FROM THE OFFICE OF PUBLIC AFFAIRS

President Kabbaj, distinguished Governors of the African Development Bank, and honored guests, it is an honor to represent the United States at this important occasion. I am especially pleased to be in this grand city of Cairo which has given much to our past and present and remains a key to our future hopes of peace and economic prosperity in Africa and globally. I thank the Egyptian Government and people for a most warm and memorable welcome.

We come together at a time of transition. The world continues to make difficult adjustments following the end of the Cold War. Political and economic reforms are sweeping through many regions. In Africa, the emergence of a new generation of leaders and the coming of age of populations born after the colonial period have led to dramatic transformations of political and economic arrangements, increasing potential for constructive change.

Sadly, for Africa and for too many others in the world, too much of the change has been violent. Some 20 percent of Africans live in countries formally at war or disrupted by war. While some may unwillingly be drawn into conflict to protect their homes or fundamental human rights, others may have baser motives. Military and human expenditures continue to take a terrible toll on affected populations.

On a brighter note, much of Africa is striving to find a new balance and address its own problems through peaceful and democratic processes:

• In recent years, civil society has grown stronger and public participation is spreading. Thirty governments have held elections during the past several years.
• Within days, we shall applaud peaceful and democratic political transitions in two of Africa's largest countries, Nigeria and South Africa. Nigeria's recent election adds about 100 million people to the number of Africans who have gained a voice in their own government.
• In many countries, economic reform has been underway for over a decade.

While adjustment still has a long way to go to transform most Africans' lives, the record is clear. Numerous studies at the African Development Bank and the World Bank, as well as by independent scholars, show that the countries that pursue sound economic and fiscal policies are the ones that sustain the highest growth rates. Economically and financially, we see increasing evidence of the ability of Africa's reforming economies to hold their own.

The World Bank estimates that in 1998, Africa's growth was down somewhat, to about 3.2 percent -- due in part to the effects of el Nino, disruptions in the global financial system, and the fall in basic commodity prices associated with the Asian financial crisis. The adverse impact of outside forces, however, was mitigated in many countries by continuing reform, and a number of countries demonstrated impressive growth.

Botswana, Cote d'Ivoire, Egypt, Mali, Mauritius, Mozambique, Tunisia, and Uganda have grown at 5 percent or more annually in the past three years.

Throughout this Annual Meeting we have seen examples of the benefits that accrue to a country that maintains good macroeconomic policies, and of the costs to a country that does not. However, good macroeconomic policies in and of themselves are not sufficient to ensure nor sustain higher living standards for the poor -- in other words, to meet the "primordial challenge" of poverty reduction. Strong macroeconomic performance provides the foundation for overall economic growth, but deeper structural reforms are the way to ensure that the benefits of growth are shared and produce higher living standards for the poor. Two key structural areas that deserve strong emphasis, areas where the African Development Bank Group and its member countries can make major contributions, are investment in people and good governance.

Investment in People

Many economies are suffering from the consequences of under-investment in their people. The World Bank has provided a succinct yet powerful logic for investing heavily in people: No country has ever taken off, economically, with a literacy level below fifty percent.

Weak investment in people often reflects poor policy priorities by a government, or weak public institutions within a country. Some countries are engaged impressively in addressing these issues. Yet, while we have seen some modest improvements in such social indicators as school enrollment and immunization rates, problems in health and education still are among the most severe challenges the Bank and its borrowing members face. The UNDP places African countries in 19 of the 20 lowest-ranking positions in the world on its index of human development. Fertility, maternal mortality and child mortality rates in Africa are among the highest in the world. Literacy and education rates are shockingly low in some countries, especially among girls. Moreover, Africa is suffering a brain drain, as capital and investment continue to shy away from countries which cannot guarantee a viable work force.

We should constantly remind ourselves of the basic mandate for the African Development Bank Group. We want it to focus primarily on issues of poverty reduction, investment in health, investment in education, and broadly speaking, investment in people -- the underlying theme and common goal of all the Bank Group's activities.

