SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOC
AUTHORIZATION FOR MULTILATERAL DEVELOPMENT BANKS
THURSDAY, MARCH 13, 1997
House of Representatives,
Subcommittee on Domestic and International Monetary Policy,
Committee on Banking and Financial Services,
The subcommittee met, pursuant to notice, at 10:01 a.m. in room 2128, Rayburn House Office Building. Hon. Michael N. Castle [chairman of the subcommittee] presiding.
Present: Chairman Castle, Representatives Flake, Fox, Frank, Kennedy, Bentsen, Jackson, LaTourette, and Lucas.
Chairman CASTLE. The Subcommittee on Domestic and International Monetary Policy will come to order.
I would hope that the attendance today, both up here and out there, does not reflect the importance of the issues with which we are dealing, which I think are very significant and I do apologize.
I have explained to Mr. Schuerch my own schedule is such that I am going to have to leave after a fairly short period of time here because of other impending responsibilities.
Page 2 PREV PAGE TOP OF DOC
Again, what we are doing is significant and it's important that we carry out the full testimony and question and answer to make sure that all Members understand it because we are going to be making some very fundamental decisions.
We are here this morning to consider U.S. participation in the World Bank, its International Development Association affiliate, and the Regional Development Banks that operate under its aegis.
Our witness today is William E. Schuerch, Deputy Assistant Secretary for International Affairs at the Department of the Treasury. Bill is an experienced former Hill staffer. I am not sure if that is praise or an indictment, but he is an experienced former Hill staffer--it's like being a former Congressman--who is learning what it is like from the other side of the witness table.
Welcome to the subcommittee.
The Multilateral Development Banks are the largest provider of official development assistance to the developing countries. Seventy-five percent of their loans are on market terms using money borrowed at commercial rates in the international capital markets; 25 percent of their loans are highly concessional, soft loans, principally to the poorest countries using money contributed by member countries. Usually these loans support about one-third of the cost of a project. The rest is financed by the borrowing countries or by other lenders, for example other multilateral or bilateral aid agencies, export finance agencies, or commercial banks.
Page 3 PREV PAGE TOP OF DOC As an editorial aside, I would imagine most Members of Congress including the Chairman must grasp to understand the fundamentals of some of these financial arrangements which go on.
The Administration is asking this subcommittee to authorize some significant amounts this year not only for the Development Banks but also for the International Monetary Fund and later for the reauthorization of the Export-Import Bank.
All these topics will not necessarily be addressed this morning, but we should keep in mind that they are coming our way and expect them to be presented as part of a comprehensive development assistance, security, and foreign relations strategy.
In this era of limited resources, it is absolutely imperative that every taxpayer dollar be spent in the most effective cost manner possible.
The best argument for multilateral development is thereby we multiply each contributed dollar five- or six-fold for optimal leverage of our resources. Overall, MDB lending for example equals about 46 billion dollars annually but it costs the U.S. only $1.2 billion or 2.6 percent of total lending.
By contrast, U.S. bilateral aid is about $7 billion, for which we must shoulder of course the entire cost.
The end of the Cold War, the economic rise of Asia, and the globalization of finance have radically changed the traditional world of development economics. As we think about the developmental mission of the bank group for the 21st Century, the focus should be on strengthening the banks' comparative advantages applying increased selectivity in lending and an insistence on strong policy performance by borrowing countries. The bank cannot survive by attempting to be all things to all people or by claiming to have a comparative advantage in all aspects of economic development.
Page 4 PREV PAGE TOP OF DOC
As The Economist recently observed, it is high time for the bank to start doing less. Not bad advice, in government parlance.
I would also like to take this opportunity to register my personal expectation that the U.S. will work with other donors in significantly reducing the bank's extraordinary estimated cost of implementing their plan entitled, ''The Strategic Compact,'' which will cost some $250 million over 2 years and in addition would budget $100150 million over the same period for staff separation expenditures.
U.S. taxpayers are not prepared to fund Disneyesque golden parachutes for international bureaucrats.
Even if we acknowledge the substantial progress already made in reforming the international financial institutions, IFIs, it is most difficult to continue to assert a position of leadership in the various IFIs and yet owe over $1.5 billion in overdue obligations to them. This undermines our moral and actual influence over these institutions and even though we continue to spend a very large sum of money each year, it is difficult to discern the results except that the expenditure produces little domestic or international good will.
It is often argued that our national self-interest requires us to stay engaged in the multilateral development process. Our success in leveraging funds for developing countries, encouraging free market economies, private sector development, in creating new high growth markets for U.S. companies is said to be at risk if we do not continue to support these institutions.
Page 5 PREV PAGE TOP OF DOC One place that all of these precepts have been called into question is in sub-Saharan Africa. Bank development projects there have been disappointing both in their administration and in the paltry results that have been achieved in improving the lot of the most desperately poor.
I hope that the Administration will continue to press for both prudent macro-economic reforms in these borrowing countries and genuine reforms in the management of these multilateral aid programs since this is the region most in need of effective development assistance to catalyze economic growth.
Our job today is to hear the Administration's arguments and decide whether they are persuasive or not. We look forward to the testimony.
Mr. CASTLE. Let me turn to Mr. Lucas to see if he has an opening statement.
Mr. LUCAS. No opening statement, Mr. Chairman. Thank you.
Chairman CASTLE. Thank you, Mr. Lucas.
Mr. Schuerch, we are ready for your testimony, sir.
Mr. SCHUERCH. All right.
STATEMENT OF MR. WILLIAM E. SCHUERCH, ACTING DEPUTY ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY.
Page 6 PREV PAGE TOP OF DOC
Mr. SCHUERCH. Mr. Chairman, it's a pleasure to testify before you today on the President's request to authorize the Multilateral Development Banks.
As you have stated in your opening statement, I have worked on these issues on Capitol Hill and in the Administration for over 15 years and I greatly appreciate this first opportunity to discuss these institutions with you, particularly in a year which the President has stated is critical to the future of the MDBs.
I will focus my comments on proposed authorizations for the World Bank's International Development Association, the European Bank for Reconstruction and Development, the EBRD, the Inter-American Development Bank, the IDB, and the Asian Development Fund.
At a future date Deputy Secretary Larry Summers will testify before you on proposed authorizations for the International Monetary Fund.
I want to emphasize that in his State of the Union Address, the President stated emphatically that it is in our national interest to maintain our leadership in international organizations such as the World Bank and the U.N., and that to do so we must fulfill our commitments to these institutions.
He said, and I quote, ''If America is to lead, those of us who lead America must find the will to pay our way.''
