Segment 1 Of 2 Next Hearing Segment(2)
SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOC Segment 1 Of 2 REAUTHORIZATION REQUESTS ON
U.S. PARTICIPATION IN THE INTERNATIONAL
DEVELOPMENT ASSOCIATION AND THE
AFRICAN DEVELOPMENT BANK
Friday, July 19, 2002
U.S. House of Representatives,
Subcommittee on International Monetary
Policy and Trade,
Committee on Financial Services,
The subcommittee pursuant to notice, at 9:35 a.m. in Room 2128, Rayburn House Office Building, Hon. Doug Bereuter, [chairman of the subcommittee] presiding.
Present: Representatives Bereuter, LaFalce, Frank, Waters, Bentsen, Sherman, and Sanders.
Chairman BEREUTER. The subcommittee will come to order. The Subcommittee on International Monetary Policy and Trade meets today in open session to examine the International Development Association, IDA.
I will divert a little bit from my prepared remarks because I need to convey that yesterday the administration did forward their request for the authorization with draft legislation. And it provides forand I have seen it about 15 minutes agoit provides for an authorization appropriation of $2,850,000 for the United States' contribution replenishment. The draft legislation is itself only 16 lines long and it asks for that authorization without fiscal year limitations.
Page 2 PREV PAGE TOP OF DOC Segment 1 Of 2 I would like to read briefly from the letter of transmittal to the Speaker, who they asked to lay the draft bill before the House of Representatives. And it is conveyed to us by the general counsel of the Department of Treasury. I quote:
''The U.S. leadership''''with U.S. leadership, the 13th replenishment will carry two hallmark reforms. The first is the expansion of grants in IDA. For the first time in history, IDA will be given authority to significantly expand its grant program beyond the small post-conflict program it has in place. Consistent with congressional desires, the administration was able to negotiate an IDA agreement where over the next three years roughly one-fifth of IDA's resources will be made available to the poorest countries in grant form for key sectors, such as education, health, water, and sanitation, and HIV/AIDs. In addition, grants will be provided for post-conflict situations, natural disaster recovery for the poorest countries most vulnerable to external shocks.
The second major reform is the establishment of a monitored evaluation system that measures IDA borrowing countries progress against a set of key development indicators. The measurement system serves two important functions to provide development effectiveness and accountability function to better position the institution to receive and demonstrate more precise results from the resources invested and a learning function to improve project design and to direct resources to what works.
In recognition of the importance of this initiative, the U.S. will condition a portion of its assistance, $100 million during the second year, and $200 million during the third year of the replenishment period on satisfactory progress toward select high-development impact objectives in areas such as health, education, and private sector development.''
So the hearing today is the second in a series of three hearings on the subject of World Bank IDA. Previously, on May 2, 2002, the subcommittee heard testimony from the General Accounting Office on the subject of converting World Bank IDA loans to grants.
Page 3 PREV PAGE TOP OF DOC Segment 1 Of 2 Today we will hear from a distinguished panel of private sector and non-governmental organization witnesses that I will introduce in a few minutes. Subsequently, on July 25th, the subcommittee is expected to hear testimony from Under Secretary John Taylor of the Treasury Department on the pending administration request for the multilateral development institutions. Actually, I am particularly pleased to have this panel first that we can use your comments and suggestions and consider them when we have our question period with the Treasury representative, Mr. Taylor.
I am going to ask unanimous consent to extend my remarks and put the full statement in the record in a few minutes. I would say with respect however to the loan and grants debate, in July 2001, President Bush proposed that the World Bank and other multilateral development banks replace up to 50 percent of future lending to the world's poorest countries with grants. According to the GAO report, which was co-requested by the Honorable Jesse Helms, Ranking Member of the Senate Foreign Relations Committee, and myself, conversion of half of all IDA loans to grants would cost donor countries approximately $15.6 billion in present value terms. The amount could be financed, they go on to say, if donor countries increased their IDA contributions by 1.6 percent for each of the next 40 years. The GAO also found that 50 percent grants would promote debt sustainability better than 100 percent debt forgiveness of old multilateral debt. According to GAO, this is largely because despite any one time full debt forgiveness, poor countries would continue to accrue new debt that would quickly become unsustainable.
The administration's loan to grant proposal has been controversial among some IDA donors in borrowing countries. The British and Germans, for example, are concerned that the loss of loans re-flows would hurt the long-term viability of the IDA program without significant new commitments from donors.
Similarly, Europeans more generally fear that the distribution of grants would create an unhealthy dependence on foreign aid and hinder the development of international credit worthiness. And poor countries fear grants would give the World Bank increased clout, which they could use to extract additional concessions from the borrowers.
Page 4 PREV PAGE TOP OF DOC Segment 1 Of 2 But in June of 2002, this month, IDA donors did agree to a complex plan that would ultimately result in converting 18 percent to 21 percent of future IDA loans to grants. Under this plan, IDA-only countries will receive 100 percent of their assistance for HIV/AIDS projects in the form of grants and all IDA assistance for natural disasters reconstruction will be on grant terms.
Further, post-conflict countries and debt vulnerable countries with a per capita income of less than one dollar per day will receive 40 percent of their assistance on grant terms separate from and in addition to the HIV/AIDS or natural disaster fund. All other countries with a per capita income of less than one dollar per day will receive 23 percent of their assistance in the form of grants, again separate from and in addition to the HIV/AIDS and natural disaster funds.
There is general agreement among the donor countries that the grant money will be focused heavily in health, education, water supply, and sanitation projects. And then, of course, there is a substantial focus on performance funds but in order to expedite our consideration today and before I introduce the panel, I would like to recognize the distinguished gentleman from Vermont, the Ranking Minority Member for any comments that he might have in an opening statement.
[The prepared statement of Hon. Doug Bereuter can be found on page 80 in the appendix.]
Mr. SANDERS. Thank you very much, Mr. Chairman, and thank you for holding this very important hearing. And we thank our guests, distinguished guests for being with us today.
As we all know, the International Development Association, the poor country lending arm of the World Bank, is up for reauthorization this year, and I look forward to working you and the committee on this legislation.
Page 5 PREV PAGE TOP OF DOC Segment 1 Of 2 The World Bank was originally set up to end global poverty. Unfortunately, many economists, labor unions, NGOs, religious groups, and others have strong concerns that the policies of the World Bank, which often support unfettered free trade, privatization, and slashing social safety nets of countries in order to balance their budgets, have contributed to increasing global poverty, not lessening it.
Mr. Chairman, it is my view that the United States and the other wealthy nations of this world must radically change their attitude and policies toward the developing countries. It is neither moral nor in the long-term best interest of the United States that millions of poor people around the world lack health care and medicine and die from preventable diseases. It is neither moral nor in the long- term best interest of our country that large sections of humanity are unable to find clean water to drink or schools that can teach children how to read or write.
Ultimately, in my view, a global situation in which a few countries have enormous wealth while a billion people live on less than a dollar day is not sustainable. Public policies that enable huge, multi-national corporations to exploit and control the poor of the world cannot be allowed to continue. International financial organizations controlled by wealthy nations cannot be allowed to undermine democracy and the interests of indigenous people.
Here are just a few facts. According to the president of the World Bank, James Wolfensohn, ''Global poverty is getting worse. Some 1.2 billion people now live in extreme poverty.'' In 1990, the world's poorest 400 million people lived on an average of just 78 cents a day or less, which represents an actual reduction in living standards from 1990. At the same time, the world's 200 richest people have doubled their wealth in the last four years.
According to former chief World Bank economist Joseph Stiglitz, ''Although world income increased 2.5 percent a year in the 1990's, an additional 100 million people fell below the poverty line. A growing divide between the have's and have-nots has left increasing numbers in the Third World in dire poverty, living on less than a dollar a day.'' According to a recent study by the United Nations, more than 100 million people in the world's poorest countries will be dragged below the basic subsistence level of a dollar a day by 2015 due to globalization.
Page 6 PREV PAGE TOP OF DOC Segment 1 Of 2 However, the UN study concluded that if countries were allowed to abandon the economic adjustment programs they were forced to adopt in the 1990's by the IMF and the World Bank and instituted other reforms, widespread poverty in the least developed countries could be cut by two-thirds over the next 15 years.
Importantly, even the World Bank has admitted to its failure to reduce poverty in Africa. According to an April 22, 2002 front page story in The Washington Post, ''Forty countries south of the Sahara have over the past two decades adopted the free market reforms, structural adjustment programs, and development jargon prescribed by such lenders as the World Bank and International Monetary Fund but in the generation since independence, Sub-Sahara and Africa has never been so poor. Since Zambia's leaders embraced free market policies in the 1990's, the countries manufacturing base has been eviscerated, leaving the government buried in more debt than it can repay and gradually replacing a full-time workforce with a growing and formal economy that offers low wages, no benefits, and no job security. World Bank officials acknowledge the collapse of Zambia's textile industry is an unintended and regrettable consequence of the free market policies promoted by the organization.''
According to Foreign Policy in Focus, ''The policies dictated by the World Bank and IMF exacerbated poverty, providing fertile ground for the spread of HIV/AIDS and other infectious disease. Cut-backs in health budgets and privatization of health services eroded previous advances in health care and weakened the capacity of African governments to cope with the growing health crisis. Consequently, during the past two decades, the life expectancy of Africans has dropped by 15 years.''
It is my strong belief that while the current process involved in the global economy may be working for multi-national corporations, in many instances they are not working for the poorest people around the world and in many instances are not working for the middle class and lower income families in the United States.
Page 7 PREV PAGE TOP OF DOC Segment 1 Of 2 Obviously, there are a lot of issues to be talked about. But I think the events, Mr. Chairman, of the last number of months where we have learned about the lying of some major corporations, their concern only about the stock options and the huge compensation packages of the people who head those companies might suggest to us that some of the policies being advocated by these people for the global economy may really not be of value to the poor people of the world or in fact the working people of this country.
There is a lot to be discussed, but I think we have to do a lot of fundamental rethinking about the direction and policies of the World Bank.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Bernard Sanders can be found on page 88 in the appendix.]
Chairman BEREUTER. Thank you, Mr. Sanders. Under the circumstances under which this subcommittee meets today, other members are entitled to up to five minutes. And I would recognize first the distinguished Ranking Member of the full committee, Mr. LaFalce, if he has an opening statement.
Mr. LAFALCE. I thank the Chair. I am very, very pleased by the outstanding panel that you have assembled this morning. Each of the organizations represented has played a critical role in the effort to alleviate poverty and bring prosperity to the developing world. Oxfam through its direct humanitarian education; Bread for the World through grassroots activism to fight global hunger and poverty; the AFL-CIO through their promotion of worker rights in all countries; and Bretton Woods through its advocacy role in support of the World Bank and the other multilateral institutions that serve as our primary tools, as they should be our primary tools for development policy.
Let me just say a personal note. Mr. Orr of Bretton Woods, I remember so fondly when you were a staff assistant on this committee in the 1970's and sorry that I couldn't make that recent speech before the Bretton Woods gathering but there were a few votes, as I recall, I will try to make up for it.
Page 8 PREV PAGE TOP OF DOC Segment 1 Of 2 David Beckmann, Bread for the World has just been tremendous under your leadership. And I remember most fondly working in 1999 with Jim Leach, you, and Oxfam in the Year of the Jubilee 2000 in bringing about what I never thought we would be able to bring about, real debt relief. Not that we are finished but we got 10 times more than I ever thought we were going to and it was because of Bread for the World and Oxfam. And so it is great having you with us.
And Thea Lee, if there is any hope for bringing all the people of the world up, I think it is going to be through a much stronger unionization effort. I think that is an imperative. I think that is one of the difficulties we have had in the United States, the number of unionized people has gone down. And as we have a global economy, either we are going to bring the rest of the world up or they are going to bring us down. And our job, working with you, is to bring the rest of the world up.
And I know you emphasize international labor efforts, and I remember so many things we worked on but most especially the time when you and John Sweeney and I met with the Vatican's representative in Seattle pushing for a papal encyclical on that very subject. So I could talk so much more. I have got a bill this year with Chris Smith that I think is very, very important but for the sake of brevityI don't think I can say for the sake of brevityfor the sake of not going too long, I better just submit the rest of my testimony for the record.
Thank you, Mr. Chairman.
[The prepared statement of Hon. John J. LaFalce can be found on page 85 in the appendix.]
Chairman BEREUTER. Without objection, all members' additional statements will be made a part of the record.
Chairman BEREUTER. Mr. Frank, I know you have got a crucial conference beginning this morning, House/Senate conference and you indicated you probably won't be able to stay for all of this, so as I recognize you, you may want to leave a question or two for the panel to address. And I recognize you.
Page 9 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. FRANK. Thank you, Mr. Chairman. The Ranking Member and I both will be going at 10:30 to the conference on corporate accountability. So I appreciate that. And my staff aide, Mr. McGlinchey, will be here to hear the answer. And I will take advantage of that.
First, I want to join in what my colleague from New York has just said. I do not think there is a more important moral question before us and probably not one that is more difficult intellectually than figuring out how to make sure that globalization goes forward in a socially responsible manner.
We are faced internationally with exactly the challenge that this country faced 70 years ago when Franklin Roosevelt was elected president, namely, how do you get the maximum wealth-generating impact of a capitalist system while mitigating its inevitable effects to promote inequality and to give people perverse incentives? We worked that out within in the United States.
The main reason for much of the New Deal was to put on a national level policies that would mean that you did not have states engaging in a race to the bottom in competing with each other to do too little. That is what we have to try to replicate internationally. It is of course much, much harder given the greater disparity by far in real conditions and given the absence of a unified sovereignty but that has to be the goal.
