[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
FY 2002 AUTHORIZATION REQUESTS FOR INTERNATIONAL PROGRAMS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INTERNATIONAL MONETARY POLICY AND TRADE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
JUNE 12, 2001
__________
Printed for the use of the Committee on Financial Services
Serial No. 107-23
_______
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73-338 WASHINGTON : 2001
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice BARNEY FRANK, Massachusetts
Chair PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska MAXINE WATERS, California
RICHARD H. BAKER, Louisiana CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma KEN BENTSEN, Texas
ROBERT W. NEY, Ohio JAMES H. MALONEY, Connecticut
BOB BARR, Georgia DARLENE HOOLEY, Oregon
SUE W. KELLY, New York JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio MAX SANDLIN, Texas
CHRISTOPHER COX, California GREGORY W. MEEKS, New York
DAVE WELDON, Florida BARBARA LEE, California
JIM RYUN, Kansas FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina CHARLES A. GONZALEZ, Texas
DOUG OSE, California STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York JOSEPH CROWLEY, New York
GARY G. MILLER, California WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania
SHELLEY MOORE CAPITO, West Virginia BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio
Terry Haines, Chief Counsel and Staff Director
Subcommittee on International Monetary Policy and Trade
DOUG BEREUTER, Nebraska, Chairman
DOUG OSE, California, Vice Chairman BERNARD SANDERS, Vermont
MARGE ROUKEMA, New Jersey MAXINE WATERS, California
RICHARD H. BAKER, Louisiana BARNEY FRANK, Massachusetts
MICHAEL N. CASTLE, Delaware MELVIN L. WATT, North Carolina
JIM RYUN, Kansas JULIA CARSON, Indiana
DONALD A. MANZULLO, Illinois BARBARA LEE, California
JUDY BIGGERT, Illinois PAUL E. KANJORSKI, Pennsylvania
MARK GREEN, Wisconsin BRAD SHERMAN, California
PATRICK J. TOOMEY, Pennsylvania JANICE D. SCHAKOWSKY, Illinois
CHRISTOPHER SHAYS, Connecticut CAROLYN B. MALONEY, New York
GARY G. MILLER, California LUIS V. GUTIERREZ, Illinois
SHELLEY MOORE CAPITO, West Virginia KEN BENTSEN, Texas
MIKE FERGUSON, New Jersey
C O N T E N T S
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Page
Hearing held on:
June 12, 2001................................................ 1
Appendix
June 12, 2001................................................ 29
WITNESS
Tuesday, June 12, 2001
Schuerch, Hon. William E., Deputy Assistant Secretary for
International
Development, Debt, and Environmental Policy, U.S. Department of
the Treasury................................................... 7
APPENDIX
Prepared statements:
Bereuter, Hon. Doug.......................................... 30
Waters, Hon. Maxine.......................................... 33
Schuerch, Hon. William E..................................... 39
Additional Material Submitted for the Record
Frank, Hon. Barney:
United States Catholic Conference letter, June 5, 2001....... 35
Schuerch, Hon. William E.:
Response to United States Catholic Conference, August 28,
2001....................................................... 43
FY 2002 AUTHORIZATION REQUESTS FOR INTERNATIONAL PROGRAMS
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TUESDAY, JUNE 12, 2001
U.S. House of Representatives,
Subcommittee on International Monetary Policy and
Trade,6Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to call, at 2:00 p.m., in
room 2128, Rayburn House Office Building, Hon. Doug Bereuter,
[chairman of the subcommittee], presiding.
Present: Chairman Bereuter; Representatives Roukema,
Biggert, Green, Shays, Capito, Sanders, Waters, Frank, Carson,
Schakowsky, and C. Maloney of New York.
Chairman Bereuter. The hearing will come to order.
The Subcommittee on International Monetary Policy and Trade
meets today in open session to receive testimony from the
Department of Treasury on the fiscal year 2002 authorization
request for the international financial institutions and on
activities in Africa of the African Development Bank and Fund,
the World Bank, and the International Monetary Fund.
The International Monetary Policy and Trade Subcommittee
has jurisdiction over the international financial institutions.
The Congress has on its agenda this year the authorization of
the following: $165 million in multilateral funding for the
Heavily Indebted Poor Countries (HIPC) trust fund, $412 million
for the Asian Development Fund, and $30 million for the
International Fund for Agricultural Development, (IFAD).
This also will be the third subcommittee hearing this year
which will focus significant attention on Africa. The first
hearing gave us a private-sector perspective on the activities
of the African Development Bank and Fund. The second hearing
included a private-sector panel on the World Bank and IMF
activities in Africa, with particular emphasis on poverty
reduction, debt relief, and HIV/AIDS.
Before introducing our witness from the Department of the
Treasury, I'd like to provide the following background on these
issues which are important to today's hearing, HIPC debt
relief, the Asian Development Fund, IFAD, the African
Development Bank and Fund, and HIV/AIDS.
First, the HIPC initiative has provided both bilateral and
multilateral debt relief to 18 countries in sub-Saharan Africa.
This year, further authorization and appropriation for the
multilateral debt is still needed to complete the U.S. pledge
of $600 million to the HIPC trust fund.
The Administration has requested $224 million be
appropriated in fiscal year 2002, with $165 million to be
required for authorization this year.
Second, the Asian Development Fund, of which the United
States is a non-regional member, is a concessional arm of the
Asian Development Bank. The fund offers loans with a term of 24
to 32 years, with an 8-year grace period. The interest rates
are 1 percent to 1\1/2\ percent.
This fund is focused on poverty reduction with particular
emphasis on health and education. The fund provides loans to 29
borrower countries, including Vietnam, Bangladesh, Sri Lanka,
Pakistan, Nepal and Laos. India and China are not allowed
access to the fund because of their access to the capital
markets and due to the sheer size of their economies.
Last September, the United States agreed to a 4-year, $412
million contribution to the seventh replenishment of the Asian
Development Fund. The Administration has requested authorizing
legislation for this U.S. commitment of $412 million.
This is approximately 14.3 percent of the total funding of
the seventh replenishment.
The Asian Development Fund is capitalized through both
contributions from donor countries, as well as loan repayments.
Third, IFAD provides loans and grants for agricultural and
rural projects for the world's poor who live in rural areas.
Almost 75 percent of the world's 1.2 billion poorest people
live in rural areas.
The mandate of IFAD is to increase the incomes of the
small-scale producers and subsistence farmers. Since its
founding, IFAD has made $609 billion in commitments to finance
575 projects in 114 countries. Approximately two-thirds of IFAD
loans are concessional.
Last year, the U.S. negotiated the fifth 2-year
replenishment for IFAD, which required $30 million for
contributions as the U.S. share.
The Administration has requested the Congress to authorize
this fifth replenishment.
Fourth is the African Development Bank and Fund, which were
previously explored, as I mentioned, by the subcommittee in
April. The U.S. is, of course, a non-regional member. At the
earlier hearing, the subcommittee received testimony that the
African Development Bank and Fund are the most fiscally
troubled and perhaps the most managerially challenged of all
the multilateral development banks.
Since the annual meeting of the African Development Bank
and Fund was held at the end of May, the subcommittee is
looking forward to the testimony of the Treasury Department on
both this annual meeting and to any comments as to how the
African Development Bank and Fund is addressing these
challenges.
Lastly, the subcommittee conducted a hearing in May which
focused on the World Bank and the IMF activities in Africa.
Undoubtedly, we will have more hearings on that subject and
their activities in other parts of the world.
A critical issue discussed at the hearing was multilateral
efforts on HIV/AIDS.
At this hearing, the joint United Nations program on HIV/
AIDS estimated that 36 million people are now living with HIV/
AIDS. Seventy percent of these people are in sub-Saharan
Africa.
We are reminded that on May 11 of this year, the President
pledged an initial $200 million to a global trust fund to
combat HIV/AIDS, malaria, and tuberculosis. Furthermore, last
year, Congress passed legislation, P.L. 106-264, which directed
the Secretary of the Treasury to seek to negotiate the creation
of a multilateral HIV/AIDS trust fund at the World Bank.
The subcommittee is interested in the status of these
negotiations. When Secretary O'Neill testified before the
Financial Services Committee on May 22 of this year, he stated
that the issue of where this HIV/AIDS trust fund would be
housed is still undetermined, or at least it was at that point.
To assist the subcommittee in examining these issues, I'm
pleased that we'll have the opportunity to hear from William E.
Schuerch.
Mr. Schuerch, is that correct? Schuerch?
Mr. Schuerch. Schuerch, yes.