Mr. Chairman, at the Treasury Department I have seen first-hand the truth of these words. As we have negotiated new MDB agreements and pushed for institutional reforms, I have seen how America compromises its leadership when we fail to bear our share of the burden. Instead of being able to focus our influence on pressing for improvements in the institutions and progress in the countries, we have had to direct much of our energy to dealing with attempts by other donors to devise mechanisms supposedly aimed at encouraging us to meet our commitments.
Page 7 PREV PAGE TOP OF DOC
We have faced procurement restrictions on U.S. business, which so far we have been able to limit to the IDA International Trust Fund, and we are facing threats to our voting power in the banks.
I believe that while our leadership position in the multilateral arena remains intact, continued failure to meet our commitments poses a growing threat to our interests.
It is vital that we send a strong message that America will lead, that we will fulfill our commitments, and that we will bear our share of the burden for institutions which strongly advance our interests and which we were instrumental in starting.
Let me cite just a few examples of where the MDBs advance our interests.
In Bosnia the World Bank and the EBRD are coordinating a $5.1 billion recovery effort which includes bilateral assistance, and as you know, has included substantial military presence as well.
In our own hemisphere, the World Bank and the Inter-American Bank are providing hundreds of millions of dollars to support the difficult transformation of countries like Haiti and Guatemala, and have also provided critical support to Mexico.
In Eastern Europe and the former Soviet Union the EBRD and the World Bank are providing nearly $8 billion annually in support of the private sector, privatization and institution-building to lay the groundwork for foreign investment.
Page 8 PREV PAGE TOP OF DOC
IDA is the world's largest funder of AIDS programs. In Africa it is providing support for AIDS and for military demobilization to countries such as Uganda and Mozambique. These programs underpin economic reform efforts which are allowing these countries to return to growth and stability after years of civil war.
Mr. Chairman, in these an many other areas the MDBs are vital partners in our foreign policy. We have a strong interest in seeing that they remain responsive to our priorities.
Let me shift briefly to our fiscal year 1998 budget request. The Administration is proposing a $1.5 billion request for the MDBs as part of the President's 5 year plan to balance the budget. Our request achieves three main goals:
First, it provides roughly $1.2 billion for paying our annual bills to these institutions. This reduced annual commitment is less than what we used to pay to IDA alone;
Second, our request pays the $234 million of remaining arrears to IDA, which is the most important source of development aid to the poorest countries of the world and is where our arrears have caused the greatest problem for American international leadership;
Third, it begins a 3 year process of clearing the $862 million of arrears to the institutions. Current arrears of $1.5 billion include $700 million still pending commitment for IDA that was appropriated last year.
Finally, and particularly relevant to this subcommittee, we are asking for full authorization of the reduced multi-year MDB funding agreements we have negotiated. This request represents the Administration's firm belief that these institutions cost effectively serve the foreign policy, economic and security interests of the American people. Through them we are able, as you have said in your statement, to influence over $46 billion in annual MDB lending.
Page 9 PREV PAGE TOP OF DOC
Maintaining our leadership position ensures that the institutions continue to focus on areas of vital U.S. interest.
Let me step back for a moment and say that I am fully aware that many people ask the questions do the MDBs work, does concessional lending serve the poor countries, does it benefit the donors?
These types of questions have always existed in the context of both multilateral and bilateral assistance. They are questions that should be asked about all publicly funded programs.
In response, it is clear that the MDBs have many notable successes. IDA's 20 graduates, for example, now import $60 billion per year from the United States.
Overall, social indicators in the poorest countries have shown remarkable improvement. Since 1970, fertility and infant mortality rates are both down 40 percent. Primary school enrollment is up 36 percent. Literacy rates have risen 33 percent. Life expectancy has increased 8 years. The percentage of people with access to safe drinking water has gone from 20 percent to 70 percent.
The MDBs have played a major role during that period in building classrooms, providing sanitation, delivering textbooks and feeding millions of malnourished children. They have and continue to make a major difference.
Still, all assistance programs have been unable to overcome the forces of social and political chaos and the economic disintegration which plagued many countries, particularly those in sub-Saharan Africa. Furthermore, these programs have not been successful in spreading the benefits of private foreign investment to many borrowers. Foreign investment in developing countries has been limited to a few, primarily Asian and Latin American, economies with 80 percent of investment flows going to just 12 countries. Approximately 140 countries in the developing world receive virtually no private investment funds.
Page 10 PREV PAGE TOP OF DOC
But there are signs of hope. Growth among IDA only borrowers, excluding blend borrowers India and China, went from 1 percent in 1991 to 6 percent in 1995. In Africa even with all the crises of the last few years, overall growth has risen from 1 percent to 4 percent during the same period.
Thanks in large part to American influence the MDBs are directing their resources at the areas which hold the most promise for expanding the scope of private sector led growth.
Institutions are pushing countries to reduce tariffs and barriers to investment. They are helping to build institutions to ensure the rule of law, enforcement of contracts and the elimination of corruption, and they are providing support for sustainable development and for basic education, health, and infrastructure, which are the building blocks of the economic growth.
The MDBs also are being selective by concentrating resources in the countries which are doing the most to open and restructure their economies.
Can the MDBs continue to improve? Definitely--and we continue to press for reforms in each institution.
Do they currently serve the interests of their borrowers and of the people of the United States? The answer is yes, absolutely.
Mr. Chairman, despite problems caused by our arrears, we have achieved what I consider remarkable success in the last set of MDB funding negotiations. Account by account we have reduced the budgetary costs of the MDBs on average by 40 percent. We have successfully pushed for cost savings and accountability within the institutions and we have focused the institutions on our foreign policy interests and on the free market values which we all share.
Page 11 PREV PAGE TOP OF DOC
Looking at the specifics of our authorization request, first, our request for authorization for IDA is for $1.6 billion, which we have pledged to fund for the 2 year IDA11 replenishment. This $800 million per year is a 36 percent reduction from the $1.25 billion prior annual commitment to IDA10.
The IDA11 agreement will also permit us to continue to press our reform agenda.
Largely as a result of U.S. efforts, the World Bank has increased the transparency of its operations. It has encouraged greater participation of beneficiaries in project design, created an inspection panel and an auditing department to evaluate project implementation, and it has focused more attention on issues like corruption and labor rights.
Let me briefly mention the issue of procurement restrictions in the IDA Interim Trust Fund. The Interim Trust Fund donors after much negotiation have recommended that $1 billion, or about one-third of the Trust Fund, be set aside and be potentially made available for U.S. procurement. While that outcome is not everything we wanted, it is important to remember that the United States did not contribute to the Interim Trust Fund and that the practice of limiting procurement to fund donors and borrowers exists in IDA and in all of the other soft loan windows.
We put enormous effort into this issue and given these obstacles this was the best we could achieve.
The second request we have is for authorization of the final 3 years of the Inter-American Development Bank's eighth general capital increase, which was agreed to in 1994.
