gunaratne Rubin with significant contributions from Jay 
Branegan, Shellie Bressler, Keith Luse, Kezia McKeague, Carl 
Meacham, Michael Phelan, and Dorothy Shea, as well as 
assistance from Erin Baggott, Cory Gill, Katie Lee, Marik 
String, and Alexandra Utsey, synthesizes important 
recommendations to transform the international financial 
institutions. I hope it will inform a vital debate about these 
institutions before we make agreements on how to reallocate 
leadership power and decide whether to provide them with 
additional funding.
            Sincerely,
                                          Richard G. Lugar,
                                                    Ranking Member.


                           THE INTERNATIONAL
                        FINANCIAL INSTITUTIONS:
                           A CALL FOR CHANGE

                              ----------                              


                              Introduction

    Beginning in 2003, Senator Richard Lugar directed his staff 
on the Senate Foreign Relations Committee to undertake an 
examination of the international financial institutions\1\ to 
determine how they could better serve American interests and 
more effectively achieve their missions of alleviating poverty, 
hunger and disease in poor countries, promoting sustainable 
development, economic growth, and good governance, and ensuring 
financial stability. This staff report brings together the 
results of much of the oversight since that time. As detailed 
in the pages that follow, key conclusions emerge:
---------------------------------------------------------------------------
    \1\ The International Monetary Fund, the World Bank, the African 
Development Bank, the Asian Development Bank, the European Bank for 
Reconstruction and Development, and the Inter-American Development 
Bank.


   The international financial institutions too often focus on 
        issuing loans rather than on achieving concrete 
---------------------------------------------------------------------------
        development results within a finite period of time;

   They should concentrate more clearly on ``putting 
        themselves out of business'' by creating stable, self-
        sustaining economic growth in their client countries;

   For the institutions that are currently seeking major 
        capital increases, the Administration and the other 
        donor countries of the G-20 should be firm in demanding 
        that needed reforms are secured before committing 
        additional funds; and

   The international financial institutions should redouble 
        their efforts, including increasing resources for 
        internal controls, to battle the invidious corruption 
        that has thwarted so many development projects.


                           Executive Summary

    The international financial institutions (IFIs) have 
traditionally been an important element of U.S. foreign policy. 
They support the broad U.S. foreign policy goals of promoting 
stability and development and ending poverty; they leverage 
U.S. taxpayer dollars and support a large corps of development 
experts and international economists to supplement the U.S. 
government's own expertise; they provide fora where the U.S. 
can cooperate with friends and allies; they are emblems of U.S. 
economic and diplomatic leadership; and owing to the United 
States' position as the largest, or one of the largest, donors 
in each institution, they are able to help influence specific 
regions and countries in ways that are favorable to U.S. 
interests.
    But, they are also international bureaucracies, answerable 
to no one government or constituency, yet subject to influence 
and suasion by many, including donors, borrowers, and other 
political actors. They often operate with little public 
scrutiny, and many times in challenging environments, where 
bureaucratic obstacles, corruption, civil or military strife, 
and governmental incapacity can harm the success of their work. 
Most significantly, the two largest and most important IFIs, 
the World Bank and the International Monetary Fund (IMF), were 
created more than fifty years ago, in the aftermath of World 
War II, when one country, the United States, towered over the 
rest financially, global exchange rates were fixed, 
international financial flows were tiny, trade was burdened 
with steep tariffs and quotas, private sector investment and 
lending in developing countries were negligible, and the 
principle of free-market capitalism was not widely accepted. 
All that has changed, but have the IFIs kept pace?
    As the world struggles to emerge from the worst economic 
crisis since World War II, it is an appropriate time to ask 
whether the IFIs are performing optimally and doing the jobs 
they should be doing. Does the world really need the IMF, World 
Bank, African Development Bank, Asian Development Bank, 
European Bank for Reconstruction and Development, and Inter-
American Development Bank today? Can they be changed to better 
address our needs? How should we re-design them? What could the 
international financial institutions have done to keep the 
crisis from occurring in the first place? What can they do now 
to best mitigate the fallout from the crisis? Do they achieve 
their various missions of promoting stability, fighting 
poverty, encouraging growth, and promoting democracy?
    Such questions are particularly timely because nearly all 
the IFIs have sought, or will soon seek, major new infusions of 
money from their donors, including the taxpayers of the United 
States. Congress will have to approve the amount and the form 
of these new contributions. Congress must be able to assure 
taxpayers that the money is needed, and that it will be used 
efficiently. It must ask whether the new money is being 
requested primarily to respond to the financial crisis, and if 
so, whether it should be advanced on a temporary basis. The 
crisis should not be used as an excuse to win increases that 
could not otherwise be justified. As the requests for capital 
are negotiated with the international donor community, there is 
a window of opportunity for significant reform. Given a 2009 
signing statement from the administration, indicating that the 
President did not recognize an obligation to pursue 
Congressionally mandated reforms at the IMF contained in 
authorizing legislation, Congress may have an interest in 
securing the reforms before authorizing funds for the capital 
increases.\2\
---------------------------------------------------------------------------
    \2\ http://www.whitehouse.gov/the_press_office/Statement-from-the-
President-upon-signing-HR-2346
---------------------------------------------------------------------------
    Soon after he became Chairman of the Senate Foreign 
Relations Committee (SFRC) in 2003, Senator Richard Lugar 
launched a multi-faceted project designed to answer many of the 
questions cited above. Under his chairmanship, the SFRC held 
six hearings into the operations of the World Bank and the 
other multilateral development banks (MDBs), his staff 
conducted numerous oversight trips to the various banks' 
headquarters and to bank-funded projects, and Sen. Lugar met 
personally with the head of each MDB. The committee produced a 
major piece of legislation, which was enacted into law in 2005. 
The oversight activity continued as Sen. Lugar assumed the role 
of ranking member of the committee and as staff continued to 
make site visits, hold briefings with IFI personnel and others, 
attend MDB annual meetings, and conduct inquiries regarding 
various IFI issues.
    This project, initially focused on the IFIs' efforts to 
battle corruption, has expanded to include other issues of 
institutional management, personnel, and aid effectiveness. 
During the period of the project, improvement occurred in 
certain areas that have come under intense staff scrutiny or 
Congressional mandate, but most IFI operations and thinking 
continue to be characterized by inertia and a reluctance to 
reform. In particular, the regional MDBs look to the World Bank 
to set the standard of practice, failing to move if the World 
Bank does not, even though significant problems may be evident. 
And even once the World Bank does change, the regional MDBs are 
often slow, in some cases extremely slow, to adopt 
corresponding policies of their own. One of the key 
recommendations of the report is that the IFIs work much more 
closely together to share experience and information and to 
collaborate on policies.
    In general, staff found that the IFIs still serve U.S. 
policy interests and leverage American taxpayer dollars. 
Therefore, the U.S. should retain a leadership role in the 
institutions. However, in the current fiscal environment, the 
institutions themselves and the Obama administration will have 
to make a strong and compelling case if further U.S. tax 
dollars from an already-overstretched federal budget are to be 
made available. Any new capital increase should be approved 
only after the relevant institution has formally agreed to a 
reform agenda and begun to implement it. The Obama 
administration should conduct an authoritative review of the 
IFIs' practices and policies leading up to the financial crisis 
to learn what, if anything, they could have done to prevent it. 
Steps should be taken to integrate lessons learned into future 
IMF and development bank activities. In normal times, the World 
Bank and the regional banks focus on long-term development and 
not, for instance, on disaster relief and other short-term 
events. The review should examine whether the MDBs need, or 
should have, new authorities to deal with financial crises. 
Further, to garner public support, the Treasury Secretary 
should consult closely with Congress as talks on new funding 
proceed, and he should strive to ensure that any funding 
required for the crisis should be temporary in nature, while 
the institutions themselves should conduct a rigorous review to 
find costs savings in their own operations. The institutions 
should commit to rigorous budgetary discipline to make sure 
that as many resources as possible are being used to fight 
poverty and maintain financial stability. The IFIs will only 
succeed if they are seen as part of the solution to the crisis, 
not part of the problem.
    Regarding the politically fraught issues of governance, 
voting rights, and citizenship directives, U.S. voting shares 
and veto authority should be maintained, and that having an 
American as head of the World Bank helps maintain domestic 
public support for the institution. Any changes to these 
arrangements should be considered on a system-wide basis, 
including the IMF, the World Bank, and the regional MDBs. Staff 
does not underestimate the difficulty in achieving such 
changes. Throughout the course of this project, staff has 
repeatedly encountered evidence that U.S. citizens are 
discouraged from working at the regional MDBs because of U.S. 
tax law burdens which nationals of other countries do not face. 
Because the presence of U.S. citizens materially improves the 
performance and accountability of the institutions, staff 
recommends that Congress fix the tax disincentives that 
penalize Americans working abroad.
    The IFIs suffer from a lack of transparency regarding loan 
decisions, environmental impact, inspection panels, project 
assessment, etc., which hurt both public perceptions and their 
effectiveness. The most recently issued public disclosure 
policies of the World Bank and the European Bank for 
Reconstruction and Development (EBRD), for instance, improved 
somewhat on the previous versions but fell far short of what 
was optimal. The report makes a number of recommendations for 
improved public disclosure of policies and decisions, at both 
the board and management level, and for more parliamentary 
consultation in borrowing countries.
    Nearly all the IFIs suffer from a ``pressure-to-lend'' 
culture that places more emphasis on signing project agreements 
and getting loans out the door than on actually improving the 
development level of the borrowing country. There must be a 
systemic re-orientation to focus on outcomes instead of 
outputs. That will require putting in new incentive structures 
within the banks and new evaluation mechanisms. The banks 
should focus more clearly on the effort to ``put themselves out 
of business'' by graduating countries from their ``soft loan'' 
windows and, eventually, out of borrowing completely. When the 
World Bank reaches the milestone of being in a country for 
fifty years, it should not be a cause for celebration. 
Specifically, the executive boards of the development banks 
should require presentation of projects and programs at their 
completion to put an emphasis on results and to incentivize 
development bank professionals to focus on the results of 
projects rather than the amounts. Currently, board review of 
projects and programs is only done at the approval stage. In 
addition, the development banks need to install meaningful 
staff evaluation systems so that professionals are rewarded for 
good project design and implementation rather than for 
promoting large projects in important countries. To that end, 
the banks should develop a common evaluations framework so that 
results of the different development banks can be compared 
across the board and within countries. Projects should be 
designed with clear indicators so that results can be measured, 
and the indicators should be published so civil society can 
track the projects' progress. Also, the development banks 
should sell advisory services to interested countries rather 
than requiring that countries borrow in order to receive advice 
from the development banks.
    Regarding lending to resource-rich developing countries, 
which has been of particular interest to the SFRC, banks should 
focus on Extractive Industry Transparency Initiative (EITI) 
principles of revenue transparency and fighting corruption, 
with an emphasis on acting before resource revenues start 
flowing in large amounts. Relatively small amounts of aid money 
could thus help channel large amounts of countries' own funds 
toward poverty reduction. Because corruption has been shown to 
be a decisive factor in hobbling development, all the banks 
should embed oversight funds into project and program financing 
so that an adequate percentage of the funds can be used by 
borrowing countries to support monitoring, investigations, 
prosecutions, and technical assistance for oversight.
    Prior to the global economic crisis that struck in 2008, 
many had begun to question the need and rationale for the IMF. 
Lending was down sharply, very few countries were enrolled in 
IMF programs, its credibility and popularity were badly damaged 
by both the Russian financial collapse and the Asian financial 
crisis, and the organization was forced to institute a 20 
percent cut in personnel. However, early in 2009 as the 
financial crisis swept the globe, it was evident that the IMF 
was best-suited for crisis management, and the G-20 voted to 
triple IMF resources. This abrupt reversal of fortune could be 
oversimplified into the question, ``What do you do with the 
firemen when there is no fire?,'' as one IMF official put it. 
Congressional debate over the Obama administration's request 
for Congress to authorize the U.S. portion of the new funds 
would have been a good opportunity to explore the role and 
function of the IMF in crisis and non-crisis situations. 
Unfortunately, that debate did not happen. The process for 
authorization of the IMF funds did not follow the usual 
procedures and proved unnecessarily partisan. As U.S. 
legislative action was critical for many of the issues related 
to IMF reform and enhanced funding, the rushed legislative 
process, as described in more detail in the report, denied 
Congress the opportunity to thoughtfully promote needed changes 
at the IMF. In the meantime, there are a number of obvious 
reforms the IMF should undertake, many of them related to 
improved transparency and consultations with the parliaments of 
borrowing countries, providing the significant requirements for 
reform that come with IMF programs. The IMF should also develop 
guidelines to ensure that its financing will not exacerbate 
conflict or underlying hostilities when lending to a post-
conflict or current conflict country, and it should explicitly 
judge a country's appropriate level of military spending as an 
indicator of financial health.
    Staff have visited the headquarters of each IFI, and 
repeatedly interviewed Treasury and IFI officials about the 
policies and operations of each bank. A number of 
recommendations have emerged related to IFIs in general and to 
specific institutions. They are detailed in the following 
section.

                            Recommendations

    Committee staff developed specific recommendations for the 
administration, Congress, and the international community to 
reform the international financial institutions and help them 
adjust to the changing needs and evolving standards of a post-
economic crisis world.
The Obama administration should:
1)  Focus on the ultimate goal of the international financial 
        institutions succeeding in their development and 
        economic missions and thereby putting them out of 
        business. Push the institutions to pay closer attention 
        to the steps needed for governments to generate their 
        own revenue and access capital markets on a favorable 
        basis. Encourage the institutions to set up clear 
        graduation guidelines for a country to move from being 
        a borrower to becoming a donor.

2)  Undertake a review to determine what, if anything, the 
        international financial institutions could have done to 
        prevent the recent global financial crisis.  Steps 
        should be taken to integrate lessons learned into 
        future IMF and development bank activities.

3)  Consider delaying a G-20 commitment for capital increases 
        for the multilateral development banks until it is 
        clear that capital infusions are necessary, needed 
        reforms are underway, and upcoming elections of 
        leadership positions at some development banks are 
        completed. 

4)  To the extent possible, the administration should pursue 
        temporary capital increases given that the impact of 
        the global financial crisis will eventually wane.

5)  Commission a review of potential cost savings at the 
        international financial institutions.  Opportunities to 
        reduce spending at these organizations must be examined 
        and the institutions should commit to rigorous 
        budgetary discipline to make sure that as many 
        resources as possible are being used to fight poverty 
        and maintain financial stability.

6)  Preserve United States leadership of the World Bank and 
        senior level positions at the other IFIs. Having an 
        American at the helm of the World Bank helps ensure 
        continued U.S. support for the institution and 
        facilitates communication with the World Bank. 
        Historically, the President of the World Bank has been 
        a United States citizen, the Managing Director of the 
        IMF has been European, the President of the European 
        Bank for Reconstruction and Development has been 
        European, the President of the African Development Bank 
        has been African, the President of the Asian 
        Development Bank has been Japanese and the President of 
        the Inter-American Development Bank has been from 
        Central or South America. Should the administration 
        choose not to follow this recommendation, any deal to 
        loosen the citizenship directives on leadership at the 
        IMF or World Bank should include loosening the 
        citizenship directives at the regional development 
        banks.

7)  Maintain United States voting shares and veto rights at the 
        international financial institutions.  As talks 
        continue at the G-20 on reallocating shares at the 
        IFIs, the administration should not agree to a deal 
        where the United States' voting share declines or where 
        the United States loses its veto over certain policies, 
        given the size of the United States economy and the 
        importance of the IFIs to United States policy 
        interests.

8)  Clearly post summaries of U.S. votes on international 
        financial institution projects and programs on the 
        International page of the Treasury Department website. 
        The Bush administration began posting whether it 
        abstained from voting, voted no or voted yes on 
        development bank projects, but it is very difficult to 
        find the web page.

9)  Reveal additional U.S. Executive Director positions that 
        are delivered at the international financial 
        institutions.  Current United States statute calls on 
        the U.S. Directors to share their statements with 
        Congress on inspection panel cases, operational 
        policies, and projects with significant environmental 
        impacts. The administration should voluntarily release 
        the detailed U.S. positions on projects in countries of 
        specific foreign policy interest such as Iraq and 
        Afghanistan and on projects in areas of particular 
        sensitivity such as energy and post-conflict 
        reconstruction.

10) Press the international financial institutions to work 
        together. Close collaboration is critical because the 
        mandates of the development banks and the IMF, 
        development, and financial stability are inherently 
        connected and impact each other. For example, when 
        development banks provide budget support loans to 
        countries, they should work with the IMF and obtain an 
        assessment letter. The IMF should utilize development 
        bank tools such as conflict filters when lending to 
        post-war countries.

11) Encourage the international financial institutions to 
        systematically factor in the role of conflict to ensure 
        that their financing does not inadvertently exacerbate 
        conflict. The World Bank developed a conflict filter 
        for Sri Lanka, a series of questions to be asked at 
        each stage of project development, which should be 
        expanded for use in other countries and by the other 
        international financial institutions.

12) Promote parliamentary approval of international financial 
        institution projects and programs. The executive 
        branches of few developing countries are required to 
        seek parliamentary approval of international financial 
        institution loans or grants. Few developing countries 
        have parliaments that set a ceiling within which the 
        executive branch can conclude individual agreements 
        with the international financial institutions.

13) Review any connection between the misuse of funds and debt 
        relief. Debt relief has been provided to countries that 
        cannot afford to pay back their loans, it has not been 
        provided for loans made knowingly to countries with 
        corrupt leaders who misused or stole the funds.

14) Designate an Ambassador-at-Large for Global Transparency to 
        promote disclosure at the international financial 
        institutions that is consistent with efforts within the 
        United States government and at other international 
        organizations including the United Nations.

15) Actively recruit U.S. citizens for positions at the 
        international financial institutions and help 
        applicants navigate the hiring process. 
Congress should:

16) Consider supporting capital increases for multilateral 
        development banks that have successfully implemented 
        needed reforms. 

17) Consider providing funds to clear United States' current 
        arrears (unmet commitments) to the development banks, 
        the existence of which undermines United States 
        influence at these entities.

18) Fix tax disincentives which penalize Americans working 
        abroad.
The International Monetary Fund should:

19) When providing loans to resource rich countries, take steps 
        to account for the billions in revenues that are 
        streaming into the country.  Specifically, the IMF 
        should implement the recommendations from its own Guide 
        to Resource Revenue Transparency; obtain a commitment 
        to not censor individuals who raise concerns about oil 
        revenue management; require disclosure of public 
        official conflicts of interest in companies bidding for 
        oil and gas rights; and call for an independent audit 
        of the Ministry of Finance and Petroleum. Macroeconomic 
        reform, economic development, and participatory 
        governance all rely upon dissemination of information 
        in order for the government to be more effective and to 
        enable civil society to play a productive role in 
        increasing accountability of government officials.

20) Require countries to take anti-corruption measures, reveal 
        their budgets, and implement public financial 
        management guidelines on budget transparency for loans 
        to the government's budget, such as the flexible credit 
        line\3\ that was created in 2009.
---------------------------------------------------------------------------
    \3\  http://www.imf.org/external/np/sec/pr/2009/pr0985.htm

21) Provide grants rather than loans to countries that clearly 
        cannot repay their loans, such as Haiti after the 
---------------------------------------------------------------------------
        January 2010 earthquake.

22) Utilize proceeds in excess of projections from gold sales 
        to fund grants and debt relief for the poorest 
        countries.

23) Engage with Parliaments in the course of developing an IMF 
        program.  While IMF programs include significant 
        reforms, sometimes requiring legislative action, 
        parliaments are rarely consulted by the IMF.

24) Develop guidelines to ensure that IMF financing will not 
        exacerbate the conflict or underlying hostilities when 
        lending to a post-conflict or current conflict country.

25) Not shy away from making recommendations on the appropriate 
        level of military expenditures as they can be a 
        significant determinant of a country's financial 
        health.
The multilateral development banks (the World Bank, African Development 
        Bank, Asian Development Bank, European Bank for Reconstruction 
        and Development, and the Inter-American Development Bank) 
        should:

26) Plan for the future, not just the present.  Projects should 
        be designed with a long-term view. For example, 
        agricultural projects should be designed to withstand 
        climate change and roads projects should be developed 
        to accommodate pedestrians in areas projected to become 
        densely populated.

27) Strengthen anti-corruption efforts.  Increase resources for 
        internal controls and anti-corruption efforts. Embed 
        oversight funds into project and program financing so 
        that a small percentage of the funds can be used by 
        borrowing countries to support monitoring, 
        investigations, prosecutions, technical assistance to 
        Parliamentarians, government audit agencies, and 
        ombudspeople, promoting better oversight.

28) Refocus attention on the impact, rather than the size and 
        goals, of development bank projects and programs. 
        Executive boards of the development banks should 
        require presentation of projects and programs at their 
        completion to put an emphasis on results and to 
        incentivize staff to focus on the results of projects 
        rather than the amounts. Currently, board review of 
        projects and programs is only done at the approval 
        stage. In addition, the development banks need to 
        install meaningful staff evaluation systems so that 
        staff are rewarded for good project design and 
        implementation rather than for promoting large projects 
        in important countries.

29) Design a common evaluations framework that includes the 
        collection of shared baseline data to save money and 
        avoid repetition. Baseline data is important in 
        determining whether or not the development bank project 
        made an impact.


   a) Produce comparable indicators and data dissemination 
            standards so that results of the different 
            development banks can be compared across the board 
            and within countries.

   b) Projects should be designed with clear indicators so that 
            results can be measured.

   c) Publish indicators so civil society can track the 
            projects progress.

   d) Evaluate all projects and publish evaluations of all 
            projects.

   e) Integrate lessons learned into project design.


