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U.S. POLICY TOWARDS THE AFRICAN
DEVELOPMENT BANK AND THE
AFRICAN DEVELOPMENT FUND
WEDNESDAY, APRIL 25, 2001
U.S. House of Representatives,
Subcommittee on International Monetary Policy and Trade,
Committee on Financial Services,
The subcommittee met, pursuant to call, at 1:35 p.m., in room 2128, Rayburn House Office Building, Hon. Doug Bereuter, [chairman of the subcommittee], presiding.
Present: Chairman Bereuter; Representatives Oxley, Ose, Manzullo, Green, Sanders, Waters, Watt, Carson, Schakowsky, Lee, Bentsen, Sherman 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 and to conduct oversight on the African Development Bank and Fund. Today marks the first hearing of this new House Financial Services subcommittee. Actually, it had its predecessor subcommittees in slightly different form on the Banking Committeeand I was privileged to serve as the Ranking Member there for 6 or 8 years under the chairmanship of Barney Frank, who is a Member of this subcommittee.
Page 2 PREV PAGE TOP OF DOC I look forward to serving as Chairman of this subcommittee, which will focus on international financial institutions and trade issues. Moreover, I am also pleased to be working with the distinguished Ranking Member of this subcommittee, Mr. Sanders from Vermont, and all Members of this new subcommittee.
Since this is the initial meeting, I think it is important just to mention two procedural circumstances. First of all, the committee rules call for the Chairman and the Ranking Minority Member to have a 5-minute opening statement if they care to. All other Members are entitled to a 3-minute opening statement under the committee rules.
It is my intention to continue my past practice as Chairman to recognize people who are in attendance, rotating across the aisle, who are in attendance at the beginning of the hearing, and then as additional Members come in, they will be recognized in the order in which they come after the beginning of the hearing.
This Member has tried to move ahead with the conversation of reauthorization of the Export-Import Bank, but we have been frustrated to some extent by the slowness of the process of bringing the Under Secretaries and Assistant Secretaries of Treasury on board, those relevant leaders of the Treasury Department that have so much to do with the MDBs and, in the case of the Export-Import Bank, are not yet in place. But we are alternating the subcommittee hearings from the African Development Bank and Fund and, it is my intention, then to the Export-Import Bank.
And we will proceed, I hope, without any further delay, and if the Administration has their witnesses in order, we will hear from them first. If not, we will take witnesses who have something to say in support or opposition to the Export-Import Bank for example.
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I want Members to know that I regard briefings, informal briefings, ahead of new subjects that we are taking on as an important part of the subcommittee's activity, so I encourage Members to come, if at all possible, to these informal briefings, which will be held before we take on a new subject. If not, if it is not possible, I encourage you certainly to have your staff there and to keep yourself informed as we proceed, then, to the hearings, which will follow the briefings.
The subcommittee has jurisdiction over the multilateral development banks, including the African Development Bank and Fund. It is important that this subcommittee, in my judgment, conduct oversight hearings on the African Development Bank and Fund. The U.S. is a non-regional member of both the Bank and the Fund, but over the Bank's history, the U.S. has contributed an average commitment of 5.6 percent of the Bank's capital. We are the third largest contributor and the largest non-regional contributor.
Furthermore, as I will discuss in more detail later, the Bank and the Fund have been the most fiscally troubled among the regional development banks, and perhaps the most managerially challenged of the MDBs.
Moreover, with the upcoming annual meeting of the Bank on May 29 through May 31, this hearing record should prove instructive for the U.S. delegation in the preparation for this meeting.
I think the African Development Bank and Fund have great potential. They are very important institutions, and we should see what we can do to push for improvements in their productivity.
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It should also be noted that the U.S. will be negotiating a new replenishment agreement for the African Development Fund, and our subcommittee will likely be expected to authorize it next year, fiscal year 2003.
Before introducing our very distinguished panel of witnesses, I am going to briefly discuss the following four items which, among other things, are important in the subcommittee's examination of the African Development Bank and Fund, in my judgment: One, the distinction between the African Development Bank and the Fund; two, the institutional problems of the Bank and the Fund; three, U.S. policy toward the Bank and the Fund; and four, the Meltzer Commission recommendation for the Fund.
First, with respect to the distinction between the Bank and the Fund, the Bank provides hard loans on commercial terms, non-concessional terms, to creditworthy borrowers, including governments, official agencies and private sector clients. On the other hand, the African Development Fund gives loans on highly concessional terms to the poorest African countries. For example, the Fund gives soft loans at zero interest, although there is an annual service charge of .75 percent on the outstanding balance.
Second, with regard to institutional problems, the Bank and the Fund both suffered a fiscal and managerial crisis in the early 1990s. Even though many African countries had been uncreditworthy, the Bank continued to extend them hard loans, non-concessional loans. In fact, by 1994, arrearage levels reached $700 million. However, in 1995, the Bank elected Omar Kabbaj, a Moroccan financial official, as the new President. President Kabbaj implemented fiscal and managerial reforms, including limiting the number of countries having access to the hard loan window, and refocused the activity of the Fund on poverty alleviation. President Kabbaj was unanimously appointed to a second 5-year term in May of 2000.
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With respect to the current financial condition of the African Development Bank, in September 2000, Standard & Poor's rated the African Development Bank as a double A plus. However, it is of concern that this rating did indicate a negative long-term outlook based on concerns over the deterioration in the asset quality of the Bank's loan portfolio since 1998. The Fund is not rated, on the other hand, by the Standard & Poor's. The Fund is not rated, only the Bank.
Third, from 1993 to 1997, the U.S. made virtually no contributions to the Bank or the Fund. The U.S. also led other non-regional members in suspending negotiations for a new replenishment of the Fund until the reforms had been implemented. However, as an endorsement of the President Kabbaj-initiated reforms, U.S. contributions to the Fund did resume in fiscal year 1998 and to the Bank in fiscal year 2000.
The U.S. pledge to the fifth general capital increase to the Bank will be completed in 2005. In addition, the Bush Administration's fiscal year 2002 budget does include $100 million for the final installment of the U.S. share for the eighth replenishment of the Fund.
Finally, as the subcommittee examines the African Development Bank and Fund, the proposals of the Meltzer Commission, I think, should be considered. It is a very controversial set of recommendations in general, but the Meltzer Commission was created by Congress in 1998 to propose reforms of the international financial institutions, including the multilateral development banks. This Commission, of which I am the legislative author, reported their views to the Congress in March of 2000. The Commission proposed transfer of the World Bank development loan functions to the African Development Bank when it was ready for those responsibilities.
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To assist the subcommittee in these issues, I am pleased we will have an opportunity to hear from a very distinguished panel of witnesses that I will introduce in a few minutes, but first I would like very much to now yield to the Ranking Minority Member for a statement that he might have at this point.
Chairman BEREUTER. The gentleman is recognized.
Mr. SANDERS. Thank you very much, Mr. Chairman. I think, as I mentioned to you in the past, I personally believe that this subcommittee has jurisdiction over some of the very most important issues facing our country and, in fact, facing the world, and I think the issue that we are dealing with today is certainly one of those. And I thank you for calling this hearing, and I thank you for the bipartisan spirit that this subcommittee is showing.
Mr. Chairman, as you well know, the people of Africa are facing crises today of historic proportions, from HIV/AIDS to extreme poverty, to crushing foreign debt. I hope very much that today and in the future this subcommittee and, in fact, this entire Congress will pay as much attention as possible to these issues which affect hundreds and hundreds of millions of people.
The United States Congress and the rest of the world must pledge to work as hard as we can to address and effectively deal with the AIDS crisis in Africa and elsewhere. We must fight to eliminate the crushing debts that desperately poor African countries cannot pay, and, in my view, we must demand that the pharmaceutical industry, composed of some of the most profitable corporations in the world, accept their moral responsibility to help alleviate this crisis rather than perpetuate it.
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Sub-Saharan Africa is the world's poorest region; 300 million people live in that area, and nearly half of the population live in extreme poverty, which means that they live on less than $1 per day. And that poverty is only getting worse, because of the HIV/AIDS pandemic and the crushing burden of foreign debt.
The human cost of HIV/AIDS in Africa is shocking, and I know we all hear a whole lot of statistics. They go in one ear, and they go out the other ear, but I think it is worth thinking about some of these statistics. Seventeen million people have died from AIDS in Africa since the pandemic began. Twenty-five million people in Africa now live with HIV/AIDS, more than twice the number in the entire rest of the world. Last year, there were 3.8 million new HIV/AIDS infections in Africa. Every single day, 5,500 African families lose a family member because of HIV/AIDS, and half of those who die are children. AIDS has left 13 million orphans in Africa. It will leave 27 million more orphans before this decade ends, unless the world mounts a massive effort to contain this disease.
Incredibly, of the 25 million people in Africa who live with the HIV/AIDS virus and the 3 to 4 million who are dying from AIDS, only about 10,000 have access to the antiretroviral drugs they need. That is significantly less than 1 percent. So you have a crisis which is wiping out huge numbers of people, and a tiny, tiny fraction have access to the drugs they need.
I am pleased that the pharmaceutical industry recently dropped its 3-year lawsuit against the South African law to allow that government to import affordable medicines and to increase the use of generic drugs in its fight against AIDS. However, I am appalled at the thought of how many hundreds of thousands in South Africa have perished during this time because they did not have access to the prescription drugs that this law would have made available to them.
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In my viewand I speak only for myselfthe issue that we should be focusing on is not the issue of intellectual property rights, but the issue of criminal irresponsibility. And while that is certainly true of the AIDS crisis in Africa, it goes beyond there as well. In other words, you have a profound moral problem of having the tools to keep people alive, but people saying, oh, excuse me, you are going to affect my profit margin if I provide those tools to you. There is a very deep issue from a moral point of view. I think it borders on criminal irresponsibility. I hope we have a lot of discussion about that.
The good news, I think, as many people know, is that there are now several foreign drug manufacturers who have begun marketing generic versions of these life-saving drugs at a fraction of the cost. For example, a year's supply of GlaxoSmithKline's Combivir, a drug used to treat HIV/AIDS, costs about $7,000 in the United States. Cipla LTD, an Indian company that manufactures generic drugs, is selling a generic version of that drug at $275 for a year's supply. The pharmaceutical industry sells it for $7,000. The generic is $275.
Mr. Chairman, my hope would be that we can bring some of these generic manufacturers to this subcommittee and to discuss with them how we can go forward.
