24 November 2003
The Role of Congress in Multilateral Development Bank Reform
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For nearly two decades, environmental and social advocacy NGOs (non-governmental organizations) have worked with the US Congress to reform and democratize the World Bank and the other multilateral development banks (MDBs). Congressional activism on environmental and social issues at the MDBs has achieved important benefits in the form of greater public access to information, stronger accountability mechanisms, and some reduction in harmful environmental impacts. In particular, Congress has played a leading role in securing virtually all of the major environmental and social policy reforms adopted by the MDBs, including policies on environmental assessment, resettlement, indigenous peoples’ rights, labor standards, information disclosure, and the establishment of independent inspection panels.
This toolkit will provide a brief discussion of the origin of NGO efforts to work with Congress to promote MDB reform; describe the ways in which Congress can influence the policies and programs of the MDBs; discuss the relationship between Congress, the Treasury Department and the MDBs; identify some of the major successes of Congressional efforts to reform the MDBs; and highlight examples from other countries where environmental and social campaigners are working with Parliaments on MDB reform. The toolkit will conclude with a list of resources and website links that focus on Congress and the MDBs.
I. The US Congress and the Origins of the MDB Reform Campaign.
II. What is Congress’ Role in Promoting MDB Reform.
III. How Does the US Provide Funds to the MDBs?
IV. What is the Relationship Between Congress, the Treasury Department and the MDBs?
V. Impacts of Congressional Action.
VI. Useful Resources and Websites.
I. The US Congress and the Origins of the MDB Reform Campaign.
The World Bank and the other MDBs were relatively free from outside pressure on environmental issues until the early 1980s. In 1983, a small group of US and international activists persuaded a subcommittee Chairman in the US House of Representatives to hold two days of public hearings on the environmental and social destruction caused by World Bank-financed projects in Brazil, Botswana, India, and Indonesia. By 1987, more than twenty hearings on the environmental and social performance of the MDBs had been held before six congressional subcommittees.
US NGOs focused their early MDB reform efforts on the US Congress for a number of common-sense reasons. First, they understood that Congress had a number of important powers that could be used to exert a great deal of influence on the MDBs’ largest shareholder -- the United States government -- and on the MDBs themselves. Second, as organizations whose members include many US taxpayers, NGOs believed they had a legitimate right to comment on congressional decisions regarding taxpayer-supported funding for the MDBs. Third, the secretive nature of the MDBs and the limited opportunities for public participation in Treasury Department decision-making compared so unfavorably with the open-to-the-public workings of
Congress that NGOs realized that Congress would be an effective forum for promoting reforms.
These common-sense reasons to work with Congress are as valid today as they were in the early 1980s.
II. What is Congress’ Role in Promoting MDB Reform?
US government participation in the MDBs engages a range of federal institutions; of these, the most important are the Treasury Department and Congress. The Secretary of the Treasury formally represents the US government at the MDBs in his/her capacity as a governor of the banks. The US executive directors to the MDBs, who provide the most direct link between the banks and the US government, report to the Secretary of the Treasury through the Assistant Secretary for International Affairs.
Congress plays a less hands-on, but equally essential, part in the US relationship with the MDBs: it authorizes US participation in the MDBs and provides the US financial contributions to the MDBs each year. Congress’ budgetary authority over the MDBs -- its "power of the purse" -- is critically important to the MDB reform campaigners for several reasons:
- it gives Congress a compelling interest in ensuring that the US taxpayers’ contribution to the MDBs is well spent;
- it allows Congress to use budgetary laws to instruct Treasury and other Executive Branch agencies to take certain actions with regard to the MDBs;
- it provides NGOs, affected peoples, and the public with opportunities to comment on US policy towards the MDBs as part of the annual Congressional budget process; and
- it ensures that Congress’ concerns will be taken seriously by the Treasury Department and by the MDBs themselves.
Congress has a number of tools available to influence the MDBs and the Treasury Department, the most important being its power to enact several types of legislation and to withhold MDB funding. Congress can also adopt non-binding report language; hold public hearings; request US government studies and reports; and establish ad hoc oversight commissions. Examples of these approaches are discussed below:
Legislation
Congress has used three principle types of legislation to promote MDB reform:
Funding conditions.
Congress has advanced several difficult MDB reforms by conditioning its funding on the completion of specific reform actions. For example, Congress provided $30 million to the GEF (Global Environment Facility) in 1992 conditioned on the adoption of strengthened information disclosure procedures; because the conditions were not met in 1992, however, the GEF never received the $30 million. Congress again provided a conditioned GEF contribution in 1993; this time, Treasury certified that the requested reforms were in place.