Chairman Bereuter. The Deputy Assistant Secretary for
International Development, Debt, and Environmental Policy for
the Department of the Treasury. Mr. Schuerch has served in this
capacity since September 16th, 1996, and he has responsibility
for formulation of international debt policy and issues
pertaining to U.S. participation in the regional multilateral
development banks.
Prior to his service at Treasury, Mr. Schuerch was a staff
member of the House Appropriations Committee for a lengthy
period of time. He received his Bachelor's and Master's degree
from the Maxwell School at Syracuse University.
Mr. Schuerch, we welcome you at the hearing. And I'll say
that without objection, your written statement will be included
in its entirety for the record.
But before your testimony, I turn to the distinguished
Ranking Member of the subcommittee, the gentleman from Vermont,
Mr. Sanders, for any comments that he might make.
[The prepared statement of Hon. Doug Bereuter can be found
on page 30 in the appendix.]
Mr. Sanders. Thank you very much, Mr. Chairman. And
welcome, Mr. Schuerch. It's nice of you to be with us.
Mr. Chairman, as this subcommittee considers the
Administration's funding request for various international
financial institutions, we should ask whether these
institutions are using the funding they receive from American
taxpayers as effectively as they should, and whether reforms
are, in fact, needed.
I believe there is a growing sense in Congress and the
international financial institutions, especially the IMF and
the World Bank, that they are not doing the jobs they were
established to do, and that they have taken on new jobs and new
responsibilities that they are not able to do.
The area of public health and the HIV/AIDS crisis is a case
in point.
At a recent hearing of this subcommittee, Dr. Dyna Ahrin of
Harvard pointed out that one of the main reasons many poor
countries lack the resources they need to fight HIV/AIDS is
that for 20 years, the IMF and the World Bank have been forcing
poor countries to cut back on spending for public health and
that many of their infrastructures for public health are in
very bad shape.
Debt relief for the poorest countries in the world is
another case in point.
A recent report by the U.S. General Accounting Office found
that the IMF and World Bank debt reduction program for heavily
indebted poor countries, known as HIPC, is likely to leave
these poor countries in just as much debt as when they started
the program.
Most of the countries that are now participating in the IMF
and World Bank debt reduction program spend more on debt
service than they spend on health care for their people and the
majority of the people in these countries subsist on less than
a dollar a day.
The most urgent needs of the poorest people in the poorest
countries are not being met, so that the IMF and the World Bank
can get their bad loans repaid.
Might it not be time, Mr. Chairman, to require the IMF and
the World Bank to use their own resources to cancel the debts
that they are owed by the world's most impoverished countries?
The international financial institutions are among the most
powerful institutions in the world, with, in many ways,
effective control over the economies of the poorest nations in
the world. And yet, these institutions make major decisions
that affect the lives of hundreds of millions of the most
vulnerable people on our planet, as well as working people
throughout the world in total secrecy.
And that's a point that we want to underline.
These organizations meet in total secrecy, making decisions
which impact huge numbers of people.
For years, several of my colleagues in Congress and I have
offered amendments to legislation calling for the U.S.
executive directors of the international financial institutions
to use their votes to support reform, only to learn that there
are almost never any votes taken at these institutions.
There are no votes and there is little or no
accountability.
You can't instruct somebody to use a vote if no votes are
taken.
Now it appears that the U.S. executive director at the
World Bank and the U.S. Treasury Department may have largely
ignored a very specific requirement enacted into law by
Congress last year to stop the IMF and the World Bank from
imposing user fees on primary health care.
Mr. Chairman, the World Bank continues to support the
imposition of user fees for basic health care, despite the fact
that this policy has led to a decreased access to primary
health care for the poorest people in the poorest countries.
As a result, Congress last year passed legislation
requiring the United States executive directors at the
international financial institutions to oppose the imposition
of user fees on poor people for primary health care and primary
education as a condition for World Bank loans and grants.
The conference committee that reported the law also
directed that the U.S. Treasury Department notify the
congressional committees on appropriations within 10 days if
any loans requiring user fees are approved by any of the
international financial institutions.
But late last year, the World Bank appears to have approved
financing for Tanzania, which included user fees on primary
health, albeit, with an exception for poor people.
It also appears that the World Bank did this without
opposition from the U.S. executive director at the bank. And it
further appears that the U.S. Treasury Department may have
failed to notify the appropriations committees that this, in
fact, had happened.
Now I say that it appears that these things were done, Mr.
Chairman, because, as you know, the proceedings of the board of
the World Bank are secret. Their meetings are closed to the
public and no minutes of the meetings are publicly available.
Even a summary of the meeting is kept secret.
However, according to a recent report by the Center for
Economic and Policy Research, World Bank staff informed the
World Bank board that the funding for Tanzania included user
fees for health care and no objection was raised by the U.S.
executive director at the World Bank, despite the requirement
of U.S. law.
And according to the same report, the U.S. Treasury
Department failed to notify the congressional appropriations
committees of the existence of user fees in the World Bank's
financing for Tanzania.
Mr. Chairman, I am troubled that the U.S. executive
director at the World Bank and the U.S. Treasury Department may
have largely ignored a U.S. law to prevent the imposition of
user fees on primary health care in poor countries.
I am also concerned about the entire cloak of secrecy that
surrounds decisionmaking at the international financial
institutions, which makes it so difficult to know whether U.S.
law is, in fact, being followed or ignored.
Perhaps it is time for this subcommittee, Mr. Chairman, to
consider what reforms might be necessary to open these
institutions to the public and to make these institutions
accountabe to the public when we consider the Administration's
request for funding.
Thank you very much, Mr. Chairman.
Chairman Bereuter. Thank you very much, Mr. Sanders.
Under the subcommittee rules, other Members of the
subcommittee are entitled to opening statements of 3 minutes.
Are there Members who wish to be recognized?
The gentleman from Massachusetts, Mr. Frank, is recognized.
Mr. Frank. Thank you, Mr. Speaker.
I want to focus on what I think is the overriding moral
importance of building on the work this subcommittee really
initiated in a bipartisan way on the debt relief for the highly
indebted poor countries.
Some issues are difficult. Some issues are complex. Taking
loan repayments for loans that were imprudently made, sometimes
for cold war political reasons, from the poorest people in the
world is just wrong. And that's not a complicated question.
I'm glad that we have launched debt relief. Clearly, people
are better off with the debt relief than they would have been
without it. But I think that is a good argument for going
forward with it.
I would ask at this point, Mr. Chairman, to insert into the
record a copy of the letter that was sent from the United
States Catholic Conference signed by the Cardinal Archbishop of
Boston, Bernard Cardinal Law, who is Chairman of the
International Policy Committee, to Secretary O'Neill, urging a
better position on debt relief.
Chairman Bereuter. Without objection, that will be the
case.
[The information referred to can be found on page 35 in the
appendix.]
Mr. Frank. Thank you. And I want to stress, we had a debate
in this Congress over how much of a tax cut we could afford.
Some people wanted to hold it down under a trillion. Some
people wanted to go to $2 trillion.
A country which is fortunate and smart and efficient enough
to be debating the disposition of a trillion or two dollars, as
we legitimately do, oughtn't to be begrudging the relatively
small piece of that, a small piece of a small piece of a small
piece of that, that would go to alleviating desperate hunger
and poverty.
I believe we should be moving to mandate, to the extent
that we can, that the international financial institutions get
rid of 100 percent of the debt.
I believe that we ought to be getting some of that debt
relief done earlier.
People will respond that some of these countries aren't
well governed. That is true. But I do not understand how you
improve the lot of people unfortunate enough to live in poorly
governed countries by taking some of the resources out of those
countries and paying off a debt that never should have been
contracted in the first place.
That is, I do not understand how it is going to make things
better to extract more money from the societies.
I am favor of the policies that try to make sure that we
accompany this debt relief with the right kind of guidance. But
it is overwhelmingly important that we do this.
We had some skepticism about this. I think those of us who
thought that debt relief was morally important and workable
have been proven right. It has clearly had some very positive
impact. There are some criticisms of debt relief. The
criticisms basically come down to, it's not happening quickly
enough.
I would note that even as we talk about getting to the 100
percent, the letter from Cardinal Law does mention within the
existing framework adopting a principle that has been
incorporated into the legislation introduced by the former
Chair of this Full Committee, the gentleman from Iowa, Mr.
Leach, and the recently retired Senator from Florida, Mr. Mack,
which says that in no case should the highly indebted countries
be asked to pay more than 10 percent of their government
revenues annually for debt relief.
It seems to me that we ought to be able to implement that
one right away and, indeed, I think we ought to be able to
implement the 100 percent.