The other issue that I very briefly want to touch upon, Mr. Chairman, which is certainly related to AIDS, and to the crisis in Africa, is the huge debt that many of the poorest countries are facing. In Sub-Saharan Africa, they have a $13.5 billion cost of foreign debt servicing, roughly the amount that UNAIDS says these nations need to deal with AIDS.
I think the other issue that is directly related to the AIDS crisis is the need for debt cancelation, so that countriesthe poorest countries in the worlddo not pay more money to international financial institutions than they are spending on health care.
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So this subcommittee, Mr. Chairman, has some huge responsibilities. And I thank you very much for calling this important hearing. I am delighted that we have such excellent guests with us, and I look forward to hearing from them. And I would yield back, Mr. Chairman.
Chairman BEREUTER. Thank you very much, Mr. Sanders, and you are right, we do have an important agenda ahead of us, and I thank the gentleman for the review of the incredible problems that Africa is facing and that the Bank and the Fund, among other institutions, need to address.
I do have one procedural matter to take up before we recognize other Members who have opening statements. Because of a swap between Ms. Velazquez and Ms. Lee on this subcommittee, I need to make this motion. Without objection, Ms. Lee shall be deemed to be a Member of the subcommittee to rank immediately after Ms. Carson of Indiana for this hearing and subsequent hearings until her election is ratified by the full committee. Is there objection? Hearing none, that will be the order.
And now under the 3-minute rule, I will recognize other Members at this point.
The gentlelady from California, Ms. Waters is recognized.
Ms. WATERS. Thank you very much.
I would like to thank both Chairman Doug Bereuter and Congressman Bernard Sanders for organizing this hearing on the African Development Bank and African Development Fund. I appreciate the interests of both our Chairman and our Ranking Members shown in issues affecting Africa.
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The African Development Bank's mission is to promote sustainable economic growth and reduce poverty in Africa. The Bank and the Fund make loans to African governments for economic development projects. The Bank and the Fund finance a wide variety of projects, including projects dealing with primary health care, basic education, agriculture and rural development, public utilities, water supply, sanitation, transportation, telecommunications and environmental programs.
I am anxious to hear the testimony of the witnesses on the effectiveness of the projects financed by the Bank and the Fund. I am especially interested in helping education projects and other projects that benefit impoverished people in Africa. I would like to know what suggestions the witnesses have regarding the ways to ensure that health care education, rural development and poverty reduction projects benefit those in Africa whose needs are the greatest.
Over the last 2 years, I have been working to ensure the passage of debt relief legislation and full funding for the heavily indebted poor countries, the HIPC Initiative. Last year, the conference report for the foreign operations appropriations bill for fiscal year 2001 provided a total of $435 million to fund debt relief, pursuant to the HIPC Initiative, some of these appropriations to be used to cancel the debts that poor countries owe to the United States. However, most of these appropriations are for the World Bank HIPC Trust Fund. The purpose of this Trust Fund is to relieve the debts that poor countries owe to international financial institutions, especially the African Development Bank and the Inter-American Development Bank.
I am also interested in hearing the views of the witnesses regarding the progress of the HIPC Initiative in Africa. I am especially interested in analysis of the extent to which the funds provided by the World Bank HIPC Trust Fund have allowed the African Development Bank to relieve the debts owed by impoverished African countries.
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The purpose of debt relief is to enable impoverished countries in Africa and elsewhere to invest their resources in health education, poverty reduction and HIV/AIDS treatment and prevention. If this goal is to be realized, it is essential that the Financial Services Committee provide sufficient oversight to ensure that the HIPC initiative is being adequately funded and effectively implemented.
I would like to thank the Chairman, and since the Chairman mentioned it in his statement, I would also like to know more about the Meltzer Commission and the proposal of the transfer of the responsibilities from the World Bank to the African Development Bank.
I yield back the balance of my time.
Chairman BEREUTER. I thank the gentlelady for her statement, and I would just say that my notes show that the Congress still needs to authorize $165 million for HIPC debt relief, and I am told the Administration will be sending up an authorization. So that will be something this subcommittee will need to take up as soon as we have an opportunity to do that.
Are there other Members who wish to be recognized with opening statements? If not, then I will introduce our distinguished panel of witnesses, and the first is Dr. Donald R. Sherk, who will testify. Dr. Sherk was the U.S. Executive Director to the African Development Bank from 1985 through 1989. He is currently a director of management consulting and a regional representative to Africa for the International Business and Technical Consultants, Inc. In addition, Dr. Sherk, in 1999, prepared a paper and provided testimony to the aforementioned Meltzer Commission on the subject of the African Development Bank. So he ought to be the person to address your and my questions.
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Moving on, we are also honored to have Dr. Kwesi Botchwey as our second distinguished witness. Dr. Botchwey is the current Director of the African Programs and Research at the Harvard Center for International Development. Furthermore, he was Minister of Finance in Ghana from 1982 to 1995. As Minister of Finance in Ghana, he helped implement one of the most far-reaching economic reform programs in Sub-Saharan Africa. Dr. Botchwey's distinguished legal education includes degrees from the University of Ghana, Yale Law School and the University of Michigan law school.
Our third distinguished panelist is Ms. Njoki Njehu. Ms. Njehu, a Kenyan national, is currently the Director of 50 Years Is Enough: U.S. Network for Global Economic Justice. This organization is a coalition of over 200 organizations who focus on the transformation of international financial institutions. Prior to her current position, Ms. Njehu worked at Greenpeace International.
We welcome the distinguished panel to this hearing, and without objection, your written statements will be included in their entirety in the record. And I recognize first Dr. Sherk. You may proceed, and we will try to ask each of you to limit your testimony to 10 minutes.
STATEMENT OF DR. DONALD R. SHERK, FORMER U.S. EXECUTIVE DIRECTOR, AFRICAN DEVELOPMENT BANK
Dr. SHERK. Thank you very much, Mr. Chairman. It is a distinct honor and privilege to appear before you and your subcommittee colleagues. The subject before you today, the African Development Bank is
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Chairman BEREUTER. Dr. Sherk, if you will pull that a little bit closer to your mouth.
Dr. SHERK. I am sorry. I have a bit of a cold, so I will try to compensate.
Chairman BEREUTER. Thank you.
Dr. SHERK. The subject before us today, the African Development Bank, is a subject very close to my heart, which I hope to elaborate on as my remarks go forward.
I appreciate you circulating to the subcommittee the paper that I did for the Meltzer Commission on the African Development Bank, where I attempted to portray the Bank from its beginning days to its current status as a bank that has grown probably more in stature than any other international institution with which I am familiar.
You talked a little about my background, Mr. Chairman, and I think that if I could just say one more word on that, that after having an academic career for 12 years teaching economics in Boston at both Boston College and Simmons College, I went into the Asian Development Bank as a staff economist dealing with some of the poor South Pacific island economies. From there I next went to the Department of the Treasury, which, as you know, Mr. Chairman, has responsibility for oversight of U.S. participation in all the multilateral development banks.
The Treasury sent me back to Manila to be the U.S. Alternate Director to the ADB in the early 1980s. From there, I went to Abidjan in the Ivory Coast, where I was the U.S. Executive Director for the African Development Bank.
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I have also had a brief period of time on the Board of Directors of the Inter-American Development Bank. So I have had positions on three of the MDB boards of directors.
In the mid-1990s, I worked with the OECD in the Development Assistance Committee, where I had a chance to deal with 28 OECD member countries and their policies toward multilateral assistance. Currently, as you pointed out, I am in the private sector.
I think with this background, I probably am fairly well positioned to talk about the multilateral development banks and their pros and their cons. Many people that look at the banks superficially draw conclusions one way or the other. I think they are a very complex set of institutions, and I know you want to focus today on the African Development Bank, so that is my intention, too.
But just briefly, in the way of what are my thoughts on all of the multilateral banks and the role of the United States in those institutions. First of all, I believe that the multilateral development institutions are vital ingredients of a healthy and growing world economy. The MDBs, together with the IMF and the WTO, might be thought of as a world economic safety net. Had these organizations existed in the 1920s and the 1930s, the world might not have had to experience the disruption, dislocation and suffering brought on by the world Depression and the Second World War.
But, Mr. Chairman, these institutions clearly do not work in the way we all hoped they would when they were created. Unfortunately, the MDBs fall short in a variety of ways. All too frequently multilateral or global goals for the institutions are sacrificed on the altar of perceived national interests. This shortfall between institutional achievement and institutional potential subjects them from time to time to periodic crises of confidence.
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Why does this happen? I would argue that no two countries view the MDBs in the same way. Countries participate in these institutions for a variety of reasons, noble and ignoble. The G7 members may appreciate the banks for their geopolitical advantages and their ability to mobilize sizable pools of non-budget funds, but for most countries a variety of other motives can be mentioned: procurement, staff and management positions, resource transfer needs, regional and subregional associations, national pride, technical assistance, private sector collaboration, education, health, infrastructure, externalities. One could probably go on.
But for most countries, the package of perceived benefits is judged to be significantly larger than the cost of membership, and, thus, easily justifying remaining involved with the institutions. However, one would be hard pressed to identify more than one or two countries that have ever in the 50-year history of these institutions decided, for their own reasons, to leave the institutions.
When it comes down to how the MDBs are managed, problems endemic to each institution are all too visible. Boards of directors drawn from all over the world have no real bottom line. There is rarely an opportunityan important policy issue that is capable of uniting all of the board members, given the variety of motives prompting their membership in the first place.
This diversity of goals across shareholders makes a truly unified board most unlikely. Consequently, the managements of the institutions are in a position to advance their own agendas by simply finding a group of sympatheticread pliableallies on the board. Of course, management's ability to determine lending volumes is a powerful inducement to ensure that support in policy debates from the borrowing member countries, and all too often management seek to fulfill predetermined global lending targets to establish conditions for further capital increases in soft fund replenishments. This is what I have called the mandate of institutional aggrandizement. It is no accident that the annual reports of all the MDBs typically begin by mentioning how much lending was achieved during the year and what percentage increase that was over the previous year, not how much development actually took place because of those loans.
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And before turning to the African Development Bank, let me focus briefly on shareholder influence in the MDBs and how that influence is used.
The paper that you had circulated by the staff written by me has two appendices. One would be called Appendix A, types of influence, or, if you will, avenues of influence; and the second, Appendix B, deals with how that influence has been used over time.