IDA obviously plays a very important role in that. Now one of the questions I would ask is this and that is to a great extent it seems to me the debate over grants versus loans is an artificial one that could easily be resolved, and I would ask this of Secretary of the Treasury O'Neill, who had indicated support earlier, if we the United States would simply pledge that to the extent a policy of going to 100 percent grants generated some shortfalls in what we would otherwise would have had we will make it up.
The numbers, as the chairman and others have produced, have had produced in reports are very small. So I must say the other arguments against loans seem to me to be insubstantial. The notion of ownership, telling poor people that they can show ownership by owing you money is unpersuasive to me that this is a good thing. I think that the case for grants is clearly there. The only problem is the re-flows and we can take care of that.
Page 10 PREV PAGE TOP OF DOC Segment 1 Of 2 I would ask the panel in my absence, if we don't get there, to comment. There is a proposal pending, and I have talked to George Soros about it and others, for us to act on I think five year old decision now to increase the SDR allocation at the IMF.
Now this subcommittee has jurisdiction over that. It is not the topic of today's hearing but it is a relevant one. It is poverty alleviation. And I must say it seems to me that a decision to act on that agreement of five years ago and allocate those SDRs, allocate our share, has a lot of good sides and no bad sides. And I would be interested in your opinion as to whether or not that is something we ought to be doing. I think that could be very helpful. And, again, I want to say people tend to say, well, wait a minute new SDRs or debt forgiveness or going to grants, people tend to compare them. I do not understand why we should not be doing all the above. Debt forgiveness is not an alternative to going from grantsfrom loans to grants. They are additive in my judgment. And all occur at a very low level of money.
One of the things that we ought to remember is that if you talk about debt forgiveness and you accurately score that debt for what it is worth in the market, what you are likely to get from it, debt forgiveness is a pretty cheap way to go and it ought to be added on. But I would think the new SDRs would be a part of it.
Finally, I did note, Mr. Orr, you particularly talked about the private sector, and I am wondering whether you would address, as I said Mr. McGlinchey particularly will be fully briefing me, the question of how might we improve or increase the involvement with the private sector obviously in ways that fully protect people's rights, that don't give rise to an argument of exploitation. But, again, these ought not to be either/or, they ought to be complementary. And what way could we implicatedo other elements of the bank, the IFC or others, have any kind of expertise that might be useful within the appropriate framework?
Thank you very much.
Chairman BEREUTER. You are welcome, Mr. Frank. Mr. Bentsen, do you have an opening statement? The gentleman is recognized.
Page 11 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. BENTSEN. Thank you, Mr. Chairman. And let me thank you for calling this hearing. I want to thank our panel for appearing today. I want to concur with the comments of our colleague from Massachusetts, which in part come off a hearing we had a couple of months ago on this subject.
I am reminded in his comments about debt not being equity that about 20 years ago when I was a young staffer on the Hill, I had a chance to go to a meeting with the Mexican representative to the United Nations at the time of the Latin American debt crisis or the beginning of it, and he made a comment that if, ''I owe you $100 and can't pay you, I have got a problem. If I owe you $100 billion and can't pay you, you have got a problem.'' And I think that is in part where Mr. Frank is going.
I will say that in the midst of all of the short- term crises that we deal with, today it is corporate accountability. A couple of years ago it was the Asian currency crisis or liquidity crisis. The other issues we deal with, financial modernization and trying to meet the marketplace, I continue to believe that our true long-term problem for the developed or industrialized world is how we bring along the lesser developed world and how we arrest the growing divide between rich and poor in this world because I think that too often a number of our colleagues in this body and too often a number of people in the industrialized world take a distorted view of how we areof why we need to address the needs of the poor. And I would just, if you cannot appeal to their moral sense, which is good enough to me, then I would appeal to their economic sense that it behooves all of us to try and close that gap and increase industrialization and economic self-determination in the lesser developed parts of the world. And if we don't, we will pay a much steeper price for it in the long run.
So I appreciate the chairman calling this hearing and moving forward on the authorization. I yield back.
Chairman BEREUTER. Thank you, Mr. Bentsen. Ms. Waters will also be a conferee in the House-Senate conference beginning at 10:30. I recognize her for her opening statement.
Page 12 PREV PAGE TOP OF DOC Segment 1 Of 2 Ms. WATERS. Thank you very much, Mr. Chairman. I appreciate very much your holding this hearing for the reauthorization of our participation in the World Bank's International Development Association.
Let me just start by saying I have been watching with horror the developing famine in southern Africa. Almost 13 million people in southern Africa are in danger of starvation. The crisis is widespread, affecting the people of Lesotho, Malawi, Mozambique, Swaziland, Zambia, and Zimbabwe.
The World Food Program estimates that 1.2 million metric tons of food assistance will be needed over the next nine months to meet the minimum food consumption requirements of these six countries. People in these countries are already turning to desperate measures, such as eating potentially poisonous wild foods to stay alive. And we saw this graphic depiction on ABC the other night of a man eating dirt and children eating bugs.
Over the last three years, I have been working with members of the Financial Services Committee and supporters of the Worldwide Jubilee 2000 Debt Relief movement to end the crushing burden of poor country debts. Unfortunately, our efforts have only been partially successful and international debts have left several southern African countries unable to respond to crises such as this one.
Zambia provides an excellent illustration of why deeper debt relief is necessary. Even before the current famine began, Zambia was a deeply impoverished country with a per capita income of only $330. The infant mortality rate exceeded 1 percent of live births and 27 percent of Zambian children under five are malnourished.
Almost 10 percent of the population is infected with the AIDS virus and 650,000 children have been orphaned by AIDS. Yet Zambia's debt payments were actually increased after its total debt stock was reduced. Moreover, Zambia still spends more than twice as much money on debt payments as it does on health care.
Page 13 PREV PAGE TOP OF DOC Segment 1 Of 2 Now in the case of Malawi, there is some evidence that indicates that the policies of the International Monetary Fund and the World Bank may have contributed to the famine. Malawi enjoyed bountiful harvests in 1999 and 2000. As a result, Malawi's Strategic Grain Reserve was stocked near its full storage capacity. By July of 2000, the Strategic Grain Reserve contained 174,000 metric tons of grain reserves. The IMF, I am told, argued that storing that much grain was too expensive and risked distorting the market.
The World Bank agreed with the IMF that smaller reserves would be preferable. So the IMF, I am told, urged Malawi to sell some of its reserves to service its debt. Some of the grain was sold domestically in 2000 while domestic supplies were plentiful and prices were depressed. An additional 35,000 tons was exported in 2001 to Kenya and Mozambique. Even in the face of the current food crisis, the IMF continues to view the Strategic Grain Reserve as a drain on Malawi's budget and a source of funds for making debt payments and not as a source of desperately needed food for Malawi's starving citizens.
Last year, I introduced H.R. 1642, the Debt Cancellation for the New Millennium Act. This bill would require the IMF and the World Bank to provide complete cancellation of 100 percent of the debts owed to them by impoverished countries. Over 80 Members of Congress representing both political parties have co-sponsored the bill.
Earlier this year, H.R. 4525, the Debt Relief Enhancement Act of 2002, was introduced by a bipartisan group of Members of Congress, including Christopher Smith, John LaFalce, Spencer Bachus, and myself. This bill would require the IMF, the World Bank, and other creditors to provide significantly deeper debt relief to impoverished countries. Several members of the Financial Services Committee have co- sponsored the bill.
Mr. Chairman, I am going to have to leave but I look forward to hearing about the testimony of these witnesses. And I am particularly interested in hearing their views on the extent to which the IMF and World Bank policies and international debts contributed to the current famine in southern Africa.
Page 14 PREV PAGE TOP OF DOC Segment 1 Of 2 I thank you, Mr. Chairman.
Chairman BEREUTER. Thank you, Ms. Waters. Mr. Sherman, do you have an opening statement?
Mr. SHERMAN. Amazingly, I do.
Chairman BEREUTER. You are recognized.
Mr. SHERMAN. I want to associate myself with Mr. Frank's advocacy for the important work of International Development. Ms. Waters has brought to our attention the dire situation in Africa. There is perhaps nothing more important that America can do then lead the world to greater not only political but also economic democracy.
As for debt relief, let us remember that most of the time this debt is not paid except either throughand I am talking about debt to the poorest countrieseither as part of a package in which monies lent or given and then comes back to the very people who give it or is paid in anticipation of receiving additional loans. And debt relief may be a very, very good thing to facilitate the credit worthiness of governments that need money for additional development projects.
But we should regard debt relief, as we do any other aid, and that is a transfer to try to help people usually through the host government. And in a few cases, those host governments have no real connection with efforts to help their own people.
Those of us who support more foreign aid, whether it be in the form of aid or in the form of loans, have a special duty to make sure that we can go to the American people and say that that money is well spent. And there are a few regimes seeking debt relief today so that they can borrow more tomorrow that would not spend those new loan proceeds effectively.
But as we sit here, we have to recognize that the people on this committee favor foreign aid more than the rest of Congress. That is why we got on this subcommittee. And the Congress as a whole has favored foreign aid far more than the American people. And nothing is more dangerous to the inadequate congressional support for foreign aid than the plan of the World Bank to loan $755 million to the Islamic Republic of Iran or I should say the ''twin evils,'' the first evil being that plan and the second being the passive acceptance of this World Bank semi-decision by State Treasury and frankly this Congress.
Page 15 PREV PAGE TOP OF DOC Segment 1 Of 2 There are those that think that the Iranian government is somehow captured by moderates. They listen to the occasionally moderate statements of the powerless president, the figurehead. Yet, we all know that Iran is actually run by its supreme leader, hence the title, supreme leader. That is why our State Department has identified Iran as the number one source of state terror, and we should always remember that the government in Iran is working every single day to develop nuclear weapons, smuggle them into American cities, and kill Americans by the millions. The American people I think understand that. I think decision- makers in Washington occasionally forget it.
And that is why it will be almost impossible to maintain over this decade support for foreign aid and international lending institutions if the United States does this year and next year what we did in the year 2000. In the year 2000, the World Bank lent $231 million to Iran. The United States voted no, voted no in a loud voice and then went for tea and crumpets for those who voted against us. I am not sure about the crumpets. But we simply shrugged our shoulders and did business as usual. Financing the nuclear destruction of American cities is not to be regarded as business as usual and yet $755 billionrather million dollars is the plan of the World Bank over the next two years. Its web site currently identifies a $112 million loan as right in the pipeline right now.
Let us remember that money is fungible. The terrorists who operate the regime in Tehran spend as little as they can on domestic projects in order to hold on to power and everything that is left over is available for terrorism and nuclear weapons development. Everything. And we should not take lightly providing that government with that bit it needs to maintain power so that it has more of its oil and other revenues available for nuclear weapons development.
I will be proposing legislation very soon. I hope to have as co-sponsors the most passionate supporters of foreign aid because this is the greatest danger to foreign aida bill that would say that the $847 million or such other amountif I could have one more minute?
Page 16 PREV PAGE TOP OF DOC Segment 1 Of 2 Chairman BEREUTER. Without objection, the gentleman is extended an additional minute.
Mr. SHERMAN. Thank you. Or whatever other amount might otherwise be provided to the World Bank will instead be spent on fighting AIDS in Africa if the World Bank authorizes any additional loans to Iran.
And, finally, let us not draw ultra fine distinctions between the IBRD and IDA. I don't have a constituent who knows the difference between those different pockets of the World Bank and the World Bank itself says that those are two organizations run by the same staff, basically money out of a different drawer. That is the World Bank position.
I look forward to safeguarding America's foreign aid program by making sure not one penny goes to a World Bank that would loan money to this government and Iran, and I look forward to a better government in Iran in the future so I don't have to make these comments.
Chairman BEREUTER. Thank you, Mr. Sherman. I appreciate my colleague's comments this morning. They are an important part of our hearing record.
As mentioned previously, we have a distinguished panel with us here today. We are anxious to hear from them. I will first receive testimony from Mr. James Orr, who is co-founder and executive director of the Bretton Woods Committee, a bipartisan, nonprofit group organized to promote sensible reforms and increase public understanding of international financial and development issues in the global economy. And, as mentioned by Mr. LaFalce, from 1975 to 1983, Mr. Orr served as a legislative counsel for this subcommittee's predecessor.
Second, we will hear from the Reverend David Beckmann, who will provide testimony on behalf of Bread for the World, a nationwide Christian citizens movement dedicated to eliminating world hunger. Reverend Beckmann served for several years on the board of directors of Bread for the World before becoming its president in 1991. In the interest of full disclosure, I also served on the Bread for the World board under his predecessor. Prior to his activities with Bread for the World, he spent many years as a World Bank economist where he played a prominent role in the Bank's heightened focus on poverty reduction.
Page 17 PREV PAGE TOP OF DOC Segment 1 Of 2 Third, we will hear from Mr. Raymond C. Offenheiser, president of Oxfam America and a member of the board of Oxfam International, a confederation of 12 non-governmental agencies working together in over 80 countries where he works to serve Oxfam International's goal for lasting solutions to poverty, suffering, and injustice. He is a part of Oxfam as a strategic funder of development projects, providing emergency relief in times of crisis, and campaign for social and economic justice.
Finally, the subcommittee will hear from Ms. Thea Lee, assistant director for international economics in the public policy department of the AFL-CIO where she oversees research on international trade and investment policy. Previously Ms. Lee worked as an international trade economist at the Economic Policy Institute in this city and as an editor of Dollars and Cents Magazine in Boston.
So with that kind of introduction, I want to say that we are anxious to hear from you. The House is unexpectedly not in session today. It means that we have less members here but it also means we have more time to hear from you and ask questions. And so we will extend from five to eight minutes to each member of the panel. And first we would like to hear from Mr. Orr. And I would say finally we will include your entire statements in the record and you may proceed as you wish. Mr. Orr?