30) Better coordinate activities, particularly food security 
        assistance, starting with agreements on development 
        principles and working with host governments to adhere 
        to national development plans.

31) Increase grants and subsidized loans for the poorest 
        countries and create a predictable system to transfer 
        profits to their grant-making and subsidized lending 
        windows for poor countries from the development banks' 
        lending operations.
32) Integrate the principles of the Extractive Industries 
        Transparency Initiative into extractive industry 
        project design. All the MDBs now endorse the EITI, but 
        when providing financing to resource rich countries, 
        the development banks should focus their efforts on 
        improving revenue management and fighting corruption, 
        conditioning loans on revenue disclosure and contract 
        transparency, and promoting transparency before the 
        revenues actually start flowing from extractive 
        industries. Relatively small amounts of aid money could 
        thus help channel large amounts of countries' own funds 
        toward poverty reduction.

33) Revamp inspection panels and other inspection mechanisms so 
        that people and communities negatively affected by 
        development bank projects have clear access to redress. 
        Current mechanisms allow complaints to be made about 
        failures to follow development bank policy but the only 
        beneficiary is the bank itself, which learns of its 
        mistakes. The affected people simply remain affected 
        and are rarely compensated or made whole.

34) Lending to the private sector should be focused on regions 
        and sectors that truly need additional funding to allow 
        for the best use of scarce resources and to not crowd 
        out the commercial lenders.

35) When lending money directly to a country's budget, require 
        publication of the budget and implementation of 
        adequate public financial management standards. Consult 
        with the IMF on major budget support loans.

36) Since some emerging market countries are more interested in 
        receiving advice than money from the development banks, 
        consider charging for advisory services. Currently, 
        most development banks only provide advisory services 
        as part of a financing package.

37) Minimize the environmental impact of projects, including 
        increasing awareness of greenhouse gas emissions. 
        Develop and implement a strategy to lower greenhouse 
        gas emissions trajectories while enhancing access to 
        affordable energy services. Develop a best practice 
        protocol for greenhouse gas accounting.
The World Bank should:

38) Allow the Government Accountability Office to commence the 
        two reviews requested by Senator Lugar, Senator Bayh, 
        Senator Leahy, and then-Senator Biden. One review would 
        examine the goals, criteria for success, and ability to 
        fight corruption and implement procurement procedures 
        of the World Bank's subsidized loan and grant window, 
        the International Development Association. The other 
        review would scrutinize the World Bank's process for 
        conducting environmental assessments, the impact of 
        environmental assessments on project design, and the 
        process for assessing environmental impact after a 
        project is completed.
39) Revise its public information policy to allow Executive 
        Directors to release their Executive Board statements 
        to their constituencies and to the public.  The World 
        Bank's new public information policy makes significant 
        strides towards transparency and presumes disclosure. 
        However, the Executive Directors who are 
        representatives of country members are not allowed to 
        release their statements to the Board on policies and 
        projects.
The African Development Bank should:

40) Revamp its website to disclose what the African Development 
        Bank is doing in each recipient country, noting how 
        much is going to what project, linking relevant 
        documents and providing information on inspection panel 
        cases. The current website provides limited information 
        about the Bank's activities.

41) Increase pursuit of misconduct by staff, contractors, and 
        procuring companies and publish the list of debarred 
        individuals and companies. Compared to the other 
        development banks, the African Development Bank has far 
        fewer cases under investigation.
The Asian Development Bank should:

42) Publish the names of the companies that it debars due to 
        fraud or other misconduct.

43) Reform its human resources system, including the selection 
        of staff on the basis of transparent recruiting process 
        and external recruiting at all levels.

44) Ensure that lending to middle-income countries is focused 
        on poverty alleviation.
The European Bank for Reconstruction and Development should:

45) Spread its lending across the region and not continue 
        concentrating its portfolio in one country. Currently, 
        41 percent of its lending goes to one borrower, Russia. 
        The bank's limited resources clearly should be directed 
        at countries with fewer of their own resources. A 
        corollary, the Nunn-Lugar program initially invested 
        heavily in Russia, but over time has shifted to other 
        countries and Russia's contributions have increased. As 
        Sen. Lugar noted in an August 2009, letter to the Wall 
        Street Journal, ``the Russian share of total Nunn-Lugar 
        spending has dropped from 88 percent in 2001 to 37 
        percent as construction projects conclude and Moscow 
        assumes more of the cost.'' No such weaning process is 
        evident for the EBRD and Russia-instead, the trend has 
        been going in the opposite direction.

46) Focus lending to sectors and projects that lack access to 
        market financing. Currently, some loans are reportedly 
        going to Russian oligarchs and projects that could 
        obtain private capital, including the oil sector.

47) Make additionality criteria more transparent and more 
        explicit, both as a statement of policy and on 
        individual investments.

48) Develop local currency lending and local capital markets.
The Inter-American Development Bank should:

49) Fully implement financial management reforms. The Inter-
        American Development Bank is taking initial steps to 
        reform its investment strategy, credit risk management, 
        capital adequacy policy, and operational risk framework 
        following an unrealized loss of $1.9 billion from its 
        liquid portfolio of cash management instruments.

50) Provide more grants and subsidized loans for the poorest 
        countries in the Western Hemisphere, including Haiti.

                               Discussion

    The world has changed drastically since the international 
financial institutions were created. Private capital flows to 
developing countries dwarf official donor assistance to those 
countries. Most exchange rates float under market pressures 
while they were previously fixed under the gold standard. 
Markets for goods, services, and finance are connected. We have 
seen the growth of sovereign wealth funds, fluctuations in 
energy prices, and multiple financial crises.
    The recent financial crisis, which began in industrialized 
countries, quickly spread to emerging market and developing 
economies.\4\ Most industrialized countries (except for 
Iceland) have been able to finance their own rescue packages, 
but many poor countries have insufficient sources of capital 
and have turned to help from the international financial 
institutions.
---------------------------------------------------------------------------
    \4\ ``The Global Financial Crisis: Analysis and Policy 
Implications,'' Dick K. Nanto, Coordinator, Specialist in Industry and 
Trade, Congressional Research Service, September 18, 2009 (RL34742)
---------------------------------------------------------------------------
    As we emerge from the worst economic crisis since the Great 
Depression, we must ask ourselves if we are content with the 
structure of the international financial institutions. Does the 
world really need the IMF, World Bank, African Development 
Bank, Asian Development Bank, European Bank for Reconstruction 
and Development, and Inter-American Development Bank today? How 
should we design them? Can they be changed to address our 
needs? What could the international financial institutions have 
done better to keep the crisis from occurring in the first 
place? What can they do now to best mitigate the fallout from 
the crisis? Do they achieve their various missions of promoting 
stability, fighting poverty, encouraging growth, and promoting 
democracy?
    Some of these questions are being addressed by the 
international community. In November 2009, G-20 Finance 
Ministers said that ``the International Financial Institutions 
will play an important role in supporting our work to secure 
sustainable growth, stability, job creation, development, and 
poverty reduction. It is therefore critical that we continue to 
increase their relevance, responsiveness, effectiveness, and 
legitimacy.'' \5\
---------------------------------------------------------------------------
    \5\ Communique Meeting of Finance Ministers and Central Bank 
Governors, United Kingdom, November 7, 2009 http://www.g20.org/
Documents/2009_communique_standrews.pdf
---------------------------------------------------------------------------
    The G-20 is examining changes to the allocation of voting 
power at the World Bank Executive Board, which ``primarily 
reflects countries' evolving economic weight and the World 
Bank's development mission.'' \6\
---------------------------------------------------------------------------
    \6\ G-20 Leaders' Statement, The Pittsburgh Summit, September 24-
25, 2009 http://www.g20.org/Documents/
pittsburgh_summit_leaders_statement_250909.pdf
---------------------------------------------------------------------------
    In addition, the G-20 called for a review of World Bank and 
regional development bank capital to ``ensure they have 
sufficient resources'' \7\ to be completed by the first half of 
2010. The G-20 \8\ asked ``the World Bank to play a leading 
role in responding to problems whose nature requires globally 
coordinated action, such as climate change and food security, 
and agreed that the World Bank and the regional development 
banks should have sufficient resources to address these 
challenges and fulfill their mandates.'' \9\
---------------------------------------------------------------------------
    \7\ Communique Meeting of Finance Ministers and Central Bank 
Governors, United Kingdom, November 7, 2009 http://www.g20.org/
Documents/2009_communique_standrews.pdf
    \8\ The G-20 includes: Argentina, Australia, Brazil, Canada, China, 
France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi 
Arabia, South Africa, Republic of Korea, Turkey, the United Kingdom and 
the United States.
    \9\ G-20 Leaders' Statement, The Pittsburgh Summit, September 24-
25, 2009 http://www.g20.org/Documents/
pittsburgh_summit_leaders_statement_250909.pdf
---------------------------------------------------------------------------


                senator lugar's ongoing oversight effort


    At the direction of then-Chairman Richard G. Lugar, the 
Republican staff of the Senate Foreign Relations Committee in 
2003 began a study of the international financial institutions, 
following whistleblower reports of corruption related to the 
development banks. Staff tested the viability of policy 
recommendations through meetings, document reviews, and site 
visits to projects in Africa, Asia, Europe and Central Asia, 
Latin America, and the Middle East. Staff asked if the 
international financial institutions were the tools needed to 
solve the problems of today's world, were the IFIs capable of 
needed changes, and what those changes would be.
    As Chairman of the Senate Foreign Relations Committee, 
Senator Lugar held six hearings in the 108th and 109th Congress 
to probe how the banks could become more effective, 
accountable, and efficient. As Senator Lugar noted, ``We are 
living in an era when threats posed by terrorism, weapons 
proliferation, international communicable diseases, increasing 
competition for energy supplies, and other factors have 
enlightened many of the world's people to the need to ensure 
that poor nations are not left behind. But these same threats 
also place competing demands on national budgets. If 
development projects are transparent, productive, and 
efficiently run, I believe that they will enjoy broad support. 
If they are not, they are likely to fare poorly when placed in 
competition with domestic priorities or more tangible security 
related expenditures.'' \10\
---------------------------------------------------------------------------
    \10\ ``Multilateral Development Banks: Promoting Effectiveness and 
Fighting Corruption,'' Senate Foreign Relations Committee hearing, 
Opening Statement by Senator Lugar, Tuesday, March 28, 2006, http://
lugar.senate.gov/press/record.cfm?id=253172
---------------------------------------------------------------------------
    Numerous reforms were implemented following Senator Lugar's 
advocacy, particularly improvements to MDB anti-corruption 
efforts. These reforms include: creation of a joint MDB 
framework for combating fraud and corruption in their 
activities and operations; movement towards cross-debarment by 
barring companies that violate one development bank's policies 
from contracts with the other development banks; a new anti-
corruption and governance strategy at the World Bank; two new 
codes of conduct at the European Bank for Reconstruction and 
Development, replacing codes adopted in 1991; an amended Public 
Communications Policy at the Asian Development Bank to allow 
the Integrity Division discretion to publicly disclose project 
procurement-related audit reports; a strong and comprehensive 
Whistle-blowing and Complaints Handling Policy approved by the 
African Development Bank in 2007; and a new Code of Ethics and 
ethics training for all staff implemented by the Inter-American 
Development Bank (IADB). However, much more needs to be done.
Hearings
    With the intent of strengthening reforms at the 
multilateral development banks (MDBs), particularly reforms 
related to corruption, Senator Lugar chaired six Senate Foreign 
Relations Committee hearings in the 108th and 109th Congress on 
September 28, 2004, July 21, 2004, May 13, 2004, April 21, 
2005, March 28, 2006, and July 12, 2006. The hearings heard 
testimony by representatives from the Treasury Department, the 
United States Executive Directors to the MDBs, academics, non-
governmental organizations, and members of civil society. These 
hearings contributed to the committee's understanding of both 
the value of the MDBs' work and problems with their operations.
    The hearings before the Foreign Relations Committee 
demonstrated that:


   Significant multilateral development bank funding has been 
        lost to corruption and it is difficult to ascertain 
        such amount precisely, in part because the multilateral 
        development banks have not implemented procedures to 
        calculate such amounts, either in the aggregate or on a 
        country basis;

   The multilateral development banks are taking action to 
        address fraud and corruption but additional measures 
        remain to be carried out;

   The capability of anticorruption mechanisms, including 
        investigations, reporting, and disposition, are not 
        consistent among the multilateral development banks and 
        divergences in anticorruption policies exist that may 
        hinder coordination on fighting corruption;

   Weaknesses in whistleblower and reporting policy and 
        practice exist at the multilateral development banks, 
        to varying degree, that impede antifraud and 
        anticorruption efforts;

   Greater transparency and investigative independence is 
        necessary to provide effective development aid;

   The Secretary of the Treasury encourages anticorruption 
        efforts at the multilateral development banks and 
        reviews loans made by such banks, however, the United 
        States has limited ability to investigate the misuse of 
        funds from such banks; and

   In some cases, the countries bearing the cost of 
        prosecuting corruption related to the multilateral 
        development banks are the countries that can least 
        afford such costs, for example, the Government of 
        Lesotho incurred considerable expense, despite 
        competing priorities, such as those arising from an 
        HIV/AIDS rate of more than 25 percent in that country, 
        to investigate and prosecute fraud and corruption 
        related to a project that received funding from the 
        World Bank and the World Bank did not contribute money 
        towards the prosecution or investigation.\11\
---------------------------------------------------------------------------
    \11\ These points were enumerated in the Findings section of S. 
1129 the Multilateral Development Bank Reform Act of 2005. The full 
text of S. 1129 may be found at: http://frwebgate.access.gpo.gov/cgi-
bin/getdoc.cgi?dbname=109 _cong_bills&docid=f:s1129rs.txt.pdf


    A number of recommendations arose from the testimony of 
---------------------------------------------------------------------------
over 20 witnesses. These include:


   Establish an international auditing body responsible for 
        rooting out corruption and waste at all MDBs

   Reform the ``pressure to lend'' incentive system in the 
        MDBs that emphasizes lending volume, not effectiveness

   Re-examine legal immunity for employees of international 
        organizations

   Develop best practice procurement procedures for use by all 
        the MDBs

   Strengthen whistle-blower protections

   Automatically disclose bank-imposed sanctions of 
        contractors and individuals

   Establish mutual recognition of blacklists across all MDBs
Legislation
    S. 1129. The hearings also formed the basis for the 
Development Bank Reform and Authorization Act of 2005, which 
was approved unanimously by the Senate Foreign Relations 
Committee. The full text of the bill is in Appendix VII. The 
bill was introduced by Senator Lugar and had eleven co-sponsors 
(Senators Alexander, Biden, Clinton, Cochran, Coleman, Hagel, 
Isakson, Martinez, Obama, Stevens, and Thune). Significant 
portions of the bill became law in November 2005 in H.R.3057. 
With passage of this legislation, Congress made a strong 
statement that it recognizes the critical role of the MDBs in 
achieving development goals around the world, but also that the 
operations of these banks must be transparent, efficient, and 
free of corruption. The legislation contained many reforms 
aimed at achieving more transparency and accountability in the 
banks' operations. It requires the Secretary of the Treasury 
and the United States Executive Directors to the MDBs to 
support clear and public anti-corruption procedures that are 
coordinated across all the MDBs. It promotes staff financial 
disclosure procedures, whistleblower protections, and the 
establishment of independent ethics and auditing offices. It 
also encourages transparent budget processes for countries that 
receive budget support from the MDBs and additional disclosure 
requirements for natural resource extraction projects.
    Since the introduction of S. 1129, many of the measures it 
promoted have made progress. For example, the MDBs have now 
developed common definitions of fraud and corruption and are 
working to create consisted debarment policies so that a person 
that is debarred by one multilateral development bank is 
ineligible to conduct business with the other multilateral 
development banks during the specified ineligibility period. 
Many of the MDBs have strengthened their auditing, accounting 
and evaluations processes. They have also made some embraced 
the need for extractive industry project transparency. While 
much more still needs to be done, it is important to recognize 
that positive changes have been made since the 2005 
introduction of the Development Bank Reform and Authorization 
Act was introduced.


    S. 954. The World Bank International Development 
Association Replenishment Act of 2009, which was introduced 
with Senator Kerry and co-sponsored by Senator Kaufman, passed 
out of Committee on July 16, 2009, and directs the Secretary of 
the Treasury to seek to ensure that multilateral development 
banks: (1) implement greenhouse gas accounting in analyzing the 
benefits and costs of individual projects; and (2) expand their 
climate change mitigation activities.


    S. 955.  The African Development Fund Replenishment Act of 
2009, which was introduced with Senator Kerry and co-sponsored 
by Senator Kaufman, passed out of Committee on July 16, 2009, 
and directs the Secretary of the Treasury to: (1) seek to 
ensure that each multilateral development bank discloses to 
member countries the banks' operating budget, including 
expenses for staff, consultants, travel, and facilities; (2) 
require that the U.S. Executive Director of each multilateral 
development bank use U.S. influence to ensure that the bank 
endorses and integrates the principles of the Extractive 
Industry Transparency Initiative; (3) submit related reports to 
Congress.


    Amendments to H.R. 2346 and H.R. 1105. Provisions suggested 
by Senator Lugar that were included in H.R. 2346 require the 
Secretary of the Treasury to ensure that the multilateral 
development banks make timely, public disclosure of their 
operating budgets including expenses for staff, consultants, 
travel, and facilities.
    Senator Lugar offered an amendment to H.R. 2346, which was 
included in H.R. 1105 and co-sponsored by Senators Leahy and 
Kerry, that would require standard public disclosure of 
documents of the IMF presented to the Executive Board of the 
Fund and summaries of the minutes from Board meetings, as 
recommended by the Independent Evaluation Office, not later 
than two years after the document was presented or meeting 
occurred. It also directs the U.S. Executive Director at the 
IMF to promote: 1) transparency and accountability in the 
policymaking and budgetary procedures of governments of members 
of the Fund; 2) the participation of citizens and 
nongovernmental organizations in the economic policy choices of 
those governments; and 3) the adoption by those governments of 
loans, agreements, or other programs of the Fund through a 
parliamentary process or another participatory and transparent 
process, as appropriate.


    S. 2961. The Haiti Recovery Act of 2010, which was 
introduced with Senator Dodd and co-sponsored by Senators 
Durbin and Kerry, urges the Secretary of the Treasury to direct 
the U.S. Executive Director to each international financial 
institution to advocate the cancellation of all remaining debt 
obligations of Haiti and the treatment of any debt service 
payments as well as the use of some of the realized windfall 
profits that exceed the required contribution to the Poverty 
Reduction and Growth Trust (as referenced in the IMF Reforms 
Financial Facilities for Low-Income Countries Public 
Information Notice (PIN) No. 09/94) from the ongoing sale of 
12,965,649 ounces of gold acquired since the second Amendment 
of the Fund's Article of Agreement, to provide debt stock 
relief, debt service relief, loan subsidies, and grants for 
Haiti.
Investigations and Reports
    Site Visits. Between 2005 and 2009, Senate Foreign 
Relations Committee staff observed development bank financed 
projects or met with development bank officials in a range of 
countries including Bangladesh; Cambodia; Chile; China; Ghana; 
India; Indonesia; Lebanon; Lesotho; Paraguay; Peru; the 
Philippines; Rwanda, Senegal; South Africa; Sri Lanka; 
Tanzania; Tunisia; and Yemen.


    SFRC Food Security Report.  In the February 2009 staff 
report entitled ``Global Food Insecurity: Perspectives from the 
Field,'' Senate Foreign Relations Committee staff asserted that 
``the international donor community must come together at the 
country level to better coordinate aid activities, starting 
with agreements on development principles and working with host 
governments to adhere to national development plans.''


    SFRC Extractive Industries Report. In the October 2008 
Senate Foreign Relations Committee report entitled ``The 
Petroleum and Poverty Paradox: Assessing U.S. and International 
Community Efforts to Fight the Resource Curse,'' staff 
recommended that ``international donors who give aid to 
resource-rich countries should focus their efforts on improving 
revenue management and fighting corruption. Relatively small 
amounts of aid money could thus help channel large amounts of 
countries' own funds toward poverty reduction.'' Specific 
recommendations included:


   The World Bank and the IMF, which make regular assessments 
        of countries' performance, should be consistent in the 
        assessment of countries' progress on transparency 
        compared to their own professed benchmarks. They also 
        should ensure that their staffing at key posts reflects 
        commitments made to those governments in technical 
        assistance on improved financial governance.

   The regional development banks should integrate EITI into 
        their operations, now that all of the regional 
        development banks have endorsed EITI principles in 
        their projects. (The IDB was the last to do so.) The 
        regional development banks should condition loans on 
        revenue disclosure and contract transparency.

   Multilateral development banks should condition loans on 
        progress in implementing transparency measures and they 
        should promote transparency before the resource 
        revenues actually start flowing from extractive 
        industries.


    Commissioned GAO Report on the World Bank.  On May 14, 
2008, Senators Lugar, Bayh, and Leahy, citing the importance of 
good stewardship of U.S. taxpayer dollars, called on the 
Government Accountability Office to study whether the World 
Bank has taken adequate steps to combat corruption and 
effectively govern programs designed to fight global poverty. 
In their letter, the Senators stated that ``the use of public 
funds to help improve the lives of the world's poor carries 
with it a responsibility to ensure that the Bank is effectively 
run and its efforts produce tangible results.'' \12\
---------------------------------------------------------------------------
    \12\ The letter is available at http://lugar.senate.gov/sfrc/pdf/
GAO_world_bank.pdf


    The Lugar-Bayh study would examine whether the World Bank 
---------------------------------------------------------------------------
is:


   Establishing clear goals for projects financed by the 
        International Development Association;

   Establishing clear criteria for measuring the success of 
        IDA projects;

   Working effectively to reduce corruption within governments 
        that receive IDA funding; and

   Effectively implementing procedures for procurement of IDA 
        goods and services.