I came up with a list of 50 separate goals that the United States and other countries have pursued in the context of the boards of directors or with the managements of these institutions, 50. They change from time to time, and they change in their intensities. Those of you that have followed the development literature over the past several decades will recognize that a number of the objectives cited have more or less faded from the scene, to be replaced by objectives given more currency in today's environment; for example, good governance, civil society and transparency have replaced appropriate technology, integrated rural development and environmental review as current hot-button issues.
How much influence needs to be spent to achieve any one of the objectives is dependent upon many factors. Suffice it to say that the countries most adept at seeing their objectives incorporated into MDB operational guidelines are those that focus their objectives narrowly, stay informed of bank policies and procedures on a day-to-day basis, and successfully lobby other shareholding countries in support of the objectives that they favor.
I personally have admired the way the Scandinavian countries have succeeded in getting MDB policies to reflect their own goals so successfully. Basically these countries have joined forces to maximize their influence, done their homework diligently and have advanced their development goals very adroitly.
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These comments can only go so far. It would be a mistake to view all the MDBs as the same. Each has its own history, its own unique set of circumstances calling it into existence. Shareholder ownership varies widely from bank to bank, with key shareholders being similar, but never the same. The staff of each MDB, in spite of similarity and professional training, view the other MDBs differently and this difference often impinges on how cooperative each bank can be with the others.
To be fair, one should point out that over the last 2 or 3 years under the leadership of World Bank President Jim Wolfensohn
Chairman BEREUTER. Dr. Sherk, if you could summarize in about an additional minute.
Dr. SHERK. OK.
They have established programs to cooperate and to build partnerships among each other. Dr. Botchwey and I were privileged to serve on a task force that prepared the groundwork for a memorandum of understanding between the World Bank and the African Development Bank about who is going to do what, what synergies could be developed in helping Africa, and I think that program is off to a good start.
Let me just conclude, Mr. Chairman, by saying that the African Bank is, as you said in your earlier remarks, judged fairly harshly by some of the financial press and some of the rating agencies. I said in that paper that I prepared for the Meltzer Commission that if the African Bank were held up against the World Bank and the other regional development banks and compared by any common standard of business efficiency, the ADB would most likely be ranked at the bottom. But if a more relevant yardstick of achievement and maturity were employed, measuring how far the Bank has travelled in its 37-year history in what is easily the most difficult working environment on Earth, it would probably be ranked first.
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Thank you, and I would like to answer any questions.
Chairman BEREUTER. Thank you, Dr. Sherk.
We will next hear from Dr. Kwesi Botchwey. You may proceed as you wish.
STATEMENT OF DR. KWESI BOTCHWEY, DIRECTOR, AFRICA RESEARCH AND PROGRAMS, HARVARD CENTER FOR INTERNATIONAL DEVELOPMENT
Dr. BOTCHWEY. I thank you, Mr. Chairman.
Mr. Chairman, as you noted, I am Director of the Africa Program at Harvard, and in my long years in public office, I had the opportunity to deal with the ADB firsthand and also to observe its relations with its other partners and its donors. And as Don also said, I participated with him and others in a very recent review of the Bank's role in developing a framework for partnership with the Bank, among others.
The Chairman of the African Development Bank, as I am sure all you distinguished Members of the subcommittee are aware, was established in the early 1960s by 23 African governments with an initial capital base of about $250 million and a very small staff complement at the beginning, numbering no more than about 10. And from these modest beginnings, the Bank became and continues to be Sub-Saharan Africa's preeminent development funding institution, operating alongside the three other regional development banks for Asia, the Inter-American Development Bank, and, more recently, the European Bank for Reconstruction and Development.
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In 1982, with admission to membership of the Bank of the so-called non-regional states, the Bank's capital rose to upward of $6 billion from about $2.9 billion in 1982. The African Development Fund, ADF, which is the Bank's concessional window, was established later with an initial capital of $244 billion and its membership made up of the African Development Bank itself and about 25 non-African states including the United States. There is a third institution in the group, which is the Nigerian Trust Fund.
Now, from its modest and almost exclusive reliance on project lending in the first decade or so of this operation, the Bank group now employs a wide variety of lending instruments, pretty much like the World Bank's. They include traditional project loans, sector investment loans, credit lines, so-called policy-based loans, sector adjustment loans, and structural adjustment loans as well as additional technical assistance operations.
Now, by the end of 1997, the Bank Group's total lending stood at over $33 billion, most of it from the ADB, about $20 billion, followed by the ADF. And for the Group as a whole, the central distribution of lending is, I think, so dominated by agriculture and infrastructure, but if you combine transport and utilities, then at the end of 1997and I believe even nowthe infrastructure would account for about 36 percent and agriculture about 23.5.
The Honorable Ms. Waters wanted to know something about education and health. Education expenditureeducation and health would account for about 9.7 percent of the Group's total lending activity as of the end of 1997.
Page 20 PREV PAGE TOP OF DOC Now, disbursements stood at the end of 1997 at about $222 billion. The bulk of it was again coming from the ADB, followed by the ADF and the Nigerian Trust Fund in that order. Now, while this is relatively small compared to the World Bank and even to the other regional banks, it nevertheless makes the Bank Group a very important regional funding source.
Now, for about a decade following that admission of the non-regionalso-calledto membership of the ADB, a fairly harmonious climate prevailed among the African and non-African members, but the strains began with the onset of the 1990s and came to a head with the publication of the findings of a major study in 1994, the Knox Report, which is cited in Don's paper, which has been circulated. The report drew attention to a number of weaknesses and problems and set the stage for a long period of internal discussion, reviews, attempts at reform, and unfortunately, Mr. Chairman, quite a bit of recriminations in the dialogue between the regional and non-regional members of the Bank.
Among other things, the report raised the issue of poor quality of lending generally, and stressed three main areas that needed urgent attention. It is important to reiterate these here now, because they do have, to some extent, a rather current ring to them. I noted that Ms. Waters wanted to know a bit about poor air quality as well.
Now, the three areas were the Bank's focus. The report noted that the Bank was pulled in all directions by the conflicting goals and attitudes of its shareholders. I fear that this is still a bit of a problem; two, lending policies and procedures compared to what the practice actually was; and, three, the Bank's likely unrealized asset as an African institution in which African shareholders especially reposed a great deal of trust.
Page 21 PREV PAGE TOP OF DOC The crisis generated by this report came to a head when the donors suspended funding for the ADF, leading to a very sharp fall in lending.
Now, so, Mr. Chairman, where is the Bank now exactly? There can be no doubt in my mind that under the current President of the Bank, the Bank has moved resolutely to address the issues of management and governance that plagued the Bank and led to the bitter recriminations in the mid-1990s. There has been remarkable improvement in project quality and management. It is unquestionable. Moody's has acknowledged the improved regime of sanctions, lending and monitoring procedures. All the rating agencies continue to rate the Bank fairly highly. Moody's, Fitch, ICBA, Japan Credit Agency give the Bank triple A and double A for the Bank's senior unsubordinated loans in that order.
So the Bank now has a new mission statement that it promulgated in 1999, and in a recent study which I referred to that Don and I did together, we also noted that many of the problems that were cited in the Knox Report have been alleviated. Therefore, in my view, Mr. Chairman, unquestionably the Bank has been quite successful in addressing the management problem that was in the mid-1990s.
Now, the role of the Bank compared to the IMF and the World Bank in fostering economic development in the African region. The Bank's potential in this regard, Mr. Chairman, remains largely unrealized. This is mainly a resource problem. The simple truth is that the Bank's total resources pale in significance compared to World Bank's and the IMF's. But this is only part of the problem admittedly. The other part of problem is the ADB's own focus, based on its real potential competitive advantage and acknowledgment of this advantage by its partner agencies.
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For me, Mr. Chairman, the debate over infrastructure or poverty alleviation is a false one. Poverty alleviation is the ultimate goal that all development activity must try to achieve. In the end, it is the ultimate benchmark against which all economic reform efforts might be judged. This requires investments and a sound macro-economic policy framework in which the goals on poverty alleviation are explicitly recognized. An important part of poverty alleviating reform effort must include significant investments in infrastructure, such as the rural infrastructure, as well as regional infrastructure, both in areas in which ADB has tremendous strengths.
As far as the Bank's role in debt elimination, we are concerned. The Bank's role in debt relief has been marginal. As of today, I think that the Bank has done HIPC-type operations in only two countries: Uganda in 1998 and Mozambique in 1999. And I think that in total the Bank has provided something like $87.5 million in 1998 net present value terms as part of its HIPC effort.
Finally, Mr. Chairman, the future of the Bank. I think that the Bank is well positioned to become a leading source of knowledge and development financing in the African region. The internal management problems that cause a bank a severe loss of market and donor confidence have been resolved, even if at the cost, at least initially, of lowered staff morale. In spite of much talk about strategic partnership, especially with the World Bank, the Bank still remains and is perceived, not without justification, alas, as a caricature of the World Bank, because it is not allowed to do what it thinks it needs to do. Its resource base will need to be strengthened and its focus sharpened to enable it to exploit its potential as a credible African development institution.
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I see about five areas, finally, Mr. Chairman, in which the Bank can develop its niche. One is the monitoring of progress toward the attainment of the international development goals. There is a multiplicity of these goals. Almost every day as the African crisis continues, there is some initiative of committing oil on Africa, and I think the ADB can perhaps be asked to monitor these. There is governance in Africa
Chairman BEREUTER. Dr. Botchwey, if you could summarize the remainder, I would appreciate it.
Dr. BOTCHWEY. Very well. I will do that, Mr. Chairman.
There is governance in Africa, an area which is often simply vulgarized and reduced to just the total corruption. I think that the Bank, because of its position in the region, probably can do a better job monitoring governance issues and others.
The third is the provision of regional public goods, including support for regional public health interventions, that simply cannot be done in one country alone; and, finally, the promotion of regional integration initiatives.
I thank you, Mr. Chairman.
Chairman BEREUTER. Thank you very much, Dr. Botchwey.
And finally, we will hear from Ms. Njoki Njehu. Now, if I am not pronouncing that correctly, please do correct us right at this point. You may proceed as you wish.
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STATEMENT OF NJOKI NJOROGE NJEHU, DIRECTOR, 50 YEARS IS ENOUGH: U.S. NETWORK FOR GLOBAL ECONOMIC JUSTICE
Ms. NJEHU. Thank you.