- A similar, but even higher-stakes, strategy led to the creation of the World Bank Inspection Panel and adoption of the World Bank’s information disclosure policy. In 1993, the chairman of the House authorizing committee informed senior Bank management in private that there would be no US contribution to the 10th replenishment of IDA (the International Development Agency, the World Bank’s soft loan window) unless the Bank adopted these reforms. The Bank took the threat seriously but its progress on the reforms was slow and inadequate. Congress kept the pressure on the Bank by authorizing only the first two years of the US contribution, conditioning the third year on satisfactory achievement of the reforms. Congress’ strategy worked -- by 1995, both reforms were essentially in place.
Voting restrictions.
The most important example of this type of legislation is the 1989 "Pelosi Amendment," which requires the US executive director at an MDB to abstain from any vote on a loan that "would have significant impact on the environment" unless the board of directors and affected groups have been provided with an environmental impact assessment (EIA) at least 120 days prior to the vote. The enactment of the Pelosi Amendment led directly to the adoption of environmental assessment policies at all of the MDBs.
Policy guidance.
Policy guidance lays out congressional findings and general US government policies. For example, Congress enacted 1988 legislation that stated "United States assistance to the multilateral development banks should promote sustainable use of natural resources and the protection of the environment, public health, and the status of indigenous peoples in developing countries." Other examples include instructions to use the US influence and vote in the MDBs to pursue certain reforms, and to increase environmental staffing in key US agencies.
Congressional Report Language
When a Congressional committee votes to recommend legislation favorably to the full House or Senate, the committee prepares a report that describes the purpose and scope of the bill and the reasons for its recommended approval into law. In some cases, report language includes directives (such as recommended reforms) that did not make it into the final law. Despite the fact that such report language directives do not have the force of law, they are taken quite seriously by Treasury and other federal agencies, which treat them in much the same way as if they were legally binding policy guidance. By doing so, these agencies hope to avoid giving Congress a reason for making the directives legally binding by enacting them in a future law.
Hearings
Congressional committees commonly hold public hearings where citizens groups, policy experts, corporate representatives, and other interested parties may testify on issues under the committee’s consideration. Such hearings have helped build important momentum for MDB reform. For example, hearings on World Bank financing for Polonoroeste (a colonization scheme in the Brazilian Amazon) and Sardar Sarovar (an enormous dam in India) presented Congress and the news media with gripping testimony from affected indigenous peoples, displaced people, scientists, and other highly credible witnesses. These hearings laid the groundwork for effective future legislation including the Pelosi Amendment and the conditional contribution for IDA (see the section on Legislation).
Studies, Reports and Commissions
Congress, and in some cases individual Members of Congress, have requested studies and reports on the MDBs from the Congressional Research Service (CRS), the General Accounting Office (GAO), other federal agencies, and ad hoc commissions created by Congress. Such reports provide Members with analyses of how environmental and other reforms are being implemented. The most recent example is the International Financial Institutions Advisory Commission (the Meltzer Commission), a panel of experts created by the 1999 foreign affairs funding law with a mandate to recommend necessary changes in the role of the MDBs and International Monetary Fund (IMF). (See www.bicusa.org for CRS and GAO reports on information disclosure, corruption, environmental assessment, and other issues.)
III. How Does the US Provide Funds to the MDBs?
Although the US Constitution gives Congress the sole power to provide US financial contributions to the MDBs, in practice the determination of the US contribution is a complex process involving negotiations among the Congress, the Administration, the MDBs, key donor governments, and a range of private sector and nonprofit interest groups. Following is a brief summary of this process:
The Key Congressional Committees
Congress is responsible for approving the US financial contribution to the MDBs. Congressional involvement in MDB issues is divided between "authorizing" committees and "appropriating" committees in both the Senate and the House of Representatives. (An "appropriation," in the language of the US Congress, is a US financial contribution to a program or institution.) The authorizing committees are responsible for the enactment of legislation to authorize US participation in, and annual contributions to, the MDBs, while the appropriations committees are charged with the allocation of budgetary resources.
Appropriations committees have enacted most of the relevant MDB reform legislation in the last 15 years (MDB funding is included in larger appropriations laws that cover all US foreign aid). Authorizing committees have also been important to the MDB reform campaign, however. In particular, House authorizing legislation was used to enact the 1989 Pelosi Amendment, and the House authorizing subcommittee played the key role in successfully linking adoption of the World Bank’s Inspection Panel and information disclosure policy to the authorizing legislation for the 10th replenishment of IDA.
The authorizing committees responsible for the MDBs are the Senate Committee on Foreign Relations and the House Committee on Banking and Urban Affairs and its Subcommittee on International Development, Finance, Trade and Monetary Policy. The relevant appropriations committees are the Senate and House Appropriations Subcommittees on Foreign Operations, Export Financing, and Related Programs.
The Congressional Budget Cycle
Early in each new year, as part of the Administration’s annual budget request to Congress, the Treasury Department transmits to Congress its appropriation request for each of the MDBs.