Page 12 PREV PAGE TOP OF DOC
This authorization would continue our annual commitment of $25.6 million, which is 15 percent of the total paid in capital.
The IDB continues to be instrumental in supporting the region's dramatic shifts toward greater democracy, lower tariffs, fiscal responsibility, and economic growth.
Third, we are requesting authorization for what we expect to be the final recapitalization of the European Bank for Reconstruction and Development. Our request for $285 million over 8 years, or $35.8 million per year, is a 50 percent reduction from our previous annual commitment. The EBRD is advancing private sector development in Eastern Europe and in the former Soviet Union. Seventy percent of the EBRD's $10 billion in cumulative funding has gone directly to the private sector projects where it has been leveraged by over an additional $20 billion in private co-financing.
The EBRD continues to be an effective catalyst for economic reform and democracy. As part of its charter the bank can only operate in countries that are making progress toward greater democracy and increased economic freedom.
The EBRD also is effectively targeting its resources to where they are most needed. As countries such as Poland, the Czech Republic and Hungary attract more private capital, the EBRD is shifting its focus further east into the former Soviet Union.
Finally, we are requesting authorization for the Asian Development Fund. We have recently concluded a remarkably successful agreement. I call it remarkable because as you know we face arrears in the Asian Development Fund of $237 million. Despite this situation, the Asian Development Fund agreement incorporates a 41 percent reduction in the annual U.S. commitment with only a small reduction in our share from 16 percent to 15 percent.
Page 13 PREV PAGE TOP OF DOC
In addition, we achieved all the major goals we had laid out when the negotiations began. There are no procurement restrictions and there are no special funds in the Asian Fund agreement. China and India again will not have access to the fund despite the support of many other countries for that.
The Fund has set a goal to become self-financing in half a generation, about 15 years.
Finally, new high growth Asian donors such as Korea, Malaysia, and Thailand are taking a greater share of the burden. For the first time Asian donors will provide one-half of total funding for the Asian Development Fund.
Mr. Chairman, the agreements we are considering today are good ones. They significantly reduce the MDBs' budgetary cost to the United States and they advance American interests, but as I have said, we cannot lead in the multilateral system if we are unwilling to fund even our reduced commitments.
I urge you to support the Administration's budget request and full authorization for these institutions as a statement of our commitment to international engagement and leadership.
Thank you. I look forward to your questions.
Chairman CASTLE. Thank you, Mr. Schuerch.
I didn't indicate actually at the beginning Mr. Flake, the Ranking Member, so I will afford him the opportunity to make an opening statement, then we will go to questions, and if people want to add opening statements at the time of their questions, they may.
Page 14 PREV PAGE TOP OF DOC
We may have an opportunity for more than one round of questions. If some people don't know it, I am going to have to leave, as I have indicated at some point but I want to make sure that we have the opportunity to develop all these issues. Let's turn to Mr. Flake now for his opening statement.
Mr. FLAKE. Thank you, Mr. Chairman, and like you I commute home every night and unfortunately for me the predictability of your train from Wilmington is greater than my shuttle from New York.
Mr. Chairman, when we first assumed these roles on the subcommittee 2 years ago the United States had an outstanding commitment to the 10th replenishment of IDA. Two years later we are still attempting to deal with the same issue. Last year the subcommittee made some difficult choices and I believe our insistence that we work to clear arrearage problems in these institutions was sound.
Nevertheless, the United States is suffering the embarrassment of being one of the world's largest deadbeats when it comes to honoring our international commitments. We have suffered further setbacks last year in IDA when the donor community established a special fund for which we received no procurement rights and as our Executive Director tells us, it's becoming more difficult for her to wield our traditional influence in the lending and policy decisionmaking process within the World Bank.
This potential loss of influence also extends to the other MDBs as well.
Page 15 PREV PAGE TOP OF DOC Mr. Chairman, the short and skinny of this is that I hope we can address this issue from the standpoint that the U.S. must meet its obligations. We certainly must put the 10th replenishment behind us and move expeditiously on to the more modest IDA11 agreement. IDA is too important for this negligence and indifference as it impacts 55 percent of the world population.
For every dollar we contribute, we leverage $8.50 in development loans. By any measure this leverage effect maximizes scarce resources so that they have the most international impact in the areas of education, health and economic structural reform and lest anyone suggest that the private market is willing to fill the development void, I remind everyone here that 80 percent of the world's private capital flows goes to only 12 countries and Africa, where disease, poverty and misery is tantamount to everyday life, only 23 percent of the world's capital finds its way to those who are in most need.
The bottom line for me thus becomes how do we fulfill international obligations, and more importantly, how do we live up to our moral responsibilities? We do so in my opinion by supporting IDA and its sister organizations.
It is the moral thing to do and in our comprehensive international aid system it is the least expensive investment that we can ever make and I join with Mr. Schuerch--correct me if I'm wrong--in stating that it is imperative that we do a much better job in terms of our level of participation in this arena because I think that for the sake of our Nation's stability, our Nation's sense of moral responsibility we have an obligation to fulfill these responsibilities to these other nations, and so with that, Mr. Chairman, I hope that you and I can continue to work as we have done over the last 2 years in the hopes of being able to deal with this vital issue. Thank you.
Page 16 PREV PAGE TOP OF DOC
Chairman CASTLE. Thank you very much, Mr. Flake. As always, we appreciate your views and your very incisive thinking on these issues.
Let me start the questioning with one that sounds broad. I want to be as specific as possible.
Have the MDBs credibly responded to U.S. policy concerns regarding information disclosure, lending choices and operations, policy recommendations as well as internal management and budget decisions?
Are U.S.-supported MDB reforms being implemented?
I know that is a broad question, but I think it's very important--if they are being responsive, that this be known, and if they are not, that we address these issues.
Mr. SCHUERCH. Let me say that the reform process didn't start yesterday.
The banks have been responsive and continue to be responsive to a range of internal management reforms and efforts to improve the quality of their projects and are clearly focusing on results from their activities.
I would say that this process started with a series of reports within the institutions in the mid-1980's and later 1980's that directly focused on quality of the lending portfolio.
Page 17 PREV PAGE TOP OF DOC Those reports were critical. They also were instrumental in focusing the attention of the institutions on the problem and in bringing other countries on board with what was already the early United States efforts to get reforms in the institutions.
I don't think given the breadth of the question that it is good for me to try and answer each component part, but I would say yes, the institutions are reforming and they are responsive.
There is nevertheless a substantial agenda and there is a continuing need for United States to lead and continue pressures for those reform efforts.
Mr. Wolfensohn's strategic compact is the latest substantial effort at continuing to reform, and in this case the largest institution. Thank you.
Chairman CASTLE. Let me ask the question in a different way.
