[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
      FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS 
                        APPROPRIATIONS FOR 1998

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                              FIRST SESSION
                                ________

SUBCOMMITTEE ON FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS

                    SONNY CALLAHAN, Alabama, Chairman

JOHN EDWARD PORTER, Illinois         NANCY PELOSI, California
FRANK R. WOLF, Virginia              SIDNEY R. YATES, Illinois
RON PACKARD, California              NITA M. LOWEY, New York
JOE KNOLLENBERG, Michigan            THOMAS M. FOGLIETTA, Pennsylvania
MICHAEL P. FORBES, New York          ESTEBAN EDWARD TORRES, California
JACK KINGSTON, Georgia               
RODNEY P. FRELINGHUYSEN, New Jersey  

 NOTE: Under Committee Rules, Mr. Livingston, as Chairman of the Full 
Committee, and Mr. Obey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.

 Charles Flickner, William B. Inglee, and John Shank, Staff Assistants,
                     Lori Maes, Administrative Aide
                                ________

                                 PART 3
                                                                   Page
 Agency for International Development.............................    1
 NIS and Central Europe...........................................  263
 Export and Investment Assistance.................................  423

                              

                                ________

         Printed for the use of the Committee on Appropriations
                                ________

                     U.S. GOVERNMENT PRINTING OFFICE

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                       COMMITTEE ON APPROPRIATIONS                      

                   BOB LIVINGSTON, Louisiana, Chairman                  

JOSEPH M. McDADE, Pennsylvania         DAVID R. OBEY, Wisconsin            
C. W. BILL YOUNG, Florida              SIDNEY R. YATES, Illinois           
RALPH REGULA, Ohio                     LOUIS STOKES, Ohio                  
JERRY LEWIS, California                JOHN P. MURTHA, Pennsylvania        
JOHN EDWARD PORTER, Illinois           NORMAN D. DICKS, Washington         
HAROLD ROGERS, Kentucky                MARTIN OLAV SABO, Minnesota         
JOE SKEEN, New Mexico                  JULIAN C. DIXON, California         
FRANK R. WOLF, Virginia                VIC FAZIO, California               
TOM DeLAY, Texas                       W. G. (BILL) HEFNER, North Carolina 
JIM KOLBE, Arizona                     STENY H. HOYER, Maryland            
RON PACKARD, California                ALAN B. MOLLOHAN, West Virginia     
SONNY CALLAHAN, Alabama                MARCY KAPTUR, Ohio                  
JAMES T. WALSH, New York               DAVID E. SKAGGS, Colorado           
CHARLES H. TAYLOR, North Carolina      NANCY PELOSI, California            
DAVID L. HOBSON, Ohio                  PETER J. VISCLOSKY, Indiana         
ERNEST J. ISTOOK, Jr., Oklahoma        THOMAS M. FOGLIETTA, Pennsylvania   
HENRY BONILLA, Texas                   ESTEBAN EDWARD TORRES, California   
JOE KNOLLENBERG, Michigan              NITA M. LOWEY, New York             
DAN MILLER, Florida                    JOSE E. SERRANO, New York           
JAY DICKEY, Arkansas                   ROSA L. DeLAURO, Connecticut        
JACK KINGSTON, Georgia                 JAMES P. MORAN, Virginia            
MIKE PARKER, Mississippi               JOHN W. OLVER, Massachusetts        
RODNEY P. FRELINGHUYSEN, New Jersey    ED PASTOR, Arizona                  
ROGER F. WICKER, Mississippi           CARRIE P. MEEK, Florida             
MICHAEL P. FORBES, New York            DAVID E. PRICE, North Carolina      
GEORGE R. NETHERCUTT, Jr., Washington  CHET EDWARDS, Texas                 
MARK W. NEUMANN, Wisconsin             
RANDY ``DUKE'' CUNNINGHAM, California  
TODD TIAHRT, Kansas                    
ZACH WAMP, Tennessee                   
TOM LATHAM, Iowa                       
ANNE M. NORTHUP, Kentucky              
ROBERT B. ADERHOLT, Alabama            

                 James W. Dyer, Clerk and Staff Director








      FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS 
                        APPROPRIATIONS FOR 1998

                              ----------                              

                                         Wednesday, March 19, 1997.

               U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT

                                WITNESS

J. BRIAN ATWOOD

                 Chairman Callahan's Opening Statement

    Mr. Callahan. Good morning, Brian, welcome to our 
subcommittee. It is good to see you once again. I am not going 
to force you to sit through my reading an opening statement. I 
am just going to touch on the highlights of what I am going to 
give to you in printed form, and I think I do that out of 
deference and respect for you. I hope you have the same 
deference and respect for me.
    Mr. Atwood. I will.
    Mr. Callahan. I have read your statement, and I would 
appreciate you keeping it as brief as possible. We get into 
these meetings and with so many members on the subcommittee, we 
want to make certain that everyone has the opportunity to 
question you about any area of your responsibility.
    You and I have already talked. Basically, I was very 
disappointed the administration did not follow through on the 
direction that this committee has given the administration for 
the past couple of years with respect to child survival. I 
don't think you really believe this committee is not going to 
reinsert the child survival account in our legislation. And 
incidentally, child survival has great bipartisan support. It 
is just not Sonny Callahan or the Republicans. It has broad 
support in this subcommittee and the full committee, as well as 
the Congress. I know we have discussed that. You can rest 
assured that--good morning, Nancy--the child survival account 
will be reinstated.
    Second, you are asking for an increase of $65 million for 
development activities, and you even indicate that the monies 
you would spend on child survival, even though you didn't 
request a line item, would be cut by $44 million, or 10 percent 
or thereabouts, and that, too, is unacceptable, at least to me.
    Third, your AID budget would increase overall, and yet 
there is no increase that I can detect in development 
assistance activities for Latin America. Other regions would 
receive increases, but not our own hemisphere, and that, too, 
would not be my wish. I certainly will be guided by the 
subcommittee members, but I think it is extremely important 
that we look at our own hemisphere, that we recognize we have 
needs in this hemisphere, incidentally, in areas other than 
Haiti, and I don't think it would be appropriate for us to 
consider reducing our levelized funding for this hemisphere, 
while at the same time increasing funding for other areas of 
the world.
    Your new management system is far behind schedule and I 
understand is over budget. I understand you spent $100 million 
on a new computer system and it, too, is several years behind 
schedule. We are going to have to talk about that this morning. 
I also understand that the perennial problem of the move to the 
Federal Triangle Building is now going to be even more 
expensive than we were originally told, and we need to talk 
about that.
    Furniture costs, for example, are up about $3 million. I 
don't think the cost of furniture has increased to that degree, 
and I don't imagine you are considering buying more desks than 
you currently have. So therefore we are interested in knowing 
why the furniture costs are now estimated to go up to, I think, 
$14 million versus $11 million. The $11 million is too high. 
The$14 million is completely out of reach.
    Finally, I know that a working group from the National 
Security Council and the Vice President's office and OMB are 
currently reviewing options for the future of AID. Since I 
assumed Chairmanship of this committee, there has been talk 
within the administration of abolishing your independence, of 
merging with it other operations, and in addition to that, you 
have had some Members of the other body who have expressed an 
interest in doing the same thing.
    We in the House have sort of stayed out of that fracas. We 
want the Federal Government and the administrative branch of 
government to be able to effectively, from a cost viewpoint and 
an operational viewpoint and a jurisdictional viewpoint, run 
the USAID program as best they see fit. So we have stayed out 
of that fracas, but we keep hearing these rumblings and we 
don't want to get into a conference report, which inevitably 
happens.
    For some reason, the Senate chooses to disagree with us on 
some of the things we do, and we can't understand that, but I 
suppose every committee has that same problem with the Senate. 
But we want to get into a conference report and have the 
administration come out and say we think USAID's structure 
should be changed, nor do we want to face a conference report 
where we are trying to satisfy the wishes of some Member of the 
Senate about language in the bill that would force that change. 
I know that you might not be a part of that endeavor by the 
administration, but in any event, we would like to know your 
views on this issue.
    Before hearing from you, Brian, at this time I would like 
to yield to the gentlelady from California, the Ranking 
Democrat on our panel, Mrs. Pelosi, for as much time as she may 
consume. How is that?

                     Ms. Pelosi's Opening Statement

    Ms. Pelosi. As usual, you are very gracious. Thank you, Mr. 
Chairman, very much. I appreciate hearing the comments that you 
made and at some point in my remarks I will associate myself 
with some parts of them, and that would begin by welcoming 
Administrator Atwood to our hearing today. We are looking 
forward to your testimony. Thank you for being here and for 
your exceptional leadership in the challenge that you have.
    As you are here today to discuss the administration's 
fiscal year 1998 request for various programs administered by 
AID, I, again, want to commend you and the people of AID for 
continuing to administer a wide ranging and complex set of 
programs throughout the world. AID is a unique organization for 
which there is no equal.
    AID's personnel serve U.S. national security interests by 
developing and implementing sustainable development programs in 
areas ranging from AIDS prevention to democracy building, all 
the way up to Z. But in the interest of time, I won't go all 
the way to Z.
    AID is accomplishing this mission, I would add, despite the 
reduction in its administrative funds. I think it would be most 
unfortunate if the future capability of AID were compromised by 
some reorganization scheme that did not preserve these 
capabilities.
    Mr. Chairman, I have been interested in this area for a 
very long time. It is my experience that USAID provides us with 
the independent voice that we need, making funding decisions 
here in terms of supporting initiatives throughout the world. I 
don't think it would be appropriate for it to be brought under 
the umbrella of the State Department where decisions would be 
based on things other than the objective judgment that USAID 
can provide. I was very pleased to hear your remarks that we 
would not be dictating to the administration how it organizes 
this part of the executive branch.
    The fiscal year 1998 request contains an increase, I see, 
for $476 million for programs administered by the USAID, most 
of which, $292 million, is for Eastern Europe and the New 
Independent States. Other areas are $135 million for the 
Economic Support Fund and $65 million for development 
assistance.
    The increase requested for development assistance is 
modest, indeed, if we look at the needs around the world and as 
most of it is targeted for promoting food security in Africa, I 
would recommend the Committee's attention to it. I always want 
to associate myself with the Chairman's very forceful remarks 
that reflect his strong commitment to our own hemisphere and 
hope that we would have a strong emphasis on Latin America, as 
well. I look forward to our seeing some of the good work that 
AID has accomplished in Central America on our visit--two weeks 
from now.
    The crisis situations that have occurred within the last 
few years should be a warning enough for us that development 
programs aimed at crisis prevention are a good investment for 
American security and economic interests around the world, and 
of course, democracy building is too. There are many other 
issues I will address this morning in my questions includes 
AIDS prevention and control, population planning, women's 
programs, environmental concerns and regional issues in Latin 
America, Asia and Africa.
    I do want to note, while I am mentioning Africa, that I am 
so pleased that the First Lady and Chelsea have embarked on a 
goodwill trip to Africa. I want to commend her effort to bring 
the world's attention to the particular challenges that we have 
there. There is no better example of AID's unique role in the 
world than the response they, along with the UNHCR, were able 
to bring about during the crisis in Rwanda and more recently 
Zaire.
    The ability to respond quickly and effectively to 
humanitarian crises around the world depends heavily on our AID 
personnel on the ground and their practical solutions and know-
how. In thanking you, Mr. Administrator, I want to thank them 
for their courage and their dedication and their effectiveness. 
I look forward to your testimony and thank you, Mr. Chairman.
    Mr. Callahan. Mr. Atwood, before you get started, we have 
some guests here today from Alabama. We have close-up students 
from Mobile, Alabama, and also Monroeville, Alabama. Would you 
all please stand? And you are learning about government, and as 
you and I have discussed, and I discussed it briefly coming 
over here with a couple of them, they can't understand why we 
are giving all of this money to foreign countries. They want to 
be able to go back to their respective homes and talk to their 
parents and their classmates about why this country should be 
giving money to foreign countries when we have needs in the 
State of Alabama.
    Secretary Albright has agreed to come to Mobile in June and 
our conversation with Mrs. Albright was that the people of 
south Alabama cannot understand or comprehend an increase. And 
she said she would be glad to come down there and convince them 
to the contrary. So if Mrs. Albright is able to convince my 
constituency of the need for this huge increase in foreign aid, 
then you might be in a better position to get what you are 
requesting. As persuasive and gracious as the Secretary is, she 
has a tremendous mission in front of her. But in any event, 
welcome, constituents of mine from south Alabama, and welcome, 
Brian, to the committee.

                     Mr. Atwood's Opening Statement

    Mr. Atwood. Thank you, very much, Mr. Chairman, I will be 
brief and ask my written statement be made a part of the 
record. You asked a series of questions. I hope that we will 
get more time to get into the detail of those through the 
question-and-answer period. When I looked out my window this 
morning and saw snow on the forsythia blossoms I realized we 
might have a tough day today at this hearing, but this is the 
third time I have had an opportunity to testify before you 
since you became Chairman of this committee, and I want to 
thank you for being fair, or being very straight with us, for 
being a very tough negotiator on occasion. I am pleased that 
you have some constituents here from Alabama, and also 
delighted that you are going to keep an open mind about the 
President's request.
    Mr. Callahan. I might inject, here, Brian, there is a good 
possibility we can give you these increases, but you are not 
going to have to wait until it freezes in Washington. It is 
going to have to freeze someplace else.
    Mr. Atwood. Well, so much for open minds. I simply want to 
make a point about the President's request for an increase in 
the overall 150 account and certainly that portion which 
relates to this subcommittee's responsibilities. We see this 
really as an effort by our country to dig ourselves out of a 
hole. We feel that we have been shortchanging our own interests 
in our international affairs budgets, and we feel it is 
essential for us to try, once again, to become leaders with all 
of our bills being paid in the various institutions.
    I recognize the controversy about those matters, but I want 
to state before I get into the USAID's budget that I very 
strongly support all aspects of the President's request and 
hope that we can pay our bills at the United Nations and 
theWorld Bank, as well as trying to fund our bilateral program wherein 
we do pursue American interests.
    I think that there are more people aware today around the 
country, whether they are in Mobile or Massachusetts, that we 
are making investments that will mean jobs for tomorrow; that 
we 
are making investments in our safety against diseases; and that 
we are making investments in protection against environmental 
damage that we are already suffering as a result of climate 
change and the like.
    We have asked for an additional amount of money for USAID-
managed programs. Mrs. Pelosi detailed some of that. We have 
asked for additional resources for the former Soviet Union and 
Eastern Europe. Part of this is, again, designed to dig us out 
of a hole. We, again, went from a Russia program that had 
something like $2 billion in it a few years ago down to $98 
million.
    What we are attempting to do is work with the Russians to 
create the institutions and environment that will allow trade 
and investment to flow, so we can, indeed, exit that country 
and will no longer have to have a development transformation 
program there. Of the resources that we have requested for ESF, 
which we would fund and do development work with, most is for 
the Middle East and Latin America. And while it is true that we 
only asked for the same amount as was appropriated last year 
for Latin America, approximately $273 million, the fact of the 
matter is that that was $23 million more than the previous 
year, and we are asking for an increase of $14 million in our 
ESF account for Latin America. Latin America benefits more from 
ESF than does, for example, Africa.
    We have asked for, as was indicated, $65.5 million more for 
development assistance. Much of this is for our food security 
initiative. This is truly an investment in the future. Africa 
is suffering from gross food security problems that we would 
like to address over a 10-year period. We have asked for $30 
million in this particular budget for that purpose, but we have 
also asked for resources under the P.L. 480, Title III program 
that does not fall under the jurisdiction of this committee.
    We believe that over time we can do something about 
agricultural production in Africa and if we are able to do 
that, we will be able to cut down on the amount of food aid we 
have to provide to that continent. So I think it is a good 
investment in the future. I asked this morning for figures on 
how much we are expending for food aid, disaster relief and 
refugees in Africa. The number I have for last year, 1996, it 
was $642 million. That does not count the peacekeeping aid we 
provided, the peacekeeping forces we had to provide in cases of 
Rwanda and Somalia and the like. That would push it way over $1 
billion, perhaps towards $2 billion.
    If we could make this investment and couple that with other 
initiatives such as the Greater Horn of Africa Initiative, we 
could see the situation improving in Africa over time. So I 
will just address some of your other questions about why we 
didn't ask for a child survival account and why we asked for 
what we have asked for. We are looking for balance, functional 
balance and geographical balance.
    We assess in each of the regions what the need is, what is 
the state of development, what are the private capital flows to 
a region. And as you know, the private capital flows to Latin 
America are very significant today. That doesn't mean they 
don't have serious problems. We need to continue to invest in 
Latin America, in particular, in transition situations and try 
to stabilize economies and political systems, but the per 
capita income in Latin America is very high. It is over $2,000 
on average, I think it is over 3,000, actually, and it is very 
low in Africa. So we look at need, we look at our foreign 
policy interests.
    Obviously, Latin America scores very high on that scale. It 
is in our hemisphere. We look at the quality of our 
partnerships with the different governments to see whether or 
not they are, indeed, cooperating with us on development 
nowadays, whether they believe in economic and political 
reform, and we look at the performance of our programs. So all 
of those come into play when we make decisions inside the 
executive branch. It isn't as if we are ignoring what you are 
saying to us, but I have many masters and we have got the 
Senate as well. So, clearly, we understand your commitment and 
I have made it clear in my written statement that I do very 
much appreciate your dedication and that of others.
    There is a bipartisan commitment to child survival and we 
understand that. But given all these pressures, what we are 
looking for is some functional balance. We have had to ask for 
more money for food security. We believe that directly affects 
children and so do many other aspects of our budget. So that is 
my explanation.
    I do feel with respect to the changes that we have made at 
the USAID that we have made significant progress. Yes, 
depending on which timetable that you want to look at, you may 
say that our NMS is slightly behind schedule. The fact of the 
matter is that when you actually begin to deploy a system like 
this is when you hear more about the problems of deployment 
themselves.
    We have run into data migration problems. The old systems 
were very bad and no one is trying to hide that. This system 
works. The software is solid, the system itself has been 
deployed worldwide. We are actually conducting business over 
this system. It works. The problem is that it does not accept 
inconsistent data, so we have to make sure that we are working 
our way through this.
    We feel that by August we will have all the data from the 
various 11 different accounting systems put into the system in 
a consistent way so that we won't run into blockages every time 
we attempt to do it. We have made major improvements in the 
communication speed in the NMS system through a series of 
actions we have taken. I believe we are way ahead of anyone 
else in government in deploying this system.
    It is complicated. We are not using conventional systems. 
Our IG has a job to do in looking over our shoulder to make 
sure that we are doing things according to the book. The fact 
of the matter is the book wasn't written for an integrated 
electronic computer system of this type. Even the GSA testing 
bed that is used for normal systems doesn't work and we are 
working with the GSA to see that they can test it as they are 
supposed to under our government procedures.
    The building, in fact, will cost us, the move itself will 
cost us less even though the furniture price has gone up. The 
move itself, because of savings in other areas, will cost us 
$2.1 million less, even with the add-on for furniture. So I 
think in the long run, since we are moving into a government 
building, that we are going to be able to stabilize our rental 
payments over time, and that this is a good thing for USAID, 
despite the fact that the building is described as a Taj Mahal, 
the fact of the matter is our people are going to have a lot 
less space, and if you could hear the complaints coming from 
our people about having to move into this building, you would 
know immediately that it was not a fancy place. I think I can 
actually see daylight from my office, but I need a periscope 
for that purpose.
    In any case, these are complicated issues. We have 
overhauled this agency from top to bottom. We are pleased that 
your staff has spent an awful lot of time overseeing what we 
are trying to do. We were down just the other day for a 
briefing on the Government Performance and Results Act. I think 
we are way ahead of, again, other agencies in proceeding to 
create a strategic plan and certainly we want your input into 
that plan.
    I feel good about where we are today. We ask you for $15 
million less for operating expenses this year than we did last; 
that is a result of a lot of these changes which I can just 
summarize very quickly: We have reduced staff by over 2,700 
people; we have cut senior management by 38 percent; we have 
reduced project design time by 75 percent; we have reduced our 
regulations by 55 percent; we have closed 26 overseas missions. 
I could go on and on.
    I think that is why we are able to come back to you and say 
while we want $476 million more for programs, we need less 
actually for operating expenses to run those programs.
    Thank you, Mr. Chairman, I will end there.
    [The statement of Mr. Atwood follows:]

[Pages 8 - 38--The official Committee record contains additional material here.]


    Mr. Callahan. Thank you. I am just going to be very brief 
with my questions in order to give the other members here an 
opportunity to ask some questions. As a matter of fact, I think 
I will just hold off on mine, Nancy, if you don't mind. Let's 
let the other Members make some statements and then we will go 
from there.
    Mr. Packard.
    Mr. Packard. Thank you, Mr. Chairman, and welcome, Mr. 
Atwood, to the committee again.
    Mr. Atwood. Thank you.

                             child survival

    Mr. Packard. You have addressed the child survival account 
and I think you know how important that is, not only to the 
Chairman, but to most of the members of this subcommittee. I 
guess my question is, and you may have partly answered it in 
your statement, but how can you justify an increase in the 
overall funding in this account and yet not request funding for 
the child survival account. My understanding was that if you 
did include it, it would have been less than last year's 
funding even at that, so would you review again for us why you 
felt you could reduce that account and still increase other 
areas where I am not sure, at least to this committee, those 
areas are as important as the child survival account.
    Mr. Atwood. Yes, Mr. Packard. Again, the first point I 
would make is that we are all operating under some very serious 
constraints, attempting to balance the budget. The President 
did ask for more in the 150 account, but a lot of that was to 
pay arrearages and the like, so there is still compression in 
the development accounts.
    I think we felt fortunate that OMB, the President and 
others within the executive branch allowed us a small increase 
in our development account, but there are judgments that come 
into play here. We obviously understand how successful the 
child survival programs have been. We understand the very 
strong support that those programs have.
    What we would simply say is that initiatives, new 
initiatives such as requesting resources for food security in 
Africa relate directly to children, and whether or not they are 
going to be properly fed. We have asked for more money for our 
population accounts. This administration strongly believes in 
family planning. We believe that family planning itself helps 
children in spacing those children so they have more food on 
the table and better access to health care and the like.
    So there are a lot of aspects of the programs that relate 
to children that don't fall exactly within the definition of 
the child survival account. We, of course, generally don't like 
earmarks, and that is another sort of principle that was behind 
our request this year.
    Mr. Packard. You have asked for additional amounts, $30 
million, which is an increase of $3 million for Albania. We are 
not sure this is a success story in Albania that justifies 
that, and that of course takes money away from child survival; 
a $100 million increase to Russia, huge increase for Russia, 
and we are not sure that the track record there is positive for 
us, and all of those, of course, at the expense of the child 
development account. We are not sure the priorities are 
correct.

                        partnership for freedom

    Another question, can you tell me a little bit more about 
the Partnership for Freedom, PFF initiative? Why is the bulk of 
it going to increases for Russia, and particularly when Russia 
is resisting our efforts to expand NATO? Is it more important 
to fund Russia than it is to save the children in child 
survival.
    Mr. Atwood. A lot of the resources that go to that region 
of the world, I think, also directly benefit children, so I 
don't think it is an either/or proposition. But we have very 
important foreign policy requirements and interests in seeing 
Russia convert to a democratic, free-market society. That, I 
think, is obvious, and we feel that the cuts in the Russia 
program last year were severe.
    But what this Partnership for Freedom is trying to convey 
is the notion that we need to leave Russia in the next 5 to 10 
years, I would hope less than 10 years, and that we need to see 
a new partnership developing between the private sector of our 
country and the private sector of Russia, between NGOs in our 
country and NGOs there. So the Partnership for Freedom is 
designed to underscore, if you will, that exit strategy.
    It is designed to underscore the fact that private linkages 
are more important now that we have gotten through the first 
phase of our technical assistance programs, although we still 
continue to work on aspects of creating enabling environments 
so that trade and investment will be made in Russia. That is 
basically the purpose. It is to facilitate trade, it is to 
facilitate private contacts between the United States and 
Russia that will stabilize our relationship in years to come.

                                  nato

    The question of NATO enlargement is being discussed and 
will be discussed in Helsinki. There are different perceptions 
on both sides for what this means for Russia. We will just have 
to see how that evolves. I think politically, in Russia, NATO 
has always been seen as an adversarial alliance. That, I 
believe, is changing rapidly as we give the Partnership for 
Peace a different meaning.
    So these discussions have to go on with Russia, and my 
belief is that they will produce a positive result. This is 
more likely, however, if we are able to see Russia become more 
democratic and more market-oriented.

                      middle east development bank

    Mr. Packard. Lastly, I am interested in your reaction to 
including additional funds for the Middle East Development Bank 
in economic support funds. I think it is clear that the 
Chairman and the committee has not been anxious to increase the 
portion of the pie that goes to the Middle East, and yet this 
obviously is increasing that component of the total budget for 
the committee. I was wondering why you are increasing that pie, 
or that piece of the pie? In reality, are you seeking to 
increase the amount that goes to the Middle East overall?
    Mr. Atwood. Mr. Packard, we are certainly not seeking to 
cover the serious problems we have had in actually getting this 
Middle East Development Bank off the ground, and I know the 
Chairman, when he traveled in the Middle East, talked to a lot 
of people about it. But it was an initiative that resulted from 
a joint proposal from Israel, Egypt, Jordan and the 
Palestinians.
    It is designed to reinforce our foreign policy objections 
which enhance the peace process and give some feeling that if, 
indeed, people are amenable to the peace process and moved 
forward, there is at the end of that road a joint effort to try 
to bring about consolidation of the process through 
development, and this is one idea. It has, has had its 
difficulties, but we continue to think it is important to suggest to 
the Congress simply because it relates so closely to the peace process 
itself.
    Mr. Packard. Thank you, Mr. Chairman.
    Mr. Callahan. Well, we are very pleased that our patient is 
out of the hospital and convalescing, and at this time, Mr. 
Obey, if you have any questions or if you want to defer, 
whatever you want to do.
    Mr. Obey. I don't know what stage you are at, Mr. Chairman.
    Mr. Callahan. Well, any time you get ready, you jump in.
    Mr. Obey. Okay. Let me get my act together first.
    Mr. Callahan. Mrs. Lowey, last week we introduced a new 
policy that we are going to recognize people in the order they 
arrive, because last week Mr. Torres sat there for 2 hours and 
every time it came to him, somebody else came in.
    Mrs. Lowey. Thank you very much, Mr. Chairman.
    Mr. Callahan. We ask that you not abuse this and try to 
keep it to five minutes.

                             latin america

    Mr. Torres. Administrator Atwood, thank you for coming 
today. Both Chairman Callahan and our Ranking Member, 
Representative Pelosi, have addressed the issue of your 
agency's diminishing aid to Latin America, so much so that they 
will travel to Latin America in the near future to look at 
these issues.
    We here in the subcommittee have been noticing that there 
has been a steep decline in funding for Latin America, and last 
year I recall our subcommittee expressed concern over this 
decline and we asked exactly how the administration was going 
to pay more attention to this part of the world, our closest 
neighbor to the South. Trade programs to the region are 
helpful, but obviously not sufficient. Development aid that 
helps to alleviate poverty and tackle the problem of persistent 
inequality in the region must be part of the solution.
    Mr. Atwood, what are AID's priorities and objectives for 
the region and how do you propose to ensure adequate funding 
for programs that help Latin America? And, if I may add a 
second question to that, part of your testimony indicates that 
by the end of fiscal year 1998, your agency will close more 
than six country missions. Are any of those in Latin America?
    Mr. Atwood. We have closed some, Mr. Torres, in Latin 
America in the first year; Chile and Argentina, for example. 
And we are planning to phase down our operations in Brazil, 
because what we are doing should be taken over by Brazilian 
NGOs and the government.
    I would have to check that list of six the Chairman 
referred to in the testimony to give you more detail than that. 
I certainly agree with you, we should be spending more in Latin 
America. We should be spending more elsewhere, as well, if we 
really want to achieve results, but there is a compression in 
the 150 account that causes us to reduce these amounts.
    Our priorities in Latin America today are in consolidating 
the democratic gains that have been made that are still not as 
solid as we would like. They are still fragile in many of these 
countries. There is a tremendous amount of private capital 
going to Latin America, which is a mitigating factor. But we 
look at transitional situations like Guatemala. We have 
provided assistance to Guatemala in this transition and made 
certain commitments, and I am pleased to say that in the case 
of Guatemala, the Secretary of State yesterday just approved an 
additional $8 million to bring the overall amount of ESF 
available for Guatemala up to the $25 million that we had 
indicated to Congress that we wanted to provide. The amount we 
have asked for for Latin America is $273 million in development 
assistance. It is the same level as last year, and last year 
was an increase. We have asked for $14 million more for ESF in 
Latin America. I think we understand the priorities. I wish 
there were more money available overall. There isn't. And we 
have to make these judgments, and we do understand how 
important we all consider Latin America to be. Because last 
year alone we had almost $100 billion worth of exports to Latin 
America. So we want to make sure that those gains in market 
development and democracy are maintained.

                            basic education

    Mr. Torres. Thank you. Mr. Atwood, as you, yourself, have 
stated, access to basic education is essential for improving 
economic development, political stability and social welfare. 
Investment in girls' education, in particular, has some of the 
biggest benefits of any development strategy that we've been 
able to support. Educating girls, as we know, results in 
improved child health, lower fertility rates and higher 
earnings and productivity.
    I recognize the difficult funding situation that you face, 
but I am very concerned about basic education. Funding for 
these basic education programs has dropped by nearly 30 percent 
in the last couple of years, a decline greater than averge cuts 
in development assistance.
    Do you believe that basic education should remain an 
important focus of our foreign assistance portfolio? If so, I 
would ask if AID intends in its fiscal year 1998 budget, to 
reinstate its support for basic education and how can we 
restore our U.S. leadership in this very important issue of 
education?
    Mr. Atwood. We have announced a major initiative on girls' 
education. We are attempting to reorient a lot of the money we 
spend on basic education toward that initiative. Only about a 
third of the girls in the developing world are given equal 
access to education along with boys in many of those countries, 
so we consider it to be extremely important.
    I agree we have seen, even as a percentage of our reduced 
budget, basic education and education generally going down. It 
is because partially there has been a good deal more emphasis 
on population, environment, and, of course, higher child 
survival and the like. The economic growth budget, where our 
education funding falls (because it is considered to be human 
productive capacity that relates to economic growth), has been 
really squeezed.
    Economic growth funding about 4 years ago was almost 50 
percent of our development budget assistance. It is now less 
than 20 percent of our budget. So education has suffered. A 
group came to see me a few weeks ago suggesting that we make 
education a major strategic goal of the USAID. We are looking 
at that question carefully.
    Our assumption had been that education ran through all of 
the four sustainable development goals, that you need insome 
fashion or another to emphasize education if you are going to obtain 
results in any of those other areas. But one of the effects of budget 
cutting and emphasizing certain things over other things is that we 
have lost balance, in my opinion. There is an effort, albeit not 
perfect, to achieve more of that balance in the budget request we have 
before you now.

                            microenterprise

    Mr. Torres. I note that AID has taken a leadership role 
among bilateral donors on microenterprise and I want to thank 
you for your personal support of micro credit. I want to thank 
you and particularly encourage AID to increase its support for 
credit programs reaching the poorest in the world, but I have 
one specific question.
    While AID has actively supported microenterprise in Asia 
and Latin America, it has been slow to support it in Africa and 
Eastern Europe and the former Soviet Union. Do you have any 
plans to increase support for microenterprise in these regions?
    Mr. Atwood. We would like very much to do it. Part of the 
problem we have is we need to work with institutions that are 
able to carry forward these projects. We have found 
institutions in Latin America like BancoSol in Bolivia that are 
absolutely fantastic. They have managed to create a huge 
portfolio for use in poverty lending programs.
    One of the problems in Africa is that institutions are very 
weak, banking institutions are very weak. The NGOs in Africa 
need to be helped in terms of capacity building. We have 
attempted to push microenterprise programs and will continue to 
do so, only held back by the fact that institutions are not yet 
at that stage where it is easy to work with them.

                          former soviet union

    Mr. Torres. What about the Soviet Union?
    Mr. Atwood. The former Soviet Union has a per capita income 
somewhat different than in the developing world and has a great 
deal of human resource capacity, because of the good education 
system, although they were educated in the wrong way. It is a 
place where we want to do more for microenterprise lending.
    I think we can do better programs there because of the lack 
of extreme poverty levels. We are also doing a lot of small 
business lending there. In other words, the average amounts we 
are lending in that part of the world are higher than what we 
would classify as poverty lending, which is $300 or less.
    Mr. Torres. I am sorry, Mr. Administrator, I erred in 
saying the Soviet Union. I meant the former Soviet Union.
    Mr. Atwood. Right.
    Mr. Torres. Thank you.
    Mr. Callahan. I might point out both Mrs. Pelosi and Mr. 
Torres have mentioned Latin America and their concern for Latin 
America. So it is not just Sonny Callahan, not just the 
friendly opposition here of the Republican Members. It is, I 
think, totally universal on this committee that we do not feel 
we are paying a sufficient amount of attention to Latin 
America.
    Mr. Frelinghuysen.
    Mr. Frelinghuysen. Thank you, Mr. Chairman. Administrator 
Atwood, thank you very much for stopping by my office 
yesterday. You highlight in your written statement on page 10 
in italics, our modest and well-targeted domestic assistance 
programs directly advance America's interests, your 
constituents' interest, and then you go on.

                    public perception of foreign aid

    I know you said in your oral testimony, and I quote, ``more 
people are aware of what we do, that we are making these types 
of investments.'' I don't get the feeling in connecting with my 
constituents that many people are aware of the good work of 
your agency, AID, and I would like to know what specific 
steps--I know you obviously have some major responsibilities 
around the world--what you are doing on the home front to 
better educate our fellow Americans as to what these 
investments mean to them. And I would like to know what 
specific steps, and I have actually somewhat asked Secretary 
Albright this, as well as Secretary Rubin, what specific steps 
you have contemplated here at home to educate the public.
    Mr. Atwood. I have travelled around the country probably 
more than any USAID administrator and attempted to talk to all 
sorts of groups, not just world affairs council people. That is 
like preaching to the converted. We have managed, I think, to 
make a case, and I don't know to what extent people up here 
read editorials from their hometown newspapers. I think quite a 
bit, but we can show you about 300 editorials supporting what 
we do.
    We have tried to get around this phrase ``foreign aid.'' It 
is a dirty word in politics, as you know very well. Our foreign 
aid program is less today a foreign aid program than an 
American aid program. We create jobs.
    I remember mentioning just a minute ago the $100 billion in 
trade to Latin America, in the early 1980s that was down to $25 
million, and the progress we have made in trade in Latin 
America is a large part of why jobs are being created in the 
United States of America. The same is true in Asia. We made 
investments over 30 years that have helped to create those 
markets.
    We are also trying to deal with a world that is very 
unstable, especially the developing part of the world. Four out 
of five people by the year 2000 are going to live in the 
developing world. Either we make investments in sustainable 
development now or they will become wards of the international 
community and we will be truly undertaking an international 
welfare program, because our people don't like to see people 
starving.
    We spent $642 million last year in Africa just for what I 
would call international welfare, emergency food to help 
starving people, disaster relief and refugee assistance. And 
there are 50 million people walking around that are not living 
at home, they are either displaced or refugees. So there are 
great opportunities to create new markets, and there are the 
problems that will accrue if we do not get involved to try to 
prevent crises.
    I think the case is a strong one. The United States has 
been able to lead the rest of the industrial world to do more. 
In 1960, the rest of the industrial world was providing only 40 
percent of all the development aid; the United States was 
providing 60. Today the United States is providing only 17 
percent and the rest of the developed world is providing the 
remainder. So burden sharing is no longer an issue. We have 
managed through our leadership to influence what the other 
donors do, and that helps Americans.
    Mr. Frelinghuysen. I think it is absolutely imperative to 
influence potential donors and some of our allies are indeed 
big donors. I am more interested in concentrating some of our 
effort in educating Americans as to why these investments in a 
variety of ways on different continents are absolute 
imperative, and I would like to make a specific suggestion.
    Most every State has a Department of Commerce or economic 
development agency. I don't know whether there is a possibility 
of setting up regional meetings with some of the men and women 
who run those agencies so they would have a better grasp of 
what you are doing. Because you say on page 16 here, and I 
quote, ``the bottom line is that by the year 2000, three short 
years from now, four out of five consumers will live in the 
developing world.''
    I don't know if that is accurate or not, but I have never 
seen a statement so blunt or so compelling. On what basis do 
you make such a statement?
    Mr. Atwood. Simply the demographics. That is where the 
people are going to be living. The birth rates are so high in 
the developing world that the facts are that four out of five 
people are going to be living there. We are going to see 2 
billion more people coming onto the face of the earth in the 
next 20 years, and most of them, 80 percent, are going to be 
coming into the developing world.
    The only qualifier I would give you is there is a serious 
question as to whether they are going to be consumers or 
whether they are going to be wards of the international 
community. We do work with state development offices. We have 
our Center for Trade and Investment Services that works with 
state offices. We have actual agreements with some states.
    We also have a program that I neglected to mention earlier 
called ``Lessons Without Borders'' where our development 
experts use their experience and go to different cities and 
rural areas around the country. This program is not at 
taxpayers' expense. We have managed to raise foundation money, 
for example, to help the City of Baltimore increase 
immunization rates, or introduce microenterprise lending ideas 
in some of these other cities, or to talk about community-based 
environmental programming in places like Seattle, Washington, 
and the like. That has done a lot to, I think, educate people 
as to what we do overseas, and how their people are connected 
to the global economy and to others overseas.
    Mr. Frelinghuysen. I saw you on C-SPAN several weeks ago 
before one of the other committees and you were talking about 
Africa and South America, parts of Asia, and you were 
explaining to some of the committee members, some of you are 
successes as well as some of your failures. For instance, this 
whole issue of the appallingly low per capita income in some of 
these countries.
    Some of the questions that the Chair and others have raised 
is that we have been making these substantial investments, yet 
in many cases the per capita income is either going down or 
remains the same. And many people are wondering how much that 
investment is paying off for those people. Would you comment 
generally about that issue, whether our investments, in fact, 
are raising the per capita income in some of these countries?

                                 africa

    Mr. Atwood. Yes. I think the critics are partially correct, 
except they go a bit too far. For example, in many parts of 
Africa, we have not been working with governments that really 
have dedicated themselves to economic reform. There are still 
statist regimes in many places. We don't work with them 
anymore. We had to work with them in some cases during the Cold 
War, but the quality of the relationship we have with other 
countries is important to us now.
    Zaire as you know, is falling apart today. We started 
working there when the per capita income was close to $2,000; 
we spent 2\1/2\ billion dollars, and the per capita income is 
now under $200 per year. The investment didn't work. But others 
will argue that, well, the investment did work because at least 
Mobutu supported us in the general assembly at the United 
Nations and didn't allow the Soviets, the Communists, to take 
over his country. But there is a different standard today.
    We expect that we are going to be able to achieve results. 
We can't do that unless we are working with people like 
Museveni in Uganda or Meles Zenawi or Mandela, people dedicated 
to bringing about economic freedom, which I know Mr. Livingston 
was very concerned about, when Secretary Albright was here. We 
believe in achieving economic freedom. The government has to 
take the step of dedicating itself to that proposition, but 
then they need help in building the institutions and putting 
the right policies in place.
    We would like to do more of that in Africa. The GNP per 
capita in Africa is only $460 dollars. By the way, in Latin 
America, it is $3,340, on average. Life expectancy in Africa is 
52, and in Latin America, it is 65. Infant mortality is 92 per 
thousand deaths in Africa. In Latin America it is 51 per 
thousand deaths. Adult illiteracy is 57 percent in Africa and 
60 percent in Latin America. So there is a whole series of 
indicators to use in order to know what parts of the world need 
more help than other parts of the world.
    I was recently quoted in the New York Times Magazine as 
saying USAID hasn't worked in Africa. I wish that the entire 
quote was put in, because Africa would be a lot worse off today 
if we hadn't worked to improve the agricultural production, 
infant mortality rates and the like, and literacy rates. But 
the fact is that aid at the economic level hasn't worked 
because we were working with governments that did not commit 
themselves to free market economies.
    Mr. Frelinghuysen. Thank you for your response, and thank 
you.
    Mrs. Lowey. I want to join my colleagues in thanking you 
for your leadership at AID. Thank you. I would like to 
associate myself with my colleague, Mr. Torres, on several 
points that he made.

                  international education and training

    First of all, we all know, and you have agreed, that an 
educated and well-trained population is a precursor to long-
term economic growth. In fact, the highest poverty rates are 
found in nations with the lowest education levels. Despite 
progress over the last 30 years, about 1.4 billion adults in 
the developing world are illiterate, only half of the children 
attend primary school, and there is a great disproportion of 
boys and girls attending school. We recently returned from 
Egypt, and that was clearly the case, as well as in Jordan.
    Given the realities, it seems to me that education and 
training should certainly be a priority of U.S. foreign 
assistance, and I am very pleased that you said you were 
looking into designating international education and training 
as a separate strategic goal of United States development 
assistance. I look forward to pursuing this discussion, and I 
hope that we can see that decision concluded shortly.
    But I know that there will be ongoing discussion, and I 
thank you.

                        microenterprise programs

    As well as Mr. Torres, I too am a strong supporter, as many 
of us are, of microcredit lending; and I think we all agree 
that providing small, low-interest loans to the millions of 
small entrepreneurs around the world would be a major step 
towards the eradication of poverty. This is especially true 
among women who are often the heads of households and benefit 
tremendously under microcredit programs. I know Jim Wolfensohn 
of the World Bank is making tremendous advancements in that 
area; however, it is still a very small portion of the total 
aid programs. Perhaps you could share with us, AID's 
microcredit initiative; how it is being expanded to help people 
around the world pull themselves out of poverty; and at a time 
when there is so much skepticism--we have seen it in the press, 
we have seen it even in this committee--of the impact of aid 
around the world, I think microcredit is an extraordinary 
example of success.
    Could you share some views with us?
    Mr. Atwood. Well, it is, I think, an extraordinary example 
of success and it certainly has very strong bipartisan support 
here in the Congress. Many people who think about it look back 
on the development of our own country and people's access to 
credit to try to build this country; and therefore it is, 
ironically, very American to support microenterprise programs. 
The irony is that the idea really came from Mohammed Yunis of 
Bangladesh who created the Grameen Bank. So we do learn things 
from other people. It was just the form that it came in, the 
poverty lending aspect of it.
    They, of course, people who are poor, have to borrow money, 
and in the past, before institutions like Grameen Bank existed 
they borrowed money from money lenders who charged exorbitant 
rates of interest so the poor suffered even more. They didn't 
have any formal standing in most economies, so they couldn't go 
to a normal bank and gain credit, and yet in the way that 
Mohammed Yunis created it, they were able to create networks. 
Many groups that have come to the United States when they were 
new ethnic groups also created those same type of networks.
    I remember Sam Gejdenson saying when his family first came 
here they wouldn't have been able to survive without that 
connection they had with their own ethnic group and own 
religion. That is the notion that is behind this, what makes it 
work.
    What has happened over time is that, through institutions 
like BancoSol and FINCA and others, the interest has been 
compounded and not only do banks lend, but they also now are 
opening savings windows so that poor people are now actually 
saving money in addition to building businesses. It is a 
wonderful idea.
    There was a microcredit summit here in Washington just a 
few months ago, and I want to say this, as it relates to 
enthusiasm up here for doing even more. One of the concerns 
expressed at that microcredit summit by people like Mohammed 
Yunis is they don't want to push this too fast, because if some 
of these institutions begin to fail or you don't have the 
correct institutional framework to carry this out, the failure 
will hurt people badly.
    So I have talked to my own people. I think USAID is really 
the number one institution in the world right now for pushing 
microenterprise lending, but they are concerned that we are 
getting at that end where we are working with NGOs who are not 
as strong as some of the NGOs we were working with before, so 
they are a bit concerned that we are going to push too fast and 
create problems for this wonderful revolution that is going on 
around the world.
    Mrs. Lowey. Are you working with the Treasury Department 
and the multilateral development banks in coordinating a 
strategy?
    Mr. Atwood. Yes, Bob Rubin has a major initiative in this 
country to carry this forward; and he and I and the First Lady 
had a press conference to talk about our activities, while the 
President later gave awards to people who have broken new 
ground in this country for microenterprise lending.
    In addition, we have a person helping Jim Wolfensohn over 
at the World Bank setting up his microenterprise lending.
    Mrs. Lowey. Thank you.

                                 jordan

    One troubling aspect of the budget is the low level of 
economic assistance proposed for Jordan. I understand the 
difficulties you face as a result of the shrinking budget over 
the last few years, and despite the modest increase requested 
for your budget, there are still far more worthy projects to be 
funded than there are dollars to fund them.
    We recently returned, as a committee, from Jordan, and it 
is a nation that, as you know, is in great need of economic 
assistance. The congressional presentation for your agency's 
budget says the development of Jordan's fledgling democracy, 
its ability to wage peace and continuing efforts to promote 
regional peace can only be achieved through sustained 
international assistance. I think most of us agree who recently 
traveled to Jordan. Can you discuss with us what you think we 
can do to meet Jordan's critical needs?
    Mr. Atwood. Yes, Mrs. Lowey.
    The requests we have made through all accounts for Jordan 
for fiscal year 1998 is $86.2 million. I think that reflects 
the extent to which we believe Jordan is a key player in the 
peace process, as well as a country that needs some assistance 
in the development area. The request is for $25 million in ESF, 
2.5 million in DA, and there are a series of other accounts 
including military assistance as well. The total is $86.2 
million. I know that this has been discussed, obviously, 
extensively, with King Hussein and the Jordanian Government.
    I think, by the way, that the action that was taken by the 
king the other day was one of those extraordinary steps that 
more international leaders could take. I am referring, of 
course, to his visit to the victims' families of the shooting 
on the West Bank a while back. I think that our effort is to 
try to continue to see peace consolidated and Jordan is a major 
part of that effort, and I think this request, at least, 
reflects how important we consider that to be.

                        family planning programs

    Mrs. Lowey. I thank you, and I probably have time for one 
more question, but I want to thank you. I was very pleased that 
we were able to get the population funds out on March 1st, 
since they were already five months late; and so I do want to 
thank you for your commitment. And I think it would be helpful 
for us if you could give us your views about how United States 
International Family Planning Assistance improves the health 
and well-being of women. Some of us also visited those clinics 
in Egypt, and it is clear in a country where there is only 30 
percent literacy among women, that these clinics provide a very 
important service.
    Could you share your opinions on that?
    Mr. Atwood. Well, it is a program that is fully voluntary, 
I want to add, and therefore no one is forced against their 
will to participate in the program. The program is also 
multidimensional in the sense that it offers, in some cases, 
training in the use of modern contraceptives, but it also has 
programs in natural birth control that are sensitive, I think, 
to the religious and cultural context. In fact, as has been 
demonstrated in a lot of statistical analyses, it does reduce 
abortions, maternal deaths and the deaths of children because 
people are a lot more sensible. They are not having unwanted 
pregnancies; they are able to space their children properly so 
that those children will have access to education and health 
care and food on the table. It is a children's program in that 
sense.
    We have been providing about 45 percent of all of the 
family planning services in the world, and one of the 
consequences of our leadership here is there are 5 million 
fewer people since the program started than there would have 
been. That means higher per capita income, it means governments 
are spending less on the social sector, health and education, 
for example. I mean, they are spending more per capita, but 
less than they would have otherwise if more people had been 
born in those countries.
    The country of Egypt, for example, would have 50 million 
more people if it weren't for the family planning programs we 
have in place there and life in Egypt would look pretty 
miserable today if all of those people lived next to that river 
in those very few parts of the country that are fertile. So I 
think it has had a major positive impact on the world.
    I wish we could get away from--I know the Chairman agrees 
with me--these debates. Our family planning program has nothing 
to do with abortion and I wish we could get away from these 
debates, but I suppose if there were goodwill on all sides, we 
could probably find a way out of this mess.
    Mrs. Lowey. I look forward to that day, and I will submit 
the balance of my questions for the record. And I thank you, 
Mr. Chairman.
    Mr. Callahan. My comment is, there is goodwill on our side.
    Mr. Atwood. I try to figure out which side.
    Mrs. Lowey. Our side, our committee.

                      microcredit lending programs

    Mr. Knollenberg. Mr. Atwood, welcome, and I thank the 
Chairman for yielding. I join Mr. Torres and Mrs. Lowey, in 
their appreciation and support of the microcredit programs as 
an aid to helping the very, very poor. I want to go a little 
bit more deeply into AIDS support for those programs.
    As you know, in the 1994 microcredit initiative, a 
Commitment was made, that by the end of 1996, half of the money 
provided for microcredit would be used for supporting poverty 
lending programs which reached the very poor, with loans under 
$300. Also I am sure you are aware in the report that 
accompanied the 1997 foreign aid appropriations bill, there was 
language that reiterated that same position, that half of 
microcredit funding must be used for those programs providing 
loans of under $300.
    Now, as far as I know, we have received no reply to that 
report. Perhaps you could shed some light on that and why we 
have not.
    Mr. Atwood. Yes. Well, we are in the midst of doing a 
survey. We did one in 1994. What we found in 1994 was that 80 
percent of all loans given by AID-supported programs were below 
$300. This lending amounted to one-third of the total loan portfolios 
of the institutions involved; and that is, of course, the issue. The 
loans themselves, yes, no problem, but the overall portfolio of the 
institutions was only one-third.
    We did the same analysis in 1995 and found we had pushed it 
up to 42 percent. We have been doing another analysis and have 
been pushing to get that number up to 50 percent as is 
required. I apologize that we don't have that complete yet, but 
we are going to have that done in the next few months to see if 
we have reached the target of getting 50 percent of portfolios 
to the under $300 range.
    Mr. Knollenberg. I know when we talked about this 
previously, they said it was difficult to get a handle on the 
NGOs and the PVOs. If you can do this survey you are currently 
doing, why is it you can't get a handle specifically on the 
money trail that goes to the NGOs and PVOs; because only then, 
I think, would we really know if half of this funding is 
supporting programs for the poorest, and I think it is pretty 
clear it does not.
    Mr. Atwood. Yes. We deal with something like 542 
institutions around the world right now. All of them are set up 
somewhat differently. For example, the bank in Indonesia has a 
microcredit window, not the entire bank as is the case with 
BancoSol, and there are NGOs that are much smaller that do sort 
of neighborhood lending programs. The problem is we can 
certainly track the AID resources, but our idea is to make 
these institutions sustainable by encouraging them to collect 
interest. They then build a portfolio that really is outside 
our purview in the sense that they have built that portfolio 
with interest they have raised on their own. We then have to go 
in, and in all cases, there is not a question of a lack of 
cooperation, but we are asking them for information that 
doesn't relate directly to the USAID loan of the moment.
    Mr. Knollenberg. Is the lack of cooperation you are saying 
not on their side?
    Mr. Atwood. No, it is just that it is a lot of work to do 
one of these surveys because you have got to go in and look at 
the books of BancoSol and hundreds of organizations like it to 
find out what they have done with the money they have earned on 
interest. That becomes the target you are interested in. We can 
tell you that USAID-funded loans are 80 percent under $300, but 
we can't tell you what they have done with the interest they 
have earned.
    Mr. Knollenberg. That is the loans, not the volume?
    Mr. Atwood. That is right, because they are doing some 
loans over $300, there is no question, with the rest of the 
portfolio.
    Mr. Knollenberg. I would just urge that you come as close 
as possible to meeting the commitment made in that initiative, 
because I do think that greater oversight is needed. If it does 
involve a little more work, I think that should happen, I 
really do, and I believe that we should move in that direction. 
So I would just urge you to do that and see if we want to bring 
that number up to one-half as this subcommittee recommended 
last year.
    Maybe we will change it to 60 percent; then we will get a 
little closer. But I urge you to move in that direction. Thank 
you.
    Mr. Atwood. We certainly are; and I would say, one of the 
things that happened last year was with the Development 
Assistance Committee of the OECD, of the industrial countries. 
One of their goals in the next 25 years is to reduce extreme 
poverty by one-half; 1.3 billion people make less than $365 a 
year. That is extreme poverty.
    The idea is to cut that in half. Clearly, microenterprise 
lending programs are crucial in doing that, and when you talk 
about $300 to one who is only making $365 a year, that is a big 
loan. So we don't have a problem in emphasizing the need to 
loan under $300. There is no problem, there is no philosophical 
difference here. It is simply a question of trying to acquire 
the information we need to comply with your oversight needs.
    Mr. Knollenberg. When do you think that report might be 
available?
    Mr. Atwood. I could try to get back to you on that and give 
you the information directly.
    [The information follows:]

              Report on Survey of Poverty Lending Programs

    The information will be available when the survey now in process is 
complete and the data has been recorded and analyzed. We expect it to 
be available to report to the Congress in September.
    While we can certainly track USAID resources, we are seeking 
information beyond the direct boundaries of the USAID funds. Our idea 
is to make these institutions sustainable by encouraging them to 
connect to the financial system. They then build a portfolio that 
really is outside USAID's purview in the sense that they have built 
that portfolio with funds they have raised on their own. We then look 
not at the USAID loan of the moment, but at how our support contributes 
to their overall growth of institutional capacity.

    Mr. Knollenberg. Thank you.
    Mr. Atwood. I am not sure. It is being done now.
    Mr. Knollenberg. Thank you.
    Mr. Callahan. With respect to the microenterprise programs, 
do you think that $300--we recommended in our report language 
that half of the money be provided to $300 and poverty-level 
programs. Some of the NGOs have told us now that they are so 
successful that some of the $300 recipients are coming back and 
saying, let us expand, we have paid off the loan, we have done 
exactly what the program intended, and they want to borrow $500 
or $1,000.
    Is the $300 report language suggestion too high, or is the 
50 percent too high a percentage; or does that--I know you are 
not bound by law, but does that restrict you too severely?
    Mr. Atwood. I don't believe so, Mr. Chairman, but we are 
trying to push it to that level. We accept the need to keep the 
pressure on poverty lending. But we also believe that if we are 
going to have sustained economic growth in these countries, 
that we need to create a situation wherein those 
microbusinesses can grow into small businesses, and they ought 
to have access to credit to do that.
    So I think we can work with the 50 percent number, but we 
want to make sure too that that the regulatory environment in 
the country lets businesses grow and the entire economy grow.
    Mr. Callahan. It is not the intent of the committee, even 
though it is not the tooth of law--it is not our intention to 
micromanage the micro program.
    Mr. Atwood. Right.
    Mr. Callahan. We are encouraging that you start at the 
lowest level in the poverty areas, but we don't want to say, do 
not make them even more successful.
    Mr. Atwood. That is right.
    Mr. Callahan. David, do you have any questions?
    Mr. Obey. Thank you, Mr. Chairman.

                            aid bureaucracy

    Mr. Atwood, let me just ask a few questions about that 
bloated bureaucracy that I often hear that you have. What is 
the largest number of people that AID employed in its history?
    Mr. Atwood. I believe it was close to 20,000 during the 
height of the Vietnam war, Mr. Obey.
    Mr. Obey. And you are now down to about 8,000?
    Mr. Atwood. That is right. I started with 11,500, as best 
we could ascertain, because it was difficult to get that kind 
of information when I first arrived.
    Mr. Obey. So on your watch, you have cut it from what to 
what?
    Mr. Atwood. From about 11,500 to 8,000.
    Mr. Obey. That compares to, what did the supersleuths in 
the Senate tell us the other day, Senator Shelby, that compares 
to about 80,000 people at the vaunted CIA?
    Mr. Atwood. Is that what he said? That is probably a 
classified number.
    Mr. Obey. That is what he said. I was interested in the 
fact that it was said, but that is what he said. In your 
budget, you spend about 7 billion, roughly.
    Mr. Atwood. Approximately, yes.
    Mr. Obey. As opposed to about $30 billion for the CIA, 
according to Senator Shelby.
    Mr. Atwood. Is that what he said?
    Mr. Obey. That is what he said.
    Let me ask you this. You have 7 billion bucks, they have 
30; you have got 8,000 people, they have got 80. Why couldn't 
they find the refugees that were supposedly going from Rwanda 
to Zaire, and how could you find them?
    Mr. Atwood. Well, I can't answer for them. I understand 
cloud cover was a problem, but we do have people in eastern 
Zaire now. We have a DART team there that is trying to discuss 
how we can help the displaced and the refugees----
    Mr. Obey. Do you think in your spare time you might offer 
to help the CIA so that--I understand with that big bloated 
budget they don't have the ability to cut through it all and 
understand the information. Do you think you could arrange to 
help them out a little bit?
    Don't even answer the question.
    Mr. Atwood. I think it is important for our government to 
have the capacity to do both.
    Mr. Obey. I don't want you to comment on this. I think I 
have made my point about the tightness of your budget versus 
other so-called lean and mean agencies in the Federal 
Government, but I do want to make a point.
    How many people are here in the room from the State 
Department? Is there anybody here from the State Department?
    Well, I hope that you will carry a message back for me to 
the Secretary of State and the State Department in general, and 
Mr. Atwood, if you get the chance, I would like to have that 
same message carried back by you, and I don't know how to put 
this delicately, so I won't.
    I have served on this committee since 1973, this 
subcommittee, and one of the reasons that I continue to devote 
a lot of interest to it is that I believe that if we are going 
to have those 2 billion additional people in the developing 
world, that our aid package has to be something more than 
simply walking-around money for ambassadors around the world. I 
think the State Department is understandably always going to be 
focused--it has for as long as I have been here, the State 
Department has been focused primarily on short-term political 
relationships with whoever is in power, and I understand that; 
but I honestly think that foreign aid will be the raffle that 
so many people think it is if that is all our aid program is. 
And that is why I have always valued the fact that AID is 
supposed to have a different focus. Its focus is supposed to be 
long-term development rather than short-term cuddling up to 
whichever government is running the show in whatever area we 
are interested in.
    I don't like to say this, but as a Member of Congress, on 
many occasions I have been lied to by various officials in the 
executive branch of government. When I have been in the field, 
I have certainly been lied to by ambassadors. I have seen 
ambassadors send false cables back to the State Department 
misdescribing what Congressman Solarz and myself and several 
others said, or even asked about in some countries, whether the 
issue was Vietnam--I mean, the Vietnam war, or whether the 
issue is the contra war or whether the issue was what was 
really happening in the Middle East or anything else.
    I have always been able to get information from independent 
AID workers that I simply could not get out of the embassy 
teams. I do not say that to condemn embassy teams; I think the 
State Department does a very good job in most parts of the 
world. But I think the Congress needs to have all the 
independent sources of information that they can get, because I do not 
trust any institution of the government and I certainly, based on my 
past experiences, do not generically trust the State Department.
    I think it is very important that AID not be submerged into 
a larger bureaucracy at State. I think that we have got to keep 
a focus on long-term development if we are going to move these 
countries off the dole, so to speak; and I certainly think that 
the Congress needs all the independent sources of information 
it can get.
    So I know you don't make the decision, and I don't even ask 
you to comment, but people who know me know I feel quite 
strongly on this and I want to, on every occasion I can, send 
that message to whomever or through whichever channels are 
available, because I, for one, am not interested in supporting 
any AID budget request if that degenerates simply into a 
process by which the State Department has money to pass around 
to different governments around the world for short-term fixes 
of political problems. Those are important to do, but our 
responsibility to taxpayers is to make certain that we also 
keep our eye on the ball, which is to assist those societies to 
develop in such a way that they eventually cease to be long-
term drains on the Treasury of the United States.
    So I, for one, would be very disturbed if we wound up 
seeing an institutional arrangement--we weaken the ability of 
our government to do that, and I think any submerging of AID 
into the State Department certainly would weaken our efforts to 
do that. And I certainly believe, over time, it would cut off 
independent sources of information, which this committee and 
the Congress as an institution needs to do its job.
    Thank you very much, Mr. Chairman.

                       subcommittee jurisdiction

    Mr. Callahan. Mr. Obey, I might editorialize or comment on 
your statements there. True, AID needs reform; true, State 
Department needs reform, but so does the Congress. And I know 
that sounds strange coming from the Majority, but I think one 
of the big problems we have is our particular committee, the 
Appropriations Committee.
    I think that the State Department jurisdiction should be in 
this subcommittee, whereby you could have joint oversight. I 
think that the military financing support program should be in 
the defense subcommittee rather than in the foreign aid 
subcommittee; and I think that we need to, as an institution, 
correct a gross problem that we have.
    We looked at it at the beginning of the year, the 
possibility of taking the State Department away from Commerce 
and Justice. The Senate wanted to do it; I wanted to do it. The 
Chairmen of Commerce and Justice didn't want to do it, but I 
think that would be a step in the right direction, because when 
we can get us out of the military aspect and put State 
Department over here where we would answer, in a sense, to one 
master.
    Mr. Obey. Mr. Chairman, I would respectfully dissent from 
that for good historical reasons. I have been around long 
enough to know one of the reasons this subcommittee was kept 
separate from Commerce and Justice is because the persons who 
were in charge of the Appropriations Committee at that time did 
not want Otto Passman to have control on a day-to-day basis 
over the operational budget of the State Department. They did 
not want this subcommittee, every time we disagreed with a 
policy statement of the State Department, to retaliate by 
gutting State Department management budgets; and I think that 
was a proper precaution for the Congress to respect by keeping 
the two subcommittees separate.
    If I were the State Department I would be very chary of 
having the State Department and AID merged because then it 
would logically lead to a consolidation of the way the State 
Department is handled in the Congress as an institution, and 
you would establish a process by which it would be very easy 
for the subcommittee to pull the Secretary by jerking around 
their administrative accounts every time we have a policy 
difference with the State Department.
    So I think that there are good, sound reasons to prevent 
that from happening also, which is why I think the present 
arrangement safeguards both the interests of the Congress in 
getting independent information and it safeguards the interests 
of the State Department in remaining independent in its policy 
judgments--at least more independent than they would be if 
every time they made a decision with which we disagreed we 
could retaliate by whacking their administrative budget 20 
percent. That might be awful fun, but it would happen if the 
kind of merger being contemplated takes place, and they will 
have brought it on themselves.
    Mr. Callahan. I don't think under the current Rules of the 
House we can limit chairmanship of a subcommittee to anything 
except six years. We are going to have to worry about that 
anyway, but I still feel as though I am correct, and I know 
with your history and your involvement in this arena for these 
past 20 or so years, certainly I would view your opinions with 
great respect. Ott Passman is no longer here. Sonny Callahan is 
here, and I know that many would question whether or not I have 
the same abilities as Otto Passman. But he has an interesting 
history.
    Mr. Obey. Mr. Chairman, I have much greater confidence in 
your ability to recognize the public interests than I had in a 
number of past persons who have occupied this and other 
subcommittee chairs.
    Mr. Callahan. Well, thank you, and I hold no one in higher 
respect as a chairman of this committee than you, and I 
happened to have the pleasure to serve under you for 2 years, 
and you were extremely fair to me.
    Until Ms. Pelosi gets back--and I certainly want to give 
her time; she is in a committee hearing next door--let me start 
on some of the questions I have.
    Child survival, you mentioned the word ``earmark.'' We did 
not earmark child survival monies?
    Mr. Atwood. Right.
    Mr. Callahan. We think it is important that it be an 
independent account. It is an account, not an earmark. We don't 
tell you how to spend the money or where to spend it, and I 
can't understand an administration--as unpopular and as 
misunderstood as foreign aid is, it would appear to me that 
they ought to be looking for some rationale to explain to the 
American people what the positive aspects of foreign aid are; 
and certainly when you have an account labelled ``child 
survival,'' no American disagrees with that aspect of foreign 
aid, and I think it is very important that the administration 
recognize this.