STATEMENT OF JAMES ORR, EXECUTIVE DIRECTOR, THE BRETTON WOODS COMMITTEE
Mr. ORR. Thank you very much, Mr. Chairman, Mr. Sanders, and members of the subcommittee, it is a pleasure to be back with you today.
As Mr. Bereuter mentioned, the Bretton Woods Committee is a public interest group with 700 members across the country who share an interest in seeing positive reforms adopted by the multilateral institutions and in increasing public understanding and support for their work. As a number of members have already commented, Mr. Sherman in particular, public support for multilateral institutions is particularly thin in the United States.
Page 18 PREV PAGE TOP OF DOC Segment 1 Of 2 I am here today to strongly endorse the replenishment of IDA. IDA is deserving of support from the Congress for many reasons. It is the main program that the United States has for helping the world's poorest countries, people who live, as has been mentioned, on a dollar or two a day. IDA pays for the bulk of infrastructure and social services in about 80 poor countries around the world, guaranteeing a basic level of social welfare that couldn't exist without IDA and paving the way ultimately for these countries self-sustaining growth, at least that is our hope. Moreover, much of the assistance from IDA goes to countries that are very important to us politically and strategically.
Over the years, IDA has been a very effective vehicle for helping these countries. It has done an incredible amount of good. It is working on one of the most difficult problems of our era. Although there is widespread agreement on the kinds of results we want to see from the work of the World Bank and IDA, there is much less agreement on what is the appropriate approach to pursue to achieve these goals. But all of the donor countries to IDA, which include the major countries in the world and many emerging market countries, agreed in their document approving this replenishment of IDA that IDA is the most effective agency for helping poor people of all those in existence, bilateral and multilateral.
One measure of the Bank's and IDA's effectiveness is that over IDA's 50 year history, there have been 32 countries which have graduated out of IDA and are no longer in need of concessional loans. They are able now to borrow either in commercial markets or from IDA's sister institution, the IBRD, which lends at commercial rates of interest.
A second bit of evidence that IDA is very successful is what recipient countries think. I was privileged to accompany a group of eight ambassadors from IDA countries two years ago who went to call on members of the Foreign Operations Subcommittee and it was really moving to hear each of these ambassadors talk about the important work that IDA was doing in their country and how important it was to the welfare and benefit of their population.
Page 19 PREV PAGE TOP OF DOC Segment 1 Of 2 Clearly, the IDA and World Bank have made mistakes over the years. We have heard some referred to today. But in general it has learned from its mistakes and it is much more effective today than it has ever been before. There is certainly some skepticism about effectiveness. I think that is a good thing. It makes organizations like IDA constantly try to improve what they do and prove that they are in fact effective. And I think all supporters of IDA, including all of us at this table I think, would want to see the program held to very tough standards.
Another point I would like to make is that IDA is evolving to meet current challenges. It has made great strides recently in a number of areas that have been a concern to this committee in years past. In the area of transparency in particular, there has been a huge change in the World Bank and the other multilateral institutions over the last 10 years. The way is now open for interest groups around the world and people in borrowing countries to closely track what it is the World Bank and IDA do to comment on projects and to involve themselves in shaping and influencing the work of IDA and the World Bank.
I found it quite interesting that the draft agreement approving the new IDA was sent out and made available to NGOs around the world for comment months before the final document was agreed to. And many organizations, including some represented at this table today, took the opportunity to make suggestions for improving IDA and some of those suggestions were adopted in the final agreement.
On the question of transparency, I think the onus now is on countries. There is no greater champion of transparency than the World Bank itself but it is sometimes prevented from moving more aggressively in this area by some borrowing country members who are reluctant to see more transparency. I think it is important to recognize who are the foot- draggers in this.
The World Bank and IDA have made tremendous improvements recently in increasing ownership by borrowing countries. They have done this by mandating the participation of civil society in the preparation of loans, largely through the PRSP, Poverty Reduction Strategy Paper writing process and through other means.
Page 20 PREV PAGE TOP OF DOC Segment 1 Of 2 The Bank and IDA have had a huge impact on fighting HIV/AIDS, the greatest problem of our era. The World Bank and IDA are the largest investor in AIDS projects of any institution in the world, over a billion dollars recently. And President Wolfensohn has pledged publicly on many occasions that no worthy project to fight AIDS will go unfunded as long as he is president of the World Bank.
Another recent innovation at the Bank and IDA is the movement to grants, which some members of the subcommittee have already referred to. I think this is a very important innovation, not just because it will help reduce the debt burden that we all understand has been a very significant impediment to development, but it will also open the way to implementation of projects by civil society groups, some of whom are better, frankly, at working at grassroots levels than some huge multilateral institutions.
Finally, I would like to say in the view of most members of the Bretton Woods committee, the new focus on private sector development is a very important realization by the Bank that the private sector ultimately will be the engine of growth for most countries that break out of the ranks of the poorest and achieve the status of an emerging market country, at least that has been the history of all of the 32 graduates from IDA in the past.
I would like to plant a few ideas for possible initiatives which Congress might like to consider in advancing legislation for IDA. One of the things that I think would be important is to see if Congress could help devise ways to make the Bank somewhat tougher on borrowers. Despite conditionality, which is applied to all World Bank and IDA loans, I think over the years a certain closeness has developed between project officers at the World Bank and IDA and the officials in the countries that are borrowers from IDA to the point where sometimes the World Bank could be tougher in making demands of countries. Often in my own view they have been too forgiving. And I think that is why we have seen slow movement in many of the areas that we are all concerned about, fighting corruption, improving governance, and some other areas. So I think this is probably a fruitful area to look for innovations.
Page 21 PREV PAGE TOP OF DOC Segment 1 Of 2 I would also urge the subcommittee to keep pressure on Treasury to work on the issue of public education on the importance of the multilateral institutions. Treasury does virtually no public education and this is in stark contrast to what happens in many other countries. Every time I travel in Canada and turn the radio on, I hear public service announcements touting what Canadian development assistance through the World Bank means in terms of HIV/AIDS clinics in Southern Africa, for instance. If there were more U.S. public support for the work of IDA and the other multilateral institutions, it would open the way for potentially increasing contributions and doing the kinds of things that members of the subcommittee would like to see happen.
I have reached the end of my time, Mr. Chairman. I look forward to answering your questions. Thank you.
[The prepared statement of James Orr can be found on page 112 in the appendix.]
Chairman BEREUTER. Mr. Orr, thank you very much. In light of Secretary O'Neill's recent visit to Africa, maybe this is the time to pursue the latter point and put it into place in some sort of an institutional basis.
We are pleased now to hear from Reverend Beckmann, president of Bread for the World and a native of Lincoln, Nebraska.
STATEMENT OF REV. DAVID BECKMANN, PRESIDENT, BREAD FOR THE WORLD
Rev. BECKMANN. Mr. Chairman, Mr. Sanders, and members of the committee, I am really honored by the chance to contribute to this hearing. I will focus my oral testimony on four issues related to IDA: my overall assessment of IDA, the issue of debt relief, the specifics of how Treasury is going to implement this reform in the area of monitoring and evaluation, and then the Millennium Challenge Account in relationship to IDA.
Page 22 PREV PAGE TOP OF DOC Segment 1 Of 2 The first thing I want to say is that I think IDA on balance is a really good institution. I really appreciated the opening comments and all of the members' emphasis on the importance of reducing poverty in the world. It is a bloody scandal that there is still as much poverty and hunger in the world as there is now. But on balance I think IDA contributes to the reduction in poverty.
I have been involved in working for World Bank reform now for 26 years, for 15 years within the Bank and for the last 11 years as an advocate outside the Bank, contributing to efforts to make the Bank and IDA better. And there is still a long way to go. I am struck that this committee has been a major force for reform for as long as I can remember. Since the early 1980's at least, this committee has been pushing for the Bank to be more poverty focused and more open to democratic participation. And then all over the world a lot of people for the last couple of decades have been working to make the governments of some of the poor countries more democratic and more effective for development purposes. All these efforts have had some impact. The Bank was always a competent institution. And I think it has become more poverty-focused, more open to democracy. It has got a long way to go but, on balance, the bank is a good thing for poor people. And at this point in history, Bread for the World supports the replenishment of IDA. We hope that you pass the authorizing legislation.
Second, with regard to debt relief. The Jubilee movement for debt relief was a huge explosion of popular interest and active interest in an international development initiative. This is the most popular multilateral development initiative in U.S. history.
The data on U.S. public opinion show that in the last few years opinion has become markedly more favorable to effective initiatives to reduce poverty and hunger and help with health problems. And the Jubilee movement was a successful effort to mobilize some of that increasingly favorable public opinion into a political initiative.
So I have three specific suggestions for the committee in terms of moving forward with what debt relief did for IDA and for poor people and for the politics of our own country.
Page 23 PREV PAGE TOP OF DOC Segment 1 Of 2 First I would suggest that the committee hold a hearing on debt relief implementation. From what Bread for the World has learned from official channels and from church channels, we think it is working pretty well. And tens of thousands of Americans actively work for debt relief. A committee hearing could help Congress and Americans see that it has worked pretty well, and a hearing would also push so that debt relief would work better. There are a lot of things that could be done to make debt relief and the poverty reduction strategy paper process more effective.
Second, the G-8 Summit just agreed on an additional $1 billion to continue the debt relief initiative that has already been agreed. That is necessary because of the global economic downturn. It is just more expensive to do what was originally planned.
I really hope that Congress and the President will fund the United States' share of that billion dollars in Fiscal 2003 as an addition to what Congress would have otherwise done. Partly because of September 11th, the President has made a number of promises that our country is going to do more to reduce poverty around the world. But so far it is all money in fiscal years 2004 to 2006. This agreement at the G-8 is an opportunity for Congress and the President to increase funding for poverty reduction in Fiscal 2003.
Third, in the area of debt relief, Bread for the World supports the Smith-LaFalce bill, which would modify the criteria by which the international community decides how much debt relief a country needs to get to a sustainable level of debt payments. It modifies it in sensible ways, ways that also take account of the AIDS crisis in many countries.
Mr. Chairman the Senate recently passed their version of the Smith-LaFalce measure in their AIDS bill. The most likely way that this could come to the floor of the House is through the conference on the AIDS bill. So I would urge you and the committee to look favorably on the Smith-LaFalce proposal. It would deepen debt reduction.
Now let me turn to the question of the second major reform, monitoring and evaluation. It is really exciting that Secretary O'Neill is putting so much emphasis on how we know what is really happening in the lives of poor people in the poor countries; How do we monitor that? I don't see how it is possible for Treasury to evaluate whether IDA does a good job next year on the basis of whether poverty or education indicators change over a one year period. That doesn't make sense. But what does make sense is for Treasury to put emphasis on what the World Bank is doing, together with the whole international system, to improve data collection. There is a broader movement underway to focus on the millennium development goals, specific goals, and to develop good indicators. If the Bank can help us get reliable real-time indicators of education, health, poverty and hunger, that would help everybody. Treasury, the Bank, also, local people in poor countries know what is going on and hold the authorities responsible (not only IDA but all the way through the system.) So one focus for monitoring IDA's performance how well it helps in this broader effort to improve indicators of what is happening to poor people.
Page 24 PREV PAGE TOP OF DOC Segment 1 Of 2 Another area where I would focus year to year evaluation of IDA is on the question of transparency and democracy-friendliness. The Bank has come a long way, but it has a long way to go. We have learned that the best way to improve the quality of Bank-supported policies and projects is to let local people know what is going on and give them a better chance to have an influence. That is more powerful than any indicator that somebody in Treasury is going to look at. What Treasury can look at is what is the Bank doing to become more democracy-friendly, so that people in rural Tanzania can know what is going on and hold the Bank accountable.
Finally, I would like to talk about the Millennium Challenge Account in relationship to IDA. President Bush and other heads of government have recently promised a major expansion of development assistance to the poorest countries, an additional $5 billion from the U.S. every year and an additional $7 billion a year from Europe. So as you are considering IDA, you should ask how the next replenishment of IDA will play out in what could be a dramatically improved context of overall development assistance.
In particular, when Under Secretary Taylor comes, I hope you will ask him how the administration's is thinking the Millennium Challenge Account, and bilateral assistance generally are going to coordinate with IDA and the poverty reduction strategy process and with what the Europeans are doing with their promised additional $7 billion. My sense is that there has not been much conversation about how the U.S. $5 billion and the European $7 billion, are going to work together. The MCA will be most effective if it is part of acoordinated international development effort, which means it needs to connect with IDA and the PRSP process.
Bilateral assistance can be more frankly supportive of democracy and human rights than IDA by its charter is likely to be. The MCA can specifically focus on whether a country is respecting human rights, and they can fund things like technical assistance to legislatures, the media or civil society groups. If the MCA does that kind of democracy-focused funding in the context of the multilateral system, that would improve the impact of IDA and the whole development system.
Page 25 PREV PAGE TOP OF DOC Segment 1 Of 2 Thank you.
[The prepared statement of David Beckmann can be found on page 93 in the appendix.]
Chairman BEREUTER. Thank you very much, Rev. Beckmann. We are very pleased now to hear from the representative from Oxfam and that is Mr. Raymond C. Offenheiser. You are welcome to proceed as you wish.
STATEMENT OF RAYMOND C. OFFENHEISER, PRESIDENT, OXFAM AMERICA
Mr. OFFENHEISER. Thank you, Mr. Chairman. Chairman Bereuter, Ranking Member Sanders, committee members and guests, it is a distinct honor for me representing Oxfam to testify before the subcommittee today on the World Bank's International Development Association.