On a scale of 1 to 10, in the truest sense you can possibly give it, in looking at the broad issues of reforms that we have talked about, how would you rank how they have done? I mean honestly rank because I know you have responsibility to protect this, but we have a responsibility to make sure it is run correctly, and while this is not exactly high on the minds of most of our constituents, or even Members of Congress, I think there is a general feeling that the reforms have not been particularly excessive and they have not been necessarily complied with.
I think if we are going to be able to sell these issues on Capitol Hill we are going to have to really address this, so I would really like to know if you truly believe all this is happening or whether this is just something that one has to say when one comes before Congress in the position that you are in?
Page 18 PREV PAGE TOP OF DOC
Mr. SCHUERCH. Let me----
Chairman CASTLE. Give this the best shot you can.
Mr. SCHUERCH. Let me say I think the focus of the question is one which, from my perspective at least, needs a little adjustment. I think there has been reluctance in some cases within institutions for some of the changes we have been pushing--transparency, participation--but I think also the greater problem is not the internals of the institutions or the bureaucracy or even their own leadership.
I think one has to look at the leadership of the other countries on the boards of these institutions and whether these goals are shared. In many cases, initial negotiations and discussions with other countries on those boards, those goals are not always shared.
The United States often stands alone in pushing forward particular reforms, so I think the focus of the question to some respect blames the institutions for a rate of reform that is not up to the standard which we certainly desire. This needs to be answered by saying that we have a substantial effort to make to convince other countries that the range of reforms and the specificity of the reforms that we are after are important and that the institutions should also change.
In some cases in fact I would say the leadership of the institutions are more willing to change and are leading in change in front of where the majority of their boards are.
Page 19 PREV PAGE TOP OF DOC Chairman CASTLE. Actually that is a very interesting point about the other board members and it may be something we should follow up on at some time.
I do want to ask one more question though, because my time is running out, and that is the Soviet Union.
I mean I hear all kinds of quasi-horror stories about problems in the Soviet Union with the shift to a capital type economy, all the way from criminal elements to just inability to carry it out.
There was a recent article in the Washington Times alleging that a $250 million loan to restructure the coal industry became lost in the maze that is the Russian budget.
I just hear a lot of negative stories, yet I consider that to be a significant fear of activity that we should be paying a lot of attention to in terms of international relations and in general.
What are your comments about how effectively the bank is advancing U.S. interests in the Soviet Union?
Mr. SCHUERCH. Let me say I share this value, that efforts to reform the Soviet Union and Russia particularly are clearly among the most important foreign policy activities of the United States Government.
I will say that the institutions in the World Bank specifically but also the European Development Bank are major partners and very substantial financers of those efforts at reform.
Page 20 PREV PAGE TOP OF DOC
I think the most remarkable thing to date in the region and in Russia is the substantial progress that has been made over the last 5 years or more. The rate of change is incredible. The pressure on the populations given the turbulence of the economic reforms is astounding, and so I would put the emphasis on peaceful and rapid change, but certainly it is fair to say there are a lot of bumps in that road.
Corruption is a substantial element that concerns everyone, certainly corruption within the privatization has been an issue of concern.
In terms of the specific example, the coal sector loan, I have seen those articles and raised questions about them with staff. I don't believe the articles give the full story. The loan in question was designed to provide general budget support to Russia and conditioned on efforts to demonopolize, restructure and privatize its coal sector.
The loan was providing support to regional governments and coal companies to fund income and social protection for miners.
Initial data showed last December that only 45 percent of the funds which are supposed to go to those governments and companies was disbursed. They have gone back. They have looked at it. They are now providing and have agreed to provide an additional amount, which brings up the total to 90 percent of what had been originally intended.
I know of no evidence so far, that there is corruption involved in this particular case. Rather, it's a question of, did the money go to general budget support, and in some sense dissipate on an activity that it wasn't directed at? Or did it get where its attention was focused? And I think we have seen substantial efforts to make that happen.
Page 21 PREV PAGE TOP OF DOC
Chairman CASTLE. Well, I mean I'll close on this but I mean I don't know if I care if it was stolen or dissipated or used the wrong way. Either way it's being, in my judgment it is being used perhaps ineffectively.
I am not familiar with this whole story but we ought to delve into it more. In my judgment that is sometimes the attitude that we see in, you know, the MDBs. There is an attitude of, you know, not necessarily following through to make sure that the end is carried out for which we started. That is the part that concerns me.
I mean how it gets there sometimes is not the question. We can go into this with sub-Saharan Africa and a lot of other areas where there have been problems but my time is up and I will--I would like to reserve the right, as you know, to be able to submit written questions to you on some of these issues too that I won't have a chance to ask, and I will now turn the questioning over to Mr. Flake and I will turn this Chair over to Mr. Fox for the duration of the hearing.
We thank you very much for being here.
Mr. FLAKE. Thank you very much, Mr. Chairman. I only have one question and I will give the speaker as much time as necessary to respond to it.
As you probably are aware, yesterday the New York Times ran a story on Uganda and the IMF World Bank debt relief initiative.
Page 22 PREV PAGE TOP OF DOC I would like for you to explain the program in more detail, illustrate potential benefits and other potential beneficiaries and the impact of this debt relief effort as it relates to other debt relief efforts that I feel are very necessary and imperative for not only Uganda but certainly other parts of Africa.
I have met with most of the either presidents or financial leadership in the southern region of Africa and in most cases one of the great fundamental problems that they all have is dealing with the issue of debt structure and debt relief and so if you can give us some broad overview of how you perceive we proceed in this matter I would be most appreciative. Thank you.
Mr. SCHUERCH. Let me give you a little history for starters. I think that's probably the best perspective.
What is seen as the international debt crisis really came to the forefront of public attention in the early 1980's, focused first on Mexico but spread and was widely focused in terms of the dollars of debt in Latin America.
We all remember the Brady Plan that evolved in the later 1980's to address those issues.
Debt in Latin America while certainly it included public sector debt was overwhelmingly private sector debt. There was a second phase or level to the debt crisis and that related to the poorest countries of the world and most specifically and particularly to sub-Saharan African countries.
Page 23 PREV PAGE TOP OF DOC In this case in most countries the largest components of their debt are public sector debt, debt to developed countries on a bilateral basis or debt to multilateral institutions, so during the second phase we have had a series of efforts to address those debt issues.
The first effort was an effort that we talk about as ''Toronto Terms''--it provided 33 percent reduction effectively on bilateral programs for those countries. They had to carry out economic reform programs.
There was then a recognition that that was insufficient debt reduction. We moved to what was called ''Enhanced Toronto Terms'' and for those countries that were eligible the percentage reduction in debt was 50 percent.