                                med bank

    On the MED Bank that someone talked to you about, number 
one, is this a USAID project?
    Mr. Atwood. No. Well, I mean, it has been funded out of the 
ESF account.
    Mr. Callahan. Why is it not funded through Treasury? Why 
are you lobbying for banking measures?
    Mr. Atwood. I think that the point I made earlier is the 
one I would make now, which is that this is so closely tied to 
the peace process. I believe that is why it evolved in this way 
as a proposition that was put forward under our ESF account.
    Mr. Callahan. Well, and you mentioned that a lot of people 
talked with me when we were in the Middle East with respect to 
the MED Bank. Not one soul mentioned it to me. We met with the 
leaders of each country that we visited. The only person that 
mentioned it to me was an individual, and I forget his name, 
who was at a reception prior to a banquet one night in 
Jerusalem, who walked up and said, I hear you are against the 
MED Bank; and I said, how can you say that when it was in my 
bill to authorize the MED Bank? And he indicated that he was a 
preadvanced, or some type of advanced employee, of what they 
hoped would be the MED Bank.
    So he had sort of a personal interest because he wasn't 
going to have a full-time job unless the bank was created; but 
the President, the prime ministers, the kings that we met with 
never mentioned it.
    Since that time, Mr. Mubarak has visited this country and 
he, in passing, mentioned his support. Mr. Netanyahu was here 
and mentioned, in passing, we need your support.
    And we are not opposed to the MED Bank, if that is what you 
want to do. We are opposed to increasing the size of the pie 
that we have available for the Middle East. We are not going to 
increase the size of that pie, number one; the pie is not going 
to be increased and neither is the size. If you all want to 
take $100 million out of economic support monies or any other 
areas that currently is channelled to the Middle East, I have 
no objection to that.

                    israel's expedited transmission

    In speaking of that, I have always wondered, what is the 
position of the administration on the expediting of the payment 
to Israel? Is this a request for economic support? Is this a 
request of the administration? Or would you rather it not be 
put into law by Congress requiring the expedited payment of 
economic support to Israel?
    Mr. Atwood. Mr. Chairman, I believe that under the 
authorization that has been passed for that aspect of this 
appropriation, that the Israeli Government is allowed to accrue 
interest, which is not what is normally done in terms of these 
kinds of transfers. That is why I believe that there is also a 
desire for the expedited transmission of that resource.
    Mr. Callahan. For the purpose of economic support, aid is 
to encourage friendship, to encourage them to take certain 
steps, or anybody else to take certain steps; and if you have 
to give them that money the first week of October, how did you 
utilize that as a wedge?
    Does the administration understand it is not supporting the 
housing settlement that the Prime Minister has indicated he 
wants to start? And if you have no wedge, if Israel doesn't 
have to respond to us because they are going to get all of 
their money up front, isn't that an impediment to the 
administration?
    Mr. Atwood. Mr. Chairman, I take it that we don't ask for 
legal authority to do that, it is simply an informal matter; 
and, of course, if the appropriation is delayed, the process is 
delayed, then there is a good deal of consternation because of 
the point I made earlier.
    But we are not obliged to do that. It is simply a matter, I 
think, of judgment as to whether or not we consider it 
important to maintain the confidence of the Israeli Government 
as we proceed to deal with them on a whole series of issues.
    Mr. Callahan. I think you are obliged to do it. I think 
actually it is put in bill language in our bill, requiring you 
to make the expedited payment; and my question is----
    Mr. Atwood. Sorry, Mr. Chairman. My understanding is that 
we have not asked for it.
    Mr. Callahan. I understand that, but are you asking for it? 
Is the administration requesting this, or do you--in the 
absence of a request, feel like this is an impediment to our 
ability to facilitate the peace process?
    Mr. Atwood. Just as a general proposition, Mr. Chairman, we 
would prefer not to have a lot of provisos or whatever put into 
the law. We have not asked for this, it has been 
traditionally----
    Mr. Callahan. So you would rather the Congress not hold you 
to expedited payments of economic support monies to Israel?
    Mr. Atwood. I will simply rest on what I have said: We have 
not requested it in this budget, Mr. Chairman.
    Mr. Callahan. We ought not do things like that to you. 
Sometimes we just can't help it.
    Mr. Atwood. You know, I was a foreign service officer; I 
was trained in the way they speak.

                                med bank

    Mr. Callahan. Yes, they did a good job of training you. 
Back to the MED Bank though. I don't know what you are doing 
involved in the MED Bank, frankly. I think you have other areas 
of priority you ought to be concentrating on, and I don't see 
the MED Bank as a facilitating vehicle for peace, when it is 
not even enough for the leaders of the country to mention it to 
the Appropriations Subcommittee that, in a sense, gives them $6 
billion--I am talking about the Middle East--plus, when they 
don't even bother to mention it to us. I don't know why it is a 
priority with Israel, with Jordan, with Egypt, with Morocco, or 
any other area of the Middle East.
    But if the administration feels they want to create that 
bank or participate in the creation of that bank, create the 
thing, you have the authority. But you are not going to be able 
to take it away from Latin America, you are not going to be 
able to take it away from other areas of the world.
    You can divide the pot any way you want, and if it is that 
crucial, do it. I think we are going to be a little bit more 
glaring in our definition of what size the pie is going to be 
available to the Middle East as a whole.
    You know, may be it is time to look at the redistribution 
formula of the report. Is it right, Brian, for us to make a 
contribution to a country based on a percentage of what another 
country gets? Is this sound logic, in your opinion?
    Mr. Atwood. Mr. Chairman, I believe that that formula was 
the result of the Camp David Accords, and of course, any 
diplomatic solution to a problem--and I think that solution has 
been maintained over the years because of the contributions we 
have been making----
    Mr. Callahan. Let me just respond to that. I was of the 
same perception; I thought the same thing. It was not. It was 
not a Camp David discussion even. It was just created, not long 
after Camp David, but it was not a part of the Camp David 
Accords. It was a part that was established long after the Camp 
David Accords was reached. So we are not bound by the Camp David 
Accords, we are bound only by historical precedents.
    Mr. Atwood. I do recall there was a discussion by President 
Carter and Anwar Sadat about the revenues that Egypt would lose 
if he signed that agreement, so I think it was in their minds 
that they needed to compensate him for that so he would sign 
those accords.
    But I think the point I would make is the same as I would 
make about the Mideast Development Bank. If it facilitates the 
peace process, if it would be important in consolidating the 
peace process after the fact, then I think we need to continue 
to pursue it with other countries.
    I mean, the idea here is that we would not be the only 
county; the Gulf states and the Europeans and others would 
contribute to this, and we could help consolidate the peace 
process after a comprehensive peace is reached.
    One person said to me the other day, the next war in the 
Middle East will start over water. We need to work on 
development of the region. This is one way of doing it. It is a 
way that was suggested by those who are actually negotiating in 
the peace process now, so we take it seriously and that is why 
we have put it in this request.
    Mr. Callahan. Well, do you mean to say that the Camp David 
Accord, if it was discussed there and not really drafted into 
the accord, that this is in perpetuity? What if Israel's 
economic situation took a downturn and their needs were ten 
times greater than Egypt's, and they took an upturn? Do you 
think we should still give to a country that needs no economic 
support? Are we buying peace in the Middle East?
    And what if Assad comes in and says he wants to contribute 
to the Middle East process and he wants 70 percent? Do we agree 
to that because we think that will enhance the peace directions 
of the Middle East?
    What if King Hussein suddenly said, ``Look, I am tired of 
being a world leader, I am tired of being a peacekeeper; I want 
50 percent?'' Are we selling our souls for peace?
    How long are we going to continue this ratio funding for 
Egypt and Israel?
    Mr. Atwood. Mr. Chairman, both Israel and Egypt know, and 
we have said it very publicly, that this is not in perpetuity. 
In fact, the major component of the Gore-Mubarak decisions, the 
commission that we have set up which involves the private 
sector, as well, is how can we achieve economic reform so they 
will not be as dependent on our aid in the future. So I think 
there is an understanding in both countries that this is not 
going to last forever.
    We are in the midst of delicate negotiations now and there 
certainly is not a desire to rock the boat. And we feel that 
these resources have bought us peace for the last 20 years that 
certainly--in the case of Egypt, the country would look they 
different if not for the investment we have been making here.
    Mr. Callahan. One more thing. You indicate in your opening 
statement and in the written statement how the President has 
requested additional funding, and you itemize the 
prioritization and the rationale behind that, which makes good 
sense. If we are going to be a world player, we have to. But 
then in the fifth year, he drastically reduces it in order to 
submit a balanced budget.
    Do you think that our foreign involvement is just limited 
to President Clinton's term, that if he wants to increase it 
every year? I know Mr. Gore wants to be President. If I were Al 
Gore, I would be turning back flips over this budget, because 
what he is saying is, Let me spend all of this money for the 
next 4 years, or 3 years; and then, Al, when you get to be 
President, we are going to cut it in half in order that we can 
balance the budget.
    Is that realistic, or is the President's budget--I don't 
want to say a ``charade'' with respect to being balanced, and I 
know you are a good soldier and I don't want to put you on the 
spot, but don't you think it strains that the President says 
let's spend, spend, spend and move up, up, up and be a world 
leader in foreign affairs, but then 4 years from now, let's cut 
it in half so we can tell the American people that in 5 years 
we balanced the budget?
    Is that strange or do you think there will be no more need, 
37 percent of those funds are going to be gone the first year 
of Al Gore's presidency?
    Mr. Atwood. Mr. Chairman, knowing that there are intense 
discussions going on on the Hill between Frank Raines and the 
Chairs of the Budget Committees, this is the last area I want 
to get into. I can only assume that we have anticipated that 
our programs are going to work so well in the first 4 years 
that we won't need as much in the fifth.
    Mr. Callahan. Nancy.

                           institute of peace

    Ms. Pelosi. Thank you very much, Mr. Chairman, and I again 
apologize for having to leave the room to go to my other 
committee. I went over there because the item on the agenda was 
the Institute of Peace, which is asking for $11 million-plus 
for the Institute of Peace for this year. And it was 
interesting to me because our Chairman, Mr. Porter--and I know 
he wouldn't mind my sharing this with you since he said it 
publicly and very energetically--was critical of the 
administration for not putting more money in the budget for 
foreign policy and indeed keeping the Institute of Peace at the 
same. And he said, I told the President if he wants to put $4 
billion more in the foreign policy budget, I will support that.
    So I thought I would bring that back to you, Mr. Chairman. 
He had only the nicest things to say about you. The thrust was 
to the President--I guess you could say, against the 
President--and I think it is important to note, as I did then, 
that I think if we are going to get the kind of money we need 
for foreign policy, as Mr. Frelinghuysen said correctly, we 
have to educate the people and the President has to use the 
bully pulpit to do that, because that is who the American 
people listen to, especially on the matters of foreign policy.
    I have always been mystified that of the little bit of 
money that is in this committee, we have $11 million in our 
Labor, Health and Human Services, Education budget for the 
Institute of Peace. And in our committee over there, if you 
think this is tight, I call that lamb eat lamb. Now where are 
we taking it from--children's education, Head Start, job 
training, the National Institutes of Health? So that $11 
million is a lot of money coming out of there.
    But again I hope that the President--I appreciate what he 
said in his State of the Union speech, what he said about 
conflict avoidance and how important that is and what a savings 
it in every possible personal and fiscal way. But I hope--I 
have confidence that your message is getting through, those 
editorials speak to that, that our Secretary of State is 
certainly another excellent messenger, but I think it also has 
to come from the White House.
    The questions that I had, I know that Congresswoman Lowey 
addressed some of my concerns, as did Mr. Torres about 
microlending. I just want to mention that I share their 
interests in that, as you know, and any other nuances on 
questions in that regard and on international family planning I 
will submit for the record.

                          women in development

    Ms. Pelosi. Women in development, in 1991, the UN reported 
that despite increased international awareness that women play 
key roles in development, the situation of the world's women 
has not improved, in some cases deteriorated. In 1993, the GAO 
looked at this problem and reported back to Congress that the 
U.S. has made slow progress in involving women in development.
    I heard what you said earlier about educating young girls, 
and I think that is very important. Can you provide the 
subcommittee with a progress report on USAID's gender plan of 
action, the plan you launched last year to ensure that women 
are not overlooked as AID determines how to spend scarce 
foreign aid dollars? Are women gaining better access to USAID's 
credit, health and education programs.
    And I know my Chairman would want you to answer briefly.
    Mr. Atwood. Yes, I will. I think we are making a great deal 
of progress in our program, and what we have been trying to do 
is to integrate it into all of our activities at USAID.
    We have a wonderful Office of Women in Development, 
obviously, but what we are attempting to do through procedures 
is to assure that we sensitize others to look for opportunities 
in this area. And I know that we have used our discussions with 
the advisory committee for PVOs; they have pushed us in that 
direction. We have set up a committee to do this, and they feel 
very pleased that this program has indeed been adopted and the 
procedures are being followed now.

                         environmental programs

    Ms. Pelosi. As far as environmental programs are concerned, 
the fiscal year 1998 request contains a total of $290 million 
for environmental programs. This is one of the largest areas of 
increase. What are the priority areas for the proposed funding 
increase? Do you plan to use these funds to support ongoing 
programs or develop new ones? Will any deferred environmental 
priorities, for example, in El Salvador, Jamaica, or Peru be 
addressed in this funding and how will the programs in Africa--
well, I will save that question as a separate one, because that 
is about food and the environment.
    Mr. Atwood. The increase, I think, reflects our growing 
concern about the climate change problem and our need, I think, 
to create even a major initiative in this area, to try to deal 
with climate change; and that is done in a variety of ways. We 
are concerned about urbanization and the brown pollution 
problems that exist. There are going to be more emissions 
coming from the developing world by the year 2015 than we are 
producing ourselves, and we are the number one cause of the CO-
2 problems. But the loss of rain forests contributes to this, 
and we are putting a major effort into trying to solve these 
problems.
    We are also concerned obviously and another strategic 
concern is the loss of biodiversity. As we are losing rain 
forests, we are losing opportunities. We are losing species by 
the thousands. We don't know what we are losing. We are losing 
opportunity for new pharmaceuticals to deal with diseases and 
the like.
    So those are two major strategic objectives under the 
environment budget.
    Ms. Pelosi. Thank you.

                              global aids

    Global AIDS, I commend you, Mr. Administrator, for your 
continued support in funding global AIDS pandemic, and thank 
you for your efforts to address some of the concerns we had 
about the program, including staffing levels. I understand 
there is a new director that has been named, and I look forward 
to further discussion on effective ways to address the crisis.
    It is my understanding that a GAO study has been requested 
of the AIDS program, and I would hope you would address some of 
the issues to be reviewed, particularly the coordination 
between USAID and the United Nations and USAID and other 
bilateral donors.
    Mr. Atwood. Yes, I think that our agency is doing more 
internationally than any other development agency in the world, 
and I feel very pleased; and, of course, you should feel proud 
about your association with this.
    Ms. Pelosi. And the generosity of our Chairman. That is 
just what you were thinking; I can read your mind.
    That was off the record.
    Mr. Atwood. I am not sure. I have just learned yesterday 
that GAO is going to be looking into this program. I, of 
course, also welcome audits of our programs to see that they 
are effective, whether it is GAO or our own IG or whatever; so 
I look forward to seeing what they say about it.
    I hope they find it an effective program. If they find 
weaknesses, I want to know about it. Because despite the 
problem where we lost a lot of staff all at once, we have now 
hired people including, as you said, the new head of office. 
This office does contribute to the international effort to try 
to stop this terrible disease.
    We also are contributing $15 billion to UNAIDS and some 
degree of recognition for the role we play is the fact that our 
Assistant Administrator for Global Bureau, Sally Shelton Colby, 
is the Chair of the UNAIDS committee.
    Ms. Pelosi. I wanted to just follow up on that with a 
question about women. Ninety percent of all women infected by 
HIV live in the developing world, nearly 50 percent of the new 
infections in the developing world are among women who usually 
become infected during their childbearing years and therefore 
can run the risk of transmitting the disease. Given this 
reality, the advances made in the last 2 decades in the area of 
child survival may be negated by increase ininfant mortality 
due to HIV/AIDS. Ensuring women's participation in economic and social 
development programs, as we discussed earlier, in women and development 
can reduce women's vulnerability to HIV infection by improving their 
socioeconomic political legal status and their own sense of self.
    To what extent do USAID's HIV/AIDS programs address 
enhancing women's status as a means of prevention?
    Mr. Administrator, if I may, I think you answered that 
question earlier in your previous answer, unless you would like 
to elaborate.
    Mr. Atwood. Only to say that, as you have suggested by your 
question, these programs are interrelating. If we are 
emphasizing women and development and girls education and 
microenterprise programs that principally focus on women, what 
we are doing is improving their own understanding of their 
status in the community, we are improving their status by 
giving them an understanding of what their legal rights ought 
to be. Part of the AIDS problem that relates to women is that 
in male-dominated societies, they are often forced into sexual 
relationships that they simply don't want, and that is part of 
the problem. And to the extent that they can increase their own 
standing and their dignity in a society, then they are going to 
be able to ward off that kind of problem.
    Ms. Pelosi. You are correct, they are interrelated and, I 
think, interrelated with international family planning as well, 
so that husbands and wives can determine the size and timing of 
their families, improve the health of the family, education 
level of the family, literacy and economic options for the 
women.
    So I thank you for all of your initiatives in that area.
    I--calling back the Chairman's remarks about child 
survival, indicating that he will recommend a level of $500 
million for AID's child survival programs--600, I can't keep 
up. I hope that the recommendation, Mr. Chairman, will also 
include full funding for the administration's request for 
development assistance.

                         food security program

    In that context, Mr. Atwood, would you please elaborate on 
the pilot initiative in Africa aimed at improving food 
security? It was a question under development and a question 
under environment.
    Mr. Atwood. We are focusing on some of the countries in 
which we work where we have a serious food security program. 
There are about a half dozen countries. It is an effort to try 
to create the right kind of policy environment, which means 
issues such as land tenure and creation of extension 
operations, the privatization of those agricultural inputs, to 
the efforts that need to be made to give people incentive. So 
it is an overall effort to try to increase agricultural 
production over a 10-year period.
    Again, the 30 million will be focused on six countries and 
they are countries that have serious food security problems. We 
believe we can save the amount of money that we are putting 
into this in terms of the food aid that we provide if these 
food programs work.

                                cambodia

    Ms. Pelosi. Thank you. I have a number of other questions 
which I will submit for the record, but I wonder, getting back 
to the food and environment, what is AID doing to assist 
Cambodia, particularly the area of timber harvesting? It is 
such a devastation.
    Mr. Atwood. It is, indeed. We are concerned about it. I 
have been given a paper here that relates to the rule of law in 
Cambodia, but we also have a program to use community-based 
methods to try to preserve the rain forests in Cambodia. It is 
a serious problem there as in other parts of the world.
    Ms. Pelosi. Thank you very much for your testimony, your 
leadership, and I want to tell my other Chairman that we 
discussed your proposal of $4 billion and I put the Chairman 
down as a maybe. Perhaps you can----
    Mr. Porter. Boy, you are an optimist.
    Ms. Pelosi. In any event, thank you very much, Mr. 
Chairman.

                             funding levels

    Mr. Callahan. Mr. Atwood, we have sort of pulled your 
numbers up. You are asking for a 5.2 percent increase for 
Africa, a 4.2 increase for Asia, a 3.5 increase for Eastern 
Europe, a 44 percent increase for the former Soviet Union, and 
a zero increase for Latin America. And then in the Middle East, 
you are actually asking for an increase in economic support 
money. So you are asking for an increase for everybody in the 
world but Latin America. I cannot understand the administration 
making such a request.
    Number one, we know that is not going to happen, so what 
you are going to ask us to do is to cut Africa, cut Asia, cut 
Eastern Europe, cut the former Soviet Union, cut Latin America 
or cut the Middle East in order that we can provide what I 
think is an appropriate and fair share of our allocation of 
monies to this hemisphere, and then when we get into this 
hemisphere, even with a zero increase, no doubt the 
administration is going to want to spend most of this money in 
Haiti, where I see no evidence of progress being made.
    The subcommittee is going to Haiti the week after next to 
take a firsthand look at some of the progress that some contend 
is being made, but based upon the staff visit to Haiti and 
based upon reports that we have received, we are not making any 
progress in Haiti. So what we are going to have to do is go 
back and reduce all of these areas, reduce economic support 
requests, and redistribute these increases to zero. There are 
not going to be any increases. And yet extract from existing 
monies, monies for Latin America. So I just want to point that 
out, that there are not going to be any increases, not on my 
markup.
    The subcommittee may choose to overrule me, but there is 
not going to be an overall increase, there is not going to be a 
reduction or levelized spending for Latin America, unless it is 
worldwide. There is not going to be money for a Middle East 
bank unless you want to take it out of the economic support 
fund, and unless it is within the boundaries of the amounts of 
money that will have been spent in 1997 in the Middle East. So 
those are realities.
    So we may as well plan in that direction, and if you want 
to change that, I suggest you begin lobbying the Senate, 
because I don't think we are going to change it in the House. 
On one hand, your request for a $15 million decrease in 
operational expenses is going to make the package easier to 
sell. You know the difficulties we have on the Floor with some 
Members of the Congress upset about the operations of USAID, 
and I compliment you on trying to manipulate this situation you 
are in of, in a sense, being forced to move to the new Federal 
Building, the cost of that, and at the same time giving us the 
ability to go to the Floor and argue for your overall programs 
without having to argue with those are concerned more about 
your operations than they are the operations of USAID. So I do 
compliment you on that.
    Mr. Porter, we are glad to have you here.
    Mr. Porter. Thank you, Mr. Chairman, and I apologize both 
to you and to Mr. Atwood, because I was next door in my own 
subcommittee and I was unfortunately not able to get here any 
earlier.
    Mr. Chairman, I respect very greatly your strong feelings 
about funding for the subcommittee and funding for the 
programs. I know you have had an opportunity recently and will 
have further opportunities to see on the ground how some of the 
money is spent, and I think that is a very, very important part 
of your role as Chairman and our roles as members of the 
subcommittee.
    I believe that the United States has never in its history 
had a greater opportunity to change the world in the direction 
of the values and principles which this country stands for as 
it does today: to change societies that have never known 
democracy, to begin the process of building democracy; and to 
change governments that had never had an independent judiciary 
or operated according to the rule of law, or observed basic 
human rights.
    Most particularly, we have the opportunity to change the 
world toward free enterprise economics that we know make for a 
better life for everyone, and there is so much positive 
happening in the world. While the news always tells all the 
negative things that are happening, there is so much good that 
is happening, that I believe we need to catch the wave and to 
lead it. And I believe that that takes resources. You can't do 
it without resources.
    I think the opportunity is huge and I guess, I happened to 
mention some of these thoughts in the hearing next door with 
the Peace Institute, which deals with conflict resolution and 
saving lives that would otherwise be lost in violence or war. I 
did tell President Clinton that I think we need substantially 
more resources in the area of foreign assistance and our 
diplomatic corps. I find appalling the lack of the resources we 
have given them.
    As I told the Chairman, I just led a group of Members to 
Beijing and I had been there in 1981. The facilities we have in 
Beijing for our personnel and our embassy there are Third 
World. They are in incredibly bad shape. This is not your area, 
but it seems to me that if we are the leader of the free world, 
and we are, that we ought to have an embassy in Beijing, the 
largest country on the earth, that is at least as good as 
Canada's embassy there, which it is not.
    It is not that foreign assistance should not contribute to 
deficit reduction, it should contribute perhaps more than other 
areas, and it has done that. We have cut this function of 
government more than any other function of government. I 
believe we are through the muscle and into the bone, and I 
think we are missing opportunities we need to grasp strongly. 
We need to make certain that we are projecting American values 
and encouraging the kind of civil society that can really 
change this world from a place of violence and conflict to a 
place of peace, exchange and interchange.
    I just got back from a trip in January that also included 
Cambodia. Cambodia is a country where the United States has 
huge moral responsibility. If nothing else, we really need to 
help people whom we have, in a very real sense, put in the 
position they have found themselves. It is a society where, 
when you talk about violence and conflict, it has happened 
there like no place on earth.
    We went out to the killing fields. The Khmer Rouge killed 2 
million people in the space of about 3\1/2\ years. What are we 
doing today? We are doing some wonderful things there. 
Ambassador Ken Quinn is providing the kind of outreach that can 
build a civil society in a country that hasn't had one at least 
in the last 20 years. And if you look at our rule of law 
program there, it might be able to make the difference and 
bridge where they are to where we hope they can go. Of course, 
they have had one election. It was not decisive and they have a 
coalition government that is very unusual with two prime 
ministers.
    The next election is either going to be followed by a civil 
society, or the parties won't accept it and Cambodia is going 
to break down into the violence that has been there in the 
past. It seems to me we have an obligation to do everything 
possible to ensure that the upcoming elections are free, fair, 
and democratic, and that we build the institutions of law and 
human rights that will lead to a civil society in that country. 
Here we are doing a good job, but we need more resources.
    If we had more resources we would do better. That is the 
only question I am going to ask, because I know the time is 
short, but can you comment on what is happening in Cambodia as 
an example of what can be done with resources and what you see 
for the future there?
    Mr. Atwood. I can. I want to simply emphasize that this is 
one election that the entire international community is 
concerned about, and I think, again, without American 
leadership, when the international community is involved in the 
transition, it doesn't work. We are trying very hard now to 
move resources around so that we can finance many activities 
that will be supportive of the electoral process that is coming 
up.
    The first time around the election was basically run by the 
international community. I do think that this time we want to 
try to create institutions that can be sustained after this 
election, so Cambodians ought to be more involved this time in 
the running of their own elections. We are trying to build 
those kinds of institutions and electoral commissions and the 
like.
    Part of the rule is we have had to shift from under our 
rule of law program into the electoral program because of the 
finite resources we have. I hate to take advantage of this 
opening, but because of the concerns of this committee, we have 
really been squeezing our Asia budget. We had to do that last 
year because of the language in the committee report on 
proportionality, which meant that our Asia budget was cut by 
some 21 percent, whereas the other two regions of the world 
were not cut as much.
    I know that Asia seems very far away, but we have got some 
major crises out there. I wouldn't argue that countries like 
Japan shouldn't be doing a lot more. But the irony is wherever 
we work in Asia, whether it is Cambodia or Indonesia or the 
Philippines, despite the fact that our budget is probably one-
tenth in most cases of what the Japanese are putting in, we 
continue to have a great deal of influence in those countries 
because of who we are, and those countries want us there even 
at reduced levels.
    But I agree with you and I certainly agree with your very 
eloquent statement. We need to be making these investments. As 
we enter the global economy, our economy in terms of its growth 
is going to be so much more dependent on the creation of new 
markets and the exploitation of markets we have created over 
the past 30 years, and while I want to see a balanced budget, 
as you look 5, 10 years on out, you have to see growth in our 
economy. That is going to happen only if a much larger 
percentage of our economy depends on trade, and it seems to me 
it is an investment in the revenues of the future.
    The fact of the matter is that we are gaining so much from 
our investments in the past already, such as, we are seeing 
$100 billion of trade going to Latin America, every billion 
dollars creates 20,000 jobs in this country. So I certainly 
agree with the statement you made and consider Cambodia to be 
crucial.
    In every one of these transition situations, whether it is 
the West Bank, Gaza, South Africa, Haiti, if the international 
community, which is led by us, fails, then it sends a message 
to a lot of those who would wreak havoc over the rest of the 
world, the so-called rogue states who want to do everything 
they can to destabilize the international community. I think we 
have got to succeed when we make commitments of the type we 
have made in Cambodia.
    Mr. Porter. Mr. Atwood, thank you for your answer to the 
question, and for the excellent job you are doing at AID for 
our country. I appreciate it very much. Thank you.
    Mr. Atwood. Thank you.
    Mr. Callahan. Thank you. We will allow committee members to 
submit questions for the record and ask for your expeditious 
response.
    Secondly, I would like to submit a report issued by AID on 
the last 10 years of the Child Survival Program to be entered 
into the record, as well as a report on America's partnership 
with UNICEF, which was written by a former subcommittee clerk, 
Terry Peel.
    [The information follows:]

[Pages 68 - 168--The official Committee record contains additional material here.]


    Mr. Callahan. And I guess lastly, our committee, in 
addition to going to Haiti the week following Easter, is also 
going to Guatemala. And several weeks ago, Mrs. Pelosi and I 
wrote to the Secretary of State to encourage her to make 
adequate resources available to Guatemala to help them 
implement the peace agreement. I think there is about $8 
million originally intended to be provided through the ESF 
fund.
    What is the status of that additional $8 million? Seventeen 
million has already been provided, $8 million is floating. What 
can we say about that?
    Mr. Atwood. Mr. Chairman, the Secretary yesterday approved 
the use of this additional $8 million in Guatemala. These are 
carryover funds. That will bring the total ESF for Guatemala to 
$25 million. So we certainly have noted your concerns, the 
letter you sent, and share your belief that this is also 
another very important transition.
    I would like to get down to Guatemala sometime myself to 
see what we have done. We have helped in the demobilization of 
soldiers on both sides and have a real interest in following. 
By the way, the Guatemalan Government is putting a lot of its 
own resources into the peace process and the development 
process. So we would like this to work and think it is very 
important. It is sort of the last of the South American 
countries to go through a transition of this type.
    Mr. Callahan. We hope it will work, too. We are anxious to 
visit AID projects, as well as Secretary Rubin has requested 
that we visit some World Bank projects in Latin America. So we 
are looking forward to our visit to Guatemala, and I am happy 
to hear that the other $8 million was released.
    Mr. Frelinghuysen, you have more questions.
    Mr. Frelinghuysen. A few more questions for the record. 
Thank you, Mr. Chairman.
    Mr. Callahan. Thank you. And we thank you, Mr. Atwood.
    Mr. Atwood. Thank you, Mr. Chairman.
    [Questions and answers for the record follow:]

        Questions for the Record Submitted by Chairman Callahan

                     usaid's fy 1998 budget to omb
    Question. By statute, the Congress and Congressional committees are 
to receive information they deem appropriate in order to assess the 
President's budget request. Title 31, chapter 11, United States Code, 
states, in part: ``(b) When requested by a committee of the Congress * 
* * the head of each executive agency shall (1) provide information on 
the location and kind of available fiscal, budget, and program 
information; (2) to the extent practicable, prepare summary tables of 
that fiscal, budget, and program information and related information 
the committee * * * considers necessary * * *''
    In that regard, by appropriations account (both as proposed by the 
Administration in its account structure and for the existing account 
structure for fiscal year 1997), please provide the committee with the 
original fiscal year 1998 request of AID to the Office of Management 
and Budget; the initial passback by OMB; the appeals (if any) by the 
agency for specific increases or decreases in funding (or changes in 
account structure); and the final levels as reflected in the 
President's budget request.
    Answer. USAID's budget request to the Office of Management and 
Budget (OMB), submitted in October of 1996, consisted of the 
development program accounts only, as reflected in the table below.
    I am advised that the Office of Management and Budget does not 
permit release of its initial passback levels. However, as you are 
aware, the Administration has always been, and continues to be, very 
willing to join in consultations with congressional members and staff, 
as well as to prepare additional materials justifying the President's 
budget request when any congressional member expresses such a need.

[Page 171--The official Committee record contains additional material here.]


                                campfire

    Question. The Agency for International Development has been funding 
a project in Zimbabwe known as CAMPFIRE. Organizations funded through 
this project have allegedly lobbied the United States Congress to 
modify the Endangered Species Act.
    a. What are the laws and regulations affecting the use of USAID 
funds for lobbying activities either by U.S. contractors or fund 
recipients, or by overseas organizations that receive USAID funds. Do 
such laws or regulations affect lobbying by foreign organizations in 
foreign countries?
    b. Have any such restrictions been applied to recipients of 
CAMPFIRE funds? If not, why not?
    c. Even if public advocacy is not restricted, why does USAID fund 
such activities? A USAID review of the project states that ``effective 
lobbying carried out locally and internationally'' is an expected 
output of the funds provided to the CAMPFIRE Association, on the ``NRMP 
II-CCG partners.'' Please explain why this is desirable--and if it is 
legal under U.S. law. If not legal, what steps is USAID taking to 
defund such activities, both through CAMPFIRE and other programs, 
projects, and activities?
    Answer. CAMPFIRE recipients, like other recipients of USAID grant 
funds, are subject to the government-wide restrictions on lobbying of 
OMB Circular A-122. With regard to charges of improper lobbying by 
CAMPFIRE organizations, we referred them to the Office of the General 
Counsel. That office did a review of the allegations and concluded that 
there were no violations of the lobbying restrictions. Nonetheless, 
because of the high degree of concern about the program's international 
outreach efforts, USAID has decided to eliminate these activities from 
USAID funding.
    We have learned that a development program's success depends upon 
the full participation by affected African communities. Therefore, 
USAID will continue to support activities such as: the sharing of 
information on best practices and lessons learned for community-based 
natural resources management (CBNRM); exchanges of personnel between 
districts, provinces and countries to enhance knowledge of CBNRM; 
training for communities and personnel; participation at national, 
regional and international technical meetings and workshops which 
foster CBNRM, and site visits.
    Question. A document from USAID indicates that Activity 1.2 (under 
African Resources Trust Indicative Programme Planning for the Period 
1995-1999) includes an output to recruit African Resources Trust 
liaison officers for the UK, Brussels, Washington, and South Africa.
    Why is USAID funding attempts to open offices for this organization 
in Western Europe and the United States? What possible development 
benefit could be derived from opening such offices?
    Answer. A substantial source of the revenue accruing to CAMPFIRE 
districts flows from tourist visits to Zimbabwe. These offices support 
donor coordination, trade development, provide public information on 
program success, and maintain markets.
    After a management review of the CAMPFIRE program, USAID has 
decided to discontinue funding for offices outside of Zimbabwe.
                       campfire--overseas offices
    Question. Has ANY USAID funding been used to advertise for such 
liaison officers, train such officers, or provide funding for such 
officers in any way, including the funding of overseas offices? If so, 
please provide funding details.
    Answer. Yes, as indicated above, these offices have been part of 
our program activities. They are also funded from a variety of donor 
sources and include a portion of overhead expenses. As of February 28, 
1997, a total of $258,570 has been provided to offices in Washington, 
D.C. ($81,967), Pretoria, South Africa ($78,702), Brussels, Belgium 
($67,588) and London ($30,312). Expenses included office rent and 
supplies and staff salaries.
                       campfire--liaison officers
    Question. What is the status of proposed liaison officers for these 
countries? Does USAID have any future plans to support, directly or 
indirectly, the employment of such officers in any way, including 
operating support for overseas offices? If so, please provide details, 
including funding assumptions.
    Answer. While legal and technically justifiable, and because of the 
concerns raised, USAID has decided to terminate bilateral funding of 
all international offices of Africa Resources Trust, a subgrantee under 
the CAMPFIRE program. As USAID is only a partial funder of these 
offices, they will continue some functions with other resources.
        funding for indigenous ngos--offices in other countries
    Question. During fiscal years 1995, 1996, and 1997 (or 
prospectively for fiscal year 1998) has USAID supported the 
establishment of offices by other indigenous nongovernmental 
organizations in countries other than those in which such organizations 
were established? If so, please provide the funding provided to each 
such organization, and the justification for the funding.
    Answer. USAID, from central, regional and bilateral resources, 
works worldwide with large number of indigenous nongovernmental 
organizations (NGOs) that operate in developing countries or which 
maintain offices in donor nations. They maintain the latter for 
purposes such as donor liaison and public information.
    USAID does not maintain central records that would readily identify 
whether or not USAID funding has been used for such activities and 
trying to obtain such data would require a very intensive staff effort 
office by office and mission by mission.
    While USAID does provide competitive grants to U.S. private 
voluntary organizations (a portion of the NGO population), for 
expanding their organizational structure and outreach, there is no 
similar central mechanism for funding indigenous NGOs.
       funding for usaid child survival activities, fys 1995-1998
    Question. Please provide the committee with a table showing 
budgeted funding levels by country (by appropriation account, with 
subtotals by regional bureau), as well as by centrally funded programs, 
of USAID child survival activities for fiscal years 1995, 1996, 
anticipated 1997, and requested 1998. In addition, provide a similar 
table indicating obligations for fiscal years 1995 and 1996.
    Answer. The first set of tables shows child survival (CHS) funding 
levels by country and by appropriations account for FYs 1995-1998 based 
on new obligational authority (NOA) for each of those years. The second 
set of tables show obligations--including NOA, funds carried over from 
prior years, and deobligation/reobligations, less unobligated balances 
carried into subsequent years--for each country for FYs 1995 and 1996. 
Due to the changeover to the Agency's New Management System, FY 1996 
obligations are still estimated at this time, but final FY 1996 
obligations should be available later this year. Total obligations 
cannot yet be projected by country for FYs 1997 and 1998.
    For FY 1998 we do not at this time have data on CHS levels funded 
out of the Economic Support Funds account. That information should also 
become available in about one month, and we will be happy to provide it 
to the Committee when available.
    The last point to note about the tables is that historically USAID 
has funded about $30 million of child survival activities from the 
International Disaster Assistance (IDA) account. Due to the nature of 
that program, which is responsive to current disaster activity around 
the world, we are unable to predict in advance the exact level of CHS 
funding that will be available from that account. Therefore, we do 
project a CHS level against the IDA account in FY 1998 on the attached 
tables, although IDA funding for CHS activities is likely to remain in 
the $30 million range.

[Pages 174 - 190--The official Committee record contains additional material here.]


                        child survival programs

    Question. On page 9 of the GAO report ``Contributions to Child 
Survival are Significant, but Challenges Remain'' (GAO/NSIAD-97-9), a 
chart appears which summarizes child survival activities of USAID by 
central programs and by geographic bureau. Please provide, to the 
extent possible, a country or regional breakdown of those funds 
obligated by central programs.
    Answer. Although obligations of central programs are not tracked by 
country and region, a system set up in FY 95 does track country and 
regional level expenditures of these programs. We have provided below 
the regional breakdown of field support expenditures for central 
programs for health including child survival, but excluding HIV/AIDS. 
These data reflect expenditure of FY 95 funds. The system does not 
provide separate tracking of child survival from other health funding.

FY 95 EXPENDITURES FOR CENTRAL PROGRAMS BY REGION FOR CHILD SURVIVAL AND
                    OTHER HEALTH, EXCLUDING HIV/AIDS                    
                        [In thousands of dollars]                       
Africa.....................................................      32.254 
Asia/Near East.............................................      18.768 
Eastern Europe/Newly Independent States....................       8.281 
Latin America/Caribbean....................................      14.461 
Multiple/International.....................................      15.837 
                                                                        

               gao report and child survival attributions
    Question. The GAO report mentioned above includes the following 
statement on page 15: ``USAID is unable to determine with any degree of 
precision how much funding is actually being used for child survival 
activities because (1) of the way Congress has directed funding; (2) 
USAID guidance allows considerable flexibility and variation in 
attributing child survival funds; (3) the amounts reported are based on 
estimated percentages of projected budgets, which sometimes are not 
adjusted at the end of the year to reflect any changes that may have 
occurred; and (4) the amounts reported are not directly based on 
specific project expenditures.'' Please discuss each point, including 
whether you agree with the statement made in the GAO report and what 
steps USAID is taking to address the problem.
    Answer. Although the GAO report is correct in noting some 
flexibility in USAID's system for allocating to and tracking of funding 
to various activities, USAID believes that the degree of imprecision is 
minor for a program of this size and scope. The legislative history of 
child survival funding is complex. This year child survival is being 
tracked through a special account that includes other areas of health. 
In the past, child survival has been part of the overall Development 
Assistance (DA) funds; during the early years of the program, some 
child survival was funded through a special Child Survival Action 
Program while the remaining amounts come from other funds. These 
variations have made coding and tracking difficult.
    In FY '96, new instructions on allocation and coding were provided 
which, combined with the New Management System, we believe should 
improve consistency in allocation and tracking.
    USAID believes that those closest to the activity are the most 
qualified to characterize its nature. Within the guidelines provided to 
the field, it is the project manager, and eventually the Mission, that 
determines whether an activity or project should be coded totally or in 
part as ``child survival.''
    In most fiscal years, the final coding (assignment of funds to 
activities and the attribution of portions of selected activities for 
child survival) is done near the end of that year. Some changes do 
occur between the moment of final coding and the actual end of the 
fiscal year, due to last minute events in a country, or shifts in 
obligations for program reasons. The magnitude of these shifts, 
however, is quite small relative to the magnitude of the entire 
program. Under the new management system missions and USAID Washington 
offices will be able to adjust coding at the end of a fiscal year to 
reflect any changes that may have taken place.
    Since the origin of the Child Survival program in FY 86, only 
obligations, and not expenditures, have been tracked and reported to 
Congress. Frequently, expenditures (the actual use of obligated funds 
in support of activities) occur in the year or years following the 
obligation. In the future, the New Management System will permit the 
tracking of expenditures in specific areas, albeit on a delayed basis. 
Regular reporting to Congress, however, will continue to be based on 
obligations, or appropriations, as necessary.
    USAID has recently issued new instructions providing cleared 
guidance to the field in the allocation and attribution of child 
survival funds. While this guidance gives the responsibility to 
missions for characterizing activities, it provides clearer boundaries.
                      child survival attributions
    Question: The GAO report mentioned above states on page 16 ``the 
agency's instructions [on reporting on child survival activities] name 
types of activities that may be attributed to child survival and give 
broad discretion to USAID officials to determine the percentage of 
funding that can be reported as child survival. However, the 
instructions do not provide specific indicators for determining 
attribution, such as the percentage of children in the population 
served for water projects. Moreover, some mission officials responsible 
for recording project activities told us the guidance for making 
attributions was not clear to them.'' Please comment on this statement. 
Please provide for the record the instructions that are given for the 
attribution of activities and projects to child survival. In addition, 
please indicate whether and to what degree infrastructure projects are 
attributed to child survival activities.
    Answer. The GAO review as carried out in 1995 and reviewed field 
instructions provided in FY 94. In FY 97, based on feedback from both 
mission personnel and budget personnel in Washington, the instructions 
were refined and clarified to provide better guidance. With reference 
to water and sanitation, the instructions now state: ``To determine the 
appropriate share of child survival/diseases account funds vs. other 
funding, missions should consider a variety of factors, including the 
degree of a mortality/morbidity to children due to water and sanitation 
problems; expected impact on mothers and children given the affected 
population and degree to which the program will directly affect 
children and their mothers; and percent of population under five that 
is affected by the program.''
    We note in the instructions, however, that other factors may need 
to be considered given the nature of the program and the country 
context. As missions become increasingly conversant with the coding 
system and its use and importance in tracking obligations for specific 
areas of Administration and Congressional interest, the coding becomes 
more consistent and reliable.
    A copy of the latest instructions, provided to the field in March 
1997 for use in coding FY 97 obligation, is attached.
    Historically, and in accord with the current guidance, if funding 
for water and sanitation programs or activities can be clearly shown to 
contribute directly the improvement of the health of children in a 
community, with specific results measured in terms of child health 
indicators, the activities may be coded to the child survival and 
disease account. Activities would usually not include infrastructure 
repair.

[Pages 193 - 198--The official Committee record contains additional material here.]


                   allocation for ``other diseases''

    Question: According to a chart provided to the Committee on the 
allocation of funds based on fiscal year 1997 appropriations levels, 
the allocation for ``Other diseases'' includes a notation ``30% water 
sanitation''.
    Does that mean the thirty percent of the funds provided for any and 
all water sanitation projects are allocated against these funds? What 
is the justification for this decisions, and for the thirty percent 
figure?
    Answer. The instructions provided to the field for coding of 
obligations against the Child Survival and Diseases account state that 
water and sanitation activities may be considered for funding by the 
account ``if and when these programs contribute directly to child and 
maternal health objectives,'' that is, the projects must be designed to 
improve the health of children in a community, and the results must be 
measured in terms of child health indicators. The justification is that 
improving community water and sanitation systems directly addresses the 
root causes of diarrhea and other childhood diseases by proving 
uncontaminated water. The World Bank cites studies showing that 
improvements in water supply and sanitation can reduce deaths among 
children under five from diarrhea by 20% and reduce incidence of 
roundworm infection in children by one-third. A number of other studies 
considered highly reliable report a 55% median reduction in child 
deaths from such improvements. These studies are cited in ``Health 
Benefits from Improvements in Water and Sanitation,'' a review of the 
literature over the past 40 years conducted by USAID's Water and 
Sanitation for Health project. The thirty percent is based on an 
estimate of the proportion of the population that is under five that is 
affected by the program. If a mission wants to attribute a larger 
percent, it must obtain approval from USAID's Bureau of Policy and 
Program Coordination and the Bureau for Global Affairs, Field Support 
and Research.
       allocation for ``other diseases'' percentage/justification
    Question. Are any funds provided for water sanitation projects 
allocated against other activities, such as child survival? If so, 
provide the percentage allocation and the justification for each.
    Answer. The thirty percent figure is the amount provided as a 
guideline for attribution to the Child Survival and Diseases account. 
The thirty percent is based on an estimate of the proportion of the 
population that is under five that is affected by the program.
               allocation for ``other diseases''--totals
    Question. Please provide the total for all water sanitation 
projects allocated, obligated, and/or expended in fiscal years 1995 and 
1996, and the funds allocated against other categories such as other 
diseases and child survival.
    Answer. USAID's budget tracking system indicates the total amounts 
obligated from all accounts, including Development Assistance (DA), 
Development Fund for Africa (DFA), Economic Support (ESF), the Southern 
Africa Initiative, and the Newly Independent States (NIS) for water and 
sanitation programs that contribute to the Agency's health and child 
survival goals to be:

------------------------------------------------------------------------
                                                Fiscal year  Fiscal year
                                                  1995 (in     1996 (in 
                                                 millions)    millions) 
------------------------------------------------------------------------
DA/DFA........................................        $12.2         $6.6
ESF...........................................         29.8         36.3
NIS...........................................          6.7           .5
                                               -------------------------
      Total...................................         48.7         43.4
------------------------------------------------------------------------

    In FY 1995, $11.1 million or 23% was attributed to child survival; 
$37.7 million to Other Diseases (excluding HIV/AIDS); in FY 1996, $11.7 
million or 27% is estimated to be attributed to child survival; $31.7 
million to Other Diseases (excluding HIV/AIDS). Expenditures are not 
included in the Agency's central tracking system.
       international food policy research institute (ifpri) study
    Question. In your testimony, you state: ``A recent study by the 
International Food Policy Research Institute found that for every 
dollar invested in agricultural research for developing countries, the 
export market available for donor countries expands by more than four 
dollars, of which more than one dollar is for agricultural 
commodities.'' Please provide a chart indicating the total requested, 
appropriated, allocated, obligated and expended (within development 
assistance accounts) by fiscal years for agricultural research by USAID 
beginning in fiscal year 1978. For fiscal years 1997 and 1998, indicate 
the totals requested, appropriated, and allocated as appropriate.
    Answer. While the question posed appears straightforward, 
unfortunately the answer is not. The base definition of ``agriculture 
research'' and all of its associated elements has not remained constant 
over the data period you requested. What we present below is an attempt 
to consolidate the following elements: support for national 
agricultural research systems throughout the world, university 
development, international agricultural research centers, collaborative 
research support programs, and other related global agricultural 
programs. The figures presented are compiled from obligations as those 
most accurately represent final project implementation. A similar 
compilation of program ``expenditures'' would not have differed 
significantly from the obligated funds. Furthermore, funds are not 
appropriated for this specific activity, nor are they requested at this 
level of specificity. While the funding totals include Economic Support 
Fund financed activities, these do not represent a large amount. 
However, missing from the picture presented by these figures are 
substantial amounts of PL-480 local currency generations that have been 
used in many countries to provide local counterpart funding for 
research programs supported by USAID and other donors.
    With these caveats, estimated total obligations/expenditures for 
agricultural research for the period from 1978 to 1996 (in millions of 
current dollars) are as follows:


                                                                        
                                                                        
                                                                        
1978.........................      106.62   1988...........      197.11 
1979.........................      133.67   1989...........      206.61 
1980.........................      136.02   1990...........      201.41 
1981.........................      144.91   1991...........      196.93 
1982.........................      165.46   1992...........      169.48 
1983.........................      166.43   1993...........      158.19 
1984.........................      182.01   1994...........      129.38 
1985.........................      215.41   1995...........      113.08 
1986.........................      217.70   1996...........       80.44 
1987.........................      210.74                               
                                                                        
                                                                        

    A comparable compilation of funding data for 1997 and 1998 is not 
presently available. Preliminary indications are that the figures will 
not exceed the 1996 funding total.
                            disease research
    Question. In your testimony, you state: ``Foreign assistance 
programs are also vital in protecting the United States against dangers 
that are global in scope. By treating infectious diseases like AIDS, 
polio, and emerging viruses like Ebola before they reach our shores, 
USAID lowers health costs here at home.'' Please provide a chart 
indicating the total requested, allocated, obligated and expended 
(within development assistance accounts) by fiscal year for disease 
research and disease activities by USAID beginning in fiscal year 1978. 
For fiscal years 1997 and 1998, indicate the totals requested, 
appropriated and allocated, as appropriate.
    Answer. Below we have provided obligations for disease research and 
disease activities (other than research) from FY 90 through FY 96. 
Prior to FY 90, the Agency's budget coding system covered sectors only; 
in this case, health. Coding for these activities has not been 
completed for FYs 1997 and 1998, so we are unable to provide data for 
these years at this time.
    In the table, we have reported obligations against the codes for 
diarrheal disease control and oral rehydration therapy, HIV/AIDS, 
immunization against communicable diseases, malaria, tuberculosis, and 
vector control-tropical diseases. These categories include reported 
obligations for the major work USAID has carried out in areas such as 
onchocerciasis, measles and polio. Activities include work in areas 
such as training, evaluation and monitoring, and institutionalization. 
USAID's financial monitoring system tracks activities by obligation, 
rather than by request, appropriation or allocation.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Fiscal year   Fiscal year   Fiscal year   Fiscal year   Fiscal year   Fiscal year   Fiscal year
                                                            1990          1991          1992          1993          1994          1995          1996    
--------------------------------------------------------------------------------------------------------------------------------------------------------
Disease Research......................................    68,208,000    64,590,000    74,717,000    86,600,000  \1\ 43,819,0                            
                                                                                                                          00    30,731,000    26,411,000
Disease Activities....................................   151,905,000   191,128,000   205,573,000   238,315,000   194,707,000   204,479,000   228,461,000
                                                       -------------------------------------------------------------------------------------------------
Disease Funding Total.................................   220,113,000   255,718,000   280,290,000   324,915,000   238,526,000   235,210,000   254,872,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The reduction in research between FY 93 and 94 reflects: (1) A change in the World Health Organization's Global Programme on AIDS (GPA) from a      
  research-focused program toward application of research in program implementation. A similar shift was made in USAID's HIV/AIDS program at that time. 
  This was a technical decision based on developments in the epidemic and on USAID's comparative advantages. (2) A reduction in the malaria vaccine     
  research program due to an overall reduction of ``other health'' funding in FY 94, and a decision to concentrate on bringing to development several of
  the vaccine candidates which had been developed. (3) A reduction in grants to international organizations in the wake of the overall budget reduction.
Such reductions continued after FY 94 as total assistance levels were reduced. Some missions with sizable research portfolios in health (e.g., Cameroon)
  were phased out, and the Agency shifted its budgeting system to emphasize field implementation activities, leading to a reduction in centrally        
  supported activities, including research.                                                                                                             

                                malaria
    Question. For the record, please provide a chart indicating the 
amount of funds requested, appropriated, and allocated for malaria 
research, prevention and treatment in fiscal years 1994, 1995, and 
1997, as well as the amount requested for fiscal year 1998.
    Answer. The requested chart is attached, showing USAID funding for 
malaria control (prevention plus treatment) and research between 1994 
and 1997 and our planned levels for 1998. Malaria has been funded as a 
part of the Child Survival program during these years. Although no 
separate request was made specifically for malaria, an average of 
almost $10 million a year has been allocated in each year for malaria 
research and control (including prevention and treatment). In FY 98, 
USAID plans to allocate $11 million for the program. The decline in 
research funding in 1995 reflects a $3 million reduction for the 
Malaria Vaccine Development Program. The increase in control funding 
reflects support for the Africa Integrated Malaria Initiative which 
provides assistance for a regional USAID initiative for the prevention 
and treatment of malaria.

[Page 202--The official Committee record contains additional material here.]


              united nations and affiliated organizations

    Question. Please provide a list of the funds provided (or to be 
provided) through development assistance in fiscal years 1994, 1995, 
1996, and 1997, and requested for 1998, for the United Nations and its 
affiliated organizations, and for other international organizations, 
specifying the programs for which the funds were provided.
    Answer. The table below reflects development assistance funding for 
the United Nations and affiliated organizations, and other 
international organizations, for the fiscal years 1994, 1995, and 1996. 
Funds reflect a tally of contracts or other obligating documents with 
these organizations. Funding for these organizations cannot, for the 
most part, be accurately estimated for current or future years prior to 
obligation since funding is done through several contracting mechanisms 
throughout the agency.
    As the footnote on the table notes, many of these entities receive 
funding from other USAID-managed accounts in addition to development 
assistance. Funding from all accounts was around $400 million annually 
before dropping in FY 1996, largely due to the drop in overall 
development assistance levels. About half of the approximately $400 
million has been Commodity Credit Corporation funds transferred to 
USAID to pay for USAID's transporting World Food Program goods.

[Page 204--The official Committee record contains additional material here.]


                           world summit goals

    Question. On page 23 of the USAID report ``Saving Lives Today and 
Tomorrow: A Decade Report on USAID's Child Survival Program'', six key 
World Summit Goals for the Year 2000 are identified for child survival 
programs. Indicate whether and how these goals are included in the 
agency's planning process, and how the reduced budget request for child 
survival activities for fiscal year 1998 is compatible with attaining 
these goals.
    Answer. The World Summit Goals have formed the backbone of the 
Agency's child survival and health strategy since they were agreed on 
in 1990. Three of USAID's Strategic Objectives in Population and 
Health--to obtain sustainable reductions in unintended pregnancies, in 
maternal mortality, and in infant and child mortality--mirror the 
Summit goals. USAID plans its program and allocates its budget to 
regions and countries based on strategic plans developed in 
collaboration with host governments to achieve goals such as those 
noted in the Decade Report. Resource allocations largely depend on the 
degree to which a country is taking specified steps to carry out an 
agreed upon program and able to use resources effectively.
    As a part of its overall program restructuring, USAID has refocused 
its efforts in Child Survival as well as the rest of the health sector 
to priority programs and countries. In these countries, we are working 
closely with the government as well as NGOs and other donors to help 
the countries achieve the goals they have established as their 
priorities. These partnerships, which are integral to our overall 
strategy for sustainable development, will help alleviate the pressures 
that result from our reduced funding levels. Additionally, in many of 
these countries, USAID's efforts in other sectors, including 
agriculture, education and democracy, create better living conditions 
that contribute directly to the health and well-being of children.
   child survival programming through private and voluntary agencies
    Question. Of the funds allocated for child survival activities in 
each of the fiscal years 1994, 1995, and 1996, please indicate the 
amounts that were programmed through non-profit, American-based, 
private and voluntary organizations. Also, indicate how much of child 
survival funds were allocated through the Global Bureau in each of 
those fiscal years, and how much was programmed through individual 
missions.
    Answer. Funding amounts for child survival programmed through non-
profit, American-based private and voluntary organizations (PVOs) are 
provided below for FY 95 and FY 96 (estimated). No comparable data are 
available for FY 94.

------------------------------------------------------------------------
                                               FY 95       FY 96 (est.) 
------------------------------------------------------------------------
Total Child Survival Activities.........    $316,034,000    $314,988,000
                                         ===============================
Child Survival Funding from Global                                      
 through PVOs...........................      28,180,000      17,586,000
Child Survival Funding from Other                                       
 Bureaus and Missions through PVOs......     114,345,000     112,298,000
                                         -------------------------------
Total Child Survival Funding through                                    
 PVOs...................................     142,525,000     129,884,000
------------------------------------------------------------------------

                        child survival requests
    Question. (Sic) Of the amounts provided for child survival programs 
in each of the fiscal years 1994, 1995, and 1996 through the Global 
Bureau, how much was allocated for such programs compared to the 
requests and proposals from outside groups for funding for such 
programs received by the Bureau?
    USAID receives hundreds of proposals each year, both in response to 
requests for such proposals or applications, in the case of cooperative 
agreements or grants, as well as unsolicited proposals. The Agency has 
no data system for tracking the total number of proposals received. The 
technical validity and financial soundness of proposals vary widely. 
Each is considered on its merits, whether submitted in response to an 
Agency solicitation or submitted on an unsolicited basis. The Agency, 
however, maintains no overall record of such proposals.
                      usaid non-project assistance
    Question. Of the funds obligated for non-project assistance for 
each country in fiscal years 1994, 1995, and 1996, and intended for 
fiscal year 1997, indicate:
    a. the total amount obligated, by bureau;
    b. the total amount obligated, by country;
    c. the total amount obligated, by strategic objective;
    d. by country, the purposes for which the non-project assistance 
was or is to be used (NOT the intended policy objective, but the actual 
uses of the funds); and
    e. the intended policy objective to be accomplished by the use of 
the funds.
    Answer. The following tables cover obligations for non-project 
assistance for fiscal years 1994 through 1997 (estimated), by bureau, 
country, activity or strategic objective, the use of the funds, and the 
policy objective, or the intended results, of each activity.

[Pages 207 - 216--The official Committee record contains additional material here.]


    Question. Please provide the following information regarding 
grants, contracts, or cooperative agreements with Southwest Voter 
Research Institute (SVRI): Is SVRI currently receiving funds through 
USAID, or has SVRI submitted proposals for any future USAID funds?
    Answer. SVRI is not receiving funds from USAID/El Salvador and we 
have no proposals pending.
    Question. In 1993, SVRI received a grant for $1.3 million for voter 
registration in El Salvador; are any of the funds previously identified 
as unaccounted for ($162,000) still unaccounted for?
    Answer. All expenses were reviewed and certified by an independent 
U.S. certified public accounting firm which certified that these 
expenses went for the subgrants. The entirety of the $1.3 million was 
expended between September 1993 and April 1994.
    Question. If the grant to SVRI was intended to assist El Salvadoran 
NGOs, why was nearly 65 percent of the funding used on SVRI's 
administrative costs?
    Answer. The design of the project took into account the relative 
little prior experience of Salvadoran NGOs in the design of non-
partisan, get-out-the-vote campaigns. The SVRI/El Salvador staff and 
in-country costs were largely associated with the SVRI staff providing 
technical advice and direction to the NGOs in the program planning, 
development of campaign materials and training workshops. USAID/El 
Salvador did not consider these to be administrative costs. Similarly, 
printing and public information costs were related to the printing of 
program materials for the participating NGOs.
    Question. Was the grant to SVRI audited? If so, by which 
organization? Is this organization the same firm used by SVRI as its 
own accounting firm? If so, why was SVRI allowed to use this firm?
    Answer. The grant to SVRI was not audited. However, a licensed 
certified public accounting (CPA) firm, Garza and Associates, certified 
to USAID/El Salvador the eligibility and allowability of costs 
throughout the course of the grant. Therefore, a final audit would have 
been redundant. Garza and Associates was chosen through a competitive 
bidding process. USAID/El Salvador did not and does not know whether or 
not SVRI was using Garza and Associates for its own audits in the 
United States. We expect licensed CPA firms to be honest companies who 
abide by generally accepted accounting and auditing principles.
    Question. Did USAID review and/or approve SVRI's selection of 
subgrantees in El Salvador and Nicaragua? Was the second allocation of 
subgrants in El Salvador approved by USAID?
    Answer. USAID/Nicaragua did not approve subgrants under the grant 
to SVRI. Project activities included organizing an Ad Hoc Committee to 
mobilize volunteers to undertake field walks in and around Managua in 
order to promote increased electoral participation by citizens. During 
the initial start-up phase, SVRI was required to meet with USAID/
Nicaragua on a biweekly basis to discuss the selection of NGOs to 
participate in the Ad Hoc Committee. In addition, a ``Declaration of 
Principles'' for the Ad Hoc Committee, which stipulated the non-
partisan nature of their work was developed and approved by USAID/
Nicaragua. USAID/El Salvador reviewed and approved the first round of 
proposed local NGO subgrants prior to the provision of any financial 
support to these organizations. The second allocation of subgrants to 
the same NGOs did not require USAID approval. However, all expenses 
were reviewed and certified by a U.S. independent certified public 
accounting firm which certified that these expenses went for the 
subgrants.
               southwest voter research institute (svri)
    Question. Is AID currently funding SVRI projects in South Africa, 
or has it done so in the past?
    Answer. USAID is not funding SVRI now and a review of our records 
reveals no funding of any SVRI activities in South Africa in the past.
            collaboration with japan in children's vaccines
    Question. The agency has reported that its successful joint effort 
with Japan on children's vaccine in Central Asia became the model for 
worldwide cooperation on child health care. Has this model been 
replicated elsewhere and what has been the result?
    Answer. USAID's collaboration with Japan in polio and diphtheria 
vaccinations in Central Asia is continuing in other parts of the world. 
Coming out of that experience, Japan has taken a major role in polio 
eradication efforts in India where USAID efforts helped kick off that 
country's critical decision to undertake Polio Eradication. Then, in 
Africa, where its engagement had previously focused on infrastructure 
projects, Japan has joined with USAID and the World Health Organization 
in supporting a $45 million effort toward eradicating polio in Africa 
by the year 2000.
    USAID is also encouraging its field missions to pursue cooperation 
with the Government of Japan on a range of activities, including 
emerging and reemerging diseases prevention.
                            poor performance
    Question. The objectives of USAID's results-oriented management 
system are to concentrate resources in fewer countries where the 
quality of the partnership is high and to shift resources away from 
programs and countries where there is poor performance. Provide the 
instances where USAID has eliminated programs or countries due to poor 
performance and/or lack of support from the host country.
    Answer. Based on its re-engineered operating principles, which 
emphasize program performance and the achievement of results, USAID is 
seeking to assure that its scarce resources are managed efficiently and 
effectively. Accordingly, operating bureaus have made difficult 
decisions to pare back and, in some cases, eliminate less productive 
programs. For example:
    Last September, Jordan's program, Increased Foreign Exchange from 
Culture and Nature Visitors, was terminated because the program was not 
achieving its dual objectives of increasing tourist arrivals and 
expenditures in-country and because difficulties were encountered in 
setting up the Jordan Tourism Board, an institutional development 
required for program success.
    In El Salvador, three activities were shut down because they were 
not having the intended direct impact on the rural poor, including a 
coffee development initiative (PROCAFE), a water users' association 
project, and a credit program.
    Funding also was eliminated for a $3.9 million economic policy 
assistance project in Nicaragua; all non-microenterprise economic 
growth activities in the Dominican Republic, totaling $1.3 million, 
were terminated; and $1.2 million in Panama to return properties to 
their rightful owners was eliminated. These programs were discarded 
because they did not address poverty alleviation as effectively as 
other programs in the Latin America portfolio.
    In other cases, the response to poor performance is to revise 
rather than completely scrap unproductive programs. Sound development 
practices, in many instances, argue for continued funding if the 
planned intervention is critical to the economic and social development 
of the recipient country. In such instances, USAID overseas Missions 
respond by revising program design and, sometimes, adding staff 
resources to the program. A case in point is Zambia. The country's 
Improved Agricultural Production program had been low-rated by USAID 
headquarters on its performance. As a result, the program has been 
reconfigured, making it now one of the Agency's better performing 
programs. Focused on increasing the productive participation of rural 
enterprises and communities in the Zambian national economy, the 
revised program helped achieve a 15 percent expansion of non-
traditional agricultural exports in FY 1996 and to development of 
improved sorghum varieties producing yield increases of 36 percent. 
These and other program interventions are contributing importantly to 
higher incomes for Zambian smallholder households, and the USAID 
Mission in Zambia, now confident of the soundness of its investment, 
has increased funding from $1.1 million in FY 1996 to a planned level 
of $5 million in FY 1998.
    In cases of marginal, but not wholly unproductive, performance, the 
response is sometimes to reduce rather than eliminate funding. For 
instance, allocations to South Africa's Environmentally Sustainable 
Urbanization program, Zambia's Improved Democratic Governance program, 
and Madagascar's Reduced Fertility program were to come down by 60 
percent, 68 percent, and 33 percent respectively in FY 1998 compared to 
FY 1996. In the Asia/Near East region, the Agency has reduced funding 
for a number of lower performing programs including a regional project 
on water conflict resolution (cut 60 percent), Morocco's Expanded Base 
of Stakeholders in the Economy program (cut 50 percent), Jordan's 
Increased Practice of Family Planning (cut 39 percent), and India's 
Reduced Fertility in North India (cut 30 percent).
    These examples constitute selected samples; others could be cited. 
The important point is that the Agency is making the requisite tough 
calls and choices, based to the maximum extent possible on results 
assessments, to the benefit of recipient countries and the U.S. 
taxpayer alike so that USAID's increasingly scarce resources are not 
wasted.
                    usaid budget link to performance
    Question. How much of the FY 1998 budget request is linked to 
performance by programs and Missions?
    Answer. Program performance played a major role in FY 1998 budget 
allocations. A number of other factors--such as foreign policy 
imperatives, recipient country need, and recipient country self help 
efforts--continue to play an important role in program allocations. 
Nevertheless, as a consequence of re-engineering, program performance--
measured by the results and impact of the Strategic Objectives (SOs) in 
each operating unit's portfolio--is now playing an important role in 
budget decision-making.
    USAID is seeking to assure that its scarce resources are managed 
efficiently and effectively and, guided by performance assessments, 
operating bureaus have made difficult decisions to pare back, in some 
cases, eliminate entirely, less productive programs. For example:
    Last September, Jordan's program, Increased Foreign Exchange from 
Culture and Nature Visitors, was terminated because the program was not 
achieving its dual objectives of increasing tourist arrivals and 
expenditures in-country and because difficulties were encountered in 
setting up the Jordan Tourism Board, an institutional development 
required for program success.
    In El Salvador, three activities were shut down because they were 
not having the intended direct impact on the rural poor, including a 
coffee development initiative (PROCAFE), a water users' association 
project, and a credit program.
    Funding also was eliminated for a $3.9 million economic policy 
assistance project in Nicaragua; all non-microenterprise economic 
growth activities in the Dominican Republic, totaling $1.3 million, 
were terminated; and $1.2 million in Panama to return properties to 
their rightful owners was eliminated. These programs were discarded 
because they did not address poverty alleviation as effectively as 
other programs in the Latin America portfolio.
    In other cases, the response to poor performance has been to revise 
rather than completely scrap unproductive programs. Sound development 
practices, in many instances, argue for continued funding if the 
planned intervention is critical to the economic and social development 
of the recipient country. In such instances, USAID overseas Missions 
respond by revising program design and, sometimes, adding staff 
resources to the program. A case in point is Zambia. The country's 
Improved Agricultural Production program had been low-rated by USAID 
headquarters on its performance. As a result, the program has been 
reconfigured, making it now one of the Agency's better performing 
programs. Focused on increasing the productive participation of rural 
enterprises and communities in the Zambian national economy, the 
revised program helped achieve a 15 percent expansion of non-
traditional agricultural exports in FY 1996 and to development of 
improved sorghum varieties producing yield increases of 36 percent. 
These and other program interventions are contributing importantly to 
higher incomes for Zambian smallholder households, and the USAID 
Mission in Zambia, now confident of the soundness of its investment, 
has increased funding from $1.1 million in FY 1996 to a planned level 
of $5 million in FY 1998.
    In instances of marginal, but not wholly unproductive, performance, 
the response in some cases was to reduce rather than eliminate funding. 
For instance, allocations to South Africa's Environmentally Sustainable 
Urbanization program, Zambia's Improved Democratic Governance program, 
and Madagascar's Reduced Fertility program were to come down by 60 
percent, 68 percent, and 33 percent respectively in FY 1998 compared to 
FY 1996. In the Asia/Near East region, the Agency has reduced funding 
for a number of lower performing programs including a regional project 
on water conflict resolution (cut 65 percent), Morocco's Expanded Base 
of Stakeholders in the Economy program (cut 50 percent), Jordan's 
Increased Practice of Family Planning (cut 39 percent), and India's 
Reduced Fertility in North India (cut 30 percent).
    These examples constitute selected samples; others could be cited. 
The important point is that the Agency is making the requisite tough 
calls and choices, based to the maximum extent possible on results 
assessments, to the benefit of recipient countries and the U.S. 
taxpayer alike so that USAID's increasingly scarce resources are not 
wasted.
                   new management system--ig findings
    Question. In last year's Committee report we asked the AID 
Inspector General to keep us informed about the progress of the New 
Management System at the agency. We received several reports last Fall, 
and a new report was issued on March 31. Reports from the Inspector 
General, and from individual AID employees, indicate that the financial 
and procurement operations of the agency have serious problems:
    a. while individual components of the new system are operational, 
at least at headquarters, the system is barely being used in the field; 
according to the IG, ``as of March 1997, none of the NMS subsystems was 
fully operational'';
    b. the cost of the new system is reported by the IG to be at least 
$96 million, rather than the $72 million originally estimated by AID; 
that's a 33 percent cost overrun;
    c. in addition, according to the Inspector General, the new 
accounting subsystem ``is not presently performing most agency 
accounting functions . . . originally scheduled to be complete by 
October 1995, none of the . . . components (are) fully operational or 
have undergone testing for conformance with federal accounting 
requirements'';
    d. also, the New Management System was deployed last October before 
it was complete; the Inspector General reported to us, ``premature 
deployment can disrupt agency business; create additional vulnerability 
to fraud, waste, and abuse; and create morale problems'';
    e. according to the IG, ``NMS is encountering these problems 
because USAID's acquisition and system development approach deviated 
from guidelines calling for (1) thorough system tests to verify that 
the system operates effectively, and (2) adequate implementation 
planning to ensure that the system meets user needs'';
    f. also, the IG reports that ``USAID has postponed dealing with 
design flaws, most of which are not tracked in its problem reporting 
system'';
    g. there are reports from the IG of ``a user entered unauthorized 
data . . . adequate controls over data entered into the Operations 
subsystem are critical . . .''; this could dramatically increase 
vulnerability to waste, fraud, and abuse;
    h. the IG also reports that ``At this time, it does not appear that 
NMS, as an operational system, meets OMB criteria for continued 
funding''.
    Please respond in detail to each of the points cited above.
    Answer. (a) Operations and Budget components are operational in the 
field and will remain so through the rest of the fiscal year. The 
Acquisitions and Assistance and AWACS components are being disconnected 
in the field to allow USAID/Washington staff to concentrate on work 
required to ensure the stability of the system.
    (b) The cost of the system as described by the IG includes personal 
computer upgrades and other hardware that had to be purchased and 
maintained whether or not NMS moved forward. Direct NMS project and 
development costs are estimated to be between $72 and $78 million 
through FY 1998.
    (c) Top priority is being given to developing total functionality 
of the AWACS component of the NMS.
    (d) & (e) The new NMS management plan addresses these two 
requirements. We have entered into a contract with FEDSIM to evaluate 
the entire system. FEDSIM is a GSA contractor and was recommended by 
the IG to conduct the evaluation.
    (f) The new implementation workplan deals with any design flaws.
    (g) The problems with controls over data being entered into the 
Operations component has been corrected.
    (h) Within the context of the new implementation workplan, USAID 
disagrees with this statement.
                             nms--ig report
    Question. In his audit report of March 31, 1997, the Inspector 
General made five specific recommendations. Please indicate how and 
when AID intends to implement each recommendation. If AID refuses to 
comply with any recommendation, please provide the rationale.
    Answer. Recommendation #1: Appoint a senior official with 
information resources management expertise to be the Chief Information 
Officer.
    Action: Candidate selected, and announcement of selection will be 
made in early June.
    Recommendation #2: Assign a senior manager to manage the NMS 
project reporting to the CIO, AA/M or USAID Administrator. Direct 
project manager to work with the CIO to prepare an implementation plan.
    Action: USAID's Chief of Staff, Richard McCall, has been appointed 
as NMS manager. Mr. McCall and the NMS Task Force has been directed to 
and are developing an NMS implementation plan.
    Recommendation #3: Assign a senior manager to develop and manage a 
performance-based acquisition plan that requires the contractor to 
deliver a fully functioning system or a subset of the systemthat meets 
financial management and USAID requirements.
    Action: Mr. McCall, the senior manager, and the NMS Task Force are 
near completion of the plan for each of the components. AWACS plan is 
complete.
    Recommendation #4: Suspend AWACS operations until the 
implementation and acquisition issues are approved.
    Recommendation #5: Suspend AWACS operations until technical 
deficiencies are corrected, implementation issues are resolved, and 
testing shows the system--or a cost effective subset of the system--
operates effectively and complies with federal financial management 
system requirements.
    Action: Both of these recommendations are incorporated into the new 
workplan, which involves disconnecting the field from some of the NMS 
components and focusing resources on resolving the remaining problems 
in the core system in Washington.
                          fy 1997 obligations
    Question. Excluding the cash grant to Israel, please indicate how 
much has been obligated and disbursed during the fiscal year 1997 
through the New Management System through March 31, 1997, compared to 
funds obligated and disbursed through older, ``legacy'' systems.
    Answer. For USAID overseas operations, USAID management has 
recently curtailed overseas implementation of the NMS. As a result, any 
transactions previously input to the NMS will be recorded for 
obligations and disbursements in the ``legacy'' system (Mission 
Accounting and Control System--MACS). Cumulative FY 1997 overseas 
obligations from MACS as of March 31, 1997 equal $169,819,280.16. We 
are not able to report what portion of those FY 1997 obligations have 
been disbursed; however, cumulative overseas disbursements for all 
fiscal years equal $721,955,731.39 for the period October 1, 1996 
through March 31, 1997.
    Total disbursements from Washington for all appropriations equal 
$2,502,932,094.95, excluding the Israel cash transfer, for the period 
October 1, 1996 through March 31, 1997. Of this portion, approximately 
$144,000,000 was recorded in the NMS. FY 1997 obligations from the NMS 
are recorded as $666,715,468 as of 3/31/97.
                  comparison of operating year budget
    Question. Please provide a comparison of the operating year budget 
(OYB) funds obligated and disbursed by the Agency for International 
Development (Excluding the cash grant to Israel) for development 
assistance activities (including Economic Support Fund) through the 
first six months of fiscal years 1993, 1994, 1995, 1996 and 1997, both 
in terms of total funds and as a percentage of the OYB for each 
applicable fiscal year.
    Answer. The attached table compares the operating year budget (OYB) 
funds (excluding the cash grant to Israel) obligated and disbursed 
within the first six months of each fiscal year, 1993-1996, based on 
new obligational authority (NOA) of each of those years. The funding 
levels are net of rescissions, appropriation transfers, and FAA Sec. 
632(a) allocations to other USG agencies.
    Information on cumulative FY 1997 obligations cannot be provided at 
this time. USAID management has recently curtailed overseas 
implementation of the accounting component of the New Management System 
(NMS) and is developing alternative procedures to provide a complete 
status of obligations from NMS and the legacy systems. The development 
of the USAID ``Flash'' report, expected to be available within the next 
few weeks, will provide this information.