Of central concern is the ravaging effect that the AIDS epidemic is having in Africa. We must rededicate ourselves to dealing with this multi-dimensional problem, and bring substantial ingenuity and resources to bear on its solution. Diseases such as AIDS and malaria are not only enormous human tragedies, but economic tragedies as well.

We must continue to work urgently though bilateral channels and our international institutions to deal with these pandemic diseases. On AIDS especially, it is important that the IFIs continue to help governments build capacity to cope with the challenge, while providing guidance to their own country teams to take it into account in all relevant projects.

What can we as finance officials do about AIDS? I think one thing we can do is to make sure that governments have the resources they need to take basic steps to contain its spread -- such as educating the public about its dangers. If we do not at least do this, the future economic and financial costs, in terms of lost production and health, could be overwhelming and could be upon us sooner than we may think.

Finally, in discussing choices with respect to investment in people, it is appropriate to comment on the social consequences of governments engaging in disproportionate military spending. Every nation has legitimate defense needs. Disproportionate military spending, however, not only is fiscally and socially disruptive, coming as it most often does at the expense of health and education priorities; it also is economically damaging. Moreover, it scares off productive investment and trade when it becomes symbolic of an unstable society. In a world of competition for aid, it is difficult, if not impossible, to support foreign assistance for countries that put disproportionate emphasis on military spending relative to investment in their people.

Good Governance -- A Foundation

Even if social investment priorities are correct, however, they will have little lasting benefit in countries where governance is weak and economic decisions are distorted by corruption. Governance failures and corruption exist everywhere in the world, and impose high economic and financial costs. Yet until quite recently, corruption was a politically impolite subject to raise in an international setting.

But raise it we must: the effect of corruption on emerging economies is corrosive because (1) it diverts resources from the basic tasks of public health and education, and (2) it discourages the private sector flows on which development depends.

Recently I heard a U.S. radio commentator use a colorful phrase that sums up problem rather starkly: "Corruption is eating some economies alive!" He was speaking of Central Europe at the time, but his comment could apply to a number of economies in other regions including Africa.

The former head of Hong Kong's anti-corruption agency put it well: "Where corruption is unchecked, the result is virtually the setting-up of an alternative, illicit form of government ... officials impose their own illegal rules of conduct on the public."

The question is, who would want to invest in an economy governed along these lines?

Fortunately, the African Development Bank is speaking out against corruption, and many of the participants in our meetings this week are leading efforts to improve governance in their own economies. The Bank has a role to play, and we know the key requirements:

• Clarity in laws and regulations, and fairness in their application and enforcement.
• Courts that are adequately funded and independent of political pressure.
• Strong, independent anti-corruption units in member governments.
• Privatization of state-owned enterprises.
• Reducing the scope and administrative role of governments.
• A well-supervised, competitive, financial system that operates on commercial grounds and is not subject to credit allocations based on personal or political connections.
• And finally, increased disclosure about government operations and decision making -- including audits of military operations that are reported to the civilian authorities.

Heavily Indebted Poor Countries

As we consider ways to improve Africa's economic performance, we should acknowledge that excessive indebtedness can be a barrier to public investment and growth. Helping to manage debt burdens is an area where the African Development Bank's non-regional members and the Bank itself have their separate roles to play. Each can help strengthen the prospects of a poor, heavily indebted country that is pursuing sound economic and growth policies.

Over the past two decades, the United States and other creditors have written down about $28 billion in debts owed by the world's poorest countries.

In recent years bilateral and multilateral creditors, including this Bank, have combined forces to address debt under the Heavily Indebted Poor Countries (HIPC) initiative. So far, seven nations -- including five African countries -- have qualified for the HIPC program which raises the level of Paris Club forgiveness to 80 percent of eligible debts and provides substantial IFI debt relief for the poorest reforming economies.

