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STATEMENT OF

DAVID R. MALPASS
DEPUTY ASSISTANT SECRETARY

FOR DEVELOPING NATIONS
U.S. DEPARTMENT OF TREASURY

BEFORE THE
SUBCOMMITTEE ON HAZARDOUS WASTES

AND TOXIC SUBSTANCES
COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

UNITED STATES SENATE

THURSDAY, JUNE 16, 1988

Mr. Chairman:

I am pleased to participate in this review of environmental reforms in the multilateral development banks. We have had a clear and strong mandate from Congress that we should act through these Banks to promote environmentally sustainable economic growth and improved management of natural resources in borrowing countries. Treasury strongly supports these objectives. Let me begin by summarizing the principal points of that Congressional mandate and then discuss what we have done to implement it in managing U.S. participation in the multilateral development banks.

The first congressional mandate for environmental action in the multilateral development banks, which include the World Bank and three regional banks for Asia, Africa, and Latin America, was included in the Continuing Resolution Act for 1987, Public Law 99-591. This legislation provided that the Secretary of the Treasury should instruct the U.S. Executive Directors in the Banks to promote a number of very specific and detailed reforms. These reforms included:

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addition of professionally-trained staff in the
Banks.

• development of plans for systematic and thorough

environmental review of projects.

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creation of line units to carry out such reviews. o establishment of multidisciplinary planning

processes.

o development of plans for rehabilitation and

management of ecological resources.

involvement of health and environmental ministers and non-governmental organizations in the project preparation cycle.

o increase in the proportion of environmentally

beneficial lending.

A report detailing progress in these areas was submitted to Congress in January, 1988. I will return in a few minutes to the subjects in that report and provide some details on the progress that is being made.

The second Congressional mandate on environmental reforms was included in the Continuing Resolution for FY 1988, Public Law 100-202. This legislation restated many of the reform objectives outlined in the previous year's Continuing Resolution and made them a part of the permanent authorization legislation. It also provided for a number of other initiatives including:

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o discussions with other executive directors in

the World Bank regarding establishment of a
grassroots collaboration program.

o enhancement of the early-warning system for

identifying problematic loans.

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report on a comprehensive strategy to address
natural resource problems.

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o discussions with other executive directors

in the banks regarding integrated pest
management.

This legislation took effect in December, 1987. We have already begun to implement some of these initiatives but action still remains to be taken in other cases.

It is clear even from this brief summary that a great deal of legislation is already in place. I want to assure you that we are making a conscientious effort to implement it. In fact, I believe we should make implementation our primary objective at this time and not seek the passage of new law on this subject.

Within Treasury, we are working hard to improve our oversight of environmental issues in the multilateral development banks. During 1987, we objected to six loans, citing concerns about adverse environmental effects. These loans included agricultural rehabilitation in the Sudan, electric power in Peru, a paper mill in Nepal, an abattoir in Botswana, livestock development in Benin, and agroforestry and livestock development in Mali. In February of this year, we objected to a loan to Burkino Faso for a road and water project because of serious environmental issues. On another occasion, a loan proposal adversely affecting tropical moist forests was withdrawn in the face of our objection. I am confident, however, that our influence on bank activities has been far broader than these figures suggest and that other projects have been modified before they reached the Board.

We are continuing close coordination with state and AID and with environmental groups in an effort to improve the early warning system for problematic projects. We are intervening more frequently and more effectively with MDB management to make our concerns clearer at an early stage and to seek improvements in project proposals. We have for example, visited the site of a major dam project in India to examine resettlement issues. We have also notified the world Bank of concerns about a hydro-power study in Nepal at the very earliest stage, the prefeasibility stage. We are taking an active role in international meetings on environmental issues, particularly those that affect projects and programs funded by the multilateral development banks.

We have had particularly strong support from a number of non-governmental organizations in gathering information and developing approaches to increase the effectiveness of our efforts. These organizations have assisted in the preparation of standards for evaluating projects that may adversely affect tropical moist forests. They have also helped us put in place standards for projects affecting open-range savannas of Sub-Saharan Africa and are now working with us on wetlands standards. The organizations have participated in the early warning system established by AID to identify projects that may adversely affect the environment. They have worked closely with us in analyzing problems associated with specific loan proposals or with projects that are being implemented. To sum up, we

have been getting involved at an earlier stage in the project cycle, trying to make specific changes in proposals before they come to the boards of the Banks. I might add that EPA is now becoming integrally involved both in early warning group meetings and in the final review of projects just before they come to the board.

Let me turn now to implementation of some of these legislative provisions, starting with those in Public Law 99-591.

Staffing and Training

During 1987, the World Bank carried out a major reorganization of its management and staff. One of its primary aims was to strengthen the Bank's capacity for addressing environmental issues. A central environmental department was established in the policy, Planning and Research complex. Twenty-three positions have been authorized for the three divisions in the department. In addition, environmental units have been created in the technical departments of the Bank's four regional offices. Twenty-two positions have been authorized for these four units. The Bank has appointed a new director for the Environmental Department and a new advisor for scientific and environmental affairs. Both of these individuals appear to be well-qualified and capable, with extensive backgrounds in environmental matters. In addition to 45 permanent staff positions, the Bank has indicated that it expects to use the equivalent of 18 man-years in consultant services for environmental issues during its current fiscal year.

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The regional development banks need to hire more environmental specialists and to assign more staff to environmental issues. We have been encouraging them to do that. The Inter-American Development Bank has recently hired two senior environmentalists for positions at the Bank's headquarters and a third expert has been assigned to the Bank's field office in Brazil. The Asian Development Bank has had five staff members working on environmental issues; however, the chief of their environmental section has recently been recruited for the World Bank's Asian Environmental Unit and a well-qualified replacement is needed to fill that position. The African Development Bank has said that it will increase its environmental staff from two to four and that a well-qualified African candidate will be sought as Chief of the Unit. The unit is currently headed by a Norwe igan official seconded to the Bank.

Significant progress has been made on training. In the World Bank, an environmental training program has been introduced for Bank staff. The program is designed to raise awareness of environmental issues in development, to convey new techniques, and to introduce the latest developments in the field. The integration of environmental and economic work and the importance of policy intervention is to be included in the curriculum of the Economic Development Institute.

The Inter-American Development Bank has initiated a series of seminars on environmental issues. The first of these seminars took place over a three-day period in December, 1987, with forty members of the Bank's technical staff participating. Two other seminars were held in early May, one for projects analysis staff and one for loan officers. Similar seminars for other members of the staff are also planned. Just last week a seminar on environmental issues was held for the heads of the Bank's field offices in borrowing countries. The African Bank has sponsored a one-day seminar on the economic valuation of environmental impacts and a two-day seminar on environmental planning in project development. A third seminar focusing on grazing issues, which have been problematic in some Bank projects, is to be scheduled for later this year. In preparing for that seminar, we are encouraging the Bank to emphasize conservation and range management issues as well as productivity.

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