          U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT--COMPARISON OF OPERATING YEAR BUDGET, FYs 1993-1996         
                                             [Dollars in thousands]                                             
----------------------------------------------------------------------------------------------------------------
                                                           Thru 3/31 of fiscal year       As percentage of OYB  
             Fiscal year                     OYB      ----------------------------------------------------------
                                                         Obligations    Disbursements     Obligs.     Disburse. 
----------------------------------------------------------------------------------------------------------------
1993.................................       3,628,983         381,553            8,727         10.5          0.2
1994.................................       3,160,789         242,971            7,271          7.7          0.2
1995.................................       3,166,670         433,518           40,680         13.7          1.3
1996.................................       2,739,488          65,754            2,771          2.4          0.1
----------------------------------------------------------------------------------------------------------------

                               vitamin c
    Question. The Agency is conducting a pilot program on the role of 
Vitamin C in preventive health care.
    What is the current status of the pilot study?
    Answer. USAID has assessed the uniformity of Vitamin C in both 
wheat soy and corn soy blends at the point of manufacture. In progress 
are reviews in Haiti, Tanzania and India to assess the stability of 
Vitamin C under actual field conditions. Assays of Vitamin C in the 
blended food samples collected from the field are being conducted by a 
reputable laboratory in the United States.
                     vitamin c preliminary findings
    Question. What are the preliminary findings?
    Answer. Preliminary findings showed that Vitamin C uniformity was 
poor in the corn soy blend at the point of manufacture. Commodity 
manufacturers, USAID, and UDA are trying to correct this. Some loss of 
Vitamin C potency during shipment and storage of the blended 
commodities overseas was shown. Preliminary results also indicate that 
Vitamin C is lost during the normal food preparation of these 
commodities. Perhaps only a small part of the Vitamin C added may be 
consumed by food aid program recipients. This still needs to be 
confirmed.
                        vitamin c report status
    Question. When will USAID complete the study and report to the 
Committee.
    Answer. We expect a preliminary report to be ready by mid-June, and 
a final report by fall 1997, following an Institute of Medicine/
National Academy of Sciences review.
                    child survival--orphans funding
    Question. In the USAID report ``Saving Lives Today and Tomorrow'', 
there is a chart (page 36) laying out the funding for categories of 
child survival from 1985 to 1995. Funding under the category of 
``orphans'' begins only in 1990 and is at various levels ranging from 
$3.4 million to $19.2 million. However, funding for orphans programs 
has been made available since 1986, when funding was provided under 
disaster assistance. Also, funding since 1991 has been approximately 
$10 million per year. Please submit a revised table and an explanation 
for the inaccuracies in the report.
    Answer. In the early years of this program, due to variations in 
coding between missions, changing definitions and lag time in 
reporting, there were discrepancies in the Agency's overall reporting 
on funds that were ``attributed'' for children under the ``Displaced 
Children and Orphans Fund'' (DCOF).
    In FY 91, to improve the administration of the orphans program, the 
allocation and obligation of these funds was assigned to the Office of 
Health and Nutrition in the Agency's Bureau for Global Programs and 
Field Support. The breakdown provided below reflects the actual amounts 
provided each year since 1988.
    Funding for Orphans and Displaced Children:
                                                                 Dollars
1988....................................................         715,000
1989....................................................       1,965,000
1990....................................................         301,884
1991....................................................       4,960,000
1992....................................................       6,121,000
1993....................................................      10,205,000
1994....................................................      10,016,000
1995....................................................      10,000,000
1996....................................................       8,500,000
1997 (Planned)..........................................      10,000,000
                    --------------------------------------------------------
                    ____________________________________________________
      Total.............................................      62,783,884
                                 polio
    Question. During my first year as Chairman, the Committee initiated 
a $25 million annual effort to eradicate polio throughout the world. 
Although USAID was not supportive of the project at first, we were able 
to persuade them to join the program that was originally launched by 
our friends at Rotary International. Can you summarize for us the plans 
for this program in the coming year? How much is being requested for 
1998, and how will be the funds be used?
    Answer. Following the successful polio eradication efforts in Latin 
America and the Caribbean where USAID was the major external donor, 
USAID launched an agency-wide initiative in 1996 to support the global 
eradication of polio by the year 2000. Thanks to support from Congress 
and USAID's many partners in the field, funding for polio eradication 
in 1997 has grown as have USAID's activities. National or sub-national 
immunization days are planned in 35 countries in Africa, 8 in Asia and 
11 in the NIS--reaching over 250,000,000 children. Since the need to 
find any cases of polio is critical for certifying the world is polio-
free, more countries will establish and strengthen surveillance 
activities in FY 97.
    In 1997, $15.9 million will be targeted to selected countries in 
Africa, primarily through WHO/AFRO and UNICEF; $3.9 million will be 
targeted to India (where more than 50% of the reported cases occur) 
primarily through UNICEF; and $5.15 million of ``global'' funds will be 
focused on improving surveillance in South Asia and the NIS through 
WHO; filling severe country-level funding gaps for National 
Immunization Days (NIDs) and surveillance in USAID-assisted countries 
in South Asia (Nepal, Bangladesh and Indonesia); initiating a global 
communication strategy in collaboration with the Polio Partners (WHO, 
UNICEF, CDC, and Rotary International), Voice of America and other 
international broadcasters; supporting a limited amount of research; 
and, monitoring, evaluating, and disseminating the lessons learned from 
the eradication effort.
    USAID continues to utilize the strategy and framework developed in 
collaboration with the Polio Partners to guide its funding decisions. 
The strategy has five components as summarized below:
    Effective Partnerships: Support of coordination between donors, 
host-country governments, and the private sector to ensure effective 
implementation or eradication efforts, reduction of funding gaps and 
increased efficiency at the country, regional and international levels.
    Strengthened Selected Systems: Training, supervision, and practical 
workshops to improve the efficiency of vaccine delivery, including 
administration, proper handling of the polio vaccines, repair and 
maintenance of cold chainequipment and general program management.
    Ensuring Effective Supplemental Immunizations: Support of improved 
planning and implementation of supplemental polio immunization, 
national and subnational immunization days (NIDs/SNIDs), and mop-up 
campaigns.
    Improved Surveillance: Supports the needed inputs to ensure that 
every case of acute flaccid paralysis (AFP) (a visible sign of polio) 
is reported to health authorities; that stool specimens are handled 
properly, reach the laboratories; and are analyzed reliably; and, that 
the in-country response to finding a case is rapid and appropriate.
    Information Use for Continuous Improvement: Support of appropriate 
collection, use and dissemination of key data necessary for high 
quality program monitoring and evaluation.
    In FY 1998, USAID hopes to maintain FY97 levels for the Polio 
Eradication Initiative. These funds will continue to support 
international, regional and country-level activities in the five 
elements of the strategy. As countries improve their capacity to plan 
and conduct NIDs, USAID will shift its focus to increasing attention to 
facility-based surveillance, community-level case detection of AFP (a 
visible sign of paralysis), maintaining host country motivation, 
reaching hard-to-reach populations, and enhancing the linkages between 
the polio eradication and on-going immunization and disease control 
efforts. USAID will explore an expanded role for PVOs at the community 
level to help achieve these results in countries where their 
participation can make a difference. USAID Missions, WHO, CDC, and host 
countries will consult together regarding decisions to shift emphasis 
among technical areas, within countries or between regions. Such 
decisions will be based on epidemiologic need, progress towards 
achieving results, host-country commitment, all within the context of 
country and regional budget levels.
    The USAID Polio Eradication Initiative is an active area of 
collaboration under the U.S.-Japan Common Agenda, especially in India 
and Africa. USAID is pleased that Rotary International, using a $6 
million grant from USAID, has been able to develop national polio plus 
programs in Nigeria and India, two countries with the largest polio 
burden and critical for the ultimate eradication of polio.
                       federal triangle building
    Question. Last year AID expended quite a bit of political capital 
to ensure that it could move into the Federal Triangle Building. The 
move will begin soon and AID will occupy the most expensive space in 
Washington, D.C. In terms of cost per square foot, is this the most 
expensive office space in Washington, D.C.?
    Answer. GSA conducted a survey in October 1995, and determined that 
lease rates in the downtown area of Washington, D.C. ranged from $43.13 
to $45.79 per rentable square foot. The charge to USAID for the Federal 
Triangle Building space is $43.84 per rentable square foot. Thus, 
compared to other buildings in downtown Washington, D.C., GSA assures 
us these rates are very reasonable. (Note: In various hearings and 
briefings on the Hill cost per square foot was stated at around $51. 
This figure is based on occupied space rather than rented space; there 
are no comparable figures for the private sector on this basis.)
                        total cost of usaid move
    Question. In December we were told the total cost of the move would 
be $40.6 million. However, now it appears it will cost $45 million, an 
increase of 10 percent. Most of this is due to an increase of $3 
million in furniture costs. Why didn't you lease furniture rather than 
purchase it to lower your costs?
    Answer. On December 27 of last year, Larry Byrne, USAID's Assistant 
Administrator for Management, sent a letter to John Shank of your staff 
explaining that extimated costs for USAID's move had increased from 
$40.6 million to $44.7 million primarily due to an expected increase in 
furniture costs.
    In a subsequent letter to Mr. Shank on February 14, 1997, Mr. Byrne 
explained that the systems furniture purchase was actually made at a 
price below our previous estimate. Our total budget estimate was then 
revised downward to $43.6 million.
    The Agency explored the costs and benefits involved in each type of 
systems furniture acquisition. We discovered that, given the interest 
accrual rates used by the industry, it would cost approximately 5% more 
on a five-year lease, and 3% more on a three-year lease to lease such 
furniture than to purchase it outright. Vendor leasing interest rates 
run from 9.57% to 14.49% depending upon length of lease and company.
    In our case, using the average rates (12.50% for three year period) 
we would have paid $10,904,262 for $9,440,920 worth of furniture, 
rather than the $9,724,147 we will pay GSA for managing the selection 
process and for delivery and installation of $9,440,920 worth of 
furniture.
    The best benefit for the taxpayer is provided when we purchase the 
furniture as we have done.
               security in the federal triangle building
    Question. The new building will not include plastic coating on the 
windows, known as ``mylar'', to prevent injuries from broken glass; 
such glass is now standard in most new government buildings. In 
addition, public parking will be allowed in the basement of a building 
that not only includes AID, but the Customs Service as well. Are you 
addressing these security concerns? If so, do you believe every 
reasonable precaution is being taken to protect the employee of AID?
    Answer. In a letter to David Barram, Acting Administrator for the 
General Services Administration, on April 3, 1997, the Administrator 
expressed his continuing concern about the need for mylar in the 
Federal Triangle Building (FTB) and offered to work with GSA concerning 
funding for this much needed security feature. He also noted that while 
the employees of USAID would be more secure in a building that housed 
only federal parking, we recognize that this is not feasible in a 
building in which 25 percent of space is leased to non-federal tenants. 
GSA, in the wake of the Oklahoma City bombing, has issued guidance for 
increased security requirements in the FTB. USAID will continue to work 
with GSA on these and other security related issued to assure that all 
reasonable precautions are taken to protect the employees of USAID.
                  congressional presentation documents
    Question. Congress is often criticized for the failure to complete 
its work on time. However, last year the Foreign Operations Act was 
signed into law on September 30. USAID has had plenty of time to 
respond to the Act and prepare for the 1998 process. However, the 
agency has consistently failed to provide information on its programs 
to the Congress in a timely fashion. For example:
    a. Under section 653(a) of the Foreign Assistance Act, the 
Administration is required to submit its funding allocations by country 
to the Congress within 30 days of enactment of an appropriations act; 
this submission of programming by country and region did not occur for 
almost four months, one-third of the way through the fiscal year;
    b. The President submitted his budget to the Congress on February 
6; however, it took USAID five weeks to submit a printed congressional 
presentation to the Committee;
    c. Each year, as part of the congressional presentation, the 
Committee receives a document known as the ``Statistical Annex''; this 
provides the Committee with detailed information on current programs, 
projects, and activities of USAID; while a single, unbound version of 
the report was provided to the Committee the Friday prior to our 
hearing, it has yet to be printed for all our members.
    This Committee has the right and the responsibility to review the 
programs of the Agency in a timely fashion. Why is it taking so long to 
provide information to the Congress that is required by law? In 
addition, please provide a response to each of the points raised above.
    Answer. The Agency's country-based programming process requires 
time to develop. Moreover, the level of detail required by the Congress 
in USAID's Congressional Presentation document is time-consuming and 
requires much effort.
    The Agency programs are developed at the country level in 
collaboration with the host government and our aid partners. The 
program, once approved by the U.S. country team, is then reviewed in 
Washington. When the budget level is established with the Office of 
Management and Budget, the country allocations are communicated to the 
field where the USAID mission then determines what activities can be 
funded within that level. All these steps of collaboration are 
necessary in carefully crafting a detailed budget for programs in over 
100 countries around the world.
    Traditionally, USAID's annual CPD has been delivered approximately 
three to five weeks after the President's budget. This extra time is 
necessary to finalize the country, regional and central program details 
and to have the multiple volumes printed, once the President makes 
final decisions on the Administration's request.
    Pursuant to an agreement with the Appropriations Foreign Operations 
Subcommittee, the CPD Statistical Annex is prepared after the foreign 
assistance appropriations bill has been enacted for the fiscal year. 
Following enactment of the bill, the Agency must revisit its funding 
decisions, which were made at the time the budget was prepared, in 
order to take into consideration the funding of earmarks and directives 
contained in the appropriations act and the accompanying reports. This 
involves consultation with the congressional oversight committees prior 
to establishing budget requirements. Again, the funding allocations are 
made for each country, regional and central programs, and funding for 
these programs are then broken out by the field missions and Washington 
bureaus for each activity within each program. The decisions on the 
operational year budget are traditionally affected by the budget 
request for the upcoming year, further slowing the process. Every 
effort is made to expedite these decisions, but the process does take 
time.
    Finally, the 653(a) report is the product of much of the give and 
take between Washington and the field, as discussed above. It is also 
discussed with the Department of State as the Department and USAID 
share responsibility for reporting on the foreign assistance accounts. 
Every effort is made by both organizations to make these decisions in a 
timely manner.
    USAID appreciates the oversight responsibilities of the committee 
and we will continue to work to improve our reporting on budget and 
other information to help the committee in carrying out these 
functions.
                      regional funding priorities
    Question. Last year the Congress included bill language that urged 
the Administration to allocate development assistance funds to Africa 
and Latin America in the same proportion as that requested by the 
President for fiscal year 1997. However, when allocations were made, 
Latin America was disproportionately cut by approximately $12 million. 
For 1998, funding for Africa would be increased from $665 million to 
$700 million, while Asia would increase from $253 million to $310 
million. However, Latin America would remain frozen at $273 million. 
Indonesia, at $46.5 million, would get more development assistance in 
1998 than any country in Latin America. I realize that, as a whole, 
Latin America is better off economically than some other regions of the 
world, but we share the same region with these countries. From the time 
of the Monroe Doctrine it has had a special place in American foreign 
policy. You mention in your statement that a primary reason for foreign 
assistance is to develop trading partners. If the President is 
committed to a free trade agreement throughout the Americas, why aren't 
we investing more in this region? Why is the budget request for Latin 
America frozen, while funding for Africa increases by 5 percent and 
funding for Asia increases by 22.5 percent?
    Answer. I do not believe there is any fundamental disagreement 
about the importance of providing adequate levels of Development 
Assistance to the Latin America and Caribbean (LAC) region. Indeed, 
while you note that in FY 1997, LAC funding was cut $12 million, I 
would point out that this represents an adjustment of just 4 percent 
from a strictly proportional level. This adjustment was due to the need 
to correct for a sharp cut in FY 1997 funds available for the ANE 
region as a result of Congressional directives but, even after that 
adjustment, FY 1997 funding for ANE was down 21 percent from the 
requested level compared to the 4 percent cut in LAC. The 
proportionality language is just one complicating factor. The nature of 
many of the directives causes us to have to increase, not the regional 
budgets, but the centrally funded budget where many of these programs 
are managed.
    Regarding your comparisons of the FY 1998 request with FY 1997 
levels, the request attempts to restore what we believe is the 
appropriate regional balance to the overall Development Assistance 
program. While funding for ANE is up somewhat from FY 1997, this is in 
part to compensate for the effects of the sharp FY 1997 cut just 
mentioned and in part to maintain adequate support for our objectives 
in the region and avoid premature termination of key development 
programs there. Even so, the FY 1998 request for ANE is less than what 
the Administration requested for ANE in FY 1997. Likewise, the request 
for Africa is less than the FY 1997 request but seeks to restore what 
we believe is the proper priority to a region with some of the poorest 
countries with the highest birth rates and greatest development needs 
of any workdwide. With regard to the aid level for Indonesia, I would 
point out that Indonesia is a populous nation with tremendous 
development needs and potential for growth into a major economy and 
market for US exports; our request works out to a level of just $0.24 
per capita whereas the per capita average assistance for USAID-assisted 
countries in the LAC region is more than three times that level.
                   food security initiative and ghai
    Question. For the past few years the Agency for International 
Development has had a $15 million annual effort called the ``Greater 
Horn of Africa Initiative'', which is designed to enhance food security 
and regional stability in East Africa. We've been impressed with this 
program, because it stresses self-help in the region, and tries to 
coordinate all AID activities toward one goal. This year, the 
Administration is requesting $30 million for a Food Security Initiative 
in Africa. What are the elements of this program, and how is it 
different from the existing Greater Horn of Africa Initiative?
    Answer. The $30 million budgeted in FY 1998 for the Food Security 
Initiative is the first, pilot year of a ten-year activity taking an 
integrated approach to USAID resources in policy, research and 
technology, and food to stem the erosion in food security in Africa. It 
will provide supplemental resources to address a growing food and 
poverty crisis in Africa which, if unchecked, could require emergency 
response costs of an additional $900 million per year beginning eight 
years from today. By addressing food security and poverty more broadly 
today, and preventing growing problems in the future, hungry children 
will be better nourished, enhanced food security will help to avert 
costly crises like Rwanda and Somalia, and the U.S. economy will 
directly benefit.
    The Greater Horn of Africa Initiative is a vehicle for exploring 
new ways of preventing crisis. The GHAIseeks to address the twin 
problems of crisis prevention, mitigation and resolution and food 
security through a process which emphasizes: African ownership; 
strategic coordination; regional approaches; linking relief and 
development; and promoting change in unstable environments. The Food 
Security Initiative will be implemented in accordance with the GHAI 
approach. The Food Security Initiative complements GHAI efforts by 
targeting specific policies, technologies and infrastructure which 
impact food security. In the first pilot year of a ten-year program, 
key countries include Ethiopia and Uganda from the Greater Horn, and 
will extend to Mozambique, Malawi and Mali. Thus, in the Greater Horn 
region the initiatives will reinforce each other to help avoid an 
increase in the number of food insecure, malnourished and poor people 
in Africa. With recent research documenting that half of all childhood 
deaths are attributable to malnutrition, both GHAI and Food Security 
Initiative impact in reducing malnutrition will also reduce child 
mortality and promote child survival.
                         assistance priorities
    Question. Administrator Atwood, in your statement you mention that 
AID's economic growth programs have been squeezed due to other 
priorities. In 1988, economic growth programs, which include 
agriculture, economic policy reform, privatization, microenterprise, 
and basic education, comprised 56 percent of the AID budget request. In 
1998, it accounts for 30 percent. The 1998 budget would increase 
environment programs by $62.4 million, or almost 30 percent. It would 
increase population programs by $45 million, or almost 13 percent. 
We've already discussed the cut in child survival and disease programs. 
Why are environment and population programs more important that 
economic growth, child survival, and disease programs?
    Answer. I would not say that environment and population programs 
are more important than either economic growth or child survival and 
disease programs. What is important is balance in our bilateral 
assistance program. It is our firm belief that a balanced program of 
assistance--one which fosters broad-based economic growth, protects 
human health, helps stabilize the world's population, promotes 
responsible environmental management, and builds sustainable 
democracies--is essential if we are to achieve the goal of sustainable 
economic development. The proposed increases in environment and 
population programs which you cite, by comparisons to FY 1997 levels, 
represent efforts to restore balance to the Development Assistance 
program by reversing the reductions in appropriations for those 
programs in FY 1997 from the levels requested by the Administration.

            Questions for the Record Submitted by Mr. Porter

                     criteria for mission closings
    Question. In your overhaul of USAID, you have reduced staff by over 
2,700 and closed 26 missions overseas. (1) What was the criteria for 
determining what missions to close--countries that had graduated from 
USAID programs or countries where there was no progress? (2) How many 
countries have graduated from USAID programs? (3) How many missions are 
still operating? (4) Last year, you noted that USAID has contacts in 
some countries where missions have closed or there is an USAID office 
within U.S. embassies--how is the program working? (5) Has USAID been 
effective by working in this manner?
    Answer. In making the difficult decision concerning which country 
programs to reduce, close or graduate, USAID considered four criteria:
    Need and Level of Development--Relative need was assessed based on 
an index that considered standard indicators such as per capita income 
measured in terms of purchasing power, infant mortality, and fertility.
    Global Problems--the importance of a country in addressing global 
issues such as population growth, HIV/AIDS, climatic changes, bio-
diversity and democracy was assessed and key countries were identified.
    Quality of Partnership, Commitment and Performance--while this is a 
much more subjective criterion,current programs were reviewed to assure 
that the countries receiving U.S. assistance are making every effort to 
help themselves.
    Foreign Policy Considerations--the assessment of U.S. national 
interests in a specific country or region is a factor which sometimes 
becomes an over-arching consideration if, for example, the country 
might otherwise be ranked low in need, relative to others.
    During the October 1, 1993, to September 30, 1996, period the 
Agency closed 26 missions. This counts as separate events the closing 
of the Thailand mission in 1995 and the subsequent closing of the 
Regional Support Mission in Thailand in 1996. In FY 1997 USAID has firm 
plans to close the Czech Republic and Slovenia missions. Recent 
graduates of USAID programs include Costa Rica, Botswana, Thailand, 
Tunisia and Estonia. Over the next five years the Agency has a schedule 
for graduating a number of other countries, depending on the 
achievement of planned results in each case.
    At the end of 1996, USAID had U.S. direct-hire (USDH) staff 
stationed in 73 countries. This excludes Donor Coordinators and 
Inspector General staff which may be located in countries which are not 
assistance recipients.
    In several countries where USAID missions have been closed certain 
program activities have continued to protect prior U.S. investments. 
These residual activities are necessary to complete programs that began 
before the close-outs were implemented. In addition, training 
participants who began their studies before the close-outs were 
announced are being allowed to complete their training. On a case-by-
case basis other initiatives have been approved when they have been 
determined to be in U.S. national interests. In almost all the African 
countries, including many of the close-out countries, the State 
Department is responsible for implementing special self-help and 
democracy [Sec. 116(e)] grants. The Food Aid activities implemented by 
U.S. PVOs have been allowed to continue until the end of the current 
programs. The Agency will scrutinize new PL 480 Title II proposals and 
will carefully consider continuation requests in non-presence countries 
to ensure that these resources are integrated with our development 
assistance programs.
    Small USAID programs are implemented in certain countries where no 
U.S. presence is maintained, provided that sufficient oversight can be 
maintained.
    These programs are generally working well. However, the 
vulnerability of these programs and the need to maintain adequate 
internal controls are primary concerns. USAID normally has one or two 
U.S. direct hire (USDH) employees stationed in those locations where 
their presence is essential to maintaining program accountability and 
for program management.
                     usaid foreign service officers
    Question: The main service of USAID is the expertise that its 
Foreign Service Officers are able to provide in developing countries. 
What percentage of current USAID staff are foreign service officers? 
(Gore stated four years ago that USAID and State would condense staff 
in Washington. Zero has been done on this. USAID has spent the past 
four years fighting the Helms bill to fold USAID into State. Couldn't 
there be a better use of resources?)
    Answer. Nearly 75 percent of USAID's total work force, including 
Foreign Nationals, U.S. Personal Services Contractors and others 
together with direct-hire Foreign Service Officers, are serving in 
overseas missions. The expertise provided by these missions is one of 
USAID's main services to developing countries. About 14 percent of 
USAID's overseas work force is represented by Foreign Service Officers 
who provide leadership, technical expertise and program management in 
these missions. Foreign Service Officers represent 49 percent of 
USAID's U.S. Direct Hire staff with 66 percent serving in overseas 
positions. These percentages are virtually unchanged from September 30, 
1992. Of the 25 percent of the total work force serving in Washington, 
21 percent are Foreign Service Officers and 64 percent Civil Service, 
with the balance non-USAID Direct Hire. Since September 30, 1992, the 
total number of USAID U.S. Direct Hire staff declined by over 25 
percent.
                        sustainable development
    Question: A recent CIA report on failed states confirmed the role 
of underdevelopment in contributing to crises in the Third World. As 
you know, U.S. exports to developing countries in the 1990s have 
expanded to 12% annually and is predicted to continue to increase 
dramatically. I have noted that a substantial amount of development 
assistance is going specifically to promote ``sustainable 
development''. Sustainable development is a term that we hear often but 
rarely learn what it means on the ground. Can you give me an example of 
a USAID project that is working to promote sustainable development? 
Also, can you offer an example of a country that has graduated from a 
USAID program and is now a significant importer of U.S. products.
    Answer. The mission of USAID is sustainable development, and most 
of our projects and programs aim at that. By sustainable development we 
mean development that can continue without depending on resources that 
won't be available in the future. In part this means development that 
doesn't depend simply on running down the stock of natural resources, 
e.g. oil or forests. It also means development that will be able to 
continue without perpetual dependence on foreign aid or other financial 
resources that won't be there in the future.
    For example, our agricultural research projects in Africa are 
seeking to incorporate sustainable financing mechanisms so that they 
will not perpetually depend on foreign aid. We are trying to strengthen 
the links between agricultural research and the private sector, and 
make the research more customer-oriented, so that research will be 
financed increasingly by domestic sources. This concern with financial 
sustainability also characterizes our projects and programs in health, 
education, and micro-enterprise.
    Where graduation is concerned, the two most illustrious USAID 
graduates are Korea and Taiwan. U.S. merchandise exports to these 
countries in 1995 came to $25 billion and $19 billion respectively. Our 
exports to both countries have increased by 16 per cent annually over 
the past decade. Chile and Thailand are more recent graduates, with 
1995 merchandise exports at $3.5 billion and $6.5 billion respectively; 
and average annual growth rates of 18% and 24% (respectively) over the 
past decade.
    It is important to emphasize that we do not have to wait for 
graduation to realize gains from trade. We have seen high and/or 
rapidly rising levels of exports to many current aid recipients that 
are making progress in terms of economic performance, e.g. Philippines, 
Indonesia, and the countries of Central America.
      usaid coordination with international financial institutions
    Question. The international financial institutions (IFIs) provide 
guidance and assistance to governments in developing countries on 
national policies and projects. AID works at the community level and 
with PVOs and local NGOs. These two forms of assistance obviously 
complement one another. Since both multilateral and bilateral 
assistance are operating with reduced funds, has AID tried to work more 
closely with the IFIs to coordinate projects?
    Answer. USAID officers in missions around the world are routinely 
assigned the function of coordination with IFIs engaged with the host 
country in activities in which USAID is involved. This occurs through 
periodic general coordination meetings with principal representatives 
of donor agencies and in lower level meetings with technical officers 
from those agencies. These meetings almost invariably involve IFI 
officers or project representatives. There is a high degree of 
awareness among donors about the work and partners of the other donors 
working in a technical area or sector. The linkages between the IFIs 
and USAID's partners can always be strengthened, but in general the 
level of mutual awareness is high.
    At a different level, USAID has detailed employees to work in the 
offices of the U.S. Executive Directors at two of the multilateral 
development banks, the World Bank and the Inter-American Development 
Bank, to coordinate bank activities with USAID-financed activities in 
those banks' client countries. Through their reviews of bank loans and 
interaction with bank staff, those liaison officers are able to 
encourage direct and indirect Bank cooperation with bilateral USAID 
activities. They are also able to promote more general bank support for 
the work of USAID partners, including PVOs and NGOs. In part due to 
initiatives by U.S. Executive Directors in the IFIs, and often with the 
direct involvement of USAID liaison officers, IFI relationships with 
PVO/NGO communities has become more collaborative in recent years, both 
within and outside of USAID-financed activities.
      usaid coordination with international financial institutions
    Question. Specifically, you mention promoting projects that use 
renewable energy sources and reduce greenhouse gas emissions. Is there 
an effort for AID to coordinate efforts with grants from the Global 
Environment Facility (GEF)?
    Answer. As part of its renewable energy activities, USAID has 
funded its own ``parallel'' GEF program, after consulting with the 
World Bank. USAID also has collaborated directly with the Bank on the 
latter's GEF programs.
    In the first category, USAID has funded programs in India, 
Indonesia, the Philippines, Mexico, and Bolivia over the past three 
years. Two examples:
    (1) In India, USAID has been funding a $12 million program to spur 
private investment in the use of sugar mill residues as an energy for 
producing and then selling electricity.
    (2) In Indonesia, USAID has been funding a $2.8 million pilot 
project testing the economic and technical feasibility of using wind 
energy as a resource for electrifying remote villages.
    In the second category:
    (1) USAID helped the World Bank develop a financingpackage 
combining a loan and GEF grant for Indonesia ($48 million) that is 
intended to promote markets for ``solar home systems'' in rural areas. 
This program will be the largest of its kind in the world, benefiting 
200,000 homes in the first round of loans. In addition to that 
assistance, USAID has funded the training of the entrepreneurs in 
Indonesia who will avail themselves of the loan and grant money and 
move the market.
    (2) USAID assisted the International Finance Corporation in 
developing the Renewable Energy and Energy Efficiency Fund (REEF), 
which will combine GEF grant money and private capital to offer 
investment capital of approximately $150 million for projects 
worldwide.
    (3) In Brazil, USAID is assisting the World Bank in preparing a 
rural electrification loan/GEF grant that focuses on the use of 
renewable energy technologies. The total package is expected to reach 
$100-$200 million.
    (4) Also in Brazil, USAID assisted the World Bank in designing a 
biomass gasification/gas turbine pilot project. The project 
subsequently received a World Bank GEF commitment of $30 million.
                                mongolia
    Question. For fiscal year 1997, USAID is planning on providing $10 
million in assistance for Mongolia. A large portion of this assistance 
is going to buy spare parts for Soviet made energy plants. Knowing 
Mongolia's vast territory and weather, is there a strategy to promote 
renewable energy in Mongolia?
    Answer. With FY 1997 funds USAID is providing $7 million in 
emergency support to Mongolia's energy sector, for spare parts and 
consumables for the power plants and coal mines and heavy equipment for 
the coal mines. Responding to an urgent request from the Government of 
Mongolia (GOM) regarding a lack of heat in health and education centers 
in remote provinces not on the electric grid, USAID has agreed to 
purchase and install American-made diesel generators in five of these 
provincial capitals over the next two years.
    USAID's goal has been to move as quickly as possible out of the 
emergency energy sector to more sustainable development of Mongolia's 
energy sector, such as improved energy policy, restructuring the energy 
sector towards privatization and conservation methods including 
metering. Among our planned future activities in renewable energy is a 
seven-month analysis of wind energy resources in Mongolia, which is 
scheduled to begin in a few months. This analysis will be conducted by 
the U.S. Department of Energy.
                      cambodia rule of law program
    Question. I have recently returned from Cambodia where I had the 
privilege of seeing some of the best-run USAID programs in the world. 
These programs are private-public partnerships with NGOs and PVOs, and 
they are doing a tremendous job leveraging a very small amount of 
assistance to make a huge difference in the lives of people in 
Cambodia. One of the most successful and most desperately needed 
programs there is the Rule of Law program. During the Khmer Rouge reign 
of terror, all the legal professionals in Cambodia were either killed 
or fled for their lives. The Rule of Law program is training new legal 
professionals, preparing the legal framework for the upcoming 
elections, and helping to resurrect the Cambodian legal system. Many of 
the grantees have told me that they need at least another year to make 
their programs and the gains they have made self-sustaining.
    (a) Would AID consider providing extensions to these programs?
    (b) What is the future of the Rule of Law program in Cambodia?
    Answer. (a) Yes. USAID has long term agreements in place under its 
rule of law (ROL) program and is presently negotiating extensions to a 
number of them on the basis of experience gained in the past few years. 
Current grantees include: The Asia Foundation (provides grants to 
indigenous democracy and human rights NGOs, including two NGO elections 
coalitions); the International Foundation for Electoral Support 
(provides assistance to the Government in developing electoral 
legislation and planning for elections); the International Human Rights 
Law Group (provides training for public defenders and staff in the 
judicial system, including judges); the American Bar Association 
(strengthens the nascent Cambodian Bar Association and helping to 
modernize the country's commercial, economic, and business codes); the 
Asian-American Free Labor Institute (helps the Ministry of Labor to 
develop and implement labor laws and dispute resolution systems that 
meet international standards); and the University of San Francisco 
(provides legal education to the law community through the Community 
Legal Education Center and universities, as appropriate).
    (b) Efforts to improve the rule of law have been at the core of our 
program in Cambodia from the start, and we intend to continue this 
emphasis for the foreseeable future. More than $29 million has been 
allocated for these efforts to date, and another $18.8 million is 
planned for FYs 1997 and 1998. Our ROL programs seek to increase the 
participation of civil society in the democratic process; strengthen 
the protection of human rights; increase the independence, 
professionalism, and transparency of the judicial system; and help the 
country prepare for free and fair elections in 1998 and beyond.
        victims of torture: usaid response to committee concerns
    Question. Torture is one of the most effective weapons against 
democracy and human rights. Both Republican and Democratic leadership 
of this Committee have urged AID to integrate an effort to combat and 
treat torture into its human rights and development program. The 
Committee has identified the UN Voluntary Fund for Victims of Torture 
and the Centers for Victims of Torture as potential partners for this 
effort by AID.
    (a) What steps has AID taken to meet the Committee's concerns on 
this point? What are AID's plans to work with these organizations for 
fiscal year 1998?
    Answer. Regrettably, victims of physical and mental persecution are 
found in many countries. It is our experience that torture often is a 
symptom of authoritarianism or anarchy. USAID's democracy, governance 
and human rights programs are attempting to treat the causes and 
consequences of torture. Strengthening the rule of law and respect for 
human rights are our objectives. This includes protection of people 
against arbitrary use of authority and against lawlessness. Successful 
U.S. diplomatic and democracy and governance assistance efforts 
hopefully will quell the use of torture. But there remain the 
unfortunate victims of past and present abuse.
    USAID is supportive of the work financed by UN Voluntary Fund for 
Victims of Torture. The U.S. contribution this year, from the 
International Organizations and Programs account, will be $1.5 million.
    USAID has supported the Center for the Victims of Torture to carry 
out a program in Turkey, providing training and technical assistance to 
the Human Rights Foundation of Turkey and the Turkish Medical 
Association to build clinical capacity in treatment centers. The grant 
may lead to a multi-country conference and possible follow-on 
activities on the treatment of torture victims.
    USAID also is involved in other activities that relate to the needs 
of victims of torture. The Displaced Children and Orphans Fund supports 
the psychological and social reintegration of children affected by war. 
Major activities are currently funded under this program in Angola, 
Eritrea, Liberia, Rwanda, the Former Yugoslavia and Vietnam.
    The USAID War Victims Fund provides prosthetics and other related 
orthopedic assistance to civilian victims of war. The Fund currently 
operates in Angola, Cambodia, El Salvador, Laos, Liberia, Mozambique, 
Sri Lanka and Vietnam. Although there is no specific targeting of 
torture victims, the beneficiaries are primarily traumatized civilians 
who have lost limbs as a result of landmines and other weapons.
    Under the Trauma, Social Welfare, and Humanitarian Assistance 
project, USAID supports NGO programs that address issues of community 
health and training activities for mental health providers, teachers, 
volunteers and doctors working with traumatized refugees and displaced 
populations in the former Yugoslavia. Under this project, USAID has 
supported the following activities.
    Catholic Relief Services which is working with local psychological 
associations to provide training on post-traumatic stress syndrome and 
other psychosocial treatments. USAID provided $1.9 million in support 
of this effort.
    The International Rescue Committee which is addressing the 
psychosocial needs of war-traumatized women, children and other 
vulnerable groups by developing local organizations' capacity and to 
fund specific activities in both Bosnia-Herzegovina and Croatia. IRC 
has received a total of $8.5 million from USAID.
    In Croatia, the Center for Attitudinal Healing has received funding 
from USAID to build on its experiences working with Vietnam veterans 
using the group counseling approach to work with refugees and displaced 
persons in the camps and settlements adversely affected by the horrors 
of war.
        victims of torture: usaid response to committee concerns
    Question. There is still a significant number--upwards of 6,000 in 
Moscow alone--of Stalin era political prisoners in Russia who suffered 
torture during their incarceration. These people are generally 60 to 80 
years old, live in extreme poverty and still suffer the aftereffects of 
torture. The Compassion Center in Moscow is working to assist this 
population, with support from the UN Voluntary Fund and other donors. 
Is their potential for AID to work with this organization and support 
the important work it is doing to help those who were instrumental in 
making the cracks in the Soviet empire which finally brought it down?
    Answer. Concerning Stalin era victims of torture and the work of 
the Compassion Center in Moscow, USAID does not have a program directly 
supporting that institution. I also have asked USAID staff to look into 
that possibility.
                       asha fy 1997 funding level
    Question. In the FY 97 Omnibus Appropriations Bill Conference 
Report, this committee, along with our Senate colleagues, worked out a 
compromise on the funding for the American Schools and Hospitals Abroad 
(ASHA) program whereby USAID was directed to level fund this program 
for Fiscal Year 1997. It is my understanding that USAID has not yet 
made a request for proposals for these grants, even though the 
competition process should be well underway by now in order to meet the 
September 30, 1997 end of the fiscal year deadline for disbursing these 
funds. Given the complexity of the normal grantmaking process for this 
program, it seems unlikely that USAID will be able to administer such a 
process in the time available.
    a. What steps are you taking to meet USAID's commitment to level 
fund this program for fiscal year 1997? Specifically, how does USAID 
intend to meet the September 30th deadline?
    Answer. FY 1997 new obligational authority (NOA) funding for ASHA 
is $14.6 million. Approximately $5.750 million of FY 1996 carryover 
will be combined with $5.0 million of the FY 1997 NOA and used to 
complete funding for a competitively selected set of American School 
and Hospitals Abroad (ASHA) proposals that were reviewed and approved 
in the summer of 1996.
    As stated in the FY 1998 Congressional Presentation, we are 
combining the balance of FY 1997 NOA funding of $9.6 million with $5.0 
million of FY 1998 NOA funding (total $14.6 million) to finance a new 
ASHA competitive grants award process in calendar year 1997. The 
development assistance funds used for ASHA programs are two-year funds, 
and thus can be carried over early FY 1998 for obligation beginning 
this calendar year.
    Question. Is it USAID's intention to regularize its procedures for 
ASHA, including permanently streamlining the grant process, for fiscal 
year 1998 and beyond, in order to avoid the concern and confusion that 
have occurred this fiscal year due to the delay in beginning the grant-
making process.
    Answer. Yes, the Agency does intend to regularize the ASHA program, 
including incorporating the procedures we have used to streamline the 
competitive process. For example, the Agency has published in the 
Federal Register a request for proposals by June 30, 1997 and has sent 
letters to former ASHA grant recipients inviting them to submit 
proposals by that date. We expect to begin making awards before the end 
of this calendar year.
                                campfire
    Question. The request for USAID's Communal Areas Management 
Programme for Indigenous Resources (CAMPFIRE) for the next five years 
is $28 million. This is a significant increase from the $8 million that 
was spent for the first five years of the program. Can you please tell 
me in detail how these funds are planning to be spent? What percentage 
of funding is used for elephant hunting?
    Answer. Our assistance to CAMPFIRE is currently planned at US $20.5 
million in regional and bilateral funds over a five-year period from FY 
1995-1999 (with obligations being incurred only through FY 1998) and 
supports:
    Wildlife conservation ($3.1 million). This includes research and 
field work of ecology of wildlife habitat, used to define carrying 
capacity, and on alternative resource options. Activities are 
implemented primarily by the Department of National Parks and World 
Wildlife Fund.
    Community development ($3.9 million). This includes staff training 
at the district level as well as technical support so that district 
councils can comply with the technical and financial regulations 
required if they are to make use of authorities provided them by the 
Government of Zimbabwe. The majority of funds will go via the Zimbabwe 
Trust, which works with district councils, wards, villages and 
households to strengthen their capacity to manage their natural 
resources.
    Grant funds to communities and rural district councils ($6 
million). This includes building activities and support for the 
establishment of nature-based tourism infrastructure, such as electric 
game fencing, waterhole development, and trail establishment.
    Regional Communications and training ($1.2 million). This includes 
the exchange of information between nations with similar resource 
applications, and the sharing of lessons learned beyond Southern 
Africa. This component is implemented by ACTION, an environmental 
magazine, and the Africa Resources Trust.
    Planning and applied research ($2.1 million). This includes socio-
economic and biophysical research, monitoring and evaluation of program 
impact, and program coordination with the Government of Zimbabwe and 
Southern African Development Conference (SADC). Under this component 
the University of Zimbabwe (Centre for Applied Social Sciences) 
collects and analyzes social and economic data from participating 
program areas.
    Technical/administrative assistance ($2.7 million). This includes 
grant management and assistance to CAMPFIRE Association and other 
members in setting up administrative, financial and technical support 
systems.
    This component is implemented primarily by U.S. consulting firms 
(Development Alternatives, Inc. and Price, Waterhouse and Company).
    USAID management/audit and evaluation ($1.5 million). This includes 
technical oversight by the mission, as well as audits and evaluations.
    Elephant hunting: USAID funds do not subsidize trophy hunting of 
elephants and other wildlife. CAMPFIRE does include assistance to 
communities to establish hunting concessions on their communal lands. 
This type of concession was granted decades ago to commercial farmers 
by the Government of Zimbabwe and, through CAMPFIRE, is being extended 
to the country's rural poor. The result of this activity is that 
communities are increasing efforts to limit poaching and are 
maintaining habitat suitable for elephants and other wildlife. By doing 
so, the land dedicated to conservation has increased to over 30 percent 
of Zimbabwe's total land area, and unregulated hunting and poaching has 
been reduced, which benefits both the animal populations and the local 
communities. In addition to direct cash payments to households, local 
communities are using CAMPFIRE revenues from the hunting concessions to 
improve their quality of life through investing in schools, water 
supplies, health clinics and other community-level improvements.
    Question. Twenty-eight million dollars seems to be a very large sum 
of money for protecting natural resources in Zimbabwe. For every dollar 
USAID invests in this program, how much actually makes it into the 
pockets of the local people--at the village level not the communal?
    Answer. While there are some instances by village committees of 
direct cash payments of CAMPFIRE revenues to male and female heads of 
household, the majority of CAMPFIRE allocations from the rural district 
councils (RDC) (of which there are 57 country-wide) go to lower 
governmental administrative units (wards and villages) and have been 
used for social services (clinics, schools), village infrastructure 
(wells, wildlife fences, game guards, road improvement) and revenue 
producing enterprises (campgrounds, restaurants, etc.). The percentage 
of revenue used at the RDC-level versus lower governmental units has 
varied by each RDC, ward and village and over time. To date, an average 
of 53% of total revenues ($4.088 million) has been disbursed to 
communities as cash dividends or as community projects (schools, 
grinding mills, clinics, etc.). An additional 20% ($1.575 million) has 
been used for wildlife management/natural resources management 
activities. In addition, some revenues have been used to strengthen the 
capabilities of the rural district councils.
    Question. Will USAID have to continue to support this program or 
will it become self-sustaining in the near future?
    Answer. We think that, even with Zimbabwe's weak tourism 
infrastructure, CAMPFIRE would probably be financially sustainable 
based on sport hunting. There are other wildlife-based activities, such 
as game ranching and eco-tourism, which have potential. Districts 
without substantial elephant populations are exploring ways to utilize 
other natural resources--such as forestry, traditional plants, etc., in 
order to find environmentally sound economic development activities.
    Question. What program operates under or in coordination with 
CAMPFIRE to measure the impacts of legal elephant hunting in Zimbabwe's 
elephant population?
    Answer. The cognizant agency responsible for setting quotas and 
monitoring wildlife populations is the Government of Zimbabwe, Ministry 
of the Environment and Tourism, Department of National Parks and 
Wildlife Management. In addition to other international donors, USAID 
has and is supporting them in fulfilling that mandate. USAID also 
supports the World Wide Fund for Nature/Zimbabwe for, among other 
activities, ecological monitoring support services.
    Question. Finally, it has been suggested that CAMPFIRE funding is 
being used indirectly to lobby for a lifting of the international trade 
ban on ivory. Considering U.S. support for this ban since its 
establishment in 1989, is this accusation valid?
    Answer. There have been allegations that CAMPFIRE member 
organizations have been using U.S. tax dollars to lobby the United 
States Congress to change the U.S. position on the ivory trade ban. Our 
review of these allegations has not found any use of funds for 
unallowable costs including unallowable lobbying. USAID's funds are 
earmarked for specific development activities and all grantees are 
notified of the restrictions placed on these monies, including U.S. 
regulations on lobbying (OMB Circular A-122). Had we found that funds 
were so used, we would have taken appropriate and timely action.
    Our General Counsel's office has concluded that there were no 
violations of U.S. lobbying restrictions by our grantees or sub-
grantees. Nonetheless, because of the high degree of interest in the 
program's international outreach efforts, USAID has decided to 
eliminate these activities from the program in order to concentrate its 
resources on its important work in Zimbabwe.

             Questions for the Record Submitted by Mr. Wolf

              humanitarian assistance and nagorno-karabakh
    Question. As you know, over the past several years I have supported 
efforts to modify Section 907 of the FREEDOM Support act to make it 
easier for humanitarian aid agencies to meet the needs of the refugees 
and other needy people in Azerbaijan. I have also tried to encourage 
USAID and the State Department to provide humanitarian assistance to 
the people of Nagorno-Karabakh. This is not happening and I remain 
concerned about what I perceive to be an imbalance in U.S. policy. U.S. 
humanitarian assistance (within U.S. budgetary constraints) should be 
provided to people who need it. We should not be taking sides with 
humanitarian assistance. Azerbaijan receives U.S. humanitarian 
assistance but Nagorno-Karabakh does not. Why can't USAID and the State 
Department take more leadership with regard to this issue? What is 
wrong with providing humanitarian assistance to the people of Nagorno-
Karabakh through NGO's? Would USAID support aid through NGO's? Are 
there any other disputed regions in the world where USAID has refused 
to provide humanitarian assistance through NGO's?
    Answer. The United States Government provides humanitarian 
assistance to the people of Nagorno-Karabakh through grants from the 
Department of State Bureau for Population, Refugees and Migration to 
the International Committee of the Red Cross (ICRC). As in other parts 
of the world, in the Caucasus the United States does its best to 
respond to the most critical humanitarian assistance needs wherever 
they may be. The United States does not take sides with humanitarian 
assistance.
    All available information, including anecdotal information from 
various sources, indicates that currently there are no critical, unmet 
humanitarian assistance needs within Nagorno-Karabakh. Humanitarian aid 
needs in Nagorno-Karabakh appear to be similar to those in other areas 
of the Caucasus region.
    Provision of USG humanitarian assistance is needs-driven. Because 
funds available for humanitarian activities are limited, only the most 
critical needs can be addressed. The ICRC, which takes the lead in 
providing a humanitarian response in conflict areas, bases its 
humanitarian aid solely on observed needs. Because the ICRC is neutral 
and remains detached from all political issues related to conflict, we 
are confident any critical unmet needs would be reported.
    The USG also takes into consideration private and non-U.S. official 
aid flows, which play a large role. The Hayastan Fund (a private donor 
with the official sanction of the Government of Armenia) reports $3.82 
million spent on humanitarian assistance in Nagorno-Karabakh between 
1995-96, and this is only one such private aid organization.
    An important part of the humanitarian and economic assistance 
picture for Nagorno-Karabakh is official assistance from the Republic 
of Armenia. The very substantial earmark of $95 million in FREEDOM 
Support Act funds for Armenia, by freeing up other Government of 
Armenia resources, provides significant opportunities for the Republic 
of Armenia to provide additional non-military assistance to Nagorno-
Karabakh. Given the small population in Nagorno-Karabakh, it is likely 
any truly critical needs could be readily met by assistance from 
official and unofficial sources.
    The ICRC is the best instrument for delivery of any U.S.-funded 
humanitarian assistance to Nagorno-Karabakh. It is a professional 
organization, with ample experience in conflict zones and provides not 
only humanitarian aid but promotes protection of human rights, a 
critical task in Nagorno-Karabakh.
    There are other regions of the world where specific conditions have 
made it unsuitable to channel U.S. humanitarian assistance through 
NGOs, for example Chechnya, North Korea, and southern Iraq. Political 
considerations usually do not affect allocation of resources for 
humanitarian relief, but they may affect the way such aid is delivered. 
The U.S. continues to respond to humanitarian crises based primarily 
upon assessed need.
                        pvo's and child survival
    Question. I share the Chairman's commitment to child survival 
programs and am concerned that USAID has not requested specific funding 
for the child survival account in the FY 1998 budget. I am also 
concerned about GAO's recent report on child survival that concluded 
that child survival monies are not necessarily targeted to countries 
with the highest child death rates.
    Last year, the House report stated that child survival funds in the 
account are intended to be used for traditional child survival 
programs--activities that are provided to save the lives of children, 
such as immunizations, provision of vitamins, and pneumonia treatment--
and not diverted to more indirect and less cost-effective use. Can you 
reassure me that these activities will continue to receive the highest 
priority for funding from the child survival account?
    Answer. USAID has clear guidance on the appropriate use of child 
survival funds and, in March, reissued that guidance to all of its 
missions. The guidance, which USAID follows, clearly reflects the 
legislative mandate for child survival activities.
    In accord with that guidance, the majority of child survival 
funding goes to activities that you mention (immunization, 
micronutrients, and pneumonia) and the systems that support those 
activities. Although linkages of child survival to reproductive health, 
AIDS, water, sanitation and other illness prevention activities in the 
home are clear, we shall continue to insist that the majority of 
funding be used to address the key childhood killers (pneumonia, 
diarrhea, malnutrition, and malaria) with specific indicators to assure 
these programs have the desired impact. These health problems are 
responsible for over 70% of childhood deaths in developing countries. 
USAID uses the magnitude, (i.e., number of child deaths) as well as the 
severity of infant and child mortality (as measured by infant and child 
mortality rates) as criteria for the use of Child Survival funds. 
Although within resources available, USAID cannot work in all countries 
in which there is a need, countries in which the Agency is supporting 
child survival-related programs are responsible for more than 80% of 
world child mortality (excluding China).
                        pvos and child survival
    Question. I am also concerned by reports that the percentage of the 
child survival funds that go to PVO's (non-profit organizations) has 
declined when overall funding for the account has increased in recent 
years. PVO's are very successful in leveraging private funds with 
public funds and have over time demonstrated their ability to deliver 
aid at the grassroots level in a cost-effective and efficient manner. 
Though some organizations are better than others, for the most part, 
they have low overhead and administrative expenses. Moreover, PVO's 
have increased their ability to deliver more technical kinds of 
assistance. As foreign aid dollars have become more scarce, it is 
important to utilize PVO's to the greatest extent possible to ensure 
that the highest percentage of our aid gets to the people who need it.
    Of the $500 million appropriated for bi-lateral programs in the 
child survival account for FY 1997, how much went to non-profit private 
voluntary organizations (PVO's) such as World Vision, CARE and others? 
How much went to for-profit contractors or other NGO's?
    Answer. Although we do not yet have figures for funding by such 
categories for FY 97, we can provide information on FY 96 funding to 
Non-governmental Organizations (NGOs). Our definition of NGOs includes 
``nongovernmental organizations, organized in any country (including 
the United States) either formally or informally, that is independent 
of government, excluding for-profit enterprises and religious 
institutions, except for religiously affiliated development 
organizations.'' This definition includes universities, but as noted 
above, does not include for-profit organizations. The Agency's tracking 
system shows that in FY 96, 36 per cent of $316 million in funding for 
child Survival, or more than $100 million, went to NGOs, including 
PVOs.
    We believe this is in fact an underestimate based on a one time 
survey we carried out in FY 95 as a part of the General Accounting 
Office audit of the Child Survival program. That survey, which asked 
field officers to review funding allocations to child survival 
implementers in more detail, found that the number was closer to 50% 
(this closer review by field officers focusing on child survival 
allowed us to capture more complete data on sub-grantees). The rest of 
the funding went to a combination of for-profit contractors, 
multilateral organizations, and host governments.
    One of my priorities as Administrator of USAID has been to increase 
USAID's collaboration with the private and voluntary community and 
other indigenous non-governmental organizations. To cite only one 
program, our current portfolio of over 70 PVO Child survival grants to 
23 U.S. PVOs totals $59.5 million. This is in addition to the 
substantial amount of work carried out by USAID Washington and field 
missions with U.S. and indigenous PVOs in the health and population 
sector.

            Questions for the Record Submitted by Mr. Forbes

                   child survival and disease account
    Question. I want to express my support for the child survival and 
diseases account created by this committee. This is one of the most 
important and effective USAID programs.
    Given the successful nature of child survival programs, why was 
funding for child survival and diseases programs cut in the 
Administration's 1998 budget request?
    Answer. Both the GAO and I agree with you about the effectiveness 
of this program for which Congress has indeed been a strong impetus. 
The Decade Report on USAID's Child Survival Program, which has just 
been released, discusses the accomplishments of the program as well as 
future challenges. Nonetheless, given overall cuts in development 
assistance since 1996, even programs such as Child Survival have had to 
take reductions. And, although an FY 1998 overall increase has been 
proposed for the international affairs budget over FY 97 levels, there 
is only a small increase in for Development Assistance, especially for 
a new Food Security Initiative. Also, in order to retain some balance 
to our overall program, we have made a minor decrease in child survival 
funding.
                       microenterprise (funding)
    Question. Microenterprise is one of the most effective strategies 
USAID supports, providing small loans that allow poor people to start 
and expand individual businesses. Not only do these programs reduce 
poverty, they recycle foreign aid dollars as loans are repaid allowing 
new loans to be made. I want to express my support for programs 
reaching the very poor, especially women, and urge that more of USAID's 
microenterprise resources reach programs serving these people.
    In light of the success of the microenterprise program and its 
support in Congress why has the Administration reduced funding for the 
program over the last several years?
    Answer. USAID's recent budget situation forced us to trim the 
target for microenterprise in 1996 from the level of $140 million, 
originally announced at the start of our microenterprise initiative, to 
$120 million. Nevertheless, we have protected microenterprise relative 
to other parts of the budget. Microenterprise has risen as a percentage 
of the DA/DFA budget from 6.9% in FY95, to 7.3% in FY96, to 7.5% in 
FY97. Given that our development budget is not projected to increase 
significantly except for special initiatives such as Food Security, we 
are maintaining the $120 million target level for 1997 and 1998. Our 
commitment to microenterprise remains firm, as shown by our recent 
renewal of the microenterprise initiative for an additional two years, 
but our budget situation does not allow us to increase overall funding.
                     microenterprise (partnerships)
    Question. Many of USAID's successes in microenterprise have come 
through its partnership with non-governmental organizations. As USAID 
builds its program, how will it strengthen its mechanisms to build 
these partnerships?
    Answer. Most of USAID's microenterprise programs are implemented by 
non-governmental organizations (NGOs), including U.S. private voluntary 
organizations (US PVOs) working abroad and indigenous organizations 
working in their own countries. USAID will continue to support the U.S. 
PVOs through centrally-funded programs such as the Matching Grant 
Program of the Bureau for Humanitarian Response and the Implementation 
Grant Program of the Global Bureau's Microenterprise Development 
Office. It also will continue supporting indigenous NGOs through field-
based mission programs. USAID finds that these mechanisms are working 
well to create partnerships with NGOs of all types.
                        microenterprise (goals)
    Question. While I know that you have a strong commitment to 
microenterprise programs reaching the poor, USAID has not yet reached 
the goal set in your 1994 initiative launched with Congress, to assure 
that by the end of 1996, half of your total microenterprise resources 
would be supporting poverty lending programs (loans under $300). How 
can we work with you to ensure that this goal will be reached in the 
very near future?
    Answer. USAID has found that an increasing proportion of its 
microcredit assistance is going to poverty lending programs. In 1995, 
42 percent of our total microenterprise resources were devoted to 
poverty lending. We are in the process of surveying our 1996 program 
recipients to learn what proportion of their loans are below $300, and 
will share the information with you when it becomes available in 
September. We would like to work with you on our microenterprise 
initiative, which we have just renewed after dialogue with both 
Congress and practitioners. In the initiative we are pledging that two-
thirds of all clients in institutions supported by USAID's microcredit 
programs will be receiving loans less than $300, and that half of our 
support to microcredit will support poverty lending. Your support for 
the microenterprise initiative and the continuing dialogue on this 
issue would be most helpful.