    In March 2009, GAO staff stated that ``we cannot begin this 
work because of challenges we recently faced in gaining access 
to World Bank officials to discuss these types of questions. We 
are continuing to negotiate access with World Bank officials 
but this process is likely to take at least several months.'' 
Senator Lugar's staff continues to press the World Bank and GAO 
to begin this report during the first half of 2010.


                united states benefits from involvement


    The international financial institutions present the United 
States with an opportunity to maintain its influence, address 
national security issues, and provide global leadership in an 
era when the American economy may not be the overwhelming 
source of power it once was. The Treasury Department's recent 
justification for appropriations asserts that ``our funding 
through the MDBs leverages substantial amounts of additional 
money both directly, through co-financing, guarantees, and 
insurance of investment projects, and indirectly, through pro-
investment infrastructure improvements and policy reforms.'' 
\13\
---------------------------------------------------------------------------
    \13\ http://www.treas.gov/offices/international-affairs/intl/
fy2010/budget-FY2010.pdf ``The U.S. and the G-20: Remaking the 
International Economic Architecture,'' Senate Foreign Relations 
Committee hearing, Response from Secretary Geithner to Senator Casey's 
Question for the Record, November 17, 2009.
---------------------------------------------------------------------------
    Each dollar that the United States contributes to the World 
Bank's concessional window (International Development 
Association) yields $11 of grants or low-interest loans to 
developing countries and each dollar contributed to the World 
Bank's regular lending window (International Bank for 
Reconstruction and Development) yields over $26 of lending to 
developing countries.\14\ Our bilateral assistance, through the 
United States Agency for International Development, the State 
Department, and other agencies, allows the United States to 
maintain direct control over its funding. While U.S. funding 
through the international financial institutions forces us to 
relinquish some control, it does allow us to influence how 
collective donors address large scale issues.
---------------------------------------------------------------------------
    \14\ ``The U.S. and the G-20: Remaking the International Economic 
Architecture'' Senate Foreign Relations Committee hearing, Response 
from Secretary Geithner to Senator Casey's Question for the Record, 
November 17, 2009.
---------------------------------------------------------------------------
    As the largest contributor to most of the multilateral 
development banks, the United States has the largest voting 
shares at the World Bank, Inter-American Development Bank, and 
European Bank for Reconstruction and Development. The United 
States ties with Japan as the largest shareholder at the Asian 
Development Bank, while Nigeria and Egypt have subscribed 
larger shares in the African Development Bank.\15\
---------------------------------------------------------------------------
    \15\ ``Multilateral Development Banks: U.S. Contributions FY1998-
2009,'' Jonathan E. Sanford, Specialist in International Trade and 
Finance, Congressional Research Service, January 27, 2009 (RS20792).
---------------------------------------------------------------------------
    Table 1 in Appendix V shows the U.S. contribution share and 
voting share for all MDB programs.\16\ In most banks, countries 
get a few votes because they are members, regardless of the 
size of their capital subscription. Thus, for banks with a 
large number of small members, the voting share of large 
subscribers such as the United States may be a little smaller 
than their share in providing the banks' resources. Voting 
shares are the same for both market-based and concessional 
loans in the AsDB and IDB.
---------------------------------------------------------------------------
    \16\ ``Multilateral Development Banks: U.S. Contributions FY1998-
2009'' Jonathan E. Sanford, Specialist in International Trade and 
Finance, Congressional Research Service, January 27, 2009 (RS20792).
---------------------------------------------------------------------------
    The American people must have confidence that our 
contributions to the international financial institutions will 
be managed effectively, efficiently, and transparently. Given 
our domestic budget and employment situation, it is all the 
more critical that we ensure that our contributions promote 
U.S. interests.


               more money for the development banks? \17\
---------------------------------------------------------------------------


    \17\ ``The U.S. and the G-20: Remaking the International Economic 
Architecture,'' Senate Foreign Relations Committee hearing, Opening 
Statement by Senator Lugar, November 17, 2009.
---------------------------------------------------------------------------
    The international financial institutions, namely the 
IMF,\18\ the World Bank,\19\ the African Development Bank,\20\ 
the European Bank for Reconstruction and Development,\21\ and 
the Inter-American Development Bank\22\ are asking the United 
States and other donor countries for billions of dollars to be 
used for additional capital. The Obama administration has 
already agreed to the Asian Development Bank's proposal to 
request more than $500 million from Congress for a 200 percent 
capital increase. Negotiations continue on the requests from 
the other development banks. From the United States alone, the 
Inter-American Development Bank is seeking $2.4 billion, the 
World Bank is seeking $1.1 billion, the African Development 
Bank is seeking $270 million, and the European Bank for 
Reconstruction and Development Bank is seeking $150 
million.\23\
---------------------------------------------------------------------------
    \18\ ``Straus-Kahn calls for further IMF resource increase,'' 
Reuters, October 2, 2009, http://uk.reuters.com/article/
idUSTRE5912DK20091002
    \19\ http://online.wsj.com/article/BT-CO-20091005-706072.html
    \20\ ``AfDB Will Need a Capital Increase by 2011 to Address the 
Financial Crisis and its Development Mandate, says AfDB President,'' 
African Development Bank Group, December 3, 2009, http://www.afdb.org/
en/news-events/article/afdb-will-need-a-capital-increase-by-2011-to-
address-the-financial-crisis-and-its-development-mandate-says-afdb-
president-4386/
    \21\ Joe Parkinson, ``EBRD to Seek Funding Increase,'' The Wall 
Street Journal, September 30, 2009, http://online.wsj.com/article/
SB125425896193950481.html
    \22\ ``Ninth Capital Increase,'' Inter-American Development Bank, 
http://www.iadb.org/CapitalIncrease/index.cfm
    \23\ Table 8.--Development Bank Management General Capital Increase 
(GCI) Requests as of January 13, 2010.
---------------------------------------------------------------------------
    Secretary Geithner indicated that the Treasury Department 
is ``currently reviewing requests for capital increases at a 
number of the MDBs and will move forward only on commitments 
where we are confident that they represent the best use of U.S. 
taxpayer funds within the context of our overall global 
development goals.\24\ For example, we need to be satisfied 
that each MDB is fully employing its available resources 
efficiently and effectively and that each is committed to 
implementing needed reforms that will focus their missions and 
improve their effectiveness in accordance with the core 
principles . . . including an increased commitment to 
transparency, accountability, and good corporate governance; an 
increased capacity to innovate and achieve demonstrable 
results; and greater attention to the needs of the poorest 
populations.'' Since the fall of 2009, Treasury staff has 
regularly updated staff of the Senate Foreign Relations 
Committee on their review of capital increase requests.
---------------------------------------------------------------------------
    \24\ ``The U.S. and the G-20: Remaking the International Economic 
Architecture," Senate Foreign Relations Committee hearing, Response 
from Secretary Geithner to Senator Lugar's Question for the Record, 
November 17, 2009.`
---------------------------------------------------------------------------
    As the requests for capital are negotiated with the 
international donor community, there is a window of opportunity 
for significant reform. Given the administration's signing 
statement that accompanied last year's supplemental 
appropriations bill, indicating that the administration may not 
pursue legislatively-mandated reforms at the IMF, Congress may 
have an interest in securing the reforms before authorizing 
funds for the capital increases.\25\ Of serious concern is the 
speed at which the international community is moving forward 
with the capital increases--the G-20 expects to finalize 
decisions on the capital commitments this spring.
---------------------------------------------------------------------------
    \25\ Excerpt from President Obama`s signing statement (http://
www.whitehouse.gov/the_press_office/Statement-from-the-President-upon-
signing-HR-2346):--``It [the Act] also expands the resources available 
to the International Monetary Fund (IMF) by allowing it to boost its 
lending ability. Many developing countries are experiencing severe 
economic decline and a massive withdrawal of capital, and the IMF needs 
to make sure it has the resources necessary to effectively respond to 
the current financial crisis. However, provisions of this bill within 
sections 1110 to 1112 of title XI, and sections 1403 and 1404 of title 
XIV, would interfere with my constitutional authority to conduct 
foreign relations by directing the Executive to take certain positions 
in negotiations or discussions with international organizations and 
foreign governments, or by requiring consultation with the Congress 
prior to such negotiations or discussions. I will not treat these 
provisions as limiting my ability to engage in foreign diplomacy or 
negotiations.''
---------------------------------------------------------------------------
    Before committing to providing additional funds to the 
multilateral development banks, the United States and the G-20 
must rethink the role of the international financial 
institutions that provide crisis support and assistance to 
developing countries and emerging markets.
    It also is imperative that our government examine the 
capital increases for each bank as a unique request. Each 
financial institution has distinct management challenges. For 
example, capital increases for the European Bank for 
Reconstruction and Development must be accompanied by much more 
information concerning whether wealthy Russian business 
interests are benefiting from the 41 percent of bank funds that 
flow to that country. Similarly, capital increases for the 
Inter-American Development Bank must address how that Bank is 
reforming its practices after its unrealized loss of $1.9 
billion in 2008 from its liquid portfolio of cash management 
instruments. The World Bank, for its part, has been a leader in 
addressing concerns about corruption and governance. Among 
other steps, it regularly publishes the names of contracting 
companies and individuals that have violated World Bank 
policies.
    The United States and other major donor countries have 
unwisely and unnecessarily linked the timing for general 
capital increase decisions to each individual Bank's annual or 
spring meeting, beginning with the Inter-American Development 
Bank in March 2010, the World Bank in April 2010, and the 
African Development Bank and European Bank for Reconstruction 
and Development in May 2010. This is an artificial deadline. 
The G-20 communique links the general capital increases to: (1) 
a review of capital needs, given the four lending priorities 
articulated in the communique; and (2) key institutional 
reforms. Rather than applying an arbitrary deadline, 
fulfillment of the G-20 criteria should be the guide to timing. 
The development banks must not just commit to a reform agenda--
ideally, those reforms should be underway before donors pledge 
millions, if not billions, in funds.
    Many of the general capital increase requests were 
initiated on an emergency basis at the height of the global 
financial crisis under the direction of the G-20 in early 2009. 
Now private capital flows are returning to many developing 
markets and varying levels of economic recovery are emerging in 
the regions serviced by the MDBs. It is therefore appropriate 
to take a measured and thoughtful approach to General Capital 
Increase (GCI) decisions that can take into account the real 
lending demands and longer-term strategies of the relevant MDBs 
before permanently increasing their operations (Table 9).
    Delay is particularly appropriate in cases where the 
current leadership of a bank is about to end its term and a new 
leader is to be chosen. The U.S. will want to make sure that 
the newly elected leadership is committed to a reform agenda. 
The granting of a new GCI should be a consequence, not a 
precondition, of new bank management accepting and beginning to 
implement the important changes sought by the U.S. and other 
donors. Gaining buy-in at the most senior level of the MDBs is 
essential to ensure that implementation of reforms takes place. 
With no clarity about who will be leading several of these MDBs 
moving forward, a commitment of substantial sums in capital 
immediately prior to elections would be an unnecessary leap of 
faith.


           united states in arrears to the development banks


    Over the years, Congress has not funded the 
administration's requests to fulfill commitments made to the 
multilateral development banks during the course of 
international negotiations through which the United States has 
extracted numerous reforms. The arrears status of the United 
States has already reduced slightly the U.S. shares at the 
African Development Bank, for example, undermining the ability 
of the United States to leverage the development banks for our 
foreign policy interests.
    As noted by Secretary Geithner, the United States has over 
$1 billion in unmet commitments to the multilateral development 
banks. The bulk of the unmet commitments are to the 
concessional windows, which provide grants and subsidized loans 
to the poorest countries.\26\ The large arrears weaken U.S. 
leadership at these institutions, due to significant skepticism 
of the willingness of the United States to deliver on any 
initiatives that require significant funding.
---------------------------------------------------------------------------
    \26\ ``The U.S. and the G-20: Remaking the International Economic 
Architecture,'' Senate Foreign Relations Committee hearing, Response 
from Secretary Geithner to Senator Lugar's Question for the Record, 
November 17, 2009.
---------------------------------------------------------------------------
    In particular, the United States' pledges for debt relief 
through the development banks have not been fully funded by 
Congress. Because the United States has fallen far behind in 
fully funding for World Bank IDA replenishments, the United 
States will not be able to earn sufficient credits to meet 
current international debt relief commitments under the 
Multilateral Debt Relief Initiative (MDRI). Without full 
funding for arrears to the Inter-American Investment 
Corporation (IIC) at the Inter-American Development Bank as 
scheduled, the United States will fail to clear longstanding 
arrears and will permanently lose capital shares in the 
institution.


                  linkage between corruption and debt


    World Bank economists Craig Burnside and David Dollar 
asserted in the American Economic Review that ``in the presence 
of poor policies. . . . aid has no positive effect on growth.'' 
Similarly, the World Bank website identifies corruption as 
``the single greatest obstacle to economic and social 
development.'' Corruption associated with MDB loans not only 
squanders development funds and enriches dishonest officials 
and contractors, it leaves impoverished nations with the burden 
of the resulting debts.\27\
---------------------------------------------------------------------------
    \27\ ``Building on International Debt Relief Initiatives'' Senate 
Foreign Relations Committee hearing, Opening Statement by Senator 
Lugar, Thursday, April 24, 2008, http://lugar.senate.gov/press/
record.cfm?id=296717; ``Multilateral Development Banks: Promoting 
Effectiveness and Fighting Corruption,'' Senate Foreign Relations 
Committee hearing, Opening Statement by Senator Lugar, Tuesday, March 
28, 2006, http://foreign.senate.gov/testimony/2006/Lugar 
Statement060328.pdf
---------------------------------------------------------------------------
    Corruption impedes development efforts in many ways. Bribes 
can influence important bank decisions on projects and 
contractors. Misuse of funds can inflate project costs, deny 
needed assistance to the poor, and cause projects to fail. 
Stolen money may prop up dictatorships and finance human rights 
abuses. Moreover, when developing countries lose development 
bank funds through corruption, the taxpayers in those poor 
countries are still obligated to repay the development banks. 
``When projects intended to boost economic development are 
derailed by corruption, the poorest suffer and are cheated of 
projected benefits in quality health care, clean water, and 
education,'' Senator Lugar said.\28\
---------------------------------------------------------------------------
    \28\ ``Review of the Anti-Corruption Strategies of the Regional 
Development Banks,'' Senate Foreign Relations Committee hearing, 
Opening Statement by Senator Lugar, Thursday, April 21, 2005, http://
foreign.senate.gov/testimony/2005/LugarStatement050421.pdf; 
``Multilateral Development Banks: Promoting Effectiveness and Fighting 
Corruption,'' Senate Foreign Relations Committee hearing, Opening 
Statement by Senator Lugar, Tuesday, March 28, 2006, http://
foreign.senate.gov/testimony/2006/LugarStatement060328.pdf
---------------------------------------------------------------------------
    In 1999, the United States and other industrialized nations 
established the Highly Indebted Poor Countries Initiative in 
response to crippling levels of debt combined with anemic 
economic growth in dozens of developing countries. This was 
followed several years later by the more comprehensive 
Multilateral Debt Relief Initiative. These initiatives allowed 
poor countries with unsustainable debt levels to receive debt 
relief in exchange for adopting economic policy reforms and 
channeling their debt savings to poverty reduction activities. 
However, countries that were managing their debts but had their 
development bank funds siphoned off by corrupt officials did 
not benefit from these rounds of debt relief. These debts 
remain.
    The most important way to combat the need for future debt 
relief is to ensure that development loans are implemented 
effectively and ethically.


                    monitoring and evaluations vary


    Currently, the development banks vary in their evaluations 
processes and findings, and it is important that each project 
and program be evaluated. For example, the World Bank is 
developing outcome and output indicators, the Asian Development 
Bank has created operational effectiveness and efficiency 
indicators and the Inter-American Development Bank is creating 
indicators covering the effectiveness of its priorities. They 
should share project and program effectiveness data throughout 
their banks and the other banks.
    Moreover, the findings from those evaluations must be 
incorporated in future programming. To paraphrase Professor 
David Levine of the University of California at Berkeley--
project evaluations have a cost but it is much costlier to fund 
ineffective projects over and over again.
    The development banks rarely develop baseline data so that 
they can demonstrate the impact of their projects and programs. 
In contrast, the United States' Millennium Challenge Account 
has procured baseline data for some of its projects. Where 
appropriate, the development banks should establish baseline 
data and share that data with other donors to avoid unnecessary 
overlap.
    The IMF's Independent Evaluation Office (IEO) has been 
heralded not only for its autonomous findings but because its 
recommendations are often included in the development of new 
IMF programs. The IEO was formed after most of the evaluation 
offices of the other international financial institutions, and 
some argue that its later development has been an advantage.
    The African Development Bank is taking steps to evaluate 
all projects--currently less than one-quarter of projects were 
evaluated according to interviews held in May 2009. AfDB staff 
has determined that the success of development programs is most 
highly correlated with (1) the commitment of the borrowing 
country to fully implement the program; and (2) the quality of 
the project design. AfDB staff noted that if a project is 
designed poorly, it cannot be fixed during implementation and 
that it was imperative to get it right at the beginning. The 
AfDB is committing to posting its project ratings. Officials 
talked about the need for ``virtuous circles'' to be developed 
so that evaluations lead to accountability which leads to 
better projects which are then evaluated.


                    need more focus on transparency


    Most pressing international issues are spearheaded by 
specific offices in specific agencies. However, the 
responsibility for promoting transparency is not delegated to a 
particular part of the U.S. government. Some argue that all 
parts of our government are responsible for transparency but 
without a clear office responsible for promoting transparency 
with international organizations and development financing, 
these issues do not receive the consistent attention that they 
deserve. The creation of an Ambassador at Large for Global 
Transparency would allow for the full vetting of transparency 
issues and press for consistent transparency measures at the 
international financial institutions and other international 
organizations with which the United States works.
    Across the board, the international financial institutions 
have a tradition of secrecy and opacity that may be typical of 
certain private sector financial institutions and politically 
sensitive international organizations. It is not, however, 
appropriate for public sector institutions that are funded by 
the taxpayers of democratic countries and that make decisions 
affecting the lives of millions in the developing world. Steps 
toward greater transparency that have been undertaken by the 
development banks in recent years make for better 
accountability, greater effectiveness, and ultimately stronger 
public support. But much more needs to be done.
    The World Bank instituted a new information disclosure 
policy which significantly improves the ability of the 
institution to disclose information to the public. 
Nevertheless, it does not allow World Bank Board Executive 
Directors to release their statements on projects and policies. 
Disclosure of U.S. Executive Director votes and statements at 
the development banks would help enable Americans to understand 
what policies the United States is promoting at the development 
banks. Should a development bank preclude an Executive Director 
from releasing his or her statements, a summary of the U.S. 
position on the policy or project should be revealed.
    During the Bush administration, the Treasury Department did 
begin posting on its website how the U.S. executive directors 
voted on a project or policy. However, on the current version 
of the website it is difficult to locate the voting records.
    In 2004, Senator Lugar sent then-President Kabbaj a letter 
about the AfDB's website. Staff discussed the need for an 
improved AfDB website with multiple AfDB officials. It is 
important for the public to know what projects the AfDB is 
funding in each country. All officials agreed but stated that 
the AfDB did not have the staff or the capacity to produce such 
a website soon. They noted that the World Bank's communications 
staff was substantially larger than the AfDB's communications 
staff.


                     coordination could be improved


    As the Report of the External View Committee on Bank-Fund 
Collaboration asserts, ``close collaboration is vital because, 
while the Bank and the Fund have separate mandates, they are 
inherently linked. For instance, macroeconomic stability (a 
major Fund concern) will not be sustained unless linked to 
supply side measures and improved quality of public spending (a 
major Bank concern). Similarly, global monetary stability (a 
Fund concern) will have a direct bearing on overall development 
prospects (a Bank concern).'' \29\
---------------------------------------------------------------------------
    \29\ Pedro Malan, et al. ``Report of the External View Committee on 
Bank-Fund Collaboration,'' February 2007 https://www.imf.org/external/
np/pp/eng/2007/022307.pdf
---------------------------------------------------------------------------
    While the development banks have recently agreed on a 
shared definition of fraud and corruption and are considering 
cross-debarment, they do not share a policy on investigation. 
When development banks provide budget support loans to 
countries, they should work with the IMF and obtain an 
assessment letter to ensure that the economic policy conditions 
are appropriate for such a loan. In Argentina and Botswana, the 
Inter-American Development Bank and African Development Bank 
respectively did not obtain IMF letters prior to lending 
significant loans to those governments' budgets.
    Similarly, the IMF should utilize development bank tools 
such as conflict filters when lending to post-conflict 
countries. In Sri Lanka, the IMF provided a large loan without 
utilizing the conflict filter that had been developed by the 
World Bank for that country.


                    questions around budget support


    Following the global financial crisis, international 
financial institutions have been increasing their provision of 
budget support or loans that go directly to the government's 
budget and are not targeted to a specific project. In May 2009, 
the IMF announced a new flexible credit line, to lend directly 
to a government's budget rather than solely to a country's 
central bank, the normal recipient of IMF loans.\30\
---------------------------------------------------------------------------
    \30\ ``IMF implements major lending policy improvements,'' 
International Monetary Fund, March 24, 2009, http://www.imf.org/
external/np/pdr/fac/2009/032409.htm
---------------------------------------------------------------------------
    Some are concerned that the international financial 
institutions are lending large amounts as budget support 
without a corresponding budget management and fiscal 
transparency framework to ensure that the funds are not 
misused. For example, the AfDB has issued sizeable loans that 
do not appear to be fully coordinated with the other 
international financial institutions such as the IMF. Usually, 
it is the IMF that provides short and medium-term support while 
the development banks, such as the AfDB, provide long-term 
support.
    In June 2009 the AfDB approved a large $1.5 billion loan 
for Botswana, an amount more than 13 percent of the country's 
GDP. The AfDB website noted that Botswana is ``one of the best 
managed economies in Africa.'' The AfDB's press release noted 
the following:


          The loan falls within the framework of the recently approved 
        strategy by the Bank to provide support to member countries 
        affected by the financial crisis and is the largest such 
        facility ever granted by the Bank. The Budget Support Loan is 
        designed to fill part of the gap in the government's 2009/2010 
        budget deficit currently estimated at 13.5 percent of GDP 
        caused by falling commodity prices, particularly diamonds.