Thank you, Mr. Chairman.
Chairman Bereuter. Thank you. Are there other Members who
wish to be recognized for opening statements.
The gentleman from Connecticut, Mr. Shays, is recognized.
Mr. Shays. Thank you. Briefly, Mr. Chairman, I believe that
there needs to be debt relief. I don't know if it should be 100
percent, but it should be darned closed to it.
My problem is that we are refinancing loans and extending
debt so that they can pay debt. And it strikes me that the IMF
must realize that some of this money simply isn't going to be
paid.
And I hope we address that.
Chairman Bereuter. Thank you, Mr. Shays.
Secretary Schuerch, we're ready to hear your testimony. You
may proceed as you wish.
STATEMENT OF HON. WILLIAM E. SCHUERCH, DEPUTY ASSISTANT
SECRETARY FOR INTERNATIONAL DEVELOPMENT, DEBT, AND
ENVIRONMENTAL POLICY, U.S. DEPARTMENT OF THE TREASURY
Mr. Schuerch. Chairman Bereuter, Ranking Member Sanders,
Members of the subcommittee, I thank you for the opportunity to
testify before you today for the specific authorization
requirements requiring action today.
Chairman Bereuter. Would you pull the mike a little closer,
please?
Mr. Schuerch. OK.
Chairman Bereuter. Thank you.
Mr. Schuerch. Thank you also for already submitting my
written statement for the record.
I'll keep my opening remarks brief and allow time for
questions and discussion, a full discussion.
There are three authorizing requests, as you have
reiterated, requiring action this year: a contribution to the
seventh replenishment to the Asian Development Fund; a
contribution to the fifth replenishment of the International
Fund for Agricultural Development; a contribution to complete
the total U.S. pledge of $600 million to the HIPC trust fund.
We request the authorizations because they represent
commitments negotiated by the United States Government that
should be adhered to and they support United States' interests.
Secretary O'Neill has said the Administration is working
hard to ensure that hard-earned U.S. taxpayers' dollars go to
the multilateral development banks (MDBs) more effectively,
more efficiently, more accountably, and meet the core objective
of improving living standards around the world.
In that regard, you'll see us pushing for more rigorous use
of results-based performance indicators, improve coordination
among the institutions both at a country level and ensuring the
best practice procedures, and better delineation of respective
roles of the institutions.
The Administration will strive to focus the banks on a more
limited set of activities that yield high-impact productivity
and poverty reduction gains.
Now that the Treasury Department's undersecretary for
international affairs, John Taylor, has been confirmed, he'll
be working closely with the Secretary to develop, implement and
coordinate the Secretary's international financial institutions
reform agenda.
As many of you on the subcommittee are aware, Africa
presents a tremendous challenge in pursuing an effective,
efficient, and accountable development agenda. Conflict,
natural disasters, the plague of infectious disease, lagging
growth, low productivity, unsustainable debt and unfavorable
trends in commodity prices are the realities facing the design
of a credible assistance program for most of Africa.
But the overall economic picture in sub-Saharan Africa is
not all bleak. Average growth in the region was an estimated
3.3 percent in the year 2000, expected to rise to 4.3 percent
in 2001.
Those growth rates compare to estimated average growth of
2.6 percent in the 10 years from 1992 to 2001.
The main reason for the improvement appears to be the
continuing pattern of reform in many countries, resulting in
more flexible exchange rates, better fiscal control, greater
economic stability, more open and transparent trade and
investment regimes, and further reduction in the direct
economic role of governments.
There are still significant challenges, but the
Administration is committed to facilitating growth and
development in Africa.
President Bush's pledge of a $200 million initial
contribution for the new global fund to fight HIV/AIDS and the
African Growth and Opportunity Act are important pillars in our
partnership with Africa.
Equally important is the continued U.S. leadership in the
World Bank and the African Development Bank to shape operations
and direct the resources to achieve higher productivity, growth
and reduce poverty in the region.
Now that Undersecretary Taylor is confirmed, he'll be
striving to achieve the broad goals already laid out by the
Secretary, in addition to more detailed policy proposals that
are currently being developed and are evolving.
I'm pleased to have the opportunity to hear your views
today, provide additional background information that I can,
and to stress the Administration's support for the
reauthorization request before the subcommittee.
Before closing, I'd also like to apologize for the written
testimony's very late arrival.
Thank you.
[The prepared statement of Hon. William E. Schuerch can be
found on page 39 in the appendix.]
Chairman Bereuter. Thank you, Mr. Secretary. We will now
proceed under the 5-minute rule.
Mr. Schuerch, you recently led, or at least were involved,
I think you perhaps led the delegation at the annual meeting of
the African Development Bank group. I'd like to know what you
were looking for in the way of results.
But in particular, I wonder if you have any kind of an
assessment as to whether or not the reforms undertaken by Bank
President Kabbaj have translated into results.
We've had a poor record overall compared to the other
funds, but there was some optimism that his leadership would
result in positive changes in the management of the bank and in
the use of their resources.
What can you tell us in the way of early conclusions about
the recent meeting?
Mr. Schuerch. Let me directly address the management issues
that you've raised at the bank.
First of all, I think we need to recognize that the African
bank has a different history than the other institutions. It is
one that was created by the regional countries and existed
without contribution from developed countries, major developed
countries for a considerable period of time.
It got into a situation in the middle 1990s whereby
management had got to a state where the major developed
countries were unwilling to continue to contribute and, as you
know, that resulted in the removal of the president, a modest
fund program, and then followed up with significant management
reforms.
Mr. Kabbaj was a candidate who came in on a reform agenda.
He removed most of the upper management of the institution. He
went through a process that scrubbed the bad loans out of the
institution, about $2 billion worth of those loans.
And since that point in time, we have moved forward under a
new credit policy, one that mirrors the credit policy of the
World Bank to support the institution both with a general
capital increase for the bank and with a fund increase.
We're now in the process of negotiating and at the annual
meeting, or right after the annual meeting, was the first
discussion on a new replenishment to be considered for the
following budget year.
I think Mr. Kabbaj has been an excellent president of this
institution. He had done a very strong job of shaking it up,
setting it on a path.
I think the biggest criticism that is there is simply the
starting point. It was a very difficult starting point and it
takes quite a few years to set an institution on a path in
terms of internal governance, but then also to move that
forward into assuring that its programs on a country-by-country
basis are effective and result in good outcome, development
outcomes.
Most of the large development programs take a considerable
number of years. So, in fact, many of the early ones under his
presidency are only now kicking in.
So I think that, in terms of development outcomes, it is
more of a future result that we're looking for, albeit, one
that should be starting to kick in now.
In terms of internal governance, I would say that there
have been more reforms within this institution than any other
development institution and honestly, that they were needed.
I would also tell the subcommittee that he is in the
process of looking at a reorganization of the institution to
make it further effective.
Thank you.
Chairman Bereuter. Those are optimistic or encouraging
comments. Making reforms at an institution that had been
primarily an instrument for distributing money among the
African country members is not necessarily a popular move.
To what degree do you think he has gained the support of
the African members himself? To what extent do the non-regional
members like the United States need to do more to sustain and
support and encourage his efforts and make sure that they're
not reversed by what might be termed as a tendency to continue
to want to go back to the old system of pork barrel
distribution, I guess you'd call it?
Mr. Schuerch. Let me say that in the capital increase for
the bank itself, in the last cycle, we went after something
that would assure the donors that we would not have backsliding
in this institution.
And in the context of negotiating a capital increase that
increased the shareholding of the major donors to 40 percent,
we also achieved agreement on what we refer to as a super-
majority voting structure.
Basically, any executive director can choose to take
advantage of a provision that would require a 70-percent vote
of the board.
That basically means that regional countries do not have
the capacity within their own votes to change credit policy or
push back the major reforms that have occurred.
So I think we have assurance of this very stable base going
forward. And, frankly, I think we have less disagreement, more
cooperation, and more cohesion and unity in this bank than we
have seen in the past by very substantial margins.
This president has been very effective in working his board
of governors, but more importantly, on a daily basis, his board
of executive directors. And when there are sort of strong
initial differences, he goes into individual meetings if that's
necessary.
We've seen that happen. We've seen him effective in it.
So I think we actually have not only a change in the bank,
but a change in the attitudes from the regional countries.
We have much less contentiousness in terms of, for example,
the language of African character of the bank and much more
joint dedication toward government structures and performance
structures.
In fact, this bank adopted a performance allocation system
for its fund very rapidly with strong governance requirements
within that allocation system.
Thank you.
