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REAUTHORIZATION REQUESTS ON
U.S. PARTICIPATION IN THE INTERNATIONAL
DEVELOPMENT ASSOCIATION AND THE
AFRICAN DEVELOPMENT BANK
Thursday, July 25, 2002
U.S. House of Representatives,
Subcommittee on International
Monetary Policy and Trade,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 1:55 p.m., in Room 2128, Rayburn House Office Building, Hon. Doug Bereuter [chairman of the subcommittee] presiding.
Present: Representatives Bereuter, Ose, Sanders, Frank, Watt, Carson, Schakowsky, Gutierrez, and Bentsen.
Chairman BEREUTER. The Subcommittee on International Monetary Policy and Trade today is meeting in open session to examine the administration's authorization request for the International Development Association, IDA, and the African Development Fund.
I apologize for the late start. We have been involved in a series of three votes. Mr. Secretary, I appreciate your patience and those of you in attendance. Mr. Sanders has been here. He will be back shortly, but I think we have been authorized to go ahead with the agreement of Mr. Watt and Mr. Bentsen, too, now.
On July 18th, 2002, the administration submitted the following two authorization requests to House Speaker Dennis Hastert, copies of which are at each member's desk, $2.85 billion for the thirteenth replenishment of IDA and $354 million for the ninth replacement of the African Development Fund.
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[The following information can be found on page 147 and 150 in the appendix.]
Chairman BEREUTER. Earlier this week we also received the administration's request for the North American Development Bank, and that is now being distributed to members.
Chairman BEREUTER. So this hearing is the fourth in a series of subcommittee hearings on IDA and the African Development Fund.
I ask unanimous consent that my entire statement be made a part of the record and I will summarize it. And all members may have their entire statements printed in the record, including that of the ranking Democrat member of the full committee John LaFalce. Is there objection?
Hearing no objection, that will be the order.
First, I would like to go to the thirteenth replenishment of IDA and give some preliminary remarks on four areas.
The first, as I said, is on the thirteenth replenishment of IDA. For fiscal year 2003, the administration is requesting $850 million for the first of three U.S. scheduled contributions under IDA 13, plus 24.3 million to pay one-third of the outstanding U.S. arrearages.
The total 3-year U.S. commitment to IDA 13 is 2.55 billion, with a possible increase up to 2.85 billion based on IDA's satisfactory achievement against key performance measures. With these increases, the annual average U.S. commitment to the IDA 13 replenishment would represent an 18.2 percent increase over the U.S. annual commitment under the previous IDA 12 replenishment.
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The agreement for the thirteenth replenishment of IDA includes two major reforms which were initiated by the United States—conversion of loans to grants and the establishment of performance standards. With respect to the issue of loans to grants, in July of 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. This proposal was controversial with some IDA donors and borrowing countries. The British and Germans, for example, were concerned it said that the loss of loan reflows would hurt the long-term viability of the IDA program without significant new commitments from donors, and Japan feared the broader use of grants would create an unhealthy dependency on foreign aid and hinder the development of international creditworthiness.
In early July of this year, IDA donors agreed to a complex plan to convert 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 and natural disaster reconstruction projects on grant terms. Further, post-conflict countries and debt-vulnerable countries with a per capita income of less than $1 per day will receive 40 percent of their assistance on grant terms separate from and in addition to HIV/AIDS or natural disaster funds. All other countries with a per capita income of less than $1 per day will receive 23 percent of their assistance in the form of grants, again separate from and in addition to HIV/AIDS and natural disasters.
With regard to performance standards, the second major reform, IDA 13 directly links multilateral development aid to meaningful governmental and social reform.
The U.S. administration has promised a $100 million increase in year 2 funds and a $200 million increase in year 3 funds if IDA demonstrates progress in developing reliable measuring tools, advancing specific health and education programs, and increasing steps taken toward market liberalization. This U.S. plan to increase donations in return for certain broad results incentivizes the systemic change necessary for sustainable development.
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Number two, the ninth replenishment of the African Development Fund—a lot of attention on this subject by members of this subcommittee. Here, we have to consider not only the ninth replenishment of the African Development Fund, the concessionary lending, an affiliate of the African Development Bank; the Fund also, it needs to be said, provides loans on consensual terms, 40 to 50 years maturity, including a 10-year grace period, zero percent interest, 0.75 service charge, and 0.50 percent commitment fee to Africa's poorest countries.
In fiscal year 2003, the administration is requesting 118 million for the first installment of a 3-year commitment under the ninth replenishment of the African Development Fund. In addition, they are seeking—I am not sure I have the complete number here. Is that in fact the case? I will simply pass that number up and say they are seeking to clear one-third of outstanding arrearages.
This committee has looked with some particular attention at the African Development Bank and Fund because, by all accounts, it has been the weakest of the regional multilateral development institutions. At the subcommittee's hearings on this subject on April 25th of last year, we learned that the African Development Fund suffered both a serious fiscal and a managerial crisis in the early 1900s. From 1993 to 1997 the U.S. made virtually no contributions to the African Development Bank and Fund. The U.S. Also led other nonregional members in suspending negotiations for a new replenishment until reforms had been implemented.
However, in 1995 the African Development Bank and Fund elected Omar Kabbaj, a Moroccan finance official, as the new president. He has implemented fiscal and managerial reforms and as endorsement of Kabbaj-initiated reforms, U.S. contributions to the African Development Fund resumed in 1998 and to the African Development Bank in fiscal year 2000. And President Kabbaj was unanimously appointed to a second 5-year term in May of 2000.
The third element of points I would like to cover, the third replenishment of the Global Environmental Facility. I won't go into the responsibilities of the fund. I think they are fairly well known by members.
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One thing we would note here, I don't know if it has come to the attention of all members, but according to a Congressional Research Service legal opinion, which I requested, authorization for the GEF appears to be provided by prior appropriation legislation, Public Law No. 103-306.
As the chairman of the subcommittee which authorizes GEF, and perhaps speaking for all authorizers in the Congress, I am upset, concerned about the fact that this is said perhaps to be a permanent authorization provided through an appropriation bill.
Fourth, the Regional Multilateral Development Bank legislation. As you know, we have legislation pending before the Senate at this point. I will hope other members will join me in pushing for action with Chairman Biden.
With that background, I would like to introduce Dr. John Taylor, the Under Secretary of Treasury for International Affairs, who will, I am sure, assist the subcommittee in examining these important issues. This is the second time that Dr. Taylor has appeared before the subcommittee. On February 6th, 2002, he testified on the Argentina financial crisis. And without exception, Secretary Taylor has been very helpful, cooperative, forthright in all of his contacts with the committee.
He has a very distinguished academic and professional record. He received an undergraduate degree from Princeton University and a Ph.D. From Stanford University; he has taught economics at Columbia, Yale, Princeton and Stanford Universities. He also has directed the Monetary Policy Research Program at the Stanford Institute for Economic Policy and Research.
In addition to these academic positions, Dr. Taylor was a member of the President'S Council of Economic Advisors during the administration of President George Herbert Walker Bush.
We are going to permit you to speak in a couple minutes, Mr. Secretary, but I want to now turn to the distinguished ranking member of the subcommittee, the gentleman from Vermont, Mr. Sanders.
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[The prepared statement of Hon. Doug Bereuter can be found on page 126 in the appendix.]
Mr. SANDERS. Thank you, Mr. Chairman. And I apologize for being late. I am going to have to be running in and out. But I thank you for holding this important hearing.
We welcome Mr. Taylor. Thank you very much for being with us.
As we all know, the International Development Association, the poor countries' lending arm of the World Bank is up for reauthorization this year, and we look forward to working with the chairman and other members of the committee on that legislation.
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 and the IMF, 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.
Mr. Chairman I would like to briefly quote, I don't know if some of—if you saw an article that appeared on the July 19th front page of the New York Times. Let me just quote some of that article. I think it is important for us all to hear this.
''Across Latin America millions of others are also letting their voices be heard. A popular and political ground swell is building from the Andes to Argentina against a decade old experiment with free market capitalism. The reforms that have shrunk the state and opened markets to foreign competition many believe have enriched corrupt officials and faceless multi nationals and failed to better their lives.'' .
The article continues, and I quote the New York Times:
''Indeed 44 percent of Latin Americans still live in poverty and the number of unemployed workers has more than doubled in a decade. Tens of millions of others, in some countries up to 70 percent of all workers, toil in the region's vast informal economy, as street vendors, for instance, barely making ends meet.
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Economic growth has been essentially flat for the last 5 years. Popular perceptions revealed in street protests, opinion polls and ballot boxes are clearly shifting against the economic prescriptions for open markets, less government, and tighter budgets than American officials and international financial institutions have preferred.''
I hope everybody heard that.
In fact, a regional survey supported by the InterAmerican Development Bank found last year that 63 percent of respondents across 17 countries in the region, that is, Latin America, said that privatization had not been beneficial.
And this, by the way, is Latin America. I think the same tale is being told in many countries throughout the world.