          ``The case of Botswana illustrates the impact that the 
        financial crisis is having on even the best managed economies 
        in Africa. I am delighted that the Bank has been able to 
        respond quickly and flexibly in this `unique case' within the 
        Bank's framework of response to the financial crisis,'' said 
        Donald Kaberuka, the President of the Bank.

          The crisis which is affecting African countries through 
        different channels is increasing demands for support from the 
        international financial institutions including the Bank.

          This is the first such borrowing from the Bank by Botswana in 
        17 years. Previously Botswana had in fact several times 
        contributed to the replenishment of the African Development 
        Fund (AfDF), the soft window of the Bank Group. \31\
---------------------------------------------------------------------------
    \31\ ``AfDB Approves US$ 1.5 Billion Budget Support for Botswana to 
Help Country Cope with the Financial Crisis,'' African Development Bank 
Group, February 6, 2009, http://www.afdb.org/en/news-events/article/
afdb-approves-us-1-5-billion-budget-support-for-botswana-to-help-
country-cope-with-the-financial-crisis-4724/
---------------------------------------------------------------------------

                     FOCUS ON LOW-INCOME COUNTRIES

    The international financial institutions vary in their 
focus on serving the poorest countries and the poorest 
communities in middle income countries. The World Bank has a 
formal system to transfer profits from loans to middle-income 
countries made by the International Bank for Reconstruction and 
Development into a grant and subsidized lending window for low-
income countries through the International Development 
Association. Going forward, it will be important for the 
African Development Bank and the Inter-American Development 
Bank to increase transfers to their respective grant and 
subsidized lending windows.
    The IMF has made significant efforts to address the needs 
of low income countries through debt relief and to increase its 
subsidization of low-income country borrowing. In July 2009, 
the IMF Executive Board agreed to lower concessional interest 
rates to zero for at least the next two years. One tool that 
the IMF does not employ is to provide direct grants. While some 
would argue that IMF is not well suited to provide grant 
financing, it is something that should be considered when 
lending to countries with a history of debt relief and dire 
economic conditions. For example, when the IMF provided Haiti 
with a $114 million emergency loan in January 2010, Managing 
Director Dominique Strauss-Kahn stated that ``if we succeed--
and I'm sure we will succeed--even this loan will turn out to 
be finally a grant, because all the debt will have been 
deleted. And that's the very important thing for Haiti now.'' 
It would appear that, in these cases, offering grants would be 
more efficient and provide more policy clarity.
    The IMF has been selling gold to fund its new income model 
to pay for staff salaries and ongoing operations as well as to 
subsidize borrowing for low-income countries. It appears that 
the earnings on the sale of gold are significantly higher than 
initially expected. The IMF has not determined how to use these 
excess proceeds. Given the demand by low-income countries, it 
would be helpful if the excess proceeds were directed to a fund 
for those low-income countries to be used for grants, 
subsidization of loans, and technical assistance.

            ABILITY TO DO INDEPENDENT INVESTIGATIONS UNEVEN

    Each development bank has an independent investigation 
mechanism to ``address the concerns of the people who may be 
affected by Bank projects and to ensure that the Bank adheres 
to its operational policies and procedures during design, 
preparation and implementation phases of projects.'' \32\ The 
level of independence enjoyed by each mechanism varies, as does 
the quality of their investigations. The IDB recently approved 
a new independent investigation policy, following assertions 
that its mechanism was cumbersome and ineffective. Going 
forward, it will be in line with the World Bank, AsDB and AfDB 
in its level of independence.
---------------------------------------------------------------------------
    \32\ http://web.worldbank.org/WBSITE/EXTERNAL/EXTINSPECTIONPANEL/
0,,menuPK:6412 
9249pagePK:64132081piPK:64132052theSitePK:380794,00.html
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                              Case Studies


            CHILE AND THE INTER-AMERICAN DEVELOPMENT BANK: 
                     LESSONS FROM THE TRANSANTIAGO

    In February 2006, Santiago, Chile, replaced its previous 
transportation network of competing, privately-owned buses with 
what was proclaimed as a new state-of-the-art public 
transportation system, Transantiago. The purpose of the costly 
project was to shorten passenger waiting and travel time and 
reduce levels of vehicle emissions. Instead, the public heavily 
criticized Transantiago for increasing congestion and commuting 
delays for Santiago's population of six million people, 
although these problems have been diminishing consistently as 
operational performance has improved.
    Regulated by the Ministry of Transportation, the new public 
transit system has also been plagued by financing problems. As 
of August 2009, its total deficit reached $1.42 billion, with a 
monthly average of $49 million. The Chilean Congress refused to 
include the Bachelet administration's request for a subsidy to 
Transantiago in the 2008 Budget Law due to the system's 
implementation problems. This denial of funding led the 
administration to seek two loans in 2008: $400 million from the 
Inter-American Development Bank (IDB) and $10 million from the 
state-owned Banco Estado.
    The IDB loan became the subject of contentious debate in 
Chile because the funding was requested by the Chilean 
government to support the system, which is privately operated 
and financially managed by the Transantiago Financial 
Administrator (AFT). For the IDB, it was unusual to provide a 
private sector loan with a negative cash flow; Transantiago had 
already been operating on a deficit for over a year. The 
purpose of the loan was to ensure the system's operations while 
a new sustainable financial framework was implemented, 
including a permanent subsidy established by law.
    A group of legislators challenged the decrees authorizing 
the IDB loan before Chile's Constitutional Court, claiming that 
the administration did not have the authority to request and 
guarantee a loan between the IDB and the AFT without 
appropriate legislation. In September 2008, the Court declared 
the decrees authorizing the IDB loan unconstitutional. As Chile 
entered a period of technical default on the IDB loan, the 
administration attempted to negotiate a solution to 
Transantiago's funding, as well as the outstanding IDB debt, 
with the Chilean Congress. In August 2009, the Congress 
approved repayment of the IDB loan as well as a subsidy for 
public transport throughout Chile, which would also cover 
Transantiago's operating deficit.
    In many countries, IFI loans require legislative approval 
or ratification. Though each country will develop the 
appropriate procedure to include broad input, this case study 
exemplifies what can happen without meaningful consultation 
between the IFIs and the legislative branches of government. In 
a March 2009 report on the IDB loan, an Investigative 
Commission established by the Chilean House of Representatives 
not only criticized the Chilean executive branch for bypassing 
the legislature, but also judged the performance of the IDB to 
be ``careless and irresponsible'' in granting a loan that 
violated Chile's constitution. \33\ While IDB officials 
defended the decision by detailing the feasibility and 
environmental impact studies that preceded the granting of the 
loan, it is clear that opposition to the project should have 
been recognized.
---------------------------------------------------------------------------
    \33\ Comision Investigadora respecto al Credito BID-Transantiago, 
p. 86.  http: //www. camara. cl/pdf. aspx? prmID = 95&prmTIPO = 
INVESTIGAFIN http://www.camara. cl/pdf.aspx? prm ID=95 & prm TIPO= 
INVESTIGAFIN
---------------------------------------------------------------------------

                INDIA AND THE WORLD BANK: THE DETAILED 
                  IMPLEMENTATION REVIEW (DIR) FALLOUT

    After a 2005 World Bank investigation revealed systematic 
fraud and corruption in the Indian health sector, the World 
Bank and the Government of India agreed to conduct a Detailed 
Implementation Review (DIR). A DIR is not a traditional audit 
of specific allegations; the DIR raises ``red flags'' on how 
fraud and corruption could affect the outcome and the 
effectiveness of the project. Disconcertingly, the DIR strained 
relationships between the World Bank and the Government of 
India (GOI)--not only due to the findings of the report, but 
also because of the nature in which the report was conducted 
and released.
    The GOI was disappointed with several aspects of the 
report. The DIR was released publicly at the same time the 
Minister of Finance was given a copy to review. Prior to public 
release, the GoI was given no opportunity to respond. The GOI 
felt that the DIR did not seek participation of program 
divisions within the Ministry of Health & Family Welfare while 
finalizing the report, which ``resulted in an avoidable lop-
sidedness and occasional erroneous interpretation of data.'' 
\34\ The GOI also contended that fraud and corruption were 
terms too broadly used, for example, to inaccurately describe 
certain instances of inadequate supervision or maintenance.
---------------------------------------------------------------------------
    \34\ http://siteresources.worldbank.org/NEWS/Resources/goi_resp.pdf
---------------------------------------------------------------------------
    The report, though, included many legitimate concerns 
regarding fraud, corruption and the effectiveness of programs 
that the GOI and the World Bank have subsequently sought to 
address through a joint action plan. The World Bank 
acknowledged feedback from the GOI regarding concerns about the 
DIR process and has made revisions to internal policies. The 
World Bank plans to address detailed comments from the GOI 
during the implementation of the joint action plan to ensure 
that future reports are reviewed by host countries prior to 
being released publicly and that names of people or companies 
are not published until indicators of fraud and corruption are 
confirmed.
    This case study reveals the challenges that IFIs face in 
terms of how they interact with national governments. When 
conducting reviews and audits of development projects within a 
certain country, many times these institutions must 
simultaneously cooperate and preserve a good relationship with 
the government while maintaining an independent and responsible 
evaluation. To protect this balance, IFIs must develop a 
framework in which to conduct reviews like the DIR. As 
evidenced by this case study, the lack of a framework can lead 
to a deteriorating relationship with the national government 
and the potential for a less successful review and subsequent 
implementation of necessary reforms.

              THE INTERNATIONAL MONETARY FUND IN INDONESIA

    International Monetary Fund-Indonesia relations had a 
difficult beginning in the 1950s and 1960s. While the IMF 
offered assistance to Indonesia under President Sukarno, he 
rejected the offer as contrary to communism.\35\ In 1963, the 
government devalued the Rupiah in an effort to gain IMF support 
for its overdue foreign debt payments.\36\ IMF, World Bank and 
American loans soon followed.\37\ However, Britain established 
the Malaysian Federation the same year, which Sukarno strongly 
opposed and countered by nationalizing British firms in 
Indonesia. Consequently IMF loans in Indonesia were cancelled, 
ending cooperation.\38\ In 1965, Sukarno formally severed 
relations with the IMF and the World Bank, choosing to instead 
ally with communist Asian countries.\39\
---------------------------------------------------------------------------
    \35\ Indonesia: A Global Studies Handbook, Florence Lamoreux, 
(Santa Barbara: ABC-CLIO) 2003, p. 62
    \36\ Ibi.d
    \37\ ``Indonesia: History of a Bankruptcy Orchestrated by IMF and 
the World Bank,'' Eric Toussaint and Damien Millet, Committee for the 
Abolition of Third World Debt, July 10, 2005.
    \38\ Ibid.
    \39\ Indonesia: A Global Studies Handbook, Lamoreux, pp. 63-64.
---------------------------------------------------------------------------
    In 1966 after the 1965 military coup, new Indonesian 
President Suharto requested the IMF to return to Indonesia. In 
1967, Indonesia formally joined the IMF.\40\ Suharto 
implemented IMF recommended policies including budget deficit 
reduction and movement towards an export economy.\41\ The 1960s 
were characterized by ``a very close relationship.between the 
staff of the Bank and the Fund and their interlocutors in the 
Indonesia government--a group of young U.S.-trained economists 
. . . who were brought into government by General Suharto.'' 
\42\
---------------------------------------------------------------------------
    \40\ The International Monetary Fund Under Constraint: Legitimacy 
of its Crisis Management, Eva Riesenhuber, The Hague: Kluwer Law 
International, 2001, p. 140.
    \41\ The Globalizers: The IMF, the World Bank and Their Borrowers, 
Ngaire Woods, (New York: Cornell University Press, 2006), p. 75.
    \42\ Ibid.
---------------------------------------------------------------------------
    While scholars concluded that ``The relationship between 
Indonesia's `New Order' government and the IMF over the last 30 
years was excellent,'' serious strains appeared during the 
IMF's management of the 1997-1999 Asian Financial Crisis.\43\ 
(Prior to the crisis, both the IMF and the World Bank had 
issued reports that were positive about the Indonesian 
economy.) \44\
---------------------------------------------------------------------------
    \43\ The International Monetary Fund Under Constraint: Legitimacy 
of its Crisis Management, Riesenhuber, p. 141.
    \44\ Ibid.
---------------------------------------------------------------------------
    Although controversial and considered by some to be 
incessantly meddling, the IMF package, in the short-term, had 
successful results. The rupiah strengthened and market 
confidence returned.\45\ From late 1997 into January 1998, the 
economy took a turn for the worse and political events began to 
move quickly. Facing economic chaos, President Suharto relented 
to IMF pressure and moved to cut government spending by 
postponing several subsidized projects. A new IMF-Indonesia 
program was announced to restore confidence in the rupiah 
through tight monetary policy and structural reforms such as 
eliminating monopolies and state subsidies. The photograph from 
the signing ceremony of this agreement, with IMF Managing 
Director Michel Camdessus standing over President Suharto, 
became an infamous and inflammatory symbol of Indonesia's 
subjugation to the West. Ongoing turmoil led to President 
Suharto's resignation.
---------------------------------------------------------------------------
    \45\ IMF-Supported Programs in Indonesia, Korea and Thailand: A 
Preliminary Assessment, Timothy Lane, Atish Ghosh, Javier Hamann, 
Steven Phillips, Marianne Schulze-Ghattas and Tsidi Tsikata, 
(Washington, D.C., IMF. 1999).
---------------------------------------------------------------------------
    Indonesia has largely graduated from the IMF program. The 
beginning of the post-crisis era was marked by lingering and 
considerable resentment of the IMF in Indonesia and a desire to 
move the country away from IMF advice by quickly repaying 
debts. In 2003, the Indonesian government, ``under pressure 
from its legislators, declared that it wanted to break free of 
its commitments to the IMF,'' and Chief Economics Minister 
Dorodjatun Kuntjoro-Jakti said that ``the government did not 
wish to extend the existing $4.8 billion loan package with the 
Fund.''\46\ By October 2006, Indonesia had announced its 
intention to pay all of its outstanding $3.2 billion IMF debts 
early.
---------------------------------------------------------------------------
    \46\ Indonesia's Battle of Will with the IMF.'' Smitha Francis, 
International Development Economics Associates, February 25, 2003.
---------------------------------------------------------------------------
    There has been significant criticism of IMF policy in 
Indonesia from a range of economists including Jeffrey Sachs, 
Martin Feldstein and Robert Rubin. In the ultimate analysis, 
Indonesia was the country hardest hit by the 1997-1999 Asian 
Financial Crisis. Its GDP fell by 13 percent in 1998, compared 
to 11 percent in Thailand, 7 percent in the Republic of Korea 
and Malaysia and 1 percent in the Philippines. These losses 
were worse on a per capita basis: Indonesia's per capita GDP 
fell by 34 percent over 1997-1999, Thailand's by 13 percent and 
the rest of the region in single digits.\47\
---------------------------------------------------------------------------
    \47\ ``Economic Recovery and Reform'' John Bresnan, in John 
Bresnan, ed., ``Indonesia: The Great Transition,'' Lanham, MD, Rowman & 
Littlefield Publishers, Inc., 2005, p. 191.
---------------------------------------------------------------------------
    The IMF-Indonesia recently reported to the Senate Foreign 
Relations Committee that ``since there has not been a formal 
IMF-supported program for several years, IMF policy advice and 
recommendations for Indonesia are formulated in the context of 
bilateral surveillance. In this context, IMF economists visit 
member countries regularly to discuss with the authorities the 
risks to domestic and external stability that may argue for 
adjustments in economic or financial policies. During their 
mission, the IMF staff often meet with stakeholders 
(parliamentarians and representatives of business, labor unions 
and civil society) to help evaluate the country's economic 
policies and direction. Upon its return to headquarters, the 
mission submits a report to the IMF's Executive Board for 
discussion. The comments and recommendations of the Board are 
communicated to the authorities and form the basis for follow 
up discussions.''
    Based on this statement from the IMF, it appears officials 
of the institution discuss economic policy with Indonesian 
officials and provide nonbinding recommendations, a very 
different role from its active and interventionist 
participation of the past with Indonesia. The IMF and its 
activities in Indonesia have evolved with the emergence of 
democracy and the ongoing battle for strengthened institutions 
intended to support a growing economy.

                      DEVELOPMENT BANKS IN KENYA: 
                 MONITORING AND PROCUREMENT CHALLENGES

    The first loan by the World Bank to Kenya was in 1960 for 
an agriculture project. Since then there have been close to one 
hundred credits and grants by the International Development 
Association (IDA) with a total net commitment of about US$ 4.5 
billion. The assistance provided over the years has been 
interrupted at regular intervals due to financial scandal, 
gross corruption, and political and social instability. 
Invariably, progress is halting and gains are easily reversed. 
The Bank has determined that the 2008-2009 political 
instability and additional concurrent economic and 
environmental crises have increased the poverty headcount by 22 
percent and severe poverty has increased by 38 percent, thus 
reversing the gains made over the past five years.
    The Bank's own reviews over the years have offered 
blistering assessments of the effectiveness of its loans and 
monitoring as well as that of Kenya's own partnership in 
achieving program goals. According to the World Bank Country 
Assistance Evaluation for Kenya of November 20, 2000, ``Kenya 
qualified for nearly $3 billion in assistance from 1980 to 1996 
but was unable to meet conditionality in implementation and 
reforms, . . . and that OED overall satisfactory outcome ratio 
of 57 percent for Kenya was lower than that for the Africa 
region (63 percent) and Bank-wide (75 percent). Sustainability 
was likely in 21 percent, and institutional development was 
substantial in only 6 percent of commitments.''
    In an effort to explain some of the deficiencies in the 
Kenya program, auditors said that ``some of the factors 
adversely affecting outcomes at the sectoral level were 
deficient Bank monitoring and evaluation systems, inadequate 
ministerial financial systems, reluctance of the Government to 
consult widely with the potential target communities, and 
difficulties in observing IDA guidelines on procurement.'' 
Further, ``high Bank managerial turnover, particularly for 
human resource development projects, and barely acceptable 
quality at entry of two infrastructure projects approved in 
FY96 were also noteworthy.'' The review identified the 
necessity for greater emphasis on governance, income 
distribution, and gender opportunities while elevating the 
Bank's own comparative advantage to other donors. The role of 
the resident representative was also deemed as too limited, a 
concern some Kenyan officials reject and claim far too 
political an involvement This self-critical evaluation by the 
Bank placed part of the blame for the failure upon its own 
institutional shortcomings.
    Kenya opened its portfolio with the African Development 
Bank Group in 1964. An AfDB official indicated that poverty 
reduction was the chief priority for the organization. 
According to this official, the bulk of current AfDB loans, 
approximately 75 percent, are dedicated to infrastructure 
projects, especially highways, international transport routes, 
and energy infrastructure. The AfDB also provides resources for 
agriculture and social sector investments. A limited amount of 
some five percent is dedicated to institutional support such as 
public finance management. Approximately 95 percent of loans 
are concessional, 40 year loans. The total portfolio currently 
allocated for Kenya is $600 million.
    The African Development Bank is considered the lender of 
last resort by some observers in Kenya. Its reputation is that 
of a lender with more lenient rules for its financing 
arrangements. According to the Bank Information Center, the 
AfDB group operates with a degree of opacity that has raised 
the concern of observers in civil society. Staff also heard 
from donors that the AfDB, although an important donor in Kenya 
and the region, is the least constrained in its programming 
with the Kenyan government. Officials at the Kenyan Ministry of 
Finance lauded the AfDB as having an advantage in dealing with 
the government given its regional knowledge and ease of 
cooperation. AfDB officials indicate that their Bank is closer 
to the ground and its funding is ``more flexible and 
consistent, so its predictability provides incentives as each 
three-year commitment is made clear at least a year ahead of 
time.''
    Although it brings considerable resources to Kenya, its 
staffing size naturally limits the degree to which it is able 
to conduct regular monitoring and oversight. The World Bank is 
much bigger and brings considerable technical assistance and 
knowledge to its headquarters in Nairobi, while the AfDB has a 
much smaller footprint. Nonetheless, the AfDB indicated that 
the organization's Country Policy and Institutional Assessment 
(CPIA), is done annuallyand informs a final measure of 
eligibility for funding.
    An area in which the AfDB seeks to mitigate risk is also an 
area of significant fraud and misappropriation in Kenya--the 
procurement agencies. AfDB's insistence on the use of its 
procurement process may well relieve considerable risk from the 
Kenyan equation. Nonetheless, the Mars Group indicated that 
significant inconsistencies existed in the procurement of 
materials and services surrounding the transport sector in 
which the AfDB was engaged. There is also the AfDB requirement 
that Kenya must perform audits on its programs even as the Bank 
does them itself based on internally selected risk factors. 
Finally, AfDB officials indicated that their resources were 
provided and listed in the government budget but were ring-
fenced until the project task manager clears their 
disbursement.
    As it is, the AfDB official in Nairobi claimed that there 
were few if any problems with any of their projects--``there 
have been no major corruption events.'' This seemed remarkable 
given the extent of confirmed corruption throughout the 
government and especially across donor project finance.