By way of introduction and background, I would just like to comment briefly that Oxfam as an organization was founded here in the United States in 1970 and is based in Boston. And for the record, we accept no government or World Bank funding.
The Oxfam network or family, Oxfam International, has broad experience in the developing world supporting some 4,000 non-government partner organizations in some120 developing countries, many of whom incidentally are IDA recipients.
The replenishment of IDA is an especially opportune moment from our point of view to examine the operations of the World Bank and to push for reforms in its operations. The Congress, and this committee particularly, has been a leader in encouraging the Bank to reform. And it is clear to us as an observer and an advocate within this process, that when you speak, as committee and as Congress, the Bank indeed listens.
Page 26 PREV PAGE TOP OF DOC Segment 1 Of 2 By way of prefacing comments on the context in which this broader discussion is taking place, I would like to just simply open with a couple of broad observations about what has taken place over the last 10 years by way of re-framing the approach to development that actually Oxfam feels is very important to the directions that IDA and the general process of development is taking.
First of all, we are heartened by the increasing emphasis on poverty alleviation, and as David has emphasized, real outcomes in people's lives. And the fact that this kind of language and this kind of emphasis is very evident in the way the World Bank and other international institutions today speak about their work and seek to measure it.
Second, we have been heartened over the last 10 years by the increasing emphasis on citizens' democratic participation in setting agendas and providing citizen accountability for the performance of bank institutions. And we are particularly happy about the increasing use of the PRSP process as a way of focusing that debate and citizen participation.
We also think that the emphasis in the past few years to take perhaps a tougher look at the results of the macro economic policies that have guided Bank and IMF lending over the last many decades has been healthy and salutary and it has led to innovative thinking that has brought forward the kinds of debt relief proposals and HIPC initiatives that have been debated in this committee.
And, finally, we have been pleased by the greater emphasis on donor coordination and by country buy-in, which we think is particularly relevant to the MCA debate that will be emerging in the coming months.
And we also recognize that theseyou might call them drivers have led to substantial reforms in the way the World Bank and the IMF perform as members of the multilateral system, and we think those changes and reforms are palpable and visible in many ways. And we would like to open with giving some credit where credit is due to the World Bank leadership, particularly Jim Wolfensohn for his efforts to push these kinds of reforms. While recognizing that everything is not perfect in a real world, real initiatives have been taken, and we recognize that this kind of change on such a large scale is a long-term process. But we think some good first steps have been taken.
Page 27 PREV PAGE TOP OF DOC Segment 1 Of 2 Since my written testimony covers a diverse range of topics in some considerable detail, I am only going to review some of the high points of that broader testimony this morning.
First, in the area of overall IDA effectiveness, it is clear to Oxfam that initiating IDA grants is a very, very positive step that we fully endorse. We strongly support the administration's position of providing grants for health and education in the public sector as long as the United States and other donor governments provide sufficient funds to make up for the decrease in loan repayments. This was Congressman Frank's point earlier today, that in fact we want to keep the IDA flows real and we think it won't cost that much money to do so.
We regret in fact that the G-7 rebuffed the President's proposal of a 50 percent grants ratio and is limiting grants to only 18 to 20 percent. Nonetheless, from our point of view, converting some loans to grants will increase the likelihood that the poorest countries will be able to reduce their foreign debts to a substantial level over the long haul.
Donor governments with the United States leading by example must provide sufficient funds for the poorest countries to meet the Millennium Development Goals. This is a major challenge put forward by Kofi Annan. We must also insist that the World Bank, IMF, and credit countries like ourselves provide deeper debt relief to impoverished countries.
As was noted earlier by Congressman LaFalce, we made a great start with the HIPC initiative and the Debt Relief bill of 2000 but we have not finished the job as it were and perhaps that is what lies before us.
Specific to the debt issue, we would like to encourage you, Mr. Chairman, and your subcommittee to demonstrate your commitment to effective development by examining and then supporting the Smith-LaFalce debt reduction bill that is currently before the Congress. If a heavily indebted poor country or HIPC country were to spend no more than 10 percent of its annual revenues, or in the case of a country suffering a severe public crisis, such as HIV/AIDS, not more than 5 percent of its budget, the bill estimates that between $700 million to $1 billion of additional debt relief will be provided.
Page 28 PREV PAGE TOP OF DOC Segment 1 Of 2 In addition to grants for basic services and debt relief, this subcommittee should insist also that all elements of the World Bank be dedicated to eradicating poverty or focus heavily on the human development indicators. Currently, the World Bank actively supports investments in oil, natural gas, and mining. These loans, in our view, do little to increase broad-based economic growth and poverty reduction in developing countries.
A recent study commissioned by Oxfam reveals that these sectors may actually worsen poverty by creating little employment or opportunity for the poor and by contributing to corruption, conflict, and increased vulnerability to economic shocks. In our view, Congress should press the World Bank to prioritize investments other than those in extractive industries that might better respect the rights of poor communities and foster more equitable outcomes and diversify the economic base of the world's poorest countries.
On the PRSP process, the Poverty Reduction Strategy Papers of the World Bank, we believe they have real potential for ensuring that all World Bank and other donor actions, including the new Millennium Challenge Account, are consistent with a coherent national poverty plan in each country that can succeed with local leadership and ownership. We believe that the PRSP process has given a coherence and a focus to the civil society debate that currently takes place in many of the countries around the world where these plans are in process.
A developing country in our view should articulate one and only one national strategy that all donors buy into. Admittedly, the current PRSPs are still weak. We are cognizant of that in terms of both donor acceptance and quality of local participation. But we believe these areas can be improved. Almost all share a further weakness, the macroeconomic policies that create the basic architecture for the entire economy are still largely mass produced by the World Bank and its sister institution, the IMF.
And our belief is there needs to be more flexibility in the thinking about the economic logic that underlies the PRSPs. Through the PRSP, the national government, along with its legislature, press, and civil society need to understand and buy into a coherent national approach for ending poverty.
Page 29 PREV PAGE TOP OF DOC Segment 1 Of 2 As politicians, you recognize that the PRSP approach will take time and several iterations to get it right. In the meantime, it is important that countries urgent needs for basic services and debt relief not await a perfect product, we might say. By way of example, we might ask how many of each of us would be willing to hold our six year old sons or daughters out of school for five or six years until the national government designed an education plan that some other folks decided was ''good enough.''
Oxfam maintains that all people have a right to basic services, such as health care and education. In the area of health, the HIV/AIDs crisis cries out for attention. Five thousand Africans die everyday for the lack of medicine. We and other donors have resources to fund both prevention and treatment programs. IDA provides a mechanism for us to act in concert to halt the 21st century's black plague.
The World Bank developed an excellent assessment of the national education needs of the world's poorest countries. Unfortunately, the G-8 failed to take up the challenge to commit the essential funds to educate all of the world's children and to leave no child behind. It is an opportunity again through IDA and an obligation for this subcommittee to insist that there be full funding so that all the world's children receive a basic education.
A surprising reality about the Bank's work in education and other basic services is the poor quality of data available for monitoring the effectiveness of its programs. It is our belief that the Bank must commit sufficient resources, both intellectual and financial, to ensure that data are collected, not on administrative and bureaucratic infrastructures of health and education ministries and programs, but rather on the number of well babies and healthy mothers and children reading and writing. Such data collection is essential if we are to ensure that IDA funds are well used and that performance-based development genuinely yields the kinds of results for the poor that we are really all after.
My final point touches on the need for full disclosure and on the broader issue of transparency. The U.S. Congress was instrumental in insisting that the World Bank begin the process of letting the public see its decision-making processes. Regrettably, in our view, additional pressure is needed for this process to achieve greater results. Therefore, we would like to recommend that the committee require the Bank to open its board of directors' meetings to the public, disclose transcripts of these meetings, and release all key documents prior to board considerations of lending.
Page 30 PREV PAGE TOP OF DOC Segment 1 Of 2 Let me conclude by saying that the IDA replenishment discussions enable us to insist on greater development effectiveness by the World Bank. The United States Congress has a proud record of bringing reform to the Bank as you act on the people's voiceor act as the people's voice. We thank you for your work that you have done in the past and your dedication that you continue to show on these important issues. And I am very grateful for the opportunity to speak to you this morning, and I request permission to have my extended remarks submitted for the record, Mr. Chairman.
Thank you very, very much.
[The prepared statement of Raymond C. Offenheiser can be found on page 103 in the appendix.]
Chairman BEREUTER. That will be the case and thank you very much. In fact, all of your full statements will be made a part of the record.
We are pleased now to hear from Ms. Lee, representing the AFL-CIO. You may proceed as you wish.
STATEMENT OF THEA LEE, ASSISTANT DIRECTOR FOR INTERNATIONAL ECONOMICS, AFL-CIO PUBLIC POLICY DEPARTMENT
Ms. LEE. Thank you so much. Thank you so much, Mr. Chairman, Congressman Sanders, and Congressman Bentsen, for inviting me here today and allowing me to speak on this important issue of the IDA replenishment on behalf of the 13 million working men and women of the AFL-CIO.
This morning I also would like to offer some comments on behalf of a broader coalition of civil society organizations that the AFL-CIO has been working with in recent months and years on this positive reform package. Oxfam America and Bread for the World are also part of this broader coalition and so I think you will see that there is some overlap in some of the reforms and the policies that we have been talking about. The full report that the coalition wrote is called, ''Responsible Reform of the World Bank,'' and it is available on the web site of the Bank information center at www.bicusa.org and I think there are also some copies available here for anybody who is interested.
Page 31 PREV PAGE TOP OF DOC Segment 1 Of 2 I wanted to focus today on three things. First, increasing the amount of resources that poor countries can dedicate to development, as I think everybody has said here today, we are all in agreement on this, through the two roots of increased debt relief and the shift from loans to grants. Those are both crucial pieces of the changes in policy that we need to make.
But I think it is also equally important that we emphasize the reforms that we need to see at the World Bank in current policies; We don't think it is appropriate just to give more money and step back; We need to both ensure that the World Bank is more effective and accountable through improved transparency, as Ray Offenheiser said, and through improved assessment mechanisms that really do go to the heart of the concrete benchmarks in development that we are looking for as opposed to kind of vague policy reforms that don't have a very good track record in our view.
And it is crucial for us also that Bank policies and Bank resources are used to make productive investments in human development instead of being used to support policies that in our view in the past have harmed the environment, workers, and the poor. And we believe that this opportunity right now, the IDA replenishment, which, as you all know, comes up once every three years, is a crucial opportunity for the Congress and this subcommittee in particular to push for these meaningful reforms of World Bank policies.
Congress should ensure that the hundreds of millions of taxpayer dollars or billions that are provided to the World Bank this year do not fund more failure at the institution but instead really go to cancelling debt, improving transparency, achieving positive health and education outcomes, ensuring respect for core worker and gender rights, and protecting the environment.
Tying these essential reforms to congressional funding decisions is in our view the most effective way of ensuring two things. First, that our government convey effectively via the U.S. Treasury Department to the Bank what these concerns are. Second, that the Bank is motivated to comply. We have all had a lot of experience in the past, I know you have, but we in the labor movement too with working with Congress to put in place policy reforms at the international financial institutions, and I would have to say that our experience in that regard has been inconsistent at best and disappointing at worst. Congress has been in some cases very clear with the Treasury Department as to the kinds of policies we want to see and that Treasury in our view applies its own priorities to those concerns that are legislated by the Congress and sometimes drop some of them by the wayside. I will come back to that later in my remarks, but I think it is really important that Congress' role be meaningful in this regard.
Page 32 PREV PAGE TOP OF DOC Segment 1 Of 2 There are two kinds of reforms that we are talking about for the World Bank, and one is the positive set of improving transparency, participation as the PRSP program has made some efforts in that direction, and making more resources available.
There are also negative reforms that need to be made. The Bank has in our view put in place policies in the past that have done harm to workers and the environment. The conditions that have been imposed in the name of structural adjustment in our view have yielded disappointing development results, poverty results, equity results, and also have had real adverse consequences on particular groups of people, particularly working people and the poor.
We think it is important that Congress conditions future IDA funding increases on progress in adopting the congressionally-designated reforms, just as the Treasury Department itself has pledged funding increases conditioned on performance indicators. Like everybody else, I have submitted my written testimony, so I am just going to hit a few highlights today.
First in terms of the grants versus loans issues, I think I agree with my co-panelists that this is a crucial reform, that it is important. We did support the move to the 50 percent grants for IDA funding so long as future contributions were not harmed by doing so. We think the move to 21 to 18 percent is a step in the right direction, and we hope that we will be able to build on that and build a successful program and show that the resources will be there to make up for the lost loan repayments in the future. But it is also crucial, as I have said, that the grants are really used for the pro- poor policies and that environmental and social safeguards and proper assessment benchmarks are put into place.
Second and again the point has come up several times, the transparency issue. I just want to say I think that everything we talk about with respect to the World Bank is pivotal on transparency reforms being made. We applaud the progress that has already been made at the World Bank in this area. There has been some real concrete progress made but the reforms that are in the responsible reform report, and that Ray Offenheiser mentioned, are crucial, including the opening the directors' meeting, disclosing the transcript, and releasing key documents prior to board consideration.
Page 33 PREV PAGE TOP OF DOC Segment 1 Of 2 These are the same reforms, of course, that were legislated in H.R. 2604 with respect to the regional development banks, and we think that was an excellent step in the right direction. And particularly for working people and for unions, not having access to the draft documents of bank loans ahead of time really cuts their legs out from under them and makes it hard for them to participate in a meaningful way, whether it is in the PRSP process or in conveying to their governments whether they agree with or disagree with some of the elements of the World Bank policies.