I won't—I will just introduce my statement for the record, Mr. Chairman. I won't read the whole thing. But I think it is time not to keep saying the same old things. Year after year, we hear people saying free trade is just great, it is wonderful. But you know what, unfettered free trade has been a disaster for American workers. We have lost 10 percent of our manufacturing base over the last 4 years. It has equally been a disaster for many, many poor people throughout the Third World. Privatization has not been a miracle.
What you are hearing here is, people in Latin America do not necessarily think it is a good idea when most industries are given over to foreigners who could care less about their existence and jobs in their own country.
Free market competition has not necessarily been good for agriculture. When poor countries are forced to develop crops that export and those prices go up and down, when they go down as they have in recent years, it is a disaster. And it is a very scary situation that many poor people around the world are unable to grow the subsistence in food that they need, and on and on it goes.
So I think, Mr. Chairman, what you are increasingly seeing all over the world—and I think is even trickling into the United States Congress when Republican leadership really had to twist some arms severely for the last fast track agreement that passed by one vote—that a lot of people are beginning to rethink what the IMF and the World Bank has told us in the sense it is not working for poor people around the world nor is it working for American workers.
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With that, I would ask unanimous consent to submit my full statement into the record.
Chairman BEREUTER. Thank you, Mr. Sanders. I have received unanimous consent for all members already.
[The prepared statement of Hon. Bernard Sanders can be found on page 135 in the appendix.]
Chairman BEREUTER. Are there other members of the committee who wish to have opening statements? Under the rules, you are entitled to 3 minutes.
The gentleman from Texas, Mr. Gonzalez.
Mr. GONZALEZ. Thank you, Mr. Chairman. And I do thank you for calling this hearing today. I am particularly interested in what Under Secretary Taylor has to say concerning the North American Development Bank. As you may know NAD Bank, is located in my district, it is the only multilateral development bank dedicated to the United States-Mexico border.
This past May, this subcommittee did in fact hold hearings on that bank. It is apparent from that hearing that NAD Bank is critical to the economic development of the United States-Mexican border and that, in my view, Treasury has not been especially forthcoming either with this committee or with border communities as to what their specific reform proposals are concerning NAD Bank.
I will hope, and do hope, that Under Secretary Taylor will use today's hearing to open the doors to what exactly the administration's plans are with NAD Bank, and start to open a full dialogue with Congress and other communities as to how best to improve this important situation. I would hope that he would expand on the latest initiative and what would be in store later in the year around September.
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I yield back. Thank you very much.
Chairman BEREUTER. Thank you, Mr. Gonzalez. To be fair, to be up front about this, we did not request Secretary Taylor to present testimony on the North American Development Bank because we didn't know that the authorization request would be coming to us this week. Now, if he wishes to give some preliminary comments today, that would be most welcome. But he has not been asked to be prepared on that subject.
Mr. GONZALEZ. The only reason I bring it up, sir, is that we were informed that he was going to address it. And that may—it may not be good information, but if we have that opportunity, I would welcome it and would seek the Chair's indulgence. Thank you very much.
Chairman BEREUTER. You certainly have that. And Secretary Taylor will be invited to make any comments on that subject, but it was not in the invitation. I just wanted that to be known.
Secretary Taylor, again thank you for the cooperative attitude and spirit that you have always displayed since you have come to your position with respect to the subcommittee and committee. Your entire written statement will be made a part of the record and you may proceed as you wish.
STATEMENT OF THE HONORABLE JOHN TAYLOR, UNDER SECRETARY FOR INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF TREASURY
Mr. TAYLOR. Thank you very much, Chairman Bereuter, for your kind remarks and for inviting me to this hearing, along with the other members. As I understand, the topic of the hearing is the reforms we are trying to put through the multilateral development banks, as well as the reauthorization request for the International Development Association, IDA, and the African Development Fund.
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My testimony does touch on the North American Development Bank in the written version. I wasn't planning on discussing it in my opening remarks, but I would be very happy to answer any questions that Mr. Gonzalez might have. I would like to focus my opening remarks on IDA and the African Development Fund.
The reform of the multilateral development banks has been one of the highest priorities of the Bush administration's international American agenda. Improving the effectiveness of these development banks means making them more effective in raising economic growth and improving the lives of the poor in all parts of the world. We think that they can improve a lot in these regards, and have put forth a number of specific reforms, some of which you mentioned in your opening remarks, Mr. Chairman.
I would mention three specific reforms that we pursued most actively: first, an insistence on measuring the results of their activities; second, a conversion of grants to loans to the very poorest countries; and third, a focus on increasing productivity growth, which is the ultimate source of poverty reduction.
I am happy to say, after long negotiations and very hard work by the Treasury staff, that we have made progress on all of these fronts; and I think this progress provides grounds for our request for authorization and for appropriations for the MDBs. Total appropriation requests for fiscal year 2003 is 1.437 billion for all the MDBs.
In the case of IDA, the authorization request is for an 18 percent increase over the previous replenishment. In fact, it is an 18 percent increase over the replenishment before that. So it is a substantial increase compared to recent history. I think it is very important that this requested increase entails a new focus on measuring and achieving results from our IDA funding.
For the first time ever, part of the requested funds will be contingent on achieving results in particular areas, first, creating a new measurement system—believe it or not, a measurement system has not been developed yet so that we can measure results—but, in addition, to look for real improvements in certain particular areas such as health, and here we are looking at immunization rates improvement; and education, and here we are looking for improvement in primary school completion rates; and in private sector development, here we are looking for reductions in the cost it takes to start up businesses.
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I will say that without achievement of these stated objectives the administration will not seek appropriations for that additional funding which amounts, over 2 years, to $300 million. I think this is just the start of a fundamental shift of focus on the multilateral development banks to measure results. It means stating in quantitative terms the expected results of individual projects that we support and overall country assistance before providing the funding.
This agreement also includes a substantial increase in the amount of funding in the form of grants—as you stated, Mr. Chairman, grants going to the poorest countries—and it largely fulfills the vision that President Bush put forward last summer. It is a real victory which will make a difference in the operation of IDA.
In addition, there is another first-time accomplishment, and that is that part of IDA funds can be used to help private sector development. Here the idea is that IDA can work along with the International Finance Corporation, the arm of the World Bank Group that provides financing to the private sector. So that it can develop in ways that we couldn't before the private sector itself.
Let me briefly say some—give some remarks on the African Development Fund. Negotiations for the ninth replenishment are not complete unlike the negotiations for IDA 13. We have reached agreement on certain things, such as the importance of measurable results and the importance of better coordination with the other multilateral development banks, and in particular, the World Bank in Africa, as well as bilateral donors.
Two issues remain which are not settled in these negotiations; one is the overall size of the replenishment, and second is how much will be in the form of grants.
President Bush's proposal was that all the MDBs would shift a substantial amount of their funding towards grants, and we expect that the African Development Fund will adopt a grants program which is similar in its characteristics to that which we successfully negotiated in IDA.
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Let me say, just to conclude my opening remarks, Mr. Chairman, to say that MDB reform has been a very high priority to us. I believe that steady progress is being made in achieving our objectives with each of the institutions, and that, for that reason, these authorizations will allow us—should be approved and will allow us to make further progress.
I would like to say that I want to work hard, along with the staff of International Affairs at Treasury, to pursue these goals. I will endeavor to be demanding of the institutions, to set high standards for them in order to make them more effective in raising living standards around the world.
Thank you, Mr. Chairman. I will be happy to answer any questions, and I hope you can put my full testimony in the record.
Chairman BEREUTER. That has been ordered. Thank you very much Mr. Secretary for your remarks and for your statement.
[The prepared statement of Hon. John Taylor can be found on page 141 in the appendix.]
Chairman BEREUTER. We will now proceed under the 5-minute rule, and I will recognize myself, then Mr. Sanders when he returns, if he is here at that time; then Mr. Bentsen and Mr. Watt were also here at the beginning of the hearing. Then we will take members as they appeared. We think we have an accurate record of that.
Mr. Secretary, my first question would be how IDA 13's program, with its new performance standards, would be reconciled, coordinated with the Millennium Challenge Account. And how would you see any kind of coordination or effort between our bilateral programs, which are handed out of the State Department, and what you are attempting to accomplish through multilateral institutions and Treasury's dominant role in the U.S. participation in those multilateral development banks?
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Could you speak to the Millennium Account and the bilateral aid and what you are attempting to accomplish.
Mr. TAYLOR. There are some similarities between our reform efforts in the multilateral development banks and the President's proposal for the Millennium Challenge Account. One similarity is the emphasis on measurable results. Another similarity is the emphasis on policy performance.
In the multilateral development banks we have been working towards an allocation of resources to countries who have policies that are more conducive to economic growth. But that really is the most important aspect of President Bush's proposal for the Millennium Challenge Account. As you know, he wants to increase funding on bilateral assistance by 50 percent. It is not decided what the form of that will be, but the total is there; and the way in which it was delivered will be there, and that is by policies that endeavor to invest in people that encourage economic freedom and that encourage good governance to rule justly.
Now, the interaction between these, I think is something we need to focus on very much. My observation from traveling and observing on the ground the operation of the MDBs and the operation of our bilateral systems, other countries' bilateral assistance, is there is an enormous amount of improvement we can do in coordination. We want to work towards that.
I can assure you, as we develop the MCA, how they are actually used and disbursed, it will be very high priority for to us get that coordination right.
Chairman BEREUTER. Thank you. I think the disbursement coordination is a major problem. If we just, at least, manage to coordinate our involvement through the MDBs, those disbursements with our own bilateral, that would be a major step forward.
Mr. Secretary, during our hearing last week a number of witnesses suggested that the Treasury Department ought to take a more active role in promoting the successes of IDA and highlighting the positive role that the U.S., through such multilateral institutions, has played in improving conditions throughout the world. Others felt this was an inappropriate task for Treasury and that public education funds should be handled elsewhere.
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I would be interested to see, to hear, if you have any comments on that suggestion.
Mr. TAYLOR. Well, my comments are that we should do our very best to communicate what we are doing with these institutions and to lay the facts out, both the successes and the failures of the institution, so that we can improve them. I think the obligation here is to show how foreign aid can be useful, and in particular, this kind of foreign aid; but also to be very demanding.
I think the position that we have been taking is to be demanding of the institutions, to point out successes and failures. That is what I think is the most effective thing we can do to the American public and to the voters. They want to see results from the funds, from the taxpayer funds. If we are convincing and straightforward in presenting the results, I think that is the best thing we should do.
Chairman BEREUTER. Thank you, Mr. Secretary.
I yield the balance of my time to Mr. Watt, who was here at the beginning.
The gentleman is recognized for 5 minutes.
Mr. WATT. Mr. Chairman, I think I will pass.
Chairman BEREUTER. Then we will recognize Mr. Bentsen.
Mr. BENTSEN. Thank you, Mr. Chairman.
Mr. Secretary, I want to say at the outset that I am actually pretty pleased with the administration's proposal to expand the use of grants and to do so, hopefully, in conjunction with debt forgiveness, because I think it is a mistake to go through a period of debt forgiveness and then just go straight back to the soft window. And then, in fact, the studies you referenced, the GAO study and others, have shown that that would be meaningless because we would be back in debt forgiveness again.
You mentioned that it is the administration's intent to increase bilateral assistance by 50 percent over a period of time, if I understood you correctly; and I assume this would be related to the—in large part, to the grant program to the extent, at least, of meeting the new level that has been worked out in IDA 13, and then hopefully getting our partners to agree to a higher ratio.
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I personally think it is ludicrous that our European partners have objected to this thinking that we would not be putting up the money. But I am eager to hear from you exactly how the administration plans to fund this increase over the next several years.
We are in a pretty tight budgetary situation. It doesn't appear to be getting all that much better. As you know, this is probably the hardest money to get from Congress, but I do think it is important.
Is the commitment from the administration as strong as it ought to be?
Mr. TAYLOR. Thank you for your remarks about the grants. It is indeed related to the debt forgiveness operation, because one of the advantages of grants is, it provides assistance without adding to the debt burden of countries, especially in areas where the effect of a loan would not be something that would generate revenue.
So, for example, support for HIV/AIDS, which will be 100 percent grants from now on instead of loans, makes so much sense.
The 50 percent increase in funding I mentioned wasn't particularly associated with the Millennium Challenge Account. The Millennium Challenge Account will—over a period of 3 years will rise to 50 percent of our current foreign assistance. It is separate; it is over and above the amount that would be going to the IDA, into the other existing foreign assistance.
Your question about funding for the grants is a very important one. I agree very much with the General Accounting Office study which showed that because of the fact that the loans are now very concessional and payments occur years in the future, it actually requires a very small increase in funding to offset the loss from the reflows of the loans. In fact, it is quite remarkable; GAO showed that even for a larger grant program than we ultimately negotiated, it would require an increase in IDA less than the rate of inflation over the coming years. So it is—actually it could even be a decline in real terms.
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So I feel very confident that as long as we continue support for IDA at the levels that we have been—and I hope with the achievement of results that we can do more than that—that we will be able to support this grant program. And that is the arithmetic.
Mr. BENTSEN. I agree with your arithmetic.
I want to ask you—I am not sure what the arithmetic is at the Office of Management and Budget and whether or not, because of the way that these items are scored, and I honestly don't know—whether there is a different scoring mechanism. You may—between the grants and loans, whether or not you have to score the grant allocation up front, as opposed to loans and being able to amortize it and spread it out over time. So that is one concern I have, if you could address it either now or for the record.
And the other is—you probably can address this—the political question, again with the Office of Management and Budget, because we hear a lot of folks within the administration say things they are for, and then your colleague, Mr. Daniels, comes up and seems to be saying something different.
And so I just hope that the commitment really is there.
Let me ask in my remaining time two things. One is, you talk about going to a results-oriented approach as well; and I think that is good. The recent IDA conference came up with the idea of the PSR, the country-specific paper of what the country's plan would be.
What goals does the United States have for ensuring that there is sufficient NGO and public involvement, as opposed to all governmental involvement in preparing that document; and what goal—what is the administration's plan for ensuring that we don't—that this just isn't a new plan like the old plan, and we end up with either a one-size-fits-all or another ESAF-save or something like that.
Mr. TAYLOR. Well, the poverty reduction strategy papers do involve NGOs in a wide community input. I think the purpose is to have ownership of this from a broad segment of society. I think what we have tried to do is emphasize ownership, in the countries, of the programs and policies they want to follow. We will continue to do that as best we can.
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The measurable results are more for what the country decides what they want to do. So, for example, increase enrollment in schools; once that is decided, then we want the grant or the loan to have the specifics of how much the enrollment will increase by what dates. And those results will be monitored, and we will hold the institutions to those results. So that is how it fits in.
The concept that what should be done, whether it is education, health or particular kinds of help will be over this overall process where we emphasize the full participation in the democracy, as well as the ownership of the countries. But once it is decided, then we want to be very specific that this is what you are getting for your money, this is what we want to get for our money, and this is the time line.
Mr. BENTSEN. My time is up, but if I could interpret what you said, then it would be the administration's position that you would set your goals based upon PSR in consultation with the beneficiary country?
Mr. TAYLOR. Yes.
Mr. BENTSEN. Thank you, Mr. Chairman.
Chairman BEREUTER. Thank you, Mr. Bentsen.
The gentleman from Vermont, Mr. Sanders, is recognized.
Mr. SANDERS. Mr. Chairman, I apologize again for having to run out.
Mr. Taylor, let me just change the direction of the discussion a little bit. I want to get your point of view on the administration's point of view. You heard me a moment ago read an article from the New York Times. Let me read again the, quote, ''popular perceptions''—this is dealing with Latin America, but the truth is, this is, I think, a sentiment which exists increasingly around the world.
''popular perceptions revealed in street protests, opinion polls and ballot boxes are clearly shifting against economic prescriptions for open markets, less government, and tighter budgets that American officials and international financial institutions have preferred. Sixty-three percent of respondents across 17 Latin American countries felt that privatization had not been beneficial.'' .
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Is the growing opposition to the formula of the World Bank and the IMF the fact that more and more people think that that is working to benefit the wealthy and corrupt officials, rather than ordinary people? Does that have any impact on the administration's thinking?
Mr. TAYLOR. I don't know the survey explicitly that the article refers to. I would like to look at it carefully. It seems to lump in things which some people can like and some people could not like. ''Tighter budgets'' has a connotation that maybe it is too tight, maybe it is not providing the services that it might. If someone asked me if I am in favor of tight budgets, I guess it depends on what is being tightened.
''open markets,'' I think what I observe from traveling around the world and talking with people is that there is a perception of a great benefit from opening markets. And in terms of Latin America, the Chilean economy is doing very well by opening. And even closer to home, America, Mexico is a much different economy now. It is one of the real stars in Latin America, getting investment grade rating.
Central America, El Salvador, is opening and emphasizing the private sector. And as I go around and look, I see the private sector as really the source of poverty reduction. The private sector is creating jobs. Everywhere you go, if you want to see a job created that is higher wage or raising productivity, it is in the private sector.
That is just trying to answer your question.
Mr. SANDERS. That is fair enough. You are right in pointing out in some countries, actually some of these neo-liberal reforms have been successful. But in many other countries, and you have cited some of them, Chile being a good example—in Mexico, I don't have the statistics in front of me, but my understanding is that poverty, while some good things have happened in Mexico, there is an increase in poverty, an increase in child labor. And then, in fact, the average Mexican worker, as I understand it, is worse off today than they were before NAFTA, for example.
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So it is working to some degree, but in many, many countries it is not working.
What I think you are seeing is that people are saying, well, opening up our markets, completely moving toward privatization, cutting back on health care, education, food subsidies in order to get IMF loans and World Bank assistance may not be doing so well. And, you know, in Argentina we have a disaster; in Venezuela you have a disaster; and there is growing sentiment against it.
So I am just kind of curious if these types of political sentiments have had an impact on your feeling about the wisdom of the IMF and World Bank approach.