My name is Njoki Njehu. Mr. Chairman, I want to thank you for the opportunity to testify before this subcommittee. As an African and a Kenyan woman, and as a Director of the Network, I welcome both the privilege and the responsibility that comes with this invitation, and, therefore, I would like to start by submitting for the record two statements from civil society organizations in Mali and Tanzania at the time of the meetings, at the time of the visits of the President of the World Bank and the Managing Director, because I believe they have bearing in terms of the situation in Africa.
Chairman BEREUTER. Without objection, those will be made a part of the record.
Ms. NJEHU. Thank you.
The 50 Years Is Enough Network is a coalition of over 200 groups that are committed to the profound transformation of the International Monetary Fund, the World Bank and other international financial institutions. The network also works in collaboration with organizations in about 68 other countries, and we are committed to the issue of working to educate the public, to mobilize the general public in order to bring about this transformation.
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I am not an economist, and I have not had direct experience with the African Development Bank like my copanelists, and so my comments this afternoon leave the technical aspects of the African Development Bank to my copanelists. I did, because I took the responsibility very seriously, talk to a number of colleagues in Washington in conjunction with the spring meetings of the World Bank and the IMF, colleagues from Tanzania, Mozambique, Zimbabwe and Kenya, as well as Ghana, to get some ideas about the perception of civil society in Africa on the African Development Bank and the situation facing the continent, and I believe that in looking at the questions that are related to the international financial institutions, one of the key distinctions to be made must be the one around the question of intent and outcome.
The intentions are clear. The intentions of those lending and providing donor assistance to African countries are often very clearly articulated: poverty alleviation, debt relief, structure adjustment, structure and policy reforms and others. The question that we keep asking as Africans over and over is whether the outcome matches the stated intent of policies and projects of the multilateral financial institutions.
When one looks at the realities that are experienced by Africans, as well as the peoples in other regions of the Global South, that is to say, Asia/Pacific, Latin American, the Caribbean, it is undeniable that the outcomes of implementation or structure adjustment programs, free market reforms, debt relief and privatizations have failed. They have failed to deliver on the promises of development.
The fact is that these aspects of these policies and programs, such as cuts in food subsidies, cuts in credit to farmers, non-food cash crop farming, user fees for health and education and water privatization, condemn millions to hunger, malnutrition, poverty and even death. Africans are working very hard and are working against many, many challenges.
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In this context of a continent faced with tremendous challenges that seem almost insurmountable, we must then also ask some questions about the role of the African Development Bank that is now three decades old, an institution that was founded to finance projects that would provide the basis for employment, technology and a way out of poverty. Instead of an Africa where promises have been kept, we see an Africa that has been in rapid and long decline, an Africa that has endured worsening economic circumstances since the time of the Bank's founding.
This subcommittee can help begin to chart a new direction for the African Development Bank, one that would provide the basis for employment, technology and a way out of poverty, in support of African people's initiatives. Sub-Saharan Africa is rich in human and natural resources, but faces many challenges. We have heard about some of those from Members of the subcommittee, as well as from my co-panelists.
I want to focus today on what I believe most Africans themselves would say about development and economic recovery on our continent. In a nutshell, it is this: It isn't working. The way development is done now and has been done since the beginning of Africa's economic decline has harmed Africa more than it has helped it. Our access to services, our employment prospects, our nutritional standards, our overall standard of living has been in decline since 1980. This is the information that we get both from institutions like the World Bank and various agencies of the United Nations.
What changed around 1980? Certainly there was the oil price crisis of the 1970s which hit many African countries very hard. Sub-Saharan Africa continues to pay back more to the World Bank and the IMF than it gets from those institutions, and despite this tremendous diversion of resources, and in several cases despite even a country's acceptance into the World Bank and IMF debt relief program, our debt levels continue to rise. Social services continue to be cut. People continue to be laid off. Prices continue to rise.
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Indeed, it is obvious that development is not working in Africa, and also as part of my statement is a chart that comes from a consultant at the World Bank that shows very clearly what has been happening in terms of growth in relation to the rising amount of money that comes in the form of loans to Africa. The results of many of the programs that are associated with the programwith the loans have been devastating, and it isthe question becomes, then, how do we get out of the crisis that we find ourselves in? We are not going to get development. We are not going to get the kinds of effective results to the challenges and solutions to the challenges that we face with more of the same.
In fact, the statement that we want to make today is to say that the market plan has not worked for Africa. We need a Marshall Plan, one similar to the one that was offered to Europe after World War II, at a time when the United States recognized that lending to devastated economies was an illogical way to develop.
The much-vaunted Heavily Indebted Initiative has fallen short of the goals of relieving Africa's debts. Some beneficiaries of the HIPC Initiative will pay as much, if not more, in debt service after graduating from the program. After World War II, as the Marshall Plan was providing resources to kick-start European economies, Germany negotiated terms that allowed it to pay no more than 3.5 percent of its annual export income on its foreign debt, and nothing at all if it did not have a trade surplus.
In Africa, countries have found themselves paying 40, 50 or 60 percent of the annual export income on debt. The Heavily Indebted Poor Countries Initiative of the IMF and the World Bank, when it accepts countries into its scheme, and when it works as it promises to do, aims to reduce those payments to between 10 and 15 percent of annual export income, with no provision for years when a trade surplus cannot be achieved.
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People in Africa think the system is fixed. They see new economic programs that welcome more foreign companies into their countries and offer incentives to grow more cash crops or work in assembly plants, but they still see their standard of living decline. They hear that the African Development Bank will be rescued from its morass by worthy governments, but they are not surprised to find that it operates as a mini-World Bank, imposing the same conditions for the same kinds of projects.
Africa needs the debt cancelation; 100 percent of the debts owed by these countries to the multilateral creditors. The IMF and World Bank have tremendous resources, and given that people in Africa are slipping and its children are dying, we fail to see why these institutions continue to plow their money into the private sector.
I also want to say that, in conclusion, like Dr. Botchwey, that Africa needs an institution, an African Development Bank, that is something more than a junior partner or a surrogate to the World Bank.
I strongly believe that the role of African institutions is to effectively address the challenges that face Africa. Instead of more reforms, what is needed is clinics stocked with drugs and workers, schools with textbooks and trained teachers, safe water for all instead of privatization contracts for multinational corporations, free public education for African children just like for children in the U.S., policies that would put people before profits. There is a proven track record of investment and political will in the campaigns against polio, smallpox, and the campaign to immunize the world's children against the major vaccine-preventable diseases. We went from covering about 5 percent of the world's children in 1980 to covering 80 percent in 1990, saving 3 million children a year. Not only do we know what needs to be done. We know how to do it and have done it in a number of instances. The same can be true of Africa.
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Again, I urge you to act in solidarity with African peoples and watch them succeed. Thank you.
Chairman BEREUTER. Thank you very much for your testimony. Thanks to all three of you.
We will now proceed under the 5-minute rule for questions from Members of the subcommittee. As I announced earlier, we will recognize people based on their seniority on the subcommittee, for those who were here at the beginning, and then recognize those in order of appearance after we begin.
So the Chair recognizes himself first under the 5-minute rule, if the clerk will start the clock.
First of all, my own personal view is that the African Development Bank and Fund deserve our attention more than any other regional development banks. Because of the urgency of the concerns on that continent, not only do we have a responsibility for reauthorizing funding for the bank coming before us this year, but I think it is appropriate that we focus our attention.
I hope that we can give some good guidance to our Executive Director as we try to have an impact on making these two institutions more productive.
Dr. Sherk, you mentioned the Knox Report. My recollection is that it was issued in 1994. You quote the report that African nations who borrow from the bank complain that ''the bank is absent when it should be present.''
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I would like to ask first you and Dr. Botchwey how do the bank's borrowers assess the bank's engagement with their development needs now?
We have seen a change in leadership there. How has it changed, how has their perception of the performance of the bank and its responsiveness to their goals changed, if at all?
Dr. Sherk, do you want to try first?
Dr. SHERK. Thank you, Mr. Chairman. I think that is a very fundamental question about how to improve the quality of lending for Africa. The African Development Bank after the criticism of the Knox Report, and by the way, to be fair to the African Bank, the Knox Report followed the Wapenhans Report on the World Bank, the Tapoma Report on the InterAmerican Development Bank and the Schultz Report on the Asian Development Bank, and all four of those major reviews of the bank's portfolio came up with remarkably similar conclusions about the deterioration in the project quality.
And in the case of the African Bank, the Knox Committee found that there were too many pressures to lend and too little attention given to the kinds of actions that would ensure that each loan met its intended objectives, supervision of the loans on perhaps a semiannual basis, to institute sound post-evaluation of projects so that the lessons learned could be recycled into new lending so that the new lending wouldn't make the mistakes of the old lending.
Page 31 PREV PAGE TOP OF DOC These are activities which weren't given enough attention by the African Bank prior to the Knox Report, but they certainly are now. Both of thosemany more supervisions per investment dollar goes on today.
We could talk a little about the partnership that is coming out of the World Bank and the African Bank that Dr. Botchwey and I worked on. And in that case, you get a much greater focus on what do the civilian society groups really want, how do you find out what they would really desire in terms of a rural, integrated rural development project or a rural road project or a health clinic or a primary education loan.
This is something that is sweeping the development institutions, but I am very pleased to say the African Bank has been in the front of that.
Chairman BEREUTER. Thank you.
Dr. Botchwey, would you care to comment on how attitudes have changed in Africa since 1994, if at all, attitudes about the African Development Bank that is?
Dr. BOTCHWEY. Yes. Thank you, Mr. Chairman. Let me be brief and absolutely candid. Mr. Chairman, we, as Don said, actually conducted a recent study in which we surveyed the views of many, many African clients. I think it is fair to say that the prevailing view, the prevailing sentiment among the bank's African clients is that unquestionably there has been an improvement in product quality, in the balanced procedures and in management and governance of the bank.
Page 32 PREV PAGE TOP OF DOC There is a lingering concern that the Bank has been so preoccupied with getting these things right that it is taking a long time to kind of focus on a sharper vision and a niche in matters of African development.
Second, also, there is a lingering concern that the Bank, in spite of all of the efforts that have been made in these times, continues to kind of walk in the shadow of the World Bank.
Finally, Mr. Chairman, there is also some concern that the Bank is not present in many African countries. You know, the ADB used to have offices in a lot more African countries.
