FROM THE OFFICE OF PUBLIC AFFAIRS April 6, 2000LS-528 TESTIMONY BEFORE THE SENATE APPROPRIATIONS COMMITTEE SUBCOMMITTEE ON FOREIGN OPERATIONS Chairman McConnell, Ranking Member Leahy, Members of the Committee, I appreciate the opportunity to testify today about the Administration's FY2001 budget request for Treasury's international programs. Let me say at the outset that this Committee's effective leadership and strong support last year resulted in securing appropriations sufficient to meet a large portion of U.S. scheduled commitments to the Multilateral Development Banks (MDBs), as well as the bilateral element of the enhanced Heavily Indebted Poor Countries Initiative (HIPC), and in the authorization of U.S. participation in resource replenishments for five of the multilateral development banks and use of IMF internal resources, including earnings on investments of profits of sales of IMF gold, for HIPC. Literally hundreds of millions of people, in some of the poorest countries on earth, owe you their thanks for your support in these efforts. Today I would like to address three issues:
I. The Case for Strong Support for the MDBs and Debt Reduction Programs The case for U.S. support for the MDBs and debt reduction programs rests on the importance of successful economic development in the developing world and the role of the MDBs and debt reduction in promoting such development. These institutions promote our core interests in three ways.
The MDBs provide a strong and uniquely effective means to promote these core American interests. To be sure, the world has changed in profound ways: most importantly, with the spread of market ideologies and a more truly global private capital market. The development institutions must change and adapt as well. But their special benefit, their special efficiency; their special ability to lever funds - because they are both financed multilaterally and able to borrow from the private markets - all make them especially important tools today. Each dollar that we contribute to the MDBs leverages $45 to build tomorrow's markets and democracies. Each year these institutions carry out lending around the world in the range of $50-60 billion, at a cost to American taxpayers that is one tenth of one percent of the total U.S. budget. It bears emphasis that as private capital markets have grown and global realities have changed, we have successfully reduced our annual contributions to the MDBs by nearly 40 percent, or $700 million, in real terms since 1995. Treasury has subjected every MDB request for additional resources to the closest possible scrutiny, and has structured each new US funding commitment to obtain maximum impact from the resources available. At the same time, strong U.S. leadership and advocacy on a wide range of bipartisan issues have produced major operational and policy improvements across the MDBs. The result is a multilateral system that addresses, directly and cost effectively, priority U.S. policy objectives on issues of global importance. This system is also able to address regional and country-specific challenges where substantial U.S. interests are at stake. By any standard, these institutions provide exceptional value for money. And through their policies and programs they can and have had a tangible impact on millions of lives.
II. The FY2001 Request For FY2001 we are requesting a total of $1.6 billion for Treasury international programs. There are 3 components of the Treasury request:
Let me say a little about each of these. 1. Funding for the MDBs With respect to the MDBs, let me emphasize again that as a consequence of our international negotiations, US commitments to these institutions have been very substantially reduced in recent years. The going rate of annual US commitments has been reduced from $1.9 billion in 1996 to $1.2 billion in FY 2001. As I will highlight in a few moments, even as we have reduced our financial contribution to these institutions we have worked to change them in ways that are important to the United States. We believe that there are important further changes that the MDBs will need to make if they are to be as effective as possible in a new 21st century global economy. But our capacity to maintain our leadership of these institutions and influence their future direction depends crucially on our capacity to meet our commitments to them. In this context, the level of US arrears is an especially important concern. Mr. Chairman, at the end of FY1997, our arrears to the MDBs totaled $862 million, threatening to undermine our leadership in these institutions and the multilateral system more broadly. Several years of bipartisan collaboration in the Congress helped us cut these arrears to $335.3 million by end-FY1999. However, a shortfall in funding last year reversed this progress, and arrears rose to $451.1 million. My hope is that this year we can reduce that number by more than one third. Our request for $167.1 million for FY2001 would still leave $284 million in arrears to clear in future years, but it is an important down payment. The details of our request for the MDBs are as follows:
In addition, we are requesting $175.6 million for the Global Environment Facility (GEF). Of this amount $107.5 million is for our third of four payments under the second replenishment. The remaining $68.1 million is to clear a portion of U.S. arrears. Today U.S. arrears to GEF total $204.2 million, the single largest amount we owe to any of the MDBs. With full funding of this request, our arrears to GEF would be cut by one-third. This is progress that we need to make if we are to preserve our credibility as seriously supporting environmental protection in a multilateral context. 2. Debt Relief The enhanced HIPC initiative is the core of our request for debt restructuring programs this year. In 1999, under U.S. leadership, the international community undertook to provide deeper, broader, and faster debt relief within HIPC. The enhanced initiative is built around a basic commitment to a more systematic and effective effort against poverty by the benefiting countries themselves and by the IFIs. The centerpiece of this new framework is the Poverty Reduction Strategy, prepared by the borrower country in consultation with representatives of civil society, the World Bank and other donors, which lays out a framework of policy reforms to ensure that the one-time benefits of HIPC debt relief are translated into demonstrable progress toward poverty reduction and economic growth. In particular, these agreed strategies focus on monitorable performance standards for macroeconomic criteria and a greater allocation of public expenditures for priority social needs. Last year, Congress acted on a bipartisan basis to enable the Enhanced HIPC Initiative to begin. The steps agreed to last year will help us to cover roughly one-third of the direct costs to the United States of implementing the enhanced HIPC. But much work remains to do our share, notably with respect to the multilateral HIPC Trust Fund, to which we have yet to make a contribution. Overall, every dollar of our total request will leverage well over $20 in international debt relief. That is why we are requesting a supplemental budget and authorization request for FY2000 and appropriation request for FY2001. First, and most urgent, is the FY2000 supplemental request. This contains three elements:
Mr. Chairman, these supplemental FY2000 appropriations are urgently needed if this crucial initiative is to move forward. The Latin American HIPCs will be especially affected if we fail to do our part to ensure that the HIPC Trust Fund is adequately funded this year. To put it bluntly: if we do not play our part in this area, debt relief for Bolivia will not happen. There should be no doubt that any delay in funding for this effort will have real consequences. For example:
For FY2001, in order to play our full part in this initiative going forward, we are requesting:
For FY2001 we are also requesting $37 million for debt relief for countries that have tropical forests, as permitted under the Tropical Forest Conservation Act of 1998. The program provides local currency resources to non-government organizations (NGOs) and private voluntary organizations (PVOs) for tropical forest conservation or restoration projects. These resources would be generated through debt buybacks and debt reduction that would entail a budget cost. For example, Bangladesh, which is the first likely beneficiary of this fiscal year's $13 million appropriation for tropical forest debt reduction, will now be able to reduce a portion of its concessional debts owed to the United States, while generating funds to conserve or restore its tropical forests. While the debt reduction component of the legislation is modest, the amounts generated for tropical forest conservation programs would be meaningful. The roughly $6 million that we have already set aside for Bangladesh's participation will leverage even more resources to conserve or restore its more than 3 million acres of tropical forests, roughly half of which are in the southwestern Sunderbans region. This area is home to the world's last genetically viable population of Bengal tigers, a total of only 400. 3. Technical assistance Our request also includes $7 million for Treasury technical assistance programs, which are important in our efforts to support countries engaged in fundamental reforms. These programs have operated for nearly a decade in Central/Eastern Europe and the FSU, and beginning in FY1999, a direct Congressional appropriation allowed us to expand the program on a global basis. For FY2001 we are requesting increased funding to support work in key, reform-oriented countries in Africa, Asia, and Central and South America. III. The Reform Agenda As I noted earlier, effective U.S. engagement and advocacy at the MDBs have produced substantial results over the past decade. Working together, the Administration and Congress have helped to make these institutions increasingly effective advocates of policies that reflect core American values: For example:
A great deal of progress has been made. But as we have said many times, to say these institutions are indispensable is not to say we can be happy with them as they now are. In a speech to the Council on Foreign Relations in New York last month I outlined our suggestions for a new framework for multilateral development policy designed to accelerate the pace of growth and equitable economic development in the world's poorer countries. This highlighted three areas where we believe that additional efforts by the MDBs will be especially important in the months and years ahead. First, more effective policies in the poorest countries. What the MDBs do to promote development in the poorest countries is without doubt their most morally urgent and important work. The HIPC initiative is a one-off attempt to clear away the mistakes of the past and offer these countries a fresh start. It is essential that we make it work so that countries do not find themselves in this situation again. We believe that an effective approach will require a shift in the emphasis of the MDBs in these countries in the following respects.