Chairman Bereuter. That's very positive. Thank you very
much, Mr. Schuerch.
The gentleman from Vermont is recognized.
Mr. Sanders. Thank you, Mr. Chairman.
Mr. Chairman, it is more than appropriate that Members of
Congress can debate policy and what they believe. But it is not
acceptable if Congress passes laws, that those laws not be
implemented by this Administration or any Administration.
And for Mr. Schuerch's benefit, let me mention that the
issues I'm going to raise right now, I raised quite as strongly
several years ago under the Clinton Administration.
So I wonder if you could help me provide us with some
information.
Mr. Schuerch, as you know, legislation was passed requiring
the Secretary of the Treasury to instruct the United States
executive director at each international financial institution
to oppose any loan of these institutions that would require
user fees or service charges on poor people for primary
education or primary health care, and so forth, and so forth.
Mr. Schuerch, to the best of your knowledge, did the World
Bank approve funding for Tanzania with a provision calling for
user fees on primary health care and did the U.S. executive
director do anything to oppose those user fees?
Mr. Schuerch. First of all, on the broader issue,
obviously, we're in full agreement on the need to comply with
legislation as signed into law.
On the specifics of the Tanzania case, as I understand it,
the discussion in the bank board was a discussion about the
poverty reduction strategy paper.
That document is not a bank document. That document is a
document that is a new document that we use for countries
themselves to put together their own plans, nationwide plans
with a lot of citizen participation for how they want to spend
resources from a whole wide range of donors and specifically
also savings under the HIPC program.
So there was no vote in the World Bank board on a document
that is owned by the government of Tanzania. There was a
discussion of that document and I'm told that it does include
user fees. But it is not a document or vote, because there was
no vote that directly applies World Bank money.
The U.S., discovering the user fees, had a discussion, a
bilateral discussion, with the government of Tanzania, I'm
told, and raised the questions of the user fees.
The government told us that they permitted and would exempt
the poor from the effect of the user fees. And my understanding
is that within the context of that planned program, the medical
officers that are involved in making the decisions can, in
fact, waive those fees.
Mr. Sanders. We have a couple of problems here. And again,
this is not certainly just the work of this Administration, but
previous Administrations as well.
As I understand it, Mr. Schuerch, you're telling me there
was no vote. But there very rarely is a vote.
Isn't that the problem?
Mr. Schuerch. Not in this case. I mean, I'll get to the
broader issue of votes and how they do and don't happen.
But in this case, there was no loan from the bank that was
directly relevant at this time. There may be one that we will
see in the future. But what we had was a planning document of
the government of Tanzania that was created and was being
discussed.
So there was no financial decisionmaking action related to
a lending activity of the bank.
Mr. Sanders. Because there was no loan at this point.
Mr. Schuerch. Yes.
Mr. Sanders. And will the Administration oppose any loan
that includes user fees for health care and education?
Mr. Schuerch. This Administration has the same policy as
the past Administration and it is consistent with the
legislation and with this subcommittee's views on user fees.
The answer is yes.
Mr. Sanders. The answer is yes. OK. Could maybe you give
this subcommittee some advice?
Several years ago, we had the United States executive
director to the IMF before the subcommittee. And what we
learned there is, in fact, that despite hundreds and hundreds
of very important decisions, there were only a handful of
votes.
Now can you advice this subcommittee as to how they could
get policy implemented at a time, say, with the IMF, where the
U.S. has veto power if votes are not, in fact, taken? And
further advise this subcommittee, if you might, about the issue
of transparency and openness and what the Administration will
be doing so that the Congress, the American people, and the
people of the world will actually have an understanding of the
kinds of discussion that takes place currently behind closed
doors.
Chairman Bereuter. The time of the gentleman has expired.
But you may answer fully.
Mr. Schuerch. Thank you. I think what I need to say is that
before explaining the votes issue, there is a long history of
the U.S. Government pushing for transparency in the
institutions and there are a lot of specifics.
I'll give you examples right now.
We're starting a new International Development Association
replenishment. Those discussions could be characterized by some
as private discussions. We've made a new set of decisions.
Documents that are provided to the IDA deputies at the request
of the deputies are now on the World Wide Web so the public
sees precisely what the deputies see.
A summary of each meeting is made public on the World Wide
Web as well.
The draft, penultimate version of the draft donors report
will go up on the World Wide Web for people to see and comment
as well.
I think by any standard, that's extraordinary transparency
and openness. Comments that are made by the public on those
documents are summarized and brought to the deputies' attention
and in a meeting we had in Ethiopia last week, we were told
there were 400 sets of such comments on the first set of
documents that were made public.
So progress is being made, albeit not in every area. We are
pushing forward on a policy that will encourage significant
more numbers of policy documents and draft documents and
country assistance strategies to also be public.
Let me step back and address the votes issue.
I think it is a little bit of an oversimplification to say
that we don't have votes in the institutions. But we certainly
don't have votes in the nature that you do on the floor of the
House or the Senate, where you have a tote board that has
everybody's name and shows their voting on it.
We take seriously all of the legislative directions that
exist, and there are now a considerable list of them. I'm sure
over 20 or more. And in each case, what happens in the board is
there's a discussion about a particular loan.
Each chair in that board is able to express their views.
They don't say yes or no, per se. But it is clear from their
views as to what their position is pretty much.
So generally, there are not close votes, if you will.
What we do in the institutions is we record a United States
vote, even though no other government is recording a vote. So
that indicates that we are opposed or an abstention or a pure
no vote, in those cases where legislation requires it.
Mr. Sanders. You record a vote when votes are not being
taken.
Is that what you're saying?
Mr. Schuerch. When there is a discussion on a loan that we
have reason to object to because of legislation and for other
reasons, we request that the record show that the U.S. is
abstaining or voting no, yes.
Mr. Sanders. I ask the indulgence of the Chair.
How often would you say in the last 5 years will the record
show that the United States has voted no?
Mr. Schuerch. We give a report to the Congress annually
that goes down a long list of these.
I would be shocked if in a 5-year period we're not in the
several hundred range.
Mr. Sanders. That you have recorded votes of no on several
hundred occasions?
Mr. Schuerch. Over 5 years, yes, I would be sure of that,
yes.
Chairman Bereuter. Thank you very much. The gentleman from
Wisconsin, Mr. Green, is recognized.
Mr. Green. Thank you, Mr. Chairman.
At the end of May, you led the U.S. delegation to the
African Development Bank Group annual meeting.
Could you describe what the objectives were for the
Administration at that meeting and what progress was made on
those goals?
Mr. Schuerch. Let me say that annual meetings are sort of
interesting events.
They are, in one sense, business meetings of an
institution. But in another sense, they are much broader than
that.
So we go to such a meeting. Each government has an
opportunity to give an official statement, a speech, usually 5
minutes or so, that gives them the opportunity to present a set
of views.
There's not a decisionmaking forum at that point in time.
Most decisions that are discreet decisions are made in the
boards of executive directors or are made in the context of
replenishment increases.
So we went with an agenda to continue to support the
President's reform efforts in this institution, to continue to
push it to coordinate particularly well with the other
institutions. They are working on a further memorandum of
agreement. It has been agreed to, and it is being worked on
some more with the World Bank.
There is also one being discussed with the International
Fund for Agricultural Development.
So to encourage them to continue on their reform program,
to consult with them about their reorganization plans, which I
think will be voted on the board in later July in the bank, and
to push on the performance allocation system and on the sort of
improved development effectiveness issues that are there.
Mr. Green. You made some reference, as you have elsewhere,
to the President's reforms at the African Development Bank.
What tangible results have you seen from those reforms?
What can we sort of hang our hat on in terms of progress being
made?
Mr. Schuerch. You came in a little later. I had mentioned
that in the process of reforming this institution, he had
basically removed the upper management of the institution and
replaced it.
There has also been a considerable staff change since that
at lower levels. I also said that they took the portfolio,
which included significant numbers of problematic loans and
scrubbed it and closed those loans off to the tune of as much
as, I think, $2 billion over a several-year period.
He has been very serious about credit policy and has
aligned it with World Bank credit policy.
So we no longer have countries who shouldn't be borrowing
hard loans, getting hard loans from this institution. We no
longer have hard-loan countries getting soft loans from this
institution, as did occur in the past.
At this point, he has been more focused on internal
management and not on quality of implementation than probably
any other president of an institution.
Mr. Green. Good. Thank you. Thanks, Mr. Chairman.
Chairman Bereuter. Thank you, Mr. Green. And the Secretary
also mentioned that a super-majority vote can be required by
any member, which would then mean that the African members
could not carry a vote on their own. They'd have to have the
support of at least some of the non-regional members, as I
understand it.
