FROM THE OFFICE OF PUBLIC AFFAIRS

Let me begin by underscoring the emphasis that President Bush places on economic development as a central commitment of American foreign policy. The United States should and must be a champion of economic growth and development, particularly in those parts of the world where poverty is most acute. In today's world, in many nations and regions, extreme poverty is widespread and deep and exacts an enormous human toll. If we care about simple human dignity, we must act to help raise living standards for the poorest. As President Bush stated last week in a speech at the Inter-American Development Bank:

"This growing divide between wealth and poverty, between opportunity and misery, is both a challenge to our compassion and a source of instability. "

The President has called for a new compact for global development, defined by new accountability for both rich and poor nations alike with greater contributions from developed nations linked to greater responsibility from developing nations. The President's proposal recognizes that sound policies have universal application and that development partnerships can only be effective if rooted in a good policy framework. For this reason, the adoption by poor countries of the reforms and policies that make development effective and lasting is integral to the President's proposed new Millennium Challenge Account. The concept underlying the Account is clear, that countries that rule justly, invest in their people, and encourage economic freedom will receive more assistance from the United States.

The Administration looks forward to working closely with the Congress as we move to operationalize the Millennium Challenge Account.

The MDBs are also important instruments in helping us pursue growth and prosperity in the global economy. They serve vital interests of the United States, and are crucial and integral components of our overall foreign assistance effort. U.S. foreign assistance programs, including assistance through multilateral development banks, are important for advancing American foreign policy. The more our assistance aids in economic development, the greater countries' ability to engage in mutually beneficial trade with Americans, the greater the chances for democratic values to take root, and the greater the chances for government and social institutions to develop stability. The crucial importance of laying the foundation for hope and opportunity has only been underscored by recent events. As the President has said, when governments fail to meet the most basic needs of their people, these failed states can become havens for terror.

This year's request totals $1.4 billion. It includes $1.26 billion in funding for our annual commitments to the Multilateral Development Banks (MDBs), $178 million towards clearing our arrears to these institutions over a three-year period, and $10 million for international technical assistance programs.

I take very seriously my responsibility to ensure that U.S. taxpayer resources provided to the MDBs are effective in achieving significant and sustainable improvements in the daily lives of the people living in developing countries. I am convinced that the MDBs can do a better job, and it has been a high priority from the beginning of the Bush Administration to improve their performance. Our message is beginning to take hold, but there is much work to be done to accomplish our objective.

There is an untapped reservoir of human potential in all countries, including the poorest. To fully realize this potential, countries need to create an environment with the institutional conditions and incentives required to encourage individual enterprise. These include the rule of law, enforceable contracts, stable and transparent government, and a serious commitment to eliminate corruption. Countries also need to provide individuals with health, knowledge, and the skills they need to participate in and contribute to economic activity. External assistance can only help if the right fundamentals are in place to harness this great human potential.

Job-creating productivity growth is the driving force behind rising per capita income and reduced poverty, and we have been pressing the MDBs to focus on projects and programs that raise productivity. This includes operations that would improve health and education; promote private enterprise; enhance the rule of law, effective public expenditure management, accountability and anti-corruption; and open economies by strengthening trade capacities and investment environments.

As a result of our efforts, productivity and private sector job creation are receiving greater emphasis in the debate on MDB policies within the institutions and among other shareholders. We will continue working actively to ensure they become a hallmark of actual operations.

We are also pressing all the MDBs to measure results. It is not enough to say that the MDBs are increasing funding for education, for example. We also need to know whether that increase is leading to measurable results, such as better reading and writing skills. For the first time, in the current IDA replenishment negotiations, the U.S. will provide supplementary funding conditioned on measurable results in areas crucial to economic growth and poverty reduction. My goal is to ensure that the successes and failures of the past 50 years guide and improve development efforts in the future.

President Bush has also proposed that a higher percentage of the World Bank and other MDB funds for the poorest countries be provided as grants rather than loans. This proposal is an important part of our MDB growth agenda because grants are the best way to help poor countries make productive investments without saddling them with ever-larger debt burdens. It thus also will help avoid the need for future HIPC debt relief. The fact is that investments in crucial social sectors, such as education and health, do not directly or sufficiently generate the revenue needed to service new debt.

I am happy to say that the new IDA-13 and African Development Fund negotiations are likely to have larger shares going to grants, but there is still disagreement on how much. It is important to reach an agreement on grants that will facilitate closure on these important replenishments.

Private sector development is essential for economic development and growth. Without a transparent economic environment based on the rule of law, private investment simply will not happen. Opaque regulatory and legal environments create insurmountable barriers to entry for new firms, which are the lifeblood of a thriving market economy.

