S. Hrg. 103-430, Pt. 1 Senate Hearings Before the Committee on Appropriations 1 Y 4. AP 6/2: S. HRG. 103-430/ PT, 1 ForeigD Operations, Export, ,f.jiuiici.ii Foreign Operations, Export Financing, and Related Programs Appropriations Fiscal Year 1994 103d CONGRESS, FIRST SESSION H.R. 2295 PART 1 (Pages 1-613) NONDEPARTMENTALWITNESSES m 4 es4 S. Hrg. 103-^30, Pt. 1 FOROGN OPERATIONS, EXPORT HNANCING, AND REUTED PROGRAMS APPROPRIATIONS FOR nSCAL YEAR 1994 HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE ONE HUNDRED THIRD CONGRESS FIRST SESSION ON H.R. 2295 AN ACT MAKING APPROPRIATIONS FOR FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS FOR THE FISCAL YEAR END- ING SEPTEMBER 30, 1994, AND FOR OTHER PURPOSES Part 1 (Pages 1-613) Nondepartmental witnesses Printed for the use of the Committee on Appropriations U.S. GOVERNMENT PRINTING OFFICE 68-609cc WASHINGTON : 1994 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-043943-4 COMMITTEE ON APPROPRIATIONS ROBERT C. BYRD, WestVirginia, Chairman DANIEL K. INOUYE, Hawaii MARK 0. HATFIELD, Oregon ERNEST F. HOLLINGS, South CaroUna TED STEVENS, Alaska J. BENNETT JOHNSTON, Louisiana THAD COCHRAN, Mississippi PATRICKJ. LEAHY. Vermont ALFONSE M. ITAMATO, New York JIM SASSER, Tennessee ARLEN SPECTER, Pennsylvania DENNIS DeCONCINI, Arizona PETE V. DOMENICI, New Mexico DALE BUMPERS, Arkansas DON NICKLES, Oklahoma FRANK R. LAUTENBERG, New Jersey PHIL GRAMM, Texas TOM HARKIN, Iowa CHRISTOPHER S. BOND. Missouri BARBARA A. MIKULSKI, Maryland SLADE GORTON, Washington HARRY REID. Nevada MITCH McCONNELL, Kentucky J. ROBERT KERREY. Nebraska CONNIE MACK, Florida HERB KOHL, Wisconsin CONRAD BURNS, Montana PATTY MURRAY, Washington DIANNE FEINSTEIN, California James H. English, StaffDirector Mary S. Dewald, ChiefClerk J. Keith Kennedy, Minority StaffDirector Subcommittee on Foreign Operations, Export Financing, and Related Programs PATRICKJ. LEAHY. Vermont, Chairman DANIEL K. INOUYE, Hawaii MITCH McCONNELL, Kentucky DENNIS DeCONCINI, Arizona ALFONSE M. I^AMATO, New York FRANK R. LAUTENBERG, New Jersey ARLEN SPECTER, Pennsylvania TOM HARKIN. Iowa DON NICKLES. Oklahoma BARBARAA. MIKULSKI. Maryland CONNIE MACK, Florida DIANNE FEINSTEIN, California PHIL GRAMM, Texas Professional Staff Eric D. Newsom Tim Rieser James Bond (Minority) Administrative Support Fred Kenney (H) CONTENTS Tuesday, June 15, 1993 Page Nondepartmental witnesses 1 Material submitted subsequentto conclusion ofhearing 489 (in) FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS APPROPRIA- TIONS FOR FISCAL YEAR 1994 TUESDAY, JUNE 15, 1993 U.S. Senate, Subcommittee of the Committee on Appropriations, Washington, DC. The subcommittee met at 10:07 a.m., in room SD-138, Dirksen Senate Office Building, Hon. Patrick J. Leahy (chairman) presid- ing. Present: Senators Leahy, DeConcini, and Feinstein. NONDEPARTMENTAL WITNESSES STATEMENT OF BRUCE RICH, ON BEHALF OF THE ENVIRONMENTAL DEFENSE FUND OPENING REMARKS OF SENATOR LEAHY Senator Leahy. Good morning. I thank all ofyou for being here, and I am sorry that it is as crowded a time as it is. We have 46 witnesses scheduled today on issues ranging from the environment to our Military Aid Program. Because of the schedule, I have changed slightly the starting time this afternoon so that it will ac- commodate a vote before the Senate. I would note on the schedules the starting and stopping time. We will have to keep to that. Of course, your whole statements will be put in the record. I do not want to cut you off because this may be the last ti—me we will be able to do it this way.—But I only men- tion the time and I would ask vour cooperation ^because we will stop at the time shown, both in the morning and the afternoon, and anybody who is not heard, unfortunately, will have their statement put in the record. So I do not want you to feel any pressure from all the people sitting behind you, but we will go ahead. Today, we start with Mr. Rich, Bruce Rich from the Environ- mental Defense Fund. SUMMARY STATEMENT OF BRUCE RICH Mr. Rich. Thank you, Mr. Chairman, for the opportunity to ap- pear here today before the Subcommittee on Foreign Operations. I am testifying on behalf of three national environmental organiza- tions, the Environmental Defense Fund, the National Wildlife B'ed- eration, and the Sierra Club. Together, these organizations have more than 5.7 million members and supporters nationwide. (1) On behalf of our organizations, first of all, I would like to thank you very much, Mr. Chairman and the members ofthe subcommit- tee, for the leadership role that you have shown over the years in promoting environmental and social concerns in our multilateral and bilateral assistance, and most recently for your letter of June 7, 