The gentleman from Massachusetts, Mr. Frank, is recognized.
Mr. Frank. Thank you. Mr. Schuerch, as I understand your
statement, the position of Secretary O'Neill on behalf of this
Administration is to be supportive of the HIPC program, as far
as we have approved it, and to hold off on whether or not to go
to the 100-percent phase based on, what?
Mr. Schuerch. I think you're accurately characterizing
where the Secretary is.
He's come in. We have a program that has essentially had
about 18 months since its first appropriation. We have now 23
countries to decision points. We only have two countries to
completion points.
We have significant success with the help of this
subcommittee and this Full Committee to get full funding last
year, in particular, and we're moving forward.
We have a request in front of you.
Mr. Frank. No, no, Mr. Schuerch. Maybe I was inarticulate.
Mr. Schuerch. OK.
Mr. Frank. The question was, what will be the factors that
will be taken into account by the Secretary in deciding whether
to support an increase in the amount of debt relief?
I'm familiar with the history that you're recounting. You
do it well, but this ain't the History Channel.
So what will lead to a decision about whether or not to go
further? What factors will he be looking at?
Mr. Schuerch. I don't know that I can fully second-guess
the Secretary's thinking, personally.
Mr. Frank. OK. That's a good answer.
Mr. Schuerch. But I think that's probably the fairest
thing.
I think that as he has focused on implementation, they are
committed to the existing program.
Mr. Frank. No. OK. I don't mean to be rude, but we have 5
minutes and I know what the program is.
I'll tell you, I'm a little troubled by this and I'm glad
to hear this affirmation of the existing program, because I
read of the appointment of Ann Kruger to be the number-two
official of the IMF. And as is appropriately the case, the U.S.
Government, in power at a time when such an appointment is
made, has some influence over it. And it was represented that
Ms. Kruger was appointed with the support of this
Administration.
I was troubled to read that she had expressed opposition to
the debt relief program. Now that may have been a misreporting.
If so, I think it would be useful to clear it up.
But are you familiar at all with Ms. Kruger's position? Was
she accurately reported as being opposed to debt relief?
Can you enlighten me at all on this?
Mr. Schuerch. I didn't catch that particular article. But
if one observes closely, there are differences in views among a
range of officials on a range of issues.
That's not surprising.
The President of the United States, however, has expressed
himself on the HIPC program with full support.
Mr. Frank. All right. That's reassuring. I would ask you,
if we could, and maybe you can elaborate in writing, what are
Ms. Kruger's views.
If, in fact, it is accurate that she has been opposed to
this, it would be disturbing to me if the Administration would
have sponsored her appointment to the number-two position in
the implementation of this.
Let me ask you my final question.
I quoted from a letter that Cardinal Law of Boston has sent
on behalf of the Catholic Conference to Secretary O'Neill
advocating that even without any upgrade in the amount of debt
relief, that we should adopt the principle that Mr. Leach and
former Senator Mack put forward, that in no case should there
be a greater than 10 percent of government revenues drained
from the HIPC countries to debt relief.
What's your response to that proposal from the Catholic
Conference?
Mr. Schuerch. I've seen the letter and of course it does
support, as you said earlier, legislation.
Mr. Frank. Mr. Schuerch, please don't just restate. We only
have 5 minutes.
Mr. Schuerch. OK.
Mr. Frank. I know what the letter said. What do you think
about the 10-percent proposal?
Mr. Schuerch. We think it is an artificial trigger. There
are many poor countries that do not qualify for HIPC that are
using more than 10 percent of their debt service.
There are many HIPC IDA countries that you would have to
expand. Otherwise, there would be questions of fairness. There
are differences among countries about how much revenue they
raise out of their populations as well, which directly affects
essentially the denominator of that equation.
Mr. Frank. So you can't support a 10-percent limit on some
poor countries, because that would be unfair to other poor
countries that aren't getting the benefit of it?
Can't we kind of level it down instead of leveling up?
Mr. Schuerch. Yes, there is an equity question among poor
countries when we've already given deep debt reduction to sets
of countries that get them well below the average for other
poor countries on debt service.
Mr. Frank. Well, but you're comparing the HIPC to the non-
HIPC.
I presume by putting people in the HIPC countries, we have
all agreed that this is a separate set of countries and the
comparisons ought to be made between and among those countries.
So I would differ with your notion that you decide this by
looking at the HIPC versus the non-HIPC. We've made a decision
as to who ought to be in the HIPC. What about within the HIPC
countries?
Is there some great inequity? If you apply the 10-percent
limit to all the HIPC countries, how could some of them then be
treated unfairly? By definition, they wouldn't be paying more
than 10 percent.
Mr. Schuerch. Well, we've used three different sets of
indicators on how to qualify countries for HIPC. And you could
pick any one of them and you would have quite varied
performance against that.
So you can pick 10 percent and if you want to align
everybody on that basis, you get one result that is different
than exports and so forth.
Mr. Frank. Right. And what the Cardinal is suggesting----
Mr. Schuerch. But we've blended it.
Mr. Frank. What the Cardinal is suggesting on behalf of the
conference is that you use multiple criteria, but that in no
case would it go above 10 percent.
And again, your comparison of the HIPC to the non-HIPC
seems to me, frankly, you're looking for a reason to say no to
it, because we all agree that they're going to be treated, the
HIPC countries, differently.
And what he's saying is, yes, use whatever criteria you're
using, but then put on a kind of a fail-safe--but in no case
shall it be more than 10 percent of the government's revenues.
What's the objection to that?
Mr. Schuerch. The objection is an inequity objection as we
look across the countries.
But, no, we have not supported it. That was put forward in
the course of the legislation last year.
Mr. Frank. Right.
Mr. Schuerch. Congress fully considered it and did not
include it in the final legislation, either.
Mr. Frank. I understand that. You're very good at stating
facts as an alternative to opinions, and I appreciate that.
But the purpose of this hearing is to try and get some
policy opinions. You say it wouldn't be equitable, but----
Mr. Schuerch. Well, an example. If you take one country
that is raising revenue from its people at a significant rate
and actually does the collection on its tax rates, so it has a
good revenue flow, you get a very different reaction than one
who does not.
Mr. Frank. So that's why you think it might be a
disincentive?
Mr. Schuerch. In fact, you end up benefiting the one that
fails to collect revenue.
Mr. Frank. So you think this might be a disincentive in
revenue collection?
Mr. Schuerch. I'm sorry. I missed that.
Mr. Frank. Do you think it might be a disincentive with
regard to revenue collection? That would be a policy argument
I'd be interested in.
Mr. Schuerch. I'm not sure I'd argue it that strongly.
Mr. Frank. All right. I'd appreciate it if you would also
in writing elaborate on the reasons for rejecting that
suggestion from the Catholic Conference.
Mr. Schuerch. We'll come back on the record. In fact, given
that you've put his letter in the record, if you'd allow us to
put our response to his letter in the record.
Mr. Frank. Yes, that's why I put it in. At that point,
since it is in writing, you can give as long a history as you
want. That will be OK. As long as you get to the other point as
well.
Mr. Schuerch. OK. Thank you.
[The information referred to can be found on page 43 in the
appendix.]
Chairman Bereuter. Thank you, Mr. Frank.
Mr. Shays has returned and he's on the list. Mr. Shays,
you're recognized for 5 minutes.
Mr. Shays. Pass.
Chairman Bereuter. Well, then, Ms. Capito is gone. And so,
Mrs. Roukema is next.
Mrs. Roukema. Pass.
Chairman Bereuter. And she passes. Mrs. Biggert?
Mrs. Biggert. Thank you, Mr. Chairman.
Mr. Secretary, on page 4 of your testimony, you emphasize
the need for multilateral development banks to focus on
productivity-led economic growth. And you note that education
is a necessary complement to growth.
Can you be specific about what it is that you'd like to see
the MDBs do different from what they are already doing relative
to education?
Mr. Schuerch. I think there's been a fair bit of press on
this productivity issue. Some have tried to align it or
contrast it to poverty alleviation. In retrospect, we might
have written a speech or two slightly differently than they
were written so that poverty alleviation words were also in the
speech.
We do not see the conflict between the concepts in any sort
of extreme way. In Africa, in particular, we're dealing with
countries that are under $800 per capita. In many cases, under
$400 per capita, very poor areas.
If you look at how one is going to raise people out of
poverty, redistribution is simply not a significant way to
achieve that result. You have to grow the economy of the
country.