We have then evolved from that point, for each case a smaller group of countries, to ''Naples Terms'' where there is 67 percent reduction. Again, all of these address bilateral assistance.
We now are in the process of working through the international system, what is referred to commonly as the ''HIPC Program,'' and that is a program where for the first time multilateral debt will be addressed and efforts to decrease its burdensome nature on these countries and increase with their reform programs their ability to pay is moving forward.
What I really want to emphasize here is when this program is fully operational it will be the first time the institutions have given a contribution to debt reduction itself. In that case, Uganda is likely to be the first candidate that comes through the process and consequently we are seeing a whole range of issues played out in the context of making decisions about the shape of this program, a model on Uganda, and that is only natural.
Page 24 PREV PAGE TOP OF DOC
We are hoping for a decision on Uganda and perhaps a couple other first countries through this process this spring and perhaps some of it will slide to the early summer.
If you want me to be more specific on Uganda, I'll respond.
Mr. FLAKE. No, I think that basically kind of sets the framework for not only the program itself but the timing and I think that's critical for us in terms of just trying to hopefully have a paradigm that sets the tone for how we will be able to do the rest or sets some kind of precedent and model for us to work from.
I would just be most appreciative if you would keep us informed of the progress as it moves along and whatever pitfalls there are, so that hopefully we can work together in trying to resolve them.
I think this is probably one of the most critical issues facing the world today because we cannot continue to allow the kind of poverty that is existing in many of these countries and hope to be able to have a stabilized world, let alone a fully stabilized country, so thank you very much, and I will look forward to continuing with whatever feedback you give us as this process moves forward.
Thank you very much.
Mr. SCHUERCH. I certainly look forward to a back and forth and conversation, discussion at staff and member level on the debt initiatives.
Page 25 PREV PAGE TOP OF DOC
Let me say that the U.S. has played a real leadership role in pushing the debt issues in the international setting and bringing in many cases quite reluctant other countries to the table.
The HIPC initiative and the step forward is focusing on countries that are IDA-eligible only, ESAF-eligible only, truly the poorest countries, and those that we are now talking about reaching a sustainable level for their economies only under an 80 percent debt reduction. Thank you.
Mr. FLAKE. Spell out the initiative. Is that an acronym you are using?
Mr. SCHUERCH. It's the Highly Indebted Poorest Countries is what HIPC stands for.
Mr. FLAKE. Thank you very much.
Mr. FOX [presiding]. Thank you, Ranking Member Flake. Now I would call on the gentleman from Ohio, Congressman LaTourette.
Mr. LATOURETTE. Thank you very much, Mr. Chairman.
I have some questions this morning about the MDB policy that I want to get into but first, as I didn't get a chance to be here for your entire oral testimony, but I read your written testimony, on page 2 you make a reference to something that the President highlighted in his State of the Union Address and this is more for my edification than anything else, and particularly you are talking about the World Bank and Inter-American Bank playing a pivotal role in South America or Central America and in particular the provision of what you describe as critical support to Mexico since the peso crisis.
Page 26 PREV PAGE TOP OF DOC
If I remember right--I don't quote the President a lot--but I think he said that the debt was repaid that was extended in the last Congress, not only in record time but at a profit. I think I remember those words being uttered in the House chamber.
Can you just tell me a little bit how that worked and what was done to get that accomplished?
Mr. SCHUERCH. Let me take a stab at it, but I caution you, you are well beyond my briefing book at this point, but the quote in my statement had to do with the President's statement in the State of the Union and wasn't directly related to Latin America. It was related to the need to pay up arrears in international institutions.
This directly relates also to the requests that Deputy Secretary Sommers will be testifying on regarding the International Monetary Fund and the New Arrangements to Borrow.
Mr. LATOURETTE. OK. Do you want me to wait until he comes next?
Mr. SCHUERCH. Yes. The resources were borrowed or lent more accurately out of what is called the Exchange Stabilization Fund of the United States Government.
Treasury is--I won't say in control--but is the holder of that fund and I don't remember the exact dollar amount but it was quite a substantial. Billions of dollars were lent to Mexico to address what was recognized as a very massive liquidity problem.
Page 27 PREV PAGE TOP OF DOC Money cannot be lent out of the Exchange Fund without strong assurances--I am not sure I want to apply ''guarantees'' but to the repayment of those funds. In fact, Mexico had a faster turn-around. They were stronger in their reform process and more successful than people imagined was going to happen.
The repayments were made more rapidly than had been anticipated. There are charges they have to pay on the loans that were lent and those charges led to a situation where the United States got back into the ESF fund something in order of $500 million more, and that is what people are referring to as, quote, ''profit'' on the transaction.
Mr. LATOURETTE. OK, thank you, and I will bring that up when Mr. Sommers is here.
Going back to MDBs for a minute and following a little bit on what Mr. Flake was talking to you about, Uganda and the debt repayment or forgiveness has been in the news recently and there was an editorial in The Washington Post and it is kind of what I hear when I go home from time to time and I would just like to talk to you about MDB policy.
This one section that I underlined is that the poor countries themselves are responsible for the dilemma. They or more often than not their corrupt dictators squandered aid instead of using it to promote development and now they find themselves in this pickle of not having enough resources to take care of their citizens and at the same time have a repayment schedule.
The question that I would have for you is to what extent should access to MDB resources be conditioned upon good governance principles in recipient states?, and we get that question on bilateral aid all the time. People say, you know, why are we giving money or helping make loan money available to people that, one, vote against the United States interests in the court of world opinion, or two, don't do a very good job of taking care of their own people?
Page 28 PREV PAGE TOP OF DOC
Do you have an opinion one way or another on whether or not there should be criteria that focus on the good governance in recipient states?
Mr. SCHUERCH. No. I would say that good governance is an issue that is within the reform agenda that we have been pushing in the institutions.
It has gained substantial ground. Both the International Monetary Fund and the World Bank and the regional banks as well are focused on it. They are aware of past histories and in some cases personal past histories with less than successful development activities and with governments that, you know, were not entirely willing partners in the development process or in the reform process.
That has led to a much greater focus on selecting countries. In IDA this is particularly true. It is selecting countries and directing resources toward those that are reform oriented, preferably that are democracies but not solely to democracies.
Part of the difficulty in this respect are the charters of some of the institutions that, unlike the European bank, have statements that say they are supposed to be economic institutions, not political institutions, but most of these issues can be addressed in the context of fiscal choices and the arguments can strongly be made and we are making them within the institutions and gaining substantial ground in that regard that there are economic impacts of substantial consequence related to the form of the government, the choices the government makes in allocating its resources, corruption issues.
Page 29 PREV PAGE TOP OF DOC I will say the leaders of both the IMF and the World Bank have been very forthright in the last annual meetings in their public statements on corruption. We have had major reforms within the institutions on their procurement policies. That started and moved across the institutions. I certainly can't deny the problems have been there in the past. I will say that changes have occurred and are continuing to occur to fix that, precisely that kind of problem.