           Questions for the Record Submitted by Mr. Kingston

                             aid to russia
    Question. I am very concerned about the dominance of organized 
crime over the economy in Russia. It is my impression that some of 
these groups are more efficient in collecting ``taxes'' from 
entrepreneurs in Russia than the government itself. Although I suppose 
that does not say too much at this point. In fact, I have been told 
that mafia groups even maintain de facto control over many major ports 
in Russia. These problems are bound to have an extremely negative 
impact on the success of economic liberalization efforts there. Can you 
please evaluate the nature and scope of the problem for me?
    Answer. Organized crime has become a significant economic force in 
Russia. Russian President Yeltsin told the Duma (Parliament) in March 
of this year that ``the problem of economic crime and corruption has 
grown from what was clearly a police matter, as it is in most 
countries, into a political issue. The criminal world has openly 
challenged the state and launched into open competition with it.'' 
Deputy Prime Minister and Minister of Internal Affairs Kulikov recently 
said that thirty to forty percent of the national income circulates in 
the shadow sphere and, over the last five years, capital flight has 
amounted to roughly $150 to $300 billion.
    While organized crime is engaged in illegal activities, 
particularly extortion, financial fraud and the smuggling of raw 
materials, it is difficult to obtain accurate statistics as the shadow 
economy also includes Russian citizens hoping to evade the country's 
high and unpredictable taxes and tariffs, its maze of regulatory rules, 
and perceived or actual corruption. This is also having a deterrent 
effect on foreign investment in Russia; US investment in Russia is 
already markedly less than in smaller Eastern European countries. 
Lastly, increased economic crime is worrisome as many ordinary Russians 
may equate reform with crime and corruption.
                            organized crime
    Question. Does organized crime also interfere with development 
projects? To what extent and in what ways?
    Answer. It could potentially interfere, but we have built in a 
number of safeguards to minimize its impact on our programs. Even 
though we and other donors still have much to learn concerning the full 
nature and depth of criminal activities in Europe and the NIS, we know 
from our experience other regions of the world that these activities 
can sometimes present a significant barrier to the USG and the host 
country achieving our developmental goals. For example, entrenched 
interests benefitting from crime may become obstacles to enactment of 
major reforms.
    Because we knew so little about the governments or people that we 
would be working with when we began the CEE and NIS programs a few 
years ago, USAID's general approach in the Central Europe and the NIS 
has been very cautious and includes several safeguards: (i) our 
assistance consists of technical advice, exchanges, humanitarian 
components, sometimes equipment which is closely tied to a development 
objective, not cash; (ii) we have provided most of our assistance 
through U.S. contractors or grantees who are subject to routine audits 
and must observe normal accounting standards, instead of to 
governmental entities or individuals (iii) we have devoted much of our 
assistance to reformers we know in the non-governmental community; and 
(iv) we have required training participants to be cleared through our 
Embassies and have developed criteria for selecting participants in the 
numerous training programs we have funded.
    We believe these kinds of safeguards, coupled with USAID's rule of 
law program and the law enforcement efforts of various U.S. agencies, 
are protecting our assistance programs from the direct impacts of 
crime.
    We recognize, however, that long-term efforts are required before 
there will be clear commercial laws which provide fair and open rules 
by which business and government operate; effective regulation and 
enforcement; transparent and accountable corporate governance; and an 
effective independent media to expose crime and corruption where it 
exists. Much of our economic and democratic reform efforts are aimed 
squarely at this set of issues.
                             aid to russia
    Question. How is the United States trying to prevent interference 
in aid implementation?
    Answer. The U.S. supports the continuing efforts of international 
financial institutions (IMF and the World Bank) to address transparency 
and safe and sound management of the shift to market economics. These 
leveraged reforms will help assure that all international assistance to 
Russia is protected against criminal activity.
    The U.S. also supports an anti-crime training and technical 
assistance program that funds U.S. federal and state law enforcement 
and regulatory agencies to work with their Russian counterparts to 
prevent, investigate, and prosecute criminal activity in Russia's 
financial sector. The FBI is also working directly with the Ministry of 
Interior to improve Russian officials' capacity to combat international 
organized crime.
    Question. I read a very brief editorial in the Washington Post last 
month that charged that U.S. proposals to fight Russian crime may even 
strengthen the institutions that are part of the problem. To be honest, 
I don't know what they meant by that. At the risk of straying to the 
edge of your jurisdiction over this problem, can you address that 
statement?
    Answer. No agency or institution is immune from the influence of 
organized crime or from corruption, whether in Russia or the United 
States. The USG is working with the Russians to address the influence 
of organized crime and corruption across the public and private 
sectors, including in the powerful military, law enforcement and 
criminal justice agencies.
    We are recommending the Russians adopt the procedures that the US 
has found foster transparency and honesty in public and private 
organizations. Agencies and firms need to establish transparent systems 
for recruiting, promoting and paying employees. Offices of Professional 
Responsibility and disciplinary procedures must be established and 
followed. Independent agencies such as the Inspectors General and the 
Government Accounting Office must be established to assure integrity in 
the public sector. The Russians are committed to reform.
               partnership for freedom: what is changing?
    Question: The Partnership for Freedom is characterized as a refocus 
of our aid to the New Independent States on economic and grass roots 
linkages. It has been my impression that this has been at least a large 
part of our focus for 3 or 4 years now in the NIS. Will you explain 
what is changing (besides the price tag)?
    Answer. Key elements of the USAID program in the NIS over the past 
few years have been the installation of an institutional and regulatory 
framework to support the transition from command economies to market 
democracies. Now we are narrowing the focus on trade and investment 
issues that support economic growth and are expanding grass roots 
linkages. The main difference between our program to date and the 
Partnership for Freedom (PFF) is a shift from top-down technical 
assistance to mutually-beneficial partnership. There are still 
significant areas, however, such as tax reform in Russia, in which work 
requiring technical cooperation must continue.
    The Administration's request of $900 million for the FREEDOM 
Support Act in FY 1998 is based on the belief that the United States 
must stay engaged in the changes now taking place in this strategically 
important region of the world until well into the next decade. The new 
PFF initiative would change the emphasis of our engagement, from 
assistance to partnership first with Russia, and subsequently with the 
other NIS countries. It builds on the successes of our assistance 
program while focusing on trade and investment, exchanges, and 
cooperative activities. This initiative will support U.S. commercial 
involvement in the NIS countries and help support partnership 
activities by private and public U.S. organizations.
    One example of a PFF activity is the Regional Investment Initiative 
in Russia that was signed by Vice President Gore and Prime Minister 
Chernomyrdin at the February 1997 meeting of the Gore-Chernomyrdin 
Commission. It establishes a new arrangement whereby U.S. Government 
assistance will be focused on several regions in Russia to stimulate 
real economic growth by reducing impediments to trade and investment. 
President Yeltsin, at the recent Helsinki summit, called for increased 
U.S. and other foreign trade and investment. These developments, 
coupled with the recent changes in the Russian cabinet, give us reason 
to believe that Russia is now prepared to support reforms more 
vigorously. It is in the interest of the United States to help them do 
that.
                            economic growth
    Question. On page 18 of your written testimony you discuss the 
agency's difficulty administering economic growth programs. As a new 
member of the subcommittee I'm not sure what the Hill directives are 
you were referring to, although I do know we had a lot more earmarks in 
the bill last year than we should have. It seems, though, that the fact 
that the various challenges you referred to have a particularly 
negative impact on economic growth programs as a result of the agency's 
own prioritizing process. If it is really a primary concern, I would 
think the agency could have maintained greater focus in this area. Who 
made the ultimate decisions which squeezed out economic growth oriented 
projects?
    Answer. The squeeze on economic growth programs is due to the 
combined effect of cuts in appropriations and Congressional directives 
requiring increases in certain programs. To illustrate, in FY 1996 
USAID's Development Assistance (DA) account was cut by more than 20 
percent from the Administration's request level. Within this reduced 
level funds had to be set aside to meet an earmark for child survival 
and diseases programs and to meet directives to fund at or above 
requested levels programs totaling over $400 million. These directives 
ranged from victims of war, vitamin A and dairy development to energy, 
neo-tropical birds and agricultural research. As a result, residual 
funds available for remaining programs--in economic growth, environment 
and democracy--were effectively cut by 26 percent from the level 
planned. While it is true that the Administration made the choices as 
to the priorities for use of these residual funds, the largest portion 
of the funds had been planned for economic growth programs. Having to 
accommodate a 26 percent cut in these funds meant that, even after 
taking reductions in environment and democracy programs, economic 
growth programs had to be trimmed significantly.
    The funding levels for FY 1997, and the effects thereof, are 
similar--a 14 percent cut from the FY 1997 request, and a further 4 
percent cut from the already sharply reduced FY 1996 level, in the 
residual funds available for economic growth, environment and democracy 
programs, with a repetition of the squeezing of economic growth 
programs. If similar cuts in DA appropriations, and similar directives 
levels, were to occur in FY 1998, the results likely would be the same 
again.
                       aid and the public sector
    Question. My attention has been called to one of the theses of a 
new book by Michael Maren which say that foreign aid merely lets 
governments of poor countries avoid taking the steps necessary to make 
their own economies more productive and that it sometimes strengthens 
the public sector rather than the private sector. Will you please 
respond to this.
    Answer. We are very familiar with the issues raised by Mr. Maren 
and others. Foreign aid should not be provided without regard for the 
policies and self-help efforts of recipient countries.
    With the end of the Cold War, USAID is better able to prioritize 
among countries based on developmental criteria, including economic 
policies and self-help efforts. USAID takes into account economic 
policy performance covering fiscal, monetary and trade policy as part 
of our performance-based budgeting.
    The second issue is whether aid tends to strengthen the public 
sector rather than the private sector. USAID and other major bilateral 
and multilateral donors emphasize the role of the public sector in 
creating the policy and institutional enabling environment for private 
markets, rather than competing with or substituting for the private 
sector. For instance, the criteria for economic freedom have to do with 
how well the public sector performs essential functions that support 
private markets. With this focus, aid strengthens the private sector by 
strengthening the public sector.
                             trade and aid
    Question. How do U.S. programs to develop foreign markets and 
promote exports compare to those of other developed nations in terms of 
general approach, measurable success, and ambition.
    Answer. USAID efforts to promote U.S. exports emphasize critical 
determinants of development performance such as human resource 
development, institutional strengthening, and policy reform. Where 
practicable this aid is tied to procurement in the United States. But 
the major and lasting impacts on U.S. exports come through the 
development results of these efforts.
    While the developing world as a whole represents a rapidly growing 
market, there is great variation in market growth among developing 
countries, with demand for imports expanding at annual rates above 20 
percent per year in some countries, and stagnating or contracting in 
others. USAID analysis indicates that progress in establishing policies 
and institutions supportive of private markets is the major factor that 
distinguishes rapidly expanding export markets.
    This has generated immediate, large and growing benefits for the 
United States in terms of export sales, benefits that dwarf the impacts 
of isolated capital projects, and which accrue to many more Americans. 
For example, our exports to Central America have increased by nearly 13 
percent annually since 1985, reaching over $7.5 billion in 1995. Our 
exports to Thailand have increased by over 24 percent annually since 
1985, and reached $6.4 billion in 1995. For Indonesia, the 
corresponding figures are 16 percent and $3.3 billion.
    This performance has depended not just on improved policies and 
institutions in developing countries, but also sound policies in the 
United States. U.S. exports of goods and services overall during the 
past decade expanded almost twice as rapidly as those of Japan, 
Germany, or the European Union. We have achieved superior export 
performance by focusing on sound policies that affect the basic 
determinants of competitiveness, rather than on the costly and wasteful 
aid practices mentioned above.
    At the same time, the U.S. has not remained blind to the practices 
of other donors. We have actively led a cooperative effort among donors 
to curb the use of commercially motivated aid practices that distort 
both trade and aid. This effort culminated several years ago in the 
Helsinki Agreement, which restricts (but does not eliminate) the use of 
tied aid credits as a device for financing exports. Other donors are 
now exercising leadership to reach agreements to further limit the use 
of tied aid. These sorts of efforts increase the development 
effectiveness of aid (with major positive implications for growth of 
U.S. exports) and also promote trade that is more efficient, effective, 
and fair.
                    democracy and foreign assistance
    Question. You state that you have adopted a policy that nations 
that do not embrace democracy and turn their back on their own citizens 
will not receive U.S. assistance. I see a number of countries listed in 
the summary tables that don't fit that description. Can you comment on 
that? Also, does this policy include humanitarian assistance such as 
famine relief?
    Answer. USAID considers human rights performance a critical factor 
in identifying development partners and in making budget allocation 
decisions. In deciding where and how USAID funds should be spent, the 
level of democratization and respect for human rights is a central 
consideration. In accordance with Section 116(a) of the FAA, USAID 
cannot give economic assistance ``to the government of any country 
which engages in a consistent pattern of gross violations of 
internationally recognized human rights.'' Humanitarian assistance such 
as famine relief is not subject to the restrictions contained in 
Section 116(a).
    Regular development programs funded by USAID benefit citizens at 
the grass roots: they foster the economic empowerment of women and the 
poor; and expand educational opportunities; reduce maternal, infant and 
child mortality, and the spread of HIV/AIDS. Environmental programs 
supported by USAID range from biodiversity conservation to improving 
urban environments. In countries where democracy has not yet fully 
taken hold, we fund NGOs and projects designed to improve political and 
human rights conditions. Democracy-related projects, for example, 
foster the growth of civil society and independent media, they develop 
viable political parties, and build independent, better trained 
judiciaries and parliaments. In crisis situations, USAID humanitarian 
assistance and famine relief is extended.
                              agriculture
    Question. In reference to the International Food Policy Research 
Institution study, can you tell us in which countries we have been most 
successful in cultivating agriculture exports for U.S. businesses?
    Answer. The International Food Policy Research Institute (IFPRI) 
study established the relationship between agricultural research, 
agricultural growth, economic development, and agricultural imports in 
developing countries. IFPRI noted that agricultural imports had grown 
the most in East Asia, followed by Latin America. The study did not 
specifically list countries which were importing agricultural products 
from the U.S.
    According to data compiled by the Foreign Agricultural Service of 
USDA, agricultural exports from the United States have followed a 
similar pattern, growing the most sharply in East Asia and Latin 
America. The linkage was first shown in the frequently-cited cases of 
South Korea and Taiwan. But, during the 1990's, these countries have 
been joined by Indonesia, Malaysia, Philippines, and Thailand. Within 
Latin America, the most pronounced increases in imports from the U.S. 
were found in Colombia, Brazil, Venezuela, and Peru. As other countries 
experience agricultural and economic growth, we would expect them to be 
added to the list.
             agricultural assistance in russia and ukraine
    Question. Can you give me a few details on what types of 
agricultural development projects are being funded in Russia and 
Ukraine now? Has the focus shifted over the last five years or are we 
using primarily the same approach?
    Answer. The USAID assistance program in Ukraine includes 
agricultural development activities in a number of areas. Programs 
being implemented support: (a) agribusiness partnerships involving U.S. 
and Ukrainian firms; (b) the establishment of private agricultural 
commodity exchanges; (c) the restructuring of collective farms and land 
privatization; (d) agricultural policy analysis and reform; (e) farm 
management and marketing assistance to private farmers and farmer 
organizations; (f) development of regional agricultural trade in 
Western Ukraine; and (g) volunteer programs providing technical 
assistance to private farmers and agribusinesses. Assistance is also 
being planned in the area of farm finance and may be provided for 
agricultural enterprise privatization if government reform programs 
proceed.
    In Russia the program of agricultural assistance is limited to 
support for: (a) agribusiness development and rural social services as 
part of farm post-privatization in two oblasts; (b) pilot agricultural 
credit activities; (c) the completion of a final agribusiness 
partnership; and (d) volunteer activities. Assistance in agricultural 
policy reform and sustainable agriculture are being considered with an 
emphasis on regional rather than national development.
    In the past two years the focus on the agricultural assistance 
program in Ukraine has broadened to encompass additional program areas 
while seeking greater geographic focus. For example, agribusiness 
partnerships and other programs are being directed to regions where 
farm restructuring is taking place while the assistance in agricultural 
policy reform is being directed to those issues being surfaced by the 
expanded agribusiness partnership program. Private farmers and systems 
for their support are also a special target of all activities.
    As progress on the agricultural policy reform front has lagged in 
Russia, the USAID program of agricultural assistance has been sharply 
consolidated. During this period, the focus has shifted to a very 
limited number of systemic issues such as agricultural finance and away 
from agribusiness partnerships. The possible new initiative in regional 
investment promotion policy reform reflects an attempt to continue this 
focus on systemic issues.
                              legal reform
    Question. What are the realistic prospects of enactment of new tax 
laws which are being written with United States assistance in Russia--
with a strong Communist presence in the Duma--and other NIS?
    Answer. In Russia, a new comprehensive, unified tax code has been 
drafted and readied for presentation to the Duma. Realistically, 
chances for passage in 1997 of the tax code as a whole, are not 
promising. However, there is a possibility that tax reform will proceed 
this year as in 1996, on an item-by-item basis. Some of the reforms 
accomplished in 1996 include the improvement of procedures for the 
Value Added Tax, closing of several exemption loopholes which had been 
responsible for lost tax revenue, and legislative approval of a market-
value property tax pilot program. Priorities for 1997 include further 
improvements in tax administration including legal aspects, 
strengthening tax analysis capability of the Ministry of Finance, and 
passage of a law extending the property tax pilot program nationwide. 
At the same time we will continue support for passage of a 
comprehensive tax code by the Duma.
    Elsewhere in the NIS tax legislation has proceeded well. Kazakstan 
adopted a comprehensive, unified tax code in mid-1995. Kyrgyzstan did 
the same, effective July 1, 1996, and Uzbekistan is likely to follow 
suit at its legislative session in April 1997. Moldova is adopting a 
comprehensive tax code in stages, following a unified concept: adoption 
of new corporate and personal income tax law is imminent, with a new 
VAT law to follow shortly. Ukraine is beginning the task of adopting 
modern tax legislation.
                             child survival
    Question. What percentage of Child Survival aid is administered via 
private voluntary organizations? I have been informed that there are 
significant benefits--especially resulting from private matching 
funds--from this approach. What is your assessment?
    Answer. USAID's tracking system shows that approximately 36 percent 
of funding for Child Survival from all accounts, or more than $100 
million, is administered by non-governmental organizations (NGOs), 
including private voluntary organizations (PVOs). The private matching 
funds certainly are one benefit from using private voluntary 
organizations. In fact, to cite one program alone, the current 
portfolio of over 70 PVO Child Survival grants to 23 U.S. PVOs totals 
$59.5 million to which the PVO recipients contribute an additional 
$20.7 million. This contribution leverages additional resources from 
the American public to support these grassroots PVO programs. Perhaps 
of equal importance is the fact that most of these organizations work 
directly with community groups to determine their needs and goals, and 
to plan effective programs to reach those goals. In recognition of 
this, USAID is in the process of launching a new PVO partnership 
activity in the population and health area. One of my priorities as 
Administrator of USAID has been to increase USAID's collaboration with 
the private and voluntary community and other indigenous non-
governmental organizations.
                                 polio
    Question. I received a copy of your polio eradication report 
yesterday. I appreciate that, and I am glad to see the program is 
succeeding rather quickly. I would appreciate being apprised of its 
progress over the next couple of years. Are all countries cooperating 
fully in the effort?
    Answer. We will provide another formal report on the progress of 
the Polio Eradication Initiative in the fall of 1997. In addition, we 
are planning to establish a web site which will provide up-to-date 
information on the Initiative.
    USAID works in partnership with the World Health Organization 
(WHO), UNICEF, the U.S. Centers for Disease Control and Prevention 
(CDC), and Rotary International to engage as many countries as possible 
in the Initiative. In countries in which USAID is a lead donor, we 
encourage full collaboration between our Missions and host country 
counterparts; in countries where we have less of a presence, we are 
working with WHO, UNICEF, CDC and Rotary to stimulate greater 
participation. We have worked with our counterparts to develop regional 
strategies to engage countries which are facing difficult situations, 
such as Nigeria, Rwanda, and Somalia.
           child survival (other preventable health problems)
    Question. Can you please update the subcommittee on progress 
against other preventable health problems as well? Dehydration due to 
diarrheal diseases is a major cause of death among children in many 
countries. Are we also succeeding against some of these other problems?
    Answer. In addition to the work on polio, USAID's collaboration 
with UNICEF, the World Health Organization (WHO), other donors and NGOS 
in the delivery of vaccines, has resulted in estimated global coverage 
of immunization against 5 other vaccine-preventable diseases 
(diphtheria, pertussis, measles, tetanus and TB) of 80% of children 
under the age of 5. This level of coverage has contributed to a 20% 
decline in childhood mortality.
    After financing the basic scientific research on oral rehydration, 
USAID still leads the global effort to ensure that oral rehydration 
therapy (ORT) is available and used correctly around the world. USAID's 
Child Survival program has applied its expertise in social marketing 
and modern communication techniques to address cultural blocks and 
alter behavior for preventing and treating diarrheal disease. Between 
1986 and 1993, worldwide use of prepackaged salts or home solutions to 
treat diarrhea doubled, with usage increasing even faster in areas 
where USAID has concentrated attention, e.g., Indonesia, Peru, Morocco, 
Ghana, and Kenya. ORT is estimated to save the lives of one million 
children each year. Our experience with ORT has also saved lives in 
emergency situations, such as the refugee camps established during the 
Rwandan crisis of 1994.
    Acute respiratory infections, mostly pneumonia, which are now the 
leading cause of death in children, were initially considered beyond 
the reach of the Child Survival Program given the expense of treatment. 
However, USAID-funded research has identified the most appropriate 
antibiotics to treat common pneumonia in developing countries and 
proved that health workers in poor and remote settings can effectively 
diagnose and treat pneumonia. While we are not generally in a position 
to supply the antibiotics, we work closely with host country 
counterparts and other donors to help assure access and affordability 
of treatment.
    USAID has led the world in Vitamin A research, promoting Vitamin A 
linkages to immunization and other prevention programs. Effective 
intake of Vitamin A through capsules or fortification may decrease 
deaths of Vitamin A-deficient children by 20-30%, and reduce childhood 
blindness by 400,000 cases annually.
                       office of emerging markets
    Question. Is the new Office of Emerging Markets fully established? 
What has it accomplished since last spring? What budget has it been 
allocated? What will be its primary objectives in FY 98?
    Answer. The Office of Emerging Markets has been established within 
USAID's Economic Growth Center in the Bureau for Global Programs, Field 
Support and Research.
    Since last spring, the Office--through approximately 80 separate 
activities--provided technical assistance, policy analysis and research 
in Africa, Asia, the Near East, Latin America, Central and Eastern 
Europe and Russia. Activities included, inter alia, stock exchanges in 
Prague and Dhaka, public utility deregulation/privatization in Russia, 
fiscal decentralization in the Philippines, computer-based interactive 
banker training in Russia and tax reform in Egypt.
    The FY 1997 budget for the Office is approximately $6.35 million, 
an amount sufficient for the Office to develop a small number of pilot 
activities and to support overseas missions requesting assistance.
    The primary objectives of the Office in FY 1998 will be to support 
overseas missions activities and to develop new partnerships that 
increase the amount of private participation in development activities. 
The partnerships will focus on policy reform and institution building, 
using advanced telecommunication technology to link U.S. institutions 
to host country partners.
                      grant and contract oversight
    Question. Has AID changed or increased its method of oversight and 
enforcement of accountability in its grant and contract projects in the 
field as a result of the New Management Systems (NMS)? How many grants 
and contracts were revoked in FY 1996 due to grantees' or contractors' 
poor management, ineffectiveness, or even fraud identified by AID 
oversight?
    Answer. The NMS is not re-engineering in itself, but rather a tool 
to help accomplish the reengineered USAID processes. While the work 
performed does not necessarily change because we have an automated 
system, the benefits of the NMS include greater communication and 
transparency of information for decision making, faster processing, 
reduction of paper, elimination of duplicate data entry, and a 
reduction in errors with a resulting increase in accuracy of data. With 
the implementation of NMS, we are eliminating multiple stovepipe 
corporate systems and replacing them with one, integrated, Agency-wide 
database. The NMS by itself does not provide for changed/increased 
oversight and accountability in our grants and contracts; however, it 
does facilitate teamwork between the technical and procurement offices, 
the responsibility of the Contracting Officer's Technical Officer 
(COTR) in monitoring grant/contract progress and compliance, and 
transparency of data.
    USAID issued its Procurement Reform Report ``Procurement Reform 
Initiatives: 18 Elements in Streamlining the U.S. Agency for 
International Development's (USAID) Procurement Processes'' in October 
1995. This report identified eighteen procurement reform items for 
action.
    An example of increased oversight and enforcement of accountability 
is the Agency's implementation of contractor past performance 
evaluations (reform initiative number 5). All contracts with a total 
estimated cost in excess of $500,000 are subjected to interim 
(annually) and final evaluations on completion. April has been 
designated past Performance Month and evaluations will be initiated for 
some 600 contracts that are due for interim and final evaluations 
during this fiscal year. These 600 contracts represent over $3.5 
billion in development assistance. Contractor performance evaluations 
are effective not only in enforcing accountability but also for 
achieving results and obtaining best value for taxpayer dollars.
    Reform initiative number eight provided for the strengthening of 
USAID's suspension and debarment procedures. USAID's Contract 
Information Bulletin (CIB) 95-25, published November 20, 1995, 
identifies the procedures to follow, the parties that need to be 
involved in processing these cases, and reiterates that suspension/
debarment matters be given a high priority and processed expeditiously. 
It also emphasizes that bills for collection, offset, terminations for 
default or other administrative measures may also be appropriate 
actions. One of USAID's longstanding contractors has been proposed for 
debarment this year and the incidence of ``show cause'' and ``cure'' 
letters to contractors has definitely increased due to greater 
vigilance in the area of performance monitoring.
                              environment
    Question. I'm glad to see that you demand demonstrable results of 
the projects undertaken at USAID. Please detail specific results 
achieved in one of your highlighted goals: protection against 
environmental threats. Has USAID fully and efficiently utilized its 
allocated resources to the fullest extent possible in this area?
    Answer. USAID understands that its limited resources must be 
channeled to maximize the Agency's ability to promote the sustainable 
development of our host countries and to address the key threats to the 
global environment. We therefore have adopted a performance based 
system to manage our environmental portfolio to ensure that our 
initiatives achieve their objectives efficiently and strategically. In 
order to utilize its limited resources to the best possible advantage, 
the Agency has adopted a strategic environmental framework to 
concentrate our resources on five environmental objectives where 
experience shows we can be effective and can have the greatest impact.
    Our experience shows that even modest investments in strategically 
targeted sectors can have measurable results and impacts. In FY95, this 
performance based approach led to demonstrable results within our five 
environmental objectives, as highlighted below.
    In biodiversity conservation, USAID works to conserve protected 
areas, encourage the sustainable use of biological resources, and 
preserve species mainly through habitat conservation. Our interventions 
were targeted in those shown to be critical for biodiversity 
conservation either because of their contribution to the global stock 
of biological diversity or because of their importance for achieving 
sustainable development in a country. In 1995, we worked in more than 
100 protected areas covering more than 40 million hectares worldwide, 
an area nearly the size of California.
    In global climate change, USAID effectively decreases the rate of 
growth in greenhouse gas emissions by promoting cleaner power 
generation, the use of renewable sources of energy and more efficient 
energy production and use. For example, in Mexico USAID facilitated the 
retrofit of a 300 megawatt burner at a heavy oil fired power plant to 
demonstrate its environmental benefits resulting in a decrease of 
carbon dioxide emissions of more than 9,400 tons per year. USAID also 
promotes the use of agricultural waste as fuel for energy generation, 
and thus far, the Agency has reduced carbon dioxide emissions from 
energy generation by about 2.2 million metric tons per year.
    In promoting sustainable urbanization and pollution reduction, 
USAID supports programs in countries where the rapid growth of cities 
and pollution poses serious health hazards to people and pollution of 
land, air and water. We work within three approaches: increasing access 
to safe water and sanitation services, promoting improved urban 
management, and supporting pollution prevention and control. For 
example in the Philippines, USAID's program to promote pollution 
prevention has reduced the country's entire output of industrial 
organic pollution by nearly two percent in the demonstration phase 
alone.
    To promote environmentally sound energy services, USAID encourages 
market-based activities that yield benefits for the environment and 
economic growth. We employ three targeted approaches: increasing energy 
efficiency, expanding use of renewable energy sources, and introducing 
clean energy technologies. Activities also are designed to yield 
secondary benefits, such as reducing greenhouse gas emissions or local 
air pollutants. For example in Egypt, USAID has improved the 
reliability and economic efficiency of the Aswan High Dam Hydroelectric 
Power Station, and has averted the use of two million tons a year of 
oil and annual emissions of 7.7 million tons of carbon dioxide, and 
118,000 tons of sulfur dioxide.
    To promote sustainable natural resource management, USAID targets 
four resources that provide the greatest range of benefits to the 
largest number of people: forests, coastal resources, agricultural 
lands, and freshwater resources. We test and disseminate locally 
appropriate management practices and technologies, and bring divers 
stakeholders together to forge effective and long lasting solutions. In 
water resources management, for example, USAID helps 11 countries 
address their most pressing problems. For example, in water-scarce 
Jordan, USAID helped to increase Jordan's water availability by 19 
percent through application of conservation measures.
               usaid program effects in crisis prevention
    Question. I believe strongly in the value of crisis prevention. 
Like you, I am disturbed by the number of unsuccessful governments and 
the tragic consequences manifested for their citizens that we see now. 
I presume, though, that crisis prevention is not a new USAID mission. 
Judging by the current problems worldwide, is it seriously realistic to 
claim that USAID programs have a noticeable impact in crisis prevention 
in other states?
    Answer. In the post-cold war era, USAID has an important role to 
play in supporting U.S. foreign policy objectives. This requires 
changes in the manner and principles in which we operate as an Agency. 
USAID is working to:
    Enhance its capacity to respond to crises with humanitarian relief 
viewed as part of continuum that leads to recovery and to long-term 
development in a manner that addresses the root causes of conflict;
    Strengthen our capacity to work in classic-post transition 
situations to support the processes of peace and reconciliation; and
    Promote sustainable development through the creation of integrated 
new country and regional strategies that have analyzed and targeted 
interventions that link relief and development in a manner that 
addresses the root causes of conflict.
    The Office of Transition Initiatives (OTI) was created, in part, to 
provide USAID with an institutional rapid response capacity for 
potential zones of conflict and war-torn societies such as Bosnia and 
Rwanda. It is only one, but an important, part of USAID that responds 
strategically to prevent crisis, further economic and political 
transitions and catalyze other donors to support indigenous local 
capacities for crisis prevention and economic and political 
transitions.
    As you have implied, it would be unrealistic to believe that our 
own actions can alone prevent crisis in other states in most instances. 
That is why USAID tries to anticipate the likelihood of such events and 
work in partnership with concerned governments, civil society, and 
other donors to mitigate conflict, and perhaps at times prevent them 
from becoming violent. USAID has developed the ``New Partnership 
Initiative'' (NPI) to work more collaboratively with host country 
counterparts and this approach will be useful in working in post-
conflict situations.
    Like natural disasters, the potential for crises and violent 
conflict can be identified with some degree of probability. This 
requires, however, long-term development strategies that are keyed to 
understanding the social fault liens of the societies in which we 
operate, much like those of known earthquake zones, and developing more 
effective participatory development programs as means of responding to 
the problems identified.
    It is in this way that more targeted and flexible long-term 
development strategic interventions have a role to play on conflict 
mitigation and prevention such as economic growth, health, education, 
family planning, environmental activities, and strengthening the 
institutions of civil society.
    USAID is adjusting its strategy and program development process in 
a number of transition countries in sub-Saharan Africa and elsewhere to 
address more concertedly the root causes of conflict.
                           political freedom
    Question. Please provide the Subcommittee with the strong evidence 
linking increased political freedom to U.S. aid. It seems to me that 
the U.S. probably provides aid to almost all 78 of the countries 
analyzed by Freedom House, Including the 30 that grew worse.
    Answer. You are correct that the U.S. has provided foreign aid to 
most of the countries surveyed by Freedom House, including many of 
those where political freedom declined between 1982 and 1996. Where 
political freedom and other aspects of development progress are 
concerned, success or failure is primarily a function of domestic 
(recipient country) factors. Foreign aid aims to play a supportive and 
reinforcing role.
    The evidence for the effectiveness of foreign aid rests on the 
predominantly positive record in terms of improvements in political 
freedom, and the greater role of aid in countries that made large 
improvements, compared with those where there were large declines in 
political freedom.
    As I mentioned in my testimony, political freedom improved in 48 
countries and grew worse in 30.
    Looking at countries with major changes in political freedom, the 
record is even more positive. Among the improvers, there were 29 
countries with large improvements, of three points or more on a scale 
from 2 to 14. Only 7 countries showed large declines (three points or 
more) in political freedom--Dominican Republic, Kenya, Colombia, Sri 
Lanka, Sudan, Gambia, and Nigeria. The average change over all 
countries was an improvement of 1.4 points.
    Further, there is less of an aid presence in the countries where 
political freedom has declined. Of the 29 large improvers, 27 were aid 
recipients during the period in question, and two others (Korea and 
Taiwan) received large amounts of U.S. foreign aid earlier. In the 7 
countries showing large declines, our programs have ceased or have been 
sharply limited in size and/or scope. In 23 other countries that showed 
moderate declines, we have had little or no role in recent years in 6 
of these countries; we have restricted programs or exited from 10 
others; and we are achieving important development results in the 
remaining 7.
                               u.s. ships
    Question. What percentage of AID material that is actually shipped 
from the U.S. abroad is sent on U.S. ships? How would your agency 
respond to the idea of a legislative mandate requiring this?
    Answer. Legislation already exists that addresses the issue of 
cargo being shipped on U.S. flag vessels. The Cargo Preference Act of 
1954, Section 901(b)(1) of the Merchant Marine Act of 1936 as amended, 
requires USAID to ship at least 50 percent, by tonnage and revenue, on 
U.S. flag vessels if they are available at fair and reasonable rates. 
In 1996, USAID financed 192,254 metric tons of cargo that was exported 
from the United States; 68.5 percent moved on U.S. flag vessels. Of the 
$32.4 million expended for ocean freight, U.S. carriers received 80.9 
percent. On average, U.S. carriers' shipping rates were approximately 
twice that of non-U.S. carriers during the preceding year.

        Questions for the Record Submitted by Mr. Frelinghuysen

                 multilateral vs. bilateral assistance
    Question. Mr. Atwood, in your testimony and as reflected in your 
budget, out bilateral assistance covers a wide range of objectives--
Promoting democracy & economic growth, stabilizing world population and 
protecting human health, protection of the environment and 
strengthening the rule of law and respect for human rights.
    I have to say that both Secretary Albright and Secretary Rubin 
stated some very similar objectives with regard to our continued 
participation in multilateral institutions.
    And, at a time when overall foreign aid spending has and is being 
reduced, do we have the appropriate balance--in your view--of 
multilateral and bilateral assistance?
    Answer. It is quite appropriate that Secretaries Albright and Rubin 
and the USAID Administrator identify the same sustainable development 
objectives because this Administration has a coherent, integrated and 
consistent approach to development which it pursues through both the 
bilateral and multilateral assistance programs. Bilateral and 
multilateral assistance programs play a complementary role in advancing 
U.S. foreign policy objectives and we use each to accomplish different 
aspects of our integrated approach.
    The clearest example of their complimentarity occurs around 
structural adjustment loans. In many such cases, our bilateral program 
is used to provide American technical expertise, to advise countries on 
the implementation of structural adjustment programs.
    Similarly, our bilateral programs, such as the Microenterprise 
program are able to take assistance more directly to the poor, who also 
benefit from structural adjustments at the macro-level, but over the 
longer term.
    The intergration of multilateral and bilateral assistance tales on 
the greatest meaning at the country level where our missions are 
directed to coordinate programs with other donors and to identify 
programs of the multilaterals which conflict with our bilateral goals 
so that we can object to their approval.
    Accordingly, we believe the balance struck in the FY98 budget 
request appropriately reflects U.S. interests.
           other donor multilateral and bilateral assistance
    Question. With regard to other large donor countries--Japan, 
France, Germany to name some of the largest--what has been your 
experience with regard to their involvement in foreign assistance? Is 
it primarily country-to-country or focused on multilateral 
participation?
    Answer. On average, the larger donor countries provide about the 
same percentage of their aid (20-25%) to the multilateral development 
banks (MDBs) and to United Nations (UN) development programs. (France, 
however, provides less multilaterally than other donors.) Members of 
the European Union (EU) also finance the EU's own development 
cooperation program, and these contributions are counted as 
multilateral aid by them. Some donors have concentrated much of their 
bilateral aid in specific regions, e.g., Japan in Asia and France in 
Africa. Others, such as Germany and the Netherlands, distribute their 
aid more globally. Cultural, colonial, and, sometimes, commercial ties 
variously influence aid patterns. All donors give major emphasis to 
their bilateral programs. And, as agreed in their joint statement 
Shaping the 21st Century: The Contribution of Development Cooperation, 
donors are committed to ensure that bilateral and multilateral 
assistance complement each other through active coordination 
arrangements.
                  aid then trade vs. ``aid for trade''
    Question. I have heard the use of the phrase ``aid then trade'' as 
a means of explaining how bilateral assistance programs help pave the 
way, albeit indirectly , for U.S. companies to enter new markets in the 
developing world. It is my impression that many other countries--in 
Europe and Japan--are far more aggressive in leveraging their aid 
dollars for explicit opportunities for their private sector. It that 
your experience with other donor countries, and if so, how should we 
respond with the use of our dollars.
    Answer. Most bilateral donors use some portions of their aid to 
promote their own exports, either by fully funding large capital 
projects tied to procurement in their own countries, or by using aid 
for subsidized financing of their own exports. While U.S. foreign aid 
is tried by law to U.S. procurement, our position in international fora 
has consistently been to urge donors to untie bilateral aid.
    It is our experience that tied aid can undermine its development 
effectiveness. Various estimates of the costs of tied aid in terms of 
higher prices to the recipient country range from 10 to 30 percent of 
the cost of the project. More importantly, these practices can distort 
the choices of capital projects, introducing a bias towards large scale 
and import intensity, as well as a damaging bias towards investing in 
new projects rather than maintaining the existing capital stock. And, 
it can divert aid resources from critical concerns such as human 
resource development, institution building and policy reform.
    Tying aid can also be an expensive and inefficient way to promote 
exports. Export finance that qualifies as aid has to be highly 
concessional, entailing a large subsidy per unit of exports. Further, 
tying aid to exports and/or using aid as essentially a subsidy for 
exports can distort trade patterns and promote inefficiency. USAID 
analysis indicates that such practices have rarely had impacts on 
exports beyond the immediate specific transaction.
    In contrast, the payoff to exports that comes from successful long-
term development efforts such as human resource development, 
institutional strengthening, and policy reform is direct and lasting. 
While the developing world as a whole represents a rapidly growing 
market, there is great variation in market growth among developing 
countries, with demand for imports expanding at annual rates above 20 
per cent per year in some countries, and stagnating or contracting in 
others. USAID analysis indicates that progress in establishing policies 
and institutions supportive or private markets is the major factor that 
distinguishes rapidly expanding export markets.
    This has generated immediate, large and growing benefits for the 
United States in terms of export sales, benefits that dwarf the impacts 
of isolated capital projects, and which accrue to many more Americans. 
For example, our exports to Central America have increased by nearly 13 
per cent annually since 1985, reaching over $7.5 billion in 1995. Our 
exports to Thailand have increased by over 24 per cent annually since 
1985, and reached $6.4 billion in 1995. For Indonesia, the 
corresponding figures are 16 per cent and $3.3 billion.
    This performance has depended not just on improved policies and 
institutions in developing countries, but also should policies in the 
United States. Overall U.S. exports of goods and services over the past 
decade have expanded almost twice as rapidly as those of Japan, 
Germany, or the European Union. We have achieved this by focusing on 
sound policies that affect the basic determinants of competitiveness, 
rather than on the costly and wasteful aid practices mentioned above.
    At the same time, the U.S. has not remained blind to the practices 
of other donors. We have actively led a cooperative effort among donors 
to curb the use of commercially motivated aid practices that distort 
both trade and aid. This effort culminated several years ago in the 
Helsinki Agreement, which restricts (but does not eliminate) the use of 
tied aid credits as a device for financing exports. Other donors are 
now exercising leadership to reach agreements to further limit the use 
of tied aid. These sorts of efforts increase the development 
effectiveness of aid (with major positive implications for growth of 
U.S. exports) and also promote trade that is more efficient, effective, 
and fair.
                              microcredit
    Question. Many are now focusing on microcredit as a ``silver 
bullet'' in making real strides in the lives of the poorest people, 
especially women, in developing countries. What is your view of the 
success of microcredit and does it call for a new and more substantial 
focus of our development assistance program?
    Answer. As we all recognize, there is no ``silver bullet'' for 
ending poverty. Microcredit is, however, one promising tool that is 
poised for significant expansion during the coming decade. By making 
very small loans to poor people for their microenterprises, we help 
them connect to the mainstream economy and give them a greater chance 
to take advantage of economic opportunities that come their way. 
Microcredit is particularly important for reaching women, as women 
constitute more than two-thirds of the clients of USAID's 
microenterprise programs. However, microcredit cannot substantially 
alter many of the facts governing the lives of the very poor: low 
demand for their products, lack of business and technical skills, 
harassment by local officials, high costs of accessing markets, and 
unstable economic and political environments, to name only a few. This 
is why USAID pursues a balanced approach to economic development that 
works on multiple levels, including focusing on improved opportunities 
for the poor. It is important to recognize microcredit as one valuable 
tool among many.
                                 bosnia
    Question. I remain concerned about the exit strategy for our 
military engagement in Bosnia. And, I believe it has now become 
inextricably linked to the success of civilian reconstruction. We have 
already made substantial military investment (over $2 billion) as well 
as contributed to the civilian side. Your budget requests an additional 
$225 million. What can we realistically expect by the time our military 
involvement is scheduled to end (according to Secretary Cohen eighteen 
months from now) and how long do you expect our contribution to 
civilian reconstruction to last and at what level?
    Answer. Civilian reconstruction programs are vital to the creation 
of a stable and functioning society in Bosnia which can continue the 
healing process after the departure of military forces. Since the 
signing of the Dayton Accords, many successes have been achieved in 
civilian reconstruction which are contributing to the area's 
rehabilitation.
    USAID efforts have helped create normalcy. They have brought about 
significant improvements in vital infrastructure repair, including the 
repair of water and power services; they have assisted health services 
and schools to reopen; helped businesses to start up, generating 
employment, economic stabilization, and the building of democracy.
    USAID civilian reconstruction programs have implemented $58 million 
worth of infrastructure repair projects, including: fifteen power 
sector projects ($33 million); five water sector projects ($6 million); 
six transport sector projects ($6 million); 10 education sector 
projects ($3 million); and three health sector projects ($2 million). 
At the community-level this translates into, the restoration of power, 
the rebuilding of schools and health facilities, improvements to local 
water supply and road repairs, all of which helps to stabilize 
communities, provide employment opportunities, foster economic recovery 
and encourage the return of displaced persons and refugees.
    To date, 67 loans, totaling $39.6 million have been approved 
through USAID's Bosnia Reconstruction Finance Facility program. These 
initial loans will provide employment to over 8,500 Bosnians, 
representing a mix of ethnic backgrounds and including demobilized 
soldiers and women adversely affected by the war. Employment is 
critical to economic regeneration and stability.
    USAID programs go beyond physical reconstruction and seek to help 
Bosnia stabilize the economy by helping build a strong, unified banking 
system to attract needed investment to Bosnia. USAID is also helping 
build the fundamental elements of a democratic society, such a 
independent media and judiciary. We providetechnical assistance, 
training, and equipment to non-state controlled television and radio 
stations, we are building management, marketing, and production 
techniques to bolster the emergence of an independent media in Bosnia. 
Equal access to information is a crucial building block for a 
democratic society.
    Equally important to a democratic society is a strong independent 
judiciary. Among the accomplishments of USAID's Bosnia Judicial 
Strengthening program are: inauguration of the Federation 
Constitutional Court and Supreme Court and the development of their 
administrative rules and procedures.
    Through USAID's continuing programs vital infrastructure will 
continue to be repaired, employment will continue to be generated, the 
tools needed to develop and manage a stable economy will continue to be 
strengthened, and the institutions critical to a functioning democracy 
will continue to grow.
    The entire priority reconstruction program will only repair, at 
most, about a quarter of the estimated $20 to $30 billion worth of war 
damage. Coupled with high growth rates (33% in 1996 and a predicted 25% 
to 30% in 1997), Bosnia-Herzegovina, which was one of the poorer 
Yugoslav Republics, is predicted to reach, at most, only two-thirds of 
its prewar GDP level by the year 2000.
    The Priority Reconstruction Program for Bosnia, called for a three 
year emergency effort. At the conclusion of the emergency 
reconstruction phase, Bosnia should have moved substantially toward 
peace and stability, but will continue to need assistance in creating 
democratic market institutions. That will be the task of the regular 
SEED programs that support the economic and political reforms in 
Central and Eastern Europe. The inclusion of Bosnia in these ``normal'' 
SEED economic development programs for several additional years now 
seems probable.
                                albania
    Question. We have all been monitoring the situation in Albania. 
First and foremost, I hope that all of our USAID personnel have been 
safely evacuated. Given the chaos in Albania, how does it affect your 
planned assistance to Albania ($30 million in FY98)? Further, are there 
lessons to be learned about the risk and focus of our investments 
(approx. $50 million over the last two years) in countries in dramatic 
transition such as Albania? As other countries transition to market 
economies in this region, can we anticipate similar problems? Further, 
would you comment on the potential effect of developments in Albania on 
Greece and Macedonia?
    Answer. As you may know, U.S. Ambassador Marisa Lino initiated an 
``ordered departure'' or evacuation on March 12, 1997. Four of the five 
American USAID staff, contractors and grantees and their families left 
in the helicopter airlift organized by the U.S. Marine Corps. All of 
the Americans are safe. The USAID Director in Albania, along with her 
Albanian staff, have remained on the job. They are providing USAID/
Washington and the Embassy in Tirana with up-to-date reports on the 
humanitarian situation. They are also providing guidance and support to 
the Albanian staff of the twenty-one USAID-financed activities 
remaining in Albania.
    The continuing crisis in Albania has caused us to reassess and re-
prioritize our assistance programs beginning with the current FY 1997 
budget. In reviewing the portfolio, we have identified the following 
areas of immediate need: emergency humanitarian programs;agricultural 
programs which impact food security; municipal services programs which 
affect citizens access to essential services (especially water and 
sanitation); and democracy activities which aim to bolster elements of 
civil society damaged under the state of emergency. These priority 
programs will move ahead. Other planned activities, intended to bolster 
economic and democratic reform in Albania over the longer-term, have 
been deferred for the time being. Priorities for the proposed $30 
million FY 1998 program will be reviewed in the upcoming months; we 
anticipate phasing in longer-term economic and democracy reform 
programs over time, as the situation in Albania permits.
    Concerning lessons learned, recent experience in Albania 
demonstrates that reform is not a smooth, linear process, but rather 
can move two steps forward and one step back. This is perhaps 
particularly true in places like Albania where the standard of living 
is so low that there is little room for error, and where experience 
with democracy and free markets is particularly thin. In such 
situations, USAID has followed a strategy of focusing support on the 
private and nongovernmental sectors, while pursuing targets of 
opportunity to support government efforts in policy and legal reform 
whenever possible. Success in the reform effort is not a foregone 
conclusion, which is why U.S. and other donor assistance is so 
important. Yet we should not give up when setbacks occur. Over the 
longer term, with consistent pressure and assistance from the U.S., the 
EU and other donors, prospects for genuine and lasting reform in 
Albania are much better than they may seem in the immediate term.
    Regarding whether other countries in the region face similar risks, 
it is important to understand that every country faces a unique set of 
circumstances. Few countries in the region had such an extreme form of 
communism imposed upon them as the Albanians in the fifty years 
preceding the overthrow of the communist dictatorship in 1992. The 
democratic process in Albania has seen a major, hopefully temporary, 
reversal. On the other hand, many aspects of the transition to a free 
market economy have been surprisingly swift and irrevocable. The 
redistribution of state-owned rural and urban land has largely been 
completed. Small and micro-sized enterprises have emerged everywhere. 
However, the vestiges of the previous economic regime, such as the 
state-owned banking sector, still exist and privatization of many 
nationally-owned assets is still incomplete. The direction the post-
crisis reforms will take is not yet clear.
    Finally, it is important to note that USAID investments over the 
past five years in a free-market democracy in Albania have not been 
wasted. These investments have trained and advised a significant number 
of potential leaders for a free-market democracy. Moreover, numerous 
democratic institutions, such as NGOs, have been created and supported 
with USAID assets. Other institutions, such as a free press, will 
continue to require support for some time to come.
    USAID is unable to comment on the potential effect of developments 
in Albania on Greece and Macedonia. We suggest that such a question may 
be better directed to the Department of State.
                   consumers in the developing world
    Question. You state in your testimony that eventually 4 out of 5 of 
the world's consumers will live in the developing world. Have we 
evaluated the changing urban vs. rural demographics of the developing 
world? And, if so, does it call for a growing focus of our efforts on 
urban issues as some 2.5 billion people live in urban areas today and 
the number of people migrating to the world's cities continues to grow. 
Does USAID have an urban strategy for meeting its development strategy? 
If so, what are its major components?
    Answer. Today we stand on the doorstep of the first urban century. 
The share of the world's population living in cities is expected to 
pass the 50 percent mark by the year 2000. Over the next 25 years, an 
additional 2.5 billion people will be absorbed into urban areas. The 
large majority of urban growth will take place in the developing world. 
The urban population of Africa is expected to triple. In Asia alone, 
the number of cities with more than one million residents will increase 
three-fold, from 359 in 1990 to 903 by the year 2015. So we are always 
examining the Agency's urban-rural mix of programs.
    Accordingly, I recently directed the Agency to conduct a review 
that will focus attention on urban issues and better define the 
Agency's role in addressing these issues. I believe that USAID can 
build and lead an American alliance to help make cities work more 
effectively in the twenty-first century. This effort now under way in 
the Agency should sharpen our existing objectives for sustainable 
urbanization and improved pollution management. The major components of 
the current USAID urban strategy involve increasing access to safe 
water and sanitation services; promoting improved urban management; 
reducing harmful industrial emissions; and promoting improved pollution 
prevention practices.
                         preventive health care
    Question. The increasing awareness of the role of Vitamin C in 
preventative health care prompted Congress, beginning in 1992, to 
recommend that USAID increase the fortification level of Vitamin C in 
USAID food/grain exports. In subsequent years, funds have been 
appropriated for a pilot program to fortify our PL 480 Program food 
with higher levels of Vitamin C.
    Would you please update the committee on the current status of the 
pilot program study? What are its preliminary findings? And, when can 
we expect that pilot study to be completed and the findings submitted 
to the relevant Appropriations subcommittee?
    Answer. USAID has assessed the uniformity of Vitamin C in both 
wheat soy and corn soy blends at the point of manufacture. In progress 
are review in Haiti, Tanzania and India to assess the stability of 
Vitamin C under actual field conditions. Assays of Vitamin C in the 
blended food samples collected from the field are being conducted by a 
reputable laboratory in the United States.
    Preliminary findings showed that Vitamin C uniformity was poor in 
the corn soy blend at the point of manufacture. Commodity 
manufacturers, USAID and USDA are trying to correct this. Some loss of 
Vitamin C potency during shipment and storage of the blended 
commodities overseas was shown. Preliminary results also indicate that 
Vitamin C is lost during the normal food preparation of these 
commodities. Perhaps only a small part of the Vitamin C added may be 
consumed by food aid program recipients. This still needs to be 
confirmed.
    We expect a preliminary report to be ready by mid-June, and a final 
report by fall 1997, following an Institute of Medicine/National 
Academy of Sciences review.

            Questions for the Record Submitted by Ms. Pelosi

               population assistance--impact of metering
    Question. What is the impact of metering on the ability of programs 
to deliver family planning and basic health services to women and 
children in the developing world? What is the impact of metering on 
USAID's ability to run an efficient program?
    Answer. Delayed release of population funds and metering in FY 
1997, for the second year in a row, has two key effects, both of which 
translate into reduced family planning services to clients and 
increases in unintended pregnancies, maternal and infant deaths, and 
abortions:
    The first effect is to increase the risk that programs or services 
in the field will be terminated abruptly if funds cannot be shifted to 
meet urgent needs that were unanticipated in the FY 1997 funding plan. 
Programmatic consequences of a third year of metering, in FY 1998, 
could be even more severe.
    Second, with only limited population funds in hand, managers of 
USAID-supported programs are reluctant to make advance commitments that 
are essential to effective family planning programs in the field.
    Burdensome administrative tasks distract USAID staff as well as 
contractors and grantees from technical responsibilities for program 
implementation and oversight. Under metering of USAID population funds, 
the number of separate actions to fund USAID worldwide agreements and 
bilateral programs is nearly triple what would otherwise be required.
    By a conservative estimate, developing and implementing the funding 
plan for USAID populaton assistance for FY 1996 required the equivalent 
of 27 full-time persons' effort over a period of months, representing a 
cost to the government (and taxpayers) exceeding one million dollars. 
This estimate does not include the substantial additional costs of 
managing metering for the many U.S. universities, private voluntary 
organizations (PVOs) and commercial firms which are USAID's 
implementing partners. One U.S.-based implementing partner, AVSC 
International (Association for Voluntary and Safe Contraception), 
estimates that administrative costs have increased by 12.5 percent as a 
result of metering.
    No positive results can be imagined with a third year of such 
restrictions. If restrictions were continued for a third year, USAID's 
population program would have to be totally restructured and would lose 
its comparative advantage. There would undoubtedly be reductions in 
family planning and related services for developing world women. 
Moreover, continuation of these restrictions would establish a harmful 
precedent for USAID and for the U.S. government.
                              global aids
    Question. I commend you for your support for continued funding to 
address the global AIDS pandemic and thank you for your efforts to 
address some concerns about the program, including staffing levels. I 
understand that a new director has been named for USAID's global AIDS 
program and I look forward to further discussions on effective ways to 
address the crisis. It is my understanding that a GAO study has been 
requested of the AIDS program, and I was hoping that you could address 
some of the issues to be reviewed, including particularly, the 
coordination between USAID and the United Nations and USAID and other 
bilateral donors.
    Answer. The final terms of reference for the General Accounting 
Office (GAO) audit of the HIV/AIDS program have not been received. We 
understand, however, that the audit will focus on the resources 
provided for the program over the last few years, and the impact or 
results derived from them. Although not targeted toward the question of 
coordination with other donors, we would expect that area to be 
included.
    With regard to UNAIDS (The Joint United Nations Program on AIDS), 
we view the organization as playing a critical role in the global 
response to the HIV/AIDS pandemic, especially for the coordination of 
the six key United Nations organizations which are actively working at 
the country level: the United Nations Development Program (UNDP), the 
World Health Organization (WHO), UNICEF, UNESCO, the United Nations 
Fund for Population Activities (UNFPA), and the World Bank. Recognizing 
the importance of UNAIDS, senior USAID staff are providing ongoing 
policy and programmatic attention. Ambassador Sally Shelton-Colby, the 
Assistant Administrator of USAID's Global Bureau, serves as the Chair 
of the UNAIDS Program Coordinating Board. Dr. Duff Gillespie, Director 
of USAID's Center for Population, Health and Nutrition, co-chairs the 
UNAIDS Monitoring and Evaluation Working Group. The HIV/AIDS Division 
within the Global Bureau is collaborating with UNAIDS counterparts in 
multiple technical areas, including surveillance, generation of 
international best practices, behavior change interventions, 
tuberculosis treatment and other care and prevention interventions.
    USAID has very close working relationships with other bilateral 
programs, especially in Japan and the United Kingdom. Through the 
Common Agenda, the U.S. and Japan have an HIV/AIDS initiative that 
encompasses nine countries. The U.S. and the United Kingdom are serving 
as co-chairs of the UNAIDS Monitoring and Evaluation Working Group, 
mentioned above. At the country level, USAID missions coordinate their 
HIV/AIDS activities, with other bilateral efforts, without exception.
                          women in development
    Question. In 1991, the U.N. reported that despite increased 
international awareness that women play key roles in development, the 
situation of the world's women had not improved, and in some cases, had 
deteriorated. In 1993, the GAO looked at this problem and reported back 
to Congress that the ``U.S. has made slow progress in involving women 
in development.''
    Can you provide the Subcommittee with a progress report on USAID's 
``Gender Plan of Action,'' the plan you launched last year to ensure 
that women were not overlooked as USAID determines how to spend scarce 
foreign aid dollars? Are women gaining better access to USAID's credit, 
health and education programs?
    Answer. We are vigorously implementing the Gender Plan of Action. 
Our Office of Women in Development (WID) is working with our Program 
and Policy Coordination Bureau (PPC) on revisions to the USAID 
strategic framework to ensure that gender issues are addressed as 
strategic issues in the Agency. The WID Office is also working with our 
Office of Procurement on draft language for our new procurement 
guidance on competitive grants and cooperative agreements that will 
highlight the importance of addressing gender considerations in all 
Agency agreements. Similar guidance will apply to our contractual 
procurement requirements.
    Work is also underway to amend position descriptions to reflect 
staff accountability for addressing gender considerations. Staff 
training in gender issues is being incorporated into our regular 
technical training programs for field staff. Finally, we are working on 
a set of indicators of the impact of USAID programs on women's economic 
and social status to support ongoing integration of gender issues into 
all USAID programs.
    These are very positive steps. Even more important, we can clearly 
see the impact of increased attention to gender issues in USAID-
assisted countries. In FY 1994 the Agency allocated $33.3 million to 
women's health interventions; $22.7 million to girls' education; and 
$65 million to microenterprise for women. In FY 1996, we have seen 
increases in all of these figures: $85 million to women's health and 
nutrition interventions; $58 million to girls' education; and over $88 
million to women's microenterprise. Our efforts to focus attention on 
gender considerations are having a significant impact.
                            microenterprises
    Question. What commitments did the U.S. make at the recent 
Microenterprise Summit and how are they reflected in your request?
    Answer. At the Microenterprise Summit the Clinton Administration 
affirmed its strong support for microenterprise development and 
microfinance, as both a highlight of its foreign assistance program and 
an important new program here at home. USAID's specific commitments 
reflected our renewed microenterprise initiative. In the renewed 
initiative we pledged:
    1. To maintain total funding for microenterprise at the level of 
$120 million in FY 1997 and FY 1998.
    2. To continue our strong central programs, under the Bureaus for 
Humanitarian Response and Global Programs.
    3. To ``deepen'' our microenterprise programming at the regional 
and field mission levels through greater attention to how 
microenterprise fits into regional and country-specific strategic 
objectives.
    4. To maintain our focus on reaching the poor and women, with at 
least 50 percent of clients being women and two-thirds of clients 
receiving loans of less than $300. This would ensure that half of our 
microcredit funding supports poverty lending.
    5. To improve our monitoring system to focus more clearly on 
results.
    6. To heighten USAID's global leadership in the microenterprise 
field.
                           victims of torture
    Question. What is AID doing to assist victims of torture? How is 
support for treatment of torture victims being incorporated into AID's 
programs to promote human rights and development?
    Answer. Regrettably, victims of physical and mental persecution are 
found in many countries. It is our experience that torture often is a 
symptom of authoritarianism or anarchy. USAID's democracy, governance 
and human rights programs are attempting to treat the causes and 
consequences of torture. Strengthening the rule of law and respect for 
human rights are our objectives. This includes protection of people 
against arbitrary use of authority and against lawlessness. Successful 
U.S. diplomatic and democracy and governance assistance efforts 
hopefully will quell the use of torture. But there remain the 
unfortunate victims of past and present abuse.
    USAID also is involved in other activities that relate to the needs 
of victims of torture. The Displaced Children and Orphans Fund supports 
the psychological and social reintegration of children affected by war. 
Major activities are currently funded under this program in Angola, 
Eritrea, Liberia, Rwanda, the former Yugoslavia and Vietnam.
    The USAID War Victims Fund provides prosthetics and other related 
orthopedic assistance to civilian victims of war. The Fund currently 
operates in Angola, Cambodia, El Salvador, Laos, Liberia, Mozambique, 
Sri Lanka and Vietnam. Although there is no specific targeting of 
torture victims, the beneficiaries are primarily traumatized civilians 
who have lost limbs as a result of landmines and other weapons.
    Under the Trauma, Social Welfare, and Humanitarian Assistance 
project, USAID supports NGO programs that address issues of community 
health and training activities for mental health providers, teachers, 
volunteers and doctors working with traumatized refugees and displaced 
populations in the former Yugoslavia. Under this project, USAID has 
supported the following activities.
    Catholic Relief Services which is working with local psychological 
associations to provide training on post-traumatic stress syndrome and 
other psychosocial treatments. USAID provided $1.9 million in support 
of this effort.
    The International Rescue Committee which is addressing the 
psychosocial needs of war-traumatized women, children and other 
vulnerable groups by developing local organizations' capacity and to 
fund specific activities in both Bosnia-Herzegovina and Croatia. IRC 
has received a total of $8.5 million from USAID.
    In Croatia, the Center for Attitudinal Healing has received funding 
from USAID to build on its experiences working with Vietnam veterans 
using the group counseling approach to work with refugees and displaced 
persons in the camps and settlements adversely affected by the horrors 
of war.
    Question. Tibetan refugees, particularly monks and nuns, have often 
been victims of torture. The Department of Health Central Tibetan 
Administration in Dharmsala, India has established a Torture Victim 
Survivors Program. Could AID look into the needs of this program and 
determine whether there is some productive role which the Agency could 
play is assisting these refugees?
    Answer. USAID is assisting the Tibetan refugees in India that you 
mention with PL 480 food aid provided through Catholic Relief Services. 
The CRS program supports the Dalai Lama's Central Tibetan Relief 
Committee which has been a CRS/India counterpart since 1959. This Food 
for Work program supports education, health, and vocational training 
activities reaching 13,000 Tibetan beneficiaries. We will look into the 
torture victims program that you mention.

            Questions for the Record Submitted by Ms. Lowey

    Question. The U.S. has long maintained that Lebanon should function 
as a sovereign nation, out from under the control of Syrian President 
Assad. What are you doing to ensure that any projects USAID is involved 
with in Lebanon are not benefitting Syria, which essentially occupies 
Lebanon and is on the State Department's terrorism list?
    Answer. The U.S. assistance program is implemented through grants 
to U.S. private voluntary organizations and universities. None of our 
assistance is through bilateral grants to the Government of Lebanon. 
However, to further assure fiscal and program accountability for the 
expanded program, we have assigned a USAID Representative to Beirut for 
the first time since 1989. We are confident that our program will 
benefit the Lebanese people and not Syria.
                                  asha
    Question. Congressional Presentation accompanying the FY 98 budget 
request discusses the importance of the American Schools and Hospitals 
Abroad program. It points out that the institutions that receive 
funding from this program ``promote democracy, private initiative, free 
inquiry, and innovative approaches to problem solving.'' Given these 
obvious benefits, I am troubled by the decreased level of funding for 
the ASHA program over the last few years. What are you doing to ensure 
that this important program remains effective?
    Answer. While we cannot commit to a future level for this or any 
other program at this time, I want to assure you that the Agency plans 
to continue funding this program, on a competitive grant basis, within 
available appropriations for the Development Assistance account.
                              tuberculosis
    Question. Next Monday is World Tuberculosis Day, and it has come to 
my attention that a disease that most of us thought was long gone is 
the number one killer of adults from a single infectious disease. In 
fact, TB kills more people around the world than all other infectious 
diseases combined. Can you tell me a little about USAID's efforts to 
eradicate this terrible disease?
    Answer. Tuberculosis is one of the most persistent killers in the 
developing world. One reason why greater in-roads in controlling this 
disease have not taken place is because its treatment and control is 
among the most labor-intensive of health interventions. The most 
effective approach is Directly Observed Therapy Strategy (DOTS), which 
is estimated to cost $11 per person to treat a single patient. In most 
of the developing world, where TB is prevalent, the foundation of 
building a health care delivery system is necessary before it would be 
effective to launch DOT. USAID does spend about 9 percent of its health 
care budget on health systems development and strengthening. But we do 
not ``count'' this funding as TB-related since it has effects on the 
control of virtually all major public health problems. Our efforts in 
system strengthening mean that the more closely targeted TB efforts of 
others have a chance of succeeding where they otherwise would not.
    We are assisting various organizations in (1) capacity building 
through operational research projects involving DOTS, especially in 
sub-Saharan Africa; (2) supporting UNAIDS with TB-designated funds for 
definition of cost-effective TB treatment regimes for HIV-infected 
individuals, and for surveillance of multi-drug resistant diseases; (3) 
developing a CD ROM-based interactive computer-based program for TB 
case management, which could be implemented throughout the developing 
and developed world; and (4) in prevention initiatives by providing 
$7.5 million for infant Bacillus-Calmette-Guerin (BCG) immunizations to 
minimize the complications and shorten the course of pediatric 
tuberculosis infection.
                                  ngos
    Question. NGOs in the U.S. and abroad have been extremely valuable 
implementers of programs on the front lines of biodiversity 
conservation where working with local people to solve the problems 
their communities face is the key to success. In the past, this 
Subcommittee has been supportive of partnerships between USAID and 
NGOs. What steps has your agency taken to permit USAID officers to 
access the special advantages of NGOs?
    Answer. USAID implements much of its biodiversity conservation 
program through NGOs. For example, USAID's biodiversity conservation 
programs in four of the world's centers of biodiversity (Indonesia, 
Brazil, Central African countries, and Mexico), are implemented 
primarily through NGOs such as the World Wildlife Fund, The Nature 
Conservancy, Conservation International, and the Wildlife Conservation 
Society. In FY97, USAID is working to conserve biodiversity in more 
than 30 countries worldwide, and many of these programs are, and will 
continue to be, implemented through NGOs to take advantage of their 
strong technical and management capacities and their commitment to 
people-centered conservation.
    The trend within USAID as a whole has been to increase 
implementation through PVOs (a subset of NGOs). We estimate, for 
example, that in FY96, 34% of our development assistance was 
implemented through PVOs, while in FY95 we implemented 30.5% of our 
development assistance through PVOs. Figures for NGOs per se are not 
available. Due to the particular strength of NGOs and PVOs in 
biodiversity conservation, we would estimate that the percentage of 
programs implemented through PVOs is higher in this sector.
    To ensure access to these NGO resources, the Global Bureau's 
Environment Center manages cooperative agreements that allow access by 
USAID field missions to eight NGOs with specific expertise in 
biodiversity conservation. Through these cooperative agreements, USAID 
field programs can, and do, obtain access to these leading conservation 
NGOs to help missions achieve their goals in biodiversity conservation. 
For example, the Biodiversity Support Program is a Global Bureau 
cooperative program implemented by a consortium of three conservation 
NGOs (the World Wildlife Fund, The Nature Conservancy, and the World 
Resources Institute). Through this cooperative agreement, USAID field 
programs will access over six million dollars of technical assistance 
and support for field activities in FY97.
    In addition, the Agency's New Partnerships Initiative (NPI) 
supports field Missions' efforts to build partnerships at the community 
level among civil society organizations (including NGOS), the business 
community, and local governance institutions to promote sustainable 
development.

