[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
U.S. POLICY TOWARDS THE AFRICAN
DEVELOPMENT BANK AND THE
AFRICAN DEVELOPMENT FUND
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INTERNATIONAL MONETARY POLICY AND TRADE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
APRIL 25, 2001
__________
Printed for the use of the Committee on Financial Services
Serial No. 107-10
__________
U.S. GOVERNMENT PRINTING OFFICE
72-179 WASHINGTON : 2001
_______________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice BARNEY FRANK, Massachusetts
Chair PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska MAXINE WATERS, California
RICHARD H. BAKER, Louisiana CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma KEN BENTSEN, Texas
ROBERT W. NEY, Ohio JAMES H. MALONEY, Connecticut
BOB BARR, Georgia DARLENE HOOLEY, Oregon
SUE W. KELLY, New York JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio MAX SANDLIN, Texas
CHRISTOPHER COX, California GREGORY W. MEEKS, New York
DAVE WELDON, Florida BARBARA LEE, California
JIM RYUN, Kansas FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina CHARLES A. GONZALEZ, Texas
DOUG OSE, California STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York JOSEPH CROWLEY, New York
GARY G. MILLER, California WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania
SHELLEY MOORE CAPITO, West Virginia BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio
Terry Haines, Chief Counsel and Staff Director
Subcommittee on International Monetary Policy and Trade
DOUG BEREUTER, Nebraska, Chairman
DOUG OSE, California, Vice Chairman BERNARD SANDERS, Vermont
MARGE ROUKEMA, New Jersey MAXINE WATERS, California
RICHARD H. BAKER, Louisiana BARNEY FRANK, Massachusetts
MICHAEL N. CASTLE, Delaware MELVIN L. WATT, North Carolina
JIM RYUN, Kansas JULIA CARSON, Indiana
DONALD A. MANZULLO, Illinois PAUL E. KANJORSKI, Pennsylvania
JUDY BIGGERT, Illinois BRAD SHERMAN, California
MARK GREEN, Wisconsin JANICE D. SCHAKOWSKY, Illinois
PATRICK J. TOOMEY, Pennsylvania CAROLYN B. MALONEY, New York
CHRISTOPHER SHAYS, Connecticut LUIS V. GUTIERREZ, Illinois
GARY G. MILLER, California NYDIA M. VELAZQUEZ, New York
SHELLEY MOORE CAPITO, West Virginia KEN BENTSEN, Texas
MIKE FERGUSON, New Jersey
C O N T E N T S
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Page
Hearing held on:
April 25, 2001............................................... 1
Appendix
April 25, 2001............................................... 37
WITNESSES
Wednesday, April 25, 2001
Botchwey, Dr. Kwesi, Director, Africa Research and Programs,
Harvard
Center for International Development........................... 10
Njehu, Njoki Njoroge, Director, 50 Years Is Enough: U.S. Network
for Global Economic Justice.................................... 13
Sherk, Dr. Donald R., former U.S. Executive Director, African
Development Bank............................................... 7
APPENDIX
Prepared statements:
Bereuter, Hon. Doug.......................................... 38
Oxley, Hon. Michael G........................................ 41
Sanders, Hon. Bernard........................................ 43
Botchwey, Dr. Kwesi.......................................... 76
Njehu, Njoki Njoroge......................................... 98
Sherk, Dr. Donald R.......................................... 46
Additional Material Submitted for the Record
Botchwey, Dr. Kwesi:
AIDS and Development, Dec. 2000.............................. 80
Njehu, Njoki Njoroge:
Africans Denounce IMF, WB as Wolfenson and Kohler Visit, Mali 106
Africans Denounce IMF, WB as Wolfenson and Kohler Visit,
Tanzania................................................... 108
Sherk, Dr. Donald R.:
The African Development Bank: A Rare Success on a Troubled
Continent.................................................. 51
U.S. POLICY TOWARDS THE AFRICAN
DEVELOPMENT BANK AND THE
AFRICAN DEVELOPMENT FUND
----------
WEDNESDAY, APRIL 25, 2001
U.S. House of Representatives,
Subcommittee on International Monetary
Policy and Trade,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to call, at 1:35 p.m., in
room 2128, Rayburn House Office Building, Hon. Doug Bereuter,
[chairman of the subcommittee], presiding.
Present: Chairman Bereuter; Representatives Oxley, Ose,
Manzullo, Green, Sanders, Waters, Watt, Carson, Schakowsky,
Lee, Bentsen, Sherman and C. Maloney of New York.
Chairman Bereuter. The hearing will come to order. The
Subcommittee on International Monetary Policy and Trade meets
today in open session to receive testimony and to conduct
oversight on the African Development Bank and Fund. Today marks
the first hearing of this new House Financial Services
subcommittee. Actually, it had its predecessor subcommittees in
slightly different form on the Banking Committee--and I was
privileged to serve as the Ranking Member there for 6 or 8
years under the chairmanship of Barney Frank, who is a Member
of this subcommittee.
I look forward to serving as Chairman of this subcommittee,
which will focus on international financial institutions and
trade issues. Moreover, I am also pleased to be working with
the distinguished Ranking Member of this subcommittee, Mr.
Sanders from Vermont, and all Members of this new subcommittee.
Since this is the initial meeting, I think it is important
just to mention two procedural circumstances. First of all, the
committee rules call for the Chairman and the Ranking Minority
Member to have a 5-minute opening statement if they care to.
All other Members are entitled to a 3-minute opening statement
under the committee rules.
It is my intention to continue my past practice as Chairman
to recognize people who are in attendance, rotating across the
aisle, who are in attendance at the beginning of the hearing,
and then as additional Members come in, they will be recognized
in the order in which they come after the beginning of the
hearing.
This Member has tried to move ahead with the conversation
of reauthorization of the Export-Import Bank, but we have been
frustrated to some extent by the slowness of the process of
bringing the Under Secretaries and Assistant Secretaries of
Treasury on board, those relevant leaders of the Treasury
Department that have so much to do with the MDBs and, in the
case of the Export-Import Bank, are not yet in place. But we
are alternating the subcommittee hearings from the African
Development Bank and Fund and, it is my intention, then to the
Export-Import Bank.
And we will proceed, I hope, without any further delay, and
if the Administration has their witnesses in order, we will
hear from them first. If not, we will take witnesses who have
something to say in support or opposition to the Export-Import
Bank for example.
I want Members to know that I regard briefings, informal
briefings, ahead of new subjects that we are taking on as an
important part of the subcommittee's activity, so I encourage
Members to come, if at all possible, to these informal
briefings, which will be held before we take on a new subject.
If not, if it is not possible, I encourage you certainly to
have your staff there and to keep yourself informed as we
proceed, then, to the hearings, which will follow the
briefings.
The subcommittee has jurisdiction over the multilateral
development banks, including the African Development Bank and
Fund. It is important that this subcommittee, in my judgment,
conduct oversight hearings on the African Development Bank and
Fund. The U.S. is a non-regional member of both the Bank and
the Fund, but over the Bank's history, the U.S. has contributed
an average commitment of 5.6 percent of the Bank's capital. We
are the third largest contributor and the largest non-regional
contributor.
Furthermore, as I will discuss in more detail later, the
Bank and the Fund have been the most fiscally troubled among
the regional development banks, and perhaps the most
managerially challenged of the MDBs.
Moreover, with the upcoming annual meeting of the Bank on
May 29 through May 31, this hearing record should prove
instructive for the U.S. delegation in the preparation for this
meeting.
I think the African Development Bank and Fund have great
potential. They are very important institutions, and we should
see what we can do to push for improvements in their
productivity.
It should also be noted that the U.S. will be negotiating a
new replenishment agreement for the African Development Fund,
and our subcommittee will likely be expected to authorize it
next year, fiscal year 2003.
Before introducing our very distinguished panel of
witnesses, I am going to briefly discuss the following four
items which, among other things, are important in the
subcommittee's examination of the African Development Bank and
Fund, in my judgment: One, the distinction between the African
Development Bank and the Fund; two, the institutional problems
of the Bank and the Fund; three, U.S. policy toward the Bank
and the Fund; and four, the Meltzer Commission recommendation
for the Fund.
First, with respect to the distinction between the Bank and
the Fund, the Bank provides hard loans on commercial terms,
non-concessional terms, to creditworthy borrowers, including
governments, official agencies and private sector clients. On
the other hand, the African Development Fund gives loans on
highly concessional terms to the poorest African countries. For
example, the Fund gives soft loans at zero interest, although
there is an annual service charge of .75 percent on the
outstanding balance.
Second, with regard to institutional problems, the Bank and
the Fund both suffered a fiscal and managerial crisis in the
early 1990s. Even though many African countries had been
uncreditworthy, the Bank continued to extend them hard loans,
non-concessional loans. In fact, by 1994, arrearage levels
reached $700 million. However, in 1995, the Bank elected Omar
Kabbaj, a Moroccan financial official, as the new President.
President Kabbaj implemented fiscal and managerial reforms,
including limiting the number of countries having access to the
hard loan window, and refocused the activity of the Fund on
poverty alleviation. President Kabbaj was unanimously appointed
to a second 5-year term in May of 2000.
With respect to the current financial condition of the
African Development Bank, in September 2000, Standard & Poor's
rated the African Development Bank as a double A plus. However,
it is of concern that this rating did indicate a negative long-
term outlook based on concerns over the deterioration in the
asset quality of the Bank's loan portfolio since 1998. The Fund
is not rated, on the other hand, by the Standard & Poor's. The
Fund is not rated, only the Bank.
Third, from 1993 to 1997, the U.S. made virtually no
contributions to the Bank or the Fund. The U.S. also led other
non-regional members in suspending negotiations for a new
replenishment of the Fund until the reforms had been
implemented. However, as an endorsement of the President
Kabbaj-initiated reforms, U.S. contributions to the Fund did
resume in fiscal year 1998 and to the Bank in fiscal year 2000.
The U.S. pledge to the fifth general capital increase to
the Bank will be completed in 2005. In addition, the Bush
Administration's fiscal year 2002 budget does include $100
million for the final installment of the U.S. share for the
eighth replenishment of the Fund.
Finally, as the subcommittee examines the African
Development Bank and Fund, the proposals of the Meltzer
Commission, I think, should be considered. It is a very
controversial set of recommendations in general, but the
Meltzer Commission was created by Congress in 1998 to propose
reforms of the international financial institutions, including
the multilateral development banks. This Commission, of which I
am the legislative author, reported their views to the Congress
in March of 2000. The Commission proposed transfer of the World
Bank development loan functions to the African Development Bank
when it was ready for those responsibilities.
To assist the subcommittee in these issues, I am pleased we
will have an opportunity to hear from a very distinguished
panel of witnesses that I will introduce in a few minutes, but
first I would like very much to now yield to the Ranking
Minority Member for a statement that he might have at this
point.
[The prepared statement of Hon. Doug Bereuter can be found
on page 38 in the appendix.]
Chairman Bereuter. The gentleman is recognized.
Mr. Sanders. Thank you very much, Mr. Chairman. I think, as
I mentioned to you in the past, I personally believe that this
subcommittee has jurisdiction over some of the very most
important issues facing our country and, in fact, facing the
world, and I think the issue that we are dealing with today is
certainly one of those. And I thank you for calling this
hearing, and I thank you for the bipartisan spirit that this
subcommittee is showing.