Well, the truth is that it was overdone in the past. They had just too many outside offices. I think the Bank has swung to the other extreme. It has shut down all of those offices. So there is certain yearning also for greater presence, I think, in African countries. Well, there is no question that there is a great deal of support for the bank among its African clients.
Thank you, Mr. Chairman.
Chairman BEREUTER. Thank you. My time is expired.
Ms. Njehu, I will have a question for you on my second round.
The gentleman from Vermont is recognized.
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Mr. SANDERS. Thank you, Mr. Chairman.
I want to focus on three areas which are devastating Africans right now: the AIDS crisis, the growth in poverty, and the chain of deep debt that many African countries are now facing.
And I recognize that the African Development Bank and the Fund are not going to themselves solve all of these problems, but what we need from our witnesses are thoughts as to how the United States Congress can go forward to address what are some of the major crises facing humanity today.
So, I would like to ask all three of you a question. We will start with Njoki Njehu. Could you comment on the AIDS crisis and the role of the pharmaceutical industry, and how we deal with growing poverty and the issue of debt forgiveness?
Ms. NJEHU. Thank you, Mr. Sanders. I think in your opening comments you very well addressed the questionssome of the challenges and some of the what I believe would be necessary responses that are needed from the pharmaceutical companies.
And I do think that at the same time, one of the things that I want to convey here is that in looking at the African continent in country after country and in community after community, that people are coming forward to try and address these issues in their own ways: In the clinics that they are building, in the ways that they are trying to establish relationships with companies, with hospitals, in countries like the United States and other parts of the globe to try and address the crisis that faces them, because their governments, because of, indeed, the international debt, are not able to do that.
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On the question of debt, I believe that what needs to happen, as I said, is debt cancelation, total debt cancelation and that we need to be thinking outside the box, not be doing it the way that it has been done in the past, with a link to structural adjustment programs, mandating policies that have been filled for the most part, as is evident by the institutions that have been imposing them, trying to repackage them and redo them.
The HIV/AIDS crisis is a rather serious one and a tragic one, and one of the things that I want to put on the table today, in concluding with my remarks, is to say that in addition to the offense and the other issues that are very much talked about, there is a crisis in places like Zimbabwe where thousands of people are dying every day, an environmental crisis is emerging as trees are cut down to build coffins, that continue to increase the situation of poverty.
So I think that as we look at these crises, we need to look at ways in which other issues are coming up very clearly.
Mr. SANDERS. Thank you.
I want to go to Dr. Botchwey.
Dr. BOTCHWEY. Well, thank you. On AIDS, Mr. Sanders, you yourself gave the rather grim statistics indicating the real crisis that the continent faces.
I think that what the United States Government can do is to provide support to getfirst, of course, to strengthen advocacy of prevention measures. Prevention by itself, Mr. Chairman, is not going to work. When people begin to appreciate that when they have been diagnosed with a disease they are simply waiting to die, they are not going to even get tested. So prevention by itself would not be effective, unless it is combined with a critical program of therapy and access to drugs.
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So I think that the area of access to drugs is one area where the U.S. Government can help. There are many initiatives on the table now to develop some kind of a trust fund that would be used to finance bulk procurement of visionary drugs.
I think that with all the help that the U.S. Government can muster, we need it in getting around these so-called legislatable poverty issues, which you rightly noted are not the matter at stake.
Yes, access to drugs must be a complement for credible programs for prevention, and the U.S. Government, I think, can afford to and has an important role to play in that regard.
Growth and poverty. I think that the important thing to appreciate here is that even at the current rate of growthfirst of all, all the African countries will need to almost double their current rate of growth, double their current rate of savings, which for most will be difficult, as well as perhaps double the current flows of development assistance in order to make it possible for poverty to reduce by half by the year 2015. So it is important.
And finally on debt, I agree entirely with Njoki, I think that it is very clear that there are issues that African countries cannot pay this debt and for the past decade they have paid the debts only because the debts have been refinanced by donors outside.
Mr. SANDERS. You believe in total cancelation?
Page 36 PREV PAGE TOP OF DOC Dr. BOTCHWEY. I do believe that total cancelation is the only credible route, of course, against the guarantees of good governance and the credible and sensible use of the resources.
Mr. SANDERS. I know we are running out of time. If Dr. Sherk could make a brief comment on those issues. Let us start with debt cancelation. Are you in agreement with the other two panelists?
Dr. SHERK. For the most part. I also want to add a word on poverty alleviation. I think the Chairman mentioned this document called the African Development Bank's Vision Statement, which is the new mandate for the Bank under President Kabbaj. Clearly, it establishes poverty alleviation as the number one principal goal of the bank, and I think that message has gotten through to the entire staff from the President on down to the bottom of the ranks.
Mr. SANDERS. What about debt cancelation? How do you feel about it?
Dr. SHERK. If you had a credible program of debt cancelation, as Dr. Botchwey added, with sufficient conditionality to ensure that the funds would be used for health, education, and so forth, and not spirited out of the country, which you and I both know sometimes happens, those conditions have to be in place. And at that time, yes, certainly debt consolidation would be seen as a major force for growth.
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Mr. SANDERS. OK. Thank you very much.
Chairman BEREUTER. Thank you, Mr. Sanders.
The gentleman from California, Mr. Ose, is recognized.
Mr. OSE. Thank you, Mr. Chairman.
I noticed the comments in all of your testimonies about the changes in the mid-1990s to structural reforms at the bank in particular.
I want to make sure I understand clearly that the African Development Bank loans money to countries, and then the countries turn around and use the money as the countries decide? Is that accurate, Dr. Sherk?
Dr. SHERK. The typical loan procedure, Mr. Congressman, is for a loan to be appraised in terms of what elements of that project are required, and if it may be training for local villagers in the use of health facilities, that training would be paid for under that loan.
If it had to do with a road from the town center to the community health center, that would be paid for under the loan, so that every one of the loans are components of infrastructure, training, equipment. The obligation rests with the government, because the government may borrow $10 million, and $9.5 million of that would have been disbursed over perhaps 20 or 30 categories of expenditures from technical assistance, training, equipment, infrastructure.
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Mr. OSE. My question then boils down to, how does the African Development Bank measurethat is not the word I want to use.
How does the African Development Bank assure itself that the capital it is providing to these countries is having the desired impact?
Dr. SHERK. Do you want me to answer?
Dr. BOTCHWEY. May I?
Dr. SHERK. Sure.
Dr. BOTCHWEY. Mr. Chairman, first of all, the fact is that every single loan operation or grant or whatever is given within the framework of strict and often tedious conditions.
Mr. OSE. Do we send people out in the field?
Dr. BOTCHWEY. Sorry?
Mr. OSE. Does the African Development Bank actually have project inspectors, if you will, or loan officers that go into the field?
Dr. BOTCHWEY. Yes. Yes. Absolutely. Absolutely. The projects are appraised. They are studied and appraised and costed before and duringthey are regularly vetted and monitored and then exposed or also evaluated.
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Mr. OSE. In the vetting process of the projects that are funded, is the money put up first and then the vetting is done afterward, or is the money released to the country after the Development Bank's loan officer has actually gone out and done the vetting?
Dr. BOTCHWEY. It is the latter.
Mr. OSE. It is the latter?
Dr. BOTCHWEY. Yes.
Mr. OSE. Much like a construction loan in the United States, where you have to actually put the sticks in the air before you get the money for the framing and the lumber?
Dr. BOTCHWEY. No, not exactly, Mr. Chairman. The loans, the disbursements are given, once the negotiated preconditions are set. If the precondition is indeed that the foundation of the building must be done by the government before the loan is given, yes, then that is what will happen.
If the precondition is simply that the general microeconomy framework be right, then that is what the government would need to do before
Mr. OSE. I am not sure. I see Dr. Sherk shaking his head that, yes, the actual expenditure is confirmed before the money is provided, and then I hear you saying that it is more a function of the conditions in the negotiation between the bank and the country being met, and that is what I am trying to get at.
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Dr. SHERK. Mr. Chairman, we are perhaps mixing apples and oranges. As you know, since about 1990, the banks, all of them, had started making a new type of loan called structural adjustment loans that aim to the policy environment prevailing in a particular country.
Many of the loans made by the banks historically have been specific project loans dealing with the actual physical hardware and training, and so forth, which can then be disbursed based upon invoices for materials submitted, invoices for materials that have actually been put into the project. These then can then be audited and they are. By the way, each loan has to be audited.
Mr. OSE. So, the bank sends somebody physically, if you will, to check on the invoices and the items listed in the invoice?
Dr. SHERK. Most of the cases those come in to a project entity, and then those documents have to be sent on to either the World Bank in Washington or on to the African Bank in Abidjan, but the auditing process goes from local level up to district or federal level, and then those documents are sent to the banks.
Mr. OSE. But, Mr. Chairman, if I might just ask, I just want to follow up.
Chairman BEREUTER. There is unanimous consent to extend the gentleman an additional minute.
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Mr. OSE. 20 seconds.
I just want to make sure that I am understanding correctly. I don't hear anybody actually saying that somebody actually goes out and sees the physical project, is that accurate, that it is an audit capacity rather than a physical visit?
Dr. SHERK. No, the physical visit takes place at the time of the appraisal. It then takes place at the time of supervision. And one of the things about the Knox Committee that I served on was that we said the African Bank was right to supervise its loans, but they didn't supervise them enough times during a year. They sent a person to supervise a project once a year.
Mr. OSE. My time is up. We are going to come back to this.
Dr. SHERK. We said they should go much more frequently, and they are now.
Chairman BEREUTER. The time of the gentleman has expired.
Perhaps a couple of case studies and briefings would be good for the MDB projects.
Mrs. Maloney and Mr. Green were also here at the beginning of the hearing, and then thereafter Ms. Waters, Ms. Lee, Mr. Bentsen and Mr. Watt, Ms. Schakowsky and Ms. Carson, pardon me, and Mr. Manzullo if he comes back.
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So next will be Mrs. Maloney, and then we will come to Ms. Waters. She is gone.
Ms. Waters, I will recognize you then.
Ms. WATERS. Thank you very much. Mr. Chairman, and members of the panel, I am going to open up a discussion that has been nagging me to no end. It may almost be naive, but I want to explore with you the contradiction of the riches of Africa and the poverty.