Mr. TAYLOR. I am disappointed that growth is not more rapid in Latin America. The best measure of growth I know is productivity growth; it is how much more workers can produce and, therefore, get paid per hour. And it is—productivity growth in Latin America is lower than the United States. They are way behind in terms of income per capita. It should be higher.
But I am also disappointed about productivity growth not being higher in Africa. In China, it is much better.
But we can do a lot better. We can do much better than we are, and that is why we are trying this reform effort to do what we can.
Mr. SANDERS. People very often, when they talk about developing countries, they talk about China. But China has done everything in the last—with the exception of the last few years, they have done an entire process in opposition to what the IMF and the World Bank do. They have closed their boundaries, they have heavy state involvement in their economy. The people say, Isn't it interesting how China has gone a long way to eliminate poverty? But they have not accepted the IMF and World Bank formula.
Mr. TAYLOR. I think there is lot of advice that the World Bank and IMF give that you can criticize from time to time, and some advice you can say makes a lot of sense. The fact is, the World bank feels they made a lot of positive suggestions with respect to China. The Chinese have pointed out it is good advice they have been getting. I think if you go to Shanghai, you see the private sector thriving, you see foreign investment thriving, you see the great possibilities because of openness, because of the WTO. It is exciting.
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It seems to me the things you see are this openness and this emphasis on the private sectors and markets.
Mr. SANDERS. But China has been in the WTO for 3 months or 5 months. They have been doing what they have been doing for decades and doing exactly opposite of what the IMF recommends to many other poor countries. And people say, Look at China, look at well their economy. It doesn't make a lot of sense to me.
I would end my questions by suggesting that laissez-faire, unfettered capitalism does not always work for all people around the world and, in fact, has caused a lot of suffering. I would hope we rethink some aspects of that.
Thank you very much.
Chairman BEREUTER. Thank you, Mr. Sanders.
The gentleman from Texas, Mr. Gonzalez, is recognized.
Mr. GONZALEZ. Mr. Chairman, I would be glad to defer to the other members that are here to pose questions to the Secretary on those matters that he was noticed on; but I would reserve the right and the privilege to ask questions regarding NAD Bank at the conclusion of the other members' questions relating to those topics.
Chairman BEREUTER. Thank you. That is very courteous. Then we would move to Mr. Frank.
Mr. FRANK. Mr. Secretary, I am very pleased that we appear to be reaching what I think is a consensus, namely that substituting grants for loans makes a great deal of sense when you are talking about very poor countries, as long as there is a commitment to prevent that from leading to a lower level of activity.
And your reference—when Secretary O'Neill testified here earlier, I asked him that. I have a letter from him, March 28th, which isn't as categorical as I would like—unusual for Mr. O'Neill for being less categorical than people want, but I think your comments reassure me, namely, am I correct to say that our position is that, assuming you get agreement on the poverty measurement, the effectiveness measurement, assuming things are being done well, our position would be that we would be prepared as a country—and you mentioned how relatively small the amounts are under the GAO study—that we are in fact prepared to put our money where our mouth is, and that to the extent that we get what we think is appropriate and we substitute grants for loans, we would make up any difference that there might be from the lack of reforms? Is that accurate?
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Mr. TAYLOR. Yes.
Mr. FRANK. I appreciate that. I think that very much advances where we are.
The next specific question I had has to do with, you mentioned the private sector, and I know there was a meeting of the deputies at IDA dealing with this. And one of the things we are talking about up to this poverty reduction and health and education, there is also the infrastructure question, and I guess one of these days we have to deal with it.
And I share Mr. Sanders' skepticism that unrestrained, unregulated capitalism is the answer to everything. It does seem to me there is clearly a private sector role in the provision of some essential services, and the question is, how do we structure that in the utility area and in infrastructure.
You talked about some ways of doing that. One of the ways you talked about was drawing on the International Finance Corporation as part of this.
I want to make a declaration. I have a personal relationship with an employee of the IFC, so I want to get the record clear here. But that does seem to me to have something to do—how would you see that being worked out in conjunction with this? How could we most make some kind of synergy possible there, without raising the kind of flags that the people would be troubled by?
Mr. TAYLOR. Well, let me give you an example of something that we are working on. It hasn't been completely developed yet, but I think it is a good answer to your question.
One of the most difficult areas in terms of our helping the development of the private sector, small-, medium-sized businesses is really where a lot of jobs are created, and in many developing countries, it is very hard for this entrepreneurial sector to get financing. So one of the proposals we are working on is where IDA could contribute some small funds for small loans in some financial institutions—more ''microlending,'' as it is uniquely called—and the IFC could help organize that as part of their emphasis on the private sector. So that is an example.
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Also, some of the IDA assistance could be for technical assistance to make this micro—.
Mr. FRANK. So IDA funds do utilize the expertise of the IFC in distributing these funds? I must say that sounds plausible to me, the great deal of support for the small and medium enterprise.
You mentioned microlending, but by the time you get to them, you are beyond microlending. But the notion of increased lending to smaller entrepreneurs drawing on IFC's—I would be interested, not necessarily now, but as we get to a marking up stage, in any suggestions you might have about how we could best implement that.
Mr. FRANK. My last point a more general one. I am pleased that we are talking about a 50 percent increase; I just want to know whether it is enough. We are the richest society in the history of the world. When we need to find money, we can find it. It isn't totally free, but it does seem to me, if we were talking about leveraging some money, a relatively small amount in terms of the Federal budget going to places of desperate poverty would be very important.
Now, we are talking about economic development, but we are also talking about poverty reduction. We read about famine now in Africa and, of course, the devastation of AIDS. Is there any reason why we shouldn't just—when you say, ''I am encouraged,'' you appear to be telling us that there is increased confidence on the part of the administration that we are able to send money with some confidence that it is being spent well, we have a new organization in Africa trying to put more focus in the way we want.
Given that, is there any reason why we don't significantly increase by a couple of billion dollars to try and alleviate the abject human misery that we see over there? Are there ways that we could even go beyond this to encourage, both bilaterally and multilaterally? I think none of us—obviously we are the richest country in the world, and there are kids starving to death. Can we do more about that?
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Mr. TAYLOR. Our proposals are to increase substantially the foreign aid. They are matched, substantially. You compare—historical comparisons, whatever you want to do, and they are matched with this assistance on measuring results and getting something for the funds, which I think is essential if we are to be successful in getting the appropriations and the authorizations that are necessary. The taxpayers will be looking carefully, your constituents, so I think they go right together.
But we are increasing it. And I guess in terms of very—you know, some specifics again: I have been spending a lot of time on Afghanistan reconstruction. We have had a very successful fund-raising conference in Japan, got pledges for $1.8 billion for this year, 4.5 over several years. It is a global—.
Mr. FRANK. How much have we disbursed so far?
Mr. TAYLOR. The United States has disbursed just about all of what we have pledged. There have been some more funds—.
Mr. FRANK. How much is that?
Mr. TAYLOR. The United States, in the first year, has pledged 296 million, and approximately over 90 percent of that has been disbursed. There are some additional funds that are in the supplemental, which will be able to go directly to the operating budget of Afghanistan; and that will be, hopefully, going very soon.
Mr. TAYLOR. We need to work harder on other countries' fulfilling their pledges. That is one of the things that I am trying to do.
Chairman BEREUTER. The time of the gentleman has expired.
The gentlelady from Indiana, Ms. Carson.
Ms. CARSON. Thank you very much, Mr. Chairman. I will be brief. Thank you very much, sir, for preparing me for the committee.
Mr. Taylor, some time ago the Treasury committed to implementing the law passed by Congress to oppose any loans or other agreements that include user fees for children going to primary school or for basic health care.
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Should not the U.S. Lead the way in pushing to eliminate these fees that harm poor people and don't raise much money?
Mr. TAYLOR. Yes. I am not quite sure what legislation you may be referring to, but we agree that user fees for people, very poor people that can't afford the services, is not something that we are supporting.
In fact, the World Bank doesn't have a position that there should be user fees in any particular case. There is some legislation that says there shouldn't be user fees at all, of any kind, in poor countries. What we emphasize is that there shouldn't be user fees for poor people, because even poor countries have people that are quite well off.
Ms. CARSON. Further question, Mr. Taylor.
Do you have an index in terms of what constitutes quote, unquote, ''a poor person''? Is there some level of poverty that you determine as being the poorest of the poor? I guess that would be—
Mr. TAYLOR. That is a good question. There are measures of poverty. The World Bank sometimes uses $1 a day; 1.3 billion people earn less than $1 a day in the world. The goal is to double that to $2 a day. That still seems awfully poor to me.
I see a lot of poverty, even by those measures. And it is well below what we use as measures here. So one of the reasons we are pursuing all of these reforms and being so demanding on institutions is, we want to make faster progress than has been made in the past to reduce poverty.
Ms. CARSON. Do you have some tracking mechanism, Mr. Taylor, that would sort of follow through the kinds of grants and supports that the United States makes to ensure that it does, in fact, reach the human beings for which it is intended?
Mr. TAYLOR. Well, that is one of the things that this measurable results proposal should do.