Mr. Chairman, as you well know, the people of Africa are
facing crises today of historic proportions, from HIV/AIDS to
extreme poverty, to crushing foreign debt. I hope very much
that today and in the future this subcommittee and, in fact,
this entire Congress will pay as much attention as possible to
these issues which affect hundreds and hundreds of millions of
people.
The United States Congress and the rest of the world must
pledge to work as hard as we can to address and effectively
deal with the AIDS crisis in Africa and elsewhere. We must
fight to eliminate the crushing debts that desperately poor
African countries cannot pay, and, in my view, we must demand
that the pharmaceutical industry, composed of some of the most
profitable corporations in the world, accept their moral
responsibility to help alleviate this crisis rather than
perpetuate it.
Sub-Saharan Africa is the world's poorest region; 300
million people live in that area, and nearly half of the
population live in extreme poverty, which means that they live
on less than $1 per day. And that poverty is only getting
worse, because of the HIV/AIDS pandemic and the crushing burden
of foreign debt.
The human cost of HIV/AIDS in Africa is shocking, and I
know we all hear a whole lot of statistics. They go in one ear,
and they go out the other ear, but I think it is worth thinking
about some of these statistics. Seventeen million people have
died from AIDS in Africa since the pandemic began. Twenty-five
million people in Africa now live with HIV/AIDS, more than
twice the number in the entire rest of the world. Last year,
there were 3.8 million new HIV/AIDS infections in Africa. Every
single day, 5,500 African families lose a family member because
of HIV/AIDS, and half of those who die are children. AIDS has
left 13 million orphans in Africa. It will leave 27 million
more orphans before this decade ends, unless the world mounts a
massive effort to contain this disease.
Incredibly, of the 25 million people in Africa who live
with the HIV/AIDS virus and the 3 to 4 million who are dying
from AIDS, only about 10,000 have access to the antiretroviral
drugs they need. That is significantly less than 1 percent. So
you have a crisis which is wiping out huge numbers of people,
and a tiny, tiny fraction have access to the drugs they need.
I am pleased that the pharmaceutical industry recently
dropped its 3-year lawsuit against the South African law to
allow that government to import affordable medicines and to
increase the use of generic drugs in its fight against AIDS.
However, I am appalled at the thought of how many hundreds of
thousands in South Africa have perished during this time
because they did not have access to the prescription drugs that
this law would have made available to them.
In my view--and I speak only for myself--the issue that we
should be focusing on is not the issue of intellectual property
rights, but the issue of criminal irresponsibility. And while
that is certainly true of the AIDS crisis in Africa, it goes
beyond there as well. In other words, you have a profound moral
problem of having the tools to keep people alive, but people
saying, oh, excuse me, you are going to affect my profit margin
if I provide those tools to you. There is a very deep issue
from a moral point of view. I think it borders on criminal
irresponsibility. I hope we have a lot of discussion about
that.
The good news, I think, as many people know, is that there
are now several foreign drug manufacturers who have begun
marketing generic versions of these life-saving drugs at a
fraction of the cost. For example, a year's supply of
GlaxoSmithKline's Combivir, a drug used to treat HIV/AIDS,
costs about $7,000 in the United States. Cipla LTD, an Indian
company that manufactures generic drugs, is selling a generic
version of that drug at $275 for a year's supply. The
pharmaceutical industry sells it for $7,000. The generic is
$275.
Mr. Chairman, my hope would be that we can bring some of
these generic manufacturers to this subcommittee and to discuss
with them how we can go forward.
The other issue that I very briefly want to touch upon, Mr.
Chairman, which is certainly related to AIDS, and to the crisis
in Africa, is the huge debt that many of the poorest countries
are facing. In Sub-Saharan Africa, they have a $13.5 billion
cost of foreign debt servicing, roughly the amount that UNAIDS
says these nations need to deal with AIDS.
I think the other issue that is directly related to the
AIDS crisis is the need for debt cancelation, so that
countries--the poorest countries in the world--do not pay more
money to international financial institutions than they are
spending on health care.
So this subcommittee, Mr. Chairman, has some huge
responsibilities. And I thank you very much for calling this
important hearing. I am delighted that we have such excellent
guests with us, and I look forward to hearing from them. And I
would yield back, Mr. Chairman.
[The prepared statement of Hon. Bernard Sanders can be
found on page 43 in the appendix.]
Chairman Bereuter. Thank you very much, Mr. Sanders, and
you are right, we do have an important agenda ahead of us, and
I thank the gentleman for the review of the incredible problems
that Africa is facing and that the Bank and the Fund, among
other institutions, need to address.
I do have one procedural matter to take up before we
recognize other Members who have opening statements. Because of
a swap between Ms. Velazquez and Ms. Lee on this subcommittee,
I need to make this motion. Without objection, Ms. Lee shall be
deemed to be a Member of the subcommittee to rank immediately
after Ms. Carson of Indiana for this hearing and subsequent
hearings until her election is ratified by the full committee.
Is there objection? Hearing none, that will be the order.
And now under the 3-minute rule, I will recognize other
Members at this point.
The gentlelady from California, Ms. Waters is recognized.
Ms. Waters. Thank you very much.
I would like to thank both Chairman Doug Bereuter and
Congressman Bernard Sanders for organizing this hearing on the
African Development Bank and African Development Fund. I
appreciate the interests of both our Chairman and our Ranking
Members shown in issues affecting Africa.
The African Development Bank's mission is to promote
sustainable economic growth and reduce poverty in Africa. The
Bank and the Fund make loans to African governments for
economic development projects. The Bank and the Fund finance a
wide variety of projects, including projects dealing with
primary health care, basic education, agriculture and rural
development, public utilities, water supply, sanitation,
transportation, telecommunications and environmental programs.
I am anxious to hear the testimony of the witnesses on the
effectiveness of the projects financed by the Bank and the
Fund. I am especially interested in helping education projects
and other projects that benefit impoverished people in Africa.
I would like to know what suggestions the witnesses have
regarding the ways to ensure that health care education, rural
development and poverty reduction projects benefit those in
Africa whose needs are the greatest.
Over the last 2 years, I have been working to ensure the
passage of debt relief legislation and full funding for the
heavily indebted poor countries, the HIPC Initiative. Last
year, the conference report for the foreign operations
appropriations bill for fiscal year 2001 provided a total of
$435 million to fund debt relief, pursuant to the HIPC
Initiative, some of these appropriations to be used to cancel
the debts that poor countries owe to the United States.
However, most of these appropriations are for the World Bank
HIPC Trust Fund. The purpose of this Trust Fund is to relieve
the debts that poor countries owe to international financial
institutions, especially the African Development Bank and the
Inter-American Development Bank.
I am also interested in hearing the views of the witnesses
regarding the progress of the HIPC Initiative in Africa. I am
especially interested in analysis of the extent to which the
funds provided by the World Bank HIPC Trust Fund have allowed
the African Development Bank to relieve the debts owed by
impoverished African countries.
The purpose of debt relief is to enable impoverished
countries in Africa and elsewhere to invest their resources in
health education, poverty reduction and HIV/AIDS treatment and
prevention. If this goal is to be realized, it is essential
that the Financial Services Committee provide sufficient
oversight to ensure that the HIPC initiative is being
adequately funded and effectively implemented.
I would like to thank the Chairman, and since the Chairman
mentioned it in his statement, I would also like to know more
about the Meltzer Commission and the proposal of the transfer
of the responsibilities from the World Bank to the African
Development Bank.
I yield back the balance of my time.
Chairman Bereuter. I thank the gentlelady for her
statement, and I would just say that my notes show that the
Congress still needs to authorize $165 million for HIPC debt
relief, and I am told the Administration will be sending up an
authorization. So that will be something this subcommittee will
need to take up as soon as we have an opportunity to do that.
Are there other Members who wish to be recognized with
opening statements? If not, then I will introduce our
distinguished panel of witnesses, and the first is Dr. Donald
R. Sherk, who will testify. Dr. Sherk was the U.S. Executive
Director to the African Development Bank from 1985 through
1989. He is currently a director of management consulting and a
regional representative to Africa for the International
Business and Technical Consultants, Inc. In addition, Dr.
Sherk, in 1999, prepared a paper and provided testimony to the
aforementioned Meltzer Commission on the subject of the African
Development Bank. So he ought to be the person to address your
and my questions.
Moving on, we are also honored to have Dr. Kwesi Botchwey
as our second distinguished witness. Dr. Botchwey is the
current Director of the African Programs and Research at the
Harvard Center for International Development. Furthermore, he
was Minister of Finance in Ghana from 1982 to 1995. As Minister
of Finance in Ghana, he helped implement one of the most far-
reaching economic reform programs in Sub-Saharan Africa. Dr.
Botchwey's distinguished legal education includes degrees from
the University of Ghana, Yale Law School and the University of
Michigan law school.
Our third distinguished panelist is Ms. Njoki Njehu. Ms.
Njehu, a Kenyan national, is currently the Director of 50 Years
Is Enough: U.S. Network for Global Economic Justice. This
organization is a coalition of over 200 organizations who focus
on the transformation of international financial institutions.
Prior to her current position, Ms. Njehu worked at Greenpeace
International.
We welcome the distinguished panel to this hearing, and
without objection, your written statements will be included in
their entirety in the record. And I recognize first Dr. Sherk.
You may proceed, and we will try to ask each of you to limit
your testimony to 10 minutes.
STATEMENT OF DR. DONALD R. SHERK, FORMER U.S. EXECUTIVE
DIRECTOR, AFRICAN DEVELOPMENT BANK
Dr. Sherk. Thank you very much, Mr. Chairman. It is a
distinct honor and privilege to appear before you and your
subcommittee colleagues. The subject before you today, the
African Development Bank is----
Chairman Bereuter. Dr. Sherk, if you will pull that a
little bit closer to your mouth.
Dr. Sherk. I am sorry. I have a bit of a cold, so I will
try to compensate.
Chairman Bereuter. Thank you.
Dr. Sherk. The subject before us today, the African
Development Bank, is a subject very close to my heart, which I
hope to elaborate on as my remarks go forward.
I appreciate you circulating to the subcommittee the paper
that I did for the Meltzer Commission on the African
Development Bank, where I attempted to portray the Bank from
its beginning days to its current status as a bank that has
grown probably more in stature than any other international
institution with which I am familiar.
You talked a little about my background, Mr. Chairman, and
I think that if I could just say one more word on that, that
after having an academic career for 12 years teaching economics
in Boston at both Boston College and Simmons College, I went
into the Asian Development Bank as a staff economist dealing
with some of the poor South Pacific island economies. From
there I next went to the Department of the Treasury, which, as
you know, Mr. Chairman, has responsibility for oversight of
U.S. participation in all the multilateral development banks.
The Treasury sent me back to Manila to be the U.S.
Alternate Director to the ADB in the early 1980s. From there, I
went to Abidjan in the Ivory Coast, where I was the U.S.
Executive Director for the African Development Bank.
I have also had a brief period of time on the Board of
Directors of the Inter-American Development Bank. So I have had
positions on three of the MDB boards of directors.
In the mid-1990s, I worked with the OECD in the Development
Assistance Committee, where I had a chance to deal with 28 OECD
member countries and their policies toward multilateral
assistance. Currently, as you pointed out, I am in the private
sector.
