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Wall Street Journal
New Chief Unveils Plan to Revive Disease-Fighting Fund
Betsy Mckay
January 30, 2012
Wall Street Journal - January 30, 2012

The new chief of the Global Fund to Fight AIDS, Tuberculosis and Malaria plans a major overhaul of operations following an assessment urging improved management.

The assessment came after disclosures of misused funds and a slowdown in global donations.

"There is nothing broken that can't be fixed, but there's a lot of fixing to do," Gabriel Jaramillo, the fund's new general manager, said in a telephone interview from his native Colombia.

The Global Fund, based in Geneva, is one of the world's largest funders of programs and medicines to combat the big infectious-disease killers. It has been praised for corralling donations from more than 45 countries, as well as from private donors such as the Bill & Melinda Gates Foundation, which on Thursday said it is making $750 million available to the fund in a promissory note.

Since it was formed in 2002, the group has channeled $15.1 billion to 150 countries for AIDS treatment, antituberculosis drugs and bed nets to combat malaria. It is credited with helping sharply reduce malaria rates in sub-Saharan Africa. Bill Clinton, the rock star Bono, and other luminaries have lauded the fund.

But the fund, noted for its transparency, has been hurt by a slowdown in donations and its own disclosures of management shortcomings and some misuse of grant money - on expenses such as an apartment renovation in India, for example, rather than medicines. Last week, its troubles led to an announcement that its executive director, Michel Kazatchkine, will step down in March.

A report it commissioned recommended an overhaul of its grant management and financial practices and said it needs to redefine the way it does business with recipient countries. The fund said it is working on recovering the misspent grant money, which it says is a small portion of its overall grant funding, and it is implementing the recommendations.

It has also faced allegations of mismanagement, including whether it made improper payments connected to French First Lady Carla Bruni-Sarkozy, a fund ambassador. A spokeswoman for Ms. Bruni-Sarkozy declined to comment. Simon Bland, chairman of the Global Fund board, said payments for Ms. Bruni-Sarkozy's work were made properly, but acknowledged some discord because the board hadn't been informed about them. He added that her AIDS campaign has "delivered some great value." Mr. Bland also confirmed receipt of allegations of mismanagement that were leveled privately by the fund's chief financial officer. He said the allegations were investigated, a preliminary report has been prepared and eventually will be made public. The fund will draw on the report as part of a reorganization under way, he said.

Mr. Jaramillo, 62 years old, is a retired chairman and chief executive officer of Sovereign Bank, a Boston-based wholly owned subsidiary of Spain's Banco Santander SA, and a specialist in corporate turnarounds. He served on an expert panel last year that recommended multiple changes to the fund's operations to improve risk and grant management, visiting many programs that receive Global Fund money.

He will take the helm on Feb. 1 from Dr. Kazatchkine and hold the job for one year, implementing the panel's recommendations and accepting a $1 salary.

Dr. Kazatchkine, who has been in his role for five years, said last week that he was stepping down because he believed the organization shouldn't have two chiefs. He didn't respond to a request for further comment.

Under his leadership, the fund was working on improving the financial safeguards of its grants and commissioned the report to review its management and financial practices. Dr. Kazatchkine endorsed the report's recommendations.

Mr. Jaramillo said he will focus on "establishing a disciplined private-sector governance process" for managing grants, improve risk management from country to country, and try to raise new money.

The fund had projected it would receive $11.7 billion between 2011 and 2013. But that amount included $2.5 billion in projected contributions - pledges that hadn't yet been made. The amount was "aggressive" considering the euro crisis and other economic issues that have slowed government donations, according to one person familiar with the Fund's operations.

The total also included a $4 billion pledge from the U.S. government - the largest contributor to the Global Fund. But that money is subject to annual approval from Congress. Congress has approved $2.1 billion so far, for fiscal 2011 and fiscal 2012 combined.

In November, the fund disclosed it didn't have the money to fund new grants until 2014, in part because of the overly optimistic donation projections. It has received $2.64 billion from all donors so far for 2011-2013, but expects $10 billion.

Mr. Jaramillo said he will strengthen the fund's forecasting. "This should never have happened," he said. "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." He said he hopes to hold a fund-raising conference "later in the year" as global health organizations are calling for an emergency fund-raising effort.

Christoph Benn, the Global Fund's director of external relations, said contributions in previous years were "very close to what we had projected." For 2008 through 2010, the fund received $351 million more than it projected.

Jeffrey Sachs, director of the Earth Institute at Columbia University, said money for new grants is needed urgently because many poor countries have been preparing to scale up antimalaria programs. "We can't leave them out on the front lines without the armaments they need," he said.

Bill Gates said the fund's problems shouldn't discourage donors. His foundation has given $650 million to the fund since it was launched, in addition to its the $750 million contribution announced last week.

"We detest the fact that some of the already small amount of aid money earmarked for the poor is misused, but it would be deplorable if relatively rare events of corruption were to get more attention than the millions of lives the Global Fund has saved," Mr. Gates, co-chair of the Bill & Melinda Gates Foundation, said in an emailed statement. "The Global Fund is one of the most effective ways we invest our money every year." Write to Betsy McKay at betsy.mckay@wsj.com

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