Despite this progress, the Clinton Administration believes that the current pace of debt forgiveness is not adequate to achieve our common goals of economic recovery in countries committed to reform. We see a need for faster and deeper debt reduction, and President Clinton is committed to press for significant improvements in current programs at the G-7 Summit next month, even beyond those he announced in March. He has stated our goal clearly:

At the March 16 U.S.-Africa Ministerial, President Clinton first outlined his strengthened debt initiative:

Debt relief for reforming economies is a central point in the President's Partnership for Economic Growth and Opportunity in Africa and in legislation before the U.S. Congress -- the African Growth and Opportunity Act -- to help implement that partnership. This legislation contains important provisions that will enhance Africa's access to U.S. markets, help speed U.S. investment, and broaden trade relations.

President Clinton's Initiatives in debt and economic partnership underscore America's commitment to Africa by responding to, and building on, economic reforms undertaken by Governments in Africa.

African Development Bank and Fund

U.S. financial and policy support for the African Development Bank and Fund is based on the firm expectation that these institutions can effectively and successfully address macroeconomic and structural issues, including governance and investment in people. The credit for much of the positive direction of the Bank Group belongs to President Omar Kabbaj, who is leading it in a developmental and financial renaissance.

The GCI-5 capital increase package represents a major advance in the Bank's orientation and in shareholder cooperation, and we strongly support its ratification. Ratification will make it possible for donor countries to ask their parliaments to authorize funds for both the ADB and ADF replenishments together. New financing and agreed reforms in both the Bank and the Fund are a tightly constructed and integrated package which deserves the support of all members.

I have emphasized that our continuing support for the African Development Bank Group is based on expectations of strong performance, but I want to assure Governors that we will work closely with others in support of its ambitious mandate. In the spirit of that partnership:

We call upon the Bank Group to implement fully the governance and operational reforms in the Bank Group Capital Increase and Fund Replenishment.

We call upon the Bank to conduct its operations in a manner that will restore the Bank's triple-A credit rating in the wake of agreement on the $7 billion capital infusion that will restore key financial ratios.

We urge the Bank to operate in the context of uniform MDB procurement rules and documents of the very highest standard, and we strongly encourage adoption of the proposal to add fraud and corruption provisions to procurement rules.

We seek implementation of a strong linkage under AFDF-8 between country performance and resource allocation, with credits going to countries where they will produce the most poverty reduction and economic reform.

We commend the work of Vice President Enweze and the staff of the Bank Task Force on Core Labor Standards whose recommendations, in our view, are among the most forward looking of any MDB. We support efforts to make these recommendations fully operational.

We call for the Bank's continued leadership and cooperation with other development agencies. We ask that it successfully conclude an MOU with the World Bank. We also congratulate the Bank on the Joint Africa Institute to be established in cooperation with the IMF and the World Bank.

We applaud the Bank's progressive posture on environmental issues, and we see the need for even more urgent progress in this area. We also appreciate the forward movement toward greater transparency, and urge that this trend be continued and strengthened.

Finally, we feel secure in calling for such an ambitious agenda. We are more confident at this point than at any time in the past that the Bank has the leadership, skills and policy directions it needs to address governance issues, AIDS, containment of military spending, and health and education, at the same time it addresses broad issues of economic and social development for Africa.

Conclusion

Mr. Chairman, we share your concern that the road ahead presents formidable challenges. We know that the Bank is working to make broadly based poverty reduction and economic growth a reality on this continent. We know that Africa has broad structural problems and still remains a highly closed region in many areas. We respect the severity of the challenges Africa confronts in economic reform, health, education and poverty reduction.

African countries have accomplished a great deal and so, too, has the African Development Bank Group. I do not believe that Africans will allow their hard-won advances in democracy, economic liberalization and personal opportunity to be rolled back. We are encouraged that agreed fundamentals of good governance, investment, and democracy command an increasingly broad and growing following. This backdrop sustains the United States in our determination to work alongside you for Africa's growth and development, and for Africa's children.