I think with this background, I probably am fairly well
positioned to talk about the multilateral development banks and
their pros and their cons. Many people that look at the banks
superficially draw conclusions one way or the other. I think
they are a very complex set of institutions, and I know you
want to focus today on the African Development Bank, so that is
my intention, too.
But just briefly, in the way of what are my thoughts on all
of the multilateral banks and the role of the United States in
those institutions. First of all, I believe that the
multilateral development institutions are vital ingredients of
a healthy and growing world economy. The MDBs, together with
the IMF and the WTO, might be thought of as a world economic
safety net. Had these organizations existed in the 1920s and
the 1930s, the world might not have had to experience the
disruption, dislocation and suffering brought on by the world
Depression and the Second World War.
But, Mr. Chairman, these institutions clearly do not work
in the way we all hoped they would when they were created.
Unfortunately, the MDBs fall short in a variety of ways. All
too frequently multilateral or global goals for the
institutions are sacrificed on the altar of perceived national
interests. This shortfall between institutional achievement and
institutional potential subjects them from time to time to
periodic crises of confidence.
Why does this happen? I would argue that no two countries
view the MDBs in the same way. Countries participate in these
institutions for a variety of reasons, noble and ignoble. The
G7 members may appreciate the banks for their geopolitical
advantages and their ability to mobilize sizable pools of non-
budget funds, but for most countries a variety of other motives
can be mentioned: procurement, staff and management positions,
resource transfer needs, regional and subregional associations,
national pride, technical assistance, private sector
collaboration, education, health, infrastructure,
externalities. One could probably go on.
But for most countries, the package of perceived benefits
is judged to be significantly larger than the cost of
membership, and, thus, easily justifying remaining involved
with the institutions. However, one would be hard pressed to
identify more than one or two countries that have ever in the
50-year history of these institutions decided, for their own
reasons, to leave the institutions.
When it comes down to how the MDBs are managed, problems
endemic to each institution are all too visible. Boards of
directors drawn from all over the world have no real bottom
line. There is rarely an opportunity--an important policy issue
that is capable of uniting all of the board members, given the
variety of motives prompting their membership in the first
place.
This diversity of goals across shareholders makes a truly
unified board most unlikely. Consequently, the managements of
the institutions are in a position to advance their own agendas
by simply finding a group of sympathetic--read pliable--allies
on the board. Of course, management's ability to determine
lending volumes is a powerful inducement to ensure that support
in policy debates from the borrowing member countries, and all
too often management seek to fulfill predetermined global
lending targets to establish conditions for further capital
increases in soft fund replenishments. This is what I have
called the mandate of institutional aggrandizement. It is no
accident that the annual reports of all the MDBs typically
begin by mentioning how much lending was achieved during the
year and what percentage increase that was over the previous
year, not how much development actually took place because of
those loans.
And before turning to the African Development Bank, let me
focus briefly on shareholder influence in the MDBs and how that
influence is used.
The paper that you had circulated by the staff written by
me has two appendices. One would be called Appendix A, types of
influence, or, if you will, avenues of influence; and the
second, Appendix B, deals with how that influence has been used
over time.
I came up with a list of 50 separate goals that the United
States and other countries have pursued in the context of the
boards of directors or with the managements of these
institutions, 50. They change from time to time, and they
change in their intensities. Those of you that have followed
the development literature over the past several decades will
recognize that a number of the objectives cited have more or
less faded from the scene, to be replaced by objectives given
more currency in today's environment; for example, good
governance, civil society and transparency have replaced
appropriate technology, integrated rural development and
environmental review as current hot-button issues.
How much influence needs to be spent to achieve any one of
the objectives is dependent upon many factors. Suffice it to
say that the countries most adept at seeing their objectives
incorporated into MDB operational guidelines are those that
focus their objectives narrowly, stay informed of bank policies
and procedures on a day-to-day basis, and successfully lobby
other shareholding countries in support of the objectives that
they favor.
I personally have admired the way the Scandinavian
countries have succeeded in getting MDB policies to reflect
their own goals so successfully. Basically these countries have
joined forces to maximize their influence, done their homework
diligently and have advanced their development goals very
adroitly.
These comments can only go so far. It would be a mistake to
view all the MDBs as the same. Each has its own history, its
own unique set of circumstances calling it into existence.
Shareholder ownership varies widely from bank to bank, with key
shareholders being similar, but never the same. The staff of
each MDB, in spite of similarity and professional training,
view the other MDBs differently and this difference often
impinges on how cooperative each bank can be with the others.
To be fair, one should point out that over the last 2 or 3
years under the leadership of World Bank President Jim
Wolfensohn----
Chairman Bereuter. Dr. Sherk, if you could summarize in
about an additional minute.
Dr. Sherk. OK.
They have established programs to cooperate and to build
partnerships among each other. Dr. Botchwey and I were
privileged to serve on a task force that prepared the
groundwork for a memorandum of understanding between the World
Bank and the African Development Bank about who is going to do
what, what synergies could be developed in helping Africa, and
I think that program is off to a good start.
Let me just conclude, Mr. Chairman, by saying that the
African Bank is, as you said in your earlier remarks, judged
fairly harshly by some of the financial press and some of the
rating agencies. I said in that paper that I prepared for the
Meltzer Commission that if the African Bank were held up
against the World Bank and the other regional development banks
and compared by any common standard of business efficiency, the
ADB would most likely be ranked at the bottom. But if a more
relevant yardstick of achievement and maturity were employed,
measuring how far the Bank has travelled in its 37-year history
in what is easily the most difficult working environment on
Earth, it would probably be ranked first.
Thank you, and I would like to answer any questions.
[The prepared statement of Dr. Donald R. Sherk can be found
on page 46 in the appendix.]
Chairman Bereuter. Thank you, Dr. Sherk.
We will next hear from Dr. Kwesi Botchwey. You may proceed
as you wish.
STATEMENT OF DR. KWESI BOTCHWEY, DIRECTOR, AFRICA RESEARCH AND
PROGRAMS, HARVARD CENTER FOR INTERNATIONAL DEVELOPMENT
Dr. Botchwey. I thank you, Mr. Chairman.
Mr. Chairman, as you noted, I am Director of the Africa
Program at Harvard, and in my long years in public office, I
had the opportunity to deal with the ADB firsthand and also to
observe its relations with its other partners and its donors.
And as Don also said, I participated with him and others in a
very recent review of the Bank's role in developing a framework
for partnership with the Bank, among others.
The Chairman of the African Development Bank, as I am sure
all you distinguished Members of the subcommittee are aware,
was established in the early 1960s by 23 African governments
with an initial capital base of about $250 million and a very
small staff complement at the beginning, numbering no more than
about 10. And from these modest beginnings, the Bank became and
continues to be Sub-Saharan Africa's preeminent development
funding institution, operating alongside the three other
regional development banks for Asia, the Inter-American
Development Bank, and, more recently, the European Bank for
Reconstruction and Development.
In 1982, with admission to membership of the Bank of the
so-called non-regional states, the Bank's capital rose to
upward of $6 billion from about $2.9 billion in 1982. The
African Development Fund, ADF, which is the Bank's concessional
window, was established later with an initial capital of $244
billion and its membership made up of the African Development
Bank itself and about 25 non-African states including the
United States. There is a third institution in the group, which
is the Nigerian Trust Fund.
Now, from its modest and almost exclusive reliance on
project lending in the first decade or so of this operation,
the Bank group now employs a wide variety of lending
instruments, pretty much like the World Bank's. They include
traditional project loans, sector investment loans, credit
lines, so-called policy-based loans, sector adjustment loans,
and structural adjustment loans as well as additional technical
assistance operations.
Now, by the end of 1997, the Bank Group's total lending
stood at over $33 billion, most of it from the ADB, about $20
billion, followed by the ADF. And for the Group as a whole, the
central distribution of lending is, I think, so dominated by
agriculture and infrastructure, but if you combine transport
and utilities, then at the end of 1997--and I believe even
now--the infrastructure would account for about 36 percent and
agriculture about 23.5.
The Honorable Ms. Waters wanted to know something about
education and health. Education expenditure--education and
health would account for about 9.7 percent of the Group's total
lending activity as of the end of 1997.
Now, disbursements stood at the end of 1997 at about $222
billion. The bulk of it was again coming from the ADB, followed
by the ADF and the Nigerian Trust Fund in that order. Now,
while this is relatively small compared to the World Bank and
even to the other regional banks, it nevertheless makes the
Bank Group a very important regional funding source.
Now, for about a decade following that admission of the
non-regional--so-called--to membership of the ADB, a fairly
harmonious climate prevailed among the African and non-African
members, but the strains began with the onset of the 1990s and
came to a head with the publication of the findings of a major
study in 1994, the Knox Report, which is cited in Don's paper,
which has been circulated. The report drew attention to a
number of weaknesses and problems and set the stage for a long
period of internal discussion, reviews, attempts at reform, and
unfortunately, Mr. Chairman, quite a bit of recriminations in
the dialogue between the regional and non-regional members of
the Bank.
Among other things, the report raised the issue of poor
quality of lending generally, and stressed three main areas
that needed urgent attention. It is important to reiterate
these here now, because they do have, to some extent, a rather
current ring to them. I noted that Ms. Waters wanted to know a
bit about poor air quality as well.
Now, the three areas were the Bank's focus. The report
noted that the Bank was pulled in all directions by the
conflicting goals and attitudes of its shareholders. I fear
that this is still a bit of a problem; two, lending policies
and procedures compared to what the practice actually was; and,
three, the Bank's likely unrealized asset as an African
institution in which African shareholders especially reposed a
great deal of trust.
The crisis generated by this report came to a head when the
donors suspended funding for the ADF, leading to a very sharp
fall in lending.
Now, so, Mr. Chairman, where is the Bank now exactly? There
can be no doubt in my mind that under the current President of
the Bank, the Bank has moved resolutely to address the issues
of management and governance that plagued the Bank and led to
the bitter recriminations in the mid-1990s. There has been
remarkable improvement in project quality and management. It is
unquestionable. Moody's has acknowledged the improved regime of
sanctions, lending and monitoring procedures. All the rating
agencies continue to rate the Bank fairly highly. Moody's,
Fitch, ICBA, Japan Credit Agency give the Bank triple A and
double A for the Bank's senior unsubordinated loans in that
order.
So the Bank now has a new mission statement that it
promulgated in 1999, and in a recent study which I referred to
that Don and I did together, we also noted that many of the
problems that were cited in the Knox Report have been
alleviated. Therefore, in my view, Mr. Chairman, unquestionably
the Bank has been quite successful in addressing the management
problem that was in the mid-1990s.
Now, the role of the Bank compared to the IMF and the World
Bank in fostering economic development in the African region.
The Bank's potential in this regard, Mr. Chairman, remains
largely unrealized. This is mainly a resource problem. The
simple truth is that the Bank's total resources pale in
significance compared to World Bank's and the IMF's. But this
is only part of the problem admittedly. The other part of
problem is the ADB's own focus, based on its real potential
competitive advantage and acknowledgment of this advantage by
its partner agencies.
For me, Mr. Chairman, the debate over infrastructure or
poverty alleviation is a false one. Poverty alleviation is the
ultimate goal that all development activity must try to
achieve. In the end, it is the ultimate benchmark against which
all economic reform efforts might be judged. This requires
investments and a sound macro-economic policy framework in
which the goals on poverty alleviation are explicitly
recognized. An important part of poverty alleviating reform
effort must include significant investments in infrastructure,
such as the rural infrastructure, as well as regional
infrastructure, both in areas in which ADB has tremendous
strengths.