I want to know if the African Development Bank, or anybody, is involved in projects that explore and develop the natural resources for the benefit of the people. For example, in Zimbabwe there are unmined diamonds. I don't know why. I don't know how it works. Between oil, gold and diamonds in Africa, it appears to me that there should be economic development projects that mine these natural resources in ways that all of what we are talking about could be paid for.
Somebody explain to me what you do that could help that effort or what anybody is doing and if nobody is doing it, why not. I will start with Dr. Botchwey.
Dr. BOTCHWEY. Thank you very much. That is a very fundamental question. Now, first of all, we talk about Africa often in its aggregation, which is right if we want to see general trends. But the natural resources that you quite rightly talk about are not evenly spread.
Page 43 PREV PAGE TOP OF DOC Ms. WATERS. No.
Dr. BOTCHWEY. There are some countries that have them in abundance and others that don't.
Ms. WATERS. Let's talk about Zimbabwe, for example.
Dr. BOTCHWEY. Now, for those that do, say Zimbabwe, Ghana, the natural resources, mineral resources in the main are potential sources of wealth, they are in the ground.
Ms. WATERS. That is right.
Dr. BOTCHWEY. You will find that the development banks that we are talking about, including the bank, the World Bank itself, will very seldom provide resources on their own to exploit these because they believe that, with some justification, these are things that should be able to attract private sector flows, private sector investments to develop them.
In Zimbabwe there are even platinum deposits, but the ADB isn't there doing any investments in these or in mining, and there are many who would say they shouldn't. There are many who would say if the ADF is going to provide concessional lending, payable over 50 years, you know, with a long period of grace and so on, then they should go to the other sectors where it is typically difficult to attract private flows and so on.
So you don't get these institutions doing that, except in core financing agreements with others, meaning Ghana, the World Bank gave some loan facilities and ADB participated in rehabilitating some mines.
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So your question is right, whyand you raise the whole business of the concentration of the fund of the ADF's resources and the ADB resources. First, there are not enough to start with, and therefore, choices have to be made between putting the money in investments that generate income, foreign exchange no less, as well as social setting investments that produce
Ms. WATERS. Let me just, because we don't have a lot of time.
Dr. BOTCHWEY. OK.
Ms. WATERS. My naive thinking tells me it shouldn't be either/or, but it should be both. We know we must put money into the social sectors, because we have to deal with health and education in order to have any kind of reasonable development and opportunities for people to be able to help grow the country and earn money and have a good living. We know that. That is long range you have to put investment into that. But at the same time, we also know that if the bank is to grow and to be involved in economic development, it should also have investments in places that is going to give them a returnor substantial returns in this case.
And I guess what I am asking is, are there any joint ventures with government and the private sector? Are there any joint ventures with Africans and others in countries where we know the resources are just lying dormant there? Who is in control of that and who does this?
Page 45 PREV PAGE TOP OF DOC Because my naive thinking tells me that with this crisis that we have with AIDS, on top of everything else, that no matter how much support we give, how well-thinking we are, we have got to have a dramatic something to deal with these problems. I want to know how and who will help to develop the riches where they are? I mean, we know what is in Zimbabwe. We know what is in Angola. God forbid, we know what is in the Democratic Republic of Congo. Oil, gold, diamonds. Ghana.
How do we use these resources to literally pay for the cost of running the countries and assisting the people? I mean, it just nags me to no end.
Chairman BEREUTER. The time of the gentlelady is expired, but I would ask unanimous consent to extend the gentlelady another minute if any of you would like to respond to Ms. Waters' statement.
Ms. NJEHU. Sure, I would. Very briefly, I think that the question you are asking is the right one. And when, for instance, were you to ask that question to people in Ogoniland, they would probably say let the oil stay in the ground, given the experiences of having the oil drilled and the effects on the livelihoods, the quality of life and their environment.
So there are a number of outstanding situations and questions that surround this issue of resource exploitation. Part of it is that even in the places where it has been done, it has been done at the expense of local people. The kids of Ogoniland are certainly one of the most tragic examples. And that when the resource exploitation happens it is to the benefit of corporations, often foreign corporations, and therefore it is not necessarily in the interests of people to have these resources exploited.
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I do want to say that for the record, even on the question of debt cancelation, that precisely the point is that whatever these initiatives are that they benefit ordinary people, the question is who determines and how that is implemented. We can mine the gold or we can mine the diamonds, but if it just means all the wealth goes to DeBeers, and there are a few mining jobs for people in Zimbabwe or Angola or the Democratic Republic of the Congo, one needs to look at the bigger picture. And I think that in doing that, the costs are too high.
There is also, of course, the question of resource diversion. There is a lot of money that has gone into the continent for corruption reasons, for misplaced priorities, that it is not held in education, but perhaps a third international airport or more tarmac roads, and those are the questions that we need to ask about what does development mean, and so far we have been found wanting.
Chairman BEREUTER. Thank you.
Again, the gentlelady's time is expired. Perhaps somebody would like to pursue this question further as we go down the line.
The gentlelady from California is recognized, Ms. Lee.
Ms. LEE. Thank you very much, Mr. Chairman, and thank you also for this hearing.
I want to thank the panelists for their very clear testimony today. Today earlier, my colleagues and I introduced a bill, the Debt Cancelation for HIV and AIDS Response Act, to provide for multilateral debt relief for countries faced with the HIV/AIDS pandemic.
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I would like to find out from all three of you very briefly what, if any, steps you are aware of has the bank or the fund taken with regard to linking debt relief with HIV and AIDS? And have you seen any evidence that the bank or fund is placing sufficient priority to this issue?
Also, I would like to find out if you could explain the coordination between the World Bank and the IMF and the African Development Bank and Fund and is the relationship cooperative with the larger institutions or does the World Bank and the IMF make it harder for the African Development Bank to fulfill its functions?
Finally, let me just ask you with regard to user fees, do the loans provided under the African Development Bank require user fees? What are the major differences in lending policies between the African Development Bank and the IMF and the World Bank?
I would like to ask all of you if you can respond to any portion of my question, please.
Dr. BOTCHWEY. OK. Let me start briefly from the last question you posed, user fees. Yes, some of the ADB's operations in health have involved user fees in the past. I think there is a trend away from user fees now. I personally did a project with a bank and the ADB that involved user fees. It was a disaster. We opposed it. It was a disaster. And I think the evidence shows very clearly that there is often a very dramatic drop in attendance by the poor in these facilities when fees are introduced. I think that now there is much greater effort being made at devising more sensible instruments for health sector programs.
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The Bank and the Fund and the relationship with the ADB, I think this is the subject of a particular study that we did. Unfortunately, we don't have copies of it here. But my own belief is that the ADB still is very much in its actual life, very much a general partner to the Bank and hasn't really come into its own.
I have to say this is partly because of reasons of internal management posture, as well as the difficult environment in which we operate with the Bank and the Fund. It is not just simply the institution, I think some of it is internal. So it is a difficulty.
Now, with the Fund it is even more difficult, because the Fund sets up the general macro-economy conditions in which recovery programs are instituted. And once that macro-economy framework with this financing agreement has been set, it more or less createsit decides, it determines what kind of space the ADB has in doing anything.
So it is kind of swift to the tide and it is unable to develop its own sort of posture, whether it is in the macro-economic sphere or whether it is in the sector policies.
Finally, on AIDS, the bank hasn't done very much on AIDS, to my regret. Given that this is such a difficult and a serious pandemic, they have done very little. Even in the area of advocacy, frankly, this is something that I think most Africans find worrying.
I think that the best they have done, and this has to be said, they have incorporated AIDSthey have decided that AIDS must not be incorporated in guidelines for implementing the bank group's health sector programs. And the guidelines include ideas such as mainstreaming AIDS in all operations. That is fine. I don't know what it means in actual practice, but I think there is a recognition that more needs to be done.
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And I think finally that the Bank is now trying to train staff internally in order to help the Bank upscale its interventions. Thank you.
Ms. LEE. Thank you, Mr. Chairman.
Let me ask Dr. Sherk and Ms. Njehu, if you could respond maybe to the priority that you see the bank giving to the AIDS question and what you think we need to do to make sure we move it forward more aggressively.
Ms. NJEHU. I think that Dr. Botchwey has answered the question in the way that reflects what I have been able to find in my own research.
I do want to say that one of the frustrations, if I may say, answering your question about the relationship between the African Development Bank and the World Bank and the International Monetary Fund is to say that I think that for Africans we see the African Development Bank that it should be, if we use a medical phrase, a second opinion to the policies and the problems that are coming out of the World Bank and the IMF, but in fact it has acted as a junior partner and that is a big frustration.
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Chairman BEREUTER. The time of the gentlelady is expired.
The gentleman from Texas, Mr. Bentsen, is recognized.
Mr. BENTSEN. Thank you, Mr. Chairman, and thank you for your testimony.
I just have a couple of questions. I want to follow up a little bit on what Ms. Waters had brought up.
Dr. Botchwey, your response with respect to lending for mineral extraction and why the bank generally had shied away from that given that it was a more marketable transaction than the private sector could fund.
Is there any correlation, because I know this issue has been brought up as well that the idea, and Ms. Njehu had mentioned this, there is always the concern in emerging countries of exploitation of natural resources by foreign companies, and is there a case to be made for regional development banks to actually become a funding mechanism for regional companies or are regional partnerships that rather than having to go abroad to develop oil resources or develop mineral resources of some sort, is that something that regional banks have considered in the past and, therefore, to try and maintain some of the ownership of the resources within the country?
Dr. BOTCHWEY. Well, thank you. It is an interesting question, Mr. Chairman. The problem is that the whole mineral sector industry is really controlled, that is the truth, by a few large companies worldwide.
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If you wanted to build an aluminum plant, for instance, in the country, there are about six, seven companies worldwide that you would have to go. And that is one area you must recognize.
Second, the question also is the prioritization of the areas of investment, given that the resources that the regional bank, this bank, its resources are limited. Now, I am talking about the bank.
Mr. BENTSEN. I guess the question I have is this, two things, I don't know if you are talking about the means of production or the means of distribution in the worldwide market.
Dr. BOTCHWEY. OK.
Mr. BENTSEN. But it seems to me that the issue that the gentlewoman from California raises has to do with the means of production.
Dr. BOTCHWEY. Yes.
Mr. BENTSEN. And the second thing is that it would appear from your testimony that the bank is increasingly moving toward industrial-type lending, it is project financed, but not project financed in the sense that we might think of it from the World Bank or lending 20 or 30 years ago where project financed were big public-type projects, but more industrial and private sector lending.