1993, to the President of the World Bank calling for a creation of £m independent review or appeals commission to look at con- troversial projects and for a more open information policy. Those, ofcourse, are recommendations that we have endorsed also. Mr. Chairman, you stated on April 27 that you had to wonder whether the World Bank could be trusted to use the public's money wisely and effectively. We have asked ourselves that question, too. We have seen over the past year alarming evidence of the World Bank's lack of the most basic accountability and sense of respon- sibility for the environmental and social impacts of its projects. We have concluded that it would be environmentally, socially, and eco- nomically irresponsible to continue to appropriate funds for the IBRD or IDA without some evidence of far reaching reforms in the way the bank does business. Senator Leahy. Have you seen any evidence ofthat so far? Mr. Rich. Well, very little. In fact, over the past year, I have to say we have seen evidence of a real regression. And I think it is the environmental problems, they are just a leading indicator of more systematic mismanagement or lack of management. It is just an indicator of really grave problems that the place is just not to- tally under control. But we do recognize that the new administration sees the need for reforms, and that alternatives to help Africa's macroeconomic crisis have to be found before cutting IDA's support for African economies. So what we are recommending is that for the coming fiscal year that the Congress should appropriate enough IDA funds to con- tinue to support Africa, but there should be requirements for com- prehensive reports by the Treasury on the progress the Bank makes in instituting a number offundamental reforms that we dis- cuss in more detail in our statement. We think that some cuts should be made in the IBRD at the very least to send some sort of a message. You, Mr. Chairman, 2 years ago, wrote the Secretary ofthe Treasury setting down benchmarks in certain key areas such as energy efficiency, treatment offorcibly resettled populations, forestry protection, environmental assess- ment, and so on, and indicated that by mid-1993 if there were not major improvements it would be appropriate to start cutting IBRD appropriations. Frankly, we think that the record has been overall just abominable and in some ways a regression. And we think that would be called for at the very least. We do not have much time. I would like to citejust two examples among many which are discussed in my statement. Brent's state- ment, and together with other information we have produced, of how great this regression is at the Bank. I think the most impor- tant indication is the Bank's response to the "Wapenhans" report, which is one of the reports that you cited in your statement April That report was prepared internally in the Bank. It looked at the entire $140 billion outstanding loan portfolio of the Bank. It con- cluded, one, that over the past decade the number ofunsatisfactory projects has increased to 37.5 percent from 15 percent; two, that nearly four-fifths of the financial conditions in World Bank loan agreements, 78 percent, are not being complied with; three, that Bank staff have very little faith in th—e entire economic appraisal process and project preparation process I quote: * * * that according to an internal staff survey only 17 percent of Bank staff interviewed felt that analytical work during project preparation was compatible witii the achievementofproject quality. And the report cites a pervasive culture ofapproval for loans. Well, what has been the response? Twofold. One, earlier this year, the Bank management issued directives calling for a weaken- ing of the Bank's policies, which are going to be reissued in more general, less binding form, changed from operational directives to operational policies. Second, a document called "Next Steps" was prepared. Next steps took nearly 1 year to prepare, and it was so bad that the executive directors sent it back for major revisions. The U.S. Director of the Bank, in a board meeting in May, said the expected actions are not concrete to be monitorable, and that people hostile to the Bank would view them quite simply as not a serious response to these problems. Well, that is the record. On the other hand we have seen Senator Leahy. You are on Mr. Blackwelder's time. PREPARED STATEMENT Mr. Rich. OK. Well, let me finish then and thank you again. And in addition, we have called for alternatives supporting the Inter- American Foundation, Appropriate Technology International, the African Development Foundation, small scale foreign aid organiza- tions that the Grovemment supports that really