can be reduced to quantified amounts, the honest estimator knows that a wide range of values surrounds that central estimate.

This problem is particularly true in the case of the developing countries.

Senator BAUcus. Mr. Burnham, I am going to have to ask you to summarize, if you could, please.

Mr. BURNHAM. It is possible to conceive of a situation where all parties agree on the economic and environmental impacts of a particular project, but they arrive at very different judgments as to its value simply because of the discount factor which is applied to future costs and benefits differs. Poorer countries tend to place a high value on immediate increases in income and a low value on future costs which might gradually come to light.

In my view, the U.S. should not attempt to subject other countries to our view of what the appropriate rate of discount in environmental matters should be unless the issue is of international significance. Indeed, the notion of inserting into the World Bank process the U.S. procedures for environmental analysis strikes me as another manifestation of what I call "environmental imperialism" by a number of well organized groups and their supporters. The sad but predictable result of this crusade has been to provide trade protectionist lobbies in this country with "clean and green" environmental allies when it comes to controversial multilateral development projects and to pose yet another hurdle for the developing countries.

Thank you.

Senator BAUCUS. Thank you very much. We will get to_your more precise points in the discussion time. Thank you, Mr. Burnham, very much.

The next witness is Mr. Fred Smith who is with the Competitive Enterprise Institute.

Mr. Smith?

STATEMENT OF FRED L. SMITH, JR., PRESIDENT, COMPETITIVE ENTERPRISE INSTITUTE

Mr. SMITH. Thank you, Mr. Chairman, Senator Symms, and members of the committee.

I welcome the request to comment on the proposal to extend the NEPA requirements to U.S. decisions regarding multilateral bank

loans.

I am Fred Smith. I head the Competitive Enterprise Institute. CEI is a pro-market public interest group, that has been active for some time in both environmental and economic policy areas.

In the environmental area, CEI favors Free Market Environmentalism. Incidentally, this approach was pioneered by the Political Economy Research Center in Senator Baucus' home State of Montana. Free Market Environmentalism argues for the extension of property rights and other voluntary arrangements to advance environmental objectives.

In the economic policy area, CEI opposes subsidies and supports deregulation. Financial lending, the subject today, is an area that CEI has been involved with both at the foreign and the domestic level. Our focus has been on the "moral hazard" problems arising

from political guarantees that loans will be repaid no matter what. The term "moral hazard" refers to the fact that an insured party is less likely to avoid risks and less likely to proceed cautiously.

Whether the moral hazard arises, as in domestic banking, from Federal Deposit Insurance, or, as in international lending, from the willingness of the World Bank to grant foolish loans, the consequences are the same. Capital is diverted from useful into wasteful projects. The world is made poorer; the world environment is threatened.

Since the World Bank has asked the U.S. for an additional $14 billion, we now have the opportunity by extending NEPA to improve our ability to critique the World Bank decisions.

The World Bank particularly needs such criticism. As Lord Peter Bower has pointed out, World Bank loans are loans from governments to governments to build governments. The incentives of political institutions to examine critically the economic and environmental wisdom of its lending policies is very weak. The extension of the NEPA Act would provide somewhat more information on the alleged rationale of World Bank loans and, thus, opportunities for more informed review.

My testimony was submitted for the record. I would also like to submit copies of three other papers: (1) "The Politics of IMF Lending" by Fred L. Smith Jr., (2) "World Bank Snookers U.S. Congress, Again" by Melanie Tammen of the Heritage Institute, and (3) "The World Bank vs. The World's Poor" by Jim Bovard, a CATO and CEI associate.

My testimony argues that there is no necessary conflict between NEPA and the World Bank. NEPA was intended to create and maintain conditions under which man and nature can exist in productive harmony, and advance the social and economic requirements of present and future generations. These goals are compatible with those of the World Bank.

NEPA was enacted in recognition of the fact that the vast program of politically financed investment in the U.S. too often produced minor economic benefits and major environmental costs. The term "pork barrel" is an old American term and one that conveys well the problems of seeking to discipline an inherently political process.

In my testimony, I mention two U.S. examples, the Synfuels Corporation and the Clinch River Breeder Reactor. Let me today add one more example of wasteful pork-barrel spending that arises out of my own childhood.

I grew up in rural Louisiana on the 30-mile Pearl River, a river system that was improved by the Corps of Engineers right after World War II. The Pearl River was one of the few rivers that had not yet been improved, and the Corps was looking for a project. Moreover it was time for the Louisiana delegation to get a piece of pork. The result was the 30-mile Pearl River Lock and Canal system linking the intracoastal canal to Bogalusa.

My daddy was in the Corps of Engineers, became the Lockmaster at Lock Number 1 on the Pearl River, and I grew up on the premises. When the canal was opened (I remember it well), bands played, ribbons were cut, and a barge load of paper products were ceremonially shipped from Bogalusa down the river to some final

market. Speeches were given on how this project would ensure the economic development of the area.

In reality, that barge load was the first and last economic shipment from Bogalusa. The canal was constructed purely as a pork barrel project. Moreover, the canal cut through an area of great environmental sensitivity. The whole purpose of the project was to provide transient economic-and political-benefits.

My Pearl River experience has been repeated often in the United States. The waste and environmental damage is much greater in the Third World. Thus, we need to discipline politically inspired projects. We have begun to discipline such projects in the United States through NEPA. It is time we began to give the Third World the benefits that we have already given ourselves.

I have given examples in the paper of how the NEPA requirement might also encourage the World Bank to consider seriously the way in which property rights and rights to contracts not only promote economic prosperity but also preserve environmental quality.

I mentioned our historical example of the Puritans who experimented with collective land management, quickly found it incompatible with wise land management, and then adopted the private farming system operating today in the United States. The Puritans had no World Bank and thus came early to realize the value of private property. That benefit, again, should be extended to the Third World.