As far as the Bank's role in debt elimination, we are
concerned. The Bank's role in debt relief has been marginal. As
of today, I think that the Bank has done HIPC-type operations
in only two countries: Uganda in 1998 and Mozambique in 1999.
And I think that in total the Bank has provided something like
$87.5 million in 1998 net present value terms as part of its
HIPC effort.
Finally, Mr. Chairman, the future of the Bank. I think that
the Bank is well positioned to become a leading source of
knowledge and development financing in the African region. The
internal management problems that cause a bank a severe loss of
market and donor confidence have been resolved, even if at the
cost, at least initially, of lowered staff morale. In spite of
much talk about strategic partnership, especially with the
World Bank, the Bank still remains and is perceived, not
without justification, alas, as a caricature of the World Bank,
because it is not allowed to do what it thinks it needs to do.
Its resource base will need to be strengthened and its focus
sharpened to enable it to exploit its potential as a credible
African development institution.
I see about five areas, finally, Mr. Chairman, in which the
Bank can develop its niche. One is the monitoring of progress
toward the attainment of the international development goals.
There is a multiplicity of these goals. Almost every day as the
African crisis continues, there is some initiative of
committing oil on Africa, and I think the ADB can perhaps be
asked to monitor these. There is governance in Africa----
Chairman Bereuter. Dr. Botchwey, if you could summarize the
remainder, I would appreciate it.
Dr. Botchwey. Very well. I will do that, Mr. Chairman.
There is governance in Africa, an area which is often
simply vulgarized and reduced to just the total corruption. I
think that the Bank, because of its position in the region,
probably can do a better job monitoring governance issues and
others.
The third is the provision of regional public goods,
including support for regional public health interventions,
that simply cannot be done in one country alone; and, finally,
the promotion of regional integration initiatives.
I thank you, Mr. Chairman.
[The prepared statement of Dr. Kwesi Botchwey can be found
on page 76 in the appendix.]
Chairman Bereuter. Thank you very much, Dr. Botchwey.
And finally, we will hear from Ms. Njoki Njehu. Now, if I
am not pronouncing that correctly, please do correct us right
at this point. You may proceed as you wish.
STATEMENT OF NJOKI NJOROGE NJEHU, DIRECTOR, 50 YEARS IS ENOUGH:
U.S. NETWORK FOR GLOBAL ECONOMIC JUSTICE
Ms. Njehu. Thank you.
My name is Njoki Njehu. Mr. Chairman, I want to thank you
for the opportunity to testify before this subcommittee. As an
African and a Kenyan woman, and as a Director of the Network, I
welcome both the privilege and the responsibility that comes
with this invitation, and, therefore, I would like to start by
submitting for the record two statements from civil society
organizations in Mali and Tanzania at the time of the meetings,
at the time of the visits of the President of the World Bank
and the Managing Director, because I believe they have bearing
in terms of the situation in Africa.
Chairman Bereuter. Without objection, those will be made a
part of the record.
[The information can be found on page 106 in the appendix.]
Ms. Njehu. Thank you.
The 50 Years Is Enough Network is a coalition of over 200
groups that are committed to the profound transformation of the
International Monetary Fund, the World Bank and other
international financial institutions. The network also works in
collaboration with organizations in about 68 other countries,
and we are committed to the issue of working to educate the
public, to mobilize the general public in order to bring about
this transformation.
I am not an economist, and I have not had direct experience
with the African Development Bank like my copanelists, and so
my comments this afternoon leave the technical aspects of the
African Development Bank to my copanelists. I did, because I
took the responsibility very seriously, talk to a number of
colleagues in Washington in conjunction with the spring
meetings of the World Bank and the IMF, colleagues from
Tanzania, Mozambique, Zimbabwe and Kenya, as well as Ghana, to
get some ideas about the perception of civil society in Africa
on the African Development Bank and the situation facing the
continent, and I believe that in looking at the questions that
are related to the international financial institutions, one of
the key distinctions to be made must be the one around the
question of intent and outcome.
The intentions are clear. The intentions of those lending
and providing donor assistance to African countries are often
very clearly articulated: poverty alleviation, debt relief,
structure adjustment, structure and policy reforms and others.
The question that we keep asking as Africans over and over is
whether the outcome matches the stated intent of policies and
projects of the multilateral financial institutions.
When one looks at the realities that are experienced by
Africans, as well as the peoples in other regions of the Global
South, that is to say, Asia/Pacific, Latin American, the
Caribbean, it is undeniable that the outcomes of implementation
or structure adjustment programs, free market reforms, debt
relief and privatizations have failed. They have failed to
deliver on the promises of development.
The fact is that these aspects of these policies and
programs, such as cuts in food subsidies, cuts in credit to
farmers, non-food cash crop farming, user fees for health and
education and water privatization, condemn millions to hunger,
malnutrition, poverty and even death. Africans are working very
hard and are working against many, many challenges.
In this context of a continent faced with tremendous
challenges that seem almost insurmountable, we must then also
ask some questions about the role of the African Development
Bank that is now three decades old, an institution that was
founded to finance projects that would provide the basis for
employment, technology and a way out of poverty. Instead of an
Africa where promises have been kept, we see an Africa that has
been in rapid and long decline, an Africa that has endured
worsening economic circumstances since the time of the Bank's
founding.
This subcommittee can help begin to chart a new direction
for the African Development Bank, one that would provide the
basis for employment, technology and a way out of poverty, in
support of African people's initiatives. Sub-Saharan Africa is
rich in human and natural resources, but faces many challenges.
We have heard about some of those from Members of the
subcommittee, as well as from my co-panelists.
I want to focus today on what I believe most Africans
themselves would say about development and economic recovery on
our continent. In a nutshell, it is this: It isn't working. The
way development is done now and has been done since the
beginning of Africa's economic decline has harmed Africa more
than it has helped it. Our access to services, our employment
prospects, our nutritional standards, our overall standard of
living has been in decline since 1980. This is the information
that we get both from institutions like the World Bank and
various agencies of the United Nations.
What changed around 1980? Certainly there was the oil price
crisis of the 1970s which hit many African countries very hard.
Sub-Saharan Africa continues to pay back more to the World Bank
and the IMF than it gets from those institutions, and despite
this tremendous diversion of resources, and in several cases
despite even a country's acceptance into the World Bank and IMF
debt relief program, our debt levels continue to rise. Social
services continue to be cut. People continue to be laid off.
Prices continue to rise.
Indeed, it is obvious that development is not working in
Africa, and also as part of my statement is a chart that comes
from a consultant at the World Bank that shows very clearly
what has been happening in terms of growth in relation to the
rising amount of money that comes in the form of loans to
Africa. The results of many of the programs that are associated
with the program--with the loans have been devastating, and it
is--the question becomes, then, how do we get out of the crisis
that we find ourselves in? We are not going to get development.
We are not going to get the kinds of effective results to the
challenges and solutions to the challenges that we face with
more of the same.
In fact, the statement that we want to make today is to say
that the market plan has not worked for Africa. We need a
Marshall Plan, one similar to the one that was offered to
Europe after World War II, at a time when the United States
recognized that lending to devastated economies was an
illogical way to develop.
The much-vaunted Heavily Indebted Initiative has fallen
short of the goals of relieving Africa's debts. Some
beneficiaries of the HIPC Initiative will pay as much, if not
more, in debt service after graduating from the program. After
World War II, as the Marshall Plan was providing resources to
kick-start European economies, Germany negotiated terms that
allowed it to pay no more than 3.5 percent of its annual export
income on its foreign debt, and nothing at all if it did not
have a trade surplus.
In Africa, countries have found themselves paying 40, 50 or
60 percent of the annual export income on debt. The Heavily
Indebted Poor Countries Initiative of the IMF and the World
Bank, when it accepts countries into its scheme, and when it
works as it promises to do, aims to reduce those payments to
between 10 and 15 percent of annual export income, with no
provision for years when a trade surplus cannot be achieved.
People in Africa think the system is fixed. They see new
economic programs that welcome more foreign companies into
their countries and offer incentives to grow more cash crops or
work in assembly plants, but they still see their standard of
living decline. They hear that the African Development Bank
will be rescued from its morass by worthy governments, but they
are not surprised to find that it operates as a mini-World
Bank, imposing the same conditions for the same kinds of
projects.
Africa needs the debt cancelation; 100 percent of the debts
owed by these countries to the multilateral creditors. The IMF
and World Bank have tremendous resources, and given that people
in Africa are slipping and its children are dying, we fail to
see why these institutions continue to plow their money into
the private sector.
I also want to say that, in conclusion, like Dr. Botchwey,
that Africa needs an institution, an African Development Bank,
that is something more than a junior partner or a surrogate to
the World Bank.
I strongly believe that the role of African institutions is
to effectively address the challenges that face Africa. Instead
of more reforms, what is needed is clinics stocked with drugs
and workers, schools with textbooks and trained teachers, safe
water for all instead of privatization contracts for
multinational corporations, free public education for African
children just like for children in the U.S., policies that
would put people before profits. There is a proven track record
of investment and political will in the campaigns against
polio, smallpox, and the campaign to immunize the world's
children against the major vaccine-preventable diseases. We
went from covering about 5 percent of the world's children in
1980 to covering 80 percent in 1990, saving 3 million children
a year. Not only do we know what needs to be done. We know how
to do it and have done it in a number of instances. The same
can be true of Africa.
Again, I urge you to act in solidarity with African peoples
and watch them succeed. Thank you.
[The prepared statement of Njoki Njoroge Njehu can be found
on page 98 in the appendix.]
Chairman Bereuter. Thank you very much for your testimony.
Thanks to all three of you.
We will now proceed under the 5-minute rule for questions
from Members of the subcommittee. As I announced earlier, we
will recognize people based on their seniority on the
subcommittee, for those who were here at the beginning, and
then recognize those in order of appearance after we begin.
So the Chair recognizes himself first under the 5-minute
rule, if the clerk will start the clock.
First of all, my own personal view is that the African
Development Bank and Fund deserve our attention more than any
other regional development banks. Because of the urgency of the
concerns on that continent, not only do we have a
responsibility for reauthorizing funding for the bank coming
before us this year, but I think it is appropriate that we
focus our attention.
I hope that we can give some good guidance to our Executive
Director as we try to have an impact on making these two
institutions more productive.
Dr. Sherk, you mentioned the Knox Report. My recollection
is that it was issued in 1994. You quote the report that
African nations who borrow from the bank complain that ``the
bank is absent when it should be present.''
I would like to ask first you and Dr. Botchwey how do the
bank's borrowers assess the bank's engagement with their
development needs now?
We have seen a change in leadership there. How has it
changed, how has their perception of the performance of the
bank and its responsiveness to their goals changed, if at all?
Dr. Sherk, do you want to try first?
Dr. Sherk. Thank you, Mr. Chairman. I think that is a very
fundamental question about how to improve the quality of
lending for Africa. The African Development Bank after the
criticism of the Knox Report, and by the way, to be fair to the
African Bank, the Knox Report followed the Wapenhans Report on
the World Bank, the Tapoma Report on the InterAmerican
Development Bank and the Schultz Report on the Asian
Development Bank, and all four of those major reviews of the
bank's portfolio came up with remarkably similar conclusions
about the deterioration in the project quality.