The other thing we would like to ask of Treasury is to set a good example for other countries by posting its own board statements immediately and reporting regularly to Congress on compliance with its mandates. Treasury can post its own statements today. We don't have the excuse that other World Bank members are resistant to these forms of transparency. It is something that can be done and it ought to be done, and we would urge Congress to ask Treasury to do that when they come to see you next week.
And the last point I want to touch on is workers' rights, which is of course crucial to our members. We work closely with our brothers and sisters in trade unions in the developing countries, and we hear disturbing stories all the time about World Bank policies that actually weaken unions, lower wages of workers who are already at or below the poverty level, and undermine the core labor standards that the international community has time and again endorsed and agreed to, both at the ILO, at the United Nations, and at the WTO, believe it or not.
But it seems to us that respect for core workers' rights, for freedom of association, the right to bargain collectively, and prohibitions on child labor, forced labor, and discrimination in employment are absolutely essential to the World Bank's core mission of reducing poverty and also building the kind of democratic, sustainable, equitable societies that can really take the money from debt relief and from the IDA loans and be able to ensure that they are benefitting a broad sector of society, that they are hearing from key civil society players in an effective way.
Page 34 PREV PAGE TOP OF DOC Segment 1 Of 2 We would like to see the United States and this Congress in particular use the IDA replenishment process to require the Bank to adopt enforceable and comprehensive policies to protect core workers rights, and we would like to see in particular a screening mechanism that the Bank would put in place for all of its lending, including the structural adjustment to ensure that loan conditions do not undermine core workers rights, as we are afraid they have done numerous times in the past. Also the Bank should assess the impacts of its loans on employment, wages, and income inequality. It should work with the ILO and with trade unions on the ground in a consistent way year after year in order to ensure that their participation and input is incorporated into Bank policies.
And one final point on this, that the Treasury Department has been mandated by Congress to produce an annual report on workers' rights and how the various policies that have been legislated through this Congress to structure policies and programs so that they don't undermine workers' rights and so on to report on what kinds of progress they have made.
Now even when Treasury makes those reports, sometimes they are not as transparent as we might like. There are conflicting claims that are made by different people and we hear different reports and, of course, since we don't have access to the meetings or the transcripts, it is hard for us to verify what is going on.
But most troubling is that in 2001, Treasury did not even bother to issue this report. The report just didn't happen. And there has been I think not enough outcry and not enough outrage that Congress has asked Treasury to report on workers' rights and Treasury has simply decided it is not interested in doing that. And we object very strongly to that dropping off the agenda.
So let me end there and look forward to your questions. I thank you so much for the opportunity to come. I thank my fellow panelists for their very interesting and thoughtful remarks. And I look forward to working with you and the subcommittee in the future on shaping this authorization program.
Page 35 PREV PAGE TOP OF DOC Segment 1 Of 2 [The prepared statement of Thea Lee can be found on page 98 in the appendix.]
Chairman BEREUTER. Thank you very much, Ms. Lee. We will proceed under the five-minute rule but we will be able to proceed with as many rounds as members wish this morning to take maximum advantage of the expertise that is at the witness table today.
And I will recognize myself first. Ms. Lee, your most recent comments, as you concluded your remarks, are bringing to our attention a very troubling aspect of Treasury's performance with respect to congressional mandates. It seems to me it doesn't matter which administration is in office, which Secretary is there, there is a degree of arrogance in Treasury that is almost unmatched in the Executive Branch. They seem to regard themselves as part of the Office of the President and therefore are not a line department like all the others that are to respond to appropriate policy initiatives. Within the Department, there is this culture of loving democracy but not respecting the role of Congress in this democracy and its appropriate public policy statements.
I would like toand I want my staff to follow up on some of your suggestions about the recent failures and how we can bring more transparency to Treasury itself. Perhaps this is the time for a major consideration of legislation related to Treasury in addition, as a separate item instead of just focusing on the reauthorization.
One of the disappointments, and I think it must be somewhat embarrassing to the Europeans, is that when the United States takes the lead on trying to move a larger percentage of resources to grants, they oppose. They have always had a very superior attitude about their contributions and their assistance to undeveloped countries of the world and so I find their reluctance to move in this direction to be puzzling, at least. What do you think, gentlemen and lady of the panel, that we should consider in objective consideration of their statements and views that moving to a larger percentage of grants would actually weaken the governments of poor countries by contributing to a culture of dependency and hindering poor countries' ability to develop international credit worthiness?
Page 36 PREV PAGE TOP OF DOC Segment 1 Of 2 That is the line that we have heard repeatedly in the course of these negotiations. Is that something where there is legitimacy or is it something that you reject? Who would like to offer an opinion? Reverend Beckmann, you can start. I see several hands.
Rev. BECKMANN. I think it is nutty, the European position has just been nutty. But what it is about is not the issue. What it is about is a really dangerous lack of coordination and sense of common purpose on these international development issues.
Over the last few months there was a sort of bidding war between the Europeans and the U.S. about who was going to embarrass the other at Monterrey. Both the Europeans and our own administration made remarkable commitments to increase development assistance, but I don't get any sense that they are talking to each other about how they are going to do this together. I don't want to exaggerate that, but as far as I can tell the conversation about the Millennium Challenge Account within the administration is not very well connected to what the Europeans may be planning.
Just before the hearing began, I talked to John Sanford from Congressional Research Service. He just came back from Europe. John said this stand-off on IDA grants is partly because Europeans together have 30 percent of the votes in the multilaterals. They realize that if they can get their act together, they don't always have to follow the U.S. the way they have typically done.
To me the issue is not just why were the Europeans wrong on this issue, but why aren't we working together better when on both sides of the Atlantic, people are promising to do more for poor people? If they don't work together on what could be a remarkable new initiative, then we will squander a lot of the potential of the moment.
Chairman BEREUTER. I think I saw two other hands, Mr. Orr and Mr. Offenheiser both. Mr. Orr?
Mr. ORR. I am never eager to rise to Europe's defense, but I think it would be a mistake to dismiss too quickly this argument, which I associate more with the Japanese government that has resisted debt relief for fear that countries will adopt a culture that not paying debts is an acceptable practice.
Page 37 PREV PAGE TOP OF DOC Segment 1 Of 2 I think there is a feeling throughout Asia that Asian countries borrowed from these institutions and made the sacrifices necessary to repay the debts and that other countries should follow suit.
I think in the case of Europe that that argument might have been a sham. My sense is that Europe was really worried that we would move the World Bank or IDA to a largely grants-based system and then legislatures, particularly this legislature, might not then follow-up with the additional resources that would be necessary to keep up the flows.
There is a lot of resentment in Europe that the United States is the country that pushes hardest and loudest for reforms at all the multilateral institutions and then is often the country that is the lowest common denominator in agreeing to funding increases and then often the last country to implement those increases.
So whether Europe is right or wrong, I leave to you to judge but I think that is perhaps the real concern with the move to grants.
Chairman BEREUTER. Mr. Orr, I am afraid that there is some validity in there, the last two expressed concerns that you reiterated.
Mr. OFFENHEISER. As a member of the broader Oxfam family, I spend a good deal of my time in Europe with my European colleagues who we have five Oxfam members, affiliate members who are European based. And, again, my perspective on this discussion about grants versus loans is that in Europe at this particular time, the deeper concern is not about credit worthiness and dependency of the developing countries. In some ways, I think that is a canard.
The real issue is at this particular moment in history a deep distrust of the motives of the United States in putting that offer on the table, unfortunately. In its extreme, I think there is an assumption that behind it there is an intent in some sense to undermine or de-fund the multilateral institutions over the long haul by putting forward that kind of an agenda and then trying to push it and broaden it going forward. In some sense, it is about the Treasury Department. And the fact that there is a sense that our approach to these issues perhaps is more unilateral than multilateral and that we are less concerned about coordination than perhaps advancing a particular agenda.
Page 38 PREV PAGE TOP OF DOC Segment 1 Of 2 I actually believe that Congressman Frank is correct that to some degree if the United States were to come forward with a very strong statement about a commitment to replenishment and were actually to deliver on it, not just to argue for it, that in some sense it would allay a lot of the fears about this that there are other motives behind this gesture than good development practice.
The other thing I would like to say about the grants versus loan issue is that there is some interesting history in the United States that I think sometimes we lose sight of and that has to do with our broader sort of philanthropic connection to the developing world.
I spent 10 years prior to Oxfam working for the Ford Foundation in Asia and all over Latin America, and one of the things that was really quite striking to me, particularly during my tenure, five and a half years in Bangladesh, was the extraordinary contribution that institutions like Ford and Rockefeller Foundation had made to building institutions, teacher training institutes, universities, in some cases the actual ministries and planning institutes of these governments, all of this was done with grants through much of the 1950's and 1960's. And really those institutions today are the backbone of what is really conducting a lot of the development debate with the United States throughout South Asia. All of which is to say that I think grants combined with loans actually gives institutions like the World Bank a multiplicity of tools to use creatively to solve problems that are extraordinarily complex.
And so I would encourage the committee at some point perhaps to tap some of the knowledge within the foundation community to understand a little bit about that history and the use of grants in the developing world over the last 50 years.
Finally, I think at the root of this discussion about grants versus loans there is an important question about accountability and leverage that I think is obviously of concern to bank lending officers. I think there is a sense that somehow if you switch from a loan mechanism where you have a lot of obligations for repayment and reporting requirements and so forth that are tight and very financially based to grants that somehow you lose leverage and there is no accountability.
Page 39 PREV PAGE TOP OF DOC Segment 1 Of 2 And I think the real question about switching to this mechanism is what are the accountability mechanisms and tools that you would use in a grant versus a loan framework. And I think there is a lot of experience out there that could assist the World Bank in thinking those issues through.
Thank you, sir.
Chairman BEREUTER. Thank you very much. Thanks to all of you. Ms. Lee, you will let this one go? All right. The gentleman from Vermont is recognized.
Mr. SANDERS. Thank you all. I don't want to get into the issue of grants versus loans. That has been touched upon a lot, and I think there is nobody who is a Member of Congress who has been here today who is not in favor of substantially increasing U.S. aid and seeing the rest of the world do what it can to alleviate the horrendous poverty that exists in developing countries.
But there is an issue that we have not gotten into terribly deeply this morning and that is the impact of globalization in recent years. I think there is sometimes an assumption, just as there is in the United States: free trade, no kidding, that is great. That always works. But you examine it and you find that it is a disaster for American workers. In my own state right now, we are at the lowest level of manufacturing in the last 33 years. We have lost 10 percent of our manufacturing base. Real wages for many workers is going up. Guess what? Free trade does not work for American workers.
And I happen to think that globalization, while everybody in a major corporation, ''It is obvious, trade not aid.'' It is obvious. It is a no-brainer says every intellectual and editorial writer in the United States. You know what? It may not work as well.
Let me just ask, and Mr. Orr, maybe start with you. Worldwide, the total wealth of the globes three richest individuals is greater than the combined gross domestic product of the 48 poorest countries and the wealthiest 447 billionaires own more wealth than the bottom half of humanity, some 2.5 billion people. What do you think about that, 447 individuals own more wealth than the bottom half of humanity? Is that an issue that we think we should put on the table?
Page 40 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. ORR. Well, on a personal basis, Mr. Sanders, I find that fairly shocking. I think all of us at the table and certainly all the members of the Bretton Woods Committee share concerns that you have expressed today about growing inequities and inequalities and problems with income distribution around the world. But I would like to think that those problems exist despite and not because of the World Bank and IDA. In fact, I think IDA is a very important tool for helping rectify the problem that you have pointed to.
Mr. SANDERS. What I wanted to do, if you will allow me is, I appreciate that and I know where you are coming from, but I wanted to get away from the IDA issue just a little bit, although I know that that is the subject of the hearing this morning, and to suggest that maybe there are broader issues out there in terms of globalization that are working against billions of poor people in this world and having to do with a philosophy exerted by multi-national corporations in this country that are working to the detriment of the poorest people in the world and in fact American workers. What we call the race to the bottom. In other words, playing off American workers who are losing their jobs against the very poor in the world to the detriment of both. Do you share that?
Mr. ORR. I would say I guess, Mr. Sanders, my sympathies lie more with the editorial writers and others that you have described who see the glass as mostly full.
Mr. SANDERS. Thank you. Ms. Lee, what do you think?
Ms. LEE. I would have to say that the general view, the generally accepted view within the economics profession or the editorial pages on globalization has missed a lot of really important pieces of the picture. I think if you look at the overall picture, of very slow growth, of stagnant or growing poverty, growing inequality, that it is not a successful global economy and that we do need to look at both the rules and the institutions that we put in place over the last 20 years and say what can we do differently, not how do we do more of the same? How do we change that set of rules and frameworks?
Page 41 PREV PAGE TOP OF DOC Segment 1 Of 2 We have in my view provided precisely the wrong incentives for both governments and for multi-national corporations that are trying to navigate in a global economy, a very difficult competitive, dynamic, global economy. What we have said to the corporations, what we have said to the governments is go out and make a lot of money, move around, pit governments against each other, pit workers against each other. Go get the best deal you can and there is no limit on how low you can go in terms of respect for workers, respect for the environment, and basic human concerns.
We need to build that floor. We need to say, sure, we need a dynamic global economy. We need competition. Competition can be a very important force for growth and for change, but we need to put some limits on the kind of competition. We need to send a message, it needs to be an enforceable set of rules that will protect basic workers rights. And the global community has agreed that every worker in the world deserves the core workers' rights, the fundamental human rights of the workplace, the freedom of association, the right to bargain.