Second, more focused MDB lending in emerging market economies Emerging market economies, where there are private financial flows, involve different issues than those posed in the poorest countries. Specifically: MDB lending in these countries should be confined to those areas where they can increase the country's overall capacity to access external resources, and add value that the private markets cannot. This suggests an emphasis on three types of circumstances:
As part of this approach, the World Bank and others need to work harder to ensure that their lending is genuinely productive, and that it supports and complements, rather than supplants, private sector finance. Notably, we believe there should now be a strong presumption that the MDBs have no business lending in countries for sectors in which private financing is available on appropriate terms, and where there is a risk that such lending will simply supplant private financing. We also believe that a review of pricing policies is appropriate, and that pricing needs to avoid excessive encouragement of public rather than private sector reliance. Third, an Enhanced Focus on the Provision of Global Public Goods Increasingly, as integration proceeds, the world is confronting a broad class of problems that cross borders and defy solution by individual governments and markets. Whether it is money laundering and financial crime, global warming, new killer diseases, or reductions in global bio-diversity - the solutions to these problems will be global public goods, requiring concerted global cooperation. We believe that the World Bank and other development institutions potentially have an enormous contribution to make in helping to push the frontier of international efforts to promote these kinds of goods, many of which will especially benefit developing countries. One issue that we believe ought to be especially high priority in the future is promoting the creation and dissemination of medical knowledge. Infectious diseases such as HIV/AIDS, tuberculosis, malaria and respiratory and diarrheal disease, are responsible for almost half of all deaths of people under 45 worldwide. Indeed, life expectancy is now actually declining in a host of African countries struck by HIV/AIDS, with adult mortality rates in the worst affected countries now twice what they were even a few years ago. Yet the WHO estimates that only perhaps 10 percent of the $50-60 billion spent worldwide each year on health research is directed toward diseases that afflict 90 percent of the world's population. We need to harness the scientific and technological skills of our nation and others to accelerate the development of new vaccines and medicines for infectious diseases. Because poor countries often cannot afford to buy vaccines, the market provides little incentive for pharmaceutical companies to develop vaccines for diseases that disproportionately affect those countries. The President has proposed a number of proposals to strengthen our bilateral efforts toward this objective. Specifically:
We also believe that the World Bank has an important contribution to make, by helping to create a market for new treatments and vaccines in many of the countries worst affected. That is why the President is proposing that the MDBs dedicate a further $400 million to $900 million each year of their concessional lending for basic health care to immunize, prevent and treat infectious diseases in the poorest countries. Mr. Chairman, can I take this opportunity to bring to your attention an item that has been of great interest in previous years. We have worked hard to make the domestic window of the North American Development Bank, the Community Adjustment and Investment Program (USCAIP) fully productive. It is fulfilling its mission, and I urge the Congress to support this year's request, which is contained in the domestic section of the President's FY2001 budget. IV. Concluding Remarks Mr. Chairman, Senator Leahy, let me conclude by reiterating that our strong support for the international financial institutions strongly promotes America's well being and national security int erests. This Committee is central to providing that support, and we look forward to continuing our good working relationship as this budget request is considered. I would be happy to answer any questions that you have about our request. |
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