                  LEBANON: MANIPULATION OF CRISES\48\
---------------------------------------------------------------------------

    \48\ Excerpted from ``Following the Money in Yemen and Lebanon: 
Maximizing the Effectiveness of U.S. Security Assistance and 
International Financial Institution Lending,'' January 2010, Senate 
Foreign Relations Committee http://foreign.senate.gov/imo/media/doc/
54245.pdf
---------------------------------------------------------------------------
    Lebanon is still recovering from the 2006 war between 
Israel and Hezbollah, which left much of southern Lebanon and 
other parts of the country in ruins. The 2007 fighting between 
Lebanese Armed Forces and Fatah al-Islam at the Nahr al-Barid 
Palestinian refugee camp led to further casualties and damage. 
According to the State Department, over $3.7 billion in 
civilian infrastructure was destroyed in both conflicts and 
thousands were displaced.
    In 2009, a lengthy period of negotiations to form a 
national unity government followed the June 7th elections and 
resulted in five months of inertia, as the caretaker government 
was not empowered to make any significant decisions, including 
on security assistance and international financial institution 
lending. Further complicating matters, the Parliament has not 
passed a budget for the past five years. Official guidance 
allows Ministries to spend 1/12 of the previous year's 
expenditures each month, but a widening deficit suggests that 
more is being spent. Moreover, the substantial off-budget aid 
that the Government of Lebanon (GOL) is believed to receive is 
not accounted for, contributing to a general lack of fiscal 
accountability.
    The problem of official corruption was a recurring theme 
during a recent staff visit, with several interlocutors 
pointing to an overall lack of transparency, fueled by a lack 
of accountability in the official budget process, as well as 
off-budget revenues and expenditures. Many observers also 
perceive an unhealthy influence of the country's confessional 
political system on the apportionment of state resources. 
Speaking to the specific problems of corruption in the 
management of international donor assistance, one official 
charged that, ``The entire system is corrupt and inefficient.'' 
He attributed some of the problems to a ``shopping list 
approach'' to foreign aid, and the absence of national 
priorities or a commitment to exploiting synergies.
    Another interlocutor with whom staff met opined that, in 
the face of a succession of crises, the GOL has become a master 
at manipulating international donors, relying on hand-outs 
rather than taking on much-needed structural reforms. ``The 
whole international community has been blackmailed for ages. We 
don't need more money. We need to change the rules of the game. 
We need to change the structure. We need to break our 
dependence on foreign aid.''
    Without minimizing the seriousness of the crises that 
Lebanon has confronted in recent years, IFIs should guard 
against missing opportunities for change that crises present. 
While crises can be used as an excuse for inaction, they can 
also be catalysts for addressing difficult issues. Against the 
backdrop of Lebanon's recent political and economic 
difficulties, the IFIs should press for reforms that address 
Lebanon's current economic development challenges and help 
prevent future crises. In addition, as in any post-conflict or 
current conflict country, the IFIs should utilize a conflict 
screen to ensure that their financing will not exacerbate the 
conflict or underlying hostilities.

              LESOTHO: DEMONSTRATING THE NEED TO SUPPORT 
                    INVESTIGATIONS AND PROSECUTIONS

    Many in Lesotho felt that the World Bank gave an inadequate 
response to corruption related to the Lesotho Highlands Water 
project (LHWP), to which the World Bank provided more than $150 
million. In 2004, the World Bank debarred one company, Acres 
International, for three years as well as one individual. Two 
years later the World Bank debarred Lahmeyer International, for 
up to seven years, after the Senate Foreign Relations Committee 
invited Guido Penzhorn to testify about his conviction of 
companies and individuals for bribing the head of LHWP.
    Several members of civil society and government officials 
were dissatisfied with the length of the Acres International 
debarment. They were concerned that the World Bank mitigated 
the debarment because ``Acres had already been ordered to pay a 
criminal fine by the Lesotho courts and that the relevant 
persons involved in Acres' work on the LHWP are no longer in 
positions of responsibility in the company.'' They noted that 
Acres was the only convicted company that had not yet paid its 
complete fine.
    While the World Bank allowed the companies convicted of 
bribery to attend their Sanctions Committee hearing, they did 
not allow the government of Lesotho to send a representative or 
prosecutor to attend the hearing and summarize the volumes of 
evidence that were presented at trial according to the Chief 
Justice of Lesotho, the Attorney General of Lesotho, and the 
chief prosecutor in the LHWP bribery cases.
    Lesotho spent a significant amount of money to prosecute a 
number of companies for bribery related to the LHWP. However, 
despite an earlier assertion by World Bank staff that the World 
Bank could contribute to the cost of prosecution because the 
``bank has deep pockets,'' the World Bank did not provide any 
funding to assist the government in addressing the bribery 
allegations. The World Bank did not provide funding because it 
did not have a mechanism to loan or grant money to pay for a 
prosecution, according to World Bank staff.
    The U.S. Embassy was praised by the Chief Justice of 
Lesotho for its assistance during the period of the trials for 
providing funding for internet access and Lexis-Nexis (a web-
based legal research tool) so that the judiciary could access 
the most recent and relevant legal research. This information 
tool was not biased towards or against a conviction, it simply 
allowed the government of Lesotho access to important 
international legal information.
    When visiting the Katse Dam in Lesotho in August 2004, 
Committee staff met with a number of villagers that were not 
satisfied with the compensation they received for the impact of 
the dam on their livelihood. Compensation packages are 
determined by the implementing agency in a country and are 
designed to meet World Bank safeguard policies. In addition to 
involuntary resettlement safeguard policies, the World Bank 
applies safeguards policies regarding indigenous peoples, 
cultural property, dam safety, pest management, environment, 
forests, natural habitat, waterways and disputed areas to 
project lending. However, policy-based lending (also called 
budget support or adjustment lending), does not incur 
safeguards.
    If an affected person is not satisfied with the 
compensation package they are assigned, they must appeal to the 
implementing agency. If the implementing agency does not act, 
the affected people do not have recourse through the project. 
An instrument for recourse is not a requirement of the World 
Bank safeguards. The implementing agency suggested that 
affected people can appeal to the Ombudsman. The Office of the 
Ombudsman did not receive funds or additional staffing through 
the LHWP project. The Ombudsman said that a project tribunal to 
hear the complaints of affected people would have been helpful.
    Near the Katse Dam, Committee staff visited a number of 
villages that were impacted by the Lesotho Highlands Water 
project. The agreement between Lesotho and South Africa 
stipulates that no person be made worse off by the Lesotho 
Highlands Water Project. Nevertheless, there are a number of 
impacts on the villagers that are difficult to address. 
Reportedly, the HIV/AIDS rate in the project area is higher 
than the 29 percent HIV/AIDS rate in the rest of Lesotho 
because the disease was transmitted by dam construction workers 
to the villagers.
    The dam created a barrier that hampers access of villages 
like Mapeleng to Katse town where there are medical, social and 
economic resources. Affected villagers said that they must now 
either pay to cross the dam, pay for a taxi or walk for many 
hours to reach Katse. Villagers expressed concern about a 
Lesotho Highlands Development Authority-imposed licensing fee 
for people who want to fish on the Katse dam. As many villagers 
are subsistence farmers, raising cash to fish or for 
transportation is a significant challenge. Finally, some 
villagers complained that the springs that they used to depend 
on dried up after the construction and filling of the Katse 
dam. They noted with irony that they had a view of clean 
mountain water destined for South African taps but that they 
lost their access to safe water.

                   THE ASIAN DEVELOPMENT BANK'S LACK 
                     OF SUCCESS IN THE PHILIPPINES

    The AsDB did a review of its portfolio in the Philippines, 
a country with, by many accounts, a major corruption problem, 
and found that of projects begun since 1986, following the fall 
of dictator Ferdinand Marcos, fewer than one-third had been 
judged successful, one of the worst success rates of the AsDB. 
The report enumerated a number of causes for this poor 
performance, but corruption was not explicitly or even 
implicitly cited. When asked if this was because the bank 
didn't want to offend the Philippines or if it was indeed the 
fact that no corruption was involved in any of the 36 cases, 
officials said they were convinced it was the latter. They said 
that while there is corruption in AsDB projects in other 
countries, there was none in the Philippines. Said one, ``Has 
the effectiveness been affected by corruption? Yes. Has the 
money leaked out? No.''
    He contended that corruption, inefficiency, lack of 
capacity, etc., in various Philippine government institutions, 
at the national and local level, might delay or impede 
projects, and there might be losses of Philippine government 
counterpart funds, which are not as well protected. ``It's not 
our funds, it's the other players','' he said. (The problems in 
the portfolio, which has subsequently been cleaned up, were 
caused by a rush of money to support the post-Marcos democracy, 
resulting in the AsDB attempting ``too many projects, which 
were too complicated, too quickly,'' officials said. In a 
letter to the SFRC, the Philippine government likewise listed a 
number of reasons other than open corruption for the poor 
performance of the projects. Both sides outlined steps that 
have been taken to improve the situation, one of which is to be 
much more careful about approving projects. The AsDB says it 
now starts only about one new project per year in the 
Philippines.)
    It may well be that the AsDB is correct and there was no 
corruption involving AsDB funds in any of the failed programs, 
or it may be that by taking an overly restrictive view of what 
constitutes corruption, ignoring the great difficulty in 
detecting it, the AsDB is able to claim a better record on 
corruption than is warranted.

               THE EUROPEAN BANK FOR RECONSTRUCTION AND 
                  DEVELOPMENT'S OVEREXPOSURE TO RUSSIA

    Russia receives by far the largest amount of money from the 
EBRD. As part of the 2006 Capital Resources Review (CRR), the 
EBRD's five year strategy said Russia should get up to 41 
percent of its business volume by the end of the period (up 
from 31 percent at the start). The advanced countries' share 
would drop from 15 per cent to 6 percent, reflecting the intent 
to graduate most of them, and the share for the others (Central 
Asia, the Balkans) would be largely unchanged at about 53 
percent. It is generally understood that this large share for 
Russia (which was set before the 2007-08 spike in energy prices 
greatly enriched Russian coffers) was accepted by the Americans 
in the CRR, at the behest of the Europeans, because the 
Americans chose to concentrate their efforts on obtaining 
graduation of the EU-8. In 2008, the EBRD's business volume in 
Russia was 36 percent, and by the end of 2009 it was expected 
to be in a similar range, although at the end of August 2009 
the figure was 28 percent.
    As Russia's commodity-based economy surged in recent years 
and its large conglomerates, often dominated by persons with 
apparent political connections, consolidated and expanded their 
operations, the office of the U.S. Executive Director (USED) 
began to express growing concern about volume of lending to 
Russia and the appropriateness of some of the EBRD's clients 
there. Senator Lugar, upon returning from an ``energy tour'' of 
several Central Asian countries, wrote to the EBRD in early 
2008 asking if the large volume of lending to prospering Russia 
was shortchanging the former Soviet republics in Central Asia 
that were far less developed, and whether the bank was devoting 
sufficient staff resources to generating projects in these more 
difficult environments. Outsiders, too, were raising questions 
about the need for so much lending to Russia, the world's 
largest energy exporter and holder of the third largest foreign 
exchange reserves. A November 2007, Wall Street Journal op-ed 
noted, ``With a significant chunk of the EBRD's funds now 
directed toward financing for companies controlled by the 
Russian state, Kremlin-friendly oligarchs and large public 
companies such as Lukoil, it is increasingly difficult to see 
how these investments are consistent with the bank's goal of 
furthering pluralism, multiparty democracy or market economics. 
Russia doesn't need the money--at least, not from the 
EBRD..[It] is increasingly wealthy, boasting more than $440 
billion in foreign reserves, including over $110 billion 
allocated to its sovereign wealth funds. This summer, Russia 
even announced the creation of its own $10 billion Russian 
Development Bank to invest in the same types of projects as the 
EBRD itself.'' At the same time, many observers have noted, the 
gusher of income from oil and gas sales was reducing the 
pressure on the Russian government to continue with the wide-
ranging economic and governance reforms it had embarked upon 
after the1998 economic collapse. ``You only reform when you 
feel the pain,'' one IFI manager said.
    EBRD officials insist that the nearly 250 projects they 
have signed with Russia over the past three years are helping 
reform the economy, expand markets, diversify the product mix, 
and bring better governance and competition to a host of 
sectors. ``When we invest in Russia, we get something back in 
terms of transition impact,'' one top official told staff. 
Another said, ``We invest in Russia for the same reason the 
Nunn-Lugar program spends money in Russia-to get them to do 
things they would not otherwise do because it is in our 
interest that they do them.'' They say that contrary to the 
characterization, few loans go to the firms of the so-called 
oligarchs, only 14 percent go to state companies, and that 
increasingly the money is going to regions outside Moscow and 
St. Petersburg, where needs are greatest. (From 2005 to 2008, 
annual investments outside those two centers rose from 68 
percent of the total to 94 percent, according to the bank's 
figures.) The EBRD has been a big player in the railways, 
ports, and power sector. Where critics might view this as 
propping up state-linked monopolies, the bank sees this 
activity as implementing large scale reform by investing in 
commercial subsidiaries, private rail operators, and improving 
corporate governance and transparency in transportation, and by 
helping privatize generating companies, and investing in safer, 
cleaner and more efficient power plants. A restructured, more 
flexible power sector has follow-on benefits throughout the 
economy in terms of transition, one official explained: ``One 
of the biggest problems facing a start-up small or medium 
enterprise is getting access to the electricity grid.''
    The EBRD is investing significantly in the Russian energy 
sector, hardly one that is unable to attract capital. But after 
gorging on cheap oil and gas for years, many Russian energy 
users are highly inefficient. The bank says that ``Russia has 
been the largest single recipient of EBRD sustainable energy 
investment during Phase I of the bank's Sustainable Energy 
Initiative, representing 28.3 percent of the total cumulative 
SEI investments.'' This includes what the bank calls a 
``landmark'' loan of 600 million euro to Severstal, a Soviet-
era steel and mining behemoth that was privatized in the hectic 
early days of post-Communist Russia and is headed by Alexei 
Mordashov, a one-time Soviet-era manager of the plant who is 
now reputed to be one of Russia's richest so-called 
``oligarchs.'' Severstal employs 92,000 people worldwide; has 
operations in France, Britain, Italy and the United States 
(where it is the fourth largest American steelmaker); and is 
listed on the London Stock Exchange. The loan helped finance 
the company's ``strategic energy efficiency program.'' The U.S. 
voted to abstain (the only naysayer) on this 2007 loan because, 
while it supported the goals of improving energy efficiency in 
the region, it felt that a company of Severstal's strength 
could have obtained private financing, and the company was 
already pursuing an energy efficiency strategy. (In fact, the 
U.S. has voted ``abstain'' or ``no'' on the other three 
Severstal-linked loans made since 2002.) The bank also makes 
loans in the small business sector, and about a third of the 
portfolio is in the banking sector. Roughly a third of the 
EBRD's Russia investments in 2008 were equity or quasi-equity 
stakes.
    The EBRD's own annual indices provide a mixed picture of 
accomplishment at the macro level in Russia. While some areas 
are already at the top of the scale-the index of small-scale 
privatization and the index of price liberalization-others have 
stubbornly refused to improve, or have even worsened slightly. 
For instance, the index of large-scale privatization fell from 
3.3 in 2002 to 3.0 in 2005, where it remains today. The index 
of competition policy has remained stuck at 2.3 since 2002, as 
have the ``roads'' component of infrastructure reform and the 
enterprise reform index. The index for railways, where the EBRD 
has put in much effort, has steadily improved from 2.3 to 3.0, 
and the power sector index has done even better, from 2.3 to 
3.3.
    The EBRD is aware, of course, that Russian tycoons control 
many corporate assets that were formerly state-owned in Russia 
(and similarly, if to a lesser degree, in other former Soviet 
republics), and that the stories of how they obtained control 
are not always clear. But bank officials have essentially 
decided that whatever happened in the murky past, right after 
the Soviet Union collapse when the World Bank and western 
governments were urging rapid privatization, should stay in the 
past. They have in effect drawn a line in history and judge 
their clients from that point forward. The EBRD says it does 
due diligence integrity checks on that basis and only does 
business with oligarchs who have proven their bona fides as 
legitimate corporate chieftains and entrepreneurs.
    To better understand the issues regarding Russian lending, 
staff looked at loans not supported by the U.S. at Executive 
Board meetings, including one for 120 million euro in July 
2009, to the conglomerate Sistema, controlled by Vladimir 
Evtoushenkov, listed by one account as Russia's 18th richest 
billionaire. A chemical engineer by training with a doctorate 
in economics from Moscow State University, he created the 
company in the 1990s by cobbling together a bunch of 
telecommunications, technology, and retail firms, the Soviet 
travel agency Intourist, as well as some oil interests. It now 
bills itself as ``the largest public diversified financial 
corporation in Russia and the Commonwealth of Independent 
States (CIS), which manages companies serving over 100 million 
customers in the sectors of telecommunications, high-tech, oil 
and energy, radio and aerospace, banking, real estate, retail, 
mass-media, tourism and healthcare services.'' It is the 
largest mobile phone operator in Russia and the CIS, and its 
mobile company, Mobile TeleSystems (MTS), was listed on the New 
York Stock Exchange in 2000. Sistema itself is listed on the 
London Stock Exchange. Mr. Evtoushenkov, who is active on 
corporate governance issues, is credited by one British 
newspaper as having built the ``most western'' Russian 
conglomerate. The loan, billed in the EBRD's press release as 
``a shot in the arm for the high-tech sector at a time of tight 
credit,'' in part financed the sale of the EBRD's own equity 
interest in Sitronics, Sistema's electronic chips subsidiary, 
back to Sistema, and provided liquidity for Sitronics, which 
was facing a crisis-related credit squeeze. The U.S. voted to 
abstain, citing a lack of transition impact and the fact that 
60 percent of the loan would be used to pay for EBRD's exit. 
(The loan went to Sistema because Sitronics itself couldn't 
qualify.)
    This was actually the sixth investment that the EBRD had 
made in Sistema or its subsidiaries since 2004. The U.S. 
supported three of the other five, and abstained on the other 
two, in both cases arguing that a $17 billion a year company 
like Sistema could easily obtain commercial financing for the 
deals. The three it supported were to MTS for expanding or 
upgrading mobile phone service to underserved areas in rural 
Russia and the CIS countries. The bank said the Sitronics loan 
was part of its larger effort to help Russia diversify away 
from over-reliance on raw materials and develop ``a knowledge 
economy'' and that it was riding to the rescue of a long-time 
client, a solid company that ran into crisis-related trouble.
    Staff interviewed Mr. Evtoushenkov, 61, at his offices near 
Red Square in Moscow. He said he was grateful for the loan and 
that his firm has developed good relations with the EBRD over 
the years. ``They believe we are a very reliable partner,'' he 
said. He stated he has known all the EBRD presidents, and said 
he has never had any disputes or disagreements with the bank. 
Staff asked why he would seek financing from the EBRD, which 
doesn't offer concessional rates and often makes more demands 
than normal banks. ``Some people may find it difficult to get a 
loan from them, but for us it is not difficult,'' he said. 
Prior to the crisis, he said, ``We had no difficulties getting 
money,'' with about 40 percent of his company's financing 
coming from within Russia, the rest from foreign sources, 
including Asian banks. He said he was unaware that the U.S. had 
voted against some of the Sistema loans. He praised the EBRD's 
other work in Russia, especially its support for small and 
medium businesses, which, he said, have difficulty getting 
regular bank financing. Asked if he had any suggestions for 
improving the EBRD or changing the way it operates, he said he 
was quite satisfied with current arrangements, and urged that 
there be no changes until the current crisis is over. ``Maybe 
after 2010 they could reconsider their strategy, but not 
today,'' he said.
    Given Russia's size and importance, it is probably 
inevitable that it would receive a large portion of the EBRD's 
loans. It is also inevitable that there will be a political 
dimension to the bank's lending strategy. Given the EU's 
proximity to Russia, its much broader commercial engagement 
with the country, its heavy reliance on Russian gas to keep 
warm in the winter, and its member countries' tradition of 
state-backed investment programs, the Europeans are naturally 
more predisposed than the Americans (and others) toward an 
expansive view of the EBRD's involvement in the Russian 
economy. These two views will never be completely reconciled, 
but staff believes that by applying a more rigorous and 
transparent standard for lending decisions to Russia and 
adopting a principle similar to graduation for the Russia 
lending program the bank could come closer to a consensus on a 
way forward that would more equitably distribute its resources 
around the region and enhance its credibility among donor 
country taxpayers.
    Additionality is the prime source of skepticism about the 
EBRD's activities in Russia. If the EBRD is doing things in 
Russia that ``they would not otherwise do,'' (to quote the EBRD 
official above), taxpayers are reasonable in asking just why 
Russia isn't doing it and why the bank is. The EBRD should be 
especially transparent when it is lending to large state-owned 
or controlled enterprises like the railroads, or to the 
oligarchs. As Mr. Evtoushenkov said, during normal times he, 
and presumably most of Russia's tycoons, has ready access to 
commercial capital. It strains public credulity on 
additionality when the bank lends money to a private firm 
controlled by a man whose net worth is greater than the bank's 
annual profit in a good year. The bank should issue a detailed 
public policy statement on the additionality criteria and a 
step-by-step explanation of how the determination is made, and 
with each Russian investment include a statement on how the 
criteria were applied and the procedures followed.