In IDA we now have 84 percent of the resources focused on what are defined as ''better performing'' countries, so we are in the process of denying resources to countries that are not cooperative in these areas.
Mr. LATOURETTE. Thank you very much and thank you, Mr. Chairman.
Mr. FOX. Thank you, Congressman LaTourette, and now we'll turn to Congressman Bentsen from Texas.
Mr. BENTSEN. Thank you, Mr. Chairman, Mr. Schuerch.
In your testimony you twice talk about Mexico. You talk about the critical support provided to Mexico during the 1995 peso crisis with the World Bank and the Inter-American Development Bank and then subsequently you state that in helping countries like Mexico and Argentina to privatize and strengthen their financial sectors to reduce the vulnerability to external shocks.
Later this morning the House of Representatives is planning to take up numerous resolutions to deal with the certification or decertification of Mexico with respect to narcotic trafficking.
Page 30 PREV PAGE TOP OF DOC
Do you know or do you have an opinion as to what decertification would do with respect to capital inflows into Mexico?
Mr. SCHUERCH. Let me say that I don't have any statistics that can answer that question.
Capital flows, and this is one of the effects of the situation where private sector resources are in fact so much more substantial in recent years, they are also much more volatile and the issue really is the confidence of the private marketplace in the country in the management of the country. In that respect, the confidence and risk involved in making judgments about are the Mexicans serious about addressing corruption and cooperating with the United States on narcotics issues and on other reform issue are crucial.
We believe that there would be substantial risk in moving forward with a decertification process. That is why the President made the other decision as well as a really honest belief that in fact the Mexican government has been cooperating and has also been tussling with the corruption problems that exist.
I would note that part of that concern is not just for the Mexican economy, which is of substantial concern, but also for the American economy. The two economies are intertwined and clearly if there were a crisis of confidence in Mexico it would have substantial impacts on imports and exports. Potentially if it were longer term it could have immigration consequences.
Mr. BENTSEN. If I might, I think you are right. In fact, Mexico is our third largest trading partner and it my State's largest trading partner.
Page 31 PREV PAGE TOP OF DOC
If there was a full decertification, as I believe one of the resolutions would provide for, would that then require the United States in the Inter-American Development Bank, in the World Bank, in the IMF to vote against any existing liquidity program or debt program?
Mr. SCHUERCH. What it would do is--I have to focus on your word ''existing''--there is no way to go back and re-vote on previously approved programs, but it would directly affect how we would vote on all new proposals.
Mr. BENTSEN. We would have to vote against those new proposals?
Mr. SCHUERCH. Yes, that is my understanding.
Mr. BENTSEN. Now my colleague brought up the Mexico peso stabilization program as well.
The Economic Stabilization Fund in the Treasury has been repaid with interest, as you noted. Are there still liquidity programs outstanding through the IDB and also through World Bank or IMF and if so do any of those have a termination date or maturity date which would require the United States to have to vote again on an extension of those programs?
Is there still a peso stabilization program out there?
Mr. SCHUERCH. Well, let me say it this way. I don't know the dates of the termination points of those programs or when a vote would have to occur on extending it.
Page 32 PREV PAGE TOP OF DOC
I think it's definitely true that there are substantial resources lent to Mexico in the institutions. It's one of the major borrowers from the Inter-American Bank and also at the World Bank.
Clearly a significant crisis in the Mexican economy could affect their capacity to repay those international loans but in terms of the specifics of the dates I would have to get back to you on that point.
Mr. BENTSEN. But there are still--because it was about a $50 billion stabilization program, so while the U.S. has been repaid $12.5 billion there are still substantial debts outstanding and so what you are saying is----
Mr. SCHUERCH. There are debts exceeding that to the multilateral institutions, yes.
Mr. BENTSEN. Thank you. Thank you, Mr. Chairman.
Mr. FOX. I thank Congressman Bentsen, and now I'll call on Congressman Frank.
Mr. FRANK. Thank you, Mr. Chairman. I understand in my absence Mr. Flake raised the question of the debt relief and from what I have heard of his testimony I very much agree with him.
I think debt relief is very important. I think our Treasury Department should be congratulated for helping push the multilateral banks in that direction and I think we need to do more of that and I think that's very helpful.
Page 33 PREV PAGE TOP OF DOC
I have some questions I want to raise regarding the process of reform of these banks which has been an ongoing process.
A couple of years ago at the prodding of this subcommittee and the Administration the banks did--the World Bank for instance adopted a much better information policy and an appeal panel.
One of the questions we have though, and we also around that time, a little before, had the amendment that became law sponsored by our colleague from California, Ms. Pelosi, on environmental impact statements.
One thing that seems to me essential is for the IFC to adopt essentially the same principles. You might be able to make some distinction in some international court if there was one with jurisdiction that they are not identical institutions but the logic, both economic and political, for them doing that is the same, so I hope we are pushing the IFC to adopt both the appeals panel mechanism and to comply with the Pelosi Amendment exactly as the rest of the World Bank family does.
Could you comment on that?
Mr. SCHUERCH. Well, they are slightly different issues, but we are certainly----
Mr. FRANK. But do them one at a time then if we have got time.
Page 34 PREV PAGE TOP OF DOC Mr. SCHUERCH. Pardon?
Mr. FRANK. Then take them one at a time.
Mr. SCHUERCH. In terms of the inspection panel issue, it's part of the reform agenda. It is certainly one of the significant accomplishments that has occurred at the World Bank. We are moving it across the other institutions.
You are accurately focused on the IFC and the issue of whether or not inspection panels can cover the private sector windows and creation of new ones.
The decision was made that the inspection panel at the World Bank did not cover or have jurisdiction over the IFC. We are strongly encouraging the creation of an inspection panel at the IFC or the equivalent of that there.
I would say that in that process there are a lot of concerns in the private sector, the various business interest groups have been expressing their concern, and what their concern largely is, if I can characterize it for them, is that they will not have a process that provides them with significant enough certainty that they can move forward with a project after it has been contracted for if they are in compliance with all of the regulations they knew were in place beforehand.
Consequently, they have taken a position against the inspection panel in its entirety as a concept related to private sector lending.
Page 35 PREV PAGE TOP OF DOC We are of a different opinion and this is not resolved, as you know. We believe that it is possible to have both an inspection panel which provides a legitimate appeals process and a mechanism which ought to be capable of providing clear enough rules and regulations so that--at the time the bidding process occurs for the private contracts so that there is only rarely a situation where a project might be stopped later on.
This is a balancing question, but we are firmly on the side of the creation of the appeals process.