And in the case of the African Bank, the Knox Committee
found that there were too many pressures to lend and too little
attention given to the kinds of actions that would ensure that
each loan met its intended objectives, supervision of the loans
on perhaps a semiannual basis, to institute sound post-
evaluation of projects so that the lessons learned could be
recycled into new lending so that the new lending wouldn't make
the mistakes of the old lending.
These are activities which weren't given enough attention
by the African Bank prior to the Knox Report, but they
certainly are now. Both of those--many more supervisions per
investment dollar goes on today.
We could talk a little about the partnership that is coming
out of the World Bank and the African Bank that Dr. Botchwey
and I worked on. And in that case, you get a much greater focus
on what do the civilian society groups really want, how do you
find out what they would really desire in terms of a rural,
integrated rural development project or a rural road project or
a health clinic or a primary education loan.
This is something that is sweeping the development
institutions, but I am very pleased to say the African Bank has
been in the front of that.
Chairman Bereuter. Thank you.
Dr. Botchwey, would you care to comment on how attitudes
have changed in Africa since 1994, if at all, attitudes about
the African Development Bank that is?
Dr. Botchwey. Yes. Thank you, Mr. Chairman. Let me be brief
and absolutely candid. Mr. Chairman, we, as Don said, actually
conducted a recent study in which we surveyed the views of
many, many African clients. I think it is fair to say that the
prevailing view, the prevailing sentiment among the bank's
African clients is that unquestionably there has been an
improvement in product quality, in the balanced procedures and
in management and governance of the bank.
There is a lingering concern that the Bank has been so
preoccupied with getting these things right that it is taking a
long time to kind of focus on a sharper vision and a niche in
matters of African development.
Second, also, there is a lingering concern that the Bank,
in spite of all of the efforts that have been made in these
times, continues to kind of walk in the shadow of the World
Bank.
Finally, Mr. Chairman, there is also some concern that the
Bank is not present in many African countries. You know, the
ADB used to have offices in a lot more African countries.
Well, the truth is that it was overdone in the past. They
had just too many outside offices. I think the Bank has swung
to the other extreme. It has shut down all of those offices. So
there is certain yearning also for greater presence, I think,
in African countries. Well, there is no question that there is
a great deal of support for the bank among its African clients.
Thank you, Mr. Chairman.
Chairman Bereuter. Thank you. My time is expired.
Ms. Njehu, I will have a question for you on my second
round.
The gentleman from Vermont is recognized.
Mr. Sanders. Thank you, Mr. Chairman.
I want to focus on three areas which are devastating
Africans right now: the AIDS crisis, the growth in poverty, and
the chain of deep debt that many African countries are now
facing.
And I recognize that the African Development Bank and the
Fund are not going to themselves solve all of these problems,
but what we need from our witnesses are thoughts as to how the
United States Congress can go forward to address what are some
of the major crises facing humanity today.
So, I would like to ask all three of you a question. We
will start with Njoki Njehu. Could you comment on the AIDS
crisis and the role of the pharmaceutical industry, and how we
deal with growing poverty and the issue of debt forgiveness?
Ms. Njehu. Thank you, Mr. Sanders. I think in your opening
comments you very well addressed the questions--some of the
challenges and some of the what I believe would be necessary
responses that are needed from the pharmaceutical companies.
And I do think that at the same time, one of the things
that I want to convey here is that in looking at the African
continent in country after country and in community after
community, that people are coming forward to try and address
these issues in their own ways: In the clinics that they are
building, in the ways that they are trying to establish
relationships with companies, with hospitals, in countries like
the United States and other parts of the globe to try and
address the crisis that faces them, because their governments,
because of, indeed, the international debt, are not able to do
that.
On the question of debt, I believe that what needs to
happen, as I said, is debt cancelation, total debt cancelation
and that we need to be thinking outside the box, not be doing
it the way that it has been done in the past, with a link to
structural adjustment programs, mandating policies that have
been filled for the most part, as is evident by the
institutions that have been imposing them, trying to repackage
them and redo them.
The HIV/AIDS crisis is a rather serious one and a tragic
one, and one of the things that I want to put on the table
today, in concluding with my remarks, is to say that in
addition to the offense and the other issues that are very much
talked about, there is a crisis in places like Zimbabwe where
thousands of people are dying every day, an environmental
crisis is emerging as trees are cut down to build coffins, that
continue to increase the situation of poverty.
So I think that as we look at these crises, we need to look
at ways in which other issues are coming up very clearly.
Mr. Sanders. Thank you.
I want to go to Dr. Botchwey.
Dr. Botchwey. Well, thank you. On AIDS, Mr. Sanders, you
yourself gave the rather grim statistics indicating the real
crisis that the continent faces.
I think that what the United States Government can do is to
provide support to get--first, of course, to strengthen
advocacy of prevention measures. Prevention by itself, Mr.
Chairman, is not going to work. When people begin to appreciate
that when they have been diagnosed with a disease they are
simply waiting to die, they are not going to even get tested.
So prevention by itself would not be effective, unless it is
combined with a critical program of therapy and access to
drugs.
So I think that the area of access to drugs is one area
where the U.S. Government can help. There are many initiatives
on the table now to develop some kind of a trust fund that
would be used to finance bulk procurement of visionary drugs.
I think that with all the help that the U.S. Government can
muster, we need it in getting around these so-called
legislatable poverty issues, which you rightly noted are not
the matter at stake.
Yes, access to drugs must be a complement for credible
programs for prevention, and the U.S. Government, I think, can
afford to and has an important role to play in that regard.
Growth and poverty. I think that the important thing to
appreciate here is that even at the current rate of growth--
first of all, all the African countries will need to almost
double their current rate of growth, double their current rate
of savings, which for most will be difficult, as well as
perhaps double the current flows of development assistance in
order to make it possible for poverty to reduce by half by the
year 2015. So it is important.
And finally on debt, I agree entirely with Njoki, I think
that it is very clear that there are issues that African
countries cannot pay this debt and for the past decade they
have paid the debts only because the debts have been refinanced
by donors outside.
Mr. Sanders. You believe in total cancelation?
Dr. Botchwey. I do believe that total cancelation is the
only credible route, of course, against the guarantees of good
governance and the credible and sensible use of the resources.
Mr. Sanders. I know we are running out of time. If Dr.
Sherk could make a brief comment on those issues. Let us start
with debt cancelation. Are you in agreement with the other two
panelists?
Dr. Sherk. For the most part. I also want to add a word on
poverty alleviation. I think the Chairman mentioned this
document called the African Development Bank's Vision
Statement, which is the new mandate for the Bank under
President Kabbaj. Clearly, it establishes poverty alleviation
as the number one principal goal of the bank, and I think that
message has gotten through to the entire staff from the
President on down to the bottom of the ranks.
Mr. Sanders. What about debt cancelation? How do you feel
about it?
Dr. Sherk. If you had a credible program of debt
cancelation, as Dr. Botchwey added, with sufficient
conditionality to ensure that the funds would be used for
health, education, and so forth, and not spirited out of the
country, which you and I both know sometimes happens, those
conditions have to be in place. And at that time, yes,
certainly debt consolidation would be seen as a major force for
growth.
Thank you.
Mr. Sanders. OK. Thank you very much.
Chairman Bereuter. Thank you, Mr. Sanders.
The gentleman from California, Mr. Ose, is recognized.
Mr. Ose. Thank you, Mr. Chairman.
I noticed the comments in all of your testimonies about the
changes in the mid-1990s to structural reforms at the bank in
particular.
I want to make sure I understand clearly that the African
Development Bank loans money to countries, and then the
countries turn around and use the money as the countries
decide? Is that accurate, Dr. Sherk?
Dr. Sherk. The typical loan procedure, Mr. Congressman, is
for a loan to be appraised in terms of what elements of that
project are required, and if it may be training for local
villagers in the use of health facilities, that training would
be paid for under that loan.
If it had to do with a road from the town center to the
community health center, that would be paid for under the loan,
so that every one of the loans are components of
infrastructure, training, equipment. The obligation rests with
the government, because the government may borrow $10 million,
and $9.5 million of that would have been disbursed over perhaps
20 or 30 categories of expenditures from technical assistance,
training, equipment, infrastructure.
Mr. Ose. My question then boils down to, how does the
African Development Bank measure--that is not the word I want
to use.
How does the African Development Bank assure itself that
the capital it is providing to these countries is having the
desired impact?
Dr. Sherk. Do you want me to answer?
Dr. Botchwey. May I?
Dr. Sherk. Sure.
Dr. Botchwey. Mr. Chairman, first of all, the fact is that
every single loan operation or grant or whatever is given
within the framework of strict and often tedious conditions.
Mr. Ose. Do we send people out in the field?
Dr. Botchwey. Sorry?
Mr. Ose. Does the African Development Bank actually have
project inspectors, if you will, or loan officers that go into
the field?
Dr. Botchwey. Yes. Yes. Absolutely. Absolutely. The
projects are appraised. They are studied and appraised and
costed before and during--they are regularly vetted and
monitored and then exposed or also evaluated.
Mr. Ose. In the vetting process of the projects that are
funded, is the money put up first and then the vetting is done
afterward, or is the money released to the country after the
Development Bank's loan officer has actually gone out and done
the vetting?
Dr. Botchwey. It is the latter.
Mr. Ose. It is the latter?
Dr. Botchwey. Yes.
Mr. Ose. Much like a construction loan in the United
States, where you have to actually put the sticks in the air
before you get the money for the framing and the lumber?
Dr. Botchwey. No, not exactly, Mr. Chairman. The loans, the
disbursements are given, once the negotiated preconditions are
set. If the precondition is indeed that the foundation of the
building must be done by the government before the loan is
given, yes, then that is what will happen.
If the precondition is simply that the general microeconomy
framework be right, then that is what the government would need
to do before----
Mr. Ose. I am not sure. I see Dr. Sherk shaking his head
that, yes, the actual expenditure is confirmed before the money
is provided, and then I hear you saying that it is more a
function of the conditions in the negotiation between the bank
and the country being met, and that is what I am trying to get
at.
Dr. Sherk. Mr. Chairman, we are perhaps mixing apples and
oranges. As you know, since about 1990, the banks, all of them,
had started making a new type of loan called structural
adjustment loans that aim to the policy environment prevailing
in a particular country.
Many of the loans made by the banks historically have been
specific project loans dealing with the actual physical
hardware and training, and so forth, which can then be
disbursed based upon invoices for materials submitted, invoices
for materials that have actually been put into the project.
These then can then be audited and they are. By the way, each
loan has to be audited.
Mr. Ose. So, the bank sends somebody physically, if you
will, to check on the invoices and the items listed in the
invoice?
Dr. Sherk. Most of the cases those come in to a project
entity, and then those documents have to be sent on to either
the World Bank in Washington or on to the African Bank in
Abidjan, but the auditing process goes from local level up to
district or federal level, and then those documents are sent to
the banks.
Mr. Ose. But, Mr. Chairman, if I might just ask, I just
want to follow up.
Chairman Bereuter. There is unanimous consent to extend the
gentleman an additional minute.
Mr. Ose. 20 seconds.
I just want to make sure that I am understanding correctly.
I don't hear anybody actually saying that somebody actually
goes out and sees the physical project, is that accurate, that
it is an audit capacity rather than a physical visit?