       SRI LANKA: THE NEED FOR CONCERTED CONFLICT SENSITIVITY\49\
---------------------------------------------------------------------------

    \49\ Excerpt from ``Sri Lanka: Recharting U.S. Strategy After the 
War'' December 2009, Senate Foreign Relations Committee.
---------------------------------------------------------------------------
    Sri Lanka's economy suffered from the high cost of fighting 
its separatist war with the Liberation Tigers of Tamil Eleem 
(LTTE). Expensive purchases of war-related equipment and 
ammunition, often on longer-term contracts and using up 
valuable foreign reserves, coupled with a drop in exports due 
to the global economic downturn, pushed Sri Lanka to request a 
$2.6 billion stand-by arrangement from the IMF in early 2009 
which was approved in July. The overall defense budget has yet 
to see any sort of ``peace dividend.'' Longer-term contracts 
with foreign suppliers of military equipment, particularly 
China, continue to weigh heavily on the budget, and the 
military has pushed for an expansion of bases and personnel in 
the North. Some contend that a continued high level of troops 
is required in the formerly LTTE-held areas to hunt down 
remaining LTTE forces, seize hidden caches of weapons, and 
prevent any resurgence of violence. At the same time, military 
and civilian officials stressed to staff that the bulk of the 
requested increase of about 15 percent in the defense budget is 
due primarily to the government's need to pay down military 
debts incurred during the final stages of the war.
    Donors have responded to the war's end by shifting their 
portfolios to the North and East of Sri Lanka. However, there 
is a chance that this could breed resentment in the South where 
there is still much poverty. While some international donors 
seemed to be artfully calibrating their operations in Sri Lanka 
so as not to exacerbate underlying tensions, others chose to 
ignore the conflict outright. U.S. government assistance has 
focused on conflict sensitivity and economic equity among all 
ethnic groups--Sinhalese, Tamil, and Muslim--and on addressing 
the regional economic imbalances in conflict-affected areas 
that have been amplified by the conflict.
    World Bank staff in Sri Lanka, including Country Director 
Naoko Ishii and Senior Country Economist Claus Pram Astrup, 
should be commended on their development of a ``conflict filter 
to enhance effectiveness and reduce reputational risks'' at the 
concept design and implementation stages of projects. As laid 
out in the World Bank Sri Lanka Country Assistance Strategy 
Paper 2009-2012, the filter asks:


   Have sufficiently broad stakeholder consultations been 
        conducted?

   Have adequate impartial grievance mechanisms been 
        established?

   Are project management and administration adequately 
        sensitive to inter-ethnic issues?

   Are conflict-generated needs adequately identified?

   Have opportunities to strengthen reconciliation and inter-
        ethnic trust been adequately identified?


    World Bank staff noted that the filter had been a useful 
engagement tool. The Asian Development Bank as well as other 
international donors factor in conflict though in less formal 
ways.
    However, the IMF does not officially consider conflict 
sensitivity at all and almost prides itself on its tunnel focus 
on financial indicators, although the IMF's mandate is 
macroeconomic stability--and a key factor to economic stability 
is resolution of war and conflict. On July 24, 2009, the IMF 
approved a $2.6 billion loan to support the Government of Sri 
Lanka's ``ambitious program. to restore fiscal and external 
viability and address the significant reconstruction needs of 
the conflict-affected areas, thereby laying the basis for 
future higher economic growth.'' The IMF did not examine the 
possible impact of its program on the conflict in Sri Lanka. 
The IMF reportedly did not provide its Executive Board with a 
copy of the government's reconstruction program, a program 
which had not been shared publicly in Sri Lanka and received no 
input from civil society. Though the World Bank consults IMF 
assessment letters when it does significant budget support, the 
IMF did not reciprocate the consultation and incorporate the 
results of the World Bank's conflict filter.
    IMF Resident Representative Koshy Mathai argued that 
although the government had used the IMF Letter of Intent as a 
vehicle to clarify its own reconstruction plans and 
humanitarian assistance and despite IMF staff interest in those 
issues, it was outside the IMF's mandate to have conditionality 
in political and military areas. He suggested that other 
international fora were more appropriate for addressing those 
concerns. The first of eight tranches (roughly $330 million 
each) of the loan was in the reserves at Central Bank as 
prescribed and the second tranche was also approved.
    In addition, the IMF did not fully engage with Sri Lanka 
around issues of military spending. In October 1991, the IMF 
Executive Board discussed Military Expenditure and the Role of 
the Fund. While most Directors indicated that military 
expenditures ``can have an important bearing on a member's 
fiscal policy and external position,. national security, and 
judgments regarding the appropriate level of military 
expenditures required to assure that security, were a sovereign 
prerogative of national governments and were not in the domain 
of the work of the Fund.'' \50\ This is a discussion that 
should be revisited by the IMF Executive Board.
---------------------------------------------------------------------------
    \50\ Document of the International Monetary Fund, Buff Document No. 
91/186--October 3, 1991, ``Concluding Remarks by the Acting Chairman 
Military Expenditure and the Role of the Fund,'' Executive Board 
Meeting 91/138 October 2, 1991.
---------------------------------------------------------------------------

             THE ASIAN DEVELOPMENT BANK'S INSPECTION PANELS

    Two projects reviewed by AsDB inspection panels are 
illustrative of the bank's attitude. One, the $500 million 
Samut Prakarn wastewater project in Thailand outside Bangkok, 
led to numerous corruption-related charges by the Thai 
government against many senior officials of the project. (None 
of them were AsDB employees). The project is not only notorious 
in Thailand, where the Prime Minister at the time was quoted in 
the local press as saying, ``This project is riddled with 
corruption'' related to major, unapproved changes in the plans 
for the huge sewage treatment facility, land speculation, 
political influence peddling, gross overcharging, and selection 
of a site that posed major environmental hazards. It is also 
famous within the AsDB, which provided a portion of the 
financing. As one bank official explained to staff, ``It became 
a very hot issue within the AsDB. Half the staff said nothing 
was wrong, half said there was. It paralyzed the board, which 
refused to find the bank at fault.''
    Aside from the many failures to follow AsDB procedures 
which led to the corruption, the bank's response to the 
corruption once discovered also has been found wanting. 
According to the Bank Information Center (BIC) report, a 
management mission to Thailand in 2000 ``did not take the 
allegations seriously and was more concerned with defending 
management's previous decisions.'' As the case went on, the 
bank kept citing various bureaucratic and legalistic reasons 
why its various units could not tackle the corruption issues 
head-on. ``Management's review of the project failed to find 
any evidence of corruption,'' the BIC report concludes, ``and 
both the Inspection Panel and the Anticorruption Unit of the 
Office of the Auditor General declined to consider the issue at 
all. Moreover, the AsDB has never publicly commented on the 
results of the investigations by the Thai authorities, or the 
fact that the government has instituted criminal proceedings 
against so many senior officials on the project. Nor has AsDB 
taken any action in light of those findings, or launched a 
wider investigation of corruption on the project.''
    Bank officials noted that one major result of the 
controversy was to completely revamp the so-called 
``accountability mechanism'' and replace the cumbersome 
Inspection Panel system with a more streamlined and user-
friendly ``accountability mechanism'' that has an ombudsman--
called a Special Project Facilitator (SPF)--and a Compliance 
Review Panel (CRP). An issue that bears monitoring is borrowing 
country cooperation with AsDB investigations: at the beginning 
of this controversy, the Thai government refused to admit 
members of the Inspection Panel into the country. This provoked 
protests from the U.S. representative and others, as well as 
formal expressions of concern from the board. The issue may 
have been resolved by the change in the Inspection Panel system 
(which was done with the site access issue very much in mind). 
At the time, the Panel was composed of outsiders, like the 
World Bank's Panel. Under the new system instituted in 2004, 
the Special Project Facilitator is considered bank staff, and 
as such has a clear right to visit AsDB project sites. The 
Compliance Review Panel, while they are now also bank 
employees, are considered agents of the board and have to ask 
the host country for permission to enter.
    A second revealing case was the outcome of a 2004 
Inspection Panel on a large irrigation project in Pakistan, the 
Chasma Right Bank Irrigation Project Stage III, which found a 
number of areas where the bank failed to follow its own 
procedures regarding environmental impact and community 
consultation, among others. No allegations of corruption have 
so far surfaced. The panel found that AsDB management believes 
``the provisions of the `internal laws' of the bank are not 
mandatory'' and in this case chose to ignore them because they 
would cause delays. As the panel notes, ``An internal law of 
the bank may be amended or repealed by the board'' but not 
ignored at management's whim. ``As long as it remains, there 
must be strict compliance.to hold otherwise would result in 
uncertainty and undermine the authority of the Board.'' Equally 
illustrative is management's response to the panel report, 
which was defensive and at times dismissive. Said one 
compliance official of the bank's response: ``They shouldn't be 
in total denial of wrongdoing. It gives a very bad impression 
of the bank.''
    This accountability mechanism-the SPF and the CRP--is 
overdue for a required five-year review, with some saying there 
isn't enough data to review (which itself raises questions). 
Since 2004, only 25 cases have been brought to the SPF, but all 
except nine have been ruled ineligible. The SPF is supposed to 
act as a mediator to help resolve problems between the bank and 
the complainants, not as a tribunal. Requests to the CRP for 
compliance review must be preceded by the filing of a complaint 
with the SPF. Only three compliance requests have actually been 
filed with the Compliance Review Panel: one was determined by 
the CRP to be ineligible (a water supply project in Nepal), one 
is being reviewed by the CRP (an environmental project in 
Fuzhou, China, filed in June 2009), and in the third, a 
transport project in Sri Lanka, the AsDB was found to be non-
compliant and the remedial action has been under ``monitoring'' 
by the CRP for four years. (The CRP also took over the 
monitoring of the Chasma project in Pakistan mentioned above. 
That monitoring was completed in 2009, and a final report is 
due in early 2010.) The new mechanism apparently suffers some 
of the same problems of access as the old one. In November of 
2009, China denied the CRP consent to visit the Fuzhou project 
site to continue its review. According to the CRP's website, 
``the CRP then attempted to obtain further evidence via 
translator-assisted teleconferences with the Requesting 
Parties.'' Considering the significant amounts of money China 
has received from the Asian Development Bank (and the World 
Bank) over the years, it is disturbing that officials would 
block an investigation into the use of AsDB funds, and raises 
questions about whether they are trying to protect individuals 
who may have acted improperly. This development is all the more 
reason why the AsDB should commence an independent review of 
the accountability mechanism without further delay.
    The office of the USED, which has been pushing hard against 
management inertia and working with Board colleagues to get the 
review underway, continues to encourage greater bank engagement 
with a range of stakeholders and noted to staff that, 
``according to some observers, it seems that Affected Persons 
(APs) still find it difficult to access the Accountability 
Mechanism; the Accountability Mechanism is not regarded as 
responsive to the concerns of APs, who are the intended 
beneficiaries of AsDB interventions; livelihoods are still 
considered to be at risk under some AsDB projects, especially 
infrastructure projects; and some stakeholders are still 
skeptical as to the Bank's commitment to governance and 
accountability and the `independence' of the SPF and the CRP.'' 
Similar problems have been raised at the inspection panels of 
other banks.
    Whenever (and if) the review is started, it will not be 
completed until after publication of this report. However, the 
USED's office and other stakeholders have raised a number of 
issues that should be addressed in the review, and Congress may 
want to use them as a checklist to help gauge how thorough the 
review process was and how effective it was in addressing 
concerns.


   Has the Accountability Mechanism achieved its 2003 
        ambition: i.e. has it become a less complex, 
        transparent, independent, more efficient forum to 
        handle complaints and consider compliance? And is it 
        contributing to improved development effectiveness or 
        has it enhanced the quality of AsDB projects?

   The AsDB has a dual phase system requiring APs to go 
        through the consultation/problem-solving phase before 
        requesting an investigation under the compliance review 
        phase-is this two-step system appropriate; or should it 
        be collapsed into a consolidated system (perhaps 
        following the IFC/MIGA model)?

   Is the Accountability Mechanism truly ``independent?'' The 
        SPF reports to the President, and the CRP reports to 
        the Board, but the President is the Chairman of the 
        Board. Many commentators questioned this arrangement 
        and consider that this does not represent best 
        practice.

   Independence also raises issues of budget, staffing, 
        performance assessment, access to independent legal 
        advice (not dependent on obtaining legal advice from 
        the AsDB's General Counsel) and the right to engage 
        experts and consultants (not dependent on processing by 
        Central Operations Services Office.)

   The Accountability Mechanism policy requires at least two 
        affected persons to initiate a complaint and compliance 
        request (or for representatives to have clear authority 
        to represent them), but an AsDB project may affect 
        natural habitats, heritage sites, endangered species 
        and so forth, where there may be no ``affected 
        persons,'' as such, to trigger the AM. Nevertheless, 
        the AsDB must still be accountable and compliant in 
        such cases. What can be done to guarantee the AsDB's 
        accountability and compliance in such cases?

                YEMEN: EMPOWERING REFORM FROM WITHIN\51\
---------------------------------------------------------------------------

    \51\ Excerpted from ``Following the Money in Yemen and Lebanon: 
Maximizing the Effectiveness of U.S. Security Assistance and 
International Financial Institution Lending,'' January 2010, Senate 
Foreign Relations Committee http://foreign.senate.gov/imo/media/doc/
54245.pdf
---------------------------------------------------------------------------
    The World Bank has about $1 billion in existing projects in 
Yemen. The Bank's objective in Yemen is to facilitate Yemen's 
further progress toward the Millennium Development Goals. These 
goals, in turn, are in sync with the stated goals of the 
Republic of Yemen Government (ROYG), as articulated in the 
National Reform Agenda, the focus of which is on human 
development, including education and health; water resource 
management; and good governance. The National Reform Agenda, 
however, was developed with substantial input from the 
international donor community.
    Although successful projects can be externally driven, the 
potential for success increases when IFIs support ``locally 
owned'' initiatives. Locally owned reform processes entail 
participation--and buy-in--from the local community and 
government in development projects. When there are in-country 
efforts to solve endemic problems, IFIs should foster and 
support these endeavors. An examination of the current 
situation in Yemen reveals that IFIs have opportunities to 
incorporate these types of locally owned initiatives into their 
planning and implementation strategies.
    One potential opportunity to engage with the ROYG is 
through locally owned development and poverty reduction 
planning. Unhappy with the slow pace and uneven results of ROYG 
reform efforts, a small group of largely Western-educated and 
well-connected intellectuals and technocrats, under the 
auspices of the President's son, developed a targeted action 
plan to focus the government's short- to medium-term reform 
efforts. This group took into consideration the Government's 
Third Five-Year Plan for Poverty Reduction, as well as other 
existing plans and strategies, but determined that these 
various plans sought to take on too many challenges at once.
    Therefore, the group independently developed 10 priorities 
on which the ROYG should focus for the next year. The 10 points 
are not perfect; they do not address head on the need to 
eliminate government subsidies for diesel, for example, relying 
instead on a strategy of seeking lower prices on the 
international market to reduce costs. That said, because this 
plan is ``locally owned,'' in the words of one of its drafters, 
it stands a greater chance of success than reforms mandated by 
foreign donors. IFIs and the international donor community 
should work to empower and support this model and invest in 
similarly structured endeavors.
    Another opportunity to support locally owned initiatives is 
by encouraging investment in the private sector. Increased 
foreign direct investment (FDI), as well as domestic 
investment, will be critical if Yemen is to create needed 
jobs--and hope for the future--among its increasing population 
of young job seekers. According to the 2009 report of the UN 
Conference on Trade and Development, Yemen is experiencing a 
downward trend in FDI inflows. Gross domestic investment as a 
percentage of GDP has also declined over the past two years.
    In the face of falling oil revenues and its rapidly 
depleting oil sector, the ROYG had been putting its hopes in 
the development of the liquefied natural gas (LNG) sector. As 
the Country Director for the International Finance Corporation 
put it, however, the slump in the international market for LNG 
renders this strategy no longer viable. He made the case that, 
``If Yemen's economic development prospects are to have any 
success, it will be as the result of very time-consuming, hard-
slogging micro-financing.'' There are no quick fixes. Right 
now, he said, there is no coordination among donors on private 
sector development. Nor were there any micro-finance banks 
based in Yemen, although one--al-Amal--has announced plans to 
open there.
    To the extent that micro-finance banks need to be induced 
to enter the Yemeni market, IFIs should provide incentives. The 
IFIs should work in conjunction with the ROYG to focus more 
attention--and resources--on private sector development. The 
International Finance Corporation (IFC) has thus far provided 
business education training to 26,000 graduates, many of whom 
will become trainers themselves. Such activities should be 
expanded and built upon on a national and local level to 
realize reform and development goals.

                TRANSPARENCY AND THE EUROPEAN BANK FOR 
                     RECONSTRUCTION AND DEVELOPMENT

    At the EBRD, which lends almost exclusively to the private 
sector, officials have sometimes defended non-disclosure 
practices as being necessary to protect a firm's competitively 
significant data. Staff appreciates this concern, but believes 
that it is used to justify keeping far too much information 
from public scrutiny. Staff has looked at some internal EBRD 
documents and believes that in many cases it would be a simple 
matter to ``scrub'' the documents of commercially sensitive 
information. The EBRD in 2006 updated its Public Disclosure 
Policy, the cornerstone of its transparency efforts, yet the 
U.S. abstained when the policy came up for board approval. The 
USED felt, as did a number of NGOs, that while an improvement 
over the previous policy, the new one did not go far enough, 
perhaps reflecting the strong desire of the bank's private 
sector client base for maximum confidentiality. The new public 
information policy didn't require disclosure of board votes, 
for instance, and it maintained a poor appeal process for those 
who feel they were wrongly denied access to information. The 
exercise demonstrated, as one NGO member put it to staff, ``The 
EBRD is not willing to accept a presumption of disclosure.''
    The EBRD should take a number of concrete steps to improve 
transparency. First, the bank should develop and publicize an 
explicit set of criteria for the advanced countries to 
``graduate'' from EBRD lending. Currently, the only former EBRD 
client to graduate is the Czech Republic, which did so in 2007. 
Seven other EU clients were also expected to graduate by 2010, 
but that was put off when the financial crisis hit-yet there 
were no public benchmarks to justify the decision. (Why, for 
instance, didn't Poland graduate, since it escaped the 
recession that hit other Central European countries?). Making 
the graduation criteria public and clearly defined would help 
mobilize public opinion within client countries to press for 
change. Once graduation is understood in the markets to be a 
rigorous and objective standard, countries that meet the 
criteria would be rewarded with improved risk ratings and 
better access to global capital markets. From the point of view 
of taxpayers and legislators in donor countries, having an 
explicit graduation goal and orienting all the bank's 
operations toward reaching it would make clear that the EBRD is 
not trying to build an empire or perpetuate its existence, but 
rather working conscientiously to put itself out of business. 
This would help clear up questions about the bank's long-term 
mandate.
    Second, the EBRD should be more transparent about the 
potential ``transition'' impact of it loans and investments, 
since its mandate is to hasten the implementation of capitalist 
structures, not to be just another commercial lending fund. 
Staff recommends more transparency and detail in how the 
potential transition impact ratings are disclosed for each 
project. Currently on the website there is a brief, two-line 
description of the transition impact, but more specific 
information available to those inside the bank, such as a 
rationale for the loan, its additionality, the downside 
transition risks, etc., is not disclosed, apparently because 
``commercially sensitive'' information might be revealed. 
Likewise, staff recommends that the U.S. (and other donors, for 
that matter) give more detailed explanations for their 
``abstain'' or ``no'' votes, especially on large or 
controversial projects. For instance, the U.S. recently 
abstained on the largest single loan in EBRD history-$500 
million to the Russian railway-without public explanation. 
Treasury officials said this policy of reticence has to do with 
internal board dynamics, but staff believes the taxpayer would 
be better served by bringing these debates out into the open.
    Third, the EBRD should be more transparent regarding one of 
its other key mandates, namely, additionality, the principle 
that the bank should lend only to clients who cannot get 
reasonable financing elsewhere. The additionality criteria 
should be more transparent and more explicit, both as a 
statement of policy and on individual investments. (This is in 
addition to the earlier recommendation regarding more 
transparency in transition impact.) If EBRD is making loans to 
a resource-rich country like Russia because the government or 
private investors won't, taxpayers are reasonable in asking 
just why they aren't and why the bank is. The EBRD should be 
especially transparent when it is lending to large state-owned 
or -controlled enterprises like the railroads, or to the so-
called oligarchs, the billionaires who control many business 
groups. It strains public credulity on additionality when the 
bank lends money to private firms controlled by very wealthy 
people.