There are a fair set of issues about equitable growth that
do deserve consideration. But fundamentally, you have to get
growth rates up significantly higher than population rates in
order to achieve that in Africa.
Education is clearly one of the identified sort of main
building blocks of productivity that the Secretary has focused
on repeatedly.
Thank you.
Mrs. Biggert. Could you just be a little more specific in
the kind of education that you envision?
Mr. Schuerch. Well, we have always for development
purposes, I think you'll find the whole development community
primarily focuses on primary education and women and girls'
education as the most effective components of where to target
in discrete resources.
The other area is obviously, we focused on basic health as
well.
Mrs. Biggert. OK. So, then, in practical terms, what would
an emphasis on productivity mean for future directions of the
bank and the fund?
Mr. Schuerch. Well, it is an emphasis on working with the
core economies to get growth rates up. It does exclude
investment in social areas. But one has to get an economy
going. That means open trading regimes. That means floating
exchange rates. But it also means focusing strongly on
performance when one puts resources in, as well as the policy
reform structures that are there.
Mrs. Biggert. Thank you. Thank you, Mr. Chairman.
Chairman Bereuter. Thank you.
The gentlelady from Illinois, Ms. Schakowsky, is
recognized.
Ms. Schakowsky. Thank you, Mr. Chairman. I have a couple of
questions.
But I just want to say, as a relatively new Member of this
Congress, it weighs so heavily on me when I realize how little
money relative to the wealth of this country and the budgets
that we propose and the tax breaks that we give, how relatively
little money it would take to address problems that have been
acknowledged even as security issues, like the AIDS pandemic
around the globe, and that we have to struggle so hard over
what are, in fact, minuscule amounts relative to many other
things.
Mr. Sanders referred to U.S. law that now requires United
States executive directors to the international financial
institutions to oppose any loan that includes user fees.
Is there any intention by the Administration to delete
Section 596, which does have that requirement?
Mr. Schuerch. The appendix of the budget pretty typically
goes through and strikes, and has for decades, most of the
insertions that are policy-related in the Congress on various
provisions. This one, along with, I think, virtually all the
others in the foreign aid bill, have been struck in the
appendix.
That striking is not reflective of an intent by the
Administration to change the policy.
Ms. Schakowsky. Well, can you declare, then, that it is the
intent of the Administration to maintain that policy?
Mr. Schuerch. I can declare two things. I cannot declare
that we will support it being reinserted. But I can declare
that we intend to support that policy, yes.
Ms. Schakowsky. So, then----
Mr. Schuerch. The reason for the two, which seems odd, is
simply most administrations desire to have flexibility across a
range of policy issues, so don't support inclusion of broadly
this kind of directive language.
But it is not indicative of an intent to change the policy.
Ms. Schakowsky. And how would that policy be played out
when there are discussions about user fees, whether or not
there are votes?
Does that mean--maybe that question was answered, but I
didn't quite get it. Are there instructions for our
representatives to proactively argue against those?
Mr. Schuerch. We do instructions sort of loan by loan as
decisions come up that require a vote.
So there is standing policy instructing executive directors
that the policy of the United States Government is against the
imposition of user fees for the poor on basic health and
education, and we do look at it, when we find strategy papers
or policy documents, as well as loans, and do directly talk
with EDs and have them intervene, yes.
Ms. Schakowsky. Although my understanding in the Tanzania
case, in fact, there was no effort on the part of the United
States that we could see to oppose.
Again, if I'm asking the same question, I'm sorry.
Mr. Schuerch. Yes, we're covering some of the same ground,
but very quickly, the discussion in Tanzania was not about a
loan from the World Bank. It was about a planning document of
the government of Tanzania.
So it was not subject to a vote.
Ms. Schakowsky. No, no, I understand that. I guess I'm
trying to understand the difference between the spirit and
perhaps the letter, and if we are serious about trying to have
a policy for these countries not to impose user fees.
It seems to me so critical. All the evidence is in that
when those fees are added, that the access to that particular
education or health service plummets.
And so, it would seem if it is part of our furtherance of a
policy, that we want to make sure that we advocate at every
moment that we can.
And so, I understand the differences that you pointed out.
I'm just trying to understand what people are instructed to do.
Mr. Schuerch. Let me just have a minute, because not only
was it raised in the discussions at the bank in this instance,
but the U.S. directly went to the government of Tanzania to
have a discussion about this issue, because it was a decision
of the Tanzanian government to put it in its planning document.
It was not a World Bank document or imposition.
The result of that discussion was they pointed out that
user fees in this particular case were waivable by the medical
profession for the poor so that the document itself and their
plans would enable them to proceed in a way that was totally
consistent with the language of the U.S. law.
Ms. Schakowsky. And getting back to how the language of the
law may be changed.
When you say that you want to maintain, or the
Administration wants to maintain flexibility, what does that
mean vis-a-vis user fees if we don't say it--what is so
binding--not so binding, but what is so limiting in terms of
applying U.S. policy by including language that says, we're
against user fees?
Mr. Schuerch. I spent 15 years working on staff in the
Congress on appropriations bills and virtually every year, you
look at the budget appendix and all legislative language on
policy instructions is struck in the proposed new budget,
virtually.
So there's no difference in what's been proposed that way.
The Congress has the right, obviously, to reinsert any of that
language as they choose and often does. But all I'm telling
you----
Ms. Schakowsky. Would that be opposed? Would reinsertion of
that language be opposed by the Administration?
Mr. Schuerch. I don't know. When we get a document, we'll
take a look at it. It is not a major focus of the
Administration. It is not a strong difference in policy here at
all.
So I would be surprised if people spend a lot of effort on
this subject in terms of opposition.
Ms. Schakowsky. Thank you.
Mr. Frank. Would the gentlewoman yield?
Ms. Schakowsky. Yes, I would.
Mr. Frank. I would appreciate that. I appreciate the spirit
of that. And if you would send us a list of other parts of the
President's budget we should feel free to ignore, I would be
glad to have it.
[Laughter.]
Chairman Bereuter. Thank you, Mr. Frank.
The gentlelady from West Virginia--all right. She's not
here.
The gentlewoman from New York, Mrs. Maloney, is recognized.
Mrs. Maloney. Thank you. Several Members have mentioned
Secretary O'Neill's call for improved living standards through
increased productivity as the primary objective of our
Treasury's work through the MDBs.
Yet, many of the Members have raised questions and,
actually, the GAO raised questions as to whether many of these
countries can realistically expect economic growth, and
certainly sustained economic growth, because of the large
amount of debt that they carry, even with the enhanced debt
relief initiative.
So I believe that there's an argument that can be made that
to truly spur economic productivity, as Secretary O'Neill has
testified that he wants, that we truly need 100 percent debt
relief to make that happen.
So he must not be truly sincere about increasing
productivity, unless you're willing to increase debt relief.
Mr. Schuerch. That's an interesting argument. But I also
would observe that countries with the greatest sort of--what
should I say?--per capita debt, are also those that are most
productive.
The issue is not debt. It is the effective use of capital
for development and for growth. You need a return on your
investment.
The difference between--well, let me put it this way.
Mrs. Maloney. Isn't it hard to have a return on your
investment when you have so much debt that you don't have money
to invest, even the needs that the countries have.
Mr. Schuerch. The HIPC program, when it is fully
implemented, has a very deep debt reduction. We have gone
through years of reduction. We've done bilateral aid reduction
at 20 percent and 30 percent and 50 percent and 67 percent, and
then we went into HIPC in 1996 and we started doing debt
reduction above that level for the multilaterals and for
bilaterals at 80 percent as well. And now under the enhanced
program, we're up in the 90 and above.
The bilateral aid is 100 percent reduction. Literally,
we're looking at a world where the only remaining debt for some
of these countries is that portion which has not yet been
reduced at the bank and the fund, and the other multilaterals.
So I would suggest to you that if you look at the
quantities that are being reduced by country by country, and
we're more than happy to come up and work with your staff on
that, that you will find the depths of this debt reduction
quite extraordinary.
Mrs. Maloney. Thank you.
Chairman Bereuter. Ms. Carson, we'll recognize you. But
we're about to start a new round. Do you want to go at this
moment?
If you're ready, please proceed.
Ms. Carson. Well, I would appreciate that very much, Mr.
Chairman.
Chairman Bereuter. You're recognized.
Ms. Carson. Thank you very much. And I apologize abundantly
for my delay. And thank you very much for having this hearing.
I hope I'm not redundant, given my delay in getting here.
But I'd like to ask, when the World Bank board discussed
poverty reduction strategy papers for Tanzania, the staff
acknowledged the concern of nongovernmental organizations about
user fees on health care.