          Questions for the Record Submitted by Mr. Foglietta

                           impact of earmarks
    Question. One issue I know that you grapple with in the face of 
severely curtailed funding is the impact of earmarks that are included 
in foreign operations legislation. I am concerned that these earmarks 
may have the effect of limiting the Secretary of State and USAID from 
achieving broader U.S. policy objectives. It is my hope that our 
Committee will be able to resist further efforts to earmark funds in 
the FY 1998 bill to provide you with the flexibility you will need to 
accomplish our many missions overseas. Could you share with me some of 
the impact these country-specific earmarks may have had on on-going 
projects and activities?
    Answer. In FY 1997, cuts in our Development Assistance 
appropriation combined with earmarks and directives at higher than our 
planned levels, has necessitated a 14 percent cut from our request for 
economic growth, environment and democracy programs. As a result, we 
have been forced to reduce planned funding for many of our sustainable 
development objectives, including: agricultural research aimed at 
improving the productivity of crops and averting the threat of famine; 
increasing the involvement of the private sector in development; 
encouraging environmentally sustainable use of resources; and support 
for the transition to stable, representative democracies.
    In addition to ``functional'' earmarks and directives, the FY 1997 
appropriations bill contains language affecting allocations of 
Development Assistance to Africa and Latin America which has had the 
effect of severely reducing our ability to fund planned programs in the 
Asia and Near East region. This has forced us to reduce sharply overall 
funding for programs in some countries, e.g., Sri Lanka, and to 
terminate activities in others, e.g., Morocco and Nepal, further tying 
our hands and denying us the flexibility to fund integrated approaches 
to serious development needs.

[Pages 256 - 257--The official Committee record contains additional material here.]


                                 haiti

    Question. Can you share with the Committee your views on the impact 
of U.S. aid to Haiti, some of the benchmarks of progress you have met 
in your programs there and what if any new initiatives are underway 
there?
    Answer. U.S. objectives in Haiti are to help establish durable 
democratic institutions, to support macroeconomic reforms leading to 
broad-based growth, and to ensure political stability. USAID supports 
these objectives through programs which consolidate the democratic 
gains achieved over the last 18 months, develop policy reforms which 
promote economic growth led by the private sector, improve education 
and health, and expand commercial agricultural production based on 
sound environmental practices and resource management:
    Build Democracy. USAID efforts focus on promoting basic democratic 
institutions which strengthen representative government. USAID provides 
support for elections, training for the Haitian National Police, 
justice sector reform, local government development, assistance to the 
new Parliament, and help to community-based civic groups.
    Promote Broad-Based Economic Growth. USAID is working with the 
government and private organizations to establish appropriate open-
market macroeconomic policies, increase the availability of credit for 
microenterprises and agricultural producers, and support the 
privatization of state-owned enterprises. USAID also supports efforts 
to introduce environmentally-sound, commercial agricultural practices 
which increase small farmer yields and household incomes.
    Strengthen Population, Health and Education. USAID supports efforts 
to alleviate malnutrition and illness among children and other 
vulnerable groups through direct feeding programs, basic health 
services, family planning and primary school education. USAID programs 
provide preventive, curative and reproductive health services to about 
two million people.
    USAID Budget. The USAID assistance program is moving from the 
extraordinary, emergency program level of $193 million in FY 1995 to a 
longer term, sustainable development program more consistent with 
historical levels. USAID economic assistance to Haiti in FY 1996 was 
$136 million, and the USAID budget for FY 1997 is $96 million 
(consisting of $57 million in ESF, $15 million in DA, and $24 million 
in PL-480 food aid programs). In FY 1998, we are requesting $70 million 
in ESF to support further consolidation of democracy and structural 
reforms in the Haitian economy.
    USAID traditionally has had a large humanitarian assistance program 
in Haiti given its employment, health, nutrition and education 
indicators which are among the worst in the hemisphere. Our FY 1991 
(pre-coup) assistance levels was $78 million, and during the first two 
years of the de facto military regime our humanitarian assistance to 
Haiti reached $112 million.
    Building Democracy. Haiti has made measurable progress toward 
establishing a democratic society. Since 1994, six free and fair 
elections have taken place, including elections for one-third of the 
Senate and local authorities which took place on April 6, 1997. (We 
have contributed $1.36 million to a UN Electoral Assistance trust 
fund--as well as to IRI, NDI and IFES--for this purpose.) A popularly-
elected President peacefully succeeded another for the first time in 
Haitian history. An elected parliament plays an increasingly important 
role, also for the first time in Haitian history. This progress has an 
impact on the United States. In 1994--before the restoration of 
democracy--the U.S. spent $400 million dealing with 25,000 interdicted 
Haitian migrants. In 1996, about 700 Haitian migrants wereinterdicted, 
with only 13 Haitians interdicted in the last six months of 1996.
    The U.S. is working with other donors to assist the Government of 
Haiti to reform the judicial and penal system. USAID--in conjunction 
with the Department of Justice--is implementing an Administration of 
Justice Project to help improve the competence of the criminal justice 
system. Through this project, USAID and DOJ are providing judicial 
training; developing and implementing a model parquets (prosecutor's 
offices) program in seven jurisdictions across the country (to be 
expanded into 15 jurisdictions this year); strengthening case tracking, 
trial preparation, and oral advocacy by prosecutors; providing training 
in the Courts of First Instance and Justice of the Peace courts; and 
providing grants for legal assistance in seven jurisdictions.
    In addition, USAID has financed renovations at the National 
Penitentiary, the cap-Haitien prison and others throughout the country. 
A special prison was established for women and juveniles in Port-Au-
Prince to separate them from male prisoners held at the National 
Penitentiary. Assistance in basic materials and equipment was made to 
the first civilian Penal Administration. The USAID program established 
a current register of prisoners nationwide and a Haitian legal intern 
program which provides legal service to indigent defendants. A multi-
donor effort to address comprehensively the issues of prison 
rehabilitation and management is now underway.
    The USAID Democracy Enhancement Project is helping Haiti to 
establish an independent Parliament with a transparent and responsive 
legislative process, and develop civic infrastructure based on grass-
roots democracy and popular participation. The project has four 
elements: assistance to the Haitian parliament, local government 
development and decentralization, assistance to community-based civic 
organizations, and a Human Rights Fund.
    USAID is providing technical assistance to members and staff of 
both chambers of Parliament to strengthen legislative, oversight and 
constituency functions; newly elected local officials and mayors 
associations to develop administrative and financial management 
systems, improve public service delivery, and build relationships with 
constituents and local civic organizations to stimulate effective 
public participation in government and expand public awareness of 
democratic principles.
    The Human Rights Fund assists victims of human rights abuse, 
improves human rights monitoring and legal assistance capabilities, and 
strengthens citizen oversight of police.
    Promoting Broad-Based Economic Growth. USAID has several projects 
to rebuild the Haitian economy. In the policy area, the $15 million FY 
1996 Budget Support Program is part of a $140 million, multi-donor 
effort which makes the IMF's far-reaching, three-year restructuring 
program viable. The USAID Policy and Administrative Reform Project has 
assisted the privatization effort by financing the technical studies 
for nine parastatals. Other USAID projects increase access to credit by 
micro-enterprises and small farmers. To expand rural credit further, 
USAID has finalized negotiations with commercial banks to permit 
borrowing by micro-enterprises--a first in Haiti.
    In February, the government-appointed council (CMEP) announced an 
ambitious schedule to privatize nine parastatals from May 1997 through 
March 1998. We will support the Government's privatization efforts by 
financing transaction costs of three of the parastatals. However, 
private investors will continue to view the privatization process with 
skepticism until there is at least one completed privatization. To 
assist this process, USAID is providing funding for technical 
assistance to the CMEP to establish a technicalsecretariat, and to 
complete privatization transactions for the airport, seaport, and 
telephone company.
    USAID also supports several important agricultural initiatives to 
enhance small farmer hillside agricultural production, promote 
environmental protection in rural areas, and support agribusiness 
development and marketing of high value agricultural products. USAID 
collaborates with the Ministries of Agriculture and Environment, the 
private sector, NGOs, and other donors in the development and 
implementation of agricultural programs. The USAID programs complement 
efforts by the Government of Haiti to stimulate alternative 
agricultural production on the plains. USAID programs are making 
significant contributions to food security and income generation for 
approximately 750,000 people in rural areas. USAID programs are based 
on successful agricultural models for improving small farmer yields and 
income while protecting the environment. USAID programs support the 
adoption of improved crop varieties, agronomic practices, and soil and 
water conservation techniques, and helps develop export and domestic 
markets for agricultural products. Support includes the expansion of 
fruit tree cultivation, intensive vegetable gardening, tree planting, 
and better marketing strategies.
    The USAID small farmer coffee program has introduced improved 
coffee production and processing techniques, helped to organize small 
coffee producers into associations and a federation of coffee 
producers, and developed niche markets in the United States that pay a 
premium price for high quality Haitian coffee. Coffee is marketed 
directly by the Haiti coffee federation, under the trade name ``Haitian 
Bleu,'' breaking the oligarchic hold of the Haiti coffee cartel and 
ensuring greater earning for 20,000 coffee producers (approximately 
100,000 rural beneficiaries).
    USAID agribusiness and microenterprise projects provide loans to 
agribusinesses and rural enterprises. The Agricultural Guarantee Fund 
has made 15 loans totaling $2.5 million for mango exporting, sisal 
processing, tomato processing, and for the importation and distribution 
of fertilizer to small farmers. USAID, with USAID support, is helping 
mango exporters to meet international market standards.
    Strengthening Health, Family Planning and Education. USAID human 
capacity development efforts attempt to expand the role of the 
government in providing public services; as well as continue direct 
delivery of health, family planning, feeding and education services by 
NGOs. USAID feeding programs reached an estimated 700,000 people in FY 
1996. This number will be reduced to 600,000 in FY 1997 and focus on 
maternal and child education and health projects. Levels of infant 
mortality, maternal mortality, and the nutritional status of children 
under 5 in areas served by USAID-supported private agencies are better 
than the national average. In basic education, USAID supports private 
schools which represent 75% of Haiti's primary schools, and is working 
with the public sector to improve oversight capabilities, as well 
expand its role in delivering primary education services.
                                liberia
    Question. While attention in the world is focused on crises in 
Rwanda, Burundi and Zaire, there are other nations in Africa that could 
fall in to crisis at any moment. One of these nations, Liberia, is one 
that the U.S. has historic links to. I have been supportive of the 
Clinton Administration's efforts to forge a lasting peace in this 
nation. Thankfully, the international peacekeeping force has thus far 
succeeded in maintaining a tentative peace. I note that your FY 1998 
budget request includes a significant increase in P.L. 480 assistance. 
Can you tell me about USAID's role in stabilizing this struggling 
nation?
    Answer. Since July 1990, the Economic Community of West African 
States (ECOWAS) has attempted to negotiate a durable peace in Liberia. 
The ECOWAS peacekeeping force (ECOMOG) was deployed to Liberia in 
August 1990 to stop the bloodshed and provide the security cornerstone 
of the peace process. A UN Observer Mission in Liberia (UNOMIL) was 
established in 1993 to assist ECOMOG monitor the cease-fire and 
supervise disarmament and demobilization of combatants.
    After six years of war, the leaders of the main warring factions 
signed the Abuja Peace Accord on August 19, 1995. However, in April 
1996, fighting erupted in Monrovia and derailed the peace process. By 
late May, the fighting stopped and following a period of intense 
regional diplomacy, ECOWAS and the faction leaders amended the Abuja 
Accord on August 17, 1996. The amended accord named Ruth Perry as 
Chairman of the Council of State, called for an immediate cease-fire, 
disarmament, dissolution of the factions by January 31, 1997, and 
national elections by May 31, 1997. Since disarmament began on November 
22, 1996, over 20,000 of the estimated 33,000 factional fighters have 
disarmed.
    Ending the Liberian conflict is in the national interest of the 
United States. First, the war is a serious threat to West Africa 
regional stability; its continuance adversely affects neighboring 
states and impedes regional economic development. Second, the United 
States has steadfastly supported ECOWAS' peace process which is a 
regional solution to a regional problem. The ECOWAS plan calls for free 
and fair elections and is consonant with a primary U.S. policy 
objective of democratization. The United States' relationship with 
Liberia is our longest with any sub-Saharan nation and our continued 
involvement in Liberia is an important signal of our commitment and 
interest in Africa.
    The current USAID program was in response to the human tragedy 
created by the civil war. U.S. policy and assistance to Liberia has 
been to seek peace and the establishment of a democratic government, 
while simultaneously providing relief for the victims of the war. Human 
suffering over the last seven years has been enormous. Since FY 1990, 
USAID has provided approximately $500 million in humanitarian, food 
aid, demobilization/reintegration, and democracy/governance assistance 
for Liberia.
    FY 1997 Assistance. In FY 1997 the United States will play an 
important role in cooperation with other donors, ECOWAS, UN agencies 
and nongovernmental organizations (NGOs) in support of the peace 
process as follows:
    Food Aid: Between 30-50 million of food aid, with an emphasis on 
targeted feeding, food-for-work projects, school feeding programs, 
feeding programs for the vulnerable (mothers, children, the elderly and 
initial feeding of disarmed fighters).
    Humanitarian Assistance: Between $7-10 million is available for 
emergency health, water/sanitation shelter, and agricultural assistance 
(seeds/tools) for war-affected populations, including demobilized 
fighters. Financial assistance will also be provided to cash-crop 
farmers to increase rural productivity and generate employment through 
NGOs such as Catholic Relief Service, Lutheran World Relief, Africare, 
and World Vision.
    Demobilization/Reintegration: Approximately $8 million is available 
for demobilization and reintegration programs, including: support for 
Liberian small businesses; nonformal education and skills development; 
trauma counseling, public information activities, including 
communications and media support; start-up costs of community-based 
rehabilitation programs; and public works projects which generate 
employment for ex-combatants and civilians.
    Elections: The security situation in Liberia has improved to where 
national elections can now be held. However, credible elections are no 
longer possible by May 30. Time is too short for voter registration, a 
meaningful campaign and other elections essentials. The Liberia 
Elections Commission's proposal to schedule elections 74 days after 
promulgation of the election laws is reasonable. The USG and the United 
Nations endorse this proposal.
    To assist Liberia with its elections, the U.S. is providing 
approximately $8.2 million to U.S. NGOs including the International 
Foundation for Elections Systems (IFES); the International Republican 
Institute (IRI); the National Democratic Institute (NDI); the African 
Leadership Forum; the Carter Center, the African Refugee Policy Group, 
and Friends of Liberia.
                       aid to russia and the nis
    Question. I have been supportive of the Administration's efforts to 
aid Russia gain economic stability. I am aware that funding for Russia 
was significantly diminished by last year's Appropriations legislation. 
Can you tell me what impact the funding cut had on on-going programs 
with Russia? I am pleased that the Administration is proposing 
additional funding for Russia and the NIS. Could you tell me how much 
of that funding would go to Russia to help them meet challenges of 
building democracy and a market economy?
    Answer. Primarily because of budget decreases, we have made 
significant reductions in the Russia program:
    Post privatization support to firms has largely ended.
    Agriculture, including post privatization farm reorganization, will 
receive no further funding.
    Energy efforts will concentrate on electric power sector 
restructuring/privatization. Energy efficiency, oil and gas development 
and coal sector restructuring will be left to other donors. The U.S. 
Department of Energy will continue nuclear safety efforts.
    Housing reform will be cut sharply to provide minimal bridge 
funding to World Bank Programs.
    USAID's work in fiscal reform, financial market reform, environment 
and health have also been reduced.
    The main impact of budget decreases has been the early termination 
of or reduced support for effective, successful programs, which, we 
believe, would continue to make significant contributions to systemic 
change in Russia. For example, health care reform will receive no 
further funding after this year, although there have been significant 
accomplishments, and there are still many areas in which continued 
support could make a difference. Also, the uncertainty of budget levels 
over the last several years has made planning extremely difficult. This 
year is no exception. We are now awaiting Congressional action on the 
Administration's Freedom Support Act request to determine whether or 
not we will move ahead with a refocused, extended program under the 
Partnership for Freedom.
    Approximately $241 million of the $900 million requested for the 
Partnership for Freedom will support building democracy and a market 
economy in Russia by USAID and other U.S. Government agencies.

            Questions for the Record Submitted by Mr. Torres

   victims of torture--integration with human rights and development
    Question. This Subcommittee, under both Republican and Democratic 
majorities, has urged AID to support treatment centers for victims of 
torture. In last year's report, the Committee stated the following: 
``the Committee urges AID to incorporate support for treatment of 
torture as an integral part of its promotion of human rights and 
development. In identifying appropriate countries in which to provide 
such services, AID should give special consideration to the State 
Department's Country Reports for Human Rights Practices. The agency 
should also work with organizations such as the United Nations 
Voluntary Fund for Victims of Torture and the Center for Victims of 
Torture.''
    Establishment of democracy and human rights in countries afflicted 
with torture and repression requires not only appropriate institutions 
and laws. Its people require healing of the wounds of repression if an 
atmosphere of freedom is to flourish. Such is particularly obvious in 
countries such as Bosnia and Rwanda, but many others as well. Treatment 
centers provide one of the instruments for healing.
    What has AID done to respond to this recommendation?
    Answer. Regrettably, victims of physical and mental persecution are 
be found in many countries. It is our experience that torture often is 
a symptom of authoritarianism or anarchy. USAID's democracy, governance 
and human rights programs are attempting to treat the causes and 
consequences of torture. Strengthening the rule of law and respect for 
human rights are our objectives. This includes protection of people 
against arbitrary use of authority and against lawlessness. U.S. 
diplomatic pressure, combined with USAID democracy and governance 
assistance efforts, hopefully will quell the use of torture. The State 
Department's annual country reports on human rights practices provide 
substantive direction to USAID work in this area. But there remain the 
unfortunate victims of past and present abuse.
    USAID is supportive of the work financed by UN Voluntary Fund for 
Victims of Torture. The U.S. contribution this year, from the 
International Organizations and Programs account, will be $1.5 million.
    USAID has supported the Center for the Victims of Torture to carry 
out a program in Turkey, providing training and technical assistance to 
the Human Rights Foundation of Turkey and the Turkish Medical 
Association to build clinical capacity in treatment centers. The grant 
may lead to a multi-country conference and possible follow-on 
activities on the treatment of torture victims.
    USAID also is involved in other activities that relate to the needs 
of victims of torture. The Displaced Children and Orphans Fund supports 
the psychological and social reintegration of children affected by war. 
Major activities are currently funded under this program in Angola, 
Eritrea, Liberia, Rwanda, the Former Yugoslavia and Vietnam.
    The USAID War Victims Fund provides prosthetics and other related 
orthopedic assistance to civilian victims of war. The Fund currently 
operates in Angola, Cambodia, El Salvador, Laos, Liberia, Mozambique, 
Sri Lanka and Vietnam. Although there is no specific targeting of 
torture victims, the beneficiaries are primarily traumatized civilians 
who have lost limbs as a result of landmines and other weapons.
    Under the Trauma, Social Welfare, and Humanitarian Assistance 
project, USAID supports NGO programs that address issues of community 
health and training activities for mental health providers, teachers, 
volunteers and doctors working with traumatized refugees and displaced 
populations in the former Yugoslavia. Under this project, USAID has 
supported the following activities.
    Catholic Relief Services which is working with local psychological 
associations to provide training on post-traumatic stress syndrome and 
other psychosocial treatments. USAID provided $1.9 million in support 
of this effort.
    The International Rescue Committee which is addressing the 
psychosocial needs of war-traumatized women, children and other 
vulnerable groups by developing local organizations' capacity and to 
fund specific activities in both Bosnia-Herzegovina and Croatia. IRC 
has received a total of $8.5 million from USAID.
    In Croatia, the Center for Attitudinal Healing is receiving funding 
from USAID to build on its experiences working with Vietnam veterans 
using the group counseling approach to work with refugees and displaced 
persons in the camps and settlements adversely affected by the horrors 
of war.
victims of torture--support to institute of educational research (ier) 
                             at addis ababa
    Question. Ethiopia is a case in point where providing treatment to 
the victims of the Mengistu regime can provide healing and help lay the 
foundations for human rights and democracy in that country. Moreover, 
torture continues to be a problem under the current government. The 
Institute of Educational Research (IER) at Addis Ababa University is 
providing treatment to students who were survivors of torture but it 
sees the need for a professional center to provide treatment throughout 
the country.
    Can AID explore this need with EIR?
    Answer. USAID does not have a program directly supporting the 
Institute of Educational Research at Addis Ababa University, but I have 
instructed that the Agency look into this possibility.
                                          Wednesday, April 9, 1997.

                         NIS AND CENTRAL EUROPE

                               WITNESSES

AMBASSADOR RICHARD L. MORNINGSTAR, SPECIAL ADVISOR TO THE PRESIDENT AND 
    SECRETARY OF STATE ON ASSISTANCE TO THE NEW INDEPENDENT STATES
JAMES H. HOLMES, COORDINATOR FOR EAST EUROPEAN ASSISTANCE, U.S. 
    DEPARTMENT OF STATE
THOMAS A. DINE, ASSISTANT ADMINISTRATOR, BUREAU FOR EUROPE AND THE NEW 
    INDEPENDENT STATES, UNITED STATES AGENCY FOR INTERNATIONAL 
    DEVELOPMENT

                 Chairman Callahan's Opening Statement

    Mr. Callahan. Good morning, and I apologize for being four 
minutes late. We've started every Committee hearing since I've 
been Chairman exactly on time; but this morning we had a 
conference and it made me late. So I apologize to you.
    As a result of our tardiness, maybe we ought to establish a 
policy of abbreviating our statements. We've had the 
opportunity to review your statements, and I hope that we don't 
have to listen to the entire thing since we have already 
digested your motives and your intents.
    So I will abbreviate mine and I will ask everybody but Mrs. 
Pelosi to abbreviate theirs. She can have as long as she wants.
    We're pleased to welcome this morning the officials 
responsible for the American assistance to Central Europe, the 
Baltic States, and the nations of the former Soviet Union.
    Ambassador Morningstar, Tom Dine, and Jim Holmes are well 
known to many of us and each of them have worked hard to keep 
our Subcommittee informed on their successes and their 
setbacks. Each of them, incidentally, are professional in their 
endeavors. We don't always agree with you on everything, like 
housing Russian soldiers; we nevertheless appreciate very much 
your keeping us informed.
    I would like to focus on four areas at least: the 
President's proposal for a 40 percent increase in assistance to 
Russia and Central Asia; the situation in Bosnia that requires 
a continuing presence of US troops long past the original 
December deadline which the President indicated he was going to 
keep; the unstable situation in Armenia, Azerbaijan, and 
Georgia; and the mixed record of the 11 diverse enterprise 
funds in the region.
    You know your areas of responsibility and each of you can, 
if you would, respond to those several questions.
    This morning I'm sure none of you had any responsibility of 
the timing of the article in ``The New York Times,'' but it was 
a very, very interesting article that's going to cause you some 
heartburn and caused me great heartburn when I read it. My fear 
is that it's not only prevalent in the Ukraine, but it's 
prevalent in other countries as well. The Subcommittee had the 
opportunity last week to visit several countries in the 
Caribbean and Latin America. The indications we saw indicated 
the same activities taking place there that ``The New York 
Times'' indicates is taking place in the Ukraine, and naturally 
we're going to have to respond to that to our constituents. 
This is exactly what they fear; this is exactly why they're 
against foreign aid.
    I've been going back to my district and talking to every 
group that invites me to speak about the need for foreign aid, 
and Secretary Albright is now going all over this country 
talking about we're becoming a second-rate nation with respect 
to our involvement in the foreign operations arena because 
we're not giving enough money, and this is exactly why we have 
problems getting the American people to support our efforts in 
foreign aid.
    So we're going to have to ask for your response on that 
article as well as the four areas of concern that I mentioned 
to you. So with that, I yield at this time to my colleague from 
California, Mrs. Pelosi.
    [The article from the New York Times follows:]

[Pages 265 - 266--The official Committee record contains additional material here.]


                     Ms. Pelosi's Opening Statement

    Ms. Pelosi. Thank you very much, Mr. Chairman. I want to 
join you in welcoming our witnesses this morning, and I 
appreciate the fact that you used your time to lay out some of 
the concerns that the Subcommittee has. I did want to speak for 
a moment about some historical context for this, as I welcome 
the witnesses to this hearing on the New Independent States and 
Eastern European programs.
    The programs, taken together, represent perhaps the most 
innovative and hopeful aspects of our foreign aid programs. 
Just a few short years ago, the foreign policy of the United 
States was deeply mired in the Cold War, and most of our 
actions were based on that reality.
    Today, 7 years after the beginning of the Eastern European 
aid programs and a few short years into our NIS assistance 
programs, we are negotiating items such as tax reform, anti-
crime laws, energy sector investment agreements, and bilateral 
investment treaties instead of troop withdrawals from 
Afghanistan. That has to be considered progress.
    In Eastern Europe, we have completed or nearly completed 
our assistance programs in several countries which are well on 
their way to completing the transition from authoritarian 
governments to free markets and democratic forms of government. 
Our assistance reform efforts have provided the grease to make 
the wheels turn and, indeed, in many ways have been the primary 
engine for progress.
    Few people remember these aid programs all started in this 
Subcommittee, Mr. Chairman, when it provided a small amount of 
money under Mr. Obey's leadership to a struggling labor 
movement in Poland called ``Solidarity'' way back in 1987. 
Today our aid levels are decreasing in Eastern Europe with the 
exception, of course, of Bosnia, and increases are requested 
for the New Independent States. I'm looking forward to hearing 
from our witnesses on the particulars, but I wanted to mention 
a little bit of the history.
    The most significant fact in the funding of these programs 
is that they have been funded on a largely bipartisan basis, 
and that has been the case in both the Republican and 
Democratically controlled Congresses.
    I hope this spirit will continue as we go forward this 
year. In light of the article in the New York Times this 
morning, since our chairman has called it to all of our 
attention, it reminds me of what we saw last week, Mr. 
Chairman, under your leadership. You took us on what I consider 
to be a very product and meaningful trip, and I thank you for 
your leadership in doing that and in giving this hemisphere 
priority. The grueling schedule kept driving home the message, 
which is in here, too, that unless we have a system of law and 
order, an independent and functioning judiciary, and the 
ability to say to people who are tempted to corruption that 
justice will prevail, it is going to be very difficult to 
attract the capital and justify the other support that we are 
giving in the hope of opening markets, of privatization, and of 
creating jobs for people so they can enjoy some of the economic 
benefits of democracy.
    And with that, Mr. Chairman, I thank you again for yielding 
and look forward to our witnesses' testimony.
    Mr. Callahan. Thank you. Ambassador?
    (Asides.)

               Ambassador Morningstar's Opening Statement

    Ambassador Morningstar. Thank you, Mr. Chairman and Members 
of the Subcommittee. I appreciate the opportunity to appear 
before you today to discuss one of the Administration's top 
priorities in the foreign affairs budget, the Partnership for 
Freedom, and as you know the Fiscal Year of '98 request for NIS 
assistance is $900 million, and this request is based on a 
strategic refocus of our assistance efforts as we move into the 
21st century.
    The Partnership for Freedom rests on one simple principle: 
we, the United States, have no greater national security 
interest than the stability of Russia and the NIS, and the 
consolidation of their transition to market democracies. Our 
most dangerous adversary of all time, the Soviet Union is no 
more. We have an enhanced opportunity today to influence and 
shape the future of the New Independent States that were the 
Soviet Union.
    Stability in this region over the next 5 to 10 years is 
dependent on the achievement of economic growth. If growth 
cannot be achieved, we could face destabilization that could 
bring about a renewed national security threat.
    With respect to Russia, I thought there was an interesting 
article in this morning's paper. It's not the Ukraine article 
that we can talk about a little later. It was an article in 
this morning's ``Financial Times,'' which, I think, frames the 
issue very well in connection with Russia. Will Russia choose 
open and fair capitalism or corrupt, monopolist capitalism with 
all that could entail?
    The article pointed out that it might take more than a 
generation to answer the question, and that recent changes in 
the government could present opportunities. This is why the 
Partnership for Freedom is important. How can we help Russia 
and the other New Independent States give their citizens a more 
tangible stake in reform?
    First is by mobilizing capital and increasing investment to 
create jobs. This will require more aggressive policy and legal 
reforms to improve the environment for business; more capital, 
particularly in the regions and for smaller businesses; and 
increased efforts to combat crime and corruption, which 
directly relates to that article this morning.
    Second, we need to stay engaged to strengthen the 
democratic organizations that allow citizens to influence 
government and advocate change. We must continue to persuade 
and cajole at the national level, but the real change will come 
from the bottom up.
    Why have we asked for a larger budget this year, and why is 
our opportunity to have an impact greater than it ever was?
    First, the Partnership for Freedom responds to the need for 
a second phase of engagement in the NIS which builds on the 
foundation of basic structural reforms such as privatization 
and macroeconomic stabilization. Our active engagement, which 
will focus on the push for real growth in these economies, is 
crucial.
    Second, we've looked hard at what we can do with our 
assistance resources to make the biggest impact. On the subject 
of investment, for example, we have identified that a major gap 
exists in financing small businesses in the regions. This 
finding is based on over 50 interviews that I and my staff have 
done with professionals and experts, both here and in the NIS, 
and at least 8 business round tables getting the views of 
American and NIS business people, and the answer keeps coming 
back the same.
    It is quite interesting that just one year ago I would not 
have been able to report the same findings. One year ago we 
were hearing about the lack of the qualified demand for 
financing. That has changed and we've learned from EBRD's small 
loan program, from NGO's like Eurasia, and CCI, and FINCA, that 
demand in the regions and the expected small business far 
outstrips the supply for capital.
    Another crucial opportunity is our proposal to more than 
double the amount of resources we direct to anti-crime and law 
enforcement work. These last few years have built foundations 
that allow us to do more to fight crime and corruption.
    Third, now is the time to emphasize cooperative, mutually 
beneficial activities. US business, universities, scientific 
organizations, hospitals, towns, and cities all over the United 
States see the benefits in developing close linkages with the 
NIS. These ties do more than governments could ever do to 
achieve constructive relationships and have an impact on the 
community level.
    I see new examples of this every week. Just last week, for 
example, I learned of a partnership, a university partnership, 
between Case Western Reserve law school and Cleveland State law 
school, and universities in St. Petersburg and Volgograd where 
law students who finish their studies in those Russian cities 
come to Case Western Reserve or Cleveland State for another 
year of training, which is essential and very helpful in 
allowing them to be able to advocate for change when they go 
back to their country.
    Fourth, we continue to hear from our ambassadors in the NIS 
and from notable leaders of reform such as Andrei Kozyrev or 
Igor Yavlinski, that our largest returns in investment and 
assistance dollars is in exchanges and support for the hundreds 
of nascent democracy NGO's, human rights groups, and political 
parties.
    I would submit that these programs cannot be done by anyone 
but the United States. We represent the clearest vision of the 
future. The Partnership for Freedom proposes to do more than 
double the number of exchanges. We propose to do more democracy 
work in countries in Central Asia and the Caucasus that are 
lagging in democratic reform.
    Another recent illustration on exchanges: Ambassador 
Courtney in Georgia, who I might add I think is one of our best 
ambassadors anywhere, in a cable outlined the profound impact 
that the alumni of US exchange programs are having in Georgia. 
He mentions the chairs of two key parliamentary committees, a 
leader in the independent media, and several others that are in 
high profile community work, education, and business. These are 
all graduates of our exchange programs.
    Fifth, and last, the regions have emerged as the promising 
basis for reform and growth. One illustration is Novgorod, the 
Novgorod region, in Northwest Russia. It is really a model of 
where we need to be working. The regional government there has 
taken aggressive steps to improve the investment climate and 
encourage growth through tax incentives for foreign investors, 
strong early results in getting investment projects actually 
done, action over just words. This region and others like it 
are where we can and must do more, and where we will see the 
kind of results that push and pull a country alive.
    We're currently developing a Partnership for Freedom pilot 
program using existing funds in Novgorod to mobilize more 
investments and more partnerships now. I must add here that the 
new Russian cabinet includes two notable leaders of Russia's 
aggressive regions--Novgorod and Samara. This bodes well for 
increasing our efforts in the regions, and high success there 
will affect the center.
    We face many security challenges in the world today. This 
region presents us with an urgent and a unique opportunity to 
truly make a difference in strengthening the democratic voices 
and market economies that emerge, and once and for all to 
relegate our Cold War concerns to the history books.
    My written statement and the charts are over here and, I 
think, would answer questions with respect to that, and during 
the questioning period show the details, and I look forward to 
answering your questions on this proposal. I might add, at the 
end I'm fully prepared, clearly, to respond to ``The New York 
Times'' article with respect to the Ukraine. I can do that 
during the question period, after the other statements, or 
whenever you would like.
    [The Statement of Ambassador Morningstar follows:]

[Pages 271 - 292--The official Committee record contains additional material here.]


    Mr. Callahan. Okay, thank you. Mr. Dine or Mr. Holmes?

                     Mr. Holmes' Opening Statement

    Mr. Holmes. Mr. Chairman, I, too, want to thank you for the 
opportunity to appear before you at this time on behalf of the 
1998 Support for East European Democracy programs. With your 
permission, I'd like my already submitted formal statement to 
be entered into the record and provide you a brief oral 
statement.
    In my view, Mr. Chairman, the SEED program has been 
successful primarily because you and we, the Congress and the 
Executive, recognize the value of the program for US interests 
and because both have remained faithful to a basic compact: 
First, that assistance to Central and Eastern Europe could be 
transitional. Second, that our objectives would be finite and 
achievable. Third, that the Executive would keep you, the 
Congress, fully informed--both about problems and successes; 
and, fourth, that when our objectives were met we would wrap up 
our assistance program and get out.
    Mr. Chairman, in the two budget years that I have been 
responsible for coordinating the SEED program, including the 
critical 1996 Bosnia Supplemental, your support, and, indeed, 
this Committee's bipartisan support, for that compact has been 
full and we greatly appreciate it. It is in that spirit, 
therefore, that I appeal for the Committee's further support 
for the Fiscal Year 1998 appropriation of $492 million.
    At first blush this may appear to be a reversal from my 
commitment to keep SEED funding on a declining slope. In fact, 
however, it represents a further decrease of $18 million over 
the 1997 funding and $31 million over the 1996 funding in the 
non-Dayton-related SEED countries, and for the Dayton-related 
states, it reflects our preparation to mount a $10 million 
program of SEED-type programs, if political conditions permit, 
for Serbia and Kosovo; $15 million in reconstruction for 
Eastern Slovonia; and $25 million in up-front acknowledgement 
that in the case of Bosnia SEED will be expected to fund a 
broad variety of other civilian implementations.
    The 1998 large ticket requests, therefore, are $225 million 
for Bosnia, $35 million for the rapidly diminishing Poland 
program, and three important programs in the $25-to-$33 million 
range for Romania, Bulgaria, and Albania.
    For our part of the bargain, I can report to you that the 
graduation of our SEED assistance programs in three states by 
the end of this fiscal year will have taken place, and the 
expected last year of SEED assistance funding for five more 
states in the next two fiscal years; a total, therefore, of 
eight states which I expect will be graduated by the end of 
Fiscal Year 1999, including the original ``big three'' of 
Poland, Hungary, and the Czech Republic.
    I can also report real gross domestic product growth in 
1996 throughout the region, with the exception of Bulgaria. 
Inflation further decreased in 1996 in 10 of the 14 states. The 
private sector's share of the economy exceeded 50 percent in 
all but 2 states, and the rate of unemployment dipped below 
that of the European Union average for 9 of our 14 states.
    I can report the emergence in 1996 of two genuine reform--
minded governments in Romania and Bulgaria, and, accordingly, 
the redesign of our assistance programs to respond to these 
perhaps one-time-only opportunities. I can also report the 
remarkable and early success of the Polish-American Enterprise 
Fund.
    The U.S. Reconstruction Assistance Program for Bosnia is on 
budget, on time, and on target. With respect to your statements 
at the beginning of the hearing, Mr. Chairman, might I add that 
in terms of oversight and control in the case of Bosnia, our 
largest program, we conduct monthly concurrent audits of all 
our programs. It is a constant auditing process.
    Unfortunately, I must also report that the Czech-American 
Enterprise Fund lost 90 cents on the investment dollar, and its 
board of directors became sufficiently dysfunctional for us to 
replace the entire original board and close the fund.
    I would describe the past 10 months in Albania as a major 
disappointment economically and politically, leading to the 
need months before the March anarchy to place our Albania 
Assistance Program under restriction and under constant review. 
And I would describe our partnership in the international 
program of Assistance to Independent Television in Bosnia as 
unexpectedly troubled, not least of all because of the failure 
of the international community itself to provide a clear, 
professional management plan.
    In my view a correct conclusion is that overwhelmingly the 
SEED program continues to be in America's interests. SEED is 
succeeding in the creation of an environment for durable, 
prosperous, free market democracies to emerge from the ruins of 
the Warsaw Pact and the Soviet empire. Central Europe is a 
growing market for US goods and services. The peaceful, 
democratic Central European states that emerged give the United 
States and the Atlantic Alliance substantially greater 
assurance of security at lower cost. And these states provide 
valuable models of political and economic reform for countries 
farther to the east.
    For the SEED program, we are entering the home stretch. Our 
focus and our resources are shifting rapidly southward. I urge 
this Committee to continue to appropriate a full measure of 
fuel to get us through to the finish. Thank you.
    [The statement of Mr. Holmes follows:]

[Pages 295 - 311--The official Committee record contains additional material here.]


    Mr. Callahan. I thank you. Tom, before we recognize you, 
how about I apologize to our recorder. I didn't realize this 
microphone was right here when I banged that gavel a while ago. 
I'm sure it burst an eardrum. I'm sorry about that.

                      Mr. Dine's Opening Statement

    Mr. Dine. Do you need any technical assistance? Thank you, 
Mr. Chairman and Members of this Committee for this 
opportunity.
    I would like to follow up on what the two coordinators have 
presented here today and to provide as clear a picture as I can 
on what AID is doing in the context of the progress that both 
coordinators have mentioned. I think this progress will show 
that the $492 million that the Administration is requesting for 
SEED and the $900 million in the Freedom Support Act, 
particularly the new Partnership for Freedom program will make 
analytical sense.
    I want to utilize five charts, Mr. Chairman, this morning. 
Normally we just read our statements but I would like to be a 
little more graphic if possible. The data used in these charts 
comes from the European Bank for Reconstruction and 
Development. It also comes from Freedom House in New York. 
We've matched this data with other available data--for 
instance, Heritage Foundation has done a lot of analytical 
work--as well as our own data in-house. The Heritage 
Foundation, for instance, does not incorporate the Central 
Asian republics, so we relied on these charts for the data from 
the EBRD and Freedom House.
    Chart No. 1 shows that most countries have restructured 
their economy to privatized production and to promote the 
conditions in which businesses can compete and thrive, andas 
Mr. Holmes has indicated, we see that most particularly in the northern 
tier countries of Central Eastern Europe, and AID has helped them to do 
that. You see here that the extent to which the region has been 
structured. The GDP shared in Central Eastern Europe started off in 
1989 at about 15 percent. It's now up to 60 percent, probably more, 
although, as Mr. Holmes has indicated, you've got problems in Bulgaria 
and Albania, but the thriving economies of Poland, the Czech Republic, 
Hungary, Estonia, Slovakia, Slovenia, drive that GDP share in that 
respect.
    In the former Soviet Union countries, you see that it's 
lagging. They started off with less than 10 percent. Frankly, 
I'd have considered that number probably closer to zero, and 
now up to about 49 percent. So then you see dramatically a 
change in this region of Central Eastern Europe with the fall 
of the Berlin Wall, and the former Soviet Union republics with 
the demise of the empire.
    Throughout both regions, AID has helped to promote this 
economic restructuring. In privatization, we've had an enormous 
success with working with the Czechs, and with the Russians. As 
``The Economist'' claimed, though, last year in an article, 
Russia has a higher percentage of GDP from the private sector 
now than does Italy, and this is a potential waiting to 
continue to modernize and progress.
    I was in the Czech Republic in Prague last April when the 
Minister of Privatization and I had a ceremony to close down 
the Ministry of Privatization because the program had been such 
a success, and he gave great praise to what the United States 
has done. We've provided assistance--technical assistance--for 
fiscal reforms. And, Mrs. Pelosi, as you indicated in your 
opening, tax reform and tax administration are a major focus 
for us now.
    We've provided assistance to enterprises to get them to 
understand how to govern themselves and how competition is the 
name of the game. So they do not rely on government to start to 
enter the competitive world.
    Enormous amounts of technical assistance have gone to the 
development of capital markets. Our most recent success has 
been in Romania, where we've not only helped develop the 
Bucharest Stock Exchange, but then went further to develop an 
electronically modern, sophisticated over-the-counter market 
there as well. Instead of calling it a NASDAQ, we now call it 
``RASDAQ.'' And we believe that's a terrific advance. Same in 
Russia.
    In Lithuania and Latvia, where we've had some problems with 
the banking system in the past year and a half, AID technical 
advisors have been there to help stop the erosion and to begin 
the recovery.
    And finally we've provided enormous help in the energy 
sector area in so many of these countries. While Ukraine is 
getting a bad press here this morning, I can say to you, Mr. 
Chairman, that our work with the energy sector in the Ukraine, 
helping it to restructure to improve its efficiency and 
reliability and become a private sector is showing great 
progress.
    All of this work in economic restructuring is starting to 
show results in terms of real economic growth. As Mr. Holmes 
just indicated, all the countries of Central Eastern Europe are 
now showing real economic growth except Bulgaria. We don't have 
statistics on Albania, but it'll be Albania as well. And, we 
see no real economic growth in Bosnia and Serbia. But in the 
NIS countries, eight of those countries are now showing real 
economic growth. The largest, most potent, Russia, still has 
not reached that level yet.
    Let's go to Chart No. 2. This chart shows that from this 
restructuring and reform have come investments, both domestic 
and foreign. And, this chart, prepared for Members of the 
Committee, tries to make the point that the Partnership for 
Freedom is where the future lies, as it has already been shown 
in the Central Eastern European areas. All the countries of 
this region, with the exception of oil and gas rich Kazakstan, 
Azerbaijan, and Turkmenistan, fall neatly along this trim line, 
associating economic policy reforms and per capita foreign 
investments. This tells us that our efforts to assist reform 
will result in growth, and the new statistical data just 
published in Prague based on Czech managers' information that I 
just got last night, shows that Czech managers of privatized 
companies now don't want 100 percent ownership but want foreign 
involvement, because they show more productivity under such a 
situation, and that's our goal.
    Let's move on to the next chart. Chart No. 3 shows progress 
in the democratic institution building area--it has been as 
dramatic as in the economic area, and, again, AID has been 
central to this progress. In promoting citizen participation in 
a civil society, AID has helped install the machinery of free 
and fair elections; strengthened in competitive political 
parties; assisted the development of NGO's; and aided the 
growth of independence of public broadcast and print media. As 
Mr. Holmes indicated, they are having a great deal of problems 
on that last score in Bosnia, what Internews, for instance, a 
Northern California NGO is doing a fantastic job in Russia, 
Ukraine, Kazakstan, and elsewhere.
    AID is also assisting countries throughout the region to 
strengthen the rule of law. We've helped draft constitutions--
as in Ukraine. We've helped to train judges, prosecutors, and 
trial attorneys, and establish jury trial systems. There is a 
lot more work to be done, and perhaps I should have undergirded 
all my comments to say that wherever we, the United States 
government, can do, whatever the international donors can do, 
it will not happen unless there is a will on the part of 
governments, on the part of leaderships, on the part of 
reformers to work that will through the political systems in 
these countries to reform, to reconstruct, to restructure.
    Finally, AID in the democratic area is helping bringing 
good government to the people by assisting with 
decentralization of power from the national to the local level, 
and we worked with mayors and municipal authorities to improve 
governance and delivery of the essential public services. This 
has been most effective in Bulgaria, and in Poland, Ukraine. 
Where it's been difficult to deal with central governments, 
we've gone to the local areas, gone to the grassroots and found 
that even if mayors are under the label of communist/
neocommunist/socialist, they want to bring reform to their 
people. They're on the ground and we've had more success with 
mayors. If I could start this whole program over again, and 
obviously I can't, I would start with the grassroots up rather 
than the national level down because that's where we're showing 
the most momentum, the most activity, the most progress, and 
that, for me, is the most thrilling part of this whole 
situation.
    We had a conference in Sofia, 200-plus mayors and municipal 
authorities, this December from all over the regions; from 20 
plus countries. I think there were 11 languages, and the idea of just 
helping them understand how you raise money through municipal bonds was 
a big eye opener for all of them, and, again, I consider that 
important.
    This chart shows a comparison. In 1989, Bulgaria and 
Slovakia were basically, in terms of democratic freedoms, where 
North Korea is today. And, look where they are on the chart in 
1996. And, in 1989, Poland and Hungary were at about the level 
where Haiti is today. In 1997 look where Poland and Hungary are 
today. Now they compare with France and Venezuela. This is 
enormous progress over such a short period of time, and all of 
us want completion, all of us want success, and as we know from 
this article, Mr. Chairman, which has now become the 
centerpiece of your hearing this morning, it is very difficult. 
So when you see progress, you've got to continue it and keep it 
going.
    Chart No. 4, this is the final chart in terms of what I'm 
trying to get across to all of you this morning. Not all of the 
countries have shown equal zeal at reforming and not all are 
sharing equally fruits of reform. But if you rank the progress 
of 25 countries--Serbia and Bosnia don't make it--Twenty-seven 
countries now make up the former communist bloc in this area. 
If you rank the progress of 25 Eastern European and NIS 
countries in terms of their progress and economic policy reform 
along the vertical axis, and in terms of the democratic 
freedoms they've achieved as the horizontal access, we see 
three clear results.
    First, none of the countries are ready for EU membership, 
and some are not ready for WTO membership. And we, and the EU 
itself, the World Bank, the International Monetary Fund are 
conscious of this and we've got to be working with them.
    Second, and this should not shock any of you, economic and 
democratic reforms go hand in hand. The countries that have 
come the furthest in their economic reforms are the very 
countries that have achieved levels of democratic freedom 
nearly the same as those of our Western allies, as I've just 
mentioned, and this trend line is the path along which we want 
to see the CEE and NIS countries move, certainly the middle 
cluster. If nothing else, if we've got a couple of years left 
in this whole effort, we've got to move that middle cluster 
into where the top rung, northern tier countries of Central and 
Eastern Europe are today.
    And, thirdly, there's a clear disparity among the regions 
and between the countries. The countries of the northern tier 
of Eastern Europe, the Czech Republic, Hungary, Poland, 
Slovenia, the Baltics, are clustered at this successful end of 
the trend line. These are the countries that Mr. Holmes 
mentioned are scheduled for early graduation from the rolls of 
US assistance. We've already closed down Estonia. Mr. Holmes 
and I were there in September. We had a big graduation 
ceremony. The president, the prime minister, and the finance 
minister, were nervous as can be, frankly, that we were 
leaving. And, once we left, they understood that they were on 
their own, and they could do it. There's plenty of Scandinavian 
investment, some American investment trickling in, and they can 
do it on their own.
    The southern tier countries in Eastern Europe, Bulgaria, 
Romania, Croatia, Macedonia, Albania tend to populate the 
middle of the graph as do the most advanced NIS reformers of 
Russia, Turkistan, Ukraine, Moldova. And, again, these 
countries with some more modest reformers like Armenia, 
Georgia, and Kazakstan are clearly in the midst of their 
transition and positioned to utilize US assistance.
    In the lower part of this chart are the NIS countries that 
have not yet taken off, and I mentioned that Bosnia and Serbia 
belong in that lower cluster, and we're watching those. We're 
trying to work with them modestly, but frankly whatever steam, 
whatever political support we have in this city for our 
efforts, we've got to focus on those middle cluster countries. 
They're the ones that hopefully we can move up.
    And, finally, foreign assistance from all the donors 
remains a critical catalyst in helping the reformers. As I 
mentioned, an internal will is required, foreign aid is 
required, foreign and domestic investment are required, and 
hopefully we will be able to succeed in the next couple of 
years.
    Let's go back to what was said here on this chart. I think 
I really made all those points. Mr. Chairman, I'll end there. I 
just ask this Committee for its support. I think we're doing 
the job. It is not easy. Don't expect great successes, and when 
we've got them, let's relish them and continue to reinforce 
them. Thank you very much.
    [The statement of Mr. Dine follows:]

[Pages 316 - 353--The official Committee record contains additional material here.]


                              nis funding

    Mr. Callahan. I thank you, and I--ironically today have in 
the audience a friend of mine from Mobile who lives in Mobile 
and who also has extensive land holdings in Monroe County, 
Alabama. I would just make a pact with you that I'll give Mr. 
Bedsole the authority to go back to Monroe County to explain 
what he just heard to the people of Monroe County, and if he 
can get 5 people out of 50 to say they think it's the way we 
should go, then I will push to get you the money you're asking 
for.
    Mr. Dine. Well, if we're going to make a deal, Mr. 
Chairman, you let me go with him.
    Mr. Callahan. I would let you go with him provided he would 
give us a disclaimer of responsibility because I would fear for 
your life, frankly.
    Mr. Dine. As you know, I did in my previous incarnation 
some organizing in Monroe County----
    Mr. Callahan. Yeah.
    Mr. Dine [continuing]. And I had a little bit of success.
    Mr. Callahan. And then Mr. Morningstar has relatives in 
Mobile in the form of Dick Ranner. Dick Ranner is not as 
conservative as the people of Monroe. If you want to get Ranner 
to go to Mobile Country Club and say, ``Do you think Sonny 
ought to give us $300 million more than we got last year to 
operate your three areas of jurisdiction?''
    Seriously, I think you know, all three of you, that you're 
not going to get the $300 million increase. $1.1 billion is a 
lot of money whether you're at Monroe County or the Mobile 
Country Club, and we're not going to have the allocation to 
increase money for the former independent states. That's a 
reality. That's not Sonny Callahan saying that. That's the 
Congress telling me, ``Sonny, here's $12 billion. You and Nancy 
decide how it's going to be split up.'' So what we're going to 
do with this Committee is to try not to interfere with your 
ability to promote democracy, and to protect human rights, and 
to build up health care; we're going to try to give you as much 
latitude as we can, and we do. We want you to talk about 
Ukraine. Neither this Committee nor this House earmarked money 
for Ukraine last year. It was done in the Senate, and we cut 
out about 90 earmarks, but we did that on our own.
    So if the Administration thinks that they need latitude and 
flexibility in order to have an effective foreign policy, you 
better go to work in the Senate, and you'd better insist that 
the Senate not earmark, and I think that this article in ``The 
New York Times'' tells you, or gives you a good enough case to 
make your argument, but when we, the only committee that you 
have representing the Administration--and the Congress have to 
sit in an all-night session with the Senate in a conference 
committee pleading and bargaining with them to reduce the 
number of earmarks that they put in there, it makes it very 
difficult on us. But if we had our way, we wouldn't earmark 
anything, but we are going to have our way on one thing and 
that is there is not going to be an increase in the allocation 
that you receive as a whole last year, period.
    So if you want to redesign your priorities, then redesign 
them. If you don't want to, then we will do it. It's as simple 
as that. So the 292 million is not in the cards regardless of 
the justification.

                                 haiti

    In one of your charts you mentioned Haiti, and you 
indicated that Haiti was in the middle of the spectrum with 
respect to advances in democracy. Hell, we just got back from 
Haiti. I didn't see any indication of democracy except they had 
an election Sunday and 15 percent of the people voted in the 
election----
    Ms. Pelosi. Five.
    Mr. Callahan [continuing]. 5 percent? Five percent of the 
people voted in the election, and the rest of them were 
standing outside the polls afraid to go in, or else they had 
not yet been paid to vote. Crime is rampant. Human misery is 
probably the highest that it is in the world.
    In one 3-hour span, if you have a spectrum of the quality 
of life, I went from the lowest point in Haiti to the highest 
point when I got to Mobile 3 hours later.
    So to say that Haiti is in the middle of the spectrum of 
advancements is not a good indication. I don't think you should 
have put it in there anyway, but if that is an indication of 
improvement, of progress, it's a very, very weak indicator.
    We're going to have to have accountability, so if you guys 
want to resubmit your request and tell us how you would like 
this money appropriated, whether it's in a lump sum or whether 
divided three ways or four ways, or to enterprise funds or 
however, submit your requests, but forget about the $300 
million increase.
    It's time to ask questions so I'm going to defer on that 
question and let Mrs. Pelosi and the other Members of the 
Subcommittee submit questions and I'll ask mine at the end. 
Wait a minute, Nancy, excuse me. Would you like to go ahead and 
comment on ``The New York Times'' article first?

                                ukraine

    Ambassador Morningstar. Yep. We might as well get to it 
now. First of all, I'd just like to start by saying that it 
goes without saying that Ukraine is a very important country. 
It's the second largest country in the former Soviet Union. It 
has great potential to make it. If it doesn't, it will threaten 
stability. We have a basic interest in general in supporting 
Ukraine. With respect to--Ukraine, you made the point in 
respect to the earmarks. Our Members are emotional when we 
suggest $225 million with respect to this--and are based on the 
assumptions that the major reforms that have been proposed by 
President Kuchma and will take place, that the investment 
climate will improve and steps will be taken to clean up 
corruption. We do have major, very major, concerns as indicated 
by that article. If, in fact, these steps are not taken, then 
we will have to review the program and look at how much money 
now should go to Ukraine. And, this is the reason why earmarks, 
I believe, are fully inappropriate. On the other hand, you 
know, we could say today that we should cut off everything to 
Ukraine; I disagree with that. There has been enough that has 
been going on and it still gives us some hope. There's a battle 
going on between the reformers and others. We have to see if 
the reform program will, in fact, go forward. Things change. We 
have to look at things on a long term basis. Six months ago, we 
would have said, ``Yeah. We should be spending more money in 
Ukraine.'' Hopefully, six months from now we should be saying 
the same thing. But the point is, we need to have flexibility 
and we need to be able to respond to problems as they arise. 
The other thing that I think is important, no doubt, the 
Ukrainian issue with respect to corruption is a Ukrainian 
problem and is not an American problem, and we can work with 
them and we deal with them every day with respect to investment 
disputes and we have major concerns. And we--but we have to, we 
have to accept the fact that it's going to take the political 
will of the Ukrainian government to clean up corruption. Many 
of those reforms that are in--now involving regulations and tax 
reforms, in itself have an--effect with respect to corruption. 
Now, there are obviously major problems. We have Mr. Lemire in 
our audience today from Gala Radio. Gala Radio has been treated 
outrageously. There are other companies in the American 
business community that have been treated very poorly and it's 
our obligation to deal with those issues and work with the 
Ukrainian government on a very close basis and use whatever 
leverage we can to solve these disputes. We do have to remember 
that it is the Ukrainian----
    Mr. Callahan. Well, I think that it may be a problem of the 
Ukrainian government, but in situations like the Gala Radio 
situation, that becomes a problem for the American government.
    Ambassador Morningstar. Oh, absolutely.
    Mr. Callahan. Because he's an American citizen over there 
trying to do something, trying to invest or make the quality of 
life better in an entrepreneurial position. So, that is an 
American product.
    Ambassador Morningstar. And, I didn't mean to convey for a 
moment that the issues relating to Gala Radio and other 
companies are not issues that the American government needs to 
be involved in. My only point, and we need to work this hard and be as 
tough on the Ukrainian government as possible to cure them or to 
eliminate these problems. The only point that I'm making is it's 
ultimately the Ukrainian government that has to take the step to clean 
up the corruption. We have represented our companies as best as we 
possibly can.
    Mr. Callahan. One other thing. We have been requested by 
the Administration, once again, to come up with about $4 
billion in a supplemental bill to handle disaster and other 
areas of concern with the government. In order to do that we 
have to rescind appropriations that we appropriated last 
September. Though they come to our Committee and said, ``Give 
us your contribution,'' like the United Way. All right. So, 
under the circumstances, you have said you do not like your 
earmarks. It's interfering with your ability in the Ukraine to 
be able to effectively have a foreign policy there. Would you 
recommend that we rescind the earmark?

                                earmarks

    Ambassador Morningstar. I know the Administration opposes 
earmarks. If earmarks are rescinded, I don't think that money 
should come from the total package of $625 million because one 
of the problems with the earmarks, I believe, is that not 
enough money is available for other countries in the NIS, 
certainly in the context of that 625 million dollar budget. So, 
I would hate to see that, with our overall funds being 
restricted with respect to the----
    Mr. Callahan. Well, do you think if we left the 625 million 
there and eliminated the earmarks it would give you an 
advantage in dealing with the apparent problems of the Ukraine?
    Ambassador Morningstar. I think it would give us the 
flexibility to respond to some of these issues.
    Mr. Callahan. Would you go so far to say the President 
supports that?
    Ambassador Morningstar. I don't want to speak for the 
President. I can say that our office and those involved with 
respect to the assistance program certainly support it.
    Mr. Callahan. Well, if you will contact the President this 
afternoon and ask him to contact me and make that request. If 
it's the desire of the Administration to have this language in 
the appropriation bill, all the President has to do is call and 
I will put it in the bill. So, if you would like to remove 
that--I'm not saying that a few Members of the Senate on the 
other side might not put it back in here, but when it leaves 
the House, we'll remove the restrictions if the President makes 
that request. Nancy.

                         corruption in ukraine

    Ms. Pelosi. Thank you, Mr. Chairman. I, too, had some 
concern about the impact of the earmark and the flexibility it 
diminishes for the Administration. In fact, in the case of 
Ukraine, we had earmarks within earmarks. We had sub earmarks. 
And, I assume that what you said about earmarking applied to 
the sub earmarks as well. The article in the paper is not the 
centerpiece of this hearing. We have so much to cover, I don't 
know how we'll ever get around to all the questions--in 
writing, I suppose. But, I recall last summer being in Russia 
and hearing from people who came over from the Ukraine to talk 
about what was happening there. Anecdotally they were telling 
us that people are not prepared for foreign investment. They 
said you can't even find a hotel that has a lighted stairway to 
come in and out of and I thought, well, if I go there I better 
be prepared for some discomfort. But, after reading this 
article about the corruption, I too have questions. I know what 
you did not intend it to mean but I note the fact that you said 
that corruption is not an American problem to deal with; it's a 
Ukrainian problem to deal with. If indeed our investment in the 
Ukraine is to lead to private investment going in there, then 
we all have a problem with corruption. To the extent that the 
U.S. can use its leverage to fight corruption, I think we have 
to use it. If the corruption is going to eat up the opportunity 
for privatization and for free markets, how are they ever going 
to attract the talent and the capital to grow? As I said in my 
opening remarks, one of the most important things we can do for 
a wide range of reasons, whether it impacts the individual, 
personal human rights of individuals in these countries, or the 
ability for the economy to thrive, is that they have to have 
some system of justice that works, that is effective, and that 
is independent. It is our business to, as a country, to provide 
that leadership. Maybe this is the most valuable thing that we 
can do to protect our other investments as well as help those 
countries.
    Ambassador Morningstar. I agree with you 100 percent. And, 
again, to clarify, it's very much of an American problem from 
the standpoint of dealing with the Ukrainians. The Ukrainians 
have to show a political will. I probably, as much or more than 
anybody in this Administration, have been standing up front 
with respect to this issue. I was not a very popular figure in 
the Ukraine last fall when I noted this publicly, and talked 
about these concerns. And, we are, again, working every single 
day with respect to these issues that Mr. Lemire and others are 
facing. So, I don't want to downplay our roles at all.
    Ms. Pelosi. No, I understand, but in addition to talking 
about individual companies, which I think is an important thing 
to do, we have to work on the systemic problem. We can be 
helpful with that, I think, if we condition some of our 
assistance. Thank you, Mr. Morningstar. I was so pleased to 
hear Mr. Dine refer to Internews, which is a San Francisco 
based organization and is attempting to work with the emerging 
independent media in nine of the 14 New Independent States. 
Unfortunately, as you may know, recently one of the employees 
of Internews was killed in one Republic while pursuing his 
work. We also have another pillar in the Partnership for 
Freedom in expanding exchanges and partnership for U.S.-based 
institutions in the Center for Citizens' Initiative, also based 
in San Francisco, I know it has been quite active with AID. Can 
you comment, just a little further on the importance of these 
kinds of initiatives in your work, Mr. Dine?
    Mr. Dine. First of all, they are both working at the 
grassroots level and as I indicated before, my one enthusiasm 
for such efforts, I think, shows in the results, that both 
groups are achieving. I've already indicated that I think 
Internews is productive and so did you. But, let me just focus 
a little bit on CCI. It's one of the most innovative groups 
that I've come across in my time in the Executive Branch. Small 
business development, credit, financing, innovations. Even in 
St. Petersburg, CCI has been the leader, encouraging people to 
have gardens on rooftops so that cafood production can be 
brought within the city. Both are small. Both are highly productive. 
Both are deeply committed to the goals which follow this.

                         investment initiatives

    Ms. Pelosi. Thank you, Mr. Dine. Mr. Morningstar, in your 
testimony you focused on the strategic refocus on economic 
growth and investment and I think that that's very important. 
And, we've talked about the fact that in Russia, and in many of 
the other Republics, despite our efforts so far, the framework 
for investment simply does not exist. You mentioned various 
agencies will carry out initiatives including Exim Bank, OPIC 
and TDA. They're all funded in our bill in specific mandates 
and separate funding. Will you tell us how they participate in 
these programs in the NIS?
    Ambassador Morningstar. Let me start by talking about the 
program with respect to the regions. We have discussed--as well 
with other Members, a discussion of what agencies and what 
programs we should be involved in--with regard to initiatives. 
As you may know, we are deferring any consideration with 
respect to Exim, as it is--comes to reauthorization and your 
questions relate to--we delete the Exim from a pilot 
standpoint, it's still very much being involved in the regions 
under their existing authorities in a much smaller way than--
before. OPIC, and OPIC does operate under--it's operating under 
its own budget as major commitments with respect to both large 
and small businesses within Russia. They do not need money at 
all to--it would be also looking at the participation in EBRD 
which has had a very successful small loan program in Russia 
working with banks at a local level and we've had extensive 
discussions with them--I believe that that could be 
significantly expanded as well as it can be used to leverage 
other European donors to contribute. We also need to expand NGO 
programs, some of which we've talked about and the Eurasia 
Foundation, and CCI with respect to small lending. FINCA I've 
mentioned before, with respect to micro credit, has had some 
extremely successful programs in the region. We think that we 
should expand those significantly to take care of the gap on 
that--I referred to in my testimony.
    Ms. Pelosi. Thank you, Mr. Morningstar. Mr. Chairman, I 
have many other questions about military sales that Russia is 
making and Ukraine's reported sales to Libya, and other 
questions about Turkey and Azerbaijan and Bosnia, of course, 
which I will submit to the record unless another round is 
allowed. Time prevents me from asking all these questions, but 
I did want to mention them as areas of concern. In closing, I 
would like to thank the three gentlemen giving us testimony 
this morning, Mr. Holmes, Mr. Morningstar and Mr. Dine, for 
their testimony and for their hard work and their leadership. 
You are really changing the world as we knew it and I thank you 
for that work and I appreciate the great challenge that it is. 
Thank you.
    Mr. Callahan. Well, Mr. Morningstar, let me just say that 
Congressman Knollenberg told me he had a meeting he had to go 
to and, Joe, have you resolved or do you need to go further?
    Mr. Knollenberg. I echo the Chairman's comments about our 
experiences in Haiti, and your comments that it was in the 
middle of the spectrum with respect to advances in democracy. I 
would suggest it should be at the lower end. In fact, having 
been to Haiti more recently, and Bosnia as well, I thought 
Bosnia in June of '96 was in better shape than Haiti was in 
January, or April of '97. So, that, that's my own limited 
observation.
    Mr. Dine. I was only using data supplied by Freedom House.
    Mr. Knollenberg. Well, I was using my eyes.
    Mr. Dine. I understand.