NEPA is no panacea. It is important to realize there is a risk associated with this introduction of NEPA. The risk is that rather than creating a better global environment, that we will merely create a much better environment for global environmentalists. This is a danger, but I think the risk is worth taking.

Senator BAUCUs. Could you please summarize?

Mr. SMITH. I will, yes.

In a world of private lending, there would be little role for the NEPA requirements advocated in this testimony. When risks are borne by private parties, the outcomes tend to advance human economic and environmental welfare.

The purpose of the NEPA requirement is to improve the transparency of a political process, and that, we think, worthwhile. New reporting requirements may well lead to a reduction in the overall quantity of monies transferred from the United States and the developed world to the Third World, but the quality of those loans will be much improved. For that reason, we think NEPA should be extended to this area.

Thank you.

Senator BAUCUs. Thank you, Mr. Smith.

Our next witness is Mr. William Reilly. He is with the World. Wildlife Fund and also the Conservation Foundation. Mr. Reilly?

STATEMENT OF WILLIAM K. REILLY, PRESIDENT, WORLD WILDLIFE FUND AND THE CONSERVATION FOUNDATION Mr. REILLY. Thank you, Mr. Chairman and Senator Symms.

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I appreciate the opportunity to appear before the committee and congratulate both of you on your leadership on this very important issue.

I am President of World Wildlife Fund, which is the largest U.S. conservation organization concerned with the international environment with some 500,000 members. I am also, as you mentioned, President of The Conservation Foundation which is a public policy research organization. We have affiliated our organizations.

As I was coming up here this morning, I was reminded of the fact that the late Senator Jackson's committee, the Interior Committee, back in 1969, asked The Conservation Foundation to provide a consultant to help with the operative language of section 1022(c), the National Environmental Policy Act (NEPA), which became the provision that we are now familiar with calling for environmental impact statements. We did provide that consultant, Professor Lynton Caldwell.

So, we have a long history of exposure and involvement with this Act, this law.

We have significant interest in managing environment and natural resources and protecting biological diversity of developing countries, especially those in the tropics of Latin America, Asia, and Africa, which have so disproportionately large amounts of the world's forests and animal and plant life and also of its poor and hungry and homeless people.

Those two realities set the terms of the drama in world conservation and development. The key to alleviating poverty and protecting biological resources is promoting sustainable development, that is, uniting economic development and conservation goals, avoiding depletion of natural resources on which future economic growth and, in fact, all future human activity fundamentally depends.

The focus of today's hearing, I think, is very important. The application of NEPA to activities of the Agency for International Development marked a turning point in getting development assistance agencies to take environmental concerns more seriously.

Many important strides have already been made, which we enthusiastically welcome. Mr. Conable's leadership at the World Bank, Mr. Iglesias' at the Interamerican Development Bank are particularly noteworthy and encouraging. I think other institutions will take their lead from these enormously influential organizations.

While institutional reforms take time, they have not, in my opinion, gone far enough. Whether NEPA can be applied to the World Bank is the subject of considerable legal debate. Our government has issued guidelines which may not be legally binding.

Regardless, persuasion of other executive directors at multilateral banks is going to be the key, I think, to wise decisions in this

area.

It is important to note that U.S. voting power, because of declining contributions, is itself declining. So, I think the focus on guidelines and on voting rights for our representatives to financial institutions is, in itself at least, not sufficient to achieve the objective of uniting development and conservation.

Financial institutions must come to internalize environmental perspectives in their routine operations. It is not just, in my opin

ion, a matter of review or of sign-off. Attention to incorporating environmental concerns must be at the very earliest stage of project conception.

Congress should request the Secretary of the Treasury to instruct the U.S. executive directors of these institutions on a number of matters which I have detailed in my written testimony and, in sum, are the following:

To review the findings of the World Commission on Environment and Development.

To establish environmental sector loans and review other sector loans with the environment in mine. My own staff in Brazil and in Madagascar have been very impressed by what a difference it has made to the local governments, to their financial ministries, for example, that the World Bank is considering major environmental sector loans to their countries. The Bank has thus validated a whole range of concerns not previously taken nearly as seriously by those ministries.

To review discount rates and other economic formulas to see if they undermine the objective of sustainable development.

To raise broad environmental policy issues in structural adjustment lending negotiations and decisions.

To promote consistent environmental guidelines among multilateral banks.

To seek consistent guidelines, particularly on pesticides, where we notice there is some considerable so-called forum shopping. When the USAID, for example, declines to permit or support the use of a specific pesticide, it is relatively easy and common for a government to proceed to obtain that pesticide from another country or another multilateral bank.

To explore innovative funding mechanisms for urgent environmental projects in countries with substantial biological diversity.

Above all, I think we need to promote among governments and citizens of recipient countries an understanding of the essential role that a healthy environment, healthy natural resources, and sustainable economic development play in achieving economic goals. Perhaps the most important task is to foster in-country capabilities among governments and private conservation groups to become effective partners in conceptualizing, designing, planning, and executing development projects.

We see this at World Wildlife Fund again and again: where you have local leaders who understand, appreciate, are sophisticated about these issues, the problems are reduced many fold.

Senator SYMMS [acting chairman]. Can you summarize your statement, please?

Mr. REILLY. In sum, I think that what we are concerned about here is to promote behavior modification of some major international institutions. That is a very laudable and important objective. I think it is going to take a long time. I think that this hearing and the concerns expressed by this committee and by the Congress generally can play a very large role in achieving that objective. Thank you, sir.

Senator SYMMS. Thank you very much.

The committee will stand in recess until Senator Baucus returns. We have about 6 or 7 minutes left on the vote, so I am going to run