Mr. SANDERS. The global community, multi-national corporations agreed with that?
Ms. LEE. The International Labor Organization, which has employers, workers, and governments from over 175 countries has agreed to that. Even the WTO at its first ministerial meeting in Singapore in 1996 agreed that all countries should promote the core labor standards. But they have made a rhetorical commitment and then the question is how do we make that real? Is it just enough to stand up in a room in Geneva and say we believe in core workers' rights?
Mr. SANDERS. But in many ways that is just words. Up until a few years ago in Mexico, Mexico, when workers tried to form free unions, they were destroyed, put in jail, right?
Ms. LEE. Well, that is exactly the point. The trading system we have put in placeand I would say that the World Bank and the IMF have been also guilty of it, of having an ideology where they believe that if they just took care of the multi-national corporations, everything else would fall into place.
Page 42 PREV PAGE TOP OF DOC Segment 1 Of 2 But growth hasn't fallen into place. Poverty reduction hasn't fallen into place. And certainly we haven't seen that there is an inevitable improvement in workers' rights and environmental standards. Some countries do. Some countries trade, grow, invest and improve their workers' rights. Other countries, and I would say China is a prime example here, have been very much a part of the global economy, have benefitted from trade and investment flows and yet have allowed a really disgraceful human rights and workers' rights situation to continue and in fact worsen.
So I would say that if we are going to get improvements, we need to put in place the rules and the institutions that will change the direction of the global economy so that we can really get some better outcomes for the people at the bottom, for workers all over the world, and for workers in the United States.
And you said it, and I haven't talked that much about it today, but obviously for our members the direction of the global economy has been extremely damaging. It has just pulled the whole manufacturing sector to pieces in the United States with a lot of serious impacts for the distribution of wages, for the productivity growth in the United States over the long time, and even the trend of growing international debt, which I think is not sustainable, those are all pieces of the failure of globalization to date.
Mr. SANDERS. If I could, Mr. Chairman, let me just ask Mr. Offenheiser how he feels about that?
Mr. OFFENHEISER. Thank you, Congressman Sanders, for the question and the opportunity to comment. Oxfam, about five years ago began to struggle with the fact that much of the kind of development and humanitarian work we were doing on the ground in poor countries in Africa and elsewhere we felt was not achieving the goals that we had hoped for. And increasingly in dialogue with the partner organizations that we work with, we became increasingly aware that we were dealing with a process and a problem that extended far beyond the national borders of the countries where most of our programs were concentrated. And I think what it led us to was actually the recognition that in some ways globalization has become the default development paradigm of this era and that as an organization we in some ways had to struggle to come to terms with what that in fact meant for many of the poor people of the world that we represent and work on behalf of.
Page 43 PREV PAGE TOP OF DOC Segment 1 Of 2 Having said that, as we have delved into the issue, we have recognized that, as one talks about globalization, many people mean different things when they use the word. I think very often here in Washington the term is used in a very narrow economic sense. But I guess from our point of view that globalization is probably more aptly described as the accelerated movement of people, money, ideas, images, knowledge, and technology around the world at a highly accelerated pace through sort of a seamless and almost borderless planet.
Now, looking at that objectively even from within developing countries, you can actually see some things that are positive about globalization defined in those terms. And we want to be honest about those. The information flows that are going into many countries I think are good for democratization, good for promoting citizen accountability, and so on and so forth, and human rights.
Mr. SANDERS. But given the growth of all of that technology, computers, the Internet, all of those very positive things, why aren't we seeing a substantial increase in the standard of living of the poorest people? Why aren't we seeing people with health care and educational opportunity? And what endemic, what aspects of globalization are working the other way?
Mr. OFFENHEISER. Well, just to pursue this a bit further. Oxfam, in trying to grapple with more of the economic side of this question, released in April a report on trade, which was an effort on our part to tackle the larger issue of globalization from the economic side. The study is entitled, ''Rigged Rules and Double Standards: Trade, Globalization, and the Fight Against Poverty.'' And the fundamental premise of the study, which has gotten quite a bit of play in the global media, this report was releasedthis a 270-page report, this is the executive summary, we are happy to provide committee members with the full report or the executive summary as you would care.
Mr. SANDERS. Please do.
Page 44 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. OFFENHEISER. The fundamental premise was that trade in and of itself is not inherently bad for development or bad for the poor. In fact, it might actually deliver some greater economic benefits. But the rules are rigged against the poor and against poor countries. And the study attempts to try to explore in greater detail what exactly that might mean.
For example, we struggled with the question ofwe were looking at the issue of ending the use of conditions attached to IMF/World Bank programs which force poor countries to open their markets regardless of the impacts on poor people, the Zambia case being an example that was cited earlier in the hearing this morning. We are concerned about the whole issue of commodity pricing. As you may well be aware, the international price for coffee has collapsed and Central America is in a dire crisis at the moment.
Mr. SANDERS. But what does it mean if countries are forced to export if they give up their basic agriculture, which feeds their own people perhaps not in the best way but provides sustenance to their people, if they are transformed to an export economy, coffee or whatever it may be, and that market collapses, what happens to the people in those countries?
Mr. OFFENHEISER. Well, the economic indicators or the social and development indicators would suggest we are going to get greater impoverishment and greater erosion of social welfare. I think that is pretty clear.
And I guess what we through this trade report have found ourselves arguing for is a less of a rigid sort of cookie cutter approach to the kind of planning that goes forward through the PRSP processes that we talked about this morning and giving countries more of an opportunity to develop more diversified approaches to the development planning that would vary a bit from the more straitjacket free market policies of the World Bank.
It is interesting, Joseph Stiglitz in a recent speech commented that if you actually lookor he actually posed a question to the audience which was what do India, Botswana, and Vietnam have in common, all countries with significant economic growth rates and reasonably good social welfare indicators or at least on the rise. And the answer to his rhetorical question was none of them have participated in a World Bank structural adjustment or policy program. And more to just make the example, that they have sort of exempted themselves and yet they are the good performers.
Page 45 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. SANDERS. Right. I know I have gone on too long. Can we get Reverend Beckmann to say a few words? Please proceed.
Rev. BECKMANN. Well, I agree with the other people who have spoken, that globalization is a mixed bag for poor people. And there are a number of things that can be done. With all political realism, that would make globalization work better for poor people.
One of those is to have a strong, well-financed IDA that is democratic, more democratic than it is now. That would help some of the poorest countries insert themselves into the global economy in a way that would be good for their people.
Another one is the issue of worker rights or environmental standards or I would say food security standards. If we are going to go into a trade agreement and we know it is going to make some people hungry, then part of the agreement should be, no, we are going to do some things to keep that from happening. So I think there are a number of politically feasible reforms that in fact will make globalization work better for poor and hungry people. So that has been the focus of our effort.
I do think it is important to recognize that globilization is a mixed bag. On the one hand, it seems to me that over the last 25 years, we have seen a fairly dramatic reduction in hunger and poverty in the world
Mr. SANDERS. In what parts of the world?
Rev. BECKMANN. Well, especially in East Asia. And part of that, in my judgment, is because East Asia seized the opportunity of opening markets for manufactured goods. Europe and North America negotiated liberalization in manufactures, and countries like Korea, Indonesia, and Thailand jumped in. That is not the whole story. But the global economy I think arguably helped a lot of people in East Asia get out of poverty.
At the same time, it is also clear that globilization has left a lot of people behind. I went to a meeting in Tanzania some years ago that had a really significant impact on my own thinking about this. This was church leaders in Tanzania and other English-speaking countries. And there was a guy there from the World Bank who talked about adjustment. He said, ''get used to it.'' Everybody has got to adjust. General Motors has got to adjust. This is a global economy. It is fast moving. We were meeting in a rustic hotel in Aroutia. And this guy would retreat into his hut, and he would be on the Internet. He said, ''Tanzania has got to adjust to the fact that Malaysia is a more competitive coffee producer. The problem isn't North America. The problem is that you guys have got to get in shape and compete with the Malaysians. They are getting ahead of you.'' And these African church leaders had no answers. They said the reality you describe is exactly the reality that we are living, and we cannot cope with this. Our countries cannot cope.
Page 46 PREV PAGE TOP OF DOC Segment 1 Of 2 In fact, the only hopeful note was that those church leaders prayed together, and they said, ''God will not forget Africa,'' and they sang like nobody's business.
Mr. SANDERS. Thank you very much for that. Your last remarks. Mr. Chairman, you have been amazingly indulgent. You get five gold stars.
Chairman BEREUTER. Mr. Sanders, you and I have both asked excellent questions that have elicited substantial illuminating responses but Mr. Bentsen is entitled to a very generous five minutes.
Mr. SANDERS. Given how long we have gone on, give him a minute or two and that is it.
Mr. BENTSEN. I appreciate that, Mr. Chairman. I know my colleague from Vermont, who I agree with more often than I don't, won't cut me off if he starts to disagree with me. I actually enjoyed the last round of questions. And I have to say, Reverend Beckmann, I agree with your assessment of our partners in IDA in not going to the 50 percent grant level, I think ''nutty'' is probably the appropriate term. I don't know if that comes from your economics background or your divinity background. So I think just that in and of itself is rather interesting.
But I do think thatI would also say I think it is absurd because the question of whether or not the United States will make a long-term commitment to IDA, either in the -- is equal either in the form of grants or loans. And from a budgetary standpoint, arguably in real terms, the loans as they are structured are really no better than grants themselves. Now, we use obviously a little bit different accounting but nonetheless I just think the risk exists one way or the other.
I was actuallyand Mr. Frank alluded to this as well, we had the Secretary of the Treasury here last year before the full committee and discussed the question of the HIPC program and the new administration's commitment to it and whether or notwhat its response would be going beyond HIPC. It was at that time that the Secretary I think for the first time said, ''Well, we probably would look at it going into grants.'' And I have been pleasantly surprised, quite frankly, with this administration that they have that commitment. So I think that would bode well for the long-term commitment.
Page 47 PREV PAGE TOP OF DOC Segment 1 Of 2 The other thing I would say is when we did the debt forgiveness program back in 1997 or 1998, I don't remember exactly when, one of the issues I was concerned about, and I think maybe perhaps misunderstood on, but I didn't lose in the committee nonetheless, was this whole idea that we would forgive debt and then immediately turn around and put these countries back in the hock again. It made absolutely no sense whatsoever. I think the first part of the proposal was on track but there had to be some form of aand there is not a better term for it, but some form of a bankruptcy that you were putting these countries through and then providing them with capital so that they could go forward and restructure themselves to continue the process of what the original intent was for them to become at some point self-sustaining.
And, Mr. Offenheiser, I appreciateI think it was in your testimonythat you addressed the need to look at the various ratios that we are using. The 150 percent export ratio has always beenI have always had many questions about what the validity of that ratio really is in what we are trying to accomplish. So I am glad that you raise it. I am not confident that anything is going to be done about it in the near future, but I think the more that is talked about it and trying to look at self-sustainability of ratios is a better idea.
I do have a few questions. Mr. Offenheiser, in your testimony you state that we should work to de-link the HIPC program from the PRSP. Is your concern that the PRSP will just be another means by which to hold up the HIPC program as those papers are being developed and reviewed, as just yet another condition that is set?
Mr. OFFENHEISER. That is precisely the concern. In other words, that the promise of the PRSP is an extraordinarily ambitious one but it requires a lot of citizen participation and citizen consultation to do it right and do it well. And, as I said in my testimony, we haven't quite got it right yet but we are getting there. And the concern was really that we might be delaying the delivery of debt relief benefits to countries if the PRSP process is too onerous.
Page 48 PREV PAGE TOP OF DOC Segment 1 Of 2 That has been partially addressed by the acceptance of the notion of an interim PRSP which then was able to trigger debt relief to a number of countries. And I think we are at a place now where we are finding our way through it, but I think we want to just underline in the testimony that we don't want to hold up debt relief. We think deeper and broader debt relief should be a critical priority and along side it delivering on a good PRSP is equally important but not to conflate the two to a degree to which it slows down the debt relief process. That is really the core point.
Mr. BENTSEN. Mr. Orr, in your testimony, you discussed, if I understood it correctly, you talked about the close relationship between Bank staff and Development staff in the recipientin the beneficiary countries. Are you asserting I guess that this long-term relationship I guess creates too much coziness that there is not sufficient oversight from the Bank staff?
Mr. ORR. The point I was trying to make, Mr. Bentsen, is that I think in certain instances there is room for the World Bank to be tougher on its clients than it has been, particularly in areas of governance and ending corruption. If you take a long-term look at performance of some of these countries, it is disappointing that more progress hasn't been made in some of these areas. And I think the reason, part of the reason is that too many allowances are made for failure or slow progress in some instances.
Now, it has occurred to some people that maybe multilateral institutions ought to threaten to cut off funding to governments that don't make important strides in these areas. But that, of course, would have a very harsh impact on the poor people that IDA serves. But I think maybe it is worth thinking about, are there other ways to deliver benefits to the same recipients, perhaps not using governments that are resistant to change, either using civil society or some other mechanism to deliver the benefits.
Mr. BENTSEN. Well, if I might, Mr. Chairman, if we went to a larger grant program, wouldn't that in some ways allow for greater oversight and greater involvement as those grant monies are disbursed? If you think about some of our own federal programs, it is certainly not true in all, that there are compliance mechanisms in place. And going to a grant program, one, would allow you toit seems to me it would allow you to do that with the government. But it also would allow you, whereas in trying to structure a loan with you have to structure a loan with a sovereign entity, a grant program would be, and similar to Mr. Offenheiser said with the Rockefeller Foundation and the Ford Foundation and others were able to do perhaps with non-governmental entities. So would that be something that we could pursue on the grant side of the ledger?