do reach the poor, and in terms of Africa, calling for a reexamination of major debt relief for Africa. Endorsing the Trinidad terms, for example, would do a lot to relieve the macroeconomic pressures on the impover- ished African Nations. Thank you, very much. Senator Leahy. Thank you. [The statement follows:] STATEMEhfT OF BRUCE M. RICH I IniroUucuonandSummary Mr.Chairman,thankyoulorIhcopponuniiyloicslilytodayhclorciIkSenateSuKi)iiiinntccon l-orcJanOperations. Expon Financing, and related matter:;. I am Bnjcc M. Rich. Senior Attorney wiiJi ihe EnvinmmeniaJ Delensc Fund(EDR. and Directorol EDFs hitcmaiional Pmgram. I am lesiilying loday hehalfo» EDF. the NationaJ Wildhfe Federation (NWR. and the Sierra Cluh. EDF is a pubhc interestenvironmental researchandadvcKacyorganizationwithover2(M).(XX)membersnationwide. Tlie NationalWildlifeFederationisthelargestconservationorganizationintheWesternworldwithmorethan - millionmembers,andtheSierraCluhhasoverWMl.tXX)membersandsupponers. MystatementrcHccLs ihc contributionsofmy colleagues at EDF. Scott Hajosi. Korinna Hona. Steve Schwanzman and Lori l.dall. OnbehalfofEDF.NWF.andtheSierraCluh.I firstwouldliketothankyou.Mr.Chairman,and themembersoftheSubcommittee,torthe leadersliipmlcthis Subcommitteehasi;ikenoverthe yearsin pnimotingenvironmental andsrKiaJconcerns inourmultilateral and bilateral foreign assistance. MystatementwilladdressFY 1994appmpriationsforihcWorldBank,aixlAfricanDevelopment Bank, theGlobalEnvironment Facility,aswell asthe United Nation Envininment Pmgram.ilie Uncsco World Heritage Fund and Center, and needed support for U.S. uovermnent elfons to cn.suie U.S. leadershipincarryingout initiativeslaunched at the EarthSummit in Rio last June. Mr.Chairman,youstatedon.Apnl27that \ouhadtowonderwhctiicrtheWorld Bankcanbeimslcd 10u.sethepublic'smcmeywisely andelfectively. We have askedourselvesihatquestionI(M). We have seenoverthepastyearalarmingevidenceofIheWorld Bank'slackoftticmostbasicaccountabilityand senseofresponsibilityfortheenvironmentalandsocialimpactsofitsprojects.EDFandanumberofother national environmental groups have concluded ihat it would f>e cnvininmcntally. socially, and economically irresponsible to continue lo appmpriate for funds for cither the IBRD or IDA wiihout ovidctKeoffarreachingreformsinthewaythe Bankdoesbusiness. Butwe alsorecognise ihat Ihenew administration sees the need for reforms in the Bank, and lliat alternatives to help .Alricas macm- jconomic crisis should be found ficforc cutting IDA support for African cci)nomies--ihough there is increasingevideiKe Ihat IDA isnotdoing Africa, andespeciallylite poorinAfrica, muchg<MKi. Wesuggest,therefore,thatforFY 1994theCongressappn)priaieenough IDA fundstocontinue lo support Africi with requirements forcompreheasivc reporting by ifie Trexsury Department on the pntgrcss Ihe Bank makes ininsiituiing a numberof fundamental reforms discussed in detail later. We recommendthat forFY 1994tfuithe AppropriaiioasCommitteecutaponionofIBRD lundinc.asyou. Mr. Chairman, indicated would be anoption in the letterthat you sent tothe SecretaryofIheTreasury nearlytwoyearsago.onJune25. 1991.The heartofneeded reforms lies inmajorinstitutional changes tomakeprojectquality, notpushingmoney,theoverarching priorityofIhe Bankand reformstoensure independent review of Bank projects and public access lo most Bank dcKuments. Ii is important to rememberthattheCongresshasbeencallingforreformsalongthesegeneral linesinIheWorld Bankfor nearlyadecade. Afterone year, ifthese reformsare notin place, we believe that notonecentmoreof U.S. taxpayers' moneyshould golosupportthe Bankuntil thingschange. I will cntKlude my statement with ihe endorsement of our organizations for increased appropnations for several institutions supported by the U.S. Ihat we believe arc very cusi-elfeclive in pnimotingenvironmentalsustainabilityandsocialequity. TheseagerKies--iheInter-AmericanandAfrican Development Foundations,and AppropriateTechnology Iniemational-do noi finance large government bureaucracies, but have a mandate lo a.ssisl community groups, non-goveniiiienial orcani/aiions and ^lnallcrbusinessesandenterprises. II. The World Bank ForFY 1994the Administration is requesting appropriationsofover$l..1 billionl<irllic World BankanditscoiKCSsioiiallendingainiiaie.theInternationalDevelopmentA.s.socialioiUlDA). Since 19X5 ihis Subcommittee has played a lead role in enacting legislation ihat has instnictcd ihe Treasury Department to promote key environmental reforms in the Bank and iltc ihrec regional muliilaieral development banks. In ihc case of ilic Wortd Bank, it has cea.scd fin:uiciiig a lew ol its most cnvin)nmcniallydestructiveprograms,suchasgiganticcolonizationprojectsintropical forests,and.witJi