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Jan 30, 2012

New GM Admits Global Fund to Fight AIDS, Tuberculosis and Malaria Needs Fixing

  • The incoming GM of the Global Fund to Fight AIDS, Tuberculosis and Malaria has signaled that it wants to refocus on its primary mission, after several embarrassing disclosures about misspent funds triggered a shortfall in donations and led to a change in management. Gabriel Jaramillo told The Wall Street Journal he will work to establish "a disciplined private-sector governance process" for managing grants, improve risk management from country to country, and try to raise new money.

    While the fund has projected receipt of $11.7 billion between 2011 and 2013, that amount included $2.5 billion in yet to be made “projected” contributions. That was an "aggressive" estimate, according to one source not named by the newspaper, since European governments have slowed down on donations in response to the continent’s economic challenges led by the Euro crisis.

    Even if Europe delivered every projected Euro being counted on, the global fund is hardly out of the financial woods. The fund is only counting on receiving $10 billion, so by its own estimate it is now $1.7 billion, or nearly 15%, below its forecast. Add to that the fact that the fund has only received $2.64 billion for 2011–13, and it’s understandable why the fund sounded the proverbial panic alarm in November, when it said it could not fund any new grants until 2014.

    Even worse: Its 2011–13 estimate also includes $4 billion from its largest contributor, the U.S. federal government, yet Congress has approved barely more than half that total ($2.1 billion) for fiscal 2011 and fiscal 2012 combined. And with Congress under pressure to cut $1.2 trillion over 10 years or risk across-the-board cuts in domestic programs, the fund shouldn’t count on getting much more from Washington this year.

    No wonder Jaramillo—who has significant financial experience as a former chairman and CEO of Sovereign Bank—declared that the shortfall “should never have happened” and promised the WSJ he will strengthen the fund's forecasting: "Uncertainty is a reality. You have to project the most likely scenario and the most horrible scenario. That's what we do in business every day."

    Jaramillo also said he hopes to hold a fund-raising conference later this year as global health organizations pursue an emergency fund-raising effort for the fund, which marked its 10th anniversary on January 28.

    If that should indeed be pulled off, the fund will have to show that it has moved past missteps. The funding of an apartment renovation in India using money meant for medicines, cited by the WSJ, was hardly the only instance of misspending.

    Following Associated Press reports early last year about misspent money, a first wave of investigations found $53 million in losses. Three additional fraud investigations, eight audits, and an internal review of travel involving about $1 billion in grant money turned up another $20 million unaccounted for due to misspending, mismanagement, with some allegations of fraud.

    The probes were reported to have led to tension between the fund's executive director Michel Kazatchkine M.D., and the fund's inspector general, John Parsons. Dr. Kazatchkine, a French clinical immunologist announced he will resign in March following five years at the fund’s helm, after the fund created the position of general manager, and named Jaramillo to that post. In a statement, Dr. Kazatchkine said he did not believe the fund should have two chiefs. But he did not respond to the Journal’s attempts at obtaining further comment.

    Jaramillio will begin a one-year term as general manager effective February 1, at a $1 salary, to implement the panel's recommendations and continue the fund’s work to recover the misspent grant money, which it noted was a small portion of its overall grant funding.

    In the $22.6 billion fund’s favor is its history and the continued support of at least one major benefactor. On January 26, at the World Economic Forum in Davos, Switzerland, Bill Gates announced a $750 million donation through the Gates Foundation that he co-chairs. Interestingly, he committed the funds in a promissory note, a mechanism which usually involves unconditional promises to pay. While the announcement didn’t say whether the promise would be fulfilled at a set time or on the simple demand of the payee, some of the text suggested the latter option by describing the note as a “new and innovative funding mechanism that will provide the Global Fund with the flexibility to distribute funds based on immediate program needs.”

    Since it was established in 2002, the global fund has distributed $15.1 billion to 150 countries, providing AIDS treatment to 3.3 million people, treatment for more than 8.6 million cases of tuberculosis, and distributing 230 million insecticide-treated nets toward the prevention of malaria.

    "There is nothing broken that can't be fixed, but there's a lot of fixing to do," Jaramillo told the WSJ. The sooner the fund sets about fixing itself, the better.


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