Page 49 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. ORR. Certainly grants will involve less local government involvement than the current lending process, where all the loans have been from the World Bank and IDA to the local government. But, of course, there will be other oversight problems. Instead of watching one ministry in borrowing Country X, the World Bank will have to monitor 15 or 75 civil society organizations that are implementing smaller aspects of the same project. So I mean there will still be plenty of room for oversight.
Mr. BENTSEN. If I could with the chairman's indulgence ask one quick final question. A number of you all talked about the problem of the cookie cutter approach to whether it is the structural adjustment programs or view towards dealing with the IDA countries. There aren't that many of them. There are a lot of people within the various nations but there aren't that many clients if you look at the individual countries themselves.
Is it possible within the structure of the Bank and its sponsors, including the United States, that the Bank can become more I guess client-specific? I don't know if that is the appropriate term or country-specific in developing structures or is it something inherent in the view of the donor states that precludes that or the culture of the Bank? Whoever is fine.
Rev. BECKMANN. For myself, I am not convinced that the Bank has a cookie cutter approach. They are trying to learn from the experience of one country for another country, and they are making some generalizations about what works. Maybe at a certain point in time it is too much market-oriented. Or it is too statist. The Bank has swung back and forth on those issues a little bit. But an advantage of the Bank is that they are sharing from the experience of one country to another, and that may mean that an idea that really has worked in one country gets channeled through the Bank to another country and so there is a certain parallelism to it.
As I look at specifics of the Bank's dialogue with particular countries and projects in different countries, it seems to me they do a pretty good job of adapting their advice. At any one time, if you think they are too gung ho on the markets (as I think they were in the early 1980's), they may go that way in a bunch of countries at the same time. On the other hand, in the 1960's and 1970's, they promoted governmental development finance companies all over the world.
Page 50 PREV PAGE TOP OF DOC Segment 1 Of 2 So if, let's say, it is the early 1980's and you think, they are wrong, well, they are wrong everywhere. There is a certain amount of similarity across countries. But I think it is an unfair criticism to say that it is rote and unthinking and completely insensitive to local reality.
One other thought though is about the whole emphasis on participation and democracy and letting people in on the discussion with the PRSP's. In fact, there is still very little civil society participation on the big issues of national economic policy. And to a great extent in the poorest countries, civil society organizations don't have much capacity on these issues. When they are ushered into the finance minister's office, they don't know what to say about some of the issues of national economic policy.
Moving in the direction of openness and capacity building for local democratic discussion of the biggest issuesof the questions of markets versus state, for example allows for local democratic discussion of precisely the issues that this Congress debates all the time for our own country.
Chairman BEREUTER. Mr. Bentsen, I think Mr. Offenheiser would like to respond.
Mr. OFFENHEISER. Well, I am going to disagree with my very good friend David here for once. I recently was at the World Social Forum in Puerto Alegre, Brazil in southern Brazil where there were some 60,000 civil society representatives from all over the world meeting to debate actually these issues about globalization. And in one rather sort of heated exchange over coffee early one morning with one of the sort of leading spokespersons in these events, when we were talking about precisely these issues, he said to me, ''You know oftentimes it is really hard to get the leaders of the multilateral institutions and particularly Americans to understand we want in our countries the same thing that you had.'' And I said, ''Well, what do you mean by that?'' And he said, ''Well, if you study your own history, you will realize that you had 200 years of managing your economy with tariffs and developing strong institutions to manage sort of the internal operations of your economy and you carefully managed your trading relationships with others and developed a very strong internal economy.''
Page 51 PREV PAGE TOP OF DOC Segment 1 Of 2 The point he was really making was that in his own country and the country of many of the others around the table, the institutions are weak and the model of export-led development and free trade that I think is at the core of the cookie cutter approach, if you will, is really what worries many of the advocates for less of a cookie cutter approach, if we can put it that way, from the developing world. And what they are really arguing for is the opportunity to manage their sovereignty on their own terms, to open to the global economy. And the interesting thing is they are not anti-globalization in the pure sense.
They want to open to the global economy but they want to do it on their own terms and in a way that they can sort of pace reasonably so they can address the kinds of food security, internal food security issues that Congressman Sanders was talking about. They want to build strong infrastructures in their country. And they feel they have a right to manage tariff regimes if that is a tool that might be appropriate for them at a given point in time or they might want to preserve the right to manage capital flows in ways that would disagree with IMF/World Bank policy on those particular issues.
So I think that is really at the heart of this issue, can an institution like the World Bank and the IMF vary a bit from its export-led development free trade model and accept that the countries that have succeeded like South Korea and the Vietnams and the Botswanas have in fact managed their opening to the global economy more on their own terms with strong civil society participation, building institutions, and using macro economic instruments in a reasonable way. And that is I think where the nub of the problem is.
Chairman BEREUTER. You are going to have the last word on this question, Ms. Lee.
Ms. LEE. Okay, I will be brief. I think the whole concept of the PRSP of course is designed to address that. And the rhetoric of the PRSP is terrific, that countries will own their development strategies. They will have broad-base stakeholder participation. And that sounds very good. And I think the reality, not surprisingly, as it gets off the ground has been less than that. It has not yet reached its potential.
Page 52 PREV PAGE TOP OF DOC Segment 1 Of 2 The points you make I think are exactly right, that there is a capacity problem in very poor developing countries. We see this with the trade unions and we work very closely with our trade union counterparts in helping to build the capacity to participate effectively in the PRSP and also trying to take their stories back to the IMF and World Bank headquarters in particular when they tell us that they have been excluded from that process. I think it takes time and it will take time to get that process up, and we need to keep a lot of very close scrutiny on whether that is working out.
And I think the point you raise, Ray, in terms of the export-led development is also very important. That when you talk about a cookie cutter approach and you tell every country to do the same thing, export to the U.S. market and that is how you are going to get rich, it can't work for all those countries at the same time in the same way and that they need to make sure that they are taking steps to develop internal markets, to develop strong middle classes, and that is where the role of trade unions we think is so important, in raising wages and building a middle class in developing countries so that they can not be totally reliant on always selling to an export market. And if that market is always going to be the United States of America, we have a $400 to $500 billion merchandise trade deficit.
We have fairly low tariffs to begin with. And it is not clear to me that we can just double our trade deficit and take in more goods and be a consumption engine for the entire developing world. That is not probably a viable option overall, and I think that goes to whether the development advice that the World Bank and the IMF have been giving out is actually likely to work or not.
Mr. BENTSEN. Thank you, Mr. Chairman.
Chairman BEREUTER. I am going to grant a little time to Mr. Frank in absentia because he wanted to address a series of related questions to you, Mr. Orr. And I am going to read it as he has written it here.
Page 53 PREV PAGE TOP OF DOC Segment 1 Of 2 In 1997, the IMF member finance ministers and central bank governors, including Bob Rubin and Alan Greenspan, agreed to a special one-time allocation of SDRs, special drawing rights, which is an international reserve asset issued by the IMF. Failure of the U.S. Congress to ratify this allocation has held it up.
Would this not be a good time to have the increase of international liquidity? Wouldn't it complement the IDA replenishment and the increase in bilateral aid the President has promised for next year and give at least a small additional stimulus to global growth?
Would you like to try to respond to his two related questions?
Mr. ORR. Yes, Mr. Chairman. Mr. Frank is alluding to an amendment to the Articles of Agreement for the IMF that the United States pushed at the IMF, primarily to give countries that weren't in existence when SDRs were originally issued, many states of the former Soviet Union in particular.
It would increase SDR allocations to 40 or 50 countries to about $30 billion, if I remember correctly, which is a pretty large number. It is 10 times or so as big as the IDA replenishment that we are discussing today. Much of that money would go to some of the poorest countries, including some of the front-line countries in the war on terrorism, countries in Central Asia, Afghanistan, Pakistan.
From my vantage point, for reasons of good government, this is something the United States should do. We pushed this amendment at the IMF. The last time I checked I think it requires an 85 percent approval in terms of vote share, the United States having 19 percent more or less. Seventy-two percent of the members have approved it. It can't be approved without the United States. And I don't believe that Treasury has even submitted it to the Congress. The Clinton Administration, when the time came, chose not to, for whatever reason.
But in terms of maintaining respect for U.S. initiatives within these institutions and out of respect for the other governments that have already approved this, I think it is probably an important thing to do. And I think the additional liquidity would certainly be of use to many of the poor countries that would be receiving it.
Page 54 PREV PAGE TOP OF DOC Segment 1 Of 2 Chairman BEREUTER. Thank you very much. I wanted to ask two questions in a second round here. And one can be relatively brief. It is for you, Mr. Offenheiser. And the other one perhaps all of you can try to respond to if you care to.
You mentioned, as I understood it, that investments ought to be focused on in other areas. And I think you mentioned, among others perhaps, I didn't quite get it all, extractive industries. And then my staff showed me the report that Oxfam did on extractive sectors and the poor. In a minute or two, could you enlarge upon that statement and see if I have it correctly stated?
The second thing, I would welcome comments from any of you for a comment that Mr. Orr made and he said we as a Congress need to pressure treasury on the subject of educating the public with respect to the multilateral development institutions. That rang a bell with me. He said, ''There is virtually no public education conducted by Treasury over the years on this subject.'' And I would like to have your thoughts about what specifically could and should be done if you agree that it is desirable, and I would think you would?
So let's go to Mr. Offenheiser first for the first question and then I will let the others respond, and then we will move to Mr. Sanders.
Mr. OFFENHEISER. Yes, in the particular area of mining extractives, Oxfam has been giving some attention to this, driven actually by experiences we have been having in countries where we work where we have seen an extraordinary increase in bank lending and also foreign direct investment from mining companies stimulated by actually concessionary lending from the Bank.
What has concerned us is what we have seen as relatively limited employment benefits, welfare improvements, and other broader sort of social development impacts that are a consequence of this kind of lending and at the same time, extraordinary negative environmental impacts and little net and economic benefit for the regions or communities that are actually the sites for these major projects. And it raised in our mind really the question is this the best approach to development lending when significant amounts of money are going into this particular area?
Page 55 PREV PAGE TOP OF DOC Segment 1 Of 2 The general question we are raising is if we look at this from a development point of view, while it might make sense for a country to exploit a particular resource, and we are not against the mining of extractive activities per se but when measured against other types of investments, either to stimulate private sector investment or to promote other kinds of human development, we would question whether this was the best use of Bank funding.
Chairman BEREUTER. Thank you. And now it is for the public education responsibilities of Treasury. What specifically would you recommend that the Congress might encourage or mandate, any of you? And, Mr. Orr, you may start since you brought up the subject.
Mr. ORR. I didn't come with a solution. I think the problem is, if it is a problem, the problem is that Treasury doesn't think this is its mandate. But I remember back three or four administrations ago a very aggressive assistant secretary of Treasury for international affairs made it his business to do a great deal of public speaking about the important work of the multilateral institutions, and I think it had an important impact on raising public understanding and support. So potentially a mandate from Congress to do this and some funding to do it with. Perhaps it is the Department of Commerce, the Department of Commerce should have a role in this as well.
Chairman BEREUTER. You may as well mention, if you recall, is it
Mr. ORR. I was thinking of Fred Bergsten, Assistant Secretary Fred Bergsten in the Carter Administration.
Chairman BEREUTER. Perhaps he will give us some suggestions. We will go right down the line. Reverend Beckmann?
Rev. BECKMANN. Well, I would encourage you to just commend Secretary O'Neill. He did a great job of development education going to Africa with Bono, precisely because it was so unlikely. And why did he have to play straight man to Bono? He did this because he cares about the issue. And I think he is really learning a lot about development and seems to really care and want to do more.
Page 56 PREV PAGE TOP OF DOC Segment 1 Of 2 I don't know what his next moves will be, but what he did achieved a lot. He articulated precisely the questions of a lot of people in Nebraska, ''We spend a lot of money on this, but what are we getting for it?'' He asked these questions, but then was willing to go to Africa with Bono and say, yes, we ought to do more about AIDS and water supply and opening up enterprise here. He did an extraordinary service to the world. So just commend him for what he has done, and ask him what his next moves are going to be in this area.
The notion that Treasury is going to have a program of development education strikes me as implausible. But they could do a couple of things. Clearly, they can do more speaking and that sort of thing. I think that over the years they have really discouraged the World Bank itself from spending money on speaking to Americans.
I used to work at the Bank and there were serious partly financial constraints on the extent to which the Bank itself could do development education. My understanding at the time was that the U.S. opposed spending by the Bank to tell its story within our own country, partly because of the fear that the Bank might have a slightly different line and would in effect propagandize against the administration's policy on a particular issue. But the Bank could do more to talk about development to Americans and would probably do a better job than Treasury.
And then within the U.S. government, I think the Biden-Pell program is where it belongs. The Biden-Pell program could be five times the size that it is. That is within AID. The ads within Canada probably come out of CIDA and most of the other industrialized countries also have very substantial programs of government funding for development education.
Mr. SANDERS. If I could just interrupt and just ask, if I could, don't you think part of the problem is that there is probably 25 or 35 percent of the United States Congress that doesn't believe in the United Nations?
Rev. BECKMANN. Sure.
Page 57 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. SANDERS. Let alone AID?
Rev. BECKMANN. Sure. That is part of the problem.
On the other hand, there is a movement afoot within American life; the public opinion polls show it clearly. It is a political movement that leads President Bush to propose a bigger expansion in development assistance than President Clinton ever proposed, and Senator Helms this year has made a big push for an extra half billion dollars for AIDS. There may be a movement in our nation's life and in international life that would make it possible to do some new things. And one new thing that would have a long-term impact would be to increase funding for the Biden-Pell Program. It wouldn't cost Congress very much, and it would have a multiplicative effect over a period of 5 or 10 years.