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I have been very disturbed to find out sometimes that a very small fraction of the aid goes to the people who it is meant for, sometimes less than 50 percent, sometimes less than 30 percent. We just can't let that stand anymore. But it requires a lot of work; there are a lot of people out there. We are talking about coordination of assistance with NGOs and all of the different donors.
But we really want to work very hard on that. I think it makes no sense to be spending money and so little of it goes to the people who need it.
Ms. CARSON. Is there in place now some auditing process, some ongoing auditing process?
Mr. TAYLOR. Yes. The auditing process, or monitoring process, for this kind of thing is already being developed and, in fact, has been successful in detecting some of the real outrages.
In Uganda, these review mechanisms have discovered that a very small fraction of the aid, I believe, in this case, education, went to students. As a result of that, it has changed. There is now a much larger fraction.
So some of these performance evaluation reviews—I believe is the name that is most frequently used, kind of a budget review process—have been tracking it down and trying to expose these problems and then trying to fix them.
But more needs to be done, in my view.
Ms. CARSON. Thank you, Mr. Chairman.
Chairman BEREUTER. Thank you, Ms. Carson. Good questions.
The gentleman from California, Mr. Ose, is recognized.
Mr. OSE. Thank you, Mr. Chairman.
Mr. Taylor, welcome to our meeting. Last May, the witnesses who came before us to talk about the North American Development Bank talked about the merging of the boards of directors on the environmental side and the bank itself. And what I am curious about is, how do you see the fair and equal representation of the two organizations being reflected in that board?
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Mr. TAYLOR. Well, the board members themselves are representative. There are representatives from the region, representatives from the different agencies of the government on both sides. And the merging of these two entities I think is essential to make NAD Bank more effective in delivering assistance.
It is unusual to have kind of the certification separate from the funding in these kinds of institutions. Mr. Gonzalez was saying that the North American Development Bank is the only bank of this kind operating with Mexico and the United States. Well, it is also the only the only bank of its kind that separated out these two functions. So we think that by merging at least the boards on this, we will be able to coordinate and do a better job.
Mr. OSE. One of the concerns that I have had since we got here is that Mexico remains one of our largest trading partners, and to the extent that we can frankly facilitate the amelioration of environmental challenges that they face and what have you, we prosper and they prosper, because, frankly, air pollution or water pollution really doesn't know national boundaries in this sense.
What kind of assurance do you have under the agreements or discussions between President Bush and President Fox that we are going to have true, measurable improvements within that new 300 miles or 300 kilometers—.
Mr. TAYLOR. Kilometers.
Mr. OSE. —300-kilometer band?
Mr. TAYLOR. Well, part of the reform is to extend it from 100 kilometers to 300 kilometers. The NAD Bank's mandate is also, part of it will be in the form of grants. That is actually somewhat related to our other reforms.
I always think of grants, you are able to bring in monitoring and measurable results even more than you can in the case of the loans. But the main reason to provide the grants, in this case, is that a greater amount of subsidies seem to be necessary to make those projects work.
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NAD Bank really has not provided much assistance in a loan form since its existence. So putting it in grant form, we hope will improve that. But in terms of measurable results, I guess it may be best just to appeal to this general cultural change which we are trying to institute in all of these institutions, which is, write down what is meant to be achieved, on dates, by quantified form, and make sure it gets done.
Mr. OSE. I am very pleased to see the administration focusing on this to the degree that they are. I want to encourage you—I think the message that I would like to convey both to the administration and to our trading partners is that when you are a good trading partner, when you pay your debts in the past and you trade fairly and equitably, there is transparency in your system and what have you, the United States will look at you as a premier trading partner, if you will, and make it possible for so many other things.
I think there ought to be a premium attached to those of our trading partners who have paid their debts and who have worked with us in this way. And I would hope that, given the difficulty Mexico went through that caused the genesis of the Brady Bonds and what have you, and the fact that they repaid those, would give us the opportunity to provide our friends to the south in Mexico the opportunity to, frankly, get a little of a premium in the evaluation of their grant applications.
And I just think that is good policy, to reward positive behavior. With that, Mr. Chairman, I yield back.
Chairman BEREUTER. Thank you, Mr. Ose.
For the information of the members, I have been calling on members that are members of the subcommittee. And Mr. Hinojosa and Mr. Gonzalez are not members, as I understand it, but they have been here very early. If you have a scheduling problem, you would just have to ask unanimous consent that you be allowed to go next and you would probably find a cooperative attitude.
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Mr. HINOJOSA. I would like to ask unanimous consent to be able to address—.
Chairman BEREUTER. Is there objection? Hearing none, the gentleman is recognized under the 5-minute rule.
Mr. HINOJOSA. Thank you. I appreciate, Mr. Chairman that you have called this hearing. And I also want to voice my skepticism as to what I just heard regarding the amendments, to some of these documents that you all wish to approve.
My first question is with regard to the U.S. Participation in the International Development Association and the African Development Fund: In looking at and listening to your statement, you talk about the three hallmark reforms, and that is to help countries, poor countries, in the areas of health, education, and creating small businesses.
The reason I have such skepticism is that just in January of 2002, President Bush signed the bill on ESEA, which has a component of trying to improve the graduation rate of students in our country. I represent border communities in Texas. We have an Hispanic performance of students graduating at only 70 percent. And Senator Jeff Bingaman included in the EASE bill that the President signed a bill that is designed to improve graduation rates.
We received $25 million in this 2002 budget, and yet, for the 2003 budget, the President zero funded it. So how can we believe, if we can't take care of the domestic problems in our country with the fastest growing minority group in this country, and that we are asking for $125 million to fund those programs, exemplary programs that work, to graduate Hispanic students, and we get a zero funding, what is going to be different in this international program to help all of those countries improve their graduation rate when we can't even do it in our own country?
And certainly there is no political will in the administration, or they would have funded at $125 million as both the House and the Senate had requested. Could you answer that question?
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Mr. TAYLOR. I am not familiar with the particular line item you are referring to at all. And I would like to look into it and try to answer your question.
Mr. HINOJOSA. I would appreciate it.
Mr. TAYLOR. With respect to the portfolio that I have, I think the goals of raising completion rates are ones that we are going to take very seriously and that the amount that is there in the first year is not as large as I would like, but it is moving in the right direction. And, you know, 70 percent is too low; that is obvious. We need to work to make it higher, but I don't know why this one was—this line item was affected the way that it was.
In the international case, which I can speak to, we want to make sure it gets done. The resources are limited. We have indicated a request of $850 million for the whole world in the IDA program for the current fiscal year. So some very hard choices will have to be made about how to use it effectively. And we will participate in that choice and try to make sure it is used effectively.
Mr. HINOJOSA. Well, Mr. Taylor, I look forward to getting some kind of response on this.
The second question that I have, and the last one, this is on NAD Bank, and I follow up on some of the questions that my friends from Texas, Ken Bentsen and Charlie Gonzalez, have.
That is that you know that in South Texas we are currently suffering a severe drought and a water shortage crisis that is compounded by the lack of Mexico repaying its water debt to the United States.
It has been said in the newspapers that President Bush agreed to fund water conservation projects in Mexico in exchange for their speedy repayment of the water debt. Do you know if the Texas projects to improve its water distribution system, which we have been asking $60 million for, are going to be funded before we ask the NAD Bank with its amendments and improvements that are being proposed, before the loans or grants are given to the Mexico water projects—which, to my understanding, have not been planned, no engineering has been done; whereas we have, in Texas, for 3 years been working on that, but have not been able to get the funding?
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Mr. TAYLOR. The proposed amendments that we have would take the current retained earnings in NAD Bank, which is approximately $80 million, put those into a trust fund of which equal amounts could be used on both sides of the border, Mexico and the United States. So that is $40 million that, once it is in that fund and—that the intent is to put it in that fund, could be used in Texas or wherever it is allocated.
I would think, if there are proposals and plans already worked out, that you would be first in line to be able to use those funds as soon as they are available.
With respect to the other amounts that you are indicating, I don't know. It doesn't sound like it is related to NAD Bank, but other sources of funding from the United States.
But with respect to this proposal of taking $80 million of retained earnings, it is meant to be used equally on both sides of the border.
Mr. HINOJOSA. Well, I hope that that equal parity is respected because everything that we read in the papers, our water users, farmers and ranchers and municipalities are very unhappy with the agreement on that Order 308 that was signed 2 weeks ago. Farmers and ranchers are expected to be here in the next week to voice their—how upset they are with regard to this, and certainly we hope that equal parity will be respected.
Mr. TAYLOR. Well, our part of this—my own part had mainly to do with the NAD Bank component and the use of these funds. But, of course, it is not just for Mexico; it is for the United States.
I understand that Mexico has pledged and will be delivering 90,000 acre-feet of water that is due under the treaty. So that will, I hope, have a positive impact on the farmers suffering from the drought in your area.
Mr. HINOJOSA. But the other amendment to that agreement is that, if they don't get rain in October, we have to repay those 90,000 acre-feet of water. So it is not good for south Texas where we have—at least half of our farmers and ranchers have gone out of business.
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So, again, I thank you for giving some clarification on the amount of money, and that it is available to both sides. We thank you.