Mr. FRANK. Thank you and I appreciate that and I know that we have had cases where our Government has pushed for the appropriate measures and we have run into some resistance elsewhere.
It is obviously reasonable to want to get some certainty and I think if the model was that you would look at it at the beginning and the assumption then would be that it would go forward once it passed the initial steps as long as people were living up to what was laid out, or there were no absolutely unexpected new pieces of information, and one of the things we might do then, and I think it would be where something caused a sort of a derailment later on that was nobody's fault in the sense that it could have been anticipated, I would assume if that came to light even without an inspection panel we would go forward with something that was wrong. Some kind of compensation might be worked in, but I would say from my standpoint continued support for the whole family is going to depend on their being willing to go forward in the direction that you say.
What about the environmental impact?
Page 36 PREV PAGE TOP OF DOC Mr. SCHUERCH. On the Pelosi Amendment, as people are commonly referring to it, we have pushed the IFC and the other private sector windows to be responsive to that amendment.
There is a longstanding legal opinion at Treasury that since the legislation as it was written doesn't directly apply to these institutions but regardless of that interpretation we have continued to pressure the institutions. The IRC has been responsive.
I am told on average that in fact they are providing the assessments publicly available 180 days in advance but of course you know what averages are and what they mask.
They have had relatively few environmental cases that were significantly problematic, albeit there is certainly one going on right now, so we have progress in that regard but it is something we continue to need to push and press on with.
Mr. FRANK. Very well. I guess if I am summarizing accurately your position is, Treasury's position, while the Pelosi Amendment is not legally binding, you fully support the policy that it sets forward and you are pushing in that direction.
I just want to say with regard to environmental and appeals panels, every time we do anything like this we hear from people that it's not going to work, that there's going to be all these kinds of problems. We heard exactly that with regard to both the appeals panel and the information policy and that is why you had to fight so hard, and I am not aware of any problems that happened.
We get this parade of horribles trotted out to stop it but once it's been in effect, it has had no negative consequences while the appeals panels and the information policy have been going on, and I think the same would be true--obviously we have had a lot of experience in the United States with private sector people being covered by environmental rules.
Page 37 PREV PAGE TOP OF DOC
Just one last point if I could, and that is I think the next step would be for--now we are not just talking IFC but the bank and IDA as well--a social assessment policy.
I would hope that we could move forward toward urging them to adopt that as well as the environmental one.
I think we ought to be very clear. We are not talking about institutions that are so well situated that they don't have to worry about all this. They need to do things to build more support and I think a social assessment policy would be helpful.
Some of the most logical natural supporters of the multilateral banks, people in America who are most concerned about alleviating poverty have been ambivalent about the banks, in some cases opposed, and that is a loss of their strongest potential base of support and a social assessment policy would do a great deal to transform some skeptics and critics into ardent supporters, so I hope that we can make some progress there as well.
Let me make one comment. It is an issue and something we are working on. When we go into these boards and push for the various reforms, we find in many cases, and I've mentioned this earlier, relatively little support from other countries. Clearly parliaments, and they are different structures in many other developed countries, have different, somewhat different roles and attitudes in this respect, but I think the Members of Congress themselves can also play a part in this. I think interparliamentary conversations that deal with this and sensitize others to how strongly Americans feel would be helpful in this regard.
Page 38 PREV PAGE TOP OF DOC Mr. FRANK. Thank you. One more minute, if I could. In 1994, in December I think it was, we did have the first such meeting that I am aware of, and I think we probably have been laggard in not trying to push those again. I am aware of that, and I must say, if people are listening, I am particularly disappointed in the lack of support for these very important reforms, and they are important both substantively and in generating the necessary level of support for the institutions. I am particularly disappointed in our Western European allies. I can understand why some of the recipient countries would just rather have the money and nobody tell them what to do with it, but the resistance of the European countries, like currently there are some who have some mistaken notion that this is an imperialist hangover. They ought to understand that the pressure for these is coming from people concerned about poverty alleviation and environmental protection in America, people much more on the left than in any other part of the spectrum, and the continued failure of our Western European allies to embrace this reform agenda they should understand is undercutting the support we would like to be able to muster in America for the right kind of policies, as well as being mistaken. But I agree with you, you cannot do this all by yourself.
There is one last point I would close with, and this would be, I have mentioned this before, part of the problem comes, and we appear to be a happy exception here, but finance ministries have not historically been repositories of social consciousness, and the problem has been that in the structure, the multilateral financial institutions relate to the finance ministries of the countries rather than the foreign policy ones. I think one of the things we ought to be doing is making a better effort to coordinate between Treasury and State here and see whether maybe we could get the State Department to talk to their foreign policy colleagues and bring them to bear, because it is true, leave this only to the finance ministries, and I think, particularly in the parliamentary countries where the bureaucracies have a lot of say, we are in some trouble. But we do owe you more support from the legislative side, and I will try to do that.
Page 39 PREV PAGE TOP OF DOC
Thank you, Mr. Chairman, for your indulgence.
Mr. FOX. Thank you, Mr. Frank.
Now we will call on Mr. Jackson, from Illinois.
Mr. JACKSON. Thank you, Mr. Chairman.
Let me just ask unanimous consent that my opening remarks be entered in the record at the appropriate place.
Mr. FOX. Without objection, so ordered.
Mr. JACKSON. My questions have basically been covered by the other Members, Mr. Chairman. Thank you very much.
Mr. FOX. Thank you, Congressman Jackson.
Now we will call on Congressman Bentsen for our second round.
Mr. BENTSEN. If I might, I'd again with respect to Mexico, in the past when we have decertified other countries, Colombia, for instance--and Colombia and Mexico are very different countries in terms of the size of their economies and how they relate to the United States economy, of course--what has been the experience with the Multilateral Development Banks and the U.S. taking the position objecting to any new loan or other type of liquidity instruments--what has been the experience? Have the banks gone ahead with the U.S. objecting, or have we seen a denial of credit as a result of it?
Page 40 PREV PAGE TOP OF DOC
Mr. SCHUERCH. Why don't we stay with Colombia as the example. It's clearly the parallel case in this respect. We are required to vote no because of decertification on Colombia for loans or any assistance to Colombia. The short answer is in no case to my knowledge has our vote and action in that regard stopped an assistance program from moving forward. I will note that in at least a couple instances we have the odd situation of having to force an institution, in this case the Inter-American Development Bank, to vote on resources to which the United States has never even contributed, so that the United States could vote no on the application of that technical assistance. This relates to trust fund money. So the bottom line is, it has not been effective within the institutions in stopping resources to the decertified country.
Mr. BENTSEN. Do you know whether or not decertification in the case of Colombia, and again we are talking a little bit about apples and oranges here, has had an impact, and we talked about this earlier, but is there any empirical data as to what impact that may have had on capital flows?