Dr. Sherk. No, the physical visit takes place at the time
of the appraisal. It then takes place at the time of
supervision. And one of the things about the Knox Committee
that I served on was that we said the African Bank was right to
supervise its loans, but they didn't supervise them enough
times during a year. They sent a person to supervise a project
once a year.
Mr. Ose. My time is up. We are going to come back to this.
Dr. Sherk. We said they should go much more frequently, and
they are now.
Chairman Bereuter. The time of the gentleman has expired.
Perhaps a couple of case studies and briefings would be
good for the MDB projects.
Mrs. Maloney and Mr. Green were also here at the beginning
of the hearing, and then thereafter Ms. Waters, Ms. Lee, Mr.
Bentsen and Mr. Watt, Ms. Schakowsky and Ms. Carson, pardon me,
and Mr. Manzullo if he comes back.
So next will be Mrs. Maloney, and then we will come to Ms.
Waters. She is gone.
Ms. Waters, I will recognize you then.
Ms. Waters. Thank you very much. Mr. Chairman, and members
of the panel, I am going to open up a discussion that has been
nagging me to no end. It may almost be naive, but I want to
explore with you the contradiction of the riches of Africa and
the poverty.
I want to know if the African Development Bank, or anybody,
is involved in projects that explore and develop the natural
resources for the benefit of the people. For example, in
Zimbabwe there are unmined diamonds. I don't know why. I don't
know how it works. Between oil, gold and diamonds in Africa, it
appears to me that there should be economic development
projects that mine these natural resources in ways that all of
what we are talking about could be paid for.
Somebody explain to me what you do that could help that
effort or what anybody is doing and if nobody is doing it, why
not. I will start with Dr. Botchwey.
Dr. Botchwey. Thank you very much. That is a very
fundamental question. Now, first of all, we talk about Africa
often in its aggregation, which is right if we want to see
general trends. But the natural resources that you quite
rightly talk about are not evenly spread.
Ms. Waters. No.
Dr. Botchwey. There are some countries that have them in
abundance and others that don't.
Ms. Waters. Let's talk about Zimbabwe, for example.
Dr. Botchwey. Now, for those that do, say Zimbabwe, Ghana,
the natural resources, mineral resources in the main are
potential sources of wealth, they are in the ground.
Ms. Waters. That is right.
Dr. Botchwey. You will find that the development banks that
we are talking about, including the bank, the World Bank
itself, will very seldom provide resources on their own to
exploit these because they believe that, with some
justification, these are things that should be able to attract
private sector flows, private sector investments to develop
them.
In Zimbabwe there are even platinum deposits, but the ADB
isn't there doing any investments in these or in mining, and
there are many who would say they shouldn't. There are many who
would say if the ADF is going to provide concessional lending,
payable over 50 years, you know, with a long period of grace
and so on, then they should go to the other sectors where it is
typically difficult to attract private flows and so on.
So you don't get these institutions doing that, except in
core financing agreements with others, meaning Ghana, the World
Bank gave some loan facilities and ADB participated in
rehabilitating some mines.
So your question is right, why--and you raise the whole
business of the concentration of the fund of the ADF's
resources and the ADB resources. First, there are not enough to
start with, and therefore, choices have to be made between
putting the money in investments that generate income, foreign
exchange no less, as well as social setting investments that
produce----
Ms. Waters. Let me just, because we don't have a lot of
time.
Dr. Botchwey. OK.
Ms. Waters. My naive thinking tells me it shouldn't be
either/or, but it should be both. We know we must put money
into the social sectors, because we have to deal with health
and education in order to have any kind of reasonable
development and opportunities for people to be able to help
grow the country and earn money and have a good living. We know
that. That is long range you have to put investment into that.
But at the same time, we also know that if the bank is to grow
and to be involved in economic development, it should also have
investments in places that is going to give them a return--or
substantial returns in this case.
And I guess what I am asking is, are there any joint
ventures with government and the private sector? Are there any
joint ventures with Africans and others in countries where we
know the resources are just lying dormant there? Who is in
control of that and who does this?
Because my naive thinking tells me that with this crisis
that we have with AIDS, on top of everything else, that no
matter how much support we give, how well-thinking we are, we
have got to have a dramatic something to deal with these
problems. I want to know how and who will help to develop the
riches where they are? I mean, we know what is in Zimbabwe. We
know what is in Angola. God forbid, we know what is in the
Democratic Republic of Congo. Oil, gold, diamonds. Ghana.
How do we use these resources to literally pay for the cost
of running the countries and assisting the people? I mean, it
just nags me to no end.
Chairman Bereuter. The time of the gentlelady is expired,
but I would ask unanimous consent to extend the gentlelady
another minute if any of you would like to respond to Ms.
Waters' statement.
Ms. Njehu. Sure, I would. Very briefly, I think that the
question you are asking is the right one. And when, for
instance, were you to ask that question to people in Ogoniland,
they would probably say let the oil stay in the ground, given
the experiences of having the oil drilled and the effects on
the livelihoods, the quality of life and their environment.
So there are a number of outstanding situations and
questions that surround this issue of resource exploitation.
Part of it is that even in the places where it has been done,
it has been done at the expense of local people. The kids of
Ogoniland are certainly one of the most tragic examples. And
that when the resource exploitation happens it is to the
benefit of corporations, often foreign corporations, and
therefore it is not necessarily in the interests of people to
have these resources exploited.
I do want to say that for the record, even on the question
of debt cancelation, that precisely the point is that whatever
these initiatives are that they benefit ordinary people, the
question is who determines and how that is implemented. We can
mine the gold or we can mine the diamonds, but if it just means
all the wealth goes to DeBeers, and there are a few mining jobs
for people in Zimbabwe or Angola or the Democratic Republic of
the Congo, one needs to look at the bigger picture. And I think
that in doing that, the costs are too high.
There is also, of course, the question of resource
diversion. There is a lot of money that has gone into the
continent for corruption reasons, for misplaced priorities,
that it is not held in education, but perhaps a third
international airport or more tarmac roads, and those are the
questions that we need to ask about what does development mean,
and so far we have been found wanting.
Chairman Bereuter. Thank you.
Again, the gentlelady's time is expired. Perhaps somebody
would like to pursue this question further as we go down the
line.
The gentlelady from California is recognized, Ms. Lee.
Ms. Lee. Thank you very much, Mr. Chairman, and thank you
also for this hearing.
I want to thank the panelists for their very clear
testimony today. Today earlier, my colleagues and I introduced
a bill, the Debt Cancelation for HIV and AIDS Response Act, to
provide for multilateral debt relief for countries faced with
the HIV/AIDS pandemic.
I would like to find out from all three of you very briefly
what, if any, steps you are aware of has the bank or the fund
taken with regard to linking debt relief with HIV and AIDS? And
have you seen any evidence that the bank or fund is placing
sufficient priority to this issue?
Also, I would like to find out if you could explain the
coordination between the World Bank and the IMF and the African
Development Bank and Fund and is the relationship cooperative
with the larger institutions or does the World Bank and the IMF
make it harder for the African Development Bank to fulfill its
functions?
Finally, let me just ask you with regard to user fees, do
the loans provided under the African Development Bank require
user fees? What are the major differences in lending policies
between the African Development Bank and the IMF and the World
Bank?
I would like to ask all of you if you can respond to any
portion of my question, please.
Dr. Botchwey. OK. Let me start briefly from the last
question you posed, user fees. Yes, some of the ADB's
operations in health have involved user fees in the past. I
think there is a trend away from user fees now. I personally
did a project with a bank and the ADB that involved user fees.
It was a disaster. We opposed it. It was a disaster. And I
think the evidence shows very clearly that there is often a
very dramatic drop in attendance by the poor in these
facilities when fees are introduced. I think that now there is
much greater effort being made at devising more sensible
instruments for health sector programs.
The Bank and the Fund and the relationship with the ADB, I
think this is the subject of a particular study that we did.
Unfortunately, we don't have copies of it here. But my own
belief is that the ADB still is very much in its actual life,
very much a general partner to the Bank and hasn't really come
into its own.
I have to say this is partly because of reasons of internal
management posture, as well as the difficult environment in
which we operate with the Bank and the Fund. It is not just
simply the institution, I think some of it is internal. So it
is a difficulty.
Now, with the Fund it is even more difficult, because the
Fund sets up the general macro-economy conditions in which
recovery programs are instituted. And once that macro-economy
framework with this financing agreement has been set, it more
or less creates--it decides, it determines what kind of space
the ADB has in doing anything.
So it is kind of swift to the tide and it is unable to
develop its own sort of posture, whether it is in the macro-
economic sphere or whether it is in the sector policies.
Finally, on AIDS, the bank hasn't done very much on AIDS,
to my regret. Given that this is such a difficult and a serious
pandemic, they have done very little. Even in the area of
advocacy, frankly, this is something that I think most Africans
find worrying.
I think that the best they have done, and this has to be
said, they have incorporated AIDS--they have decided that AIDS
must not be incorporated in guidelines for implementing the
bank group's health sector programs. And the guidelines include
ideas such as mainstreaming AIDS in all operations. That is
fine. I don't know what it means in actual practice, but I
think there is a recognition that more needs to be done.
And I think finally that the Bank is now trying to train
staff internally in order to help the Bank upscale its
interventions. Thank you.
Ms. Lee. Thank you, Mr. Chairman.
Let me ask Dr. Sherk and Ms. Njehu, if you could respond
maybe to the priority that you see the bank giving to the AIDS
question and what you think we need to do to make sure we move
it forward more aggressively.
Ms. Njehu. I think that Dr. Botchwey has answered the
question in the way that reflects what I have been able to find
in my own research.
I do want to say that one of the frustrations, if I may
say, answering your question about the relationship between the
African Development Bank and the World Bank and the
International Monetary Fund is to say that I think that for
Africans we see the African Development Bank that it should be,
if we use a medical phrase, a second opinion to the policies
and the problems that are coming out of the World Bank and the
IMF, but in fact it has acted as a junior partner and that is a
big frustration.
In terms of user fees, the impact, whether it is held in
education, increasingly a focus on water privatization, this is
a very worrying trend. We are very, very concerned that the
President's budget includes language that asks for the striking
of the user fee amendment that was passed last year, and that
given the evidence that we have of the disaster that user fees
have on the African continent and elsewhere, we hope that this
subcommittee will play a role in ensuring that the user fee
amendment stays intact and is not repealed.
Chairman Bereuter. The time of the gentlelady is expired.
The gentleman from Texas, Mr. Bentsen, is recognized.
Mr. Bentsen. Thank you, Mr. Chairman, and thank you for
your testimony.
I just have a couple of questions. I want to follow up a
little bit on what Ms. Waters had brought up.
Dr. Botchwey, your response with respect to lending for
mineral extraction and why the bank generally had shied away
from that given that it was a more marketable transaction than
the private sector could fund.
Is there any correlation, because I know this issue has
been brought up as well that the idea, and Ms. Njehu had
mentioned this, there is always the concern in emerging
countries of exploitation of natural resources by foreign
companies, and is there a case to be made for regional
development banks to actually become a funding mechanism for
regional companies or are regional partnerships that rather
than having to go abroad to develop oil resources or develop
mineral resources of some sort, is that something that regional
banks have considered in the past and, therefore, to try and
maintain some of the ownership of the resources within the
country?