Thank you, Mr. Chairman.
Chairman BEREUTER. Mr. Hinojosa, thank you. You went beyond your time, but I have a drought-stricken State as well, so I have an understanding.
Next I have on the list the returning Mr. Sherman, Schakowsky, Mrs. Waters, then to Mr. Gonzalez if that is—Mr. Sherman.
Mr. SHERMAN. Thank you. We have to go back to our districts and explain why we are for more foreign aid, and I want to do that.
I have got one problem, and I am about to mention a word that I don't think has been spoken at this hearing. It may be because it is considered an obscenity, and I hope my words are not taken down. The words or phrase is ''World Bank.''
Now, we can call it IDA. We can keep repeating IDA. But my constituents are smart enough to know it is the World Bank. The World Bank is smart enough, or at least honest enough, to say on its own Web site, the IBRD and IDA are run on the same lines. They share the same staff, the same headquarters, report to the same president, and use the same rigorous standards when evaluating projects. IDA simply takes its money out of a different drawer.
That is not Sherman railing about the World Bank, that is the World Bank about the World Bank. And my colleagues on this committee know where I am going.
The World Bank is about to loan $755 million to the government in Tehran. So we have a President that tells us that this is a government insistent upon developing nuclear weapons and smuggling them into American cities, and a bureaucracy that doesn't mind very much that our tax dollars, or our capital investment dollars, to draw fine distinctions that matter only in Washington, are about to allow that government to meet the minimum domestic expenditures it needs to make to retain power, and then use money which is fungible, use its other money that they would otherwise have to spend on domestic programs, to develop the nuclear weapons that will be smuggled into American cities—not to mention that that government is identified as the number one state sponsor of terror in the world.
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So, Mr. Secretary, would you support a provision in this authorization bill that says that in the event that the World Bank approves future loans to Iran, that we will thereafter not disburse a single penny to the World Bank? Or would you, instead, like to come to my district and explain how it is okay to put money in one drawer if it is another drawer that is financing the nuclear destruction of American cities?
Mr. TAYLOR. Well, I would like to explain our position in the following way. IDA, which is an arm of the World Bank, focuses on the poorest countries, provides funds to Africa, to the poorest countries in Asia, poorest countries in Latin and Central America. So to take money away from that—.
Mr. SHERMAN. If I can interrupt you, sir, my bill will provide, or amendment will provide, that any penny otherwise taken away from IDA is used to help the poorest countries in Africa deal with HIV/AIDS; and I am open to other amendments as to some other difficulties, as well. I am not for spending a penny less on helping the poorest countries with the worst problems.
I want to know whether you think that the only way we can help poor countries is to take money from my constituents and put it in a drawer at the World Bank?
Mr. TAYLOR. It is not the only way. And, in fact, we are helping poor countries, humanitarian assistance bilaterally in the U.S., in the Millennium Challenge Account. There will be more of that. But it is an effective way.
The advantage of the multilateral assistance is, other donors contribute too. And we—basically it is—sometimes people refer to it as a leverage. Our request for $850 million this year is only part of the total. It multiplies by a factor of five, roughly, so we get more as a result of that.
Mr. SHERMAN. Are you saying that if we spent that $850 million helping poor people deal with AIDS in Africa, that Europe would turn off the spigot and not help those same people, either through the World Bank, if they chose, or in some other way; that the generosity of the Japanese or the Europeans is dependent upon the willingness of this administration to put money in the hands of those who want to finance Iran; that anything else we do to help the world would be ignored by our other developed friends?
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Mr. TAYLOR. No.
We, as you know, are working hard on, and the President has focused on, Iran and the problems there. We will continue to do so. My only point is that attacking IDA is not going to help that. And what I—.
Mr. SHERMAN. So do you have another strategy that will prevent the World Bank from making those loans?
Chairman BEREUTER. The time of the gentleman has expired.
Mr. SHERMAN. I would ask that he be allowed to answer the question about whether we have a strategy to prevent American dollars from financing the nuclear destruction of American cities.
Mr. TAYLOR. Well, of course we would never vote for that and don't vote for it. And we try to persuade others not to vote for it. And, overall, it seems to me that the mechanism that you are suggesting would be harmful to our foreign policy interests; and we should therefore focus on ways, such as the President is pursuing, to deal with the terrorism and the proliferation issues, very serious ones that you mention, in Iran.
Mr. SHERMAN. In other words, the same strategy that failed completely in the year 2000.
Thank you. I yield back.
Chairman BEREUTER. The gentlelady from Illinois is recognized.
Ms. SCHAKOWSKY. Thank you, Mr. Chairman. I wanted to talk about water.
My former U.S. Senator, Paul Simon, is spending a good deal of his time and energy dealing with the international water crisis and wrote a wonderful book called ''Tapped Out, the Coming World Crisis in Water and What We Can Do about It.''
A couple of things that he points out are that late in 2000, U.S. Intelligence agencies were asked to project what challenges the world might face in 15 years. And, not surprisingly, one of them was that the world will be threatened by wars over water. And another source said the national security issue of the 21st century is water.
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And you are probably aware that about—well, actually when he wrote this book, so it is now more, 9,500 children die every day due to poor quality water; at least 1.5 billion people do not have access to a minimally adequate supply of safe water—1.5 billion; 3 billion lack sanitation facilities, which is really tied to water quality.
The World Bank estimates that 80 nations have water shortages severe enough to retard agricultural production.
This book is a plea really for the United States to get more involved. Let me just read a couple of words he says.
''The massive numbers dying for lack of both food and water will be seen by us over and over again if the world does not act, and action requires U.S. Leadership. No other nation has our capability and resources to lead. The question is whether we will.''
So I just wanted to ask, one, what level of priority—one of the senses that I get from this book is his feeling that no one is really—that no entity—that there is not a concerted international effort or U.S. Effort to really focus in on the problem of this looming water crisis, or in some places, extant water crisis. And just your views on this.
Mr. TAYLOR. Well, thank you very much for the question and for the information about the book. Secretary Paul O'Neill has actually focused attention on this issue in a very constructive way. I think that is the best way for me to answer this question.
He has, as you may know, traveled to Africa—.
Ms. SCHAKOWSKY. With Bono?
Mr. TAYLOR. Yes. And at every stop asked about water and the issues that you are raising, and really would like to try to improve the situation in a dramatic way by providing more water to people, fresh water to people who don't have fresh water, and to deal with the problems, especially, in the rural areas. So it turns out it is a high priority for us at this point in time.
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It will require an international effort. There will be a discussion of it at the World Summit on Sustainable Development in Johannesburg. There is a meeting at the State Department tomorrow on the subject. So, fortunately, I can answer your question in a very positive way. We are trying to move ahead on this important issue.
Ms. SCHAKOWSKY. What kind of money are we putting into desalinization, for example? Have there been any concrete efforts to spend more money on things that will actually alleviate the problem?
Mr. TAYLOR. Well, money is being spent. I don't think it is being spent in the most effective way. I have no idea how much is spent on desalinization, but I will try to get the information for you.
What Secretary O'Neil has emphasized is how to be more cost effective in getting it. He observes that with the same amount of money we are spending now, we could do a lot better; not to say that we shouldn't spend more money, in fact, my guess is that we will have to spend much money to reach the goals of reducing the number of people that don't have fresh water.
But with respect to desalinization, I will get some information for you.
Ms. SCHAKOWSKY. In the remaining couple of seconds, the emphasis of the World Bank has been heavily on the issue of privatization of water. In many cases, as cited, I can also share a wonderful article in the New Yorker, April 8th, 2002, that talked about some of the serious problems that water privatization projects have wreaked on the poor inhabitants of communities. And those projects are beginning to backfire all over Latin America.
[The following information can be found on page 153 in the appendix.]
I see that my time is up. But I hope that I can work more closely with the Secretary of the Treasury and try and help to promote more focus on this issue.
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Mr. TAYLOR. Good. Thank you.
Chairman BEREUTER. I thank the gentlelady for her questions.
The gentlelady from California.
Ms. WATERS. Thank you very much, Mr. Chairman.
I have a number of questions, and the first ones that I ask, I am not asking for a long answer. I just want to quickly try and understand. I will do my research later.
Is World Bank funding an oil pipeline from Uzbekistan down through Afghanistan into some Gulf or Pakistan?
Mr. TAYLOR. A particular pipeline you are referring to, or simply the funds?
Ms. WATERS. Pipeline.
Mr. TAYLOR. I will have to look into the particular pipeline from Uzbekistan to Afghanistan.
Ms. WATERS. You don't know about it, though?
Mr. TAYLOR. I don't know enough about it to answer your question.
Ms. WATERS. Do you know anything about it?
Mr. TAYLOR. I was just in Uzbekistan. We talked about gas, we talked about oil, we talked about water. But this particular project, I don't—.
Ms. WATERS. Are there any projects that you know, any pipeline projects at all from Uzbekistan down through Afghanistan, that the World Bank is involved in?
Mr. TAYLOR. Not that I know of.
Ms. WATERS. You are talking about getting involved in something?