Yet, based on a World Bank staff summary of the board
meeting, the U.S. representative did not raise the issue of
health user fees. Nor did she oppose the PRSP for Tanzania as
required by U.S. law.
You may have already addressed that. If you have, I
apologize. But could you give me a brief response?
Mr. Schuerch. Let me very quickly tell you that U.S. law
does not require the U.S. to do this on a PSRP. It does require
the U.S. to respond on user fees and loan instruments.
A PSRP is a document of the Tanzanian government and it was
subject to a discussion in the bank. The U.S. Government did
talk to the Tanzanian government directly about the user fee
element. We were assured that, in fact, it could be waived and
would be waived in the medical community for the poorest
people.
So, actually, their intent was in compliance with U.S. law.
But in terms of bank policy, when there is an individual
loan that comes up, we will have an opportunity to take a close
look at it and assure that user fees are not being imposed on
the poor.
Ms. Carson. OK. Most of the nation is poor, anyway. So that
would be kind of hard to distinguish between who's poor and who
isn't, given the high rates of poverty.
Help me. Did we pass a law last year, an amendment to the
appropriations bill, that denied America's physicians to
support user fees?
Mr. Schuerch. There is an amendment in the appropriations
bill on user fees that requires that U.S. executive directors
vote against when they are imposed on the poor, yes.
Ms. Carson. So it just says we would vote against it if it
came up.
Mr. Schuerch. Yes.
Ms. Carson. So is your department, State Department,
opposed to user fees, then, in general?
Mr. Schuerch. I'm sorry. I missed that.
Ms. Carson. Are you opposed to user fees?
Mr. Schuerch. Yes. The Administration is fully in agreement
on that policy with the Congress, yes.
Ms. Carson. Thank you.
Thank you, Mr. Chairman.
Chairman Bereuter. Thank you very much.
I'd like to begin a second round of questioning. I want to
go to the HIV/AIDS fund, where the Congress, by an enactment
last year, directed the Treasury to attempt to negotiate the
fund to be housed in the World Bank.
Of course, we can't mandate that, but our direction was to
negotiate in that direction.
One of my concerns is that a decision could be made that
the fund be housed and managed by the United Nations. I don't
think they have the capacity to adequately do that in a timely
fashion.
Now what the legislation proposed is that it would have a
separate board of donors, which of course would include the
United Nations or its affiliates and the other major national
donors.
The G-8 meeting is coming up soon in July in Genoa, where I
think the final decision will be made on that issue. My
understanding is that the Administration has not decided at
least what they will push for in that respect.
But I would like to urge that regardless of what the United
Nations' involvement may be, that the World Bank be the
delivery instrument.
I think it is essential that the funds flow no later than 6
months after the Genoa meeting. If we have a long delay, we are
dramatically reducing the ability to do good with the funds
that would be provided by the various donors.
So my hope is that you'll take this message back from this
Member and I will try to solicit bipartisan support urging the
Administration to push hard for the delivery mechanism to be
the World Bank, regardless of how the donor board is
constituted.
Is there any clarification you'd like for me or anything
you'd like to comment upon?
Mr. Schuerch. I'd like to comment. One, I'll assure you
that we will certainly take the message back, clearly. And also
the message that you bring from your colleagues on the subject.
I would say it is complex, a more complex problem and issue
than one sort of immediately thinks on the surface.
We've been dealing in an international context with the
views of a range of U.N. institutions and officials, as well as
a range of G-8 countries and government officials and
differences within countries as well.
Obviously, the G-8, in terms of where we deal, is financial
ministries and treasuries. Development ministries don't have
the same sort of say in that process. Development ministries
and foreign ministries have a greater say in the U.N. process.
But we've heard your message. I would say there's a
discussion about sort of policy control versus sort of the
fiduciary role of handling the resources and vouchering and so
on and so forth.
I think when we're done, it is clear in my mind that we
will have a board that is making independent decisions. There
are discussions about how strongly medical doctors and
technicians and professionals in the medical field will be
vetting proposals and making those decisions. And the U.S.
feels strongly on that respect.
Chairman Bereuter. The donor board is a complicated issue
and we need the best expertise we can generate there.
But I am really more concerned about the delivery
mechanism, because I think the delivery mechanism is existent
in the World Bank.
And if we didn't use it, we'd be probably not using a
resource that we really need to consider. And we will also
provide this advice to the State Department as well, of course,
because you point out that the foreign ministers or the
Secretary of State will have a significant role in this at the
G-8.
Mr. Schuerch. Let me be clear about your communication,
because it's actually important to the issue.
When you say that as a delivery mechanism, do you mean that
you desire the financing for the trust fund, in fact, to go
through World Bank loan processes as opposed to simply the
World Bank acting as the fiduciary agent to, in fact, handle
all the money and resources to do that job?
They're quite different things.
Chairman Bereuter. It's the latter.
Mr. Schuerch. Thank you. OK.
Chairman Bereuter. I'd like to move to Asia. The U.S.
currently has arrearage of $128 million to the Asian
Development Fund.
How do the arrearages accumulate? And what effect does that
have on our influence on the operations of the fund? I know
I've pretty much exhausted my time here, but please proceed if
you care to respond.
Mr. Schuerch. Let me say, it is a question that I sort of
lose on either answer.
Arrears are important. And we've spent much of the last 5
years in dealing with the banks, reducing U.S. arrears from a
billion and a half dollars down to about $335 million 2 years
ago and then losing ground the last 2 years.
Five years ago, our arrears in the Asian bank were about
$350 million. Today, they're about $128 million.
There's no question that having arrears hurts influence.
And there's no question you can get to critical levels in that
respect.
When I first took this job in IDA, the U.S. had a full
year's worth of arrears and IDA 11 was affected. And you
couldn't have a policy discussion, because the entire
discussion in the international arena was, would the U.S. pay
out that IDA?
We are not important as it is to clear arrears at that
level of critical situation in the Asian bank. We have
substantial influence. We've been very effective in that
regard. But I don't want to leave the impression in the context
of being sort of equal shareholders with the Japanese that it
isn't critical we live up to the commitments we've made.
It is absolutely critical and the resources are needed for
the poorest application to the fund for the poorest people in
the region.
Thank you.
Chairman Bereuter. Mr. Sanders, I'm going to ask for your
indulgence for just one follow-up question here, and to the
minority as well as Ms. Biggert.
Why did the Administration not request authorization to pay
the arrears for the Asian Development Fund?
Mr. Schuerch. The arrears are fully authorized. We did not
request an appropriation this year for any of arrears.
Chairman Bereuter. I see. Let me redirect the question,
then.
Why did the Administration not request appropriations?
Mr. Schuerch. I think it was a matter of coming in in the
first year, taking a look at a broad budget envelope and
picture, and deciding that it was inherently important that the
U.S. live up to the commitments it has made internationally.
And that was focused on primarily the annual commitments that
had been made.
To some degree, the existing arrears were viewed as an
existing situation carrying in from a prior administration. And
arrears in every case have been requested by the Executive
Branch.
So that there's a sense that the causes of lack of
financing coming through the budget process.
I think it is best for me to say that it has been a policy
that--Treasury is very much aware of the arrears and very much
aware that in the context of looking at the next budget and the
following budgets, that we have to face up to the arrears
situation. And that means working on a clearance plan.
We'll be doing that process during the fall, working into
the next budget.
Chairman Bereuter. Thank you very much. I thank my
colleagues.
The gentleman from Vermont is recognized.
Mr. Sanders. Thank you. Thank you, Mr. Chairman.
Two questions. One, a general question on the IMF and the
other a question about AIDS and the pharmaceutical industry.
Mr. Schuerch, there are many economists and many Members of
Congress who think that in many ways, basic IMF policy of
austerity measures, forcing countries to open up their
economies, forcing cutbacks in education, health care,
nutrition, has had a disastrous impact on low-income people
throughout the world and has primarily benefited the wealthy
and the powerful and multinational corporations.
Russia is an example which some people say is an
ahistorical situation where never before in history has a
first-world country descended into third-world poverty under
the guidance of the IMF.
The support of the IMF for dictators like Suharto and
dictators in Africa who did terrible things to their own people
and left with huge debts that these people now have to pay out,
is another example of some of the failed policies of the IMF.
Given the fact that throughout the world, IMF policy has
often resulted in a lowering of the standard of living of poor
people, while the wealthy in those countries and multinational
corporations have done well.
Is the Administration giving any thought to rethinking some
of the basic tenets of IMF policy?
Mr. Schuerch. I wouldn't want to leave anyone with the
impression that the Administration shared your views on the
subject of the history of the contribution of the bank and the
fund to development since the war.