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And in that context, we know that other regional banks had become lending vehicles for foreign interests going in to create economic development in countries, and that is one aspect. But why not focus some of the lending capability on domestic initiatives?
Dr. BOTCHWEY. On domestic initiatives
Mr. BENTSEN. Domestic industrial initiatives.
Dr. BOTCHWEY. Well, the ADB does some domestic industrial initiatives. It is not a very prominent feature of its overall lending profile. It is very, very small indeed.
I do believe that what the ADB could do, for instance, would be to provide assistance in negotiating agreements that are really truly beneficial to the country, in addition to providing whatever incentives are required to bring the private shareholders in.
I have a second worry that really, if a country has gold or diamonds, you know, the resources that we are talking about, it is indeed possible, easier, as we all know, to attract private capital from domestic and foreign sources as part of these as it is to do other investments.
Very often, the problem is that the country is unable, even on its own sometimes, either for reasons of a lack of capacity or for reasons of corruption, to negotiate a framework that assures the country of the most rational exploitation of that resource.
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So there is room for real skills, a development to do this, and then there is a need for resources as well. The bank does some core financing, for instance, in this area, which I think can be encouraged; the World Bank itself does some core financing to help the development of these assets.
But if you ask whether more of it should be done as against the other project areas, this other sector and so on, given the overall constraint in resources, my inclination would be to say that the least long-term concession of resources especially should be invested more, I think, in the area of the sectors and for poverty, you know, in the areas that benefit the poor more directly.
Mr. BENTSEN. Thank you. Thank you, Mr. Chairman.
Chairman BEREUTER. Thank you, Mr. Bentsen. The time of the gentleman has expired.
The gentleman from North Carolina, Mr. Watt, is recognized.
Mr. WATT. Thank you, Mr. Chairman. Sometimes the best laid plans you have can go awry. My intention was to be here and to hear the full testimony of all three of the witnesses. And just as soon as Dr. Sherk started testifying, I got called to the floor, so I missed everybody else's testimony.
So I want to start by apologizing for having to run out on everybody else's testimony, but sometimes these things have a way of working out for the best, because had I been here I probably would not have spent the time I have spent over the last 20 to 30 minutes reviewing Dr. Sherk's paper written in December of 1999, which is perhaps the best summary I have seen of the history and development of the African Development Bank.
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It kind of puts in perspective for me the relatively short history that the bank has but, more importantly, the even shorter history that the United States has as a participant shareholder in the African Development Bank, and also puts in perspective something that I know the United States well enough to understand is always going to be a problem, which is that the United States has only 5.8 percent of the vote in the African Development Bank, and that the real decisionmaking gets made by the majority shareholders.
And I suspect that there will always be in this body, just knowing how you say mentality and congressional mentality works, a degree of discomfort about that. Notwithstanding that, I want to encourage and I hope all of the Members of our subcommittee and the full committee will read this history, because it is really a real testament to how this bank has made progress.
I am particularly looking at page 5, where you say that of the three regional development banks, the African Development Bank was capitalized by the smallest amount, $250 million originally as compared to $1 billion for the IDB and the Asia Development Bank, and you trace some of thekind of the tensions, negotiations that have gone back and forth between the United States and Africa, the African countries, about the control of the bank, who is going to be the president, who is going to be able to purchase ownership in this bank.
And so I guess I am saying that one part of me is extremely encouraged that given the short duration that the bank has been in existence, given the very small, by comparison, investment that was originally made in the bank, given the period of negotiations and tensions about who was going to control the bank and how the United States was going to be involved as a participant in this, even against that backdrop, substantial improvements have been made in the lives of people.
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And while I don't want to get carried away with bragging about the results of the bank, I do think that needs to be said and put in perspective, and in many ways the people who have been working with the African Development Bank deserve a tremendous amount of commendation for that history.
And I have taken my whole 5 minutes to talk about it.
Dr. SHERK. May I respond, Mr. Congressman?
Mr. WATT. I don't know what the question is, but respond to it, anyway.
Dr. SHERK. I would like to respond to your observations, because I think they are right on, and if I did anything
Chairman BEREUTER. If you can do that in about a minute, please.
Dr. SHERK. Yes, one minute. If I did anything in that paper, I wanted to have it established that the other financial institutions around the world, most of themof the major ones were created as a reaction to the World Bank, meaning that the World Bank wasn't meeting the needs as perceived by the developing countries themselves.
And they thought they would have a better shot if they would develop an institution in which they had greater voice. I think the fact that the U.S. joined those regional institutions was a recognition that the World Bank didn't have a monopoly on truth. If they did, the world would be developed now. The world is not developed, and, therefore, the more different points of view and opinions that can be shared about the courses of development, I think the better.
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And so I am very pleased that you brought that specific issue out.
And then, finally, Mr. Chairman, if in 100 years IBM comes up with a machine that can calculate the rate of return on every dollar Congress appropriates, I would guarantee that the dollars appropriated by the United States toward its small participation in the African Development Bank would have a rate of return higher than 95 percent of the rest of the things that the U.S. Congress appropriates money for. I believe that.
Chairman BEREUTER. I thank the gentleman. That is an interesting statement. I hope he is right.
The gentlelady from Illinois, Ms. Schakowsky, is recognized for 5 minutes.
Ms. SCHAKOWSKY. Thank you. I, too, would really like to apologize to all the witnesses and do promise that I will carefully read the testimony.
Nonetheless, I am not shamed into not asking questions, I will do so anyway, and it may be on subjects that you have already touched, and I guess you will just have to forgive me.
Ms. NJEHU. Yes.
Page 57 PREV PAGE TOP OF DOC Ms. SCHAKOWSKY. Am I saying it right? You talk in your testimony about hundreds and hundreds of alternative development models that have not been implemented for lack of resources and expertise, community level initiatives that are struggling and have not seen widespread implementation because of lack of resources. And you say, optimistically I think, that Africans are not looking for a handout, all they want is the chance and the support to enable them to succeed, and then later, instead of more reforms what is needed is clinics stocked with drugs, and so forth.
What is it about the structure of the bank that makes it difficult to get those resources?
And then let me also refer to Dr. Botchwey's comment about what you call tedious conditions, if we are talking about the same thing here, and if we know how to get from here to thereat least there is some hopeful roadposts that say how to get from here to therethen what is stopping us from doing that, and how can we get the tedious conditions or if there are inappropriate conditions out of the way and how can we target those projects that hold out the most hope and then maximize the resources therefore that are available?
Ms. NJEHU. I don't think that I have all the answers, because I think that there are many answers, and part of the problem that we have been enduring is this idea that there is only one economic model and one development model, and that so far the possibility of alternativesin fact, Margaret Thatcher told us there is no alternative. There is no alternative, that the possibility of alternatives has not been given due credit. One of the things that you might have missed was a chart.
Page 58 PREV PAGE TOP OF DOC Ms. SCHAKOWSKY. I will just ask you is that lack of vision or is it rules that prevent those alternatives from fitting into the framework?
Ms. NJEHU. I think it is both. I think it is lack of vision. I think it is to some extent perhaps arrogance on the part of development professionals, economists and others who think that they have come up with the right idea, with the idea that is going to work and do not seem to entertain any possibility of being wrong or recognizing the signs and the evidence of the failure of the policies and projects that they put forward.
One of the documents that I had that is part of the record is this document that is from the World Bank research economist, who actually wishes to remain anonymous, but it shows that as loans have grown, have increased, growth has decreased.
And it is very startling, because then I would assume that the response would be to say, wait a minute, are we supporting, are we focusing on the right things? I think that when one looksI am from Kenya, and Kenya supposedly owes $8 billion. When you look around Kenya, you do not see a country where $8 billion have been invested.
You see a country that has all of these massive needs, and I think it is true of many other countries. There is this question of misplaced priorities that governments are choosing theand I could speak to my own countrybuilding a third international airport, building a bullet factory in a region that is surrounded by Sudan, Ethiopia, Uganda and spitting distance from Rwanda and Burundi and the Democratic Republic of the Congo.
Surely, we don't need more bullets, perhaps we need schools and clinics. And it is not just the Kenyan government. It is that the funding of these projects was supported in one case by the government of Canada in support of a Canadian corporation and the government of Belgium in support of a Belgium corporation, with a bullet factory and the international airport respectively.
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So there is a question of priorities. There is a question of one of the things that was raised about where the desire and the focus is in terms of where money is put within a country or within a region.
And the examples that I am talking about is they are local examples, that we don't get stuck in thinking that whatever model we come up with, whatever initiative we come up with, they have to be national or regional.
There are successful examples in India, one that I can think about where the government of the City of Kuran got resources and demanded to develop and they did quite well.
I think this is one of the possibilities that we can look at with the idea of thinking outside the box and not asking governments to do the same thing over and over.
Chairman BEREUTER. The time of the gentlelady has expired.
There are only three of us here. We will begin a second round.
Ms. Njehu, I noted from your testimony that you refer to the need for the African Development Bank to try bold new ideas, and break out of failed economic models. For example, you say you could pick a district in Mozambique and, ''provide the government there with the resources to attract dedicated, intelligent individuals who know the area well, see if a government-owned cashew processing facility can provide employment and make a reasonable profit.''
Page 60 PREV PAGE TOP OF DOC An interesting idea as an illustration. I am not focusing on the cashew production, but you go on to say you think there are hundreds of alternative development models that have not been implemented for lack of resources and expertise.
Is it all simply a matter of resources, inadequate resources? In your judgment, to your knowledge, is the ADB thinking outside the box, or are they trying untraditional development models?
Ms. NJEHU. I don't think that it is all a matter of resources, but I think it is a big part of it, because if you have a needwhether it is for a clinic or for a school with textbooks and teachers who are well-trained and paid to do their job, that if you don't have the resources to do that, even if you have a great plan, then it doesn't happen.
But, I do think thatand I think that Dr. Botchwey and I have mentioned this beforethat it seems that the African Development Bank acts and follows the lead of the World Bank and IMF. I mentioned that I think that it should be accountability. It should be in the context of, to use a medical example, the idea of a second opinion. So that if the first opinion says structural adjustment programs that result in user fees or require user fees, that the African Development Bank could perhaps offer a second opinion. And the answer is that they haven't been doing that. There is a possibility that they do that, but they haven't been doing that to the best of my knowledge.
Chairman BEREUTER. Thank you.
