FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman and members of the Subcommittee -- this morning I want to discuss our fiscal 1997 request for $1.4796 billion for the international financial institutions (IFIs). I have a longer statement which I'd like to submit for the record.

The IFIs are crucial in shaping a world of growth and prosperity from which all Americans can benefit. They effectively promote the growth, development and reform in developing and transitional economies that creates new and growing markets for our exports, and thereby better jobs and living standards for Americans, and that furthers our national security. Forty percent of our exports, some $235 billion, go into developing economies assisted by the IFIs. Some $20 billion of those exports go to nations now borrowing from the International Development Association (IDA), and countries which have completed IDA programs bought $48 billion in U.S. exports in 1994. It is enormously in our self-interest that the programs of the IFIs be adequately funded.

Our participation in the IFIs is at a crossroads. We cannot unilaterally set the policies and priorities for the IFIs. We must rely on leadership and persuasion to advance our development agenda. The reductions made in FY 1996 funding for the IFIs are severely undermining U.S. credibility and leverage throughout the multilateral financial system. We most honor our international commitments to continue to have the ability to so greatly influence IFI policy. At the same time, we must also set priorities since budget resources are scarce. We are therefore presenting a lean funding request; one that honors our nation's past commitments and reduces our contributions to the IFIs in the coming years -- in order to reach a goal we all share, continuing to reduce the deficit.

We are seeking just over $1 billion for the World Bank group, including $934.5 million to meet our outstanding and overdue commitments to the 10th replenishment of the International Development Association (IDA), $100 million for the Global Environment Facility and $6.7 million to meet an overdue commitment to the International Finance Corporation. We seek $263.7 million for the regional development banks -- for Africa, Eastern Europe and the former Soviet Union, and Latin America; $127.7 million for other international financial institutions, including an important new commitment to consolidating the peace process -- the Middle East Development Bank, and $47 million for debt reduction programs.

Permit me to say a few words about IDA. For the three billion people living in the world s poorest countries, IDA is the single most important provider of concessional development assistance. IDA is the key to market-based reform in the poorest countries. Fully one-quarter of IDA lending supports the structural policy changes necessary for sustainable economic growth. IDA is also the world s largest lender for projects which directly contribute to child survival, with some $4.5 billion in projects focussed on health, primary education, nutrition, safe drinking water and proper sanitation currently under preparation. And IDA also plays a vital role in restoring economic growth in countries, such as Bosnia, trying to consolidate peace after civil conflict, and in supporting military demobilization.

U.S. payments to IDA are currently being made in respect of the Bush Administration's $3.75 billion, three-year commitment to IDA-10. Our fiscal 1996 funding request, for the full amount of the final U.S. payment under IDA-10, was, as you are well aware, sharply reduced by the Congress. The $700 million finally appropriated leaves $934.5 million still outstanding. These developments figured prominently in international negotiations for a new multi-year replenishment of IDA (IDA-11), which recently concluded. During these negotiations, we stressed that:

clearing the outstanding $934.5 million U.S. commitment to IDA would be our first priority;

we would not make any pledge to IDA-11 in advance on indications from Congress of what it would be prepared to support; and,

any new U.S. commitment to IDA will be substantially below past commitments.

Therefore, for fiscal 1997 we are requesting the $934.5 million needed to fully clear our outstanding IDA-10 commitment. This would not include any U.S. funding for IDA-11, effectively delaying our participation beyond the fiscal 1997 start-up date committed to by the institution and the other donors. We believe that a commitment of $800 million to IDA-11 in each of 1998 and 1999 is consistent with congressional views. This commitment of $1.6 billion for the 3-year IDA period is less than half our pledge to IDA-10. This amount would be the lowest U.S. pledge to IDA in nominal terms since 1980 and the lowest in real terms since 1965.

In the course of negotiations on IDA-11, other donors argued forcefully against any disruption in IDA's operations by leaving a one-year gap in new funding. They therefore agreed to establish a one-year Interim Fund of approximately $3 billion, to help support IDA operations in fiscal 1997. Non-donors to this fund, including the United States, will not have access to the procurement benefits of this fund. Mr. Chairman, we have strongly opposed the procurement restructions and resisted their inclusion in funds in which the U.S. participates.

I should point out that projects funded by "regular" IDA resources will not be affected. None of the $934.5 million we are requesting for fiscal 1997 will be subject to these procurement restrictions. Moreover, $18.7 billion -- or 85 percent -- of the $22 billion in IDA lending projected for fiscal years 1997 through 1999 will be fully accessible to U.S. companies.

We've had discussions with a large number of U.S. private sector companies which are involved in exports, and I was there for part of the meeting. While they don't like the procurement limitation, they all recognize the much bigger issue is continuing to have reform and growth in developing countries, because that creates the export markets for our goods and services. I might also add that they have the same view we have, which is that if we refuse to participate in IDA all that will do is badly hurt IDA which is not in our interest and it will institutionalize our exclusion from procurement. They also believe, as we do, such a development would harm long-term U.S. export opportunities in emerging markets and give our global competitors an edge.

I also want to touch briefly on the subject of debt reduction. The $22 million we have requested for debt reduction for the poorest countries is part of the international community s efforts to help the poorest countries with unmanageable debt problems. The goal is to clear out part of the old debts, and help put these countries back on their feet. The $22 million requested could leverage as much as $9.5 billion in debt reduction by all creditor governments. Full U.S. funding is essential to full participation by other creditors. I believe the potential benefits of debt reduction in terms of growing economies, export opportunities, and long-term enhanced political stability fully justify U.S. participation in this important effort.

As Secretary Christopher has pointed out, these institutions further our key foreign policy goals by directly contributing to economic and political stability in areas important to our national security. They are the international community's economic tools for times of crisis. And they are tools to create growth, open and integrate markets, and address the global problems of endemic poverty, environmental degradation, mass refugee flows, and unsustainable population growth which are too large for any one nation to address alone.

We agree with Congress that these institutions, for as much good as they are doing, have their shortcomings, and we are using our leadership to remedy that and ensure the best return on our investment. The IFIs have been extremely responsive to an ambitious, U.S.-inspired reform agenda. While more must be done, significant progress has been made.

Mr. Chairman, the work of the international financial institutions has a broad impact. Every American, directly or indirectly, benefits from these institutions and has an interest in continuing to support them

Thank you.