Dr. Botchwey. Well, thank you. It is an interesting
question, Mr. Chairman. The problem is that the whole mineral
sector industry is really controlled, that is the truth, by a
few large companies worldwide.
If you wanted to build an aluminum plant, for instance, in
the country, there are about six, seven companies worldwide
that you would have to go. And that is one area you must
recognize.
Second, the question also is the prioritization of the
areas of investment, given that the resources that the regional
bank, this bank, its resources are limited. Now, I am talking
about the bank.
Mr. Bentsen. I guess the question I have is this, two
things, I don't know if you are talking about the means of
production or the means of distribution in the worldwide
market.
Dr. Botchwey. OK.
Mr. Bentsen. But it seems to me that the issue that the
gentlewoman from California raises has to do with the means of
production.
Dr. Botchwey. Yes.
Mr. Bentsen. And the second thing is that it would appear
from your testimony that the bank is increasingly moving toward
industrial-type lending, it is project financed, but not
project financed in the sense that we might think of it from
the World Bank or lending 20 or 30 years ago where project
financed were big public-type projects, but more industrial and
private sector lending.
And in that context, we know that other regional banks had
become lending vehicles for foreign interests going in to
create economic development in countries, and that is one
aspect. But why not focus some of the lending capability on
domestic initiatives?
Dr. Botchwey. On domestic initiatives----
Mr. Bentsen. Domestic industrial initiatives.
Dr. Botchwey. Well, the ADB does some domestic industrial
initiatives. It is not a very prominent feature of its overall
lending profile. It is very, very small indeed.
I do believe that what the ADB could do, for instance,
would be to provide assistance in negotiating agreements that
are really truly beneficial to the country, in addition to
providing whatever incentives are required to bring the private
shareholders in.
I have a second worry that really, if a country has gold or
diamonds, you know, the resources that we are talking about, it
is indeed possible, easier, as we all know, to attract private
capital from domestic and foreign sources as part of these as
it is to do other investments.
Very often, the problem is that the country is unable, even
on its own sometimes, either for reasons of a lack of capacity
or for reasons of corruption, to negotiate a framework that
assures the country of the most rational exploitation of that
resource.
So there is room for real skills, a development to do this,
and then there is a need for resources as well. The bank does
some core financing, for instance, in this area, which I think
can be encouraged; the World Bank itself does some core
financing to help the development of these assets.
But if you ask whether more of it should be done as against
the other project areas, this other sector and so on, given the
overall constraint in resources, my inclination would be to say
that the least long-term concession of resources especially
should be invested more, I think, in the area of the sectors
and for poverty, you know, in the areas that benefit the poor
more directly.
Mr. Bentsen. Thank you. Thank you, Mr. Chairman.
Chairman Bereuter. Thank you, Mr. Bentsen. The time of the
gentleman has expired.
The gentleman from North Carolina, Mr. Watt, is recognized.
Mr. Watt. Thank you, Mr. Chairman. Sometimes the best laid
plans you have can go awry. My intention was to be here and to
hear the full testimony of all three of the witnesses. And just
as soon as Dr. Sherk started testifying, I got called to the
floor, so I missed everybody else's testimony.
So I want to start by apologizing for having to run out on
everybody else's testimony, but sometimes these things have a
way of working out for the best, because had I been here I
probably would not have spent the time I have spent over the
last 20 to 30 minutes reviewing Dr. Sherk's paper written in
December of 1999, which is perhaps the best summary I have seen
of the history and development of the African Development Bank.
It kind of puts in perspective for me the relatively short
history that the bank has but, more importantly, the even
shorter history that the United States has as a participant
shareholder in the African Development Bank, and also puts in
perspective something that I know the United States well enough
to understand is always going to be a problem, which is that
the United States has only 5.8 percent of the vote in the
African Development Bank, and that the real decisionmaking gets
made by the majority shareholders.
And I suspect that there will always be in this body, just
knowing how you say mentality and congressional mentality
works, a degree of discomfort about that. Notwithstanding that,
I want to encourage and I hope all of the Members of our
subcommittee and the full committee will read this history,
because it is really a real testament to how this bank has made
progress.
I am particularly looking at page 5, where you say that of
the three regional development banks, the African Development
Bank was capitalized by the smallest amount, $250 million
originally as compared to $1 billion for the IDB and the Asia
Development Bank, and you trace some of the--kind of the
tensions, negotiations that have gone back and forth between
the United States and Africa, the African countries, about the
control of the bank, who is going to be the president, who is
going to be able to purchase ownership in this bank.
And so I guess I am saying that one part of me is extremely
encouraged that given the short duration that the bank has been
in existence, given the very small, by comparison, investment
that was originally made in the bank, given the period of
negotiations and tensions about who was going to control the
bank and how the United States was going to be involved as a
participant in this, even against that backdrop, substantial
improvements have been made in the lives of people.
And while I don't want to get carried away with bragging
about the results of the bank, I do think that needs to be said
and put in perspective, and in many ways the people who have
been working with the African Development Bank deserve a
tremendous amount of commendation for that history.
And I have taken my whole 5 minutes to talk about it.
Dr. Sherk. May I respond, Mr. Congressman?
Mr. Watt. I don't know what the question is, but respond to
it, anyway.
Dr. Sherk. I would like to respond to your observations,
because I think they are right on, and if I did anything----
Chairman Bereuter. If you can do that in about a minute,
please.
Dr. Sherk. Yes, one minute. If I did anything in that
paper, I wanted to have it established that the other financial
institutions around the world, most of them--of the major ones
were created as a reaction to the World Bank, meaning that the
World Bank wasn't meeting the needs as perceived by the
developing countries themselves.
And they thought they would have a better shot if they
would develop an institution in which they had greater voice. I
think the fact that the U.S. joined those regional institutions
was a recognition that the World Bank didn't have a monopoly on
truth. If they did, the world would be developed now. The world
is not developed, and, therefore, the more different points of
view and opinions that can be shared about the courses of
development, I think the better.
And so I am very pleased that you brought that specific
issue out.
And then, finally, Mr. Chairman, if in 100 years IBM comes
up with a machine that can calculate the rate of return on
every dollar Congress appropriates, I would guarantee that the
dollars appropriated by the United States toward its small
participation in the African Development Bank would have a rate
of return higher than 95 percent of the rest of the things that
the U.S. Congress appropriates money for. I believe that.
Chairman Bereuter. I thank the gentleman. That is an
interesting statement. I hope he is right.
The gentlelady from Illinois, Ms. Schakowsky, is recognized
for 5 minutes.
Ms. Schakowsky. Thank you. I, too, would really like to
apologize to all the witnesses and do promise that I will
carefully read the testimony.
Nonetheless, I am not shamed into not asking questions, I
will do so anyway, and it may be on subjects that you have
already touched, and I guess you will just have to forgive me.
Mrs. Njehu.
Ms. Njehu. Yes.
Ms. Schakowsky. Am I saying it right? You talk in your
testimony about hundreds and hundreds of alternative
development models that have not been implemented for lack of
resources and expertise, community level initiatives that are
struggling and have not seen widespread implementation because
of lack of resources. And you say, optimistically I think, that
Africans are not looking for a handout, all they want is the
chance and the support to enable them to succeed, and then
later, instead of more reforms what is needed is clinics
stocked with drugs, and so forth.
What is it about the structure of the bank that makes it
difficult to get those resources?
And then let me also refer to Dr. Botchwey's comment about
what you call tedious conditions, if we are talking about the
same thing here, and if we know how to get from here to there--
at least there is some hopeful roadposts that say how to get
from here to there--then what is stopping us from doing that,
and how can we get the tedious conditions or if there are
inappropriate conditions out of the way and how can we target
those projects that hold out the most hope and then maximize
the resources therefore that are available?
Ms. Njehu. I don't think that I have all the answers,
because I think that there are many answers, and part of the
problem that we have been enduring is this idea that there is
only one economic model and one development model, and that so
far the possibility of alternatives--in fact, Margaret Thatcher
told us there is no alternative. There is no alternative, that
the possibility of alternatives has not been given due credit.
One of the things that you might have missed was a chart.
Ms. Schakowsky. I will just ask you is that lack of vision
or is it rules that prevent those alternatives from fitting
into the framework?
Ms. Njehu. I think it is both. I think it is lack of
vision. I think it is to some extent perhaps arrogance on the
part of development professionals, economists and others who
think that they have come up with the right idea, with the idea
that is going to work and do not seem to entertain any
possibility of being wrong or recognizing the signs and the
evidence of the failure of the policies and projects that they
put forward.
One of the documents that I had that is part of the record
is this document that is from the World Bank research
economist, who actually wishes to remain anonymous, but it
shows that as loans have grown, have increased, growth has
decreased.
And it is very startling, because then I would assume that
the response would be to say, wait a minute, are we supporting,
are we focusing on the right things? I think that when one
looks--I am from Kenya, and Kenya supposedly owes $8 billion.
When you look around Kenya, you do not see a country where $8
billion have been invested.
You see a country that has all of these massive needs, and
I think it is true of many other countries. There is this
question of misplaced priorities that governments are choosing
the--and I could speak to my own country--building a third
international airport, building a bullet factory in a region
that is surrounded by Sudan, Ethiopia, Uganda and spitting
distance from Rwanda and Burundi and the Democratic Republic of
the Congo.
Surely, we don't need more bullets, perhaps we need schools
and clinics. And it is not just the Kenyan government. It is
that the funding of these projects was supported in one case by
the government of Canada in support of a Canadian corporation
and the government of Belgium in support of a Belgium
corporation, with a bullet factory and the international
airport respectively.
So there is a question of priorities. There is a question
of one of the things that was raised about where the desire and
the focus is in terms of where money is put within a country or
within a region.
And the examples that I am talking about is they are local
examples, that we don't get stuck in thinking that whatever
model we come up with, whatever initiative we come up with,
they have to be national or regional.
There are successful examples in India, one that I can
think about where the government of the City of Kuran got
resources and demanded to develop and they did quite well.
I think this is one of the possibilities that we can look
at with the idea of thinking outside the box and not asking
governments to do the same thing over and over.
Chairman Bereuter. The time of the gentlelady has expired.
There are only three of us here. We will begin a second
round.
Ms. Njehu, I noted from your testimony that you refer to
the need for the African Development Bank to try bold new
ideas, and break out of failed economic models. For example,
you say you could pick a district in Mozambique and, ``provide
the government there with the resources to attract dedicated,
intelligent individuals who know the area well, see if a
government-owned cashew processing facility can provide
employment and make a reasonable profit.''
An interesting idea as an illustration. I am not focusing
on the cashew production, but you go on to say you think there
are hundreds of alternative development models that have not
been implemented for lack of resources and expertise.
Is it all simply a matter of resources, inadequate
resources? In your judgment, to your knowledge, is the ADB
thinking outside the box, or are they trying untraditional
development models?
Ms. Njehu. I don't think that it is all a matter of
resources, but I think it is a big part of it, because if you
have a need--whether it is for a clinic or for a school with
textbooks and teachers who are well-trained and paid to do
their job, that if you don't have the resources to do that,
even if you have a great plan, then it doesn't happen.