Transmission of the budget request is accompanied by an aggressive campaign by the Secretaries of Treasury and State and numerous subcabinet officials to win support in Congress for the MDB appropriations request.
The period following the transmission of the Administration’s budget request is likely to be the most important part of the congressional budget cycle for MDB reform campaigners. From March through June, and possibly well into the summer, the key authorization and appropriations committees may hold public hearings on the current MDB issues of importance to the US government. There are likely to be opportunities for at least a few representatives from the MDB reform community to testify before congressional authorization or appropriation hearings.
Staffs of the key committees are drafting the year’s authorization and appropriations bills during this time and they may be open to receiving information from informed advocates about needed MDB reforms. This may also be a good time to work with the Treasury Department, which is usually eager to head off negative testimony about the MDBs at a sensitive time in the appropriations cycle, and thus may be more willing than usual to press the Banks on issues of concern to MDB reform advocates.
The Importance of Replenishment Agreements
Most of the MDBs require infusions of new donor resources – known as replenishments – every 3-5 years in order to continue to provide favorable rate loans and grants to developing countries. Congress’ greatest leverage for reform at a given MDB occurs when that bank is asking its donors for a new replenishment.
In the months prior to a replenishment, negotiators from prospective donor governments meet with MDB management and among themselves to determine an appropriate size for the replenishment, develop a sound policy framework for the use of replenishment resources, and negotiate fair contributions from each donor for the period of the replenishment (three years is a typical replenishment period). In agreeing to a specific annual contribution, the US government pledges to make a good faith effort to seek the agreed funding from Congress for each year of the replenishment period.
Accordingly, as the replenishment discussions proceed the US negotiator (usually a senior Treasury official or US Executive Director) will consult with Congressional committee chairs and key Administration officials to ensure that the size of the replenishment, the US share, and the developing policy framework are reasonable and consistent with US objectives. These consultations provide an early opportunity for Congress to signal its interest in particular MDB policy reforms that it considers essential to the replenishment. It is then up to the US negotiators to ensure that these reforms are included in the final replenishment agreement.
Congress has additional opportunities to leverage reform in the fiscal year following the finalization of the replenishment agreement, when the Administration requests congressional authorization for the full term of the replenishment. It is this leverage that Congress used to promote reform at the GEF and to establish the World Bank Inspection Panel and information disclosure policy.
IV. What is the Relationship Between Congress, the Treasury Department and the MDBs?
Congress’ influence over the MDBs depends to a large extent on the efforts of the Executive Branch, in particular Treasury and the US Executive Directors. The roles of the key federal agencies are described below:
US Executive Directors.
The individuals on the front line of the US relationship with the MDBs are the US Executive Directors and Alternate Executive Directors (USEDs), who are posted to their Bank’s headquarters and represent the United States in executive board meetings. The USEDs advocate for US positions in the MDBs; cast the US vote when project and policy decisions are taken; arrange for meetings between US government and MDB officials as needed; and explain and justify US actions that affect the MDBs. The USEDs also represent their MDB to Congress and US federal agencies, the private sector, and the public. The USEDs for each MDB are assisted by staff from Treasury, Commerce, USAID (the US Agency for International Development) and occasionally other federal agencies.
Experience has shown that the interest and skill of the USED can have a major impact, for good or ill, on the effectiveness of US leadership on environmental and social issues at a particular MDB. The USEDs are supposed to take their policy direction from the Secretary of the Treasury or his/her designee, generally the Assistant Secretary for International Affairs or the Deputy Assistant Secretary for International Development, Debt, and Environment Policy. At the same time, the USEDs are Presidential appointees with considerable political clout of their own, so decision-making in practice tends to reflect a give and take between Treasury and the USEDs.
The Treasury Department
The Treasury Department sets US policy toward the MDBs. It is responsible for securing congressional appropriations for the MDBs and for ensuring that the US taxpayers’ contribution to the MDBs is used effectively. Treasury is one of the most powerful federal agencies, and its leadership on MDBs within the Executive Branch is rarely challenged. Given the United States’ superpower status and economic strength, the US Treasury can also exert considerable influence on MDB decision-making in foreign capitals.
Day-to-day management of MDB affairs is the responsibility of Treasury’s Office of Multilateral Development Banks, which reports to the Deputy Assistant Secretary for International Development, Debt, and Environment Policy. The MDB office: reviews the policies and the approximately 600 projects per year of all of the MDBs; ensures that relevant laws, such as the Pelosi Amendment, are adhered to; and prepares periodic reports for Congress. This 15-20 person office -- the same size it has been for many years -- oversees institutions with a combined staff of approximately 17,000 and annual lending of some $25 billion. The training and work experience of MDB office staff are heavily concentrated in economics or finance; there are typically 2-3 environment officers who may have a substantial environmental background.