Chairman BEREUTER. Mr. Offenheiser?
Mr. OFFENHEISER. I very much welcome this recommendation from Mr. Orr and wanted to share with you that, stimulated in some sense in the aftermath of 9-11, there is a whole series of groups that are actively meeting, trying to evaluate the impact on public opinion and sentiment in the United States about alternative forms of U.S. engagement overseas.
In other words, what is the sentiment of the American public about internationalism, about investment in development programming, and how that connects back to the whole larger discussion of U.S. security going forward. And the surveys that have been done, and actually there are quite a number of them, there are probably four or five, and we can certainlyI would be very happy to provide these to the committee if there is interest, are really quite striking in I think all sharing the numbers that would suggest that the public is in factthe public attitude on these issues has really shifted to some significant degree. And there is more awareness in the broader public or more thinking going on about should we be addressing these issues of poverty and AIDS and isn't that perhaps linked in some way, although the public isn't real clear how, to these broader issues of terrorism that we are confronting.
Page 58 PREV PAGE TOP OF DOC Segment 1 Of 2 Now, these polls would suggest that the public in general supports the war on terrorism, as the President has articulated it, but it also supports I think a more long-term view about rethinking U.S. engagement in the world and about the obligations of Americans to address issues of poverty and injustice. The question of how we do that is another matter. But I think what this survey material really represents is an opportunity I think for the Congress and the administration and programs like the Biden-Pell program to expand its reach and perhaps challenge the American public and these sensibilities and see what the American public attitude is. I think the surveys might suggest that the public attitude might be ahead of the congressional leadership on these issues. That might be just one sort of line I would close with.
Chairman BEREUTER. That would be really shocking but I would be pleased to hear from Ms. Lee again in the final spot on the response panel.
Ms. LEE. Thank you. I think it is important to have a broad public discussion and debate over U.S. development aid and the role of the United States in the world along those lines.
I guess I am not quite as enthusiastic about the idea of the Treasury Department sort of leading what might be sort of a cheerleading public effort just on behalf uncritically on behalf of the multilateral development agencies, that there are so many issues that we are debating in terms of the direction of these institutions that what I think would be more important is the transparency reforms that we have talked about. That if it were easier for Americans to understand where the policies are and who they are helping and what the conditions have been and so on, I think that would be a really important piece.
Obviously, that takes a lot of doing and that information needs to be made accessible to the public. It can't just be in World Bank-speak or its not going to be all that relevant. So I think certainly the idea of broadening the public debate is very important and broadening information.
Page 59 PREV PAGE TOP OF DOC Segment 1 Of 2 I think one of the tragedies, when we see the poll results that Americans that we are already devoting an enormous percentage of our budget to foreign aid and that it is probably not quite enough. But they are way off the mark in terms of that percentage.
Chairman BEREUTER. Every two years the Chicago Council on World Affairs demonstrates that. And the American public think we ought to reduce our foreign aid to about 5 or 6 percent.
Mr. ORR. We are for it.
Chairman BEREUTER. The gentleman from Vermont is recognized.
Mr. SANDERS. Thank you for that point. Let me just ask a very simple question but obviously a question with huge human ramifications.
We all know what the AIDS epidemic is doing throughout the world and in Africa and so forth. I think something like 5,000 people a day are dying in Africa from AIDS. We also know that there are medicines and prescription drugs that are available that certainly can play a significant role in extending life and protecting people. And we also know that these drugs are extremely expensive. We know that here in the United States the pharmaceutical industry is the most powerful lobby. And the United States Congress is unable to take them on. They are too powerful for the United States Congress let alone poor African countries.
What would you do if you were seated where we are seated in terms of understanding that God knows how many people will die because they don't have medicine, that the pharmaceutical industry is making certain to as great a degree as possible that they will not get medicine at a price that poor people can afford around the world, what strategies would you utilize? Mr. Orr?
Mr. ORR. I think I have seen somewhere, Mr. Sanders, the statistic that something like $10 billion in additional resources is needed to combat AIDS and to treat to do more in prevention and to treat current HIV/AIDS- inflicted people. I think one of the most important things Congress could do is add pressure on administrations and other governments to increase funding for this objective.
Page 60 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. SANDERS. But should we pay the prices that the pharmaceuticalyou are right in one sense, obviously. But should we pay the prices that the pharmaceutical industry wants or is there some moral obligation to make sure that poor people around the world get drugs at a price that they can afford?
Mr. ORR. I am by no means an expert on this, but my impression was that pharmaceutical companies had promised to make a number of price concessions to developing countries.
Mr. SANDERS. Yes, but if you are living on a dollar a day, price concessions. Yes, you can cut your prices in half or by a third but it is still like
Mr. ORR. Clearly, it has to be the international community that finances this at this stage for the poorest countries.
Mr. SANDERS. But what is the responsibilitymy question is we can pay for these things. We can go to the American taxpayers and say, hey, it is $50 billion. Buy the drugs from the pharmaceutical industry at the price they want or maybe get a little discount. But what is the moral responsibility, what should we do about the pharmaceutical industry that make huge profits while people die?
Mr. ORR. I don't think I have the answer.
Mr. SANDERS. Okay, thank you. Yes?
Mr. OFFENHEISER. Well, Oxfam, along with Doctors Without Borders over a year or two ago began a global campaign to challenge the pharmaceutical industry on precisely these questions. And what we were fundamentally arguing was that the industry per se was making less than 1 percent of its profit on sales of these critical drugs in the developing countries.
And that from our point of view, we could not see why there could not be approaches to what is commonly called tiered-pricing for these markets where per capita income annually is very low as one approach. Or where you had extreme AIDS crises invoking what is already part of the WTO rules for clearing of public health emergency and producing generic drugs at lower prices. We were pleased with the progress made on this issue at Doha but were troubled that the industry seems to want to kind of reel it back a bit and tighten up the application of these rules in the developing countries.
Page 61 PREV PAGE TOP OF DOC Segment 1 Of 2 The industry I think for its part is struggling to find ways forward. And, unfortunately, some of the ways forward that they are opting for are more philanthropic approaches. While we are heartened that they are willing to distribute drugs in various countries, free in some cases, we think that is laudable, in our view it is not a systemic solution to the problem.
In our view, what we do need when faced with a global pandemic of the sort that AIDS presents to us and TB as well, we need more systemic approaches to these kinds of problems that will make these kinds of pharmaceuticals available on a more routine basis in all of these developing country markets. And we are not sure if philanthropy is an adequate and sufficient response.
Mr. SANDERS. Do you support the right of countries like Brazil and India, I think it is compulsory licensing is what we are talking about?
Mr. OFFENHEISER. Yes, we do. We very actively have supported the Brazilwe think Brazil is an exemplary case of a country that has responded to this public health crisis in ways that I don't know what else the international community could ask a country to do. And we think that in their case they have every right to invoke the compulsory licensing provisions and produce generics to address the problem, yes.
Mr. SANDERS. Okay, Reverend Beckmann, your thoughts on that?
Rev. BECKMANN. I would like to second what Ray just said. The only addition I would make is on the question of financing. The coalition around AIDS is particularly strong, partly because the problem is so severe but also partly because it is easier for us to empathize about people who are dying from AIDS than say, people who are dying because many girls never get to go to school.
We can't imagine all the deaths that are taking place for all the other reasons. The international community ought to do everything possible to deal with the AIDS pandemic. It is really huge. But it is not the only problem. And so also the broader approach to helping get girls in school, providing agricultural development assistance, dealing with TB and malaria and all
Page 62 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. SANDERS. I absolutely agree but I wasbut I think that the issue of the role of the pharmaceutical industry, in a sense withholding life-saving drugs, while they are the most profitable in the United States, raises very broad philosophical and moral issues, which
Rev. BECKMANN. Makes sense to me.
Mr. SANDERS.we have got to deal with. Ms. Lee?
Ms. LEE. I just had a quick point to make in terms of the leverage of trade agreements and how we have written the intellectual property rights provisions into trade agreements like NAFTA and also the Vietnam bilateral trade agreement. The pharmaceutical companies I think have been very influential in shaping the trade agreements and using the leverage of access to the U.S. market in order to force other countries not to put in place the kinds of policies like compulsory licensing that would save a lot of lives but would cut into the profits of the pharmaceutical companies.
And I think it is very importantRay, you mentioned Doha and the declaration there, which we were very supportive of. And it is worth noting that the TPA bill before the U.S. Congress right now in fact contradicts the Doha declaration. That on the one hand the Doha declaration says that developing countries should have a longer implementation period for trips and the TPA bill instructs the U.S. negotiators to seek quicker implementation of trips even for the least developed countries. And these kinds of contradictions I think haven't been well resolved.
We are putting a lot of priority into achieving, into getting developing countries to agree to enforce intellectual property rights in a way that will profit pharmaceutical companies but maybe take life-saving medicines out of the hands of people who desperately need them. And we think that is a real backwards way of using the negotiating leverage that we have in these trade agreements.
Page 63 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. SANDERS. What I have found interesting, and it gets back to the issue of globalization and how it is manipulated and for whom it works and whom it doesn't work, everybody around here believesnot everybody but many people believe in unfettered free trade. Some of us for years, I don't believe in it, some of us for years have said, ''If you believe in free trade, why do American pharmacists and prescription drug distributors re-import drugs from Canada where they are soldthe same exact drug is sold for 50 percent or in some cases 10 percent of the price?'' The pharmaceutical industry fought us successfully.
So I think your point is very well taken. But I would hope that this issue and the responsibility of the pharmaceutical industry, which has a product that can keep millions of people alive but is fighting hard to prevent that product from getting to the people at a price they can pay has got to be one of the great moral issues that we are addressing and the Congress has got to deal with that.
Thanks very much for your comments.
Chairman BEREUTER. You will remember, Mr. Sanders, that the House has approved re-importation of drugs and the Secretary of HHS, both the Clinton and the Bush administration has refused to implement it. And yesterday or the day before, the Senate re-approved it and I think if it is brought to the House, we will re-approve it again.
Mr. SANDERS. But it will not be implemented because there will be loopholes in it and because the pharmaceutical industry makes huge contributions to the Republican Party, and all due respect. I know something about that issue because I first introduced it here in the Congress and basically the industry is too powerful for Congress to pass it.
Chairman BEREUTER. Well, Mr. Sanders, let's prove them wrong.
Mr. SANDERS. Good.
Chairman BEREUTER. There is too much
Page 64 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. SANDERS. I look forward to your vote when I bring that up.
Chairman BEREUTER. Absolutely. You have always had it. International cost shifting is an egregious abuse of the American public. International cost shifting gets worse and worse. They are charging what the market will bear here as the other countries across the world impose restraints. But that is a side issue that is related as you brought it up.
One bit of advice in a sentence or two from you if I could get it and that is is it practicable for the U.S. to withhold a fixed amount of money as a rejection of aid to Iran? And I bring this up because of legislation introduced by Mr. Sherman and about which he talked today? Is it practicable because this will be a significant issue for us to address on the floor, if we bring this to the floor?
Mr. ORR. I think there are ways that legislation can be written to have the same effect that Mr. Sherman wants to do, have the impact that Mr. Sherman wants to have. But a law that said the World Bank cannot lend to Iran or an appropriation that came with that stipulation would traditionally be rejected by the World Bank because of precedents dating back 30 or 40 years.
So attempts to condition funding against certain countries directly probably won't work but there are ways to do it. Legislative Counsel has found interesting ways to have the same impact.
Chairman BEREUTER. I will appreciate having your ideas in private on that because the conditionality has never been successfully pursued here in the past but it makes a big hurdle for those of us who might be advocates for the replenishment.
Mr. OFFENHEISER. I would just only make one brief comment and that is as the representative of a global humanitarian organization, we oftentimes find ourselves working in highly difficult national settings because of all sorts of humanitarian crises. And I guess what would trouble me a bit about the way that proposition goes forward, particularly if it can be replicated in other contexts, is where you have post-conflict regimes that may not meet everyone's expectations in terms of quality, are we precluding responding to humanitarian need or to the needs of impoverished populations by issuing sort of blanket positions like that? So I guess I am a little reluctant to kind of support such a strong position that might be more binding than our initial intent.
Page 65 PREV PAGE TOP OF DOC Segment 1 Of 2 Chairman BEREUTER. Thank you. Mr. Sanders, do you have anything else?
Mr. SANDERS. No, I have got a plane to catch.
Chairman BEREUTER. All right, I ask unanimous consent that the statement on behalfa statement by Chairman Michael Oxley be a part of the record. And I did want to read one paragraph to the public here and to members of the committee and to witnesses.
He says, ''I am encouraged by the proposal to change the way IDA gives aid to developing countries to a mixture of both loans and grants. This is perhaps the most creative approach to improving the operations of the development institutions that has arisen in some time. I believe that this proposal will result in not only better access to critical services but also could help reduce the crushing debt burden that the developing countries face.''
[The prepared statement of Hon. Michael G. Oxley can be found on page 84 in the appendix.]
Chairman BEREUTER. In light of that statement and a very similar statement in the written statement of the Ranking Minority Member, Mr. LaFalce, I think that is an encouraging expression of viewpoints by the leaders of the full committee.
I don't recall a hearing which I have found more interesting or stimulating for a very, very long time. So I want to thank the witnesses for their excellent testimony and your responses to our questions. They have been very helpful.
Mr. SANDERS. Let me concur in that. Thank you all very much.
Chairman BEREUTER. Thank you gentlemen and lady. And the hearing is adjourned.
[Whereupon, at 12:15 p.m., the subcommittee was adjourned.]
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