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Mr. TAYLOR. There was talk about natural resources, energy and water, when we visited Uzbekistan, Yes.
Ms. WATERS. Okay. Obviously you are very cautious about this discussion for some reason; I don't know why. But evidently, whatever is going on, we will find out about it. I will talk about it later.
How much is spent on the Chad/Cameroon pipeline at World Bank, how much do you have in that?
Mr. TAYLOR. I have to look up those numbers for you.
Ms. WATERS. Okay. This discussion on Iran was very, very interesting. If you can't prevent loans to Iran, how did you prevent loans to Haiti? How did you do that?
Mr. TAYLOR. The loans to Haiti in question are from the IDB, the Inter-American Development Bank. We are trying to get those loans moving. They were approved 4 years ago. There are a lot of troubles, as you know, in Haiti, and the IDB is sending a team, I believe, on—next week, July 29th, to Haiti to try to work this out.
Ms. WATERS. Okay. So the mission is on its way to do the assessment, and you support that?
Mr. TAYLOR. I certainly support that.
Ms. WATERS. All right.
Now, what I really want to talk about are the six countries where there is a famine in southern Africa—Malawi, in particular. I am told, and again it has been reported, that the IMF basically advised or forced, coerced, or what have you, Malawi into selling its excess grain, because they had a surplus and now the silos are bare and the famine is on. It is a fact of life.
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Did you in any way get involved in causing the selling of that grain from Malawi to be exported to other countries for sale?
Mr. TAYLOR. No. I have not been involved in that at all. Before the hearing, someone mentioned this to me; and I was told that the IMF did not, in fact, instruct that the grain be sold. But I will look into it and see if I can get more information for you.
Ms. WATERS. Would you please do whatever you have to do and share that information with us, because we want to know how those decisions are made.
Now, given that there is a drought and there is famine and there is a crisis in these six countries in southern Africa, what can you do? Given that you are exploring the possibility of giving more grants, how can you make an impact on this drought, this crisis; and given what you can do, why haven't you done something about the water needs of those southern countries, these southern African countries?
We have this drought. There is a need for both water and wells, and these water projects, that can be done for $12-, $13,000, $14,000 each that could help irrigate land and supply food—they need seed, they need water, and we need food for the crisis. What can you do now to help with this?
Mr. TAYLOR. With respect to the water, we can get started putting forth a water program to provide water to people that don't have it. As I said just a few minutes ago, that is something that Secretary O'Neill has focused on, he speaks about; and I believe that we will really make a difference. So what we can do is go ahead and do something.
Ms. WATERS. So what would your next step be from this conversation? What would your next step be?
Mr. TAYLOR. Well, we already are costing out how much it would take to deliver water to areas. We have had a round table with water experts to come into Treasury. Water is very much on our minds these days in the Treasury, and I hope it will really make a difference.
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As I mentioned, at the World Summit for Sustainable Development, it will be a subject. We have talked about it in the State Department and in the Treasury.
But what we can do is get started. As you say, why have I done anything? Well, I am doing something, and Secretary O'Neill has.
Ms. WATERS. I would like to set up a meeting with you and a U.N. representative whose name I can't recall, who has made me very much aware of the cost of these small water projects, to talk with you about water and seed. We are trying to think beyond the drought, so that people can become more independent. That is one of the goals.
Mr. TAYLOR. I would like to work with you.
Ms. WATERS. I would like to meet with you on that. I would like to help organize a meeting so that I can do everything that I can to support, you know, getting into these projects as quickly as possible.
Secondly, in terms of the immediate drought, what role can you play?
Mr. TAYLOR. With respect to humanitarian assistance, USAID is quite effective in getting on the ground with food aid fast. I know most about their recent activities with the droughts in Afghanistan, which I think were very impressive, and they worked quickly, both before the Taliban and after the Taliban.
But my sense is that we do have a very effective operation with respect to humanitarian assistance in the case of droughts. But this is perhaps a little longer term than your answer—your question indicates. But I think raising the capability of agricultural production in Africa is a very high priority, should be a very high priority.
Right now the potential to produce grain or simple food products is very low. The productivity in Africa is like a hundredth of what it is in the United States. So what we need to do, I guess, is go to Ethiopia. And I saw the huge potential from simply getting a different breed of cow in terms of producing milk, they could increase the productivity of a single animal by 700 percent by just a different breed.
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Ms. WATERS. I ask for 30 seconds.
Chairman BEREUTER. No objection.
Ms. WATERS. I don't know if you have been seeing the reports about this famine and the fact that people are dying now. And at first I had confidence that USAID could get ahead of this problem and stop this impending crisis, but they haven't, and people are dying. And ABC and the world reports are coming in, we are going to see more images of dying people on television.
It appears to me that they need some additional things that I want to get more money for. But if in fact they needed more trucks to truck food up into the villages, and they needed money for security for the trucks to keep starving bandits from robbing the trucks on their way to the villages, could you assist in that from the—from your operation? Could you do that? Is that something that is possible by the way grants for immediate—.
Mr. TAYLOR. Security is not something that we have focused on, international security, in the Treasury.
Again, let me look into this issue and see what I can do. But we usually—usually the security is needed, as you say, for delivery of humanitarian assistance. If it is dangerous to go into areas, or the products are being stolen, it is not being effective. But with respect—I personally am not involved in providing security assistance.
Ms. WATERS. I know. We need your money. We just need some money, it seems like.
I would like to again, in addition to the meeting I am talking about with the U.N. representatives and others, with Mr. Natsios at USAID and you and some others, I would like to talk about—I am trying desperately to stop what happened in Ethiopia. I am trying desperately not to have us 6 months from now looking at these starving, dying people on television and saying, oh, isn't that a shame—we are doing all we can.
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So I would like to follow up with you.
Chairman BEREUTER. The time of the gentlelady has expired. To the extent that you provide answers to Mrs. Waters on her previous questions, I would appreciate it if you would put it to the committee, as well, so we have it as part of the record.
If I may make a personal suggestion, I think the gentlelady ought to have Mr. Hyde and Mr. Lantos try to get you an immediate meeting with AID, because if they are not providing assistance, then the only logical source of this kind of assistance is not working. I appreciate the desperation that faces these people.
Now, the gentleman from Texas, Mr. Gonzalez, has been waiting for some time. I appreciate that. He is recognized for 5 minutes, at least.
Mr. GONZALEZ. Thank you, Mr. Chairman. I do appreciate the opportunity and the courtesies that you have extended me to discuss NAD Bank.
And Mr. Secretary, as we know that OMB Director Daniels in his letter of July 19th to Vice President Cheney and Speaker Hastert had a draft of a bill regarding some changes to the cooperation agreement that created NAD Bank. And, of course, part of it has already been alluded to, and that is the extension of the jurisdictional area within the Mexican border to 300 kilometers.
We would commend Treasury, and we join you; it is something that we have been discussing for some time. However, the bill does mention—and I wanted some explanation—a system of financial differentiation whereby grants and subsidized loans would be restricted to the current 100-kilometer region.
There is very little borrowing capability and environmental projects throughout Mexico, even at the subsidized interest rates. What impact would you expect then of a market rate lending program in the additional 200 kilometers, given whatever you—you propose regarding this differential rate?
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Mr. TAYLOR. The reason to differentiate really was because of the limited resources, in the sense that the funds closer to the border were ones that—100 kilometers, I think it is—were ones that should be used for grants.
If you had grants—and I think this is what you mean in your question. If you had grants that could go all of the way to 300 kilometers, it might not be enough. We have limited resources for the grants, so we had to limit it to go further, but not to have this very concessional support go further.
If there are other ways to think about this, I haven't been informed about it; but that seemed to make sense to me as a way to allocate it. I could imagine that there would be other ways, based upon need or based on population or something like that, but this one made sense to me.
Mr. GONZALEZ. Part of the question is—I understand on the grant part of the equation, but if we are still talking about extending some sort of credit, loans, whatever, in this expanded region, we still have the same problems that we have always had, haven't we?
I guess I am just asking, what do you see, other than grants? Because I think your whole focus has been—and that has been part of some of the difficulty—is, what can we do regarding accommodating a loan relationship?
Mr. TAYLOR. When we thought about this, we thought about extending the scope in terms of the area as one way that the funds could be used. In other words, there may be some projects beyond 100 kilometers which could benefit from the loans with interest rates.
The second way we looked at was to make the support more concessional, that is, through grants. So both the distance from the border and the form of finance, we looked at ways to make NAD Bank more effective or make it more usable to people.
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And I think what you are saying there is a combination of those, increasing the distance from the border, you can use the money in increasing grants; but just because of the limitation on the resources, we didn't do both of those on top of each other. We did a little bit of each.
Mr. GONZALEZ. And the nonmarket rate loans aspect of it, again, are we looking at treating that aspect of your recommendation differently for those—for the area within 100 kilometers and those outside of 100 kilometers?
Mr. TAYLOR. I just had a note passed to me. Some of the low interest loans can be used between 100 and 200 kilometers, that is, 25 percent. So it is actually like a graduation, or an incline, if you like. The further you are away, the less concessional it is.