But, I do think that--and I think that Dr. Botchwey and I
have mentioned this before--that it seems that the African
Development Bank acts and follows the lead of the World Bank
and IMF. I mentioned that I think that it should be
accountability. It should be in the context of, to use a
medical example, the idea of a second opinion. So that if the
first opinion says structural adjustment programs that result
in user fees or require user fees, that the African Development
Bank could perhaps offer a second opinion. And the answer is
that they haven't been doing that. There is a possibility that
they do that, but they haven't been doing that to the best of
my knowledge.
Chairman Bereuter. Thank you.
My last question is for Dr. Botchwey and Dr. Sherk. Data
provided in the Meltzer Commission Report last year suggested
an average of 73 percent of all World Bank projects undertaken
in Africa during the decade of the 1990s failed to achieve
``satisfactory sustained results.'' That is a very incredible
statistic.
Is it a credible figure to you? That is my first question.
And relatedly, is the failure rate, by their definition at
least, for projects that are underwritten by the African
Development Bank fund, as high as that? Would you like to make
a comparison between the two and whether or not you think that
the Meltzer Commission was appropriate in their condemnation?
Dr. Sherk. Well, since I was sort of on the Meltzer
Commission, I could support that. It is the question of how you
define what you are trying to accomplish with the particular
project, and I have always been a critic of the notion that you
have got to lend more money at the end of the year to prove
that you have done something. And I think that the focus
finally is changing on let's take a look at every individual
project and see what we are trying to accomplish with this
particular amount of money.
I would also like to come up with this question of about
does the African Bank follow in the footsteps of the World
Bank, or are there things for the World Bank to learn from the
African Development Bank? And I think, and I don't want to put
words in my distinguished colleague's mouth here, but I think
we did find in discussing with staff members in both
institutions and indeed in our visits to the African countries
that the African Bank was a reservoir of very good
understanding of some of the deep, entrenched problems that
that continent is facing, and that by encouraging this kind of
joint mission work, developing a country strategy paper
together, that you were finding a cross-fertilization that
really was an improvement for both institutions.
And at the time I think when I first got into this field,
the World Bank was very arrogant, I think someone on the panel
used that phrase earlier, in saying that the regional banks
didn't have much to offer. Well, I think they have learned a
lot on 18th Street, and that is that they do have an
understanding that oftentimes is deeper of individual societal
problems.
And there is another factor in Africa that is harder for an
American to get to articulate, but I saw it time and time
again, and that is that Africans are more comfortable with the
African staff members from the African Development Bank. They
had a trust and a level of candor in their discussions that
oftentimes couldn't be replicated by a group of World Bank
staff getting off an airplane and then seeing some people and
grabbing some papers and stuffing them in their briefcases and
getting on the plane and leaving again.
Chairman Bereuter. Understandable.
Dr. Sherk. So that is an important factor.
Chairman Bereuter. Dr. Botchwey, would you like to respond
to that?
Dr. Botchwey. Yes. Briefly, Mr. Chairman. I think that the
statistics of the Meltzer Commission published on poor air
quality and failure in the Bank are indeed true. The Bank's own
evaluation, in fact, confirms this, I think, and the causes of
these failures include the Bank--as it was noted, the fact that
all the projects simply didn't have enough local ownership. I
think governments, they didn't feel that they really were a
part--that these were projects that they would have liked to
choose and design that particular way. So national ownership
and commitment and the lack of it, actually, has been
identified as all the main reasons why all these projects
failed.
Now, as to the new ideas--Mr. Chairman, just one quick
point--I think that it is true for a long time the whole
strategy adjustment framework tended to be very monolithic, and
there was very little room in negotiations to get alternative
ideas tried. I think that that atmosphere is changing now, and
this institution has changed very slowly, and, therefore,
whatever the leading shareholders, including the United States,
can do to really open the vents to allow a flourishing of ideas
in that environment, a better place for the regional banks, I
think it would be helpful.
Finally, Mr. Chairman, to offer--I would like to submit--
Don and I, I think, for the record, we did a study of the
relationship within the World Bank and the ADB and proposed a
framework for a partnership between them that I believe the
subcommittee would benefit from.
Chairman Bereuter. We would like to have that, and without
objection, that will be made a part of our record if you supply
it.
Dr. Botchwey. OK.
Chairman Bereuter. Thank you.
[The information has been received and has been
retained in the committee's permanent files.]
Dr. Botchwey. And then finally, I also happened to have
authored a paper on the AIDS--the impact of AIDS on economic
development in Africa, which was a theme paper for a major
meeting that the Economic Commission of Africa organized last
year, which I would also like to make available to subcommittee
Members.
Chairman Bereuter. Thank you, and likewise, without
objection, that will be made a part of the hearing record.
[The information can be found on page 80 in the appendix.]
Chairman Bereuter. Would the gentleman from North Carolina
like to be recognized? The gentleman is recognized for 5
minutes.
Mr. Watt. Thank you, Mr. Chairman.
I promise you I am going to ask a question this time, but I
want to start the question with a starting point, and it really
is an extension of where the Chairman, I think, was going. The
question I will end up with--and you may have to help me frame
the question, because I am going to have to struggle here. On
Page 121 of Dr. Sherk's paper of 1999, he says, the Bank--the
African Development Bank, that is--has adopted poverty
alleviation as its, quote, central goal, close quote. It has
incorporated into this project design processes, gender
considerations, environmental review, private sector support
and civil society participation in its country assistance
planning.
Now, I take it if the goal--the central goal is poverty
alleviation, I couldn't say, direct me to one particular
housing project or construction project or project that you
would consider a success story. Would I be saying that, or
would I be saying, direct me to a country that you consider a
success story? Which way would I frame this question, because I
want to go to the question?
Dr. Botchwey. You probably would have to be--it would be
both. You want to go to a country where----
Mr. Watt. They have some success stories?
Dr. Botchwey. They have success----
Mr. Watt. All right. Then my question is this, and this is
against a backdrop where I presume at some point Members of
this subcommittee would like to actually observe some things
that the African Development Bank has done, and what my
question is, would you all identify for me the three success
stories, country and/or specific projects, and the three dismal
failure stories, country and specific--and/or specific
projects? If we were going to look at successes and failures in
the history of the African Development Bank, where would we
look? And that is the only question I have, because I think
that might lead us somewhere at some point.
Dr. Sherk. Mr. Chairman, we are very fortunate today,
because in the hall is the current United States Executive
Director of the African Development Bank, and if she allows me
to identify her, she could speak to the specifics of successful
projects and unsuccessful projects, and I would ask for the
Congressman's indulgence that a list of those projects be
prepared and sent to you rather than relying on Dr. Botchwey
and myself to pull them out of the air.
I do remember both good projects that I visited during my
tenure at the African Development Bank, and I remember some bad
projects, too. And, as a matter of fact, when a project was a
bad project, we had a system in place whereby I would report
back to the U.S. Treasury and say that this what we have found
out about the particular project, and I don't think, in my
humble opinion, that the project should go forward, and that
the Treasury would then report back to me and instruct me to
vote against the loan. And in a few cases, when you could get
enough people to vote with you, you could either delay the
project, get it reformulated, or, indeed, killed.
Mr. Watt. Maybe I--I think I may have asked my question too
broadly to expect three examples. Maybe if you could just give
me your favorite success story and failure story, and all three
of you do that, and then I could ask permission from the chair
to inquire of the current Executive Director to respond in a
more comprehensive way to give us some success stories and some
failure stories.
Dr. Sherk. Well, the ones that stick in your mind are the
failures and not the real successes, because as I did----
Mr. Watt. I am disappointed to hear that.
Dr. Sherk. They become more controversial. There was a $100
million petroleum sector loan to Mr. Mobutu, and I probably
spent more time opposing that loan than any other Board member
on the Board back in the 1990s when that loan was made. It
shouldn't have been made, I think everybody in the Bank would
admit now that it shouldn't have been made, but at that time,
as you know, he was an extremely powerful African leader.
The other one was a soybean loan to Cote d'lvoire, the
headquarters of the----
Mr. Watt. Is this good or bad?
Dr. Sherk. It was not what you----
Mr. Watt. Positive.
Dr. Sherk. It was on the negative. And the reason it was on
the negative side is that it was to introduce the cultivation
of soybeans in a very fragile part of the country's
ecostructure, which was on that band of land very close to the
Sahara Desert, where it just began to be savannah and had a
very thin layer of topsoil; that by plowing up for the
soybeans, you could really increase the likelihood of
desertification, and we felt that the fact that the project was
wanted by the Ivorian government was not enough to get us to
support it. And we had enough votes against that loan to kill
it, until the president of the country got on the phone and
called every head of state in Africa and said, I want you to
instruct your executive directors to support this loan. And so
they came in the next day and changed their vote.
Mr. Watt. Mr. Chairman, can you give me enough leeway to
get at least one success story?
Chairman Bereuter. I have unanimous consent. The gentleman
will have such time as he may require to get answers from at
least Dr. Botchwey.
Mr. Watt. And one success story.
Chairman Bereuter. At least.
Dr. Botchwey. Yes, Mr. Chairman. I will give you one
success story to which I can speak honestly and without any
restraint. This is the African Capacity Building Initiative,
which the ADB helped spawn. It is based in Harare. It is run by
Africans. It has a fairly functioning governing structure, and
it has helped build capacity in the region, much of which has
stayed in the region for microeconomic analysis, and it is now
branching out and building capacity in civil society, in the
private sector and the interfield between these two and the
public. It is very successful.
And there is a cousin of this initiative, which has also
been quite successful. This is the African Economic Research
Consortium, which is recognized everywhere, really, as a
preeminent network of good, you know, African economic
reserves. So I can speak about these two as good cases of
success.
And, Mr. Chairman, if I may make one short statement about
poverty alleviation, because it troubles me, it is fast
becoming a new bandwagon whose success is determined merely by
self-assertion, I think. You say that we are resourceful in
alleviating poverty in the country, when--and this is at the
global level--that country moves from low-income to middle-
income or high-income, judged by their respective income. Then
we say, you now, we have done well. We don't say that we have
done well in poverty alleviation if we put the Bank's money in
one or two clinics or projects, and they are successful.
I think that it is important for us to appreciate that the
business of alleviating poverty in Africa has been a sustained
thing, and that the measure of its success will come when fewer
and fewer people live in poverty. And that intent will only
happen if there is employment-generating growth and if people
can find work and be paid.
I just wanted to make this point. It is very important that
we appreciate that that is what we are looking at, and it is
wrong, in fact, to force development institutions in the name
of poverty alleviation to be mechanically putting resources in
education and health projects, defined narrowly, and not
necessarily creating an overall environment in which the right
investments have been made.
Chairman Bereuter. I thank the gentleman, and I must say I
appreciate very much, and I know the subcommittee does, the
testimony, oral and written, of the witnesses here today. I
like the one-panel kind of hearings, because you receive the
attention, and not all of it went to the Executive Branch in
the initial stages. And it is not fair to Executive Director
Johnson to ask her to come to the table, but you have heard Mr.
Watt's request that you might provide some examples of
successes and failures, too, and I would join him in that
request. And if you would, I would appreciate it if you could
send that to the subcommittee so that we can share it. I see a
nodding of the head in affirmation and willingness there. Thank
you very much.
One final matter. Without objection, the hearing record
will remain open for 30 days for Members to submit written
questions and to place their responses in the record. And with
that, again, and my appreciation to the witnesses, the hearing
stands in adjournment.
[Whereupon, at 3:47 p.m., the hearing was adjourned.]
A P P E N D I X
April 25, 2001
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