Mr. SCHUERCH. I am not aware. I would have to get back to you with an answer for that.
Mr. BENTSEN. Let me ask briefly, you talked about the Inter-American Development Bank engaging in microenterprise lending. There has been a lot of discussion about microlending. I think the Congress in the past, not through this subcommittee but other committees, has tried to move USAID into microlending with, as I understand it, questionable success. To what extent--what has been the success or non-success of the microenterprise lending? At what level is it done? Is it at the very low level, like the microlending we have read about?
Page 41 PREV PAGE TOP OF DOC Mr. SCHUERCH. Well, let me answer in terms of the size of the lending.
Mr. BENTSEN. Right.
Mr. SCHUERCH. I think the focus on microcredit has been growing substantially. Clearly we have a case in Bangladesh where there is a success story. People have been more and more aware of it. The story has spread. There are other institutions that are successful in other developing countries now. We have had a major, as you know, microcredit conference this spring. The First Lady was there. The Secretary of the Treasury spoke. The head of AID spoke. AID and Treasury worked out a joint policy statement for that conference or in the context of the conference. We have also a domestic program based on some earlier legislation called the Community Development Institutions Fund that Treasury is involved in. So I think what we have is a recognition that giving small grants at a grassroots level to enable people to in fact improve their lives in substantial ways with their own efforts, you know, is within the development field a growing financial area.
That being said, I do not think for the most part we are talking about providing the dollars to do the lending with. We are talking about in some cases that to provide resources to intermediaries to do small loan lending. We are really trying to also get this into a viable private sector model so that it can be leveraged and expanded much more substantially than what we can through the institutions. So that is the broad thrust of where the institutions are going. That would be training for institutions, some finance for microfinance lenders, and working on the policy environment and the rules and regulations in other countries so that this is a much more viable opportunity.
Page 42 PREV PAGE TOP OF DOC Mr. BENTSEN. So you would see this as something that is going to grow?
Mr. SCHUERCH. Yes.
Mr. BENTSEN. You hope through the MDB's?
Mr. SCHUERCH. Yes.
Mr. BENTSEN. Thank you.
Thank you, Mr. Chairman.
Mr. FOX. Thank you, Congressman Bentsen.
I want to ask a question myself, if I could, Mr. Secretary. We were asked to approve the second half of the eighth capital increase for the IDB. It is my understanding that the agreement contained guidelines on the percentage of IDB loans which were to be fast-disbursing loans conditioned on future policy change in the percentage of loans going to poorer borrowers.
What has been the bank's track record on meeting these guidelines. If they have not been met, what is the IDB doing to assure they will be met in the future?
Mr. SCHUERCH. You have caught us on an issue that is of concern to us. It is certainly true that the guidelines--and these are in two different areas, one a guideline and one a mandate--have not been met in the program or the average of the program over the first 3 years.
Page 43 PREV PAGE TOP OF DOC
The first area is in the distribution of the lending between the better-off countries, which are referred to as the A and B countries, within the bank, and the C and D countries. The guideline in the replenishment agreement is that 35 percent of the resources should go to the less well-off countries. That is more than their share, if you will, if you look at their populations or the size of their economies, but it was done in recognition of the fact that they are on average something in the order of half as wealthy on a per capita basis and that they have much greater limitations on accessing private capital.
If you look at the record, they have received 31 percent in 1994. In 1995, 23 percent. In 1996, 25 percent. So you can see yes, there is a deviation here.
That was a guideline. It is not required to be complied with year-by-year. Nevertheless we have raised this with the management, we will raise it again in the annual meeting, and it is of concern. Our intent was certainly to focus resources on the poorest countries in that region.
The other area is the fast disbursing lending area. This was a mandatory provision that set a 15 percent cap, and again here the record is less than stellar. The most recent 2 years, it was 35 percent in 1995 and 27 percent in 1996. In 1994 it was within the guideline. Some of the answer in this respect is the Mexico crisis and an extraordinary situation, particularly in 1995. But we are concerned, we are raising the issue, and will continue to speak with the management, and to be fair this is a case where there is a difference of views among some of the larger Latin American countries. I appreciate the question.
Page 44 PREV PAGE TOP OF DOC Mr. FOX. Congressman Frank.
Mr. FRANK. One of the obstacles that we encounter when we try to muster the support for these institutions that I would like to see, particularly if they are running as we would hope, is the notion of the People's Republic of China getting large benefits when they do not appear to people with their huge trade surplus with us and with other things to be quite so needy. I understand we are making some progress in addressing that, and I appreciate the fact that our Government complying with legislation has refused to vote for some loans to China. But over and above the question of whether or not they should not be given loans because of failure to comply with certain basic policies, where are we on the question of the graduation of China, because I do think being able to explain to our colleagues that we are not asking for an indefinite subsidy to the Chinese economy would be very helpful here.
Mr. SCHUERCH. As you know, we have been negotiating the decreasing size, if you will, of lending to China for a number of replenishments now. The last IDA agreement and the current one before you for IDA11 continue that process of reducing the resources going to China, also to India. Our understanding at this point, and not only that they will have limited lending, but the weaning process will continue at the end of the IDA11 process the intent is that China will have graduated from IDA and will no longer receive resources.
The Asian Fund we have been successful in continuing to exclude China from getting concessional resources.
Mr. FRANK. So that by the end of IDA11--which is how long?
Page 45 PREV PAGE TOP OF DOC Mr. SCHUERCH. June 1999--those loans will play out in terms of disbursements much later than that.
Mr. FRANK. So that after June of 1999 no--on the current track--no new concessionary loans would be made available to China, either through IDA or the Asian Development Bank? It has already been done to the Asian Development Bank.
Mr. SCHUERCH. I do not think I can say it that way, because the end of the IDA11 period is June 1999, but commitments of IDA11 resources will continue to some degree after that date.
Mr. FRANK. Right, but----
Mr. SCHUERCH. But no new resources----
Mr. FRANK.----No new resources----
Mr. SCHUERCH.----New replenishment----
Mr. FRANK. Other than the ones--and so we have a--they are not getting concessionary loans now from the Asian Development Bank. There is a diminution in what they have been getting through IDA, and by June of 1999 no new resources will be available for concessionary lending to the PRC?
Mr. SCHUERCH. Yes.
Page 46 PREV PAGE TOP OF DOC
Mr. FRANK. Thank you.
Mr. FOX. Thank you, Congressman Frank.
Thank you very much, Mr. Secretary. We appreciate your testimony this morning. Welcome back to the House. It is a great job, and I thank the Members of the subcommittee.
The hearing is adjourned.
[Whereupon, at 11:19 a.m., the hearing was adjourned.]
[insert offset folios 25 to 55 here.]