My last question is for Dr. Botchwey and Dr. Sherk. Data provided in the Meltzer Commission Report last year suggested an average of 73 percent of all World Bank projects undertaken in Africa during the decade of the 1990s failed to achieve ''satisfactory sustained results.'' That is a very incredible statistic.
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Is it a credible figure to you? That is my first question. And relatedly, is the failure rate, by their definition at least, for projects that are underwritten by the African Development Bank fund, as high as that? Would you like to make a comparison between the two and whether or not you think that the Meltzer Commission was appropriate in their condemnation?
Dr. SHERK. Well, since I was sort of on the Meltzer Commission, I could support that. It is the question of how you define what you are trying to accomplish with the particular project, and I have always been a critic of the notion that you have got to lend more money at the end of the year to prove that you have done something. And I think that the focus finally is changing on let's take a look at every individual project and see what we are trying to accomplish with this particular amount of money.
I would also like to come up with this question of about does the African Bank follow in the footsteps of the World Bank, or are there things for the World Bank to learn from the African Development Bank? And I think, and I don't want to put words in my distinguished colleague's mouth here, but I think we did find in discussing with staff members in both institutions and indeed in our visits to the African countries that the African Bank was a reservoir of very good understanding of some of the deep, entrenched problems that that continent is facing, and that by encouraging this kind of joint mission work, developing a country strategy paper together, that you were finding a cross-fertilization that really was an improvement for both institutions.
And at the time I think when I first got into this field, the World Bank was very arrogant, I think someone on the panel used that phrase earlier, in saying that the regional banks didn't have much to offer. Well, I think they have learned a lot on 18th Street, and that is that they do have an understanding that oftentimes is deeper of individual societal problems.
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And there is another factor in Africa that is harder for an American to get to articulate, but I saw it time and time again, and that is that Africans are more comfortable with the African staff members from the African Development Bank. They had a trust and a level of candor in their discussions that oftentimes couldn't be replicated by a group of World Bank staff getting off an airplane and then seeing some people and grabbing some papers and stuffing them in their briefcases and getting on the plane and leaving again.
Chairman BEREUTER. Understandable.
Dr. SHERK. So that is an important factor.
Chairman BEREUTER. Dr. Botchwey, would you like to respond to that?
Dr. BOTCHWEY. Yes. Briefly, Mr. Chairman. I think that the statistics of the Meltzer Commission published on poor air quality and failure in the Bank are indeed true. The Bank's own evaluation, in fact, confirms this, I think, and the causes of these failures include the Bankas it was noted, the fact that all the projects simply didn't have enough local ownership. I think governments, they didn't feel that they really were a partthat these were projects that they would have liked to choose and design that particular way. So national ownership and commitment and the lack of it, actually, has been identified as all the main reasons why all these projects failed.
Now, as to the new ideasMr. Chairman, just one quick pointI think that it is true for a long time the whole strategy adjustment framework tended to be very monolithic, and there was very little room in negotiations to get alternative ideas tried. I think that that atmosphere is changing now, and this institution has changed very slowly, and, therefore, whatever the leading shareholders, including the United States, can do to really open the vents to allow a flourishing of ideas in that environment, a better place for the regional banks, I think it would be helpful.
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Finally, Mr. Chairman, to offerI would like to submitDon and I, I think, for the record, we did a study of the relationship within the World Bank and the ADB and proposed a framework for a partnership between them that I believe the subcommittee would benefit from.
Chairman BEREUTER. We would like to have that, and without objection, that will be made a part of our record if you supply it.
Dr. BOTCHWEY. OK.
Chairman BEREUTER. Thank you.
Dr. BOTCHWEY. And then finally, I also happened to have authored a paper on the AIDSthe impact of AIDS on economic development in Africa, which was a theme paper for a major meeting that the Economic Commission of Africa organized last year, which I would also like to make available to subcommittee Members.
Chairman BEREUTER. Thank you, and likewise, without objection, that will be made a part of the hearing record.
Would the gentleman from North Carolina like to be recognized? The gentleman is recognized for 5 minutes.
Mr. WATT. Thank you, Mr. Chairman.
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I promise you I am going to ask a question this time, but I want to start the question with a starting point, and it really is an extension of where the Chairman, I think, was going. The question I will end up withand you may have to help me frame the question, because I am going to have to struggle here. On Page 121 of Dr. Sherk's paper of 1999, he says, the Bankthe African Development Bank, that ishas adopted poverty alleviation as its, quote, central goal, close quote. It has incorporated into this project design processes, gender considerations, environmental review, private sector support and civil society participation in its country assistance planning.
Now, I take it if the goalthe central goal is poverty alleviation, I couldn't say, direct me to one particular housing project or construction project or project that you would consider a success story. Would I be saying that, or would I be saying, direct me to a country that you consider a success story? Which way would I frame this question, because I want to go to the question?
Dr. BOTCHWEY. You probably would have to beit would be both. You want to go to a country where
Mr. WATT. They have some success stories?
Dr. BOTCHWEY. They have success
Mr. WATT. All right. Then my question is this, and this is against a backdrop where I presume at some point Members of this subcommittee would like to actually observe some things that the African Development Bank has done, and what my question is, would you all identify for me the three success stories, country and/or specific projects, and the three dismal failure stories, country and specificand/or specific projects? If we were going to look at successes and failures in the history of the African Development Bank, where would we look? And that is the only question I have, because I think that might lead us somewhere at some point.
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Dr. SHERK. Mr. Chairman, we are very fortunate today, because in the hall is the current United States Executive Director of the African Development Bank, and if she allows me to identify her, she could speak to the specifics of successful projects and unsuccessful projects, and I would ask for the Congressman's indulgence that a list of those projects be prepared and sent to you rather than relying on Dr. Botchwey and myself to pull them out of the air.
I do remember both good projects that I visited during my tenure at the African Development Bank, and I remember some bad projects, too. And, as a matter of fact, when a project was a bad project, we had a system in place whereby I would report back to the U.S. Treasury and say that this what we have found out about the particular project, and I don't think, in my humble opinion, that the project should go forward, and that the Treasury would then report back to me and instruct me to vote against the loan. And in a few cases, when you could get enough people to vote with you, you could either delay the project, get it reformulated, or, indeed, killed.
Mr. WATT. Maybe II think I may have asked my question too broadly to expect three examples. Maybe if you could just give me your favorite success story and failure story, and all three of you do that, and then I could ask permission from the chair to inquire of the current Executive Director to respond in a more comprehensive way to give us some success stories and some failure stories.
Dr. SHERK. Well, the ones that stick in your mind are the failures and not the real successes, because as I did
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Mr. WATT. I am disappointed to hear that.
Dr. SHERK. They become more controversial. There was a $100 million petroleum sector loan to Mr. Mobutu, and I probably spent more time opposing that loan than any other Board member on the Board back in the 1990s when that loan was made. It shouldn't have been made, I think everybody in the Bank would admit now that it shouldn't have been made, but at that time, as you know, he was an extremely powerful African leader.
The other one was a soybean loan to Cote d'lvoire, the headquarters of the
Mr. WATT. Is this good or bad?
Dr. SHERK. It was not what you
Mr. WATT. Positive.
Dr. SHERK. It was on the negative. And the reason it was on the negative side is that it was to introduce the cultivation of soybeans in a very fragile part of the country's ecostructure, which was on that band of land very close to the Sahara Desert, where it just began to be savannah and had a very thin layer of topsoil; that by plowing up for the soybeans, you could really increase the likelihood of desertification, and we felt that the fact that the project was wanted by the Ivorian government was not enough to get us to support it. And we had enough votes against that loan to kill it, until the president of the country got on the phone and called every head of state in Africa and said, I want you to instruct your executive directors to support this loan. And so they came in the next day and changed their vote.
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Mr. WATT. Mr. Chairman, can you give me enough leeway to get at least one success story?
Chairman BEREUTER. I have unanimous consent. The gentleman will have such time as he may require to get answers from at least Dr. Botchwey.
Mr. WATT. And one success story.
Chairman BEREUTER. At least.
Dr. BOTCHWEY. Yes, Mr. Chairman. I will give you one success story to which I can speak honestly and without any restraint. This is the African Capacity Building Initiative, which the ADB helped spawn. It is based in Harare. It is run by Africans. It has a fairly functioning governing structure, and it has helped build capacity in the region, much of which has stayed in the region for microeconomic analysis, and it is now branching out and building capacity in civil society, in the private sector and the interfield between these two and the public. It is very successful.
And there is a cousin of this initiative, which has also been quite successful. This is the African Economic Research Consortium, which is recognized everywhere, really, as a preeminent network of good, you know, African economic reserves. So I can speak about these two as good cases of success.
And, Mr. Chairman, if I may make one short statement about poverty alleviation, because it troubles me, it is fast becoming a new bandwagon whose success is determined merely by self-assertion, I think. You say that we are resourceful in alleviating poverty in the country, whenand this is at the global levelthat country moves from low-income to middle-income or high-income, judged by their respective income. Then we say, you now, we have done well. We don't say that we have done well in poverty alleviation if we put the Bank's money in one or two clinics or projects, and they are successful.
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I think that it is important for us to appreciate that the business of alleviating poverty in Africa has been a sustained thing, and that the measure of its success will come when fewer and fewer people live in poverty. And that intent will only happen if there is employment-generating growth and if people can find work and be paid.
I just wanted to make this point. It is very important that we appreciate that that is what we are looking at, and it is wrong, in fact, to force development institutions in the name of poverty alleviation to be mechanically putting resources in education and health projects, defined narrowly, and not necessarily creating an overall environment in which the right investments have been made.
Chairman BEREUTER. I thank the gentleman, and I must say I appreciate very much, and I know the subcommittee does, the testimony, oral and written, of the witnesses here today. I like the one-panel kind of hearings, because you receive the attention, and not all of it went to the Executive Branch in the initial stages. And it is not fair to Executive Director Johnson to ask her to come to the table, but you have heard Mr. Watt's request that you might provide some examples of successes and failures, too, and I would join him in that request. And if you would, I would appreciate it if you could send that to the subcommittee so that we can share it. I see a nodding of the head in affirmation and willingness there. Thank you very much.
One final matter. Without objection, the hearing record will remain open for 30 days for Members to submit written questions and to place their responses in the record. And with that, again, and my appreciation to the witnesses, the hearing stands in adjournment.
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[Whereupon, at 3:47 p.m., the hearing was adjourned.]