I am pleased to have an opportunity to testify on the replenishment of appropriations for the World Bank's International Development Association (IDA) and the African and Asian Development Banks. The United States has taken leadership since World War II in developing and fostering economic growth, political freedom, and social progress. The development banks have, at times, had prominent roles in assisting development in the newly developing countries and emerging market economies, and IDA has worked at times to improve the quality of life for the poorest on the planet.

The United States has continued its leadership role. This year the administration, led by Secretary O'Neill and Undersecretary Taylor, worked very hard to change some of IDA's concessional loans to performance monitored grants. This proposal, initiated by a bipartisan, Congressionally appointed commission that I chaired, can be of major importance if performance monitoring succeeds in increasing the effectiveness of foreign aid and improving the quality of life in poor countries. I believe it will.

I support the appropriations under consideration today subject to two provisions that I urge the Congress to adopt as part of the appropriation bill. First, a portion of the appropriation should be set aside for an independent performance evaluation of past loans by IDA and the development banks. Second, IDA and the two development banks should agree to have an independent performance evaluation of their record of accomplishments and failures for the past ten years as a condition for receiving the appropriation.

The GAO, the Swiss SGS, or a private consulting firm could perform the evaluation. I think it is well known that the African bank, under its new leadership, has made progress, but problems remain. Time is limited so I will restrict my comments to IDA, although some will apply to all three institutions. I will answer any questions that I can about the Asian and African Development Banks. I urge the committee, however, to ask and get answers to questions about these banks: Why do we continue to have so much duplication between the World Bank Group (including IDA) and the regional development banks? Why is the International Monetary Fund expanding its poverty programs, adding to overlap and duplication? I believe the Congress should require the administration to submit a coherent plan for rationalizing the current structure to reduce overlap and make better use of scarce resources.

In the year 2001, IDA made $6.8 billion new loans and, based on World Bank data, allocated $550 million for administrative expenses charged to IDA. This 8 percent cost of lending is typical of IDA's costs in recent years. It includes travel, lending, and hiring consultants. This is large, but it might be justified by the difficulty of lending (or granting) to poor countries with inadequate infrastructure and information, if we had reason to believe that generally the lending programs were effective and the objectives realized.

We do not have such information, and we can not get it from IDA or the World Bank. The information the World Bank supplies shows that program failure rates are highest in the poorest countries, perhaps as high as 70% in Africa in the recent past. Discouraging as these data are, they are suspect for at least two reasons. First, they are provided by the Bank's Operations Evaluations Department (OED). The head of this department reports directly to the Bank's directors, but his staff consists of Bank employees on loan to OED. Second, and more important, OED does most of its evaluations 6 months to three years after disbursement of the last payment on the loan or grant.

On the public record, I asked President Wolfensohn of the World Bank why the Bank audits and reports soon after lending has been completed. Why does it not routinely audit performance to learn whether the project succeeded in raising living standards or improving the quality of life several years after funding stopped? He agreed that this was desirable and said that he had asked the same question. But nothing has been done in his seven years at the Bank. The Congress and the public ought to know what works well, what can be improved, and what should the Bank and IDA stop doing because it is ineffective or wasteful of scarce resources. That's why Congress should insist on independent, performance evaluation.

Chairman Sarbanes, you led the Congress and the country toward improved accounting standards and transparency in the private sector. Should you not expect and require the same degree of transparency when we allocate the public's money for foreign assistance? Are not the poorest entitled to the protection that greater transparency would provide? Can we not shift emphasis to performance, not lending?

There is evidence that the World Bank and IDA are ineffective. President Wolfensohn often shows a card listing the number of people living on less than a dollar a day. This is the Bank's measure of extreme poverty. Between 1987 and 1998, the number of people living on less than a dollar a day remained the same. The proportion of the population declined modestly, from 28 percent to 24 percent. This is not much of an accomplishment for an expenditure of about 200 billion current dollars.

Last year the press reported on a memo written by the staff of one of the Bank's major divisions in response to a request from President Wolfensohn for a discussion by all divisions of the Bank's problems. A staff member sent me the memo. The memo is unsigned, but it states that it represents "consensus views that emerged from discussions among the managers and staffs of the divisions."

A reader of the internal Bank memo gets a picture of an ineffective organization with low morale and uncertain direction.

The memo lists five major problems at the Bank: the President's management and leadership style; an overload of institutional mandates and a lack of clear direction, problems at senior management levels; inadequate resources for the work; and the high degree of negativity among the staff.

To amplify these charges, the memo says that the President's proposals "while perhaps individually worthwhile, have tended to diffuse the Bank's focus. Their importance in individual countries is often unclear. The ideas have not been accompanied by adequate resources for implementation."

In other words, the Bank is not organized to assist countries to develop their economies and improve the quality of life for their citizens.

Further, the internal memo charges, "the Bank today has no focus and is driven by an evergrowing list of mandates imposed on it through a variety of means: President's favored subjects, board sentiments, public pressures, ideas generated by internal constituencies, and even fads. No initiative that starts as a pilot is ever considered a failure because of a lack of any honest evaluation." (Emphasis added.)

I do not underestimate the difficulties in project evaluation. Money is fungible. Countries can offer their most attractive programs to IDA and the development banks but use the money to finance some marginal project that is difficult to identify. Evaluation can establish that children can read and do arithmetic, that water is potables, that inoculations for disease are carried out, and that sanitary sewers are available. It can not always show a direct link to IDA funding.

No less important, project evaluation can both create incentives for improved performance and show that some programs fail repeatedly and should be abandoned. How can we expect to improve the living standards and quality of life of the poorest on the planet, if we do not learn what works and what fails? What lessons do we teach if we provide money to corrupt governments and do not ask whether the projects they proposed were completed, functioned, and contributed to a better quality of life.

When traveling to countries that received IDA and Bank assistance, I have heard many stories of money wasted, money taken, projects never completed, schools without books, consultants paid handsomely but no apparent outcome. These are anecdotes, disturbing if true, but at best suggestive. The Congress should want more and should demand more. It should require performance evaluation to raise the standards of international aid and the living standards of the poor. With this proviso, I strongly support funding for IDA and the development banks.

The United States should give generously when there is greater assurance that its contributions support effective programs, programs that raise living standards, increase productivity, and improve the quality of life for the unfortunate many for whom life remains "nasty, brutish, and short."

Allan H. Meltzer is a visiting scholar at the American Enterprise Institute.