According to numerous observers, raising funds from Congress is Treasury’s highest priority. MDB project implementation or policy issues (especially non-economic issues like the environment and human rights) receive much less attention from senior Treasury officials. Treasury’s role as chief fundraiser for the MDBs can conflict with its oversight responsibilities, especially when it creates pressure within Treasury to oversell the MDBs strengths and to understate or even overlook serious problems. On the other hand, the need for constant fundraising ensures that Congress maintains considerable influence over Treasury and the MDBs, which can provide advocacy opportunities.
As with the USEDs, the level of skill and commitment of individual Treasury officials can have a major impact on the success of MDB reform efforts. Treasury officials (usually the Deputy Assistant Secretary for International Development, Debt and Environment Policy or the Director of the MDB Office) are the lead US negotiators at MDB replenishment negotiations. These negotiations can be the most important opportunities for MDB reform, as discussed above, and Treasury’s performance can mean the difference between success and failure for MDB reform campaigners. Senior Treasury officials also determine the US position on important or controversial MDB projects, including all negative votes based on the Pelosi Amendment.
Other Federal Agencies
Several other federal agencies – including the White House, the departments of State, Commerce and Energy, EPA (the Environmental Protection Agency) and AID (the Agency for International Development) -- occasionally play significant roles in the US government’s MDB decision-making. These agencies do not have sufficient numbers of staff focused on MDBs to engage Treasury routinely across a range of policies or projects. Nevertheless, agencies with clear interests at stake can influence the development of US positions on individual projects (e.g., Pelosi votes) and on major issues that cut across departmental lines (e.g., MDB climate change policies). AID makes a unique contribution in its role as co-chair of the monthly "Tuesday Group" meetings (see below).
Other Voices: The Tuesday Group
Unlike Congress with its public hearings, the Executive Branch has no broad, systematic means of obtaining outside input into US government decision-making on MDB matters. In general, outside groups attempting to be heard, including NGOs and business groups, contact Treasury and USEDs on an ad hoc basis via letters, requests for meetings with senior Treasury officials and USEDs, and informal communications with staff.
The important exception to this ad hoc approach is the Tuesday Group, an informal gathering of NGOs and US government agencies which meets monthly to discuss MDB issues. The Tuesday Group is co-chaired by BIC and AID and is attended regularly by about 20-30 representative from a wide range of environment, human rights and development NGOs and a number of US government agencies including Treasury, USEDs offices, State and EPA. The main items for discussion at Tuesday Group are proposed MDB projects with serious environmental or social problems, outstanding Inspection Panel claims, proposed MDB organization or policy changes, and related issues of concern to NGOs and the US government.
The Tuesday Group was created in 1990 by BIC and AID as a way to increase public input into the development of US policy on the MDBs. AID also used the meetings to help develop its "Early Warning List" of environmental problem projects, which it has been required by law to produce and make available to the public since 1987 (see Congressional Impact Matrix).
V. Useful Resources and Websites.
1. The most detailed analysis of the role of Congress in World Bank reform: Ian A. Bowles and Cyril F. Kormos, "Environmental Reform of the World Bank: The Role of the U.S. Congress," Virginia Journal of International Law, Vol. 35, No. 4, Summer 1995.
2. For a history of the MDB reform campaign from one if its most important activists, see Bruce Rich, "Mortgaging the Earth,"
3. A brief history of the World Bank’s environmental struggles, in a paper commissioned by the Bank itself: Robert Wade, "Greening the Bank: The Struggle over the Environment, 1970-1995," from: Davesh Kapur, John P. Lewis and Richard Webb, eds., The World Bank: Its First Half-Century (Vol. 2), Washington: Brookings Institution, 1997.
4. For a description of US government policy making toward the MDBs and suggestions for improvements to the system, see Barbara Upton, "The Multilateral Development Banks: Improving U.S. Leadership," The Washington Papers, published with the Center for Strategic and International Studies, 2000.
5. The Library of Congress has a website called Thomas ( that provides a wide range of legislative information on the Internet. Interested activists can find the text of every MDB reform law enacted since 1989 and committee reports back to 1995, as well as the schedule of upcoming hearings and other items of current interest. Thomas also includes background papers by the House and Senate parliamentarians describing how US laws are enacted.
This toolkit was prepared by Mark Rentschler. It is part of the Bank Information Center's Toolkits for Activists: A User's Guide to the Multilateral Development Banks. The Bank Information Center (BIC) is an independent non-profit, non-governmental organization that provides information and strategic support to NGOs and social movements throughout the world on the projects, policies and practices of the Multilateral Development Banks (MDBs). BIC advocates for greater transparency, accountability and citizen participation at the MDBs. BIC is supported by private foundations and organizations that work in the fields of environment and development, and is not affiliated with any of the MDBs.