We believe the MDBs can do more to promote and develop investment climates that will attract needed private capital. The MDBs could provide practical investment climate assessments, for example. On the basis of such assessments, technical assistance, project finance and small-business loans could be channeled more effectively to countries committed to policy and regulatory changes that will create conditions that sustain robust levels of private-sector investment, productivity growth, and income generation.

The Administration's FY 2003 budget request of $1,447 million for Treasury's international programs reflects these development priorities, thus projecting U.S. leadership and complementing our efforts to strengthen the effectiveness of the MDBs. Funding of this request also will help enable the MDBs to address critical development issues in key regions of importance to the United States: supporting key countries in the war on terrorism; combating money-laundering and terrorist financing; providing assistance to countries emerging from conflict; and responding to natural disasters.

There are three basic components to this request: annual funding for the MDBs, arrears clearance, and Treasury's bilateral technical assistance program.

1. Annual Funding for the MDBs ($1,259.4 million)

Our request for the MDBs includes $1,259.4 million to fund fully our current annual U.S. commitments. This includes the first payments of our proposed contributions to new replenishments for the International Development Association ($850 million), the African Development Fund ($118 million) and the Global Environment Facility ($107.5 million). Negotiations for all three replenishments are ongoing.

For the International Development Association (IDA), the U.S. is proposing for the first time a results-based financing framework. The U.S. would provide $850 million in FY 2003, $950 million in FY 2004 and $1,050 million in FY 2005, with amounts over $850 million subject to the achievement of measurable results in areas such as health, education and private-sector development, for example. This amounts to a total of $2,850 million, or 18 percent above the U.S. commitment to the last IDA replenishment.

We are also proposing an 18 percent increase in funding for the African Development Fund (AfDF), a total of $354 million over three years. For the GEF, the U.S. is proposing to contribute a total of $430 million over four years.

2. Arrears ($178 million)

The $177.7 million request for arrears would be applied to all MDB arrears on a pro rata basis, and is part of a three-year plan to fully pay U.S. arrears to the institutions, which now total $533 million, including $211 million in arrears to the GEF. Arrears have now risen for the third consecutive year, after declining substantially from 1996 to 1999. It is critical that the U.S. meet its international commitments, and I look forward to working with the Congress to pay down these arrears over the next three years, thus helping to ensure U.S. leadership and credibility on global issues of vital importance to the United States.

3. Technical Assistance ($10 million)

Our request also includes $10 million for Treasury technical assistance programs, which form an important part of our effort to support countries facing economic transition or security issues, and whose governments are committed to fundamental reforms. This compares to $6.5 million in FY 2002 appropriations and $3 million in the budget supplemental for programs specifically designed to combat terrorism. Treasury's technical assistance programs were created in 1990 and 1991 to assist countries in the Former Soviet Union and Central and Eastern Europe. Beginning in FY 1999, a direct Congressional appropriation allowed us to expand the program selectively and effectively. Our FY 2003 request will allow us to continue current programs in countries in Africa, Asia, Central and South America and to expand into other countries committed to sound economic reform policies. We expect to spend a significant amount on anti-terrorist programs. Over half of the traditional programs will be in Sub-Saharan Africa, as has been the case for the past two years. The anti-terrorist programs will be global in scope, with an emphasis on a group of about 20 countries that the Administration has identified as having financial systems vulnerable to misuse by terrorist organizations.

There is one final issue that I want to highlight. I am determined to enable the Treasury Department to fulfill its mission to develop and implement our international economic policy. Currently, the Administration is burdened by a large number of legislative mandates relating to U.S. participation in the international financial institutions, including requirements for directed voting, policy advocacy, certifications, notifications, and reports, that have built up over time.

The U.S. Government's policy development and implementation in these institutions would be improved by consolidation of these mandates. Some mandates go back 50 years. Some provisions overlap, or are inconsistent. There are 32 directed vote mandates and over 100 policy mandates, plus numerous reports, certifications, and modifications. I want the Congress to be fully informed, but numerous vestigial reporting requirements have increased the amount of time senior officials spend working on these reports to levels that warrant serious concern. I would like to work with you to rationalize and focus our mandated reports and requirements.

I will continue to work hard with MDB managements and with other shareholders to ensure vigorous and effective implementation of the U.S. reform agenda. I ask for your support as we work together to ensure that these institutions are more effective in achieving real results that promote economic growth and productivity, improve the living standards of people in developing countries, and advance American interests.

Thank you very much, and I will be pleased to respond to your questions and suggestions.