              THE INTER-AMERICAN DEVELOPMENT BANK'S NEED 
                   TO STRENGTHEN FINANCIAL MANAGEMENT

    Inter-American Development Bank is in the process of 
reforming its practices after its unrealized loss of $1.9 
billion in 2007/2008 from its liquid portfolio of cash 
management instruments. After detecting the losses, Senator 
Lugar's staff has meet regularly with the Inter-American 
Development Bank to promote needed changes to the IDB's 
financial management to ensure that the losses do not recur.
    Joshua Goodman of Bloomberg wrote an article ``IDB's Losing 
Bets in U.S. Mortgages May Weaken Case for Funding'' on March 
21, 2009, excerpted below, which describes the issues around 
the financial losses:


          The Inter-American Development Bank failed to rein in 
        managers who made losing bets in the U.S. mortgage market, 
        including investments in securities issued by Countrywide 
        Financial Corp., according to an outside consultant's findings 
        reviewed by the IDB board today.
          The Washington-based bank, the biggest lender for 
        infrastructure projects in Latin America, took a nearly $1 
        billion loss last year after plowing as much as 60 percent of 
        its cash reserves into mortgage-backed securities, an unusually 
        aggressive investment strategy that went ``largely undetected'' 
        by agency officials, according to the review by Oliver Wyman, 
        the consulting unit of Marsh & McLennan Cos.
          * * * * * * *
          The weaknesses allowed the IDB to risk twice as much of its 
        cash portfolio in asset-backed securities as the World Bank 
        does, and 10 times as much as the Asian Development Bank, the 
        consultant's review found.
          ``You can't run these things like a hedge fund,'' said Morris 
        Goldstein, a former deputy director of the International 
        Monetary Fund's research department and senior fellow at the 
        Peterson Institute for International Economics in Washington. 
        ``Portfolios of official lenders have to be very 
        conservative.''
          Wyman recommended possibly hiring outside financial managers, 
        the ``urgent'' improvement of oversight and the establishment 
        of guidelines so assets have a ``high probability of being 
        liquid in the most adverse market conditions.''
          IDB Chief Financial Officer Ed Bartholomew disputed the 
        consultant's findings, saying the mortgage and asset-backed 
        securities peaked at 42 percent, not 60 percent, of its 
        investment portfolio. After writing down the securities by an 
        average 25 percent, the figure fell to 26 percent at the end of 
        2008, he said. More than 99 percent continue to perform and 
        about 85 percent carry the top AAA credit ratings, he said.
            `No Material Effect'
          ``The magnitude of these unrealized losses has no material 
        effect'' on the bank's ability to lend, Bartholomew said in an 
        interview today. ``Any capital increase would be driven by a 
        long-term vision about the kind of lending we want to 
        support.''
          The IDB's bets were fueled by pressure to increase returns on 
        what were supposed to be highly liquid investments, the 
        consultant's review found. That led to the purchase of two 
        Countrywide Financial mortgage-backed securities in October 
        2007, after the collapse of the subprime mortgage market had 
        already caused the mortgage lender's shares to plunge more than 
        50 percent, according to the review.
          ``It's surprising how far they invested in these toxic 
        assets,'' said Claudio Loser, former director of International 
        Monetary Fund's Western Hemisphere department and now a fellow 
        at the Inter-American Dialogue in Washington. ``In hindsight it 
        was a stupid decision.''
            Lugar's Concern
          Senator Richard Lugar of Indiana, the ranking Republican on 
        the Foreign Relations Committee, said the strategy was of 
        ``grave concern'' and sought explanations in a Feb. 5 letter to 
        IDB President Luis Alberto Moreno. A copy was provided by 
        Lugar's office.
          ``It would be premature to consider a capital increase before 
        Congress is assured that the IDB's financial structures and 
        controls are robust and that necessary reforms have been 
        implemented,'' Lugar said in an e-mailed statement today.
          ``The IDB is making a `tremendous effort' to increase 
        donations from members this year so it can approve a record $18 
        billion in loans,'' Moreno, 55, said in a March 5 interview 
        published on the IDB website. A commission of outside experts 
        headed by former Peruvian finance minister Pedro Pablo 
        Kuczynski will present its recommendations at the annual 
        meeting.
          ``The IDB faces an uphill battle,'' Clay Lowery, a former 
        assistant U.S. Treasury secretary for international affairs who 
        is now a managing director of the Glover Park Group in 
        Washington, said in an interview today. ``They are asking for a 
        capital increase, which is important to Latin America, at a 
        time when it appears that they had taken significant risks in 
        their trading book.''
          Lowery said the Treasury first raised concerns about the 
        IDB's investment strategy in late 2007.
            Funding Needs
          Bartholomew said he couldn't discuss any plans for the 
        capital increase request until they were discussed by the IDB's 
        board.
          The IDB needs more funding because Latin American and 
        Caribbean countries are increasingly turning to the lender as 
        the credit crisis deepens. Jamaica, on Jan. 16, became the 
        third country following Costa Rica and El Salvador to tap a $6 
        billion emergency liquidity line the bank created last October.
          Remittances to Latin America and the Caribbean from migrant 
        workers are forecast to fall this year for the first time on 
        record, as unemployment rises in wealthier nations. If the 
        crisis persists two years, poverty could swell by as much as 
        12.7 million people, according to IDB estimates.
          To help relieve some of the strain on social services, the 
        IDB is aiming to approve a record $18 billion in loans, 
        compared with last year's previous record of $11.1 billion.
          ``The IDB is very worried,'' said Loser. ``For the first time 
        in seven years, credit markets are closed to Latin America. 
        They know they'll be called on to increase lending for the next 
        two to three years.''
















                          A P P E N D I X E S

                              ----------                              


                      Appendix I.--U.S. Engagement

    Although the international financial institutions (IFIs) 
are run by their own managements, the member governments 
exercise policy direction and oversight responsibility. A board 
of governors for each IFI, representing all member countries, 
meets once a year to make policy decisions, while boards of 
executive directors meet more frequently to approve projects 
and supervise operations of the institutions.
    As the largest shareholder in all of the IFIs except the 
Asian Development Bank, the United States takes an active 
oversight role. The U.S. Governor of all six institutions is 
the Secretary of the Treasury. The Treasury Department is the 
lead agency in charge of operational policy and the day-to-day 
conduct of U.S. participation in the IFIs.
    The State Department also follows policy on the IFIs as it 
relates to U.S. political relationships. The Under Secretary of 
State for Economic, Energy, and Agricultural Affairs is the 
U.S. Alternate Governor for the multilateral development banks. 
For the International Monetary Fund (IMF), however, the 
Alternate Governor is the Chairman of the Federal Reserve.
    The U.S. Executive Directors are appointed by the President 
and confirmed by the Senate. The Alternate Executive Directors 
are subject to Senate approval only for the IMF, the World 
Bank, and the Inter-American Development Bank (IDB). The 
Executive Directors and Alternates represent the United States 
at executive board meetings and report to the Secretary of the 
Treasury through the Assistant Secretary of International 
Affairs.
    Other U.S. government agencies are also involved in 
oversight of the IFIs. The Working Group on Multilateral 
Assistance (WGMA) meets weekly to coordinate agency views on 
all loan proposals scheduled for consideration by the executive 
boards of the multilateral development banks during the 
following two weeks. Chaired by the Treasury Department, these 
meetings include representatives from the State, Agriculture, 
and Commerce Departments, USAID, Federal Reserve Board, and the 
Export-Import Bank.
    In addition to the confirmation of Executive Directors 
through the Senate Foreign Relations Committee, the Congress 
determines the level of U.S. contributions to the IFIs. It can 
also pass legislation directing U.S. policy towards the IFIs. 
For instance, Congress has adopted laws requiring the Executive 
Directors to seek specified improvements in the institutions' 
treatment of environmental issues. In this regard, USAID 
reports to Congress on the environmental impact of IFI loans. 
Congress also requires the Treasury Department to report to the 
appropriate congressional committees on the actions taken by 
each IFI to implement the policy goals specified in 
legislation.
    The Senate Foreign Relations Committee and the House 
Committee on Financial Services have jurisdiction over 
development bank authorization legislation, while the Senate 
and House Foreign Operations Appropriations Subcommittees 
control U.S. funding levels. The authorization committees also 
conduct oversight of the IFIs through hearings and informal 
consultation with the executive branch.
                    Appendix II.--The International 
                         Financial Institutions

International Monetary Fund
    The International Monetary Fund (IMF) was created at the 
1944 Bretton Woods Conference in New Hampshire to prevent a 
return of the international financial chaos that preceded World 
War II. Its formal mission is to ``foster global growth and 
economic stability,'' provide ``policy advice and financing to 
members in economic difficulties,'' and work ``with developing 
nations to help them achieve macroeconomic stability and reduce 
poverty.''\52\
---------------------------------------------------------------------------
    \52\ ``About the IMF,'' International Monetary Fund, http://
www.imf.org/external/about.htm
---------------------------------------------------------------------------
    The IMF has three principal functions and activities: (1) 
surveillance of financial and monetary conditions in its member 
countries and of the world economy, (2) financial assistance to 
address major balance of payments problems, and (3) technical 
assistance and advisory services to member countries.\53\ Based 
in Washington, D.C., the IMF currently employs about 2,600 
staff.
---------------------------------------------------------------------------
    \53\ ``The International Monetary Fund: Organization, Functions, 
and Role in the International Economy,'' Jonathan E. Sanford and Martin 
A. Weiss, Congressional Research Service, April 22, 2004.
---------------------------------------------------------------------------
    The IMF has developed various loan instruments, or 
facilities, that are tailored to address the specific 
circumstances of its diverse membership. The majority of IMF 
loans come from the General Resources Account (GRA), using one 
of two facilities: Stand-By Arrangements (SBA), which address 
short-term balance of payments problems, or the Extended Fund 
Facility (EEF), which focuses on longer-term difficulties with 
external payments.\54\
---------------------------------------------------------------------------
    \54\ ``IMF Lending.'' http://www.imf.org/external/np/exr/facts/
howlend.htm
---------------------------------------------------------------------------
    Low-income countries may borrow at a subsidized interest 
rate under new concessional financing facilities. Approved by 
the IMF Executive Board on July 23, 2009, these new facilities 
are intended to make financial support more flexible and 
tailored to the diversity of low-income countries. They replace 
the existing Poverty Reduction and Growth Facility (PRGF) and 
the Exogenous Shocks Facility (ESF), and will be organized 
under the umbrella of a new Poverty Reduction and Growth Trust. 
The three new lending windows are the Extended Credit Facility 
(ECF), which provides medium-term support; the Standby Credit 
Facility (SCF), which addresses short-term and precautionary 
needs; and the Rapid Credit Facility (RCF), which offers rapid 
low-access financing with limited conditionality to meet urgent 
balance of payments needs.\55\
---------------------------------------------------------------------------
    \55\ ``IMF Support for Low-Income Countries.'' International 
Monetary Fund, http://www.imf.org/External/np/exr/facts/poor.htm
---------------------------------------------------------------------------
    The United States' total IMF quota is $337.2 billion. The 
United States is the largest shareholder with a quota of 37.15 
billion Special Drawing Rights (SDRs),\56\ worth approximately 
$57.7 billion, and a 16.77 percent voting share.\57\
---------------------------------------------------------------------------
    \56\ The SDR is an international reserve asset, created by the IMF 
in 1969 to supplement the existing official reserves of member 
countries. SDR also serves as the unit of account of the IMF and some 
other international organizations.
    \57\ ``IMF Members' Quotas and Voting Power, and IMF Board of 
Governors,'' International Monetary Fund, http://www.imf.org/external/
np/sec/memdir/members.htm
---------------------------------------------------------------------------
    In response to the global economic crisis, the G-20 nations 
agreed in April 2009 to triple the IMF's lending capacity to 
$750 billion, based on contributions from member countries. In 
June 2009, the U.S. Congress approved $108 billion in new loan 
authority for the IMF. Several other countries have pledged 
contributions to increase IMF resources, including, as of July 
2009, Japan ($100 billion), European Union ($100 billion), 
Norway ($4.5 billion), Canada ($10 billion), Switzerland ($10 
billion), Republic of Korea ($10 billion), Australia ($7 
billion), Russia (up to $10 billion), China (up to $50 
billion), and Brazil (up to $10 billion). \58\
---------------------------------------------------------------------------
    \58\ ``Bolstering the IMF's Lending Capacity,'' International 
Monetary Fund, http://www.imf.org/external/np/exr/faq/contribution.htm

                             Table 1.--International Monetary Fund Disbursements\58\
                                            Billions of U.S. Dollars
----------------------------------------------------------------------------------------------------------------
                          2000     2001     2002     2003     2004     2005     2006     2007     2008     2009
----------------------------------------------------------------------------------------------------------------
GRA                      11.13    36.86    39.14    31.52     6.47     3.55     3.67     1.49    20.82    18.43
PRGF-ESF                  0.76     1.35     2.09     1.32     1.26     0.63     0.78     0.51     0.99     1.42
----------------------------------------------------------------------------------------------------------------
Note: 2009 data as of June 30, 2009
\58\ ``Total IMF Credit Outstanding for all Members from 1984-2009," http://www.imf.org/external/np/fin/tad/
  extcred1.aspx

World Bank

    Like the IMF, the World Bank was created as a result of the 
1944 Bretton Woods Conference. Its initial purpose of 
rebuilding post-war Europe grew to encompass worldwide poverty 
alleviation and sustainable economic development. Currently 
focused on the achievement of the Millennium Development Goals, 
the World Bank aims to ``fight poverty'' and ``to help people 
help themselves and their environment by providing resources, 
sharing knowledge, building capacity, and forging partnerships 
in the public and private sectors.'' \60\
---------------------------------------------------------------------------
    \60\ ``About Us,'' http://web.worldbank.org/WBSITE/EXTERNAL/
EXTABOUTUS
---------------------------------------------------------------------------
    The World Bank pursues these objectives through the 
provision of financial and technical assistance. More than 
10,000 employees from over 160 countries work at the World 
Bank. Two-thirds are based at the headquarters in Washington, 
D.C., while the remaining third work in more than 100 country 
offices in the developing world.\61\
---------------------------------------------------------------------------
    \61\ ``Who We Are and What We Do,'' http://web.worldbank.org/
WBSITE/EXTERNAL/EXTABOUTUS
---------------------------------------------------------------------------
    The World Bank divides its lending between the 
International Bank for Reconstruction and Development (IBRD) 
and International Development Association (IDA). The IBRD 
assists middle-income countries with loans at near-market rates 
using funds raised on the international capital markets. 
Established in 1960 due to concerns that low-income countries 
could not afford to borrow at near-market rate terms, the IDA 
provides concessional loans to the world's poorest countries. 
The IDA's highly discounted assistance is funded with 
contributions from donors and transfers from the IBRD and is 
increasingly provided as grants.\62\
---------------------------------------------------------------------------
    \62\ ``The World Bank's International Development Association 
(IDA),'' Martin A. Weiss, Analyst in International Trade and Finance, 
Congressional Research Service, April 1, 2008.
---------------------------------------------------------------------------
    As of June 30, 2008 (the end of the World Bank's fiscal 
year), total subscriptions to the IBRD were $157.43 billion. 
The United States is the largest contributor, having subscribed 
to $31.96 billion of the IBRD's capital stock. Of this amount, 
$2.0 billion is paid-in and $29.96 billion is subject to 
call.\63\ The United States has a 16.36 percent voting 
share.\64\
---------------------------------------------------------------------------
    \63\ Callable capital is a contingent liability, payable only if a 
multilateral development bank (MDB) lacks sufficient funds to repay its 
own creditors. None of the MDBs has ever attempted to collect a portion 
of their callable capital.
    \64\ ``The World Bank Annual Report 2008,'' The World Bank, http://
siteresources.worldbank.org/EXTANNREP2K8/Resources/
YR00_Year_in_Review_English.pdf
---------------------------------------------------------------------------
    As of June 30, 2008, total contributions to the IDA were 
$177.5 billion. The United States is also the largest 
contributor to the IDA, having subscribed or contributed $38.98 
billion. The United States has a 12.71 percent voting 
share.\65\
---------------------------------------------------------------------------
    \65\ Ibid.
---------------------------------------------------------------------------
    The last general capital increase of the IBRD was agreed to 
in 1988, and the United States provided its final installment 
to the IBRD's capital in FY 1996. The most recent round of IDA 
replenishment negotiations (IDA-15) concluded on December 14, 
2007.\66\ At the meeting, donors agreed to provide $41.6 
billion, an increase of $9.5 billion over the previous 
replenishment (IDA-14) ($32.1 billion). The United Kingdom 
pledged donations of $4.3 billion over three years, making it 
the largest single donor to IDA-15. The United States increased 
its pledge by 30 percent to $3.7 billion and will see its share 
rise from 13.8 percent to 14.7 percent. Several countries are 
contributing to IDA for the first time: China; Cyprus; Egypt; 
Estonia; Latvia; and Lithuania.\67\
---------------------------------------------------------------------------
    \66\ ``The World Bank's International Development Association 
(IDA).'' Martin A. Weiss, Analyst in International Trade and Finance, 
Congressional Research Service, April 1, 2008.
    \67\ ``Contributions to the Fifteenth Replenishment,'' The World 
Bank, http://siteresources.worldbank.org/IDA/Resources/Table1IDA15.pdf
---------------------------------------------------------------------------
    Since their creation, cumulative IBRD lending is $446 
billion and IDA commitments are $193 billion.

                                      Table 2.--World Bank Operations.\68\
                                            Billions of U.S. Dollars
----------------------------------------------------------------------------------------------------------------
                          2000     2001     2002     2003     2004     2005     2006     2007     2008     2009
----------------------------------------------------------------------------------------------------------------
IBRD                     10.92    10.49    11.45    11.23    11.05    13.61    14.14    12.83    13.47    32.90
IDA                       4.36     6.76     8.07     7.28     9.04     8.70     9.51    11.87    11.23    14.00
----------------------------------------------------------------------------------------------------------------
Note: 2009 data as of June 30, 2009
\68\ ``The World Bank Annual Report 2008,"''The World Bank, http://siteresources.worldbank.org/EXTANNREP2K8/
  Resources/YR00_Year_in_Review_English.pdf.

Inter-American Development Bank

    The Inter-American Development Bank (IDB) Group was co-
founded by the United States and 19 other member countries in 
1959 in response to social and political turmoil in Latin 
America and the Caribbean in the context of the Cold War. Based 
in Washington, DC, the IDB now has 26 borrowing members and 
employs approximately 2,000 staff.
    The IDB aims to ``combat poverty and promote social 
equity,'' \69\ providing loans and grants and offering policy 
advice and technical assistance. The IDB's primary lending 
window is non-concessional Ordinary Capital (OC). The Fund for 
Special Operations (FSO) is the concessional window of the IDB 
and focuses on economic development in the hemisphere's poorest 
nations: Bolivia, Guyana, Haiti, Honduras, and Nicaragua. The 
FSO makes subsidized loans with interest rates of 1 percent to 
2 percent and maturities of up to 40 years.
---------------------------------------------------------------------------
    \69\ ``What We Do,'' Inter-American Development Bank, http://
www.iadb.org/aboutus/whatWeDo.cfm?lang=en
---------------------------------------------------------------------------
    As of December 31, 2008 (the end of the IDB's fiscal year), 
total subscriptions to the IDB were $100.9 billion. The United 
States is the largest contributor, having subscribed to $30.31 
billion of the IDB's capital stock. Of this amount, $1.3 
billion is paid-in and $29.01 billion is subject to call. The 
United States has a 30.01 percent voting share.\70\
---------------------------------------------------------------------------
    \70\ ``Annual Report 2008,'' Inter-American Development Bank, 
http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=1924122
---------------------------------------------------------------------------
    The most recent general capital increase for the ordinary 
capital account and the FSO was in 1994. The U.S. contribution 
of $153.7 million was contributed in six equal installments 
over the 1995-2000 period.\71\ At a meeting on July 2, 2009, 
the IDB Board of Governors set a December 2009 deadline for 
technical discussions on a proposed capital increase and a 
replenishment of the FSO.\72\
---------------------------------------------------------------------------
    \71\ ``Report on the Eighth General Increase in the Resources of 
the Inter-American Development Bank,'' Inter-American Development Bank, 
http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=2080953
    \72\ ``IDB Governors set roadmap to strengthen Bank, increase 
resources to fight crisis,'' IDB News Release, July 2, 2009, http://
www.iadb.org/news/detail.cfm?language=English&id=5504
---------------------------------------------------------------------------
    Between 1961 and December 2008, the IDB approved $149.00 
billion of operations from its Ordinary Capital and $18.52 
billion from the FSO.

                                          Table 3.--IDB Operations.\73\
                                            Billions of U.S. Dollars
----------------------------------------------------------------------------------------------------------------
                  2000       2001       2002       2003       2004       2005       2006       2007       2008
----------------------------------------------------------------------------------------------------------------
IDB               4.969      7.411      4.143      6.232      5.468      6.448      5.632      8.577     11.085
FSO               0.297      0.443      0.406      0.578      0.522       0.41      0.605      0.152      0.138
----------------------------------------------------------------------------------------------------------------
\73\ ``IDB Annual Report," Inter-American Development Bank, www.iadb.org/ar/2008

African Development Bank

    The African Development Bank (AfDB) Group was founded in 
1964 ``to help reduce poverty, improve living conditions for 
Africans and mobilize resources for the continent's economic 
and social development.'' It employs 1,491 employees in its 
headquarters in Tunis, Tunisia, and in 23 field offices.\74\
---------------------------------------------------------------------------
    \74\ ``About Us,'' African Development Bank Group, http://
www.afdb.org/en/about-u
---------------------------------------------------------------------------
    The AfDB Group comprises two main lending facilities. The 
African Development Bank provides grants, loans, and technical 
assistance. The African Development Fund (AfDF) is a 
concessional facility for low-income African member countries 
created in 1972. There are currently 38 AfDF borrower 
countries. The AfDF is primarily financed by 24 non-regional 
countries including the United States, Canada, and several 
European and Asian countries.\75\
---------------------------------------------------------------------------
    \75\ ``The African Development Bank Group," Martin A. Weiss, 
Analyst in International Trade and Finance, Congressional Research 
Service, January 30, 2009.
---------------------------------------------------------------------------
    The United States is the second largest shareholder after 
Nigeria. At current exchange rates, total U.S. paid-in capital 
through December 31, 2008 is approximately $220.4 million. 
Total callable capital is approximately $1.95 billion.\76\ The 
United States has a 6.33 percent voting share.
---------------------------------------------------------------------------
    \76\ ``The African Development Bank 2008 Annual Report,'' African 
Development Bank Group, http://www.afdb.org/en/about-us/financial-
information/annual-report
---------------------------------------------------------------------------
    The most recent general capital increase for the AfDB was 
in 1998. The total capital increase was approximately $7 
billion, the U.S. share of which is 5.8 percent. The total U.S. 
paid-in capital commitment of $40.8 million was paid over 8 
years ending in FY 2007. In December 2007, negotiations 
concluded for the eleventh replenishment of AfDF resources 
(AfDF-VI) that will provide financing of $8.9 billion during 
2008 to 2011. The U.S. total three-year commitment for AfDF-11 
is $468.2 million. In the current AfDF-11 replenishment, the 
U.S. share is 8.7 percent (behind the United Kingdom, Germany, 
and France).\77\
---------------------------------------------------------------------------
    \77\ ``The African Development Bank Group,'' Martin A. Weiss, 
Analyst in International Trade and Finance, Congressional Research 
Service, January 30, 2009.
---------------------------------------------------------------------------
    Between its inception in 1967 and December 2008, the AfDB 
approved approximately US$38.2 billion of operations and the 
AfDF approved approximately $28.0 billion.