Mr. Sanders. Well, why don't you tell me? Do you think the
IMF has done a pretty good job for the poor people around the
world?
Mr. Schuerch. I think that if you look at the range of
developing countries and you look at the range of countries
that are far better off today than they were before, that one
can find in the last 50 years there's greater growth in the
world in a whole range of countries than has ever occurred
before in the history of the country, including in Africa and
other locations, yes.
Mr. Sanders. You use the word growth. That wasn't what I
asked you.
I asked you about what happens to poor people who, in fact,
are generally the bulk of the population in those countries.
You could have growth and the rich could make out like
bandits. You've got an increase in hunger and economic misery.
So growth was not the question. My question was----
Mr. Schuerch. Well----
Mr. Sanders. Excuse me. My question was, IMF policy
regarding the poor people in Africa, Asia and Latin America.
Are you going to tell me that you think that those policies
have basically been a success?
Mr. Schuerch. I will tell you that life expectancy in
Africa has increased, prior to the HIV/AIDS crisis, by probably
15 or 20 years over the last 50 years. That's an overstatement.
But there have been a substantial improvement in life
expectancy in Africa.
If you look at the social statistics as opposed to
financial statistics, you will find a better picture actually
prior to HIV/AIDS than you might think, yes.
Mr. Sanders. So your basic conclusion in general is that
you think that IMF has done pretty well by poor people around
the world?
Mr. Schuerch. I don't think that the IMF can be used as
sort of the whipping boy for everything that hasn't happened
that we wish would have happened better around the world, nor
the World Bank, either.
Mr. Sanders. OK. My second question deals with the
pharmaceutical industry.
As you know, there has been a lot of controversy about the
role of the pharmaceutical industry in dealing with the AIDS
crisis in Africa and elsewhere in the sense that, for many very
poor people, the kinds of prices that the pharmaceutical
industry charges to deal with AIDS is prohibitive.
What is the Administration's thoughts about how we can get
the pharmaceutical industry to substantially lower the prices
in Third World countries?
Mr. Schuerch. I think the Administration welcomes the
actions that the pharmaceutical industries have been taking in
reducing price.
I think I want to probably stop there on the subject.
Mr. Sanders. Well, as a result of massive public pressure
in countries like South Africa, the pharmaceutical industry has
made some concessions. We will see how they play out.
My question is that's what the people in South Africa have
demanded. What about the United States Government?
What are we demanding?
Mr. Schuerch. I don't know what has happened in terms of
private conversations with pharmaceutical industries. I am
unaware of a public policy of the U.S. Government that would
have consistent demands of that nature.
We have watched public pressure move pharmaceutical
companies to reduce prices on HIV/AIDS drugs and it is broadly
across Africa, but it is a very significant change in prices.
That is a welcome change at this point in time.
But as a matter of U.S. Government policy, we have, to my
knowledge, not been demanding that change.
Mr. Sanders. I would appreciate if you could write to me.
It is one thing when the people of Africa stand up and demand
lower prices and the industry responds to that.
But I think the United States Government should be joining
the people of Africa and elsewhere in demanding lower prices.
I would appreciate it if you could write to me what the
official policy of the Administration is regarding the
pharmaceutical industry and how they're going to respond to the
AIDS crisis.
Thank you very much.
Mr. Schuerch. Thank you.
Chairman Bereuter. Mr. Sanders, would you like that
response in the record?
Mr. Sanders. Yes.
Chairman Bereuter. We'll ask unanimous consent that the
Treasury response to this question and to the letter presented
by Mr. Frank be a part of the record when their responses
arrive.
The gentlelady from Illinois, Ms. Schakowsky, is
recognized.
Ms. Schakowsky. Thank you, Mr. Chairman.
I wanted to follow up a bit on the AIDS issue and get to
what, in fact, has been U.S. policy. I wanted to check and see
if it still is U.S. policy.
The Executive Order, I think, is still--or if there is
another one or whatever--that deals with supporting compulsory
licensing and parallel importing of drugs.
That is, the United States not standing in the way of
countries that would choose to either manufacture or shop the
world market for lower-cost AIDS drugs.
Is that still the policy of our Government?
Mr. Schuerch. I'm not sure I can answer completely. I'm not
aware of a change in an executive order in this area.
Certainly, sort of open price competition has always been the
policy of the Government in this regard on drugs.
But I'd have to give you something more accurate for the
record, I think, on this.
Ms. Schakowsky. OK. The United States has forgiven the HIPC
debt owed to it bilaterally. But the HIPC countries owe
billions more to most of the world. It's about a $14 billion
face value. And of course, that is the money that we're talking
about that could go to anti-poverty measures, including
fighting the AIDS pandemic and education.
Do we have a posture of trying to convince the rest of the
world, our allies, to forgive any debt, forgive that debt?
Mr. Schuerch. I'm not sure how the $14 billion figure works
particularly. But let me say, the HIPC program is fundamentally
a multilateral program where all the major donor countries have
worked together, the G-7 has worked together. It started with a
lot of U.S. leadership and then agreement of the G-7 and the
Cologne Summit.
So, basically, we have a situation where the major donors--
France, Germany, Japan, Italy, U.K.--are all reducing bilateral
debt as the U.S. is reducing bilateral debt.
There is some difference among them on whether they're
doing 100-percent debt reduction above and beyond what's
necessary for meeting the HIPC criteria. But overwhelmingly,
it's a joint effort and, frankly, the U.S. has had an
advantaged position in the sense that it has less exposure to a
lot of the HIPC countries, because its' aid programs moved to
grant programs many years earlier than some of the Europeans.
But, yes. We have used it on what we call a burden-shared
basis to include not only other governments, but well beyond
the mean multilateral development banks and the IMF, to a list
of 20 or so smaller subregional multilateral organizations as
well.
Ms. Schakowsky. When Secretary O'Neill was here, and I only
saw part of that, and I don't have that testimony in front of
me, as I recall, he said things about HIPC country debt that,
something like, we didn't force them to take it, and he talked
about moral hazard.
How would you characterize our attitude in general about
multilateral debt reduction? Or at least the Secretary's
position on it.
Mr. Schuerch. I'm not sure precisely what he said about
multilateral debt in that hearing.
I was here. There was in the hearing a fair bit of
miscommunication, I would say, on sort of the numbers of debt
reduction vis-a-vis certain proposals that are out in public
and whether it is 22 countries or 41 countries or 36 countries
or 32 countries, and there was a fair bit of that back and
forth.
Ms. Schakowsky. That's why I'm really more interested in
getting how you would characterize our policy in general toward
debt reduction.
Are we looking toward moving toward 100 percent debt
reduction? Do we think that's unwise?
Mr. Schuerch. What we're doing at the moment as a matter of
policy is fully committed to the existing enhanced HIPC
initiative and fully committed to getting it implemented in a
quality way so that we have both the reduction and the economic
reform components of it.
It is actually pretty much of 3-year program. We have money
requested this year that we'll be fighting for in the budget
process and that we're asking for a component for
authorization.
So it is really a focus on implementation.
The question of whether one moves further is a question
that's a reasonable policy question to take a look at it, and
we'll have to do that as we go forward.
I would not project a decision one way or another on that
particularly. I think there are a lot of concerns about it.
There are many people who have expressed support for it. But we
have not, to my knowledge, gone on the record formally against
or for at this point in time, other than to say, we would hate
to have a move to 100 percent get in the way of actually
implementing what we have at the moment and we're trying to
implement, which is very deep and substantial debt reduction
for the same countries.
Ms. Schakowsky. Thank you. Thank you, Mr. Chairman.
Chairman Bereuter. Mr. Secretary, thank you very much for
your testimony today. I think we've made some progress. And we
look forward to your responses into subject issues that have
been brought up by two Members.
I think it's a good start today to learn more about the
Administration's initiatives.
I appreciate the clarification on several issues. For
example, with respect to the issue related to Tanzania and what
happened there.
Mr. Schuerch. Thank you very much. I appreciate the
opportunity.
Chairman Bereuter. Do you have any final comments?
Mr. Schuerch. No. Not broadly, other than I think, one, we
need to recognize and thank this subcommittee and the broader
Full Committee for their role both in HIPC and in pushing
pressures publicly to move forward on the HIV/AIDS initiative
as well.
It has really been a shared experience and a positive one.
Chairman Bereuter. Thank you very much. We'll close on that
compliment.
The hearing is adjourned.
[Whereupon, at 3:30 p.m., the hearing was adjourned.]
A P P E N D I X
June 12, 2001
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