But it is not like it is a once-and-for-all thing. Between 100 and 200 kilometers, you get this somewhat more concessional rate than between 200 and 300.
Mr. GONZALEZ. The second question—and obviously this has been around for discussion for some time, and I appreciate the opportunity of discussing this with you today; that is that the lending experience regarding environmental projects in every multilateral development bank, including the World Bank, around the world is extremely limited. Their lending to such projects is, at best, 6 percent of their total portfolios.
The challenge is to increase the creditworthiness of service utilities through technical assistance, which we already know that NAD Bank is engaged in doing. But that process takes a long time and is subject to legal and political reforms controlled by Federal and local governments. In the meantime, NAD Bank's sectorial mandate continues to be constrained to environmental projects.
How can the bank use its capital more productively and service broader and equally urgent infrastructure needs along the border to include energy, transportation and communications, as the Mexican side has been demanding for some time, if its mandate continues to focus only on projects with a direct environmental component?
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Mr. TAYLOR. We also considered those kinds of proposals to expand the scope of NAD Bank beyond where it is now, in terms of types of projects. And many people we talked to—and it was a very open process—suggested that.
We also recognize that this is a package which requires an enormous amount of consensus from different parties with different perspectives. And what we felt, in consultation with many people, was that if we tried to work with the grants and increasing the distances from the border within roughly the current environmental mandate, we should try to do that and make it work.
We will try to do that, and I think it will work. But believe me, if it doesn't work, we are going to look for alternatives to make it work.
I think those are some of the things that were discussed. But for right now we have got a good reform package in place that balances a lot of different interests—and there are many different interests—and I think it will work. And we would like to pursue it and hope that the legislation is passed.
Mr. GONZALEZ. Mr. Chairman, if I can have just one short question, and that is, I realize this has been proposed as of July 9th. Our understanding is that Treasury would have a more comprehensive proposal that would be forthcoming. And if so, can you give me an idea when it would be presented for our consideration, because at every step of the way, we have always asked that we be kept informed. And the honest truth is, that we have not been.
We will take that up some other time.
What do you perceive again as your next proposal affecting NAD Bank, and when would it be coming?
Mr. TAYLOR. Well, the proposed legislation, as submitted, are the things that we need legislation for. Other parts of the reform package we don't need legislation for. But you should know about those now, as much information as we have; and I will try to make sure that you get it.
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Mr. TAYLOR. There is a process that is being put in place, called a business review process, where the whole operations of NAD Bank and back are going to be examined. There may be additional ideas that come out of that. So I don't want to say this is completely settled about how we—maybe there are some new ideas that will come up.
But in terms of where we are now, and the rationale for the legislation and the rationale for the other changes, I would like to keep you completely informed, and I will try to make sure that it happens.
Mr. GONZALEZ. Any time line?
Mr. TAYLOR. Let's set up a meeting as soon as we can.
Mr. GONZALEZ. Talking about, as far as any proposals, nonlegislative in nature, you don't require us, initially anyway. Do you have any idea when all of that is coming to a head?
Mr. TAYLOR. As far as I know, we have—except for this business process review, we are ready. We have all of the information. Okay, so we will sit down with you, or my staff can sit down with your staff, however you want to proceed. If you don't perceive it as enough, or if they don't perceive it as enough, let me know, and we will see what the problem is.
But, I have got a good fix in my head about what we are proposing on the legislative and administrative side. I am going to go to San Antonio in the middle of the month. I am going to participate in one of the NAD Bank board meetings, with my counterpart from Mexico—from their hacienda. The two of us have talked a lot about how to expedite this and work hard together to make—make the whole process work.
I can perhaps provide with you some more information after that meeting, after I am down there for a few days.
Mr. GONZALEZ. I look forward to it. Thank you very much.
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And thank you, Mr. Chairman.
Chairman BEREUTER. Mr. Gonzalez, if you will look at the bill, I want to make sure that you have a positive reaction.
Mr. GONZALEZ. I think there are a couple of items in there that are encouraging, regarding sanctions jurisdiction. Again, I am not real clear on some of the provisions, Mr. Chairman. We will be talking to staff at Treasury to get some clarification.
All of these things are, hopefully, proposals to make the bank something that it is really a viable international financial institution, and not necessarily just a conduit or agent for grants.
I mean, that is really the whole problem, Mr. Secretary. We would really love to work with you. We would like to see it be a robust and vibrant instrument.
Mexico is different from most other countries with which we have these types of relationships. Grants are necessary. But the potential to have a really good business relationship with some of these communities taken into the character of the Mexican people, their history with the United States, and of course the fact that they are our neighbors, really does come into play. And it is going to take—maybe it is a different philosophy as we go in there and we deal with our Mexican neighbors. So I look forward to it.
Thank you again, Mr. Chairman, for your interest.
Chairman BEREUTER. If you work with Treasury, you and anybody else that you want to be involved with that, I won't promise to take it up, but I will give it very strong consideration to take it up and move it in a separate bill.
Mr. GONZALEZ. I express my appreciation, sincerely. I look forward to that day.
Chairman BEREUTER. We are going to conclude with questions from Mr. Bentsen. I heard some bells ringing. This is an appropriate time.
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Mr. BENTSEN. Thank you, Mr. Chairman. I will be brief. You caught me off guard earlier. I thought Mr. Watt was going to ask questions. I did have some.
Last week we had some of the NGOs testify before the committee. And they raised some issues that I wanted to raise with you. One goes back to the PRSP. And one of the groups argued that Congress should work to have the U.S. Propose to delink the PRSP from the ongoing debt relief program and—I believe the fear there being that we have already been through a series of debates with our partners in IDA, in the bank, and in the fund on the debt relief and conditions that are set, that need to be set, and that that should not be extended any further, the debt relief program is ongoing.
I would like to get the position of the administration with respect to that.
And the second question that was raised, as well, is that as part of the conditionality that the administration is seeking in its new view of the IDA programs, both loans and grants, and the proposal to put more money in, assuming conditions are met, is the concept that the guidepost or measures should change. And one of those raised—it caught my attention because I have always been curious about it—is the debt-to-export ratio, and what the administration's position is with that.
Is it your intention to maintain that as a key factor of determining poverty level or to discount that?
Mr. TAYLOR. I don't know of any proposals to delink the PRSP, or the other mechanisms that were put in place in recent years, to broaden the discussion about how our assistance can be used and broaden the coordination in order to delink this from any kind of program that we are doing.
So I have tried to learn as much as I can about the PRSP process since I have been in this job—talked to a lot of people, read a lot of documents—and my sense is that it does bring together different parties in a healthy way. It is positive.
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I don't think it is the only thing that we should be doing, however. I think, as I said before, that once something is decided upon and it is viewed as something that is going to be helpful to the country with their leadership and their people, then we ought to make sure that is the most effective that we can, that is, with measurable results.
Mr. BENTSEN. I think the concern—if I understood it correctly in the testimony that was given last week, the concern was not so much with the PRSP program, assuming that it works the way everyone wants it to—that is a matter of interpretation—but rather that it raises the bar for the debt relief program, and thus could act as a delay.
With the assumption of many parties and the NGOs that that program has been decided, it is just a question of process at this point in time. And the PRSP is really a more forward program as it relates to new loans and grants.
Mr. TAYLOR. All I can say is that I haven't even heard that proposal. Almost all of the NGOs I talk to are positive about the PRSP process. I don't hear about delays that it may be causing. Let me look into it.
Mr. BENTSEN. That is all I ask.
Mr. TAYLOR. With respect to the different measures of debt, sustainability is the way that I would put it. Debt-to-exports, for example, I don't think there is any one single measure that is sufficient. We are now using debt-to-exports, and I think we should continue with that. It is something that people are familiar with. But I think we should look at the whole process of sustainability of these countries, debt sustainability, in the broadest way that we can.
What I am concerned about is the HIPC process not completely bringing the countries to a sustainable situation, so that they can get favorable credit ratings and function as good, healthy developing economies so they can grow.
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There is going to be a review of the HIPC process—it is in process now; it will be finished in the fall—by the World Bank and the IMF. They are looking at the measure you mentioned, debt-to-exports, seeing how things are going, whether the country is really fiscally sustainable.
I want to look at that, and the rest of our government is looking at it very carefully, to see whether there are some improvements that we can make in the process. Maybe there are some other measures.
Some people suggest—in fact, there is some legislation that says we should look at interest payments compared to revenues. But there are a whole bunch of indicators. Right now we have that one; it seems fine to continue using. But I don't think it is the end or the last word on the story.
Mr. BENTSEN. Thank you.
Thank you, Mr. Chairman.
Chairman BEREUTER. Thank you, Mr. Bentsen.
Mr. Secretary, it is nice to give the executive branch a look at the diversity of views and interests of the Congress. Thank you for taking a variety of questions here. We very much appreciate your time today.
We will look back to you from time to time for some advice as we try to move forward.
Mr. TAYLOR. Thank you, very much.
Chairman BEREUTER. The subcommittee's hearing is adjourned.
[Whereupon, at 3:40 p.m., the subcommittee was adjourned.]