                            Table 4.--African Development Bank Group Operations.\78\
                                            Billions of U.S. Dollars
----------------------------------------------------------------------------------------------------------------
                                   2000     2001     2002     2003     2004     2005     2006     2007     2008
----------------------------------------------------------------------------------------------------------------
AfDB                               0.63     1.24     1.36     1.16     1.25     1.16     1.45     2.30     2.36
AfDf                               1.01     1.46     1.08     1.54     1.42     1.54     2.13     1.70     2.55
----------------------------------------------------------------------------------------------------------------
\78\ ``The African Development Bank 2008 Annual Report," African Development Bank Group, http://www.afdb.org/en/
  about-us/financial-information/annual-report

Asian Development Bank

    Founded in 1966, the Asian Development Bank (AsDB) aims 
``to help its developing member countries reduce poverty and 
improve the quality of life of their people.'' With 
headquarters in Manila, Philippines, and 27 field offices, it 
employs approximately 2,5C00 staff.\79\ The AsDB's primary 
activities are extending project loans and grants, making 
equity investments, and providing technical assistance to its 
developing member countries.
---------------------------------------------------------------------------
    \79\ ``Our Vision,'' Asian Development Bank, http://www.adb.org/
About
---------------------------------------------------------------------------
    The Asian Development Fund (AsDF), the AsDB's concessional 
facility, was created in 1972 to provide loans to Asia's 
poorest countries. The AsDF is funded principally through 
periodic replenishments by donor nations. There have been seven 
replenishments since the AsDF was created in 1972.
    The United States and Japan are the largest shareholders, 
each owning $8.5 billion worth of shares in the institution. 
This ownership stake corresponds with a voting share of 12.76 
percent. As of December 31, 2008, the United States has 
contributed $3.42 billion to the AsDF. Voting shares in the 
AsDF are the same as in the AsDB.
    The most recent capital replenishment, AsDF-9, covers the 
years 2005 to 2008. Donors agreed to contribute $7 billion over 
the four-year period, an increase from the $5.7 billion 
provided during AsDF-8 (2001-2004). Japan maintains its 
position as the leading AsDF contributor in AsDF-9 with $1.18 
billion pledged, followed by the United States with $461 
million, Australia with $218 million, and the United Kingdom 
with $202 million. Contributions from the Asia and Pacific 
region accounted for almost half of the replenishment.
    The most recent general capital increase of the AsDB was 
agreed to in 1994. In April 2009, the Board of Directors 
(including the United States) approved a resolution providing 
for a new capital increase allowing for a 200 percent increase 
in the capital stock of the institution. It is expected that 
the administration may seek an increase in the U.S. paid-in 
capital for the institution over the next several years as part 
of the new general capital increase.
    To date, the Asian Development Bank has approved $143.5 
billion of operations.

                                Table 5.--Asian Development Bank Group Loans.\80\
                                            Billions of U.S. Dollars
----------------------------------------------------------------------------------------------------------------
                                   2000     2001     2002     2003     2004     2005     2006     2007     2008
----------------------------------------------------------------------------------------------------------------
AsDB                               4.01     3.98     4.01     4.73     4.05     4.40     5.99     8.07     8.70
AsDF                               1.57     1.36     1.65     1.38     1.24     1.36     1.27     1.89     1.79
----------------------------------------------------------------------------------------------------------------
\80\ ``Asian Development Bank Annual Report 2008,'' Asian Development Bank, http://www.adb.org/Documents/Reports/
  Annual_Report/2008

European Bank for Reconstruction and Development

    The European Bank for Reconstruction and Development (EBRD) 
is the newest of the multi-lateral development banks, founded 
in 1990 to help bring capitalism and market economies to 
formerly Communist eastern and central European countries and 
the new states from the former Soviet Union and Yugoslavia. 
(Mongolia was originally included, too, and Turkey was added 
last year.) Unlike the other development banks, it does not 
have development or poverty alleviation as one of its stated 
missions, and it usually works with the private sector, state-
owned companies or municipal entities, rather than with 
national governments. As a result, it has until now had little 
direct role in promoting economic or governance reforms outside 
of specific sectors. ``We are a project-driven bank,'' one 
official told staff in August 2009 during an interview in 
London. Also, uniquely, the EBRD applies a political standard 
to its clients, namely, that their countries are ``committed to 
and applying the principles of multiparty democracy, pluralism 
and market economics.''
    EBRD investments, like those of the other development 
banks, take the form of loans, guarantees, and equity 
investments. The EBRD's loans are required to meet three 
criteria-that they have ``transition impact;'' that they 
provide additionality, that is, the client must be unable to 
get reasonable financing elsewhere; and that they be based on 
``sound banking principles.'' The EBRD does not have a 
concessional loan window like the other development banks, it 
takes commercial risk, and it nearly always gets its money 
back. In fact, in the three years before the current crisis, 
the bank turned handsome profits, up to more than two billion 
euros a year, leading to talk of a dividend for shareholders 
and raising questions about whether the bank was really 
necessary in the booming east. (That ended last year when the 
bank recorded its first annual loss since the Russian financial 
crisis of 1998.) There is an inherent tension between the 
additionality and sound banking requirements-if the investment 
is sound, why couldn't the client get the financing from 
someone else? Similarly, transition impact is sometimes 
difficult to define and quantify.
    The United States is the largest shareholder in the EBRD. 
The United Kingdom is the second largest shareholder. As of 
December 31, 2008, the United States has committed 
approximately $2.7 billion. The United States has a 10.15 
percent voting share.
    The most recent general capital increase of the EBRD was 
agreed to in 1996. The U.S. share was $285 million. Since its 
founding, the EBRD has approved approximately $59.99 billion in 
operations.S6602

                                         Table 6.--EBRD Operations.\81\
                                            Billions of U.S. Dollars
----------------------------------------------------------------------------------------------------------------
                                   2000     2001     2002     2003     2004     2005     2006     2007     2008
----------------------------------------------------------------------------------------------------------------
EBRD                               3.61     4.94    5.267     5.03     5.58     5.78     6.67     7.54    6.87
----------------------------------------------------------------------------------------------------------------
\81\ EBRD Annual Report and Financial Statements," European Bank for Reconstruction and Development, 2008, http:/
  /www.ebrd.com/pubs/general/ar08.htm

                   Appendix III.--World Bank Lending 
                       and Parliamentary Approval

                                                     February 2009.
    Borrowing member countries which require parliamentary 
approval or ratification of lending instruments (loans, 
credits, IDA grants) with the Bank and IDA include those 
requiring approval or ratification of each loan or other 
agreement, and countries where parliament sets a ceiling within 
which the executive branch can conclude individual agreements 
without further approval or ratification.
Sub-Saharan Africa:
    Angola, Benin, Botswana, Burkina Faso, Burundi, Chad, 
Comoros, Congo Brazzaville, Cote D'Ivoire, Democratic Republic 
of the Congo, Ethiopia, Gabon, Ghana, Guinea, Madagascar, 
Malawi, Mali, Niger, Rwanda, Senegal, Sierra Leone, South 
Africa, Sudan, Tanzania, Togo, Uganda, Zambia, Zimbabwe*

* in non-accrual, current status unclear. Current status of 
Liberia also unclear.

East Asia & the Pacific:

    Cambodia, China, Timor Leste, Republic of Korea, 
Indonesia,** Mongolia, Palau, Vanuatu

** parliamentary approval of development projects is given 
through annual budget law.

Eastern Europe & Central Asia:

    Albania, Armenia, Bosnia & Herzegovina, Bulgaria, Croatia, 
Georgia, Kazakhstan, Kyrgyz Republic, Macedonia, Moldova, 
Montenegro, Romania, Russia, Serbia, Tajikistan, Turkey, 
Ukraine

Latin America & the Caribbean:

Bolivia, Brazil, Colombia, Costa Rica, Dominican Republic, *** El 
        Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, 
        Paraguay, Peru, Trinidad & Tobago, Venezuela

*** Ecuador currently unclear based on 2008 Constitution.

Middle East & North Africa:

    Algeria, Djibouti, Arab Republic of Egypt, Lebanon, 
Tunisia, Republic of Yemen

South Asia:

    None
                     Appendix IV.--Inter-American 
                         Development Bank (IDB)

       List of Countries that Require Legislative Authorization 
                 or Ratification of IDB Loan Contracts

                                                        August 2009

Countries that Require Legislative Authorization  or Ratification of IDB
                             Loan Contracts
             (for Sovereign or Sovereign Guaranteed Loans)*
------------------------------------------------------------------------
                                      Legislative Ratification of Signed
 Legislative Authorization Required   Loan  Contract Required for Entry
    for Signing of Loan Contract                 into Effect
------------------------------------------------------------------------
  Bahamas..........................                             Bolivia
  Belize (> US$10 million).........                                    Costa Rica
  Brazil...........................                  Dominican Republic
  El Salvador......................                         El Salvador
  Guatemala........................                               Haiti
  Honduras.........................                            Honduras
  Venezuela........................                           Nicaragua
    ...............................                            Paraguay
------------------------------------------------------------------------
* The summary information included in the above chart was prepared by
  the Bank based on information provided, as of August 2009, by
  borrowing member countries concerning their approval of Bank sovereign
  (or sovereign-guaranteed) loans. The chart does not address the
  details of any applicable legislation or regulation, and there may be
  circumstances under which, depending on the details of a specific Bank
  operation, the rules summarized in the chart may direct a different
  conclusion. Further, the Bank does not represent itself as having the
  authority to interpret the laws of its member countries, and
  authoritative text on the subject of the chart should be provided by
  those member countries with respect to their own legislation.

                          Appendix V.--Tables

            Table 7.--U.S. Contribution and Voting Shares in the  Multilateral Development Banks.\81\
----------------------------------------------------------------------------------------------------------------
                                                                 Contribution Share           Voting Share
                                                                    (percentage)              (percentage)
----------------------------------------------------------------------------------------------------------------
World Bank Group
  IBRD......................................................                     16.8                      16.4
  IDA.......................................................                     22.1                      12.9
  IFC.......................................................                     24.1                      23.6
  MIGA......................................................                     18.9                      15.1
Asian Development Bank
  AsDB......................................................                     15.6                      12.8
  AsDF......................................................                     12.6                      12.8
EBRD                                                                             10.1                       9.8
NADBank                                                                          50.0                      50.0
Inter-American Development Bank
  IDB.......................................................                     30.3                      30.0
  FSO.......................................................                     50.5                      30.0
  IIC.......................................................                     25.5                      25.1
  MIF.......................................................                     39.4                      29.1
African Development Bank
  AfDB......................................................                      6.4                       6.4
  AfDF......................................................                     12.7                       6.1
IFAD                                                                             13.6                      13.6
----------------------------------------------------------------------------------------------------------------
\81\ ``Multilateral Development Banks: U.S. Contributions FY1998-2009,'' Jonathan E. Sanford, Specialist in
  International Trade and Finance. Congressional Research Service, January 27, 2009 (RS20792).


                         Table 8.--Development Bank Management's General Capital Increase (GCI)  Requests as of January 13, 2010
                                                              (in millions of U.S. dollars
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               Implied
                                                                                                    Current                      Proposed    Annual U.S.
                                                                                                   Subscribed       Proposed     Increase      Paid-in
                           Multilateral Development Bank                                          Capital Base      Increase     Paid-in    Contribution
                                                                                                   (dollars)       (percent)     Capital    over 5 years
                                                                                                                                (percent)     (dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
World Bank Group: IBRD                                                                              $190,000             30          6          $655
  (including SCI)* *
World Bank Group: IFC***                                                                               2,400             85        100           482
AfDB                                                                                                  38,000            200          6           270
EBRD                                                                                                  30,000             50         10           150
IDB                                                                                                  101,000            200          4         2,420
AsDB                                                                                                  50,000            200          4           535
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Paid in only. Budget estimates assume five year pay-in period.
** IBRD includes approx. annual cost of a selective capital increase (SCI) to maintain shareholding at $23 million.
*** The IFC does not have callable capital.
Source: Treasury Department Staff


 Table 9.--Projected Net Private Financial Flows to the Emerging Markets and Estimates of MDB Lending, With and
                 Without Implementation of Management's General Capital Increase (GCI) Requests
                               Net private flows to emerging markets* ($ billion)
----------------------------------------------------------------------------------------------------------------
                                                              2007          2008         2009(f)       2010(f)
----------------------------------------------------------------------------------------------------------------
Total...................................................         1252           648           348           672
  Latin America.........................................          229           132           100           151
  Emerging Europe.......................................          446           270            20           179
  Africa/Middle East....................................          155            75            37            69
  Emerging Asia.........................................          422           171           191           273
----------------------------------------------------------------------------------------------------------------
* Source: IIF, http://www.iif.com/emr/article+204.php


                                      Table 10.--Regional MDB Commitments*
                                                   ($ billion)
----------------------------------------------------------------------------------------------------------------
                                                              2007          2008         2009(f)       2010(f)
----------------------------------------------------------------------------------------------------------------
Total...................................................         29.3          31.8          50.2          48.1
  IDB with GCI..........................................          8.7          11.2          15.1          16.0
  EBRD with GCI.........................................          8.0           7.4          11.9          14.1
  AfDB with GCI.........................................          2.6           2.7          10.3           5.3
  AsDB with GCI.........................................         10.0          10.5          12.9          12.7
Total w/o GCIs..........................................         29.3          31.8          50.2          27.5
  IDB without GCI.......................................          8.7          11.2          15.1          12.0
  EBRD without GCI......................................          8.0           7.4          11.9           9.0
  AfDB without GCI......................................          2.6           2.7          10.3           2.5
  AsDB without GCI......................................         10.0          10.5          12.9           4.0
----------------------------------------------------------------------------------------------------------------
* Source: MDBs, U.S. Treasury Department estimates

 Appendix VI.--Senate Foreign Relations Committee Hearings Chaired by 
                             Senator Lugar

    With the intent of strengthening reforms at the 
multilateral development banks (MDBs), particularly those 
related to corruption, Senator Lugar chaired six Senate Foreign 
Relations Committee hearings in the 108th and 109th Congress on 
May 13, 2004, July 21, 2004, September 28, 2004, April 21, 
2005, March 28, 2006, and July 12, 2006. The hearings included 
representatives from the Treasury Department, the United States 
Executive Directors to the MDBs, academics, non-governmental 
organizations and members of civil society. (A summary of 
recommendations from the hearings is available in Annex I.)
    The following witnesses testified at the first hearing on 
Thursday, May 13, 2004, entitled ``Combating Corruption in the 
Multilateral Development Banks:'' Ms. Carole Brookins, U.S. 
Executive Director, The World Bank; Mr. Hector Morales, 
Alternate U.S. Executive Director, Inter-American Development 
Bank; Dr. Jeffrey Winters, Associate Professor, Northwestern 
University; Mr. Manish Bapna, Executive Director, Bank 
Information Center; Ms. Nancy Zucker Boswell, Managing 
Director, Transparency International USA; Professor Jerome I. 
Levinson, Distinguished Lawyer in Residence, Washington College 
of Law, American University. Written testimony is available at 
http://www.foreign.senate.gov/hearings/2004/hrg040513a.html
    At the second hearing on Wednesday, July 21, 2004, named 
``Combating Multilateral Development Bank Corruption: U.S. 
Treasury Role and Internal Efforts,'' the following witnesses 
testified: The Honorable John B. Taylor, Under Secretary for 
International Affairs, Department of the Treasury; The 
Honorable Richard Thornburgh, Of Counsel, Kirkpatrick & 
Lockhart; Mr. Guido Penzhorn, Advocate and Senior Counsel, 
Durban Bar (South Africa); and Ms. Kimberly Ann Elliott, 
Research Fellow, Institute for International Economics. Written 
testimony is available at http://www.foreign.senate.gov/
hearings/2004/hrg040721a.html
    On Tuesday, September 28, 2004, at the third hearing called 
``Combating Corruption in the Multilateral Development Banks 
(III),'' Mr. Bruce M. Rich, International Program Manager, 
Environmental Defense and Dr. George Ayittey, Distinguished 
Economist in Residence, Economics Department, American 
University both testified. Written testimony is available at 
http://www.foreign.senate.gov/hearings/2004/hrg040928p.html
    The subsequent witnesses testified on Thursday, April 21, 
2005, at the fourth hearing entitled ``A Review of the Anti-
Corruption Strategies of the African Development Bank, Asian 
Development Bank and European Bank on Reconstruction and 
Development:'' The Honorable Paul Speltz, U.S. Executive 
Director, Asian Development Bank; The Honorable Mark Sullivan, 
III, U.S. Executive Director, European Bank for Reconstruction 
and Development; 
Mr. Hemantha Withanage, Executive Director Center for 
Environmental Justice Convenor, Sri Lankan Working Group on 
Trade and 
International Financial Institutions; and Mr. Tom Devine, Legal 
Director, Government Accountability Project. Written testimony 
is available at http://www.foreign.senate.gov/hearings/2005/hrg 
050421a.html
    At the fifth hearing called ``Multilateral Development 
Banks: Promoting Effectiveness and Fighting Corruption'' on 
Tuesday, March 28, 2006, the following witnesses testified:
    The Honorable Clay Lowery, Assistant Secretary for 
International Affairs, Department of the Treasury; The 
Honorable Cynthia Shepard Perry, U.S. Executive Director of the 
African Development Bank; Dr. William Easterly, Professor of 
Economics, Co-Director of the Development Research Institute, 
New York University; Dr. Ruth Levine, Acting President, 
Director of Programs and Senior Fellow, Center for Global 
Development; and Dr. Adam Lerrick, The Friends of Allan H. 
Meltzer Chair in Economics, Director of the Gailliot Center for 
Public Policy, Tepper School of Business, Carnegie Mellon 
University. Written testimony is available at http://
www.foreign.senate.gov/hearings/2006/hrg060328a. html
    At the sixth hearing named ``Multilateral Development 
Banks: Development Effectiveness of Infrastructure Projects'' 
on Wednesday, July 12, 2006, the following witnesses testified: 
The Honorable Clay Lowery, Assistant Secretary for 
International Affairs, Department of the Treasury; The 
Honorable Jaime Quijandr!a, Executive Director for Argentina, 
Bolivia, Chile, Paraguay, Peru and Uruguay, The World Bank; The 
Honorable Carlos Herrera Descalzi, Former Minister of Energy 
and Mines, Vice-Dean, National Engineers Association of Peru; 
Dr. Korinna Horta, Senior Economist, Environmental Defense; and 
Mr. Manish Bapna, Executive Director, Bank Information Center. 
Written testimony is available at http://
www.foreign.senate.gov/hearings/2006/hrg060712a.html
               Appendix VII.--Acronyms and Abbreviations

AfDF--African Development Fund

AfDB--African Development Bank

AFT--Transantiago Financial Administrator

AIDS--Acquired Immune Deficiency Syndrome

APs--Affected Persons

AsDB--Asian Development Bank

AsDF--Asian Development Fund

BIC--Bank Information Center

CIS--Commonwealth of Independent States

CPIA--Country Policy and Institutional Assessment

CPPR--Country Portfolio Performance Ratio

CRP--Compliance Review Board

CRR--Capital Resources Review

DIR--Detailed Implementation Review

EBRD--European Bank for Reconstruction and Development

ECF--Extended Credit Facility

EFF--Extended Fund Facility

EITI--Extractive Industry Transparency Initiative

ESF--Exogenous Shocks Facility

EU--European Union

EU-8--Poland, Czech Republic, Slovakia, Hungary, Estonia, 
        Latvia, Lithuania, Slovenia

FDI--Foreign Direct Investment

FSO--Fund for Special Operations

G20--Group of 20 (Argentina, Australia, Brazil, Canada, China, 
        France, Germany, India, Indonesia, Italy, Japan, 
        Mexico, Russia, Saudi Arabia, South Africa, Republic of 
        Korea, Turkey, United Kingdom, United States, and the 
        European Union)

GAO--Government Accountability Office

GCI--General Capital Increase

GDP--Gross Domestic Product

GOI--Government of India

GOL--Government of Lebanon

GRA--General Resources Account

HIV--Human Immunodeficiency Virus

H.R.--House Resolution

IADB--Inter-American Development Bank

IBRD--International Bank for Reconstruction and Development

IDA--International Development Association

IDB--Inter-American Development Bank

IEO--Independent Evaluation Office

IFAD--International Fund for Agricultural Development

IFC--International Finance Corporation

IFI--International Financial Institution

IIC--Inter-American Investment Corporation

IMF--International Monetary Fund

LHWP--Lesotho Highlands Water Project

LNG--Liquefied Natural Gas

LTTE--Liberation Tigers of Tamil Eleem

MDB--Multilateral Development Bank

MDRI--Multilateral Debt Relief Initiative

MIGA--Multilateral Investment Guarantee Agency

MIF--Multilateral Investment Fund

MTS--Mobile TeleSystems

NADBank--North American Development Bank

OC--Ordinary Capital

OED--Operations Evaluation Department

ROYG--Republic of Yemen Government

PRGF--Poverty Reduction and Growth Facility

RCF--Rapid Credit Facility

SBA--Standby Arrangements

SCF--Standby Credit Facility

SDR--Special Drawing Rights

SEI--Sustainable Energy Initiative

SFRC--Senate Foreign Relations Committee

SPF--Special Project Facilitator

UN--United Nations

US--United States

USAID--United States Agency on International Development

USED--United States Executive Director

WGMA--Working Group on Multilateral Assistance

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