                              section 907

    Mr. Knollenberg. Let me look at the situation with Armenia 
and let me just get to--question as quickly as I can. I know 
the position that the Administration has on 907. I know it was 
reported in, I think, Mr. Morningstar's comments that the 
Administration opposes Section 907 and continues to, in fact, 
even since 1992. I also know there have been some changes in 
Armenia in terms of the leadership. The Prime Minister, Mr. 
Kocharian was recently announced and I think he brings with him 
some political neutrality, at least I've been told that. And, 
if for example, I know you promote, in your statement of the 
continuation of helping the parties resolve the--conflict and 
to provide, as best you can, humanitarian assistance. But, I 
guess if you oppose 907, then what is it that you would suggest 
in the way of some interim agreement or some way to bridge the 
problem in the interim and to bring humanitarian assistance to 
those people, both in Nagorno-Karabach and also in Azerbaijan. 
Is there anything that you have in place to consider addressing 
the seriousness?
    Ambassador Morningstar. I have the section 907 and I think 
it's been a hindrance in general to our providing humanitarian 
aid.
    Unidentified Voice. Why do you say that?
    Ambassador Morningstar. Because it isn't getting through 
now--and I think that we would be a lot better off with Section 
907, both from a political standpoint in getting the situation 
resolved and also in allowing for humanitarian and other 
assistance to be provided anywhere within that region without, 
particularly humanitarian assistance, without reference to the 
political issues. And, one of the concerns that comes up with 
respect to Nagorno-Karabakh is, are we getting enough 
assistance into Nagorno-Karabakh and where--and we're looking 
at that section. I think that humanitarian assistance there, as 
well as everywhere, needs to be de-linked from the political 
questions--overall of Section 907 doesn't help solving 
political problems in the region.
    Mr. Knollenberg. I want to talk, too, about the U.S. 
Ambassador to Azerbaijan, who made some comments. This wasn't 
in a written form, but he admitted in February that there were 
demonstrative steps that could be taken, and he is technically 
a member of the Administration, there were steps that could be 
taken to eliminate or alleviate problems associated with the 
delivery of humanitarian assistance. Are you aware of what 
those steps are and, if so, why aren't they being considered?
    Ambassador Morningstar. This is a matter of continuing 
political dialogue with Azerbaijan as well as Armenia. I'm, 
frankly, not the person, not the best person to be answering 
those types of policy and political questions.
    Mr. Knollenberg. Who is the best person?
    Ambassador Morningstar. It probably should come from 
Ambassador Collins as to the specifics for these.
    Mr. Knollenberg. And, are you doing anything to secure 
Azerbaijan in compliance with Section 907 or is that, is 907 
just a throwaway?
    Ambassador Morningstar. No, it's part of the continuing, 
ongoing negotiations to solve the problems within the region.
    Mr. Knollenberg. Mr. Chairman, how much time do I have, if 
any?
    Mr. Callahan. Very little.
    Mr. Knollenberg. All right. Well I--what I will do and I do 
appreciate the extension from my colleagues to allow me to go 
first. I'll get into the second round later and I do appreciate 
very much the opportunity to----
    Mr. Callahan. Ms. Lowey.

                            democratization

    Ms. Lowey. Thank you, Mr. Chairman, Mr. Morningstar, Mr. 
Holmes, Mr. Dine. Thank you, too. I want to thank you for your 
presentation and we understand that democratization is not easy 
and I certainly share the frustrations of our Chairman. Having 
joined Speaker Gingrich and Majority Leader Gephardt two years 
in a row to Russia and the newly independent states and 
Ukraine, the first year, I believe it was '93, we came back 
filled with optimism about the seeds of democracy. We saw real 
change. The second year, corruption was rampant. Mafia was 
surrounding every kiosk. We were told not to leave the hotel 
room and here we are in 1997, and we're still using--Norgorod 
and Boris Nemtsov as our examples of success. In fact, I 
remember in 1994 coming back and our final report focused on 
exchanges and how important the exchanges are. In fact, I must 
say if I recall the report, several years ago, that was the 
area where we strongly advised AID and the other officials--
working on this area to focus on exchanges because we felt this 
was concrete, as you explained so well. Here we are, 1996, and 
I believe Tom--what is it? 1997. Oh, thank you, so much. The 
year's just flying by. And, we're getting younger, right. And, 
I believe Tom said, ``We wished we had focused just on the 
mayors and the places like Nagorno-Karabakh and we're still 
talking about that success.'' I'd like to make two points and 
then ask a question. It seems the corruption, whether it's 
Ukraine or Russia or many other places in this world, it's just 
out of control. But, we are providing aid and so, our rationale 
is that we could have an impact and work within these nations 
to move them closer to democracy and economic reform. Number 
one, perhaps you can explain to us more clearly, what the 
doubling of resources for anti-corruption is expected to 
accomplish and unless it's top secret, perhaps you can expand 
on that. Secondly, if in fact you can explain Tom, or Mr. 
Morningstar and Mr. Holmes, how effective the aid can be to 
smaller units of government. Why cannot we direct our aid more 
effectively towards those goals? And, perhaps I'll ask the 
third question and you can address it as a whole. I'm very much 
interested, as is Mrs. Pelosi and other Members of the 
Committee, in the successes we've seen in that region and the 
other regions of the world, in micro credit programs because we 
know the money is going specifically. I do believe, and there 
are a lot of good men out there, Mr. Chairman, that if we can 
educate the women and the $300 or $400 that can help a woman 
establish a business has a terrific impact on the entire 
community. So, perhaps you can explain to us why we are still 
giving aid. And, I know there are questions--about the central 
government which is taking the money out of the country. Why 
can't we focus the money more on the exchange programs, the 
micro credit programs, the programs to Novgorod and--why can't 
we build on our successes and put in place some safeguards so 
we don't have these frustrations? And, we know it's not easy 
but we're going to stumble and take a few steps back and a few 
steps forward. Could you tell us how we are redirecting the 
programs to focus on the successes so, Mr. Chairman can say, 
``We are delighted to provide this money.'' Right, Mr. 
Chairman?
    Ambassador Morningstar. Well, if you stated, you stated in 
a way probably more succinct and better than I did during my 
opening, why we are requesting more money and why we have a new 
partnership. You basically, within your statement, you raised 
three questions, one with respect to doubling the money going 
to fight corruption, monies going to smaller units, local 
governments and so on--micro credit, in no particular order. 
Let me just say that the whole emphasis of this program is to 
push the money to the smaller units. Part of the trade and 
investment program that we're talking about is to field 
regional initiatives in those regions where they have shown 
progress, where elements and local citizens have shown a real 
desire to--it isn't just the Far East which has a very close 
relationship to Alaska. Another area that we would hope to 
focus on is Samara. In fact the Mayor of Samara is now the new 
deputy within the national government. In these places, changes 
are just taking place. This is something we do have to address. 
I agree that exchanges, for the reasons stated in my opening 
statement, are extremely important. They have tremendous effect 
and they affect people at the local level. Everybody who goes 
back, people who are professionally trained and have been 
getting that professional training, they also have a new vision 
of what the United States is about and they have families, they 
have friends, they have colleagues--it's amazing the feelings 
that they radiate and what they can do when they go back. Part 
of this initiative is increasing the partnerships. That's all 
designed to have an impact on the local community. It's not 
just creating relationships; it's having substantive impact at 
a local level in providing help at a local level. The Municipal 
bond example that I menetioned with Tom--earlier during his 
testimony, is the type of thing that can be done. If you have a 
recent city to city relationship that's spawned a major 
investment. And with respect to micro creditors, this also has 
been very successful. That's why we want to expand on these 
programs. The repayment rate, with respect to micro credit, is 
at least 95 percent and we're getting numbers that would show 
that it's, in fact, considerably higher than that. When you 
lend $100, $500, $1,000, $2,000 to local businesses, they feel 
a pressure to pay that money back and they feel a pressure to 
be successful. With respect to more than doubling the monies 
with respect to crime and corruption, that involves several 
things. We need to work with these countries with respect to 
codes and with respect to enforcement mechanisms. One of the 
major problems in Ukraine is the incredible amount of 
regulation that takes place. The more regulation you have, the 
more opportunity you have for corruption. One of the programs 
that they're trying to get through and have not been terribly 
successful at, at the moment, is deregulation. Tax reform and 
tax administration are critically important. If you don't have 
a rational tax administration system, you just multiply almost 
infinitely the chances that officials, that officials can take 
part in corruption. You have to face these issues. But, we've 
also had some successes with respect to law enforcement 
training. We need to do more of that. With countries, you know, 
it's not a black and white situation. It's not that every 
official in every country is corrupt or that every business in 
every country faces corruption. More and more, there are people within 
these countries that are recognizing that if you're going to survive 
and if the country is going to achieve stability and not fall back in 
dire consequences that could happen if they do fall back, you're going 
to have to address these issues. And, there are more people willing to 
do that with training programs and to recognize that. The legal program 
in Budapest has been singled out as being particularly successful. I 
could go on and on with that.
    Ms. Lowey. Well, I thank you and I think you'll be very 
helpful to those of us who strongly support the AID programs. 
We've seen them. We've talked with the people who are 
implementing them. We support the micro credit program. We 
support the exchange programs because I feel, ultimately, that 
is the way that we can help bring understanding. It would be 
very helpful to us, and I'm sure the Chairman would like to 
present this case effectively to his constituents in Mobile, 
Alabama, if we can have continued examples of successes and be 
assured as best as you can that the money is not going into the 
central government where there is so much corruption.
    Ambassador Morningstar. I would, in fact, if I might just 
add for one second, I would like to take your challenge, Mr. 
Callahan, and I would like to go with you--and I would like to 
talk to a group of any people that we'd like to bring together 
and try to explain the program and let's see what they say.
    Mr. Callahan. You're welcome to come but the Secretary of 
State is also coming. Rather than take the spotlight off her, I 
would suggest, Mr. Morningstar, that you wait till after her 
visit.
    Ambassador Morningstar. I'll do it afterwards.
    Mr. Callahan. With respect to the gentle lady's remarks 
about micro credit, you know, that's a good way to circumvent 
corruption in government. So are--volunteer organizations. And, 
I'd like the lady from New York to know that her comment about 
successful women and then also men did not go unnoticed and 
remind her behind every successful woman, there's a strong man.
    Ms. Lowey. Well, I would say, Mr. Chairman, you're correct 
and our spouses certainly fill those roles. Did we together use 
up our time?
    Mr. Callahan. Yes, we did.
    Ms. Lowey. I would say, Mr. Chairman, that I have questions 
concerning Armenia, Bulgaria----
    Mr. Callahan. We're going to, we're going to get back 
around a second round.
    Ms. Lowey. Oh, are we?
    Mr. Callahan. Everyone has a whole lot of questions, too. 
So, let's get through everybody with the five minute rule.
    Ms. Lowey. Thank you, very much.
    Mr. Callahan. And, then we'll go back.
    Ms. Lowey. Thank you, Mr. Chairman. Thank you.

                             budget request

    Mr. Frelinghuysen. Thank you, Mr. Chairman. Good morning, 
Mr. Ambassador and your colleagues. I certainly, first of all, 
want to associate myself with some of the frank comments of the 
Chair and the ranking member. I agree with many that there are 
sentiments. While I attempted to get, country specific, I'd 
like to get a clearer picture of your overall budget numbers as 
well as the proposed changes in policy and direction for this 
aid. Am I correct, Mr. Ambassador, that to date the United 
States has provided $9 billion in direct aid to the former 
Soviet states?
    Ambassador Morningstar. If you conclude the value of 
privately-donated humanitarian assistance that has been 
transported by the government, you'll be very close to that 9 
billion number.
    Mr. Frelinghuysen. And, of this, if the 9 billion dollar 
number is firm and you said it comes from a variety of sources, 
how much has actually been spent?
    Ambassador Morningstar. If you include September 30th as 
the end of the last fiscal year, the exact number, if you'd 
give me a moment.
    Mr. Frelinghuysen. And, while you're looking for that 
figure, Mr. Ambassador, if it hasn't been spent, how much of it 
has been obligated?
    Ambassador Morningstar. Okay. The total cumulative U.S. 
government expenditures for the NIS as we reported as of 
September 30th, 1996, was $6.794 billion.
    Mr. Frelinghuysen. Okay. Has the rest been obligated?
    Ambassador Morningstar. If you include, yeah, this is from 
all, from all sources, including non-freedom support act, the 
total obligated amount is 8 billion 500 million. This includes 
all sources not just freedom support. This would also include--
USDA, U.S. Department of Energy. I can give you the freedom 
support act numbers as separate numbers.
    Mr. Frelinghuysen. Let me just sort of continue in my line. 
These are fairly basic questions but that's really why we're--
--
    Ambassador Morningstar. Right.
    Mr. Frelinghuysen [continuing]. In this Committee. Your 
request is an increase of 44 percent over last year's levels.
    Ambassador Morningstar. Right.
    Mr. Frelinghuysen. 625 billion, and the overall request is 
900 million?
    Ambassador Morningstar. That's correct.
    Mr. Frelinghuysen. Correct. Of this amount, and correct me 
if I'm wrong, 372 million is for the current--and 528 million 
is for newly proposed--

                        partnership for freedom

    Ambassador Morningstar. That, that's correct. The way we 
have the program structured is that the more traditional 
technical assistance side of the program will be phasing down 
as shown on--maybe you can put that graph back up on the 
easel--will be phasing down over--just put it on the easel--
over the next several years as partnership for freedom phases 
out. Now, the consequence of that, briefly, is that, for 
example, in Russia, in fiscal year 1998, virtually all, almost 
all of the monies that would be allocated to Russia would come 
from the Partnership for Freedom. It would be less--in respect 
to other countries and it would--as we move out in time, the 
Partnership for Freedom will pick up in all countries as the 
other programs phase down.
    Mr. Frelinghuysen. So, for the average citizen, you have 
several unappropriated, unobligated balances from prior years. 
You've told me you have those balances.
    Ambassador Morningstar. That's----
    Mr. Frelinghuysen. Of the balances left, are we now going 
to use them for the new Partnership for Freedom program?
    Ambassador Morningstar. No, we're----
    Mr. Frelinghuysen. Some of your phasing down, correct me if 
I'm wrong. You're phasing down one program?
    Ambassador Morningstar. Right.
    Mr. Frelinghuysen. And, you're starting a new program? Are 
any of the monies from the overall grant going towards the 
purposes that have been set down for the new program?
    Ambassador Morningstar. If I understand your question 
correctly, there are monies from, for example, '96 and '97, 
that will be going to some of the types of activities that are 
part of the partnership agreement. For example, exchanges. Some 
of the local partnerships. The Partnership for Freedom program 
is refocusing our efforts to be more of those very specific 
kinds of activities.
    Mr. Frelinghuysen. I understand the notion. As you 
explained, it's strategically focused. I don't see it, Mr. 
Ambassador, in your budget and proposed timetables for this new 
partnership. As the current program winds down, how long can we 
expect the new program to last and what do you have as the 
proposed budget over that time frame?
    Ambassador Morningstar. I think you can see that going 
through the year 2002 on that chart.
    Mr. Frelinghuysen. Just for the record, if you could give 
us what the time frame of the new program is and the dollar 
amounts in association with that.
    Ambassador Morningstar. Okay. What we, what we have 
provided to you are numbers that--and we also attached the 
testimony as well. The numbers--in 2002, which show that by the 
year 2002, monies will be solely going towards the Partnership 
for Freedom at a total level of approximately $500 million. And 
that, as far as looking out into the future, the point is these 
are the types of activities, increasing investment in the 
private sector, working with private sector companies, and 
working on a local level with respect to changes in 
partnerships and so on, are the kinds of activities that we 
should be supporting out in any event for these countries 
looking, looking at--because they're really cooperative 
activities as opposed to purely assistance related----
    Mr. Frelinghuysen. I'm supportive of those activities and 
goals. I just wanted to know what the timetable is.
    Ambassador Morningstar. We have no----
    Mr. Frelinghuysen. Because the average citizen would like 
to know how long you perceive this Partnership for Freedom to 
continue and at what cost?
    Ambassador Morningstar. We do not have such an arbitrary 
time that--cause these are the kinds of activities that we 
should be carrying out as this generational transformation 
for--and I would hate to say that the year 2002 we'll not 
longer be doing, after 2002, we would no longer be doing these 
cooperative activities, if in fact, it's in our national 
interest to do. We're talking about, in the big picture, we're 
going to be talking about smaller amounts of money and for 
activities that will help sustain this transformation. So, if 
you want to set an arbitrary deadline----
    Mr. Callahan. Rod, we'll give you the opportunity later on, 
but we've got to----
    Mr. Frelinghuysen. Thank you, Mr. Chairman.
    Mr. Callahan [continuing]. Get to everyone. I just might 
comment that what the Congressman was saying and what we're 
saying is that the--stack ought to be on top of the red stack. 
That what you've done is redefine aid through the Partnership 
of Freedom. We support the concept of it, that if you looked at 
what has taken place since I've been chair of this Committee. 
You know, you went from two and a half billion down to less 
than--what, about 800 mil--600 million, or something to that 
extent. And now, what you're doing is reducing there somewhat 
but when you stack that blue on top of it, you're back up to 
pre '95 levels.
    Ambassador Morningstar. We're backed up to----
    Mr. Callahan. To--yeah, yeah.
    Ambassador Morningstar. To about a 95 level, really.
    Mr. Callahan. You're about 200, 300 million above '95 level 
and that's why I say, you run the State Department, you run 
foreign policy, you create the Partnership for Freedom but 
stack that blue on top of the red and recognize it's going to 
be lopped of. Mr. Foglietta.

                                cold war

    Mr. Foglietta. Thank you, Mr. Chairman. I have numerous 
questions--Bosnia, Albania--earmarks. However, if I may, with 
your permission, I would like to digress for a moment. I must, 
with all due respect, and I do have a great deal and admiration 
for our Chairman, take issue with some of the statements that 
were made earlier concerning the logic or the feasibility of 
increasing by $375 million, these various programs that we're 
dealing with today. Mr. Chairman, I think what we're doing here 
today in trying to expend this kind of money, is to prevent a 
reoccurrence of something that I think most of us lived through 
for the past 40 years, namely the Cold War. I sat for 12 years 
on the Armed Services Committee. On that committee we spent 
billions upon billions upon billions of dollars. I think the 
total amount for this--Cold War was estimated--$45 trillion. 
And, I sat there as we spent money on the development of 
nuclear weapons, on fighter planes or stealth bombers and tanks 
and on stationing our troops throughout the world. What we were 
trying to do at that time, to alleviate the suffering of half 
of the world's population--and to bring it freedom and a level 
of human dignity. We were able to do that. With God's help, we 
were able to break down that wall and saw the collapse of the 
Soviet empire. These nations are now trying to develop 
themselves to become self sustaining, to become economically 
independent and democratically free. Over the last years of the 
Cold War, I don't know how many trillions--estimates were 40-50 
trillion dollars we spent. I also heard that the estimate being 
that it cost $80,000 per average for every person in this 
country, man, woman and child, to fight the Cold War. What 
we're trying to do now, Mr. Chairman, is to prevent the 
reoccurrence of another Cold War and I think that there's no 
better investment we can make better than the money we have to 
spend on other programs, stealth bombers, B-2 bombers, attack 
submarines. We need to maintain our national defense. I don't 
disapprove of that, but to talk about not spending an 
additional $300 million to prevent the world from falling back 
into the--of deprivation of human rights and human dignity and 
the--of the free market system throughout the world is hard to 
understand. Mr. Chairman, if I may, some remarks were made 
about the nation of Haiti. Well, members of this subcommittee 
know I'm very, very deeply involved in Haiti. I've been there a 
dozen times in the last five years, maybe more than that. And, 
I take issue with the idea that Haiti should not be considered 
as a success story. Democracy is thriving in Haiti right now. 
You say that only five or ten percent of the people, voted in 
the last election. I agree with that. That was a protest 
election. But, we don't talk about the fact that the last 
election, over 90 percent of the people participated in that 
election. We don't talk about the fact that foreign investments 
doubled in Haiti over the last two years. Economic growth is 
being achieved albeit slowly. Jobs are being created. 
Privatization, is moving. A privatization law has passed. The 
difference from the past was the horrible look of fear on the 
faces of the people of Haiti which now has been eliminated. Now 
there's a look of hope, a look of joy, a look of freedom on 
their face. I think this is what we're trying to achieve for 
the world, and again, I say that an investment of $300 million 
is a very small investment to make to try to create this 
throughout the world.
    Mr. Callahan. Well, the gentleman from Pennsylvania knows I 
have tremendous respect for him, so much respect that I was 
confident the President was going to use his tremendous acumen 
in selecting you for an administrative post. And, even though 
the President's inaction benefits this Committee and this 
Congress by having you stay here, that does not preclude the 
fact that I disagree with you, especially on Haiti and I think 
that we could get into a full discussion on Haiti. You 
mentioned privatization. No privatization has made any 
advancement, not one single of the main areas that were 
supposed to be privatized has been privatized. We have spent 
$1.5 billion there. You talk about human dignity? There is very 
little human dignity in Haiti. You talk about the 300 million 
dollar increase here. This is not the question. The question is 
whether or not we're going to increase the 12 billion. If the 
Administration wants to come back and juggle the figures and 
recognize that the Middle East is not the only problem area of 
the world and that Haiti is not the only problem area of this 
hemisphere, then they can spend 300 more million dollars there. 
We overlook the fact in our debate over foreign aid, and you're 
going to face this. When the two of you come to debate me, and 
I hope it's about three weeks before the election--you come 
down to Monroe County and you are going to debate me in Mobile, 
Alabama, as to whether or not we ought to increase foreign aid 
$6 billion.
    Mr. Foglietta. My pleasure.
    Mr. Callahan. Hey, come down, fellows but make sure--very 
seriously, I have invited the Secretary there and she has 
agreed to come. And, we don't take lightly our responsibility 
and I recognize one thing we failed to include is the 
ingredient of our national defense. You mentioned the national 
defense. It must be like a security blanket for some of these 
nations to know that if a problem exists, then our $300 billion 
that we're spending on the national defense will protect them 
and we must include that when we talk about our contribution 
towards world affairs. Japan doesn't have that problem. They 
say, well Japan's given more than the United States. Big deal. 
Japan doesn't have the responsibility we have to provide a back 
up, a safety valve for people like Kuwait, a safety valve for 
people in Bosnia, where the United States can make that 
contribution. So, we can debate Haiti and I would love to talk 
with you about Haiti and talk with you about what we saw and 
what we heard. But that will be another day because I'm 
already----
    Ambassador Morningstar. Is it possible, Mr. Chairman, with 
your permission, to respond briefly to some of the comments by 
Mr. Foglietta?
    Mr. Callahan. Well, what is this, a hearing, you think? 
Certainly, Mr. Morningstar.

                                 Russia

    Ambassador Morningstar. And, it also actually indirectly 
addresses some of Mr. Frelinghuysen--well, he's not here right 
now, I guess. But, Mr. Frelinghuysen's been--I think we have to 
ask ourselves the question and I think Mr. Foglietta's point is 
well taken. The argument for doing what we're proposing is an 
argument that this is in America's interest, not that it's in 
Russia's interest or the Ukraine's interest or whatever. One of 
the reasons why we're asking for more money is so that we would 
be allowed or we would have enough to provide $240 million, 
approximately, is what we're talking about. We know the number, 
we have a chart to show the numbers. $240 million for Russia. 
Russia is still the one country in the world that has the 
power, if not to destroy us, but to wreak considerable havoc on 
us. And, if we can spend that money in an intelligent way, to 
increase the private sector, to work at a local level, as you 
were talking about just a few moments ago, which is what this 
program is all about, and by doing that, at least have some 
effect on increasing the chances of stability and Russia 
becoming a market democracy. There has to be a worthwhile 
investment. The other thing the Partnership for Freedom says, 
is that, and reason for more money, is that it will allow more 
money to go to Central Asian countries and Caucasus countries, 
but these are countries that have been, I think, neglected in 
the past and allow for 50 to 60 percent increases of very small 
numbers, the countries which are politically important, 
commercially important and where we need to do considerable 
democracy.
    Mr. Callahan. Mr. Packard.

                                Ukraine

    Mr. Packard. Thank you, Mr. Chairman. I don't think we 
disagree that the goal is noble and worthy of the expenditure 
of money because of American interest. I think the fact is that 
we're not getting our money's worth. We're simply not 
accomplishing our goal and putting more money into a failed 
foreign policy in the two biggest countries in the New 
Independent States, is not always the best solution in my 
judgement. I will come back to the Ukraine. Now I'd like to 
talk about Russia because I think the problems that I see in 
our policy there are similar. But, the Ukraine is perhaps the 
most vivid example of failure in terms of the amount of money 
that we've spent. The American taxpayers are simply subsidizing 
crime and corruption in that country with our foreign 
assistance. We invest more money in the Ukraine and Russia than 
all the rest of the NIS put together and frankly, the charts 
have shown that we have received the least progress there, or 
among the least progress of any of those countries. This is not 
a good policy and it is not a good investment of our money. We 
are putting more in and getting the worst results. You've 
mentioned, Mr. Morningstar, that we are making progress on the 
reforms in the Ukraine and yet at the same time and I don't see 
that progress. The best reformers in the Ukraine are resigning. 
In fact, the Prime Minister said that his, I think the quote 
was, ``His captain of economic reform'' is the way he 
identified the very person that is, in deep frustration, 
leaving and resigning. American business is retreating from and 
fleeing from the Ukraine. We're frankly, in my judgment, losing the 
battle on reform. Corruption is increasing and to me the answer is not 
to send a bigger check to solve the corruption problem. It is the money 
that's flowing into the Ukraine that is being exploited by corruption 
and making millionaires out of government bureaucrats on our taxpayer's 
money. So, I have deep, deep problems with our policies there and our 
solutions there. I personally would strongly urge that we, as we have 
tried to do with China, where we tie human rights progress to the MFM 
agreements, that we tie progress in corruption and crime and to our 
assistance to the Ukraine and Russia, especially to the Ukraine. I 
would much prefer, and I think you're right in saying that we ought to 
be involved, and keep our involvement there. That's our best hope for 
democracy there, and, I have no problem with that. I would suggest that 
we divide our assistance where we would give half, or $100 million, to 
them with no strings attached as we've been doing and the rest of it 
would be contingent upon measurable and demonstrable progress on their 
human rights--I mean, on their corruption and on their problems within 
the government. If there is no demonstrated progress there, they do not 
get the other half, frankly, in this year, in this new budget year and 
something to the effect where we put strings attached that require some 
results. I don't see that in our current policy. I have not seen that 
in the past policy and, frankly, I just don't believe we're getting our 
money's worth. Would you respond?
    Ambassador Morningstar. First of all, let me again 
reemphasize that I know that the Administration as a whole is 
very concerned about the issues that are raised with respect to 
the Ukraine. That we do condition our assistance upon these 
issues. We made it very clear that unless certain steps were 
taken with respect to privatization, the monies that were going 
to that area were going to be sharply reduced. I think we have 
to give some tough messages to the Ukraine with respect to the 
need for reforms to continue, the need for corruption to be 
cleaned up. But, I also don't think we should have our hands 
tied. We have to be able to deal with the issues. I also think 
that it's important to recognize that this isn't a zero sum 
game. We're never gong to be in a situation where everything is 
all bad or everything is all perfect. There are issues, issues 
we need to be concerned about. We have to keep our eye on the 
long term goal--and we have to have the ability to do that. 
But, we also have to get the tough messages out that you're 
talking about.
    The other thing that I have to take some exception to is 
the comment that U.S. monies are going to make government 
officials corrupt. I think we have to understand, all of us 
understand, that the monies that we are providing do not go 
directly to the governments, whether they be in Ukraine or in 
Russia. Nobody is getting rich, as far as I know, as far as 
officials, on specific assistance monies. And what we have to 
concentrate and the whole reality, the whole reason for 
Partnership for Freedom Program is to do the kinds of things 
that I hope you would agree that we ought to be doing, working 
at the committee levels to build that pressure from the bottom 
up so that there is pressure within Russia, pressure within 
Ukraine, pressure within these other countries, that 
constituencies build to advocate for change, because it's not 
necessarily going to come from the top down. So, I agree with 
you that there are very major issues and we have to address 
them.
    Mr. Packard. If in fact you have--and then I'll conclude, 
Mr. Chairman. If in fact you have placed conditions and said to 
them in the past that if they don't meet these conditions then 
the money will not--would not come, then I don't understand 
your request, your request for equal amounts of money going to 
the Ukraine and more--considerably more going to Russia. I 
don't understand why there hasn't been cutbacks, because it's 
obvious that there has not been improvement in the corruption 
problems.
    Ambassador Morningstar. When we, when we came up with a 
number through--I mean, of $225 million----
    Mr. Packard. Which is about the same as last year.
    Ambassador Morningstar. Which is the same as last year. We 
were in a situation where the Ukranian government, through the 
leadership of President Kuchma have provided to the Rada a 
major reform package which I think is critical to their 
ultimate involvement and ultimate stability. They have just 
passed a constitution. They have done well with respect to 
operating in a democratic fashion with respect to elections and 
the like. This is balanced by this whole question of this--
these issues with respect to corruption, whether, in fact, this 
reform package is going to pass. If this reform package doesn't 
pass, if we don't start seeing some very quick action to deal 
with some of these egregious issues, then yes, I think we have 
to look at that our total numbers. As we did in the case of 
privatization in the past. And through our efforts, although 
things are nowhere near cured at this point for Mr. Lemire, 
because of our involvement I think we have made at least some 
progress, and more than would have been the case otherwise.
    Mr. Packard. But in light of that, Mr. Chairman, I would 
strongly urge that we put language in our bill this year that 
would absolutely fulfill that commitment, that we do not allow 
money to flow if we have not seen a commitment on their part 
towards these reforms through their parliament and through 
their government leaders.
    Mr. Callahan. Ironically, the problem is not the House nor 
the Administration.
    Mr. Packard. I understand.
    Mr. Callahan. The problem is the United State Senate. Jim, 
I guess, had some response to that.
    Mr. Holmes. Mr. Chairman, it looks to me as though I'll 
have one shot and one shot only with respect----
    Mr. Callahan. No.

                              seed program

    Mr. Holmes [continuing]. To SEED, and I'd like to take it. 
The Congressman's remarks with respect to getting our money's 
worth and achieving our goals I think is the opening for me to 
make a point that we need to be careful that the good story of 
SEED not be buried in this. It would be silly for me to claim 
that there is no corruption in central and eastern Europe, 
particularly in light of the events--in Albania in the last 
month and a half, the ``Ponzi schemes'' and the demise of the 
government and the anarchy which resulted from it. We were not 
parties to that in any way and we did--we make every effort to 
oppose it. But overwhelmingly SEED has been successful in 
creating the sort of climate in central and eastern Europe which is in 
the U.S. interests and, I would submit, enables America, whether from 
Mobile or from upstate New York where I come from, to be able to 
flourish. Investment, trade, our own security has increased 
dramatically over the last eight years, and I would submit not least of 
all because of the effect in this of our SEED Program.
    I can also assure you that our close-out strategy, which we 
are implementing now, particularly in the Northern Tier 
countries, focuses very heavily on a few remaining requirements 
to complete the picture. And it identifies those aspects which 
may be at the grassroots: It may be civil society; it may be 
assistance to nongovernmental organizations; it may be the 
improvement of legal systems and commercial law; it could be, 
as Congresswoman Lowey suggested, that we focus increasingly on 
micro-credit schemes, where, in the case of Poland, we have 
mounted the world's largest micro-credit scheme, in excess of 
$20 million, much of which goes to women in Poland. These are 
the sorts of things which we have focused on in order to be 
able to say to ourselves, and to our recipient states, that we 
have succeeded in the job which we had set out for ourselves.
    In SEED I believe that we are approaching the point where 
we are completing this picture. I believe that we have been 
faithful to our undertaking with respect to the commitments 
made to the Congress and to this Committee to do so. I think 
overwhelmingly we have demonstrated an ability to manage these 
funds and the objectives in a way which merits our full funding 
for the next fiscal year.
    Mr. Callahan. Well said. I'll respond after we hear from 
Chairman Wolf. Sorry----
    Mr. Wolf. Thanks, Sonny.
    Mr. Callahan [continuing]. To be so long in recognizing 
you, Mr. Chairman.

                               corruption

    Mr. Wolf. Okay. A couple of comments. The Administration 
really hasn't done a very good job on the whole corruption 
issue, when you look and see some of the names of people that 
have been invited to White House coffees. And you have too with 
regard to this a Mr. Tamaras, or whatever his name is, with 
regard to the pipeline, and you've had the Russian mafia guy, 
Louchensky, or whatever his name is. So, I think it's important 
that you walk the way you talk and you speak out on those 
issues. They should be persona non grata, not only in the White 
House but in the embassies around the world, and we should make 
it very, very clear: we do not deal with these people as 
government officials. And I think the Administration has been 
very, very weak.
    Secondly, as I see there today, I wonder about this whole 
NATO thing. I think in a year from now the American people are 
going to begin to wonder whether they can afford this. And when 
I see some of these numbers here, I think it would be 
preferable for these countries to be putting their money into 
economic development and transportation and telecommunications 
rather than tanks and AK-47s and missiles and things like this. 
So, I think the Administration's position on NATO may end up 
being a mistake.
    The last point I wanted to make is, though, we have 
emphasized the negatives. I want to congratulate--I mean, there 
have been a lot of very, very positive things. Romania is a 
great story. In 1989, Ceausescu, bad things--In 1997, 
Constanstinescu is a democratically elected president. The 
parliament is democratic and there are a lot of positive 
things. Things in Bulgaria hopefully at the end of the month 
will be very, very positive. So, there have been some bad 
things, but I also don't think the record should show that just 
bad things have happened. A lot of very, very positive things.

                              Section 907

    Quickly on three issues: 907, Nagorno-Karabakh, Azerbaijan. 
Section 907 only restricts aid to the government, not 
humanitarian assistance. You have given, or we, the country, 
has given $16.4 million to Azerbaijan. You've given nothing to 
Nagorno-Karabakh. And I think you really are going to have to 
deal with that issue. I supported changing section 907 to make 
it easier to provide humanitarian assistance. I went there and 
saw what I saw. And now the Administration opposing. Will you 
do something some way somehow? The Red Cross did an evaluation 
of the children in Nagorno-Karabakh--very, very bad. Diarrhea, 
respiratory problems, limb problems. Will you pledge here 
you'll do something with the government in Nagorno-Karabakh?
    Ambassador Morningstar. What I will, what I will pledge is 
that we are assessing the needs in Nagorno-Karabakh, that we do 
in fact provide something through the Red Cross, that--to the 
extent we will try to do whatever we can through the Red Cross 
to meet those needs and do what we can to de-link this 
humanitarian assistance/political issue throughout the region.
    Mr. Wolf. Well, you've got--I mean, every day more kids die 
there. And I think it's unbalanced when you look at what you're 
putting in to these areas. I favor assistance. I felt that we 
should do that. But then you turn around and not do it, and 
then Armenia is getting so much here. I think you really are 
going to have to deal with that.
    Secondly, with regard to Tom, is there more you should be 
doing to help with technical advice for the Romanian 
government? The indications are, I'm having, there's a delay. 
The elections were four months ago. We still haven't done 
everything we possibly can. I'm not talking about big-dollar 
programs now. But technical assistance?

                                Romania

    Mr. Dine. Congressman Wolf, we are very much engaged with 
the Romanian government. We just sent a technical advisor from 
our own military who has had experience at the National 
Security Council level to work with the Office of the 
Presidency on reforming that office and also with the thought 
that President Constantinescu may reformulate Romania's former 
National Security Council. There have been technical advisors 
already assigned to the Finance Ministry. The Finance Minister 
was here two weeks ago. And there will be more. We are engaged 
with the State Property Fund, with the privatization efforts. 
We've had several exploratory groups there. They've come back 
and made recommendations. We're trying to get them going out as 
fast as we can. Next week not only will I be there but all 
mission directors in the Europe and the Independent States 
Bureau are going to have our annual conference in Bucharest.
    Mr. Wolf. Oh, good.
    Mr. Dine. And the President has agreed to address us on 
this Sunday night and will be meeting with other officials.
    Mr. Wolf. Good.
    Mr. Dine. This is of utmost importance to all of us. As 
I've said to you privately, I've said to others, Romania is the 
keystone country in the southern tier. If we can help them be a 
success for the first time, it will spread to Bulgaria.
    Mr. Wolf. Exactly. And I think it helps you make your case 
around the country too as to the positive aspects that have 
taken place. Why hasn't President Constantinescu, and I know 
this is not your area, been invited for a visit to the United 
States? I'm worried that somebody is trying to control this in 
the State Department. Here is a guy who's democratically 
elected. We have a democratically elected parliament. In a 
country that has such a bad record with Ceausescu, why are we 
not bringing him over here, If not for a state visit whereby he 
can meet with the President, why not meet with the Secretary of 
State?
    Mr. Holmes. Congressman, I'd be happy to take that request 
back. I can assure you that it is not the consequence of lack 
of regard for the reform prospects and the opportunities----
    Mr. Wolf. When I see some of the people, though, that the 
President's meeting with and I compare it--I mean, I'll go back 
to the coffees of John Wang, who was head of the 
PolyCorporation who sold the weapons for the street gangs in 
L.A., If he can meet with the President, and Constantinescu who 
is a democratically elected president can't. I really think 
you've got to get him in here very, very fast and you also 
should have the President of Bulgaria in here very, very fast. 
They are two--they are good success stories. I mean, I give you 
guys credit for a lot of that. I mean, they're----
    Mr. Holmes. I've just been handed a note which says that 
the--that a request has been made for--to the White House for 
the President of Romania to visit during the first half of this 
year.
    Mr. Wolf. The first half? So, by----
    Mr. Holmes. I'm not giving you an assurance it's going to 
happen, but that's the, that's the request.

                                Bulgaria

    Mr. Wolf. Well, I tell you, if it doesn't happen, then, 
I'll tell you, my attitude would be for these is you'all are 
not walking the way you're talking. When I again see some of 
the visitors who are, who are running through the White House 
and you can't get a guy like him in and the new President of 
Bulgaria, who have done--they are, they are to your credit. I--
and I saw Mr. Dine there and I think a lot of that is very, 
very positive. This is a great story to tell. I mean, we 
remember the orphanages in 1989. We remember all the bad 
things. There's a positive activity. There's total religious 
freedom there. There's a market economy coming in. You've got 
to get a guy in like that whereby he can go back and 
demonstrate to his people--they are going to go through, as Mr. 
Dine knows, some very tough times because of their economy, 
what they're going to have to go through. We have an obligation 
to bring them in--and I'm a little bit worried that we don't 
recognize that. So, I would hope, if there's anyone listening, 
that they bring both the President of Romania in and also the 
new President of Bulgaria, particularly after the April 19th 
elections, which I think are going to be very, very positive. 
They I think will anchor that sell. So, if you can look at how 
we get aid into Nagorno-Karabakh and if you can--and I know you 
guys are kind of in the same building with--let us know when 
will the President of Romania be invited and when will the 
President of Bulgaria?
    And I second what the Chairman has said on the problems and 
corruptions, but I also do want to say that I do want to 
congratulate--you have had some successes. And while we just--
we can stress Ukraine and we can stress some of the other, we 
also should talk about some of the good things. Thank you very 
much. Thank you, Mr. Chairman.
    Mr. Callahan. I thank you. How long would it normally take 
for the White House to give you an indication as to whether or 
not they were going to accept your advice on the invitation to 
the President? I mean, what are you talking about, two weeks or 
three weeks or--or will they call you up?
    Mr. Holmes. I can't say, Mr. Chairman, but I will be happy 
to check and----
    Mr. Callahan. Well, I'd like for Congressman Wolf, and I 
would like also, to have some type of indication from the 
Administration. If it takes three months to prepare the letter, 
we can understand that. Or I guess if it's going to be in the 
first half of this year, it's got to take less than three 
months. But I think some indication coming back this week, if 
you contact the White House, and let us know what they say. Is 
it going to happen or is it not? They can tell you that. It may 
take some protocol to put the invitation in the mail. But I 
think Congressman Wolf is right. I think he deserves an answer 
and this Committee does, a response as to: what is the response 
from the White House going to be, yes or no?
    Mr. Holmes. I can assure you that the interests of this 
Committee is shared by the Administration to see that the 
political and the economic risk-taking which the new 
governments in both Romania and Bulgaria have indicated they 
are prepared to undertake, will have the support of the 
Administration.

                    Public Perception of Foreign Aid

    Mr. Callahan. But I'd like to also echo some of Congressman 
Wolf's comments about the good that you're doing. This 
Committee hearing is in no way an indication that we disagree 
with everything you do, because we agree. In fact, this 
Committee feels like we ought to give you the latitude to do 
what you want to do.
    But we joke about going to Mobile, Alabama, to have a 
debate on foreign aid. A perception is here. The perception 
they have of the articles they read in the ``New York Times.'' 
The perception is that we're giving money to a country whose 
government leaders are skimming off of contracts being brought 
to their country by American business people. I mean, that is 
the perception of foreign aid. The people in Monroeville, 
Alabama, would probably vote 25 to 0 to fund the Child Survival 
Account. But when you're talking about giving money to 
countries, you have almost absolute knowledge that the 
leadership of the country are skimming millions of dollars off 
the top of contracts for government services being rendered or 
sold, how can we justify that? How can I justify the rumors of 
Haiti, where I'm told that former government official of Haiti 
demands 25 percent of every contract and yet the people are 
starving to death? How can we justify that?
    And I know that's outside of your realm of responsibility. 
So, it's not a damnation of the program. The President has 
requested $5 billion more, not just $300 million more. We're 
not going to give him $5 billion. We're not going to give him 
$1 billion. We're not going to give him $300 million. If he 
wants to shake this request up a little bit and say that the 
needs of the former Soviet Union are greater than they are in 
any other section of the world, hecan, he can spend it, as far 
as I'm concerned. He was elected by the people of this country to run 
foreign policy. He has hired professionals to administer his foreign 
policy. And the Constitution gives us the authority to appropriate. And 
I think we abuse our authority when we start earmarking. And this House 
and this Committee has not done that since I've been its Chairman, or 
even my predecessor. Dave Obey didn't earmark.
    So, we're doing the responsible thing in the House, but 
part of our responsibility is to play a part of the overall 
Congress, where the people of the First Congressional District 
of Alabama pay $1 billion a year in Federal income taxes. They 
probably pay $5 billion in Nancy's rich district.
    Ms. Pelosi. One thing is we pay more than we get back. I 
know that.

                             budget request

    Mr. Callahan. Well, what I'm saying, each Congressional 
district actually pays about a billion dollars in Federal 
income taxes. So, if we are saying to the people of Alabama 
that we want all of the money you pay in your income tax and 
five times that amount to give to other countries, it's a 
difficult political sell. Now, we could talk about the rights 
and the wrongs and morality and immorality of not doing it, and 
world involvement and our obligation to make this a better 
place and an area of human dignity and an area of human rights. 
We all support that.
    So, it's not your $300 million request. It's the $5 billion 
request that we're not going to be able to give you. I mean, 
the President knows that. You all know that. So, you force us 
then to start making decisions that belong to the 
Administrative branch of government. So, it's not a carte 
blanche damnation when we question you. We support most of the 
activities that you do. But, Dick, you don't have to go home 
and listen to people griping about foreign aid. You know.
    Well, I guarantee you Rogers (Phonetic) in Alabama are 
probably the ones planning the meeting. We have a political 
responsibility here too that we have to respond to. We have to 
justify this. We can't go and say: oh, don't pay any attention 
to the ``New York Times.'' That's a liberal northeastern 
newspaper. That sells big in Alabama. But they believe this 
part of it.
    So, we have the problem too. But I've got some questions 
and I didn't ask my questions first time around. I sort of 
editorialized after we had gone through this.

                                 bosnia

    Jim, you went with me to Bosnia when the President came to 
us and said, really to this Committee, because he couldn't find 
a whole heck of a lot of support in the Congress, he said: we 
want this Committee to look at the situation in Bosnia. Come 
back and sell the Congress of the United States on a $600 
million contribution, which is the only way we can get 
international acceptance of this program to reform and rebuild 
Bosnia, and therefore do your American duty. So, I didn't tell 
the people of Alabama I was going to Bosnia to act like Santa 
Claus. We did the constitutionally correct thing. Even though I 
told the President, and many others did, we disagreed with our 
entry into Bosnia, militarily and otherwise, but, Mr. 
President, you are the President, you make that executive 
decision, and then I'm going to do what I can to support you if 
that is your decision. And that's what I did.
    I went to floor. I talked. And I convinced, or helped to 
convince, our colleagues to make the commitment of the $600 
million. And you and I went over there to look at it. One of 
the things we agreed when we were all over there was that in 
meeting with Snuffy Smith--incidentally, a Mobilian--who was 
head of the forces there, the IFOR forces there, when we met 
with him he emphasized that the military ought to be the 
determining factor of our share, at least, or the lion's share, 
of how the money should be spent. Now, I'd like to know had we 
followed the request of the military in spending the monies we 
sent there to--we have put up $400 million of our $600 million 
promise--had the other international community members 
contributed their full share, and if not, who has not; and, 
number three, what's going to happen in Bosnia when the 
President pulls these people out. Now, originally at the White 
House when he was saying: Sonny, go get me that money; Sonny, 
go to Bosnia; Sonny, go to the floor, do this. When I say that 
``Sonny,'' I mean this Committee: go convince your colleagues 
that we are only going to be there for a year. He promised me 
that. And now it's two years. Can we get out? Is the 
international community cooperating? And is it going to do any 
good at all other than the good it's already done, by stopping 
the people from killing each other over there?
    Mr. Holmes. Mr. Chairman, first of all, let me express the 
Administration's appreciation for your personal strong support 
and the strong support of this Committee. Specifically with 
respect to that, the supplemental request and the follow-on 
request for funding in Bosnia, your willingness to do this, as 
I said in my opening statement, is greatly appreciated.
    With respect to the--responding to the interests of the 
U.S. forces and the IFOR commander at that time, Admiral 
``Snuffy'' Smith, and your interests, the community's interest, 
to see that our recovery and reconstruction money was directed 
towards U.S. IFOR areas and U.S. IFOR projects, a twofold 
answer:
    One, virtually 100 percent of our assistance program in 
1996 was directed towards the U.S. IFOR area--SFOR/IFOR.
    Two, in addition to that the U.S. SFOR/IFOR Command has 
repeatedly registered with us their priorities for what was--
what they originally called ``Task Force Eagle lists,'' as I 
recall--their priorities for local reconstruction projects. And 
we have been able to fund those local reconstruction projects, 
whether they are in the, in the Bosniac Federation Area or in 
the Republic of Srpska area. We have been able to fund a 
substantial number of those local infrastructure projects to 
the tune of about 5 or 7 million dollars this past year.
    So, I would answer to your first question that we have 
abided faithfully to the understanding which you had with us 
and which you had with the, with the U.S. Command.
    With respect to the second question, whether other 
countries are doing their full share, the pledging conference 
of last year was to raise $1.9 billion. $1.9 billion was indeed 
pledged. Of that amount, the U.S. pledge was approximately $290 
million. It represents something on the order of 14 percent of 
the amount pledged by other countries, other bilateral 
countries. The overwhelming, the lion's share, in excess of 50 
percent of the share of the pledging came from the European 
Union and member states of theEuropean Union. We believe that 
this is an appropriate relative share for the United States and they 
have indeed followed through with their pledges. And in excess of $900 
million of the 1.9 billion which was pledged has been put into play 
into implementation in Bosnia this past year. The U.S. record in this 
regard, and I would say it's a credit to the outstanding work of USAID 
and our other implementing agencies, the U.S. record is even better 
than that. Of the 290 plus million dollars which we pledged, we have 
now in various stages of implementation in excess of $260 million. So, 
we have, we have not only taken the money, we've identified the--and 
designed a program, but we have it in play and our--the result is a 
program mounted by the U.S. which I believe is a model for others to 
emulate in delivering reconstruction civilian implementation assistance 
to Bosnia.
    With respect to the third question of what will happen in 
Bosnia, I don't know what will happen, but in 18 months the 
U.S. troops will come out. U.S. troops were extended for 18 
months, not because the civilian implementation hadn't fallen 
into place, not because economic reconstruction wasn't doing 
its job. I think that we certainly had opportunities for us to 
do a better job. But, rather, because it was clear to all that 
in the absence of an international security force, not 
sufficient groundwork had been laid for the two entities to 
exist together without recourse again to violence, or at least 
the high risk of recourse to violence. We believe that an 
additional 18 months will help us immensely in making progress 
in terms of creating the sort of conditions between the 
entities which can be politically successful for them to exist 
without reference to violence as the international military 
forces withdraw. It depends upon the success of the 
reconstruction effort. It depends upon the successful mounting 
of an international police task force, police training but, 
most of all, it depends upon the success of the political 
leadership in the two entities to find ways in which they can 
co-exist, accommodate, and work together.
    Mr. Callahan. Well, if you will recall, you know, I 
mentioned Santa Claus, I guess I was like Santa Claus because 
the world was telling Bosnians that if we--the United States--
somebody else would. So, they requested, the Administration 
did, that we go over there and we did. But it became apparent 
to me that there we were, like Santa Claus, determining whether 
or not $1.9 billion was going to be pumped in to reconstruct 
the former Yugoslavia. That's what we were doing there. And if 
we were impressed and if we were certain that all of the money 
was to be spent in an appropriate fashion for appropriate 
needs, this was going to start this huge expansion process of 
the economy of Bosnia.
    If you would recall, we couldn't get a Serbian mayor to 
meet with us in the same room with a Croatian mayor. Now how, 
under those circumstances, could we possibly expect, once we 
withdraw, if they will not even meet with Santa Claus, how do 
we expect they're going to get along when all of our forces are 
moved out and our money stops coming, the 1.9 billion is spent? 
That's an observation I had and a fear that I had from the day 
I left Bosnia to this day.
    Mr. Holmes. Mr. Chairman, I believe if you would go again, 
today, tomorrow, you would find ample evidence for you to 
continue to husband some of those fears, but there have also 
been successes. We have been successful in--I would describe a 
dramatic increase in employment, a dramatic increase in 
economic growth and economic activity. It is clearly the result 
of the in-flow of money from outside. What we are looking for 
is more economic activity which is self-sustaining. That will 
come with time.
    We have also made some political progress and we can share 
with you some of the details of that political progress. But 
there continues to be outstanding problems with respect to the 
interaction between the leadership of the two entities which 
will require every day, every month, every day of the remaining 
period of time over the next 18 months for us to feel that we 
have created a certain environment which can be self-sustained 
by them as the international force withdraws.
    Mr. Callahan. One more thing. Twice you've said: the next 
18 months.
    Mr. Holmes. Now, you can correct the, correct the record in 
that regard if you wish. It's an 18-month commitment from 
December of 19----
    Mr. Callahan. I understand, but this is April, so we have 
four months. So, we're talking about the next 14 months instead 
of the next 18 months. You're going to be out in July of '98?
    Mr. Holmes. The Administration's commitment is for the 
military units to be--for the task to be completed on time; 18 
months after last December.
    Mr. Callahan. Are you optimistic that we're going to be 
able to successfully withdraw all of our forces from the former 
Yugoslavia by, what is it, July 1, '98?
    Mr. Holmes. That's a question which is best addressed to 
someone else. I would either lose my head or some other part of 
my anatomy if I attempted to answer that.
    Mr. Dine. Mr. Chairman, can I make this----
    Mr. Callahan. Sure.
    Mr. Dine. One of the themes of this whole discussion this 
morning has been earmarking and restrictions and flexibility. 
And I would just like to join with Jim in expressing 
appreciation to you and the Members of this Committee because 
you, in allowing us to have sufficient funds and no strings, 
have helped make AID's work in Bosnia so praiseworthy. I don't 
have to say it this morning. It would be stupid of me to say 
it. But we've been successful so far and I say to you, I submit 
to you, that one of the major reasons has been that you gave us 
the funds and you gave us the flexibility. I wish that would be 
the model of the rest of our efforts.
    Mr. Callahan. When you all get down to Mobile, there's a 
couple of things I would like for you all-- to remember let's 
not talk about my cooperation with the President.
    Ambassador Morningstar. '98 is a long way----
    Mr. Callahan. Let's not even let it be known that I'm 
chairman of Foreign Operations Subcommittee.

                         bilateral commissions

    Let me see. Mr. Morningstar. You're the President's 
coordinator for the former Soviet Union. The Vice President now 
heads this bilateral commission that appeared to control the 
relations with Russia and the Ukraine, and we don't know 
anything about that commission or what he's doing. The only 
thing we know is what we read in the papers and that these 
spare people or national security counsel staff and the Vice 
President's people who are accountable only to him and the 
President. And how are your duties affected by that commission? 
Are they abetting you or are they assisting you or does this 
interfere with your ability to have an effective relationship 
with the countries? And how can we as a committee become better 
informed on what he is talking about?
    Ambassador Morningstar. First of all, it's had absolutely 
no negative effect on what I'm trying to do. And----
    Mr. Callahan. I wouldn't expect you, Dick, to say that it 
was anyway.
    Ambassador Morningstar. No. And I say that in all candor. 
And I am actually a member of the Gore-Chernomyrdin Commission. 
And the Gore/Kuchma Commission was set up in a slightly 
different way. And then I'm co-chair along with Mr. Lipton, 
Assistant Secretary Lipton of the Treasury Department, on a 
Joint Committee on Economic Cooperation with respect to 
Ukraine. So I'm very much involved.
    I can't comment on the coordination of communication with 
the staff in the White House with respect to that. I can say 
that I think that it includes an agreement in both cases. I 
think it's extremely helpful. It provides a vehicle, a dialogue 
with the leaders of those countries which I think is unusual, 
and it allows us to deal with very substantive issues in any 
number of economic related areas and other areas in both Russia 
and the Ukraine. I know that there probably is concern: is this 
causing increases in budget, increases in monies being spent, 
and so on. It really isn't any. I think I can say that, I could 
give you more details at a later meeting, that our actual 
spending has not been significantly increased by the activities 
of those two commissions. I do think that it's better directed, 
better coordinated, as a result of it. I think it's something 
that the Administration can be proud of and ought to be 
communicated with----

                            enterprise funds

    Mr. Callahan. We briefly touched on the Enterprise Fund 
with Jim and, I guess, Tom. The Polish American Enterprise 
Fund, I guess one of the first funds we created, and doing 
quite well. And it's achieving the status that they intended 
that the money ultimately was to grow through private 
contributions and through investments and then their debt paid 
back to the United States--or the advance be paid back, without 
interest, I might add.
    Now, officials from the Fund told us they could turn over 
$100 million back to the Government in the near future. We need 
the status of those funds. Now, what would you do with those 
funds if they were returned? Does it go back to the Treasury 
for re-appropriation or can you re-donate or re-allocate these 
funds? And is the Polish Fund a model? Is it the model for an 
enterprise fund? Well, let's talk about the Polish Fund first, 
and then we can talk about the Czech Fund and the Slovak Funds. 
But let's talk about the Polish Enterprise Fund first.
    Mr. Holmes. Mr. Chairman, if I could take the last question 
first and that is: is this a model? And one of the reasons that 
we are being so careful with respect to this is that we believe 
it is indeed a model and that we ought to get it right with 
this first opportunity to deal with the issue of re-flows. It 
is certainly well out in front of any of the other Enterprise 
Funds in terms of the, of the opportunity, and therefore we 
want to get it right. We want to see that it's coordinated with 
Congress because we have an outstanding commitment from 1993, 
with Congressman Obey, that whatever happens with respect to 
this issue and re-flows, it will be consulted with Congress 
before the Administration pursues.
    Now, with respect to the issues of amounts and what happens 
to the re-flows, I am hopeful that before this month is out we 
will be able to come back to this committee, staffers and 
Members, with a detailed Administration proposal in this 
regard. There are several options. What is clear is that the 
Polish-American Enterprise Fund has been sufficiently 
successful for monies in the form of sales of subsidiaries and 
for profits from its investments to be returned. Whether it is 
returned to the U.S. Treasury or whether it is returned to us 
for reprogramming in the form of a foundation, or whether it 
is, it is dealt with in a mixture of this, it's something which 
we need to complete the formulation on and bring to you, Mr. 
Chairman, and to this committee as a proposal of the 
Administration for handling this.
    The clear thing for me is that we are seeing the success of 
a unique mechanism of foreign assistance here, which not only 
will have the consequence of demonstrating the technology of 
private investment in central and eastern Europe, but also 
returning profit and enabling us, enabling some foundation 
perhaps, or enabling other entities of the U.S. Government to 
make further use of the money which results from the re-flow of 
these funds.
    This is an outstanding good story. We look forward to 
coming back to you with a proposal and to working with this 
committee on the final U.S. Government position, which we would 
then need to take to the government of Poland.
    Mr. Callahan. I've encouraged the Polish Enterprise Fund to 
look at the possibility of an adopt-a-country program. 
Specifically, I had suggested Jamaica. That Jamaica has great 
needs that an enterprise fund, even without Federal 
contributions, because of their ability to raise money from 
Jamaican Americans in this country. Or that maybe the Polish 
Fund could adopt a country like Jamaica and assist them in 
establishing a self-sufficient enterprise fund for Jamaica. And 
I have not heard back from them about that prospect. And I 
don't even know if it's a good idea or a bad idea. It's just an 
idea that I had, because General Colin Powell has indicated to 
me that he would be willing to titularly head up an enterprise 
fund. And certainly somebody with the expertise and ability of 
the Polish Enterprise Fund--or maybe we could do it without 
Government contributions. Maybe with a little administrative 
contribution from the Polish Fund to assist them in 
establishing, it might be a further contribution that the 
Polish directors could--the Polish Fund directors could even 
make a greater contribution.
    And I guess, Nancy and Nita, I've got one other, and that 
is the Czech and the Slovak Funds. Now, tell us about those two 
funds?
    Mr. Holmes. In my oral statement I mentioned that, with 
respect to the Czech Fund, we express enormous disappointment, 
both in the performance of the, of the original board of 
directors and in terms of the performance of their invested 
instruments. In an economy which was otherwise doing 
spectacularly, they managed to lose 90 cents on a dollar. We 
have, we have this year closed out that fund. The fund has been 
sold for an amount of approximately $1.2 million, based on an 
investment which was about $11 million. It has been sold to a 
company which is in part U.S.-based: Renaissance Corporation. 
It reflects one investment which has some genuine worth and a 
token payment for the rest of it. They are in the process--all 
of the $1.2 million has been put into an escrow account. And as the 
legal paperwork associated with the divestiture of each one of these 
investments is completed, the money from that escrow account then comes 
and is transferred to the Slovak Enterprise Fund, where we decided that 
we will concentrate the remaining assets, which will amount to 
approximately $23 million, $24 million from the original, from the 
original obligation for this combined fund. We will concentrate our 
efforts in Slovakia.
    So, we have a new small board which is focusing on Slovakia 
in terms of investments and loans. It has the assets which 
remain for the old fund. And we are essentially out of the 
business in the Czech Republic.
    Mr. Callahan. What about any other Enterprise Funds that 
might be in trouble that you're aware of?
    Mr. Holmes. I am not aware that there are other Enterprise 
Funds which are in trouble in this degree. We have a semi-
annual review. We have mounted a--I would describe it a rather 
aggressive oversight effort with all the funds in the wake of 
this development and we do not at this point see any of the 
other Enterprise Funds for central and eastern Europe in this 
sort of difficulty.
    There has been a substantive problem in terms of the 
divisions within the board on where investments should be made 
and the amount of investments which should go into capital and 
developmental institutions. In the case of the Romanian 
Enterprise Fund, we have received over the past month the 
resignation of three of the board members from the Romanian 
Enterprise Fund, and the consequence of that, I believe, will 
be to eliminate the factionalization, which----
    Mr. Callahan. Tom, do you know of any Enterprise Funds that 
might not be solvent or might be headed toward demise?
    Mr. Dine. The issue has not been solvency for the Romanian 
Fund. It's been----
    Mr. Callahan. Well----
    Mr. Dine [continuing]. Management.
    Mr. Callahan. Yeah.
    Mr. Dine. And as the Czech failure demonstrates so clearly, 
we don't have anything--you can't do the job using----
    Mr. Callahan. Well, first of all, I might say that solvency 
to you might mean one thing. But when you have $11 million in 
assets and you are able to gain $1 million for the sale of the 
assets, in Alabama we call that insolvency. But go ahead. You 
get the point.
    Mr. Dine. I got the point.
    Mr. Callahan. Well, what about the Albanian Fund?
    Mr. Dine. Right now it's going to have to wait till things 
develop in Albania itself. And, like the others, it was slow 
starting, but I don't think it's--until the current 
dysfunctionality took place in the last six weeks, I don't 
think it was headed for failure. I think it was plodding along.
    Mr. Holmes. Mr. Chairman, we checked on the consequences of 
the anarchy of last month with the Albanian Enterprise Fund. We 
did it--we've done it regularly. We did it as recently as last 
week. Two of the investments suffered damage as a result of the 
destruction and disturbance. Some motor vehicles were destroyed 
in one case and the contents of a soap factory was looted. The 
production capacity of that soap factory was not affected. They 
believe that they can quickly restart it and are in the process 
of restarting. At the present time, with the exception--
including those entities, there are no loans, there are no 
investments which are delinquent or outstanding in Albania. 
That may change as the unsettledness persists, but Albanian 
Enterprise Fund at the present time is not in distress as a 
result of the events of last month.
    Mr. Callahan. You say the Polish Fund is the most 
successful of all, and yet they're telling us they need to 
ensure that they maintain quality people to run the fund, that 
the capital and limitations of employees is not mandatory but 
is there. That indicates they can't pay people $400,000 a year 
or $500,000 to keep the fund solvent, to keep the monies coming 
in and the investments going out, to keep it solvent. But I see 
the current chairman of the Czech and the Slovak Fund is the 
former Deputy Director of White House Personnel. Now, what 
expertise does the former Deputy Director of White House 
Personnel have?
    Mr. Holmes. If I could respond to the first part of it with 
respect to the Polish American Enterprise Fund? There is a 
transition underway with respect to Polish American Enterprise 
Fund which will result in the privatization of that fund. We 
are already past the halfway point. More private money----
    Mr. Callahan. Well, I understand that. We don't need to get 
into where--why they need to----
    Mr. Holmes. All right. That----
    Mr. Callahan [continuing]. To be thinking that out. We said 
that they are successful. And yet here is a fund that we want 
to be successful that obviously is not----
    Mr. Holmes. As far as the Czech and Slovak Fund is 
concerned, in the wake of the, of the dysfunctionality of the 
original board, we decided that it was important for us to 
reform the board, and we decided on the basis of a 
recommendation of an interim group, none of whom are on the 
current board, that it should be small. The result of that was 
to identify needs and to recruit people to address those needs.
    One of the needs which was, which was apparent as far as 
the Slovak Fund is concerned was the recruitment of an 
experienced CEO. The identification of the chairman of that 
board, who now is a professional in terms of executive 
recruitment, was and has been successful in terms of recruiting 
an experienced CEO to lead that fund. The other two members of 
the board are experienced investment banker--investment 
officers and loan bankers.
    Mr. Callahan. All right. Briefly, the Central Asian Fund is 
in good shape, bad shape, right direction, wrong direction?
    Ambassador Morningstar. I think, in my view of the Central 
Asian Fund, is that it's in reasonable shape. To talk about the 
Central Asian Fund raises what I think is a very interesting 
issue. They have been most successful in getting projects out. 
They've had some issues with some of the projects, not to the 
extent certainly at this point of the Czech and Slovak Fund.
    I come from the private sector, as you know, and I know 
that these funds like to be left alone and to develop as 
private companies, and that's sort of the principle in which 
they've been, bywhich they've been created. And sometimes the 
funds create--or forget that the U.S. taxpayer is in effect a 
shareholder of that fund. And that we have to somehow balance the 
question of letting them go about doing their business as a private 
entity and U.S. policy objectives. So, that the issue that we get into 
with the funds, and the Central Asian Fund is maybe one side, one--
maybe one extreme of that issue, is how do you balance the necessity of 
coming up with the deals that are decent deals and at least are going 
to show some profit and have a good demonstration effect on the one 
hand, and on the other hand getting money out the door and creating 
that balance.
    So, what I've been spending most of my time doing with 
respect to the funds is working on those policy issues as to 
how to create that balance and helping them to become maybe a 
little more creative on how to get the money out the door and 
hopefully will not have problems with----
    Mr. Callahan. Maybe they ought to insure their investment 
funds through OPIC.
    Ambassador Morningstar. Well, hopefully OPIC will still be 
around----
    Mr. Callahan. Yeah, I understand that.
    Ambassador Morningstar [continuing]. And helping support 
that sort of----
    Mr. Callahan. That's another subject. I'm sorry, Nancy, 
to----
    Ms. Pelosi. Well, Mr. Chairman----
    Mr. Callahan [continuing]. Talk so long, but, in any event, 
I'll devote the rest of my evening to you and to Nita, let 
you----
    Ms. Pelosi. Well, I would be----
    Mr. Callahan [continuing]. Grill these people.
    Ms. Pelosi. I'll be very brief, Mr. Chairman, because you 
asked so many good questions that I get my questions answered 
on your time. So, I appreciate that.
    I want to take up something the chairman--president--I'm 
always calling you ``president.''
    Mr. Callahan. Someday.
    Ms. Pelosi [continuing]. That our chairman said earlier, 
and that is that in these hearings we have a tendency to ask 
questions about some areas that we either have some 
disagreement or some question about. The fact is, at least in 
my case, I want to commend all of you for the great jobs that 
you are doing and the Clinton Administration for its leadership 
in this part of the world. I can't think of anything more 
important to our children's future than what is happening, 
especially in the countries of the former Soviet Union, and all 
that is implied in that in terms of the weapons of mass 
destruction that are there and the stake that we have in a 
transition that is sure.

                                 bosnia

    As far as Bosnia is concerned, I'm very proud of the 
Clinton Administration's efforts, and yours, Mr. Holmes, and 
all of you, who have been involved. I know you had Mr. Dine as 
well. And, we have great pride in San Franciscan Mr. Sklar, 
who's worked on restoring the infrastructure there.
    Again being boastful of San Francisco, Mr. Chairman, you 
recognized Mr. Bedsel, who is a friend of mine as well. I want 
to recognize Father Floyd Lotito from the St. Anthony 
Foundation in San Francisco, who takes seriously the word of 
the Bible to feed the poor in the gospel of Matthew. Father 
Lotito could tell us all tales about how to be effective in 
helping people. People in my district don't share many--some of 
the concerns that Mr. Callahan has about foreign aid. San 
Francisco is a very international kind of a city. But 
nonetheless our chairman's district is one that is more 
representative of the questions that people have about our 
foreign aid and we have to justify it every step of the way 
when we have people like Father Lotito feeding the poor in our 
own country. I'm very proud of the work that you'all do. I want 
to commend you for it.
    If I just had one little footnote I would say, and I don't 
want to go into it now, that you'll be hearing more from me 
about the Humanitarian Aid Corridor Act and what is happening 
in the Armenia and Azerbaijan area. After having gone off on a 
tangent on that, I want to again thank you for your testimony, 
for your hard work, and for the leadership of the Clinton 
Administration. I think all Americans should be proud of 
particularly what is happening in Bosnia and hopefully 
celebrate the Fourth of July, 1998, with all of our troops at 
home, Mr. Chairman.
    Mr. Callahan. Well, thank you. Father Lotito, welcome to 
our committee hearing. And we've gone through this Lenten 
season and Easter season. I keep asking the same question of 
all the theologians: do you reckon St. Paul ever heard back 
from the Corinthinians?
    Father Lotito. Now, he has.
    Mr. Callahan. Ms. Lowey?

                                armenia

    Ms. Lowey. Thank you. Thank you, Mr. Chairman. I'll be 
brief, because the hour is late. I just wanted to ask another 
question about Armenia. According to U.S. Centers for Disease 
Control and Prevention, the Armenian people are facing really 
tremendous risk for mortality from acute health problems, 
nutritional deficiency, hypothermia, epidemics. The dire 
situation is at least partially a result of the blockade of 
Armenia by Turkey and Azerbaijan. At a time when the 
Administration is making a gradual shift from humanitarian aid 
in Armenia towards development assistance, can you give us 
confidence that the vulnerable Armenians won't be left out of 
this progress and they will receive the important assistance 
that they need?
    Ambassador Morningstar. I can give you the absolute 
confidence in respect to that. When you look at the assistance 
numbers for Armenia, whether we talk about earmarks or not, the 
actual value of dollars that go to Armenia are in fact 
significantly above the earmark when you count USDA numbers and 
you count the value of the commodities. We expect the value of 
our actual assistance program to Armenia to be in the vicinity 
of $140 or $150 million, of which probably at least 60 percent 
of that is humanitarian assistance.
    And our office has been extremely involved with respect to 
the transport of commodities. In fact, we had a--just in the 
past several months, we had a major shipment to Yerevan of 
excess hospital supplies and medical and pharmaceutical 
supplies. I think it was something close to $15 million, just 
in respect to that shipment. So--and every time that we need, 
setting again aside the political issues, whatever that may be, 
every time that we meet the President of Armenia or the Prime 
Minister or other high officials, they just go and effusively 
thank us for that kind of assistance that we do--have 
transferred and will continue to transfer. And, so, they could 
not have survived as a country.
    Mr. Dine. Mrs. Lowey, AID has actively engaged in combating 
infectious diseases in a variety of places in the former Soviet Union. 
Diphtheria, polio, malaria, tuberculosis have been very much on our 
scope. And in terms of Armenia and central Asia and Ukraine, we'll be 
spending in fiscal 1997 $3.6 million on this whole question. I'm most 
concerned about Tajikistan and the area surrounding the Aral Sea.

                                bulgaria

    Ms. Lowey. Thank you. Another area that we discussed 
before: Bulgaria. I forget which one, but I think several of 
you referred to the fact that they are moving towards free-
market democracy from an era of communist oppression, but we 
all know that to say the economic situation there is not good 
would be an understatement. And there is tremendous hardship 
among the Bulgarian people. Perhaps also, Tom, Mr. Dine, you 
could tell us what AID is doing to address some of that 
hardship.
    Mr. Dine. Sure.
    Ms. Lowey [continuing]. The entire situation? And, in fact, 
I remember very clearly on that same trip, that we stopped by 
to meet with some of the officials of Bulgaria. I guess it was 
about three or four years ago. You were beginning to work 
there, and we've seen some success, and perhaps you can expand 
upon it?
    Mr. Dine. As I indicated earlier, Ms. Lowey, it has been a 
very difficult chore working with the previous government 
Socialist Party. It has been antithetical to reform efforts.
    What our creative on-the-ground AID mission director then 
decided to do, instead of hitting his head against the wall, 
was to go to ten different cities in Bulgaria. He started this 
two years ago--Ruse, Stara Zagora, so many others--and he 
worked--developed a program with these ten mayors, nine of whom 
were members of the Socialist Party, and developed a program in 
privatization, municipal financing, a whole host of other 
efforts to build a modern market economy. And it's working.
    And I was there in December. I traveled from the Danube 
River on all the way down, visiting different cities with our 
ambassador there, and it's just very exciting to see results, 
to see successes, and to see that we can work well in 
adversity.
    Now, the economy has gone, obviously, for the worst. 
Inflation has become hyperinflation. And hopefully a new 
leadership will take over on April 19th. Yes, President 
Stoyanov wants to push his government, his country toward 
modernization, and I think he has the brains and the political 
will to do so. And, so, we're anxiously awaiting for that 
election and we will be engaged with the central government, 
hopefully, this spring and summer.
    Ms. Lowey. Mr. Chairman, I also want to mention again for 
the record many of us have heard about Denmark's resistance 
during World War II to the Nazis in protecting their Jewish 
community. And I think it's important that we note again the 
strength, the outright courage of the Jewish community in 
Bulgaria--excuse me--of the community in Bulgaria in protecting 
the Jewish community against the Nazi onslaught.
    Bulgaria reacted with courage and strength in protecting 
the Jewish community, and here we are years later. And I feel 
that whatever we can do to help the Bulgarians going through 
this very difficult period is certainly well deserved.
    I'll submit the rest of the questions for the record, but I 
just want to say in closing that we applaud the work that you 
are doing. I think it is very important for us to continually 
tell the success stories, the exchange stories, the micro-
credit stories, the stories of the various funds such as the 
Polish Funds, the various AID projects that really have made a 
difference to the people in these communities. The chairman 
talks about Mobile, Alabama. Even in Yonkers, New York, the 
polls show that people don't believe that foreign aid is less 
than 1 percent and the polls will show--CNN recently did a poll 
that people believed that it was 65 percent, which is 
extraordinary. And I would hope that whether it's in Mobile, 
Alabama or Yonkers, New York, that we who know better would 
continue to tell the story about--and Tom Foglietta has stated 
it so eloquently--how important this is and how it really is a 
good investment for the United States to protect us from 
greater expenses in the long run. So, I congratulate you on the 
work you've done and I hope we can continue to direct our 
assistance to those projects that bring success so we can let 
the people in Mobile know and throughout this country, because 
many people share the frustrations which our chairman expressed 
so well. Thank you very much.

                          balancing the budget

    Mr. Callahan. Well, I thank the gentlelady, not only for 
her many contributions to this committee but for her 
willingness to put up with sometimes opposing views. But I try 
to be Alabama-kind to the gentlelady in our dealings and to 
tell you that in Alabama also they go along with the belief 
that we're giving 65 percent. If you include congressional pay, 
then they think it's 90 percent. So, they are firmly convinced 
that if we do away with foreign aid and congressional pay, we'd 
balance the budget.
    Ms. Lowey. You are always a gentleman.
    Mr. Callahan. And I appreciate----
    Ms. Lowey [continuing]. Mr. Chairman.
    Mr. Callahan. And if I thought that would do it, we would 
forsake our pay in order to balance the budget, but I don't 
think that would quite do it.
    But there's one more question I'd like for you all to 
answer carefully, each of you, very briefly. In fact, it could 
be yes or no. Have you personally or through approaches through 
your staff been asked to assist or to meet with Vadim 
Rabinovich or Mr. Louchansky? Yes or no? Through your staff or 
directly to you?
    Ambassador Morningstar. I guess I'll go first. No.
    Mr. Callahan. Okay.
    Mr. Holmes. No.
    Mr. Dine. No.
    Mr. Callahan. Okay. Well, we do appreciate your 
professionalism and we appreciate the cooperation you give to 
us year-round. We sort of enjoy having this opportunity to have 
this dialogue with you. We try to remain polite and to express 
the convictions and concerns that are expressed by the people 
of our districts through us to you. But we do applaud the good 
that you do and the professionalism especially that the three 
of you provide, and we have a great affinity to you in that 
respect and we appreciate very much your coming today.
    And with that, we'll consider this meeting adjourned.
    [Questions and answers for the record follow:]

                            SUBMITTED TO AID

            Questions for the Record Submitted by Mr. Porter

                   focus on privatization in ukraine
    Question. During today's hearing, we heard a great deal about 
corruption problems in Ukraine, and the need to reevaluate the way our 
aid programs there are working. I believe that U.S. foreign assistance 
can be instrumental in Ukraine's reform process, if it is properly 
targeted. USAID has received criticism of its programs in Ukraine, 
particularly its penchant for working primarily with large, for-profit 
firms which have limited understanding of the real social, economic and 
political needs of the people of Ukraine, and whose employees receive 
large salaries and extremely generous benefits packages. In fact, it is 
my understanding that USAID recently had to lower the per diem 
allowance for these contractors due to complaints by other 
organizations.
    Is such a strong focus on privatization realistic when there is 
dramatic need for assistance with basic needs such as child and 
maternal health, domestic violence and alcoholism, basic education, 
etc.?
    Answer. USAID's focus in Ukraine, as it is elsewhere in the NIS, is 
on assisting with the building blocks that are fundamental to Ukraine's 
evolution toward a market democracy. Primary among these building 
blocks is development of the institutional and regulatory framework for 
a market economy, including the fundamentals of privatization, or 
shifting ownership of resources to the private sector where competition 
leads to efficiency. Also key is support for developing democratic 
institutions and practices.
    USAID well understands the importance of social considerations to 
Ukraine's successful transition, and provides assistance to Ukraine in 
health, social protection, and strengthening of non-governmental social 
service organizations, as well as humanitarian assistance. These are 
all activities which address urgent needs of the people of Ukraine. In 
health, USAID is supporting efforts to (1) reduce the cost of health 
care and increase its efficiency, (2) improve patients' access to 
health care and the quality of that care, (3) provide better 
reproductive health care and greater access to contraceptive 
alternatives to abortion, (4) improve infectious disease surveillance 
and monitoring, (5) screen, diagnose and treat breast cancer, and (6) 
develop legislation for the introduction of health insurance, family 
medicine and hospital licensing and accreditation. USAID also supports 
partnerships between U.S. and Ukrainian hospitals focusing on improving 
the efficiency and productivity of health providers. This has resulted 
in initiatives in infection control, neonatology and emergency care.
    USAID's social protection program is assisting Ukraine to move from 
universal price subsidies to those based on income, and to lay the 
foundation for a sustainable system of social insurance. By the end of 
1996, this program had assisted over 5 million families and saved the 
Government of Ukraine an estimated $1 billion.
    USAID is supporting the development of non-
governmentalorganizations (NGOs) which can play an important role in 
providing social services which the government can no longer afford or 
chooses not to provide. Many of the roughly 5,000 NGOs formed in 
Ukraine since the break-up of the Soviet Union are now providing social 
services.
    USAID also provides humanitarian assistance to the most vulnerable 
members of Ukrainian society, such as the elderly, children and 
disabled, to help alleviate their suffering and give hope to the 
Ukrainian people during the difficult transition period. Since 1993, 
the USAID-supported Counterpart Humanitarian Assistance Program has 
provided more than $28 million worth of humanitarian aid to government 
social service institutions and local NGOs providing needed social 
services. Approximately $9 million worth of clothing, bedding, footwear 
and other humanitarian assistance has been provided to 280 orphanages 
and boarding homes for the elderly and severely disabled.
                        ukrainian privatization
    Question. Does USAID feel that these privatization programs have 
been successful and cost-effective? If no, what steps are needed to 
restructure these programs to make them more cost-effective? Would 
smaller, non-profit organizations, perhaps in cooperation with 
indigenous organizations, be most effective, both financially and 
results-wise, in dealing with the most pressing problems in Ukraine?
    Answer. Ukraine's privatization program began in earnest in 1995. 
By the end of 1996, significant progress had been achieved in 
accelerating medium and large-scale privatization. As of January 1997, 
5,000 of 8,000 medium to large-scale enterprises were privatized. This 
enabled Ukraine to receive the second tranche of its World Bank 
Economic Development Assistance Loan (EDAL) as scheduled. It is the 
Government of Ukraine's goal to privatize the remaining 3,000 
enterprises by the end of 1997.
    Completion of the program in 1997 will be a challenge to the Kuchma 
Government. Since the beginning of this year, the pace of the program 
has slowed due to political and economic issues outside the scope of 
the program. One major concern, for example, is that the passage of a 
law regarding compensation to citizens for savings eroded during the 
transition has confused people as to their right to possible future 
cash compensation if they obtain and use compensation certificates. 
Therefore, people are not using compensation certificates to purchase 
shares in privatizing companies, greatly slowing down the privatization 
process.
    USAID's approach in addressing problems related to Ukraine's 
privatization program has been to establish consensus among the donor 
community on targets and goals for privatization and to work with the 
highest levels of the Ukrainian Government to resolve barriers to 
reaching these goals. Recently, the donors sent a letter to Prime 
Minister Lazarenko suggesting ways in which the current problems could 
be resolved. This multi-donor approach has been successful in resolving 
problems associated with this program in the past.
    Although the program cannot be characterized as a complete success 
due to the measured pace of privatization in the Ukraine, serious 
attention has been given to the cost effectiveness of this program; 
whereby the program is being implemented mostly by a Ukrainian staff, 
with only five expatriates (of a total staff of 90) providing advisory 
and policy oversight to the program.
    Moreover, a series of discussions last fiscal year, between USAID, 
the State Department Coordinator's Office for NIS affairs, addressed 
the concern of the Congress regarding cost-effectiveness of the 
program. As a result, the program has been overhauled in various areas, 
cutting costs and stressing the utilization of the Ukrainian talent, 
trained by the Contractor, to administer the program.
    With respect to small-scale privatization, the program has been a 
success, with 40,000 small-scale enterprises privatized as of April 
1997. Small-scale privatization is being implemented on a non-profit 
basis through a USAID grant to the International Finance Corporation; 
it is entering its final phase with emphasis on the selling of 
unfinished construction sites.
                    strengthening albanian democracy
    Question. In light of recent events in Albania, I am gravely 
concerned about the efficacy of our assistance programs in that 
country. On many of the charts submitted with the Administration's 
testimony today, Albania's economic situation got relatively good marks 
and the Department's justifications virtually ignored the flawed 1996 
elections. In short, despite warnings from many who watch this country 
closely, the Administration seemed caught completely unaware of the 
possibility that conflict would spread so rapidly and widely in Albania 
following the collapse of the pyramid schemes.
    What steps are being taken to strengthen democratic institutions, 
and truly democratic political leaders, in Albania and help that 
country move towards early elections in the wake of the highly volatile 
situation there? We are also interested in knowing what role U.S. 
programs in Albania will play in ensuring that future elections are 
free and fair.
    Answer. USAID activities have strongly supported democratic 
institutions and political leaders in Albania. Both the International 
Republican Institute and National Democratic Institute have had 
representatives working in Albania to promote a more active exchange 
between politicians and their constituencies by providing training in 
the rights and responsibilities each has in a democracy. Strong support 
has been provided to non-governmental organizations (NGOs) to increase 
their advocacy role vis a vis government. Advisors also work with local 
governments to better equip them to serve their constituents and move 
toward greater decentralization. Currently all American advisors are 
still evacuated, but most activities continue with local staff. We are 
hopeful that U.S. personnel will soon be allowed to return to Albania 
and a priority will be placed on those who can assist in the election 
process, e.g., participate in drafting new election legislation and 
regulations, work with the Central Election Commission, train election 
administrators, etc. In addition, the National Democratic Institute 
works closely with the Albanian Society for Democratic Culture (SDC), 
which is an independent election monitoring association. The SDC and 
U.S. advisors will be closely involved in election monitoring, as will 
U.S. Embassy personnel.
                     economic assistance to albania
    Question. What kinds of economic assistance are we currently 
providing to repair the damage to Albania's economy? Has the 
Administration indicated to the Albanian government that continued 
assistance will be predicted on progress towards democratization and 
real economic reforms?
    Answer. Over 50% of U.S. assistance to Albania supports economic 
growth. Much of that assistance goes to the agricultural sector which 
accounts for over 50% of GDP and 50% of employment in Albania. 
Agriculture was one of the first sectors privatized in Albania, and it 
is worth noting that during the recent crisis, the agricultural sector 
has been little affected. Other U.S. support includes the Albanian-
American Enterprise Fund, which provides loans and equity capital to 
private businesses, an MBA program, technical assistance to small and 
medium enterprises and technical skills training. When the situation 
allows for the return of U.S. advisors, assistance can quickly be 
provided to start rebuilding the Albanian economy. Little support in 
the area of economic growth is provided directly to the Government of 
Albania. Virtually all is directed to the private sector.
    We have, however, made it clear to the interim Government of 
National Reconciliation that our ability to restart or expand our 
assistance programs (beyond the limited number of activities which were 
recently announced by the Secretary of State) is dependent on a number 
of factors. These include improved security and the stability which can 
only come from free and fair, new parliamentary elections. We have also 
expressed our support for the World Bank and IMF positions on Albania. 
The International Financial Institutions have indicated that they will 
be unable to deliver substantial additional financial and technical 
assistance to Albania until there is a stable security environment, an 
effective government, fiscal and monetary discipline, and aggressive 
Albanian action to deal with the pyramid schemes.
                      independent media in albania
    Question. During the recent crisis, I was gravely concerned by the 
treatment of the independent media by Berisha and the Albanian 
government. What specific efforts are underway to promote a more 
positive environment for independent media and freedom of the press?
    Answer. Treatment of the independent media in Albania, especially 
over the past two years, has been a serious concern. Constraints 
include a repressive broadcast law, state control of TV and radio, 
harassment of journalists, a lack of understanding among journalists of 
the ethics of reporting, and a lack of public confidence in journalists 
and the media in general. U.S. support for introducing the concepts and 
importance of independent broadcast and print media has been through 
several mechanisms. Under the USAID Professional Media Program, 
advisory assistance and training have focussed on radio production and 
newspaper management. Efforts to work with three journalists' 
associations have had limited success. With SEED funding, USIA provides 
U.S.-based media training for broadcast and print personnel in 
management, reporting, editing, sales and marketing, etc. Short-term 
workshops, as well as non-credit academic years of professional 
development at U.S. universities (two per year), are offered. In 
addition, the Voice of America has provided radio relay equipment to 
several ``pirate'' radio stations. A new private broadcasting law has 
been drafted which, through flawed, will be a major step forward in 
allowing independent television stations to operate. Initially 
introduced with the state of emergency imposed in March, state 
censorship of media has just been lifted.
             soviet-eastern european research and training
    Question. When the Soviet Union collapsed, we were unprepared for 
the after-shocks that this historic event would have around the world, 
and here at home. The massive assistance apparatus we quickly erected 
has dealt with many of the most pressing and obvious issues, but I 
believe that we will continue to confront previously uncontemplated 
aftereffects of forty years of communism on these countries. The 
progress we have made and the work we have ahead of us has been 
assisted immeasurably by a small but highly effective program 
authorized by the Soviet-Eastern European Research and Training Act of 
1983 and administered by the Department of State (commonly known as 
Title VIII). Title VIII supports university-based language training, 
graduate education, exchanges and postdoctoral research focused on the 
Soviet successor states and the formerly communist countries of Eastern 
and Central Europe. This program plays a critical role in maintaining 
and developing American expertise about this important region.
    (a) Given the need to have qualified professionals working in these 
countries to advance American interests, why has the State Department 
chosen to fund this program far below the level of support requested by 
Congress?
    Answer. We share your confidence that the Title VIII program has 
produced significant research on the countries of Central and Eastern 
Europe and the NIS. For that reason, we continue to support the Title 
VIII program, although at a rate reduced from 1995-96. The budget for 
Title VIII (NIS and Central and Eastern Europe) will be $4.2 million 
for Fiscal Year 1997, with $900,000 from the SEED budget and $3.3 
million from NIS funds to support research in Central and Eastern 
Europe.
    Congress urged funding of Title VIII in the SEED and FREEDOM 
Support Act budgets. While we understand why this was done, it is a 
very tenuous arrangement. The non-Bosnia funding under the SEED Act 
continues to decline. Further, we expect SEED, as a temporary program, 
to be greatly reduced by the year 2000. We have recently announced the 
``graduation'' of five more Central European states from SEED over the 
next three years. As a result, we have had to apply cuts to the Title 
VIII program along with the rest of the SEED program. To preserve the 
good work of Title VIII, a more durable funding vehicle than SEED must 
be found. At the request of the State Department's Bureau for 
Intelligence and Research, we have agreed to seek Fiscal Year 1998 
funds for Title VIII within the combined resources of the SEED Act and 
FREEDOM Support Act accounts. Beginning with Fiscal Year 1999, we 
intend to return Title VIII to the regular State, Department budget at 
a level of $5 million per annum. We look forward to working with 
Congress to find a better lasting funding arrangement than the SEED Act 
and FREEDOM Support Act accounts.
             assistance to disputed territories in the nis
    Question. The International Committee of the Red Cross (ICRC) 
recently released a needs assessment concerning the humanitarian 
situation in Nagorno-Karabakh which found that the refugees there are 
suffering dramatically and current assistance is far from sufficient. 
The State Department continues to resist the provision of direct 
assistance to the people of Nagorno-Karabakh, insisting that it is 
Azerbaijan's responsibility to provide assistance to the refugees 
there.
    (a) How much assistance has the U.S. provided to the breakaway 
Russian state of Chechnya? What form has this assistance taken; from 
which account(s) is it drawn; and through whom will it flow?
    (b) It is my understanding that USAID is planning to provide 
assistance to Abkhazia. How much assistance is planned; what form will 
it take; from which account(s) will it be drawn; and through whom will 
it flow?
    (c) Can you provide the legal or policy rationale for 
differentiating Chechnya and Abkhazia from Nagorno-Karabakh with 
regards to the provision of humanitarian assistance?
    (d) Ambassador Morningstar, you have stated that Section 907 was 
the hindrance to assistance to Nagorno-Karabakh. In the FY 1997 
appropriations process, we endeavored to clarify that Section 907 was 
in no way intended to prevent the provision of humanitarian assistance 
to Nagorno-Karabakh and we met with resistance from the State 
Department on this matter. In light of the fact that the U.S. maintains 
a thriving assistance program to Azerbaijan despite Section 907, why 
are we unable to assist the people of Nagorno-Karabakh?
    Answer. In order to correct the record, it should be pointed out 
that the International Committee of the Red Cross (ICRC) has not 
recently released a needs assessment of the humanitarian situation of 
``refugees'' in Nagorno-Karabakh. Reports from the region indicate that 
thereare a small number of Internally Displaced Persons (IDPs) within 
Nagorno-Karabakh, perhaps 4,000. This number should be compared with 
the nearly 800,000 IDPs in Azerbaijan. Due to the unresolved conflict 
between the two countries and continuing economic dislocation, living 
conditions are poor throughout the region and all identified 
humanitarian needs are not being met, but there are no indications that 
critical needs in Nagorno-Karabakh are going unmet.
    (a) The U.S. Government has provided no assistance to the 
``breakaway Russian State of Chechnya.'' USAID has provided $6.42 
million to international organizations (ICRC), the International 
Organization for Migration (IOM), the United Nations High Commissioner 
for Refugees (UNCHR), and the World Food Program (WFP), which are 
engaged in assisting victims of the conflict in Chechnya. These 
organizations work in the region with the approval of the Russian 
Federation and have provided medical, shelter, and food assistance, 
primarily to IDPs located outside Chechnya's borders. USAID funding has 
been with FREEDOM Support Act funds. Additional U.S. assistance has 
been provided by the State Department's Office of the Coordinator for 
Assistance to the NIS and the State Department's Bureau for Population, 
Refugees, and Migration. The dangers inherent in working in this region 
are highlighted by the deplorable killings of ICRC workers in Grozny 
last December, the worst incident in the history of the ICRC.
    (b) At the request of the U.S. Embassy in Tbilisi, Georgia and the 
Republic of Georgia, USAID is examining the feasibility of providing 
assistance to the people of Abkhazia. This request was made due to 
improving prospects for rendering assistance to these impoverished 
people and for further assisting the peace process. A rapid assessment 
by USAID personnel has already been undertaken. Assistance levels are 
still under discussion, but could involve up to $1.5 million of Fiscal 
Year 1997 FREEDOM Support Act funds.
    (c) The U.S. Government responds to identified humanitarian needs, 
wherever they exist, based on urgency of needs, feasibility of 
delivery, and the availability of funds. To date, U.S. humanitarian 
assistance to the people of Chechnya, Abkhazia, and Nagorno-Karabakh 
has been channeled primarily though international organizations. The 
situation with regard to access, security, and political status is 
different for each of these regions. For example, access to Chechnya 
has been problematic at times, depending on local Russian commanders, 
but security concerns have largely mandated that relief activities be 
limited to areas outside Chechnya. In Abkhazia, security concerns and 
the region's status as a rebellious territory of Georgia have made 
international organizations the main mechanisms for relief delivery. If 
programs by U.S. Private Voluntary Organizations (PVOs) in Abkhazia are 
undertaken in due course, it will be due to the changing situation 
there. Georgian IDPs are beginning to return to their homes to 
Abkhazia. Additionally, due to progress in the Abkhazia. Additionally, 
due to progress in the Abkhazia peace process, the Republic of Georgia, 
whose soevereignity the U.S. recognizes in the region, is supporting 
the humanitarian activities of U.S. PVOs in Abkhazia. In Nagorno-
Karabakh, by contrast, return is still a remote propsect for the ethnic 
Azeri IDPS who fled the region. With no progress in settling the 
dispute, the Republic of Azerbaijan, whose sovereignty the U.S. 
recognizes in the region, has not approved the entry of US PVOs. Thus, 
international organizations remain the appropriate instrument for 
relief activities in Nagorno-Karabakh.
    (d) It is inaccurate to characterize U.S. Government assistance to 
Azerbaijan as ``thriving.'' In FY 97 it is estimated that the two 
Caucasus countries not affected by Section 907, Armena and Georgia, 
will receive $144 million and $91 million respectively in USG 
assistance. Azerbaijan will receive approximately $31 million. The U.S. 
Government has been able to assist the people of Nagorno-Karabakh 
through donations to the regional ICRC appeals, $16.57 million in 1966. 
Of the over $62 million in USG assistance committed to the ICRC 
Regional Appeal since 1992, it is estimated that approximately $3.5 
million will have been expended meeting Nargorno-Karabakh needs by the 
end of this year. We are currently considering a request from the 
American Red Cross, which will be working under the auspices of the 
ICRC in Nargorno--Karabakh in the health sector, and we are willing to 
contribute along with the rest of the international community to any 
needs assessments dealing with the region.
                     humanitarian aid corridor act
    Question. Last year, Congress again expressed its strong support 
for the Humanitarian Aid Corridor Act (HACA) and it was permanently 
extended in the FY 1997 appropriations process.
    (a) Do Turkey and Azerbaijan continue to maintain a blockade of 
Armenia, which includes the blockade of U.S. humanitarian assistance?
    (b) What is the cost, in terms of having to take more expensive 
alternate land routes or use the air corridor, of this blockade to the 
U.S. taxpayers? Can you give me concrete examples of how this blockade 
reduces the effectiveness and availability of our assistance to 
Armenia?
    Answer. (a) There are no blockades within the NIS which would 
trigger the Humanitarian Corridors Act. The border between Armenia and 
Azerbaijan remains closed on both sides. The resumption of 
communications links between the two countries is one of many issues 
connected with the ongoing peace process. However, humanitarian 
assistance is getting to all areas of both countries.
    (b) There is no identifiable cost to U.S. taxpayers due to the use 
of land routes to Armenia through Georgia, rather than through Turkey, 
because the Georgia route has a much higher capacity and is thus more 
cost-efficient. The U.S. Government internationally competes contracts 
for the transport of humanitarian assistance to Armenia. On the 
occasions when firms have submitted bids involving transportation 
through Turkey, the price has been higher than competing proposals 
using the Georgia route.
    One reason for this is the greater efficiency of railroad 
transportation compared with truck transportation. The route to Armenia 
from the Georgian Black Sea ports of Batumi and Poti is entirely via 
railroad. Routes through Turkey involve either expensive truck 
transport, or use of the rail link between the two countries at 
Akhurian, Armenia, which has a very low capacity due to the different 
rail gauges used by European countries such as Turkey and former states 
of the Soviet Union such as Armenia. The USAID-funded Caucasus 
Logistics Advisory Unit (CLAU) of the World Food Program (WFP) has 
assessed this cross-loading facility and found it to have a capacity of 
only approximately 1,800 Metric Tons per day. This figure can be 
compared with the current average of 8,000 Metric Tons per day carried 
by the Georgian rail system, which is below its full capacity.
    Use of the low-capacity, high-cost Turkish land corridor for past 
shipments of U.S. humanitarian assistance could have imperiled 
vulnerable beneficiary groups in Armenia due to slower transit times 
and would likely have cost U.S. taxpayers more than the routes actually 
used through Georgia.

            Questions for the Record Submitted by Mr. Forbes

                        microenterprise support
    Question. Microenterprise is one of the most effective strategies 
USAID supports, providing small loans that allow poor people to start 
and expand individual businesses. Not only do these programs reduce 
poverty, they recycle foreign aid dollars as loans are repaid allowing 
new loans to be made. Microcredit programs reach the very poor, 
especially women. In the past USAID has supported microenterprise 
activity in Asia and Latin America. Can you illustrate the kind of 
support that USAID has provided for microenterprise activity in Eastern 
Europe and the Newly Independent States?
    Answer. USAID supports a number of microenterprise programs in 
Eastern Europe and the NIS. In Russia, USAID supports micro-enterprise 
lending programs in four cities (Rostov-on-Don, Nizhny Novogorod, St. 
Petersburg, and Volkov). Two of these programs are just over two years-
old, one has been operating since 1993, and one just began in the last 
year. These programs are being implemented by Opportunity 
International, the Center for Citizen Initiatives, and the Alliance for 
American and Russian Women. In Kyrgyzstan, USAID is supporting micro-
enterprise lending through the development of a network of village 
banks. This three-year program is being implemented by the Foundation 
for International Community Assistance. In Ukraine, USAID has recently 
undertaken a program of credit union development, which will provide 
financial services (loans and savings opportunities) to small and 
micro-enterprises. This three-year program began in October, 1995 and 
is being implemented by the World Council of Credit Unions. In Central 
and Eastern Europe, Opportunity International has received $10 million 
to implement its program of creating microlending NGOs in Croatia and 
Macedonia, while the World Council of Credit Unions works in Poland, 
Lithuania, Latvia, Romania, and Macedonia. Aid to Artisans has a $1.0 
million grant to assist grassroot handicraft makers in Romania and 
VOCA/ACDI runs its 5.0 million program region wide.
                       usaid administrative costs
    Question. Do you foresee an increase in administrative costs in FY 
98 over FY 97? Has there been a streamlining of administrative costs at 
USAID over the past 5 years?
    Answer. While there will be an increase in administrative costs 
associated with ENI programs in FY 1998, total recurring administrative 
costs for the Agency will decline by about $6 million. The latter will 
be possible only because of the efforts at streamlining Agency 
operations.
    In the area of streamlining, since 1993 the agency has reduced the 
number of organizational layers, redesigned and simplified the way 
business is done, focused on fewer, more attainable objectives, set out 
explicit goals and performance indicators, closed 27 missions, and 
reduced its staff by 30 percent. We will continue to work toward 
further improvements in overall Agency operations in the coming years.
                      poverty lending institutions
    Question. Of USAID's microenterprises activities in Eastern Europe 
and the NIS, how much of it is devoted to poverty lending institutions 
that provide loans of under $300?
    Answer. Microenterprise development targets the lowest economically 
viable population. In the industrialized countries of Eastern Europe 
and the NIS, most of this population's capital needs range from $1,000 
to $10,000 consequently, a small percentage of our microenterprise 
programs make loans of $300 or less. Nonetheless, USAID does provide 
some support for very small loans. In the NIS, $750,000 was provided to 
Opportunity International in Russia, $1.0 million was provided to World 
Council of Credit Unions in Ukraine, and $6.2 million was provided to 
the Foundation for International Community Assistance (FINCA) in 
Kazakstan to facilitate loans, many of which were under $300. In 
Eastern Europe, close to $10 million has been provided to the World 
Council of Credit Unions for work in Poland, Lithuania, Latvia, 
Romania, and Macedonia. This work supports institution building as well 
as loan disbursement.
                      effectiveness and efficiency
    Question. In 1994, USAID Administrator J. Brian Atwood in speaking 
at the Center for National Policy, remarked that 70 percent of all 
USAID funds never even reach the developing countries. For example, in 
1993, a U.S. company, Planning & Development Collaborative 
International, contracted with USAID to sponsor a 1993 exchange in the 
U.S. for the Romanian Union of Architects. Another example: a U.S. 
company, Development Associates, Inc. contracted with USAID to study 
the Agency's own evaluation studies (i.e., conducted a study to study 
USAID's studies).
    I want to see our Nation's foreign assistance programs succeed, but 
I need some assurances from you that USAID is operating in an effective 
and efficient manner. Can you provide for the Committee a percentage or 
dollar figure denoting how much of your FY 1996 appropriation for the 
NIS and Central Europe is reaching those countries?
    Answer. Based upon the introductory comments, there appear to be 
two separate questions: the first pertains to who benefits and where 
funds are disbursed; and the second regards the effectiveness of 
USAID's program performance.
    The great majority of the USAID Bureau for Europe and the New 
Independent States' (ENI) assistance programs involve technical 
assistance and training rather than commodities or cash, and they are 
implemented in the beneficiary country by U.S. and beneficiary country 
organizations. U.S. procurement laws and regulations direct that, in 
most cases, when we buy goods and services to carry out activities 
overseas, we purchase fromU.S. suppliers. Particularly in the ENI 
Bureau, we also firmly believe that, in order to provide clear examples 
of the market economies and citizen-driven democracies, it is 
imperative for program beneficiaries to engage directly and become 
immersed in the U.S. institutions that we portray as models. This 
naturally means that U.S. service providers who are sending advisors 
abroad or are conducting training courses will receive payment in the 
United States. However, these organizations, whether contractors, 
private voluntary organizations, or non-governmental organizations, 
provide value to the beneficiary country in the form of training, 
technical assistance services, partnership arrangements, or equipment 
and other commodities which are necessary to carry out the project. In 
this sense, we would say that close to 100 percent of our program 
reaches the benefiting country even if a large percentage is paid out 
to suppliers in the United States.
    Secondly, as to program effectiveness, USAID evaluates its program 
performance regularly in order to take steps to increase the 
effectiveness and efficiency of its operations. In the ENI Bureau, we 
designate a small part of Congressional appropriations for audit, 
evaluation and project support--funds for the purpose of ensuring that 
our programs remain on track. From the total FY 1996 appropriation of 
$1.163 billion in the ENI Bureau (combined SEED Act and FREEDOM Support 
Act), a total of $33.6 million was budgeted for this purpose. This 
constitutes approximately 2.9% of the total appropriation and should be 
regarded as funds well-spent to help us ensure that U.S. programs are 
achieving their intended result.
                       usaid's assessment process
    Question. Numerous studies have shown that there is no correlation 
between economic growth and development assistance. Much of USAID's 
efforts are targeted to countries with economies plagued by excessive 
government regulation, high taxes, restrictions on foreign private 
investment, and corruption. The Index of Economic Freedom documents 
that the U.S. economic assistance is not effective. The Index, which 
measures the level of economic freedom in 150 countries, in 1996 found 
that of the 78 countries with economies classified as ``mostly not 
free'' or ``repressed,'' 35 have been receiving U.S. development 
assistance for over 35 years, some as long as 52 years.
    For example, Haiti has depended on U.S. foreign aid for 52 years, 
yet it is one of the world's poorest countries. During this time, Haiti 
has received almost $1 billion in foreign aid from the U.S. alone, not 
including the money the United States spent in its military operation 
to ``restore'' democracy in Haiti in 1994. In 1995, Haiti's percapita 
GDP was $360, in 1994, it was even lower: $225. Over one-third of 
foreign aid recipients have become poorer.
    Development aid is essential to the NIS and Eastern Europe's 
economic prosperity. Having said that, what kind of assessment process 
is USAID using to ensure that our efforts in those countries will not 
mirror situations, like Haiti, where after decades of receiving U.S. 
assistance a country is no better off or in some cases poorer?
    Answer. USAID assistance to Central and Eastern Europe and the NIS 
is based on the explicit recognition that the support is not open-ended 
but rather a bridge to help those nations' transitions to free market, 
economically prosperous democracies become sustainable and 
irreversible.
    An important part of the ENI Bureau's strategic planning 
and performance assessment system is the establishment and 
continual monitoring of graduation and close-out plans and 
criteria for each country. This includes the setting of end-
targets for each strategic objective. Progress toward meeting 
the targets is measured annually, which allows us to determine 
if the objectives can be achieved to the threshold level within 
the remaining timeframe set for the program, as well as what 
adjustments may be needed to enhance graduation prospects.
    Taking these criteria into account, and working with the 
State Department Coordinator for U.S. Assistance to Central and 
Eastern Europe, we have already closed out in Estonia, and have 
established graduation dates between now and FY 1999 covering 
seven other Central European countries.
    In addition to monitoring the impacts of our assistance 
programs, we assess the progress of the countries more 
generally to determine whether continued assistance is 
necessary or justified. We do this first by looking at the 
movement of each country towards economic reforms and 
democratization, the two pillars of USAID in the region. Then 
we look at indications of sustainability; that is, 
macroeconomic performance and social conditions that are 
showing improvement. Indicators are drawn from standard, well-
established data sources external to USAID, such as the World 
Bank, the IMF, the European Bank for Reconstruction and 
Development, the U.S. Bureau of the Census, and Freedom House.
                            positive results
    Question. Can you briefly describe for the Committee the kinds of 
positive results USAID programs have yielded in the NIS and Eastern 
Europe.
    Answer. The end of the Cold War raised the curtain on Eastern 
Europe after more than forty years of Soviet hegemony. For the people 
of this region it meant renewed hopes for democracy and economic 
freedom. The United States moved quickly to establish USAID programs 
under the SEED Act to help Eastern Europe realize these hopes. Since 
1989, a remarkable transformation has occurred in most of the region. 
Free and fair elections with voter turnouts exceeding Western levels 
are the norm. A free press and citizen activists make governments more 
responsive and accountable. Region-wide, minorities enjoy legal 
protections for the first time. USAID's democracy and governance 
programs helped to make these things happen. The greatest challenge for 
democratically elected governments has been to deliver economic 
freedom.
    Several countries in the Northern Tier have emerged as solid 
economic reformers with generally favorable investor ratings. Among the 
leaders are Poland, Hungary and the Czech Republic, which between them 
account for 80% of foreign direct in-
vestment inflows to Eastern Europe since 1989. USAID assistance to 
these countries has helped to improve the business climate for 
investment by assisting privatization and capital market development. 
Wherever countries have struggled to adapt their economies to the 
rigors of the market, USAID and other donors have provided technical 
assistance, training and institutional support. As a result, a more 
secure financial, legal and regulatory environment has been created in 
a number of countries. The rapidly expanding new business sector has 
directly benefited from USAID information, training, and credit 
facilities.
    Southeastern Europe has been handicapped by war and slower economic 
and democratic reforms; so too has been much of the NIS. In these 
countries, USAID has focussed equally on the local level as on the 
policy environment in response to crisis circumstances and in 
recognition of reform opportunities. For example, while USAID 
humanitarian relief operations helped to bring stability to areas of 
Bosnia, the Caucasus and Central Asia, its assistance to reform-minded 
local governments in Bulgaria helped to bolster public support for 
national level reforms.
    USAID has helped to make the transition from totalitarian rule to 
democracy a successful feature of the transformation of the NIS. While 
this process is by no means complete in any former Soviet republic and 
is lagging considerably in some, there is no denying the significant 
progress made particularly in Russia. The Russian NGO sector has 
expanded rapidly so that there are not some 40,000 registered NGOs up 
from a mere handful in 1991. Their advocacy at the national and local 
levels has surely been a factor on the new Russian political landscape. 
The national, parliamentary and local elections held in Russia during 
1996 marked a watershed in that country's political transformation. The 
results of Russia's presidential elections offer the United States and 
the West some assurance that reform and cooperation will continue. An 
example of the reform has been work USAID has led in the area of 
criminal and commercial law. Judicial reform has resulted from 
workshops, training and exchanges, including a pilot program to 
introduce jury trials for serious criminal offenses. USAID has made 
copies of the Civil Code, Part I available to all judges and trained 
over 40% of them in commercial law.
    In Central Asia, a revolution in health care is occurring as the 
health sector becomes more privatized and women's reproductive health 
is significantly improved. Health partnerships forged with NIS 
institutions are complemented by USAID efforts such as the Aral Sea 
Initiative, which aims to improve public health. The insolvency of the 
health care sector mirrors the state of public finances in general. 
USAID support for strengthened means-testing of subsidies enables 
governments to realize savings of scarce budgetary resources.
    Other savings are also being achieved through energy sector reform 
and the adoption of cleaner technologies. The modernization of Russian 
and other NIS industry holds enormous promise for Western business. 
USAID support for trade and investment with the NIS is underlined by 
its assistance provided for World Trade Organization accession 
negotiations. For example, support for Kazakstan's accession helps 
improve that country's investment attractiveness and complements 
activities such as support to the Ministry of Finance. In December 
1996, Kazakstan was able to launch a very successful $200 million 
Eurobond issue with key input received from USAID-funded U.S. Treasury 
advisers.
                     usaid accountability measures
    Question. Does USAID utilize a standard of measure to determine 
what is working and what is being wasted in administering assistance 
programs in the NIS and Eastern Europe? In other words, what kinds of 
accountability measures are in place?
    Answer. USAID utilizes an extensive series of measures to try to 
ensure that assistance activities are effective and that our programs 
are having the intended impact on achieving the successful transition 
of the countries of Eastern Europe and the former Soviet Union to 
democratic market-oriented economics. For USAID financed activities, 
grantees and contractors develop annual workplans that are reviewed by 
USAID staff. Process against these workplans is reported at least 
annually by USAID staff in the ENI Bureau's unique Monitoring and 
Reporting System (MRS). These reports are available to staff in both 
the field and Washington and are one of the tools to monitor activity 
progress. They also serve as input to more comprehensive annual reports 
by our country-based operating units on progress in achieving those of 
the Bureau's strategic objectives being pursued in particular country 
programs. Strategic objective reports include narrative descriptions of 
progress, quantitative assessments of progress against agreed upon 
targets that show whether or not intended results are being achieved, 
and an overall assessment of whether progress against each objective is 
above, below, or meeting expectations. Where progress is not meeting 
expectations, operating units identify steps they are taking to improve 
prospects for achieving results.
    As part of the annual review of our programs ENI also assesses each 
country's social conditions and the progress of each assisted country 
in achieving economic policy reform and democratization, utilizing data 
from non-USAID sources such as the World Bank and Freedom House.
    After annually reviewing progress towards achieving our objectives 
in each country, we cluster in quartiles all bureau objectives based on 
such factors as performance, importance to USAID's overall objectives, 
and the commitment of the country to reform. Activity performance, 
performance against objectives, and the overall place in the clustering 
against all bureau objectives are important considerations in 
determining the level of funding that should be provided. Strong 
performance may merit more funding, or, of success has been achieved, 
the elimination of funding for an activity, objective, or complete 
country program. Similarly, poor performance could result in 
termination of funding, or more assistance if the factors impeding 
performance can be overcome.
    Along with these various systems, processes, and measures we 
continue to utilize more traditional means of assuring the 
effectiveness of our programs and the careful use of U.S. assistance. 
These include audits by independent firms and Office of the Inspector 
General and the invaluable oversight of our own experienced staff.

           Questions for the Record Submitted by Mr. Kingston

                        safe chernobyl shutdown
    Question. Last year you received $25 million more to help shutdown 
Chernobyl and make the area safe. Can you please update the 
subcommittee on progress made with these funds in the last year? How 
far along is that project?
    Answer. USAID has transferred the $25 million to the U.S. 
Department of Energy in an interagency agreement for the following 
activities: (1) development by an international experts group of a 
Shelter Implementation Plan for transforming the sarcophagus over the 
destroyed Unit #4; (2) early implementation of critical elements of the 
Shelter Implementation Plan; (3) feasibility analysis of the options 
for meeting the heat/power needs of the facility when Unit #3 is 
closed; and (4) other decommissioning/decontamination planning.
    The Shelter Implementation Plan, estimated to cost up to $758 
million over seven years, has been developed with significant U.S. 
expert involvement and jointly agreed to by the G-7 and Ukraine 
authorities. The first stage is stabilization of the present structure 
to eliminate the greatest risk: its possible collapse. The U.S. 
Department of Energy has committed and begun about $11.7 million of 
activities at the sarcophagus that are part of the Shelter 
Implementation Plan (i.e. radiation monitoring and protection for the 
workers). Prefeasibility work has been completed on the heat/power 
plant and several options have been developed. The United States is 
considering the most cost-effective approach and will likely agree to 
use some of the $25 million for this facility. This facility will 
complement other predecommissioning waste facilities being funded by 
the Nuclear Safety Account of the European Bank for Reconstruction and 
Development and the European Union. In addition, the G-7 countries are 
working with the EBRD on a multilateral public and private funding 
mechanism for the Shelter Implementation Plan.
                            family planning
    Question. The Committee has also earmarked funds in the past for 
family planning in the New Independent States. Please provide some 
information (and data later) regarding the impact of these funds on 
prevention of unwanted pregnancy in the NIS and the impact on the 
abortion rate.
    Answer. Since 1993, the Women's Reproductive Health Program has 
been modernizing NIS reproductive health services reducing reliance on 
abortion, which was the most common ``fertility control'' method and 
which resulted in high levels of maternal mortality. In the NIS, 
Women's Reproductive Health Programs totalling $32 million have been 
established in Russia, Ukraine, Moldova, and Central Asia, with 43 
USAID-funded centers providing clinical contraceptive training, 
services and counseling. New programs are planned for Armenia and 
Georgia in late 1997.
    In addition, in Russia, Ukraine, Central Asia and Armenia, the 
American International Health Alliance's Hospital Partnerships are 
developing hospital-based, clinical women's services, including family 
planning.
    USAID programs have achieved impressive results. In Central Asia, a 
1995 USAID study of 1993-95 data from 33 project sites in five 
countries reported a 58% increase in new contraceptive acceptors and a 
30% decrease in induced abortions. In Bishkek, Kyrgyzstan for the 
period 1994-96, a USAID site, the Marriage and Family Center reported 
that induced abortions decreased by almost 50% and oral contraceptive 
use by women increased 200%. A 1996 Centers for Disease Control 
Reproductive Health Survey found that 60% of Russian women now use some 
type of contraceptive method and that 70% of these women used a modern 
method. In Ukraine, the Ministry of Health reported an 8.6% reduction 
in induced abortions in the first six months of 1996 that can be 
directly attributed to USAID assistance.
                     currency transition in ukraine
    Question. Can you comment on the currency transition that took 
place last fall in Ukraine? Has the transition been successful? Has 
there been positive or negative economic impact? Were the old 
``coupons'' phased out slowly to allay fear among citizens and to 
prevent an even bigger inflation push prior to transition?
    Answer. The introduction of the new currency, the Hryvnia, was 
unique in the region in that it had no confiscatory element. The 
Hryvnia replaced the previous Ukrainian currency, the Karbovanets. 
There was a month-long transition period during which the old currency 
was withdrawn. The introduction of the currency was a resounding 
success as evidenced by the fact that the currency has maintained its 
value against the U.S. dollar. A brief devaluation of the currency in 
October was unrelated to the introduction of the currency. It reflected 
inexplicable debt service delays by the Ministry of Finance in service 
of maturing Treasury debt. Inflation subsequent to the introduction of 
the new currency continues to decelerate, which reflects the National 
Bank of Ukraine's continuing commitment to stringent monetary policy. 
There is no street market for the Ukrainian currency, further evidence 
of people's confidence in this currency.
                      changing focus of assistance
    Question. I appreciate the effort to transfer aid focus from more 
technical aid to more economic stimulus and trade promotion. I actually 
think this type of a fundamental shift is at least a couple years 
overdue. I have been told by entrepreneurs in Russia that they have 
received all the training, technical assistance and classes they need 
except perhaps for legal reform assistance. I know you've been doing 
this to some extent all along, but they have needed more assistance in 
the form of U.S. equipment, private business investment, and trade 
stimulation for some time. It is my understanding that some of these 
old programs are being continued through into at least the year 2000. 
Why must we do that? Are they previously awarded multi-year contracts? 
Are they legal/tax reform programs?
    Answer. As your question correctly observes, USAID has already 
begun to move away from an emphasis on straight technical assistance 
for Russia toward promotion of enduring society-to-society 
partnerships. We are able to make this transition precisely because of 
our success in building up the capacity of the private business sector 
through the more traditional types of USAID programs; this strengthened 
capacity allows Russian business persons to take advantage of the 
opportunities now opening up in trade, investment and small business 
development.
    However, we believe some technical assistance and practical, 
targeted training is still needed for the next couple of years, in 
Russia to ensure that the institutional capability to seize the 
opportunities is sustainable and irreversible. Such programs also are 
needed to help solidify the environment in which mature trading and 
investment relationships flourish. Some limited, traditional assistance 
mechanisms remain in place in Russia, focused on legal and regulatory 
reform.
    The thrust of the new Partnership for Freedom (PFF) focuses on 
establishing and promoting strong Russian-American linkages that will 
foster small business development, increased trade and investment, and 
a supportive civil society--particularly at the local and regional 
levels where the success of Russia's historic effort to join the ranks 
of free-market democracies may ultimately be decided. President 
Yeltsin's new team of advisers in demonstrably committed to economic 
reform, increasing the likelihood that USAID assistance will have a 
significant impact.
    Facilitating the growth of trade and investment requires a 
business-friendly legal and regulatory environment. USAID continues to 
work closely with the Russian Government, including the relevant 
executive branch ministries, to implement reforms to create a climate 
conducive to the growth of small business. Our support for overhauling 
thetax system and for the creation and regulation of a robust financial 
market are essential to advance the cause of economic reform in 
general, and the development of a dynamic small business sector in 
particular. In addition, USAID has helped to fund Business Support 
Institutions across Russia. These centers provide precisely the type of 
technical advice demanded by promising entrepreneurs, and have resulted 
in the formation of some 5,000 new businesses.
    Other countries in the NIS region--such as those in Central Asia 
and the Caucasus--still have far to go to reach Russia's level of 
success in economic restructuring and democracy building. They are not 
yet poised to take full advantage of the types of linkages embodied in 
the Partnership for Freedom. Therefore, additional technical assistance 
resources need to be targeted at them to provide the foundations upon 
which sound trade and investment relationships with the U.S. can be 
built.

             Questions for the Record Submitted by Mr. Obey

                   central europe title viii funding
    Question. In both the House and Senate reports last year language 
was included endorsing full funding for the Russian, Eurasian, and East 
European Research and Training Program (Title VIII) from the NIS and 
Central Europe accounts. Although the NIS account has provided full 
funding of $3.3 million, to date the Central Europe account has only 
provided $900,000 of the $1.7 million needed for full funding.
    What steps are being taken to complete the additional $800,000 for 
Central Europe funding for Title VIII?
    Answer. Congress urged funding of Title VIII through the SEED and 
FREEDOM Support Act budgets. While we understand why this was done, it 
is a very tenuous arrangement as far as SEED Act funding is concerned. 
The SEED non-Bosnia funding continues to decline. Further, we expect 
SEED, as a temporary program, to be greatly reduced by the year 2000. 
We have recently announced the ``graduation'' of five more Central 
European states from SEED over the next three years. As a result, we 
have had to apply cuts to the Title VIII program along with the rest of 
the SEED program. The budget for Title VIII (NIS and Central Europe) 
will be $4.2 million for Fiscal Year 1997, with $900,000 from the SEED 
budget to support research in Central and Eastern Europe. To preserve 
the good work of Title VIII, a more durable funding vehicle than SEED 
must be found.
    At the request of the State Department's Bureau for Intelligence 
and Research, we have agreed to seek Fiscal Year 1998 funds for Title 
VIII within the combined resources of the SEED Act and FREEDOM Support 
Act accounts. Beginning with Fiscal Year 1999, we intend to return 
Title VIII to the regular State Department budget at a level of $5 
million per annum. We look forward to working with Congress to find a 
better lasting funding arrangement than the SEED Act account.

            Questions for the Record Submitted by Mr. Yates

           leveraging funds with the partnership for freedom
    Question. Does the Partnership for Freedom program leverage any 
funds from the private sector? How has the United States business 
community contributed to your efforts? Is there any way we could work 
more closely with the private sector?
    Answer. One of the operating principals that we will employ under 
the Partnership For Freedom is cost sharing by partners. Both partners 
(NIS and American) should bring something to the table. Many of the 
partnerships we will support will link the U.S. business community, 
through individual firms and through professional associations, with 
businesses in the NIS. To the extent that we require contributions from 
these partners, we will be leveraging private sector funding. More 
importantly, these partnerships will be designed to help establish 
ongoing business relationships, which should result in larger private 
sector investments in the medium-term.
                         nis concrete successes
    Question. We have already spent a great deal of money in Russia and 
the New Independent States (NIS) countries. Do we have any concrete 
successes to show for our efforts?
    Answer. Perhaps the single most dramatic and unprecedented 
achievement of the transition throughout the entire former Soviet 
sphere, and one for which USAID deserves a large measure of credit, has 
been the mass privatization of the Russian economy. Ownership of 
approximately 120,000 enterprises now resides directly in the hands of 
over 40 million private shareholders. In just a few short years, the 
private sector has blossomed from contributing a paltry 5% of economic 
output near the end of the Gorbachev era to 60% of GDP and employing 
half of the labor force in 1996. USAID has helped to make the legal and 
regulatory environment conducive for the creation of new private 
businesses and the protection of private property. As a result, there 
is an emerging broad-based Russian business class with a growing stake 
in the development of well-ordered commercial relations. A residential 
housing market has been established. And the stock market is booming, 
driven not simply by speculative funds but by investor perception of 
the greater transparency and safeguards made possible through USAID's 
efforts.
    Although uneven, freedom has grown remarkably in several former 
communist societies. In Russia, people no longer fear the coercive and 
corrupting power of a totalitarian state. That particular Orwellian 
nightmare is over. The proof was on display in 1996 before a worldwide 
audience, as Russia held presidential, parliamentary, and local 
elections. The electoral process was deemed credible by the competing 
parties, the electorate, and international observers. The lifeblood of 
the new Russian society is the media. In 1991, televised news was 
received from one government controlled service. Today, at least 500 
broadcasting companies produce original programming in Russia. The 
rapidly growing NGO community increases the leverage which ordinary 
citizens can provide to the reform process at the national and local 
levels. With USAID assistance, local governments in Ukraine are 
becoming more responsive to their constituents. They have introduced a 
variety of democratic reforms such as more open budgeting, town 
meetings, citizen task forces, constituency outreach and local 
government watchdog groups, many of which never before existed. 
Municipal services are more efficient and better financed.
    Although working in an environment where economic reform has been 
slowed by political gridlock and corruption, USAID-assisted enterprise 
privatization in Ukraine has resulted in some 400 companies a month 
being auctioned. Approximately 30,000 of the 40,000-45,000 small-scale 
state enterprises and over 3,500 medium and large enterprises have been 
privatized. Cash-strapped Ukraine has also benefitted from budgetary 
savings to the tune of $600 million in 1995 and as much as $1 billion 
in 1996, which were realized through USAID support for better targeting 
of housing and utility assistance to the vulnerable. In addition, 
Ukraine has achieved the most far-reaching power sector restructuring 
of any republic of the former Soviet Union. Increased efficiencies in 
power generation, transmission and distribution reduce Ukraine's heavy 
dependence on fuel imports and unsafe nuclear power.
    In other parts of the NIS, USAID has also had success reforming the 
energy sector. Efforts are well under way in Armenia to de-monopolize 
the electricity sector, rationalize energy pricing, and improve tariff 
collection. Similarly in Georgia, restructuring has resulted in the 
sale of a number of hydro power plants to private investors, and 
creation of a national regulatory body for the power sector. 
Strategically important energy transit issues in the Caucasus and 
Central Asia are being addressed in the context of the creation of an 
investor-friendly oil and gas legal, regulatory and environmental 
framework for the exploitation of the Caspian Sea. Elsewhere, as 
aresult of USAID technical assistance and partnerships between 
Cincinnati Gas and Electric and local utilities, 70% of electrical 
generation in Kazakstan is being sold to the private sector, including 
American investors.
    In the health sector, USAID has helped privatize the pharmaceutical 
distribution and retail system in Kazakstan. Of 1,378 pharmacies, 691 
have been auctioned and 562 were privatized by the end of 1996. USAID 
reproductive health programs in Central Asia have reported a 58% 
increase in modern contraceptive use and a 30% reduction in abortions 
since 1994. In Russia, health reform is helping that country improve 
the quality, organization, and financing of the health care system. 
Hospital partnerships with U.S. institutions have taught Russian health 
professionals state-of-the-art practices in several specializations, 
including women's clinical services, and contributed to improved 
hospital management. As in Central Asia, modern contraceptive use is 
increasing and abortions are decreasing.
    USAID assistance to the Caucasus has been predominately 
humanitarian, given the severe hardships engendered by regional 
conflict. Food shipments have fed needy citizens, refugees and 
displaced persons; fuel shipments have increased electric power; winter 
warmth programs have provided heat for houses and schools. School 
attendance rose significantly as a direct result of this heating 
program. Pharmaceuticals have met medical needs and large segments of 
the vulnerable populations have received vaccines against infection 
diseases.
    Integration of the NIS into the global marketplace will 
immeasurably enhance the security of Western Europe and the United 
States. Towards that end, accession to the World Trade Organization 
would provide investors with greater confidence that a legal framework 
and safeguards are in place. Kazakstan and Kyrgyzstan are two 
beneficiaries of USAID support which are well advanced in this process. 
Such efforts are paying off more broadly as foreign investors 
increasingly supply badly needed credit and technology to the public 
and private sectors.
             usaid's role under the partnership for freedom
    Question. What is the United States Agency for International 
Development's (USAID) role under the Partnership For Freedom?
    Answer. The Special Advisor to the President and to the Secretary 
of State on Assistance to the NIS will continue to establish strategic 
directions for our assistance and to allocate this budget among 
implementing agencies and among recipient countries. Among the 
implementing agencies, USAID will continue to manage the single largest 
share of the assistance program under the PFF.
            usaid capabilities under partnership for freedom
    Question. How does this initiative affect USAID's capabilities 
throughout the region?
    Answer. This increase in resources requested by the President will 
greatly increase USAID's ability to address crucial reform needs 
throughout the New Independent States. It will also enable USAID to 
ensure the sustainability of those reforms by strengthening linkages 
between American and NIS institutions, both public and private.
                  funding for partnership for freedom
    Question. If the subcommittee does not fully fund this program, 
where does that leave the Partnership For Freedom program, and how will 
it affect other USAID assistance programs? How does it affect other NIS 
programs?
    Answer. If the Partnership For Freedom is not fully funded at the 
$900 million request level, USAID and the other USG implementing 
agencies would have to scale back the scope of their assistance 
activities. The highest priority would still go to assistance aimed at 
restructuring economies and building democratic institutions. 
Reductions in the appropriation would impact most severely on 
activities promoting trade and investment and on those promoting 
lasting institutional relationships between the United States and the 
NIS.

                    Questions Submitted by Ms. Lowey

                       ukraine chernobyl project
    Question. The tragic explosion 11 years ago of the nuclear reactor 
at Chernobyl has had a devastating impact on the Ukrainian people. Each 
day, we learn more and more about the long-term environmental and 
medical impact that the explosion left in its wake. In fact, it is only 
now, over a decade later, that medical researchers expect to begin to 
see the incidence of breast cancer rise as a result of the Chernobyl 
disaster. That is why I am pleased that USAID has been working on 
several projects to address the very serious health consequences of 
Chernobyl. I understand that USAID is involved in projects in both 
Ukraine and Israel to diagnose, treat and prevent breast cancer among 
individuals living in the region affected by Chernobyl. Could you give 
me an update on this project and why this type of research is so 
important to the region.
    Answer. USAID developed the $4 million Ukraine Breast Cancer 
Assistance Program to improve the access to and quality of breast 
cancer screening, diagnosis, treatment and rehabilitation services that 
Ukrainian women receive, particularly those exposed to Chernobyl 
radiation. This three year program also will enhance the cost-
effectiveness and sustainability of those services.
    Following a competitive procedure, in December 1997, USAID awarded 
a grant to the Program for Appropriate Technology in Health (PATH), in 
collaboration with the Fred Hutchinson Cancer Research Center and other 
Seattle-based cancer facilities, to implement this program. The group, 
with its Ukrainian partner institutions, recently completed an in depth 
assessment of breast cancer screening, diagnosis and treatment in 
Ukraine, and is now finalizing a specific and detailed action plan.
    Major first year activities are expected to focus on: a breast 
cancer registry; laboratory support for diagnosis and patient 
monitoring; a pilot activity to implement a standard U.S. chemotherapy 
protocol; and clarification of mammography screening modalities. 
Although the Program is an operational activity benefiting breast 
cancer victims, it may add to the information available on the health 
impacts of the Chernobyl disaster.
    In a separate activity, USAID agreed that $1 million of existing 
funding in the U.S./Israel Cooperative Development Program could be 
used to support a grant to Technion. The grant will support research in 
Israel on radiation-exposed populations who have immigrated from the 
former Soviet Union to Israel in regard to their risk of developing 
breast cancer and other health impacts. Results from the research are 
not expected for a number of years. When available, Technion has 
pledged to share those results with authorities in the Ministries of 
Health in Ukraine, Belarus, and other countries which might benefit 
from this information.

          Questions for the Record Submitted by Mr. Foglietta

                            albania projects
    Question. Much international attention has been focussed on a 
nation that has rarely, if ever been in the spotlight--Albania. While 
it is difficult to attribute the recent lawlessness and violence that 
has gripped Albania to one cause, citizens clearly became resentful 
because of wide scale and seemingly government sanctioned corrupt 
investment schemes. This, compounded with autocratic political 
leadership and the existence of armed and criminal factions, has 
spelled disaster for the nation.
    (a) The U.S. has provided a modest amount of aid to Albania over 
the past few years. Can you tell us what types of projects we have 
sponsored there?
    Answer. USAID activities have strongly supported democratic 
institutions and political processes in Albania. Both the International 
Republican Institute and National Democratic Institute have had 
representatives working in Albania to promote a more active exchange 
between politicians and their constituencies by providing training in 
the rights and responsibilities each has in a democracy. Strong support 
has been provided to non-governmental organizations (NGOs) to increase 
their advocacy role vis a vis government. Advisors also work with local 
governments to better equip them to serve their constituents and move 
toward greater decentralization. Over 50% of U.S. assistance to Albania 
supports economic growth. Much of that assistance goes to the 
agricultural sector which accounts for over 50% of GDP and 50% of 
employment in Albania.
    Agriculture was one of the first sectors privatized in Albania, and 
it is worth noting that during the recent crisis, the agricultural 
sector has been little affected. Other U.S. support includes the 
Albanian-American Enterprise Fund, which provides loans and equity 
capital to private businesses, an MBA program, technical assistance to 
small and medium enterprises and technical skills training. When the 
situation allows for the return of U.S. advisors, assistance can 
quickly be provided to start rebuilding the Albanian economy. Little 
support in the area of economic growth is provided directly to the 
Government of Albania. Virtually all is directed to the private sector. 
With regard to social sector restructuring, USAID has supported 
programs in health service management and family planning, to both 
improve the quality of care and reduce the use of abortion as a means 
of contraception.
                      current situation in albania
    Question. (b) Obviously, with the evacuation of U.S. personnel from 
Albania our work there has stopped, but could you give the Committee 
any additional information on the situation in Albania as the 
international peace force prepares to deploy there?
    Answer. While it is true that the majority of USAID American staff 
and USAID-financed project personnel were evacuated in March, I would 
like to note that the USAID Representative to Albania, Dianne Blane, 
and her Albanian staff have remained at their posts throughout the 
crisis. Since the hearing on April 10, she has been joined by one 
additional USAID direct hire staff person, at the request of our 
Ambassador in Tirana. They have been principally occupied with 
reporting on the humanitarian issues linked to the crisis, monitoring 
the emergency assistance programs supported by the U.S. Government, 
coordinating those efforts with other donor representatives, and 
advising the many Albanian staff of USAID-financed projects who have 
also remained on the job. Those project staff have demonstrated their 
commitment to our assistance objectives in Albania by securing project 
sites and offices, maintaining communications with headquarters offices 
and evacuated American staff, and attempting to maintain an assistance 
presence in Albania despite the crisis. In some programs, such as 
support to Albanian non-governmental organizations, that advisory 
presence has been of critical importance during these very trying times 
in Albania. From reporting by USAID Representative Blane and her staff, 
we know that humanitarian relief efforts are going well, that the 
security situation in Tirana has improved since the worst days of 
March, and that the current focus of Albanian and international efforts 
is preparation for planned new parliamentary elections, as early as 
June.
                   building a durable peace in bosnia
    Question. Another nation that has held the international spotlight 
for so long is Bosnia. The amount and extent of suffering that took 
place in that nation is beyond imagination. The Administration should 
be applauded for dealing with an issue that has eluded peacemakers for 
centuries. Healing the wounds there and repairing the extensive damage 
inflicted by the war will be a long time coming. We have committed 
millions to help this process continue but sometimes it is hard to see 
how we can be successful when the Bosnians themselves still can't agree 
on the simplest matters. Can you talk about progress on building a 
durable peace in Bosnia and how we are, or are not, succeeding in 
laying the foundations to revitalize their economy and build political 
institutions to prevent any future tragedies?
    Answer. Economic reconstruction is central to a durable peace in 
Bosnia. The USG has led the international community in the development 
and implementation of economic reconstruction programs. USAID also 
seeks to foster ethnic reconciliation wherever possible in the 
implementation of assistance.
    USAID's Municipal Infrastructure and Services (MIS) program 
provides critical infrastructure repair. At the community level, the 
restoration of power, the rebuilding of schools and health facilities, 
improvements to local water supply, and road repairs are helping to 
stabilize communities and provide employment opportunities. In turn, 
this fosters economic recovery and encourages the return of displaced 
persons and refugees.
    To date, under the Bosnia Reconstruction Finance Facility (BRFF) 
loan program, USAID has approved 67 loans totaling approximately $39.6 
million dollars. These initial loans will provide employment to over 
8,600 Bosnians representing a mix of ethnic backgrounds, including 
demobilized soldiers and women adversely affected by the war.
    By providing technical assistance, training and equipment to 
alternative radio and television stations, USAID is striving to build 
management, marketing, and production techniques to bolster the 
emergence of an independent broadcast media in Bosnia.
    Among the accomplishments of USAID's Judicial Strengthening program 
are the inauguration of the Federation Constitutional Court and Supreme 
Court and the development of their administrative rules and procedures; 
establishment of a Federation judges' association to promote the 
independence and reform of the judiciary; bar reform; and legal 
education reform.
    USAID is also helping strengthen canton and municipal governments 
by assisting them to develop sound frameworks for revenue and 
expenditure management; and the establishment of open, transparent and 
accountable budgets.
    As a result of bank supervision technical assistance, the 
Federation banking Agency was established. This Agency unified banking 
supervision in both parts of the Federation. It is also a visible and 
functioning symbol of cooperation in the Federation. Bank supervision 
is also critical to the functioning of a Federation/Republika Srpska 
Working Group which is harmonizing banking laws between the entities 
and working to unify the Bosnia banking system.
                           impact of earmarks
    Question. One issue I know that you grapple with in the face of 
severely curtailed funding is the impact of earmarks that are included 
in foreign operations legislation. Probably the NIS and Central and 
Eastern Europe have been impacted more than anywhere else in the world 
and I am concerned that these earmarks limit the State Department and 
USAID from achieving broader U.S. policy objectives. It is my hope that 
our Committee will be able to resist further efforts to earmark funds 
in the FY 1998 bill to provide you with the flexibility you will need 
to accomplish our many missions overseas. Could you share with me some 
of the impact these country specific earmarks may have had on ongoing 
projects and activities?
    Answer. Earmarks do limit USAID's ability to foster systemic change 
in the NIS countries. For example, based on program objectives and 
results to date, we requested--for FY 1997--$55 million for Armenia, 
$183 million for Ukraine and $173 million for Russia. Funds made 
available in the FY 1997 Appropriations Act included $95 million for 
Armenia, $225 million for Ukraine and $95 million for Russia. These 
final budget figures had a major impact on USAID's program in Russia 
and limited USAID's ability to pursue program objectives in other 
countries. Specifically, these earmarks required USAID/Moscow to cut 
back its activities in legal and regulatory reform, which in turn has 
limited our ability to influence the business transparency and 
predictability needed to promote private investment and trade in 
Russia. They also forced USAID to make significant cuts in the local 
government program in Russia--preventing a devolution of power and 
capacity-building needed to match the additional responsibilities 
thrust on municipalities--and to phaseout successful programs in other 
important areas such as agriculture, environment and energy.

                     SUBMITTED TO STATE DEPARTMENT

            Questions for the Record Submitted by Mr. Porter

             assistance to disputed territories in the nis
    Question. The International Committee of the Red Cross (ICRC) 
recently released a needs assessment concerning the humanitarian 
situation in Nagorno Karabakh which found that the refugees there are 
suffering dramatically and current assistance is far from sufficient. 
The State Department continues to resist the provision of direct 
assistance to the people of Nagorno-Karabakh, insisting that it is 
Azerbaijan's responsibility to provide assistance to the refugees 
there.
    (d) Ambassador Morningstar, you have stated that Section 907 was 
the hindrance to assistance to Nagorno Karabakh. In the FY 1997 
appropriations process, we endeavored to clarify that Section 907 was 
in no way intended to prevent the provision of humanitarian assistance 
to Nagorno Karabakh, and we met the resistance from the State 
Department on this matter. In light of the fact that the U.S. maintains 
a thriving assistance program to Azerbaijan despite Section 907, why 
are we unable to assist the people of Nagorno Karabakh?
    Answer. It is inaccurate to characterize USG assistance to 
Azerbaijan as ``thriving.'' Section 907 was written to ensure it is 
not, and its protagonists have achieved their goal. In FY97 it is 
estimated that the two Caucasus countries not affected by Section 907, 
Armenia and Georgia, will receive $144 million and $91 respectively in 
USG assistance. Azerbaijan will receive approximately $31 million. The 
USG has been able to assist the people of N-K through donations to the 
regional ICRC appeal, $16.57 million in 1996. Of the over $62 million 
in USG assistance committed to the ICRC Newly Independent States (NIS) 
Appeal since 1992, it is estimated that approximately $3.5 million will 
have been expended meeting N-K needs by the end of this year. We are 
currently considering a request for funding assistance from the 
American Red Cross, who will be working under the auspices in N-K in 
the health sector, and we are willing to contribute along with the rest 
of the international community to any needs assessments dealing with 
the region. We know of no needs assessment recently released by the 
ICRC which portrays refugees as suffering dramatically. All available 
information from various sources including the ICRC indicates that 
needs in N-K are similar to those in other areas of the Caucasus 
region; the response to meeting critical needs in N-K, though 
complicated by the conflict situation, is similar to that in other 
regions of Azerbaijan and perhaps better.
                       operation support freedom
    Question. It is my understanding that Operation Support Freedom 
(OSF), an enormously successful NIS program which provided door-to-door 
transport of humanitarian assistance from private entities in the U.S. 
to the NIS, is being terminated and replaced by an ocean freight 
program which will reimburse non-profits for port-to-port shipping 
costs for containers of humanitarian assistance.
    (a) What is USAID's justification for ending a successful private-
public partnership which has cost-effectively sent so much assistance 
to the region?
    Answer. Operation Support Freedom was a program operated with 
Freedom Support Act funding through the Office of the Coordinator. It 
officially ended on April 1, 1997. The decision to terminate the State 
Department contractual relationship with Military Professional 
Resources Incorporated (MPRI), who called their program to facilitate 
the transport of commodities donated by private volunteer organizations 
(PVOs) Operation Support Freedom, was strictly a budgetary one. Freedom 
Support Act funding has dropped from $2.5 billion in 1992 to $625 
million in FY97. The transportation funding has dropped from $60 
million in 1992 to $15 million in FY97. These types of decreases in 
dollars available have made it necessary for us to modify our 
transportation program in order to increase effectiveness and to 
leverage the expenditure of taxpayer money in assisting those in most 
need in the NIS.
    (b) What provisions are being made to deal with the impact that 
elimination of OSF will have on a land-locked state such as Armenia, 
where there is no port to ship to and its neighbors are blocking the 
country--including a blockage of humanitarian aid?
    Answer. The elimination of OSF will have no impact that we can see 
on this situation. Private organizations delivering commodities to 
countries like Armenia under grant provided through the USAID Ocean 
Freight Program will use established overland routes after delivery to 
accessible ports. In the case of Armenia these will be through the 
ports of Poti and Batumi, Georgia with direct rail access into Armenia. 
Since Armenia is a land-locked country, the USAID OFR Program will pay 
the ocean freight and inland transportation costs of the delivery of 
goods to Armenia.
    Many of the small organizations that have been using Operation 
Support Freedom, such as individual church congregations that collect a 
container of goods every couple of months, will not meet USAID's 
qualifications for reimbursement nor have the expertise to apply for 
USAID reimbursement. It is also likely that they will not be able to 
afford to transport their containers to a port, especially in inland 
areas in the Midwest, as required by the new program. It will be 
extremely difficult, if not impossible, for them to continue to send 
assistance to the NIS at all. What steps are you taking to ensure that 
such donors are not left out of the new program? What assistance--
technical, financial and otherwise--does USAID intend to make available 
to these organizations to assist them in utilizing the new program? If 
such donors cannot participate in the program what amount of lost 
benefit would this represent?
    Answer. Fiscal constraints brought on by diminishing transportation 
dollars have resulted in required program changes. The bottom line is 
that under current budgetary constraints the USG could no longer 
continue its PVO transport program at its previous FY92-FY96 levels. 
When the decision was made to provide funding to the USAID Ocean Fright 
Program, the Coordinator's Office worked very closely with USAID and 
our contracted freight forwarding agent to ensure that all PVOs who had 
shipped under Operation Support Freedom were informed early of intended 
program changes. PVOs were informed in August of 1996 of the pending 
change in the status of the NIS Program and were sent materials 
acquainting that with the new program administered by USAID.
    A requirement of the USAID Ocean Freight Reimbursement Program is 
that PVOs must be registered with USAID to ship donated humanitarian 
commodities overseas through a competitive grant process. USAID's 
office of Private and Voluntary Cooperation sent out registration 
applications to former participants of the Operation Support Freedom 
Program that were not registered with the Agency. Small organizations 
that do not qualify for shipping under the new USAID programs may find 
assistance to ship to the NIS through USAID's Denton Program. The 
Denton Program, administered through USAID, the Department of State, 
and the Department of Defense, permits U.S. donors to ship privately 
donated goods and supplies overseas on space-available military 
transport. Organizations are not required to be registered to 
participate in the Denton Program. Donors submit an application to 
initiate the process requesting space-available transport.
    During the transition period the Coordinator's Office tried to 
assist smaller organizations by making final shipments of commodities 
already collected by referring them to larger more established PVOs 
like Counterpart or Project Hope. These larger groups can often furnish 
donated goods as well as provide assistance to smaller PVOs in shipping 
goods to the NIS.
    USAID's office of Private and Voluntary Cooperation annually 
administers a PVO/PVC Partnership Workshop which presents in detail the 
criteria and guidelines for competing for grant programs offered to the 
U.S. PVO community. Other pertinent technical and financial information 
is shared with the many workshop participants. All PVOs registered with 
USAID receive the announcement for the annual workshop. The workshop, 
usually held in September, will reveal opportunities for other PVO 
grant programs administered by USAID while serving as an excellent 
opportunity for these organizations to network.
    (d) It is my strong preference that State be directed to continue 
the OSF program, and I have previously made this known to Ambassador 
Morningstar. If such a requirement is in the FY1998 appropriations 
bill, what will be the costs of restarting OSF once it has been 
dismantled? How do they compare to projected savings that the ocean 
freight program is expected to generate? How do they compare to the 
costs of maintaining the OSF program without interruption?
    Answer. The reestablishment of the OSF program would be a very 
expensive proposition at a time of diminishing budgets. At its height 
this program cost approximately $18 million per year and, as a virtual 
entitlement, lacked many of the desired controls needed to maximize its 
effectiveness. The new program of approximately $15 million per year 
consists of a USAID budget fenced to provide PVOs grants for shipment 
of humanitarian commodities to the NIS and a Coordinators budget 
focused more clearly on need and the shipment of high-value medical 
assistance. It is designed to maximize and leverage the expenditure of 
available dollars. No comparisons can be made on continuing the OSF 
program without interruption since it ended on April 1, 1997.

          Questions for the Record Submitted by Mr. Livingston

                         corruption in ukraine
    Question. There are serious reports of widespread corruption in 
Ukraine. This corruption is having a devastating impact on U.S. 
businesses and seriously undermining Ukraine's transition to a free-
market economy.
    GALA Radio and Television Company, the first Voice of America 
affiliate in Ukraine, is experiencing this corruption firsthand with 
the Ukrainian government. Specifically, the government is not honoring 
its license agreements with GALA, which to date has cost the radio 
station approximately $1 million in actual cost and $12 million in 
potential revenues ($5 million from the lost Kiev license and $7 
million from other city license agreements). While the Ukrainian high 
court ruled last December in favor of GALA Radio, I am told that the 
ruling has been largely ignored by Ukrainian officials.
    To make matters worse, the station was robbed and a pirate station 
soon began operating on their frequency using their name and equipment. 
The station director was also physically threatened by Ukrainian 
police. And, despite assurances by both Ukrainian and American 
officials that the matter would be resolved, the situation persists.
    GALA Radio is not the only American company that has experienced 
problems with the Ukrainian Government. Other American investors such 
as Marathon Oil, Motorola and John Deere have had their share of 
difficulties. In fact, Motorola recently canceled a potential $500 
million investment because of ever-changing terms and conditions of 
their license agreement with the government.
    What is the Administration doing to address the growing problem of 
corruption in the Ukraine government?
    Does the Administration have a strategy to help American companies 
who have suffered losses because of government expropriation and 
contract violations?
    What efforts are being undertaken to see that the GALA situation is 
resolved according to Ukrainian law?
    What efforts are being undertaken to see that other situations 
involving American companies are resolved according to Ukrainian law?
    How can the Administration help assure that future cases of 
government expropriation and contract violations are avoided?
    How is the Administration helping American companies who have been 
victims of Ukrainian corruption?
    Last year, Congress made available $225 million for Ukraine. Of 
that amount, $15 million was available for legal restructuring 
necessary to establish an independent judiciary and bar, legal 
education for judges, attorneys, and law students and education of the 
public designed to promote understanding of a law-based economy. In 
light of Ukrainian court rulings in the GALA Radio matter and lack of 
government response, what are the concrete benefits of the funding?
    Is the Ukrainian government taxing technical and humanitarian 
assistance?
    Answer. The Administration has recognized that to address the 
problem of corruption, we have to encourage change from above and from 
below, and that both public official and private citizens have to abide 
by the law. A legal framework, effective regulatory and enforcement 
mechanisms, and political will are needed at the top; and, demand for 
cleaner government in a law-based society must come from below. The 
U.S. Government's broad-based program to address the problem of 
corruption in Ukraine includes such activities as: working to frame the 
content of new laws and codes (civil code, criminal code and criminal 
procedure code are high-priorities, working to design and strengthen 
the legal and regulatory institutions to implement the legal framework, 
strengthening civil society,including human rights and citizen advocacy 
groups, and independent media, and working to professionalize 
investigations into criminal and corrupt activities and to strengthen 
enforcement of judgments in both civil and criminal cases.
    Through the Committee on Trade and Investment under the U.S.-
Ukraine Binational Commission, U.S. and Ukrainian officials 
periodically review investment cases where disputes have arisen. The 
Subcommittee on Business Facilitation, consisting of U.S. Embassy 
representatives and appropriate Government of Ukraine (GOU) officials, 
examines the progress being made to resolve these cases. The U.S. 
Government, at all levels, continues to press the GOU to address 
situations where U.S. companies may be disadvantaged by corruption or 
other discriminatory activities. Most recently, Vice President Gore 
referred to these cases during the May 16 meeting with President Kuchma 
and the U.S.-Ukraine Binational Commission.
    Although some problems still remain, through these efforts, GALA 
has returned to 24-hour broadcasting on FM100. Deputy Prime Minister 
Durdynets has pledged his personal efforts to resolve the case, and 
said he would follow up any information provided on criminal or other 
complaints related to the case. All sides are continuing to meet in 
Kiev in an effort to resolve the dispute.
    The best assurance for U.S. investors in Ukraine to avoid 
government expropriation and contract violations is a truly reformed 
economy. We are working diligently to convince the Government of 
Ukraine to stay on the reform track and keep to the conditions agreed 
to with the IMF and the World Bank. While there is no guarantee future 
cases of expropriation and contract violation will not arise, we remain 
well positioned to address any new cases promptly and forcefully.
    The U.S. continues to press the Government of Ukraine to resolve a 
number of investment dispute cases. All too often, these problems arose 
because of corruption at some governmental level. During the recent 
meetings of the U.S.-Ukraine Binational Commission, we proposed, and 
the Government of Ukraine was receptive to, an initiative to increase 
the level of transparency in government.
    U.S. Embassy personnel continue to provide assistance to U.S. 
companies which seek help. Officers have escorted U.S. business persons 
to meetings with Ukrainian officials to convey our serious attention to 
each particular case. While we cannot provide legal advice to U.S. 
companies, we do strive to assure that appropriate legal representation 
had been made available and remind the Government of Ukraine that we 
expect all rights be respected.
    The $15 million that was made available for legal restructuring in 
Ukraine is being used in part to support ongoing work with the 
judiciary. A key activity since 1994 has been to support the system of 
arbitrage courts as they make the transition from their role under 
communism to their role in a market economy. In 1991, the arbitrage 
courts were responsible only for resolving disputes among state 
enterprises. After the collapse of communism, their role was redefined 
to give them jurisdiction over any dispute that involves an entity that 
is not an individual (be it a private company, a government agency, or 
an NGO). The arbitrage courts, now called commercial courts, have faced 
an increased caseload involving disputes among businesses and disputes 
wherein individuals sue the Ukrainian state. USAID has supported 
retraining of these judges in specific new topics such as bankruptcy 
and international commercial disputes and introducing them to the 
concepts of an independent judiciary in general. It is disappointing 
that an appointed official of the Government of Ukraine has not been 
fully responsive to a ruling of the commercial court. However, the Gala 
Radio case only serves to highlight how important it is not to ignore 
the judiciary. We must provide assistance to the courts as the 
guarantors of the permanence of reforms embodied in laws. Without the 
court ruling, the Gala Radio case would be even more intractable as 
there would be no independent authoritative ruling to point to the 
injustice done in the case. The Gala Radio matter also highlights the 
inadequacy of focusing only on the drafting of new laws. Our assistance 
must be evenly invested in the various institutions that comprise the 
legal system, from drafting to enforcement, as the earmark directs.
    The Government of Ukraine has affirmed that its policy is not to 
tax technical or humanitarian assistance. However, there have been 
instances where U.S. assistance has been stopped pending assistance 
status clarification. We are working with the Government to address 
these situations and hope that future instances of where U.S. 
assistance is disrupted because of tax questions can be minimized.

           Questions for the Record Submitted by Mr. Packard

                                 russia
    Question. Russia is a particular interest of mine. Nobody wants to 
see Russia slide into the role of an enemy of the United States, but 
what has our aid accomplished there? They continue to oppose NATO 
expansion, they continue to assist Iran with their nuclear power plant, 
they are selling anti-aircraft missiles to Cyprus which could 
destabilize that region, and yet the largest increase in this account 
is for Russia. If our aid does not increase our influence and it does 
not increase their transition to a free market society, why the 
increase?
    Answer. Our assistance to Russia has supported a great deal of 
democratic and economic progress in the last few years: the adoption of 
a new constitution; the holding of free and fair elections; mass 
privatization; marcroeconomic stabilization; the emergence of a free 
press; and other steps towards reform. Russian commitment to reform 
along with U.S. and other foreign donor support has enabled the Russian 
people to attain an unparalleled level of freedom. In early 1997, 
Russian reform has picked up speed with the appointment of a new, more 
reform-minded cabinet. Unfortunately, U.S. assistance to Russia has 
declined markedly in recent years due to heavy earmarking of NIS 
assistance and to general declines in foreign assistance overall. Yet 
Russian stability and reform remain critical to the U.S. national 
interest. That is why we requested an increase in assistance for Russia 
in FY 98. These funds will be targeted to supporting free enterprise 
and exchanges and partnerships; very little aid will go to the Russian 
Government. The limited assistance we provide to the Russian Government 
is not sufficient to influence all aspects of Russian foreign policy, 
but it can improve prospects for a stable, market-based Russian 
democracy whose interests are similar to ours.
    Question. I note in your Congressional Presentation that Russia is 
also scheduled to receive Foreign Military Financing (FMF) of $3 
million in FY97 and $1.5 million in FY98 pending a Presidential 
Determination. I find this stunning. Why should the United States 
provide such financing to Russia? Russia is still one of the world's 
leading arms producers and they openly compete with the US on the world 
market. I know my constituents would find this proposal unacceptable. 
Has the President made any determination on this and has any FMF gone 
to Russia?
    Answer. The Partnership for Peace (PFP) aims to expose Russia and 
other PFP partners to NATO's community of values and methods of 
operation and to increase their interoperability with NATO, all of 
which create a more secure and stable environment. The President's 
Warsaw Initiative for the New Independent States and Central Europe 
partners is an important source of support for partners' participation 
in PFP and increased operability with NATO. The Warsaw Initiative 
includes both DOD and State programs.
    The State Foreign Military Financing (FMF) Warsaw Initiative 
programs are targeted to help partners increase interoperability with 
NATO, in particular, by providing English language training and non-
lethal NATO-compatible equipment such as radio and other communication 
gear. Our joint peacekeeping efforts in Bosnia are a good example of 
the benefit of greater cooperation between NATO and Russia. Integrating 
Russia into global security and economic institutions is an important 
goal of our foreign policy and FMF Warsaw Initiative funding to assist 
in this interoperability with NATO is crucial.
    The President signed the determination which will make Russia 
eligible to receive this assistance, but to date, none of the $2.25 
million in FY97 FMF funds allocated for Russia has been released. The 
Department has notified Congress of the intention to make these funds 
available.
                         new independent states
    Question. Can you explain to the subcommittee what impediments you 
have found in your efforts to improve the conditions for a free market 
and for improved U.S. investments in the NIS and particularly Russia?
    Answer. In order to understand the impediments to increased U.S. 
investment in Russia, I have facilitated numerous government and 
private sector discussions on policy and resource constraints to 
investment, focussing on U.S. assistance, trade, and investment 
programs that might address constraints. Several key themes emerged 
from these discussions.
    First, ``massive'' investment will only follow changes in the 
Russian legal and regulatory environment, in particular, rule of law, 
tax and accounting reform, and passage and implementation of new 
legislation on production sharing.
    Second, capital for potential equity investments and trade finance 
(primarily for large projects) is significant but actual disbursement 
of funds versus commitments is low.
    Third, investors and financing agencies typically do not have the 
human resources needed to bring projects, many of which are 
insufficiently developed, to fruition.
    Even once a deal has closed, implementation of the project 
continues to require intensive participation on the part of fund 
management. Problems with customs, tax issues, demand for paychecks, 
and bureaucratic delays in processing licenses and approvals as either 
the federal or regional level require fund managers to allocate 
personnel resources that might otherwise go toward developing new 
projects.
    What the above underscores is one of the basic problems confronting 
investors in Russia: competition with other investors over ``good'' 
(that is, fully developed) projects. Several interlocutors noted that 
one way to help increase the number of ``good'' projects might be 
project-specific technical assistance aimed at improving those projects 
under active consideration for investment.
    A fourth theme that came up repeatedly during discussions is the 
general lack of debt financing. Because projects are poorly formulated 
and lending institutions do not have the basis on which to lend, 
significant equity capital goes unutilized because equity investors are 
not able to raise the necessary level of debt financing to make their 
projects viable.
    Debt financing for small and medium sized projects ($1-5 million) 
is a particular problem. OPIC is focused on large deals ($10 million 
was considered small by OPIC standards);
    OPIC-backed funds are involved with equity rather than debt; and 
TUSRIF does not have a license to lend in Russia (although it is 
increasing its on-lending programs through Russian financial 
institutions). While EXIM can handle smaller loans, its resource 
limitations constrain its ability to be more active in this area. 
Moreover, EXIM programs are de facto unavailable for many Russian 
importers, particularly those involved in importing consumable items, 
because of the need to first get a sovereign guarantee from Moscow--
something virtually impossible for most Russian firms, especially in 
the regions.
    A fifth theme that emerged was that investment continues to be 
focused mainly within the Moscow-St. Petersburg corridor. Up to eighty 
percent of all capital in Russia remains in Moscow. Foreign investment 
has also been concentrated in the Moscow region.
    A final theme had to do with length of time it takes U.S.-backed 
institution to take action on a project and to return a decision to the 
applicant. Some participantsrecounted that they had worked with a 
particular institution for up to a year, expending considerable time 
and effort on the project, only to learn at the end of this process 
that they would not receive funding--with no explanation provided. 
While this is partly attributable to the shortage of human resources at 
many U.S. finance agencies, it also seemed to reflect a general 
perception that transaction costs associated with government programs 
are significantly greater than those of private finance agencies.
    Based on this review of impediments to investment, this office has 
worked to establish a Regional Investment Initiative, which was 
announced by Vice President Gore and Prime Minister Chernomyrdin 
earlier this year. This initiative is designed to address many of these 
issues, both by working with Russian federal and regional authorities 
to improve the climate for investment and by better coordination and 
deployment of U.S. trade financing mechanisms and assistance resources.
    Question: If corruption and a continued state bureaucracy are 
stifling investment and the transition to a free market economy, why is 
the administration requesting an increase for the NIS? It seems as if 
our aid is being wasted. I thought, in fact, that our aid to the NIS 
was supposed to be going down by now yet here is a request for even 
more money.
    Answer. We are asking for an increase for the NIS for two reasons: 
first, the resources available to support reform in the NIS over the 
past several years have been inadequate and falling. This has severely 
hampered our ability to provide assistance to the reformers in Russia 
and the other NIS who are continuing to try to keep reform, efforts 
that it is clearly in our national interest to support. Second, it is 
clear that transformation of these economies and governments is a 
generational effort, an effort that we must stay engaged in for several 
more years. The outcome of these reform efforts is not yet assured; we 
cannot simply phase out our assistance. We need to find new and 
improved ways of being engaged with the reform process in these 
countries. The Partnership for Freedom initiative with its emphasis on 
mutually-beneficial activities in both the economic and democratic 
arenas will provide the vehicle for this continued engagement.
    We had planned to phase down technical assistance to Russia in FY98 
and that is still our plan. We intend to stay engaged with reformers 
through private sector support, grass-roots activities such as 
exchanges and partnerships, trade and investment. These are the 
components of the Partnership for Freedom.
    Question. Does the Foreign Military Financing (FMF) funds 
facilitate your programs in the region?
    It is my understanding that Russia is receiving $1.5 million in 
FY98. How do these funds, which I am sure are intended to encourage 
democratic reforms and help stimulate a market economy, affect your 
programs in the region? Are these FMF funds taken into account when you 
assemble your budget for the Partnership for Freedom programs in the 
region? If not, please explain.
    Answer. The Partnership for Peace (PFP) complements U.S. assistance 
programs to the NIS by fostering and promoting many of the same 
objectives. PFP seminars, conferences and workshops address such issues 
as democratization, civilian control of the military, regional 
cooperation and threats from weapons of mass destruction, translational 
crime and international drug smuggling. The FMF funds are intended to 
facilitate NIS participation in the PFP, exposing Russia and other PFP 
partners to NATO's community of values and methods of operation and 
increasing their interoperability with NATO. These activities create a 
more secure and stable environment which encourages foreign trade and 
investment and further integrates the NIS into global security and 
economic institutions.
    The President's Budget request for the Partnership for Freedom is 
structured to operate in parallel with activities such as the 
Partnership for Peace and other US security-related programs to promote 
arms control, nonproliferation and regional stability. FMF funds to 
implement PFP activities and other agency's funds for NIS programs such 
as the Department of Defense Cooperative Threat Reduction and 
Counterproliferation programs, are viewed as a cohesive package which 
together fulfill U.S. national security objectives.

           Questions for the Record Submitted by Mr. Kingston

                       organized crime in russia
    Question. I am very concerned about the dominance of organized 
crime over the economy in Russia. It is my impression that some of 
these groups are more efficient in collecting ``taxes'' from 
entrepreneurs in Russia that the government itself. In fact, I have 
been told that mafia groups even maintain de facto control over many 
major ports in Russia. These problems are bound to have an extremely 
negative impact on the success of economic liberalization efforts 
there. Can you please evaluate the nature and scope of the problem for 
me?
    Answer. Although it was not widely recognized, organized crime and 
corruption were prevalent in the Soviet Union. However, the collapse of 
the Soviet Union and the move towards a free market brought with it new 
opportunities for organized crime and government corruption. At the 
same time, the lack of market-oriented civil, legal and commercial 
codes, as well as the absence of law enforcement personnel trained to 
handle commercial crime, provided a new climate in which crime and 
corruption could flourish. This climate of course has a major impact on 
the ability of business to operate. In Russia today, many businesses 
are routinely forced to pay for ``protection,'' and must pay bribes to 
obtain licenses or avoid fines. We have therefore targeted some of our 
assistance toward commercial, legal and civil reform, as well as 
government ethics and training of law enforcement personnel to fight 
organized crime and handle commercial crimes. Of course, it will take 
many years to resolve these problems. Nevertheless, it is encouraging 
to see the extent to which private business in Russia has been able to 
develop and flourish in spite of these and other very difficult 
obstacles.
    Question. Does organized crime also interfere with development 
projects? To what extent and in what ways?
    Answer. Organized crime has been recognized as a serious barrier to 
the further promotion and sustainability of the reforms, both 
democratic and economic, which we seek to promote through our 
assistance program. To this extent, crime and corruption have a 
negative impact on our development efforts. Global economic and 
democratization trends are now beginning to expose the full extent, as 
well as political and economic costs, of criminal activity, which is 
often linked to systematic corruption. Our criminal justice programs 
help to combat the negative effects of organized crime. So too do civil 
society programs, in that they foster the rule of law and empower non-
government watchdog and advocacy groups to promote demand for anti-
crime and anti-corruption measures.
    We do not believe that our assistance program itself, or specific 
development projects contained within the assistance framework, are 
vulnerable to or disrupted by organized crime. Direct payments are 
given to U.S. contractors to carry out work in the NIS. Organized crime 
groups do not appear to view U.S. assistance programs or specific 
development projects as lucrative targets.
    Question. How is the United States trying to prevent interference 
in aid implementation?
    Answer. We are using mechanisms least able to be influenced by 
organized crime. These mechanisms include partnerships, exchanges, 
limited technical assistance provided by U.S. experts. These activities 
are generally not susceptible to organized crime. We do not provide 
cash. Further, we are beginning to focus on specific regions in Russia. 
Our regional investment initiative will focus investment assistance and 
assistance more generally on four regions outside the capital and major 
cities, where organized crime is most located. One of the most 
important criteria for the selection of these regions is the absence of 
organized crime and other corruption.
    Question. I read a very brief editorial in the Washington Post last 
month that charged that U.S. proposals to fight Russian crime may even 
strengthen the institutions that are part of the problem. To be honest, 
I don't know what they meant by that. At the risk of straying to the 
edge of your jurisdiction over this problem, can you address that 
statement?
    Answer. The objectives of our Anti-Crime Training and Technical 
Assistance program are two-fold: to deepen government-to-government 
cooperation in the criminal justice sector, particularly to combat the 
activities of organized crime; and to reduce corruption and other 
practices injurious to democracy and the rights of the individual in 
the criminal justice sector. Through our diplomatic representations 
abroad, we work to identify trustworthy and reliable law enforcement 
personnel to participate in these programs. Basic to our law 
enforcement training program is the commitment to locate, encourage and 
cooperate with trusted officers to build permanent, long-lasting ties 
between U.S. and Russian law enforcement officials. Our programs 
emphasize how U.S. law enforcement agencies function to enhance the 
rule of law and respect for individual rights. They are part of the 
solution to the Russian crime problem, not its cause.
    Question: The Partnership for Freedom is characterized as a refocus 
of our aid to the New Independent States on economic and grass roots 
linkages. It has been my impression that this has been at least a large 
part of our focus for 3 and 4 years now in the NIS. Will you explain 
what is changing (besides the price tag)?
    Answer: The Partnership for Freedom includes a combination of new 
activities, expansions of successful ongoing programs and continuation 
of existing programs. New activities and new emphasis include small 
loan programs to small enterprises in the regions of Russia and the 
NIS, elimination of barriers to U.S. trade and investment, explicit 
support for international financing institutions loans, training 
focussed on enterprises receiving U.S. investment, and endowments for 
one or more foundations. Expansions of existing programs include 
exchanges, partnerships and law enforcement. We will continue our 
ongoing support for science exchanges and technical assistance to the 
non-Russian NIS.

            Questions for the Record Submitted by Ms. Pelasi

                                 bosnia
    Question. The United States has pledged $600 million to assist in 
the international effort to rebuild Bosnia. The process of rebuilding 
has taken longer than expected and we still have US troops on the 
ground. Mr. Holmes would you assess the relationship of the aid program 
to our ability to remove US troops from Bosnia. What kind of progress 
are we making?
    Answer. While the security situation in Bosnia has a direct bearing 
on the attitudes of the people toward economic reconstruction, the 
effort to enforce the military annex of Dayton and the effort to 
economically rebuild the country are on two very different time tracks. 
As the President and Secretary Cohen have said, we expect the 
conditions to exist next summer for the withdrawal of U.S. forces from 
Bosnia.
    Bosnia will need assistance from other countries for many years. In 
my estimation, even under the best circumstances, it will be one of the 
last countries in Europe to graduate from the SEED program. The World 
Bank estimates that Bosnia suffered between $20 and $30 billion in war 
damage. The initial three to four-year Priority Reconstruction Program, 
with a target of $5.1 billion from donors, will, at most, fix only a 
quarter of that damage, and then only well into the year 2000. The 
World Bank projects that the high rate of economic growth experience in 
Bosnia in 1996 can be sustained if proper macroeconomics choices are 
made and inter-entity cooperation occurs. That would mean, that by the 
year 2000, Bosnia, which was one of the poorer Yugoslav Republics, 
would reach, at most, only about two-thirds of its prewar level GDA. 
Another three to four years would certainly be needed before prewar 
level GDP is recovered.
    As I mentioned in my testimony, donors have done their share to 
rebuild Bosnia. In 1996, the donor community exceeded targets for 
pledges and disbursements of pledges. USAID, which manages most U.S. 
bilateral assistance to Bosnia, did a particularly good job in its 
programs, which became models for other donors.
    The economic reconstruction program is not succeeding in three 
areas, due principally to the failure of the parties to implement key 
Dayton promises and due to their failure to cooperate on inter-entity 
economic and political matters. The Republika Srpska's failure to 
implement freedom of movement, refugee return, arms reductions, and war 
crimes tribunal cooperation provisions of the Dayton agreement has 
resulted in that Entity's receiving very little economic reconstruction 
assistance (only about 3 percent of the total). Consequently, the RS 
economy has probably experienced negative growth over the past year, 
while the country as a whole had a 50 percent economic growth rate.
    The second area where economic reconstruction progress has been 
very limited is where it involved politically charged inter-entity 
matters. There has been little cooperation between and sometimes within 
the Entities in the major network sectors (electric power, gas, roads, 
railways and telecommunications).
    Finally, we are dismayed that the central government, which was 
formed in January of this year, has failed to agree on initial and very 
basic macroeconomic policies, policies necessary for an IMF agreement, 
such as establishment of a central bank, national and entity budgets, a 
debt law and common customs and tariff policies.
    The donor community has used its economic leverage to try to 
resolve these three problem areas. We must and will keep at it, but 
progress in all three areas continues to be very discouraging.
                               world bank
    Question. Are the funds from the World Bank and other donors being 
made available for actual programs at this point?
    Answer. Yes they are. According to the World Bank, as of December 
31, 1996, $1.360 billion was under implementation by donors (the Bank 
defines monies ``under implementation'' as those firmly committed funds 
for which contracts have been tendered, signed, underway or completed). 
Of the amount under implementation, $262 million was from the United 
States, $296 million was from the World Bank, $263 million was from the 
European Commission, and the rest, $541 million was from 47 other 
countries and 9 organizations that have pledged funding for Bosnian 
reconstruction.
                          war crimes tribunal
    Question. Can you comment on the work of War Crimes Tribunal? 
Several members including myself recently sent a letter to the 
Secretary of the Treasury urging him to condition international lending 
on progress in these cases. Has that had any effect?
    Answer. I think this has had a positive effect with regard to 
Croatia. Croatia has cooperated with the War Crimes Tribunal, although 
not to the degree we, or the Tribunal, have expected. We are aware of 
numerous press reports of the presence of indicted war criminals in 
Croatia, but despite repeated efforts, we have been able to only 
confirm the presence of two individuals indicted by the Tribunal. 
General Tihomir Blaskic voluntarily gave himself up to the Tribunal a 
year ago and he is awaiting trial.
    A second indictee, Zlatko Aleksovski had been in GOC custody for 
about a year and the GOC had refused to turn him over to the Tribunal, 
claiming that his health was too precarious for him to travel. To 
signal displeasure at this delay, the U.S. abstained on a vote to 
approve a $500 million IMF loan to Croatia which came before the Board 
in March. Shortly after this vote, the GOC invited the Tribunal to send 
physicians to examine Aleksovski, and agreed that if they judged him 
fit to travel, he would be sent to The Hague. This was done and on 
April 28 the GOC handed him over to the Tribunal in The Hague.
    Neither the IMF nor World Bank have considered loans to either the 
Republika Srpska or Serbia and Montenegro (the ``Federal Republic of 
Yugoslavia''), both of which harbor indicted war criminals, since the 
end of the Bosnian conflict.
                  arm and train initiative for bosnia
    Question. The U.S. provided $50 million in military equipment 
through a special drawdown authority for the Arm and Train Initiative 
for Bosnia. The committee has recently been notified of the intent to 
provide additional equipment (145 M114A Towed Howitzers) through the 
Excess Defense equipment authorities. Can you explain our current 
policy regarding the provision of military equipment to Bosnia? The 
committee had understood that the $50 million was the extent of our 
assistance.
    Answer. The Congress authorized $100 million of surplus DoD 
equipment and services for Bosnia under Section 540(b) of the FY96 
Foreign Operations Appropriations Act (P.L. 104-107). So far under this 
drawdown authority, the United States has provided approximately $85.5 
million of equipment and services including M60 tanks, M113 armored 
personnel carriers (APCs), M16 rifles, M60 machine guns, AT-4 light 
antitank weapons, computer hardware and software for training, and 
communications equipment. We anticipate providing the remaining $14.5 
million worth of equipment and services by October, 1997. This will 
include transportation of heavy equipment transporters (HETs) from 
Germany to Bosnia, M114 howitzer refurbishment and ammunition, tank 
ammunition and spare parts for the M60 tanks and M113 APCs.
    The U.S. equipment being provided to the Bosnian Federation under 
drawdown authority represents an important but not complete part of 
their overall military equipment needs, which were identified by the 
Department of Defense in a study completed in February, 1996. The U.S.-
led, international Train and Equip Program is supported by several 
countries for the remainder of the equipment. While the Bosnians have 
asked for NATO-standard equipment, the continued European arms embargo 
on Sarajevo has forced the program to go to non-NATO countries to 
obtain much of the remaining equipment.
    Field artillery was identified in the DoD study as one of the most 
critical requirements to give the Federation the ability to react if 
the Bosnian Serbs were to resume shelling their population centers. 
While searching for sources to provide field artillery, we discovered 
the availability of U.S. Army M114 howitzers which were being declared 
excess defense articles. Since they are NATO-standard and would be 
available only for the cost of refurbishment, the decision was made to 
obtain 261 of them. Using some of the remaining drawdown authority to 
provide for refurbishment and ammunition, we will be able to provide 
approximately 116 fully mission-capable howitzers. (The other 145 will 
be used as sources for spare parts in the refurbishment process.) This 
fulfills a critical need for the Federation and provides NATO-standard 
equipment at minimal cost.
                        framework for investment
    Question. In many of these republics and in many regions of Russia, 
and despite our aid efforts so far, the framework for investment simply 
does not exist. How will the 1998 program respond to this vacuum? 
(Framework in this case implies banking systems, laws on financial 
transactions in place, and laws that are enforced.)
    Answer. I agree that this is a key issue and we are devoting a 
great deal of attention to finding ways to improve the investment 
climate in the NIS. Our FY98 initiative, the Partnership for Freedom, 
will focus our assistance in two areas: trade and investment support to 
promote economic growth; and exchanges and partnerships to help us 
remain engaged in what is clearly a generational transformation in the 
NIS. In the area of trade and investment, we will focus on removing 
impediments to investment, including technical assistance in support of 
tax reform and law enforcement. In Russia, we are establishing a 
Regional Investment Initiative, which was announced by Vice President 
Gore and Prime Minister Chernomyrdin earlier this year. This initiative 
involves working with Russian federal and regional authorities to 
improve the climate for investment by identifying ways to remove 
existing impediments, as well as improved coordination and deployment 
of U.S. trade financing mechanisms and assistance resources in Russia's 
regions. In Ukraine, we are working directly with Ukrainian authorities 
to promote transparency in government ethics, procurement and 
licensing, all of which have a direct impact on investment.
    Our planned Partnership for Freedom activities for FY 98 will 
include the following in the area of investment:
    Expand regional credit and equity investment programs emphasizing 
the involvement of small business implemented through Eurasia 
Foundation, EBRD or other non-profit organizations; through USAID's 
Loan Portfolio Guarantee program; through a pilot mortgage market fund; 
through existing enterprise funds; through microlending programs; and 
through existing EX-IM Bank, OPIC and TDA programs, up to $163 million.
    Provide continued support to NIS enterprise funds, up to $64 
million.
    Remove impediments to trade and investment, specifically, tax 
reform, international accounting standards, WTO accession, implemented 
through USAID, Treasury and Commerce, $25 million.
    Facilitate and accelerate World Bank and other IFI funds, help NIS 
governments meet conditions imposed by World Bank and IMF that must be 
met before large loans are provided, implemented through USAID, $12 
million.
    Link training to specific investment projects to increase 
capabilities of managers of enterprises receiving support from 
enterprise funds, U.S. private investment and other support, 
implemented through USAID, EBRD and/or IFC, $25 million.
                              nis increase
    Question. Mr. Morningstar, the level of increase requested for the 
NIS program is by far the largest increase in assistance for any region 
of the world in 1998. It also comes at a time when our chairman has 
announced his intention to freeze funding levels for foreign aid. Why 
is this increase so important?
    Answer. This increase is important because we the United States 
have no greater national security interest than the stability of Russia 
and the NIS as these new nations consolidate their transition to market 
democracies. We face many new challenges in the world today, but this 
region presents us with a unique and urgent opportunity--to help 
strengthen democratic voices and market economies, and once and for all 
relegate our Cold War concerns to the history books.
    The current 1997 fiscal year budget for assistance to the New 
Independent States is $15 million below the Administration's request 
last year. Freezing the budget at its current level of $625 million 
unacceptable for several reasons. The first reason is the primary 
rationale behind the Partnership for Freedom initiative. Several 
countries in the region, such as Russia, Moldova and Georgia, have now 
reformed to the point where they are able to utilize some very crucial 
programs in the area of trade and investment that focus on the 
achievement of economic growth. This region is not going to remain 
stable if their citizens cannot count on improving economic conditions 
over the next several years. In the important area of civil society, 
again, we are at a moment where many important breakthroughs are near--
in the implementation of new legal systems, in joint efforts between 
our governments to fight crime, and in the emergence of free and fair 
electoral systems. These nations are now halfway home; it is in our 
national interest to provide the appropriate levels and forms of 
assistance that meet these new conditions.
    Second, country earmarks in the last two fiscal years have created 
an imbalance in our programs. Certain countries, such as the Central 
Asian nations, Georgia, and Russia this past year, have gone without 
crucial programs that are needed to accelerate and secure their 
transitions.
                              nis earmark
    Question. Last year the NIS account was heavily earmarked and even 
subearmarked. My impression is that this action significantly reduced 
your flexibility as program administrator, and wiped out any leverage 
the U.S. might have had in obtaining reforms in these countries. Can 
you comment on the effect of this earmarking on your flexibility and on 
obtaining important reforms?
    Answer. You are absolutely right and that is why we oppose 
earmarking. The earmarks and especially the subearmarks dramatically 
reduce our flexibility to respond to changing circumstances in the NIS. 
Reform efforts tend not to be constant--they are under attack from 
those elements of the societies most resistant to change. We need the 
flexibility to tailor our assistance to these changes. For example, one 
large subearmark--$35 million for agriculture in Ukraine--requires us 
to spend a very large amount of money in a sector of the economy that 
was singularly not reforming. While we have gone to great effort to use 
these earmarked funds effectively, we need flexibility so that our 
assistance will support reform. When reformers make attempts to change 
a sector, we need to be there to support them; when a government 
resists reform or reform in a sector begins to flag, we need the 
flexibility to slow or even cut off support to that sector. Earmarks 
made that nearly impossible.
    Question. What would the impact be if your request of $900 million 
is not fully funded by the Congress, and last year's earmarks remain in 
place in 1998?
    Answer. In these circumstances the United States will be missing a 
major opportunity to improve our national security. It is clearly in 
our national security interest to see market economies and democratic 
governments where the Soviet Union once was. Continued phase out of our 
engagement with reformers in these countries will reduce our ability to 
engage with and support these reforms. The earmarks will further 
inhibit our ability to provide assistance to those countries and those 
sectors where reform is occurring. We must not lose this opportunity.
                         armenia and azerbaijan
    Question. Human rights groups have expressed concerns about the 
September 1996 elections in Armenia, classifying them as seriously 
flawed. The elections in fact did not win the approval of the OSCE 
election observing unit. I am aware that the Armenians have promised to 
improve. I am wondering how we are helping to improve the human rights 
situation, both through our aid and in diplomatic arenas.
    Answer. Prior to Armenia's parliamentary elections in 1995, U.S. 
and international NGOs implemented programs designed to help Armenia 
develop an effective election law. In response to our efforts, the 
Government of Armenia passed an improved election law and elected new 
members of the Central Election Commission (CEC).
    Unfortunately, however, the way in which the Armenian Government 
conducted the country's presidential elections in September 1996 
resulted in a number of violations of the new election law, which were 
noted by international observers. Consequently, there was an overall 
lack of confidence in the integrity of the election process, as the 
OSCE noted in its final report.
    Perhaps the most important lesson we have learned from the 
elections is the importance of independent means of verifying the 
election results. It is also important to have fully transparency in 
the election process, including the timely release of all vote summary 
protocols and the presence of domestic and international observers 
throughout the process.
    While the election itself was flawed and raised several questions, 
many of the electoral reforms advocated by the United States were 
successfully carried out. Some precincts in Armenia did conduct the 
elections without any allegations or irregularities. Moreover, the 
conduct of the pre-election campaign--except for the opposition's 
limited access to the media--was an improvement over the 1995 
parliamentary elections. All qualified candidates were registered by 
the CEC. Opposition representatives participated as minority members of 
electoral commissions in all regions and most precincts and 
communities. The opposition campaigned effectively and drew an 
impressive response from the voters.
    While support for free and fair elections is a crucial element of 
our democracy program, our other, longer-term programs have also begun 
to contribute to democracy-building in Armenia. For example, USAID 
grantee Internews works with eleven independent television stations. 
Seven of these stations have collaborated in an independent news 
exchange, and two have established independent broadcast facilities 
with support from the Democracy Funds Small Grants Program implemented 
by USIA. The USIA-sponsored Yerevan Press Club has had major successes 
lobbying the Government of Armenia against an onerous draft media law 
which was subsequently retracted, and has conducted seminars and 
training programs which have raised the level of professionalism in the 
Armenian media.
    The American Bar Association's USAID-funded Central and East 
European Law Initiative (ABA/CEELI) has provided commentary on several 
draft laws, some of which has been incorporated into the drafts. ABA/
CEELI is also supporting the establishment of a judges' association and 
bar associations to raise the professionalism of the legal profession 
in Armenia. The judges' association is already active in promoting 
judicial reform and changes to the constitution. We have also begun a 
training program for judges and lawyers on commercial legislation 
passed during the past few years. This program will eventually become 
the base for a national judicial training center.
                           russian arm sales
    Question. Russia has recently become more aggressive in its 
marketing of arms to various countries around the world. Most recently 
news accounts have indicated that cooperation between Syria and Iran 
will enable the export of significant amounts of Russian military 
equipment to Syria. We of course have continued the requirement in our 
bill on restrictions military cooperation between Russia and Iran, but 
concerns remain. It has even been speculated that Turkey in the absence 
of their ability to purchase arms and ships from the US may turn to 
Russia as an arms supplier. How should the US deal with Russia military 
exports as a policy issue?
    Answer. Russia has joined the Missile Technology Control Regime, 
The Wassenaar Arrangement, the Nuclear Non-Proliferation Treaty and has 
pledged to abide by the terms of the Chemical Weapons Convention even 
though it has not formally ratified the Convention. We, and others in 
the international community, have made it clear we expect Russia to 
adhere to the restrictions imposed by these agreements. Further, we 
have made sure that Russia is aware of the provisions of U.S. law 
prohibiting assistance to countries which provide arms to ``pariah'' 
states and countries listed as state sponsors of terrorism. We believe 
Russia is abiding by the restrictions on arms sales to Libya and Iraq 
imposed by the UN Security Council. The Russian Government agreed in 
1995 to limit sales of military equipment to Iran to items already 
contracted for and is well-aware of U.S. laws pertaining to sales to 
Iran.
    Russia sees the sales of military equipment as a legitimate means 
of maintaining its defense industrial base in a time of severe budget 
shortages for the Russian military. Nonetheless, we are engaged in a 
dialog with Russia and other arms producing nations on ways of 
preventing arms sales to areas of conflict or tension, and preventing 
sales of arms which are potentially destabilizing or which may 
encourage a regional arms race.
    Question. Should our aid program be conditioned with restrictions 
on Russian arms sales?
    Answer. Our aid program to Russia is conditioned on responsible 
arms sales behavior by existing law. We carefully monitor arms sales by 
all NIS states and let these countries' governments know that 
irresponsible behavior will result in sanctions including assistance 
reductions. Additional conditions and restrictions are not necessary.
    Question. What specifically has the U.S. done to indicate our views 
on the Iran-Syria deal?
    Answer. We have raised with the Russians at a high level our 
concerns about the transfer or sale of lethal military equipment to 
countries of concern. We have been assured by the Russians that they 
are abiding by their international obligations. We continue to engage 
the Russians on this issue and to monitor compliance. As you know, we 
do not comment on details of confidential discussions with other 
countries. We would be happy to provide you with additional information 
on this issue on a classified basis.
                                ukraine
    Question. Ukraine, according to news accounts, is reportedly 
pursuing arms deals with Libya, despite the restrictions placed in last 
year's bill. Those provisions contain authority for the President to 
waive aid restrictions for national security reasons. What is the 
situation on this sale and the President's intention on a waiver?
    Answer. We have seen these reports and are investigating them 
fully. Based on available information, we have not yet been able to 
determine whether sanctions violations have taken place. As a result, 
the President has not yet made any decisions regarding a waiver.
                                pakistan
    Question. Pakistan has reportedly increased its defense spending by 
14 percent despite its owing over $48 billion to international donors 
and banks. Ukraine may sell Pakistan up to 330 tanks worth $650 million 
according to press reports. How do these facts enter into our policy 
discussions with the Ukrainians on our aid program?
    Answer. This sale is not in violation of any U.S. legislation or 
other international restrictions. As a result, we have not raised this 
issue with Ukraine in connection with our assistance or with relations 
in general.
                         armenia and azerbaijan
    Question. The Congress last year clarified the authorities for the 
delivery of humanitarian assistance to refugees in Nagorno Karabagh to 
enable assistance to flow without impediments to the refugees displaced 
by the conflict. Can you tell us the status of that delivery, define 
its scope, and comment on the condition of the refugees.
    Answer. The USG currently provides assistance to Nagorno Karabagh 
(N-K) through the International Committee of the Red Cross (ICRC). In 
FY96 the Department of State's Bureau of Refugee Affairs responded with 
$16.75 million, approximately 25% of the $65 million annual appeal for 
the Newly Independent States (NIS). We estimate that the annual budget 
of ICRC in N-K over the past year has been approximately $2 million and 
their work included such projects as:
    The distribution of relief supplies to over 38 towns and villages, 
benefiting 14,000 recipients of wheat seed, cement, nails corrigated 
iron and plastic sheeting;
    The delivery of vegetable and potato seedlings, flour, sugar, oil, 
school materials, and shelter building and repair materials;
    Visits by ICRC medical staff in Barda to six military hospitals 
treating wounded, supplying materials and drugs as needed; and
    Visits to detainees, facilitated and exchanged over 203 Red Cross 
messages to families in the fall of 1996 alone.
    The needs of the displaced, who make up a small portion of the 
population, along with the needs of others settled in the area are 
similar to those found throughout the Caucasus region. All available 
information dealing with N-K indicates that emergency needs are being 
adequately addressed.
    Question. The Minsk process involving the U.S., Russia and France 
to mediate the peace process between Armenia and Azerbaijan has 
recently been revived. Can you comment on the status of those efforts, 
and any discussions that may have occurred in the recent summit talks 
between Mr. Yeltsin and the President?
    Answer. The Minsk process has existed since April, 1992, when the 
Conference for Security and Cooperation in Europe (now the OSCE) called 
for a peace conference to meet in Minsk. The conference never met, and 
negotiation efforts in this context have been stalemated. A cease-fire 
has been in effect, with some violations, since May 12, 1994.
    Earlier this year, the U.S. and France joined Russia as three Co-
Chairs of the Minsk process. We have been working with our French and 
Russian colleagues to develop a new approach that might break the 
stalemate.
    Impetus for this effort comes from the highest level. The President 
discussed the issue with President Yeltsin at the recent summit in 
Helsinki. The two agreed to give priority to finding a solution, and to 
order close cooperation, along with the French, towards that end. 
Secretary Albright met on May 1 with Russian Foreign Minister Primakov 
and French Foreign Ministry Political Director Blot for a discussion on 
the way forward in the Nagorno-Karabakh peace process.

            Questions for the Record Submitted by Mr. Yates

    Question. What are the risks to the region if we should fail to 
continue our involvement in these countries?
    Answer. The risks are significant and quite unnecessary, when one 
considers the scope of this historic opportunity. The worst-case 
scenario is, of course, a return to a Cold War type of relationship 
with Russia, and the re-targeting of nuclear warheads at the United 
States. The risks are also there to miss many opportunities for 
productive working relationships between our governments in reducing 
other threats to our security, and fighting international crime and 
terrorism. The economic opportunities for the United States, in sectors 
that are highly competitive in today's global economy, are also at risk 
if we do not step up to continuing engagement with the New Independent 
States, and help their reformers and citizens create and sustain civil 
societies, which just five short years ago most of us could not have 
imagined were possible.
    Question. It is my understanding that most of the assistance in the 
Partnership for Freedom program is intended for countries other than 
Russia. Is this true? Could you provide a detailed list of who will 
receive this assistance and how it will be used in each country?
    Answer. About a quarter of the overall NIS assistance request of 
$900 million is budgeted for Russia. Nearly all of the $241 million for 
Russia is in Partnership for Freedom activities--trade, investment, 
private sector, law enforcement, partnerships and exchanges. This is 
because Russia has nearly completed the institution-building phase of 
its reform and no longer needs technical assistance in this area. Other 
NIS countries are moving in that direction, but most need additional 
technical assistance to put in place the institutions necessary for a 
market economy and democratic government. Nonetheless, less than half 
of the Partnership for Freedom activities in our overall request are 
budgeted for Russia. A detailed breakdown of our assistance request, 
both by country and by activity, is included as an attachment to my 
written testimony. My office would be happy to respond to additional 
questions about our request.
    Question. I have been informed that crime is an increasing problem 
in the region. How does this initiative address this problem? Please 
give specific examples and results, if any, of the program.
    Answer. Crime in the NIS is a threat not only to the people who 
live there, but to the entire international community. It undermines 
the credibility of democracy and the market economy; it weakens the 
rule of law; and it impedes investment. In recognition of these serious 
dangers, we will significantly increase cooperative anti-crime and 
anti-corruption activities under the Partnership for Freedom.
    These efforts will build upon the achievements of the first phase 
of our Anti-Crime Training and Technical Assistance Program, 1994-1997. 
Initially, the focus of our programs was to work with NIS officials to 
combat international organized crime, financial crimes, and narcotics 
trafficking. U.S. law enforcement and criminal justice agencies trained 
some 2000 NIS officials annually in this period. In 1996, the 
interagency program led by the State Department's Bureau of 
International Narcotics and Law Enforcement Affairs (INL) expanded to 
address commercial crime that is harmful to international trade and 
investment. In support of the Gore-Chernomyrdin process, INL also 
funded an expansion of the Department of Commerce-led interagency 
program to combat commercial crime.
    As a result of these efforts, NIS bankers and regulators are 
increasingly aware of their vulnerability to corruption and organized 
crime; U.S. and NIS officials are working together to convict criminals 
and reduce corruption within law enforcement agencies; more NIS 
countries are asking for our help in halting the growth of trafficking 
in narcotics across open borders and organized crime's infiltration of 
financial and political institutions; and NIS law enforcement agencies 
are asking about programs to collect and manage physical evidence in 
criminal cases and about community policing. Their interest in criminal 
forensics and community policing is a first step in what is likely to 
be a difficult shift to policing in a democracy.
    With the Partnership for Freedom, we will expand criminal justice 
and law enforcement and cooperation with the NIS exponentially. With 
full funding of these programs, we intend to:
    Deepen the developing partnerships with Russian and NIS law 
enforcement agencies to address transnational criminal activity that 
negatively affects privatization and democratization, including 
international organized crime, financial crime, and narcotics 
trafficking;
    Expand international cooperation in the criminal justice sector to 
include U.S. state and local agencies in bilateral programs; and
    Focus new resources on strengthening legislative and regulatory 
reforms to prevent crime and corruption.
    We believe that this type of coordinated law enforcement and 
regulatory action, combined with a broad and vigorous Rule of Law 
program and increased support for citizens' advocacy groups creating 
demand for law-based society, will help turn the tide of crime and 
corruption in the NIS.
    Question. How does the Partnership for Freedom support investment 
by United States businesses and encourage trade between individual 
countries and the United States?
    Answer. The Partnership for Freedom initiative supports bilateral 
U.S. trade and investment with the NIS in two ways. First, if fully 
funded, we intend to transfer funds under the Partnership for Freedom 
to the U.S. Export-Import Bank to carry out programs involving lending 
to small and medium business through local banks in support of U.S. 
trade in Russia and the other NIS. Second, the Partnership for Freedom 
includes a focus on improving the investment climate in the NIS through 
supporting the removal of trade impediments in these countries. For 
example, in Russia, our U.S. investors have told us that the key issue 
affecting their ability to operate involves the existing, outmoded 
Russian tax code. As a result, we are helping the Russian government 
and parliament to write a new, market-oriented, transparent, fair and 
effective tax code. Recognizing the important role that Russian 
regional governments can play in the area of investment, we are working 
under our Regional Investment Initiative to help regional governments 
attract both foreign and domestic investment.
    Question. Please explain why the Congress should extend more 
support for economic development in Russia and the other NIS of the 
former Soviet Union. Hasn't the private sector taken root yet? Couldn't 
we achieve the same objective through other vehicles, i.e., TDA, OPIC 
and the Export-Import Bank?
    Answer. It is critical to our national security that Russia and the 
other NIS develop into stable, democratic, free-market economies. 
Instability in this part of the world could affect U.S. national 
security. The Partnership for Freedom (PFF) initiative is based on this 
premise, along with the recognition that we must remain engaged for 
what will clearly be a generational transformation. PFF activities 
therefore focus on two areas: support for economic growth through trade 
and investment; and support for exchanges and partnerships to build 
durable ties between our countries. Our ability to engage with the NIS 
is possible precisely because the private sector has taken root in the 
NIS as a result of the difficult reforms which the NIS governments have 
undertaken in support of macroeconomic stabilization. These reforms, 
however, have had a high social cost. It is essential to NIS stability 
that macroeconomic stabilization be followed by economic growth. It is 
true that TDA, OPIC and the Export-Import Bank are already engaged in 
the NIS; in fact many of their activities have been supported by 
Freedom Support Act funds. Some limited Partnership for Freedom funds 
will continue to support these activities, with a focus on small and 
medium business. But these activities alone cannot ensure economic 
growth. This is why the PFF will also support additional lending 
programs for small and medium business and efforts to remove NIS 
impediments to expanded trade and investment.
    Question. Many private voluntary organizations and nongovernmental 
organizations are already involved in Russia, Ukraine and the other NIS 
countries. Why should we duplicate what they are already doing?
    Answer. We agree that we should not duplicate the work of other 
organizations in the NIS. The mandate of the Office of the Coordinator 
is to ensure that all Freedom Support Act in the NIS activities are 
properly coordinated. As for the activities of these private voluntary 
organizations (PVOs) and nongovernmental organizations (NGOs), many are 
in fact funded under the Freedom Support Act with U.S. assistance 
funds. The expertise of PVOs and NGOs has been critical to our ability 
to provide needed humanitarian and technical support throughout the 
NIS. Under the Partnership for Freedom, our goal is to move many of 
these organizations away from complete reliance on U.S. assistance 
funds by requiring matching contributions from the private sector. 
Further, in certain cases, we intend to consider providing one-time 
grants to serve as endowments which could allow organizations to 
continue their activities on an entirely private basis.
                        partnership for freedom
    Question. What is the value of doing exchanges and partnerships 
with these countries?
    Answer. We stand to gain a great deal by expanding our linkages 
with the peoples of the NIS countries. These grassroots linkages 
contribute to our national security by promoting the development of 
Western-style democratic, market-based societies in place of the large, 
autocratic command economy that was the Soviet Union. The success of 
this generational transition will greatly enhance our national security 
by contributing to stability in the region.
    On a more personal level, U.S.-NIS linkages are mutually beneficial 
in that they provide opportunities for each side to learn about the 
other by addressing problems of mutual concern. We have had over 200 
years to develop our country's democratic and free-market institutions, 
whereas the people of the NIS countries are faced with the daunting 
task of building and perfecting these same institutions in a much 
shorter amount of time. We can learn as much from them as they can 
learn from us, and by working together we can address our mutual 
concerns much more effectively.
    Question. I guess at first glance, NATO expansion makes eminent 
sense. With Eastern Europe turning toward democratic reforms and market 
economies and Russia's economic and political direction still 
unsettled, it is logical to want and extend NATO membership as a 
deterrent to a revival of Russian expansionism. While I can sympathize 
with the apprehensions felt by the Eastern Europeans, the collapse of 
the Soviet Union cost NATO its natural enemy and with it a reason to 
exit. The simple truth is that Russia is not a military threat and will 
not be for some time to come, possibly a decade.
    With this in mind, I question the logic of NATO expansion. Is it 
necessary? What will expansion do to our programs in the NIS? How will 
it affect USAID? Will the increased tension with Moscow hurt U.S. 
business interests and trade with the region? Simply put, from your 
perspective, is NATO expansion a good idea or the folly of an 
organization trying to survive by venturing into areas outside its 
intended purpose?
    Answer. NATO enlargement is the cornerstone of our fundamental goal 
to build, for the very first time, a peaceful, democratic and undivided 
transatlantic community. As President Clinton said, by enlarging NATO, 
we will do for Europe's east what NATO did for Europe's west. We will 
extend the peace and prosperity that western Europe has enjoyed for the 
last 50 years to the east; we will gain strong new partners in security 
and trade; we will strengthen eastern Europe's commitment to democracy, 
peace and integration; we will erase forever the dividing line that ran 
through the heart of Europe for half a century; and we will gain 
confidence that we will not have to send U.S. forces to fight another 
war in Europe.
    Since the end of the Cold War, NATO has changed. Its focus on 
meeting the new challenges we face today--ethnic conflicts, the threat 
from weapons of mass destruction, terrorism and international crime and 
drug trafficking--make it as vital an institution as when its primary 
purpose was defending against a threat from the east. But, NATO's 
fundamental basis as a collective security organization continues to 
provide the secure and stable environment which enables its members to 
grow, prosper and join together in promoting their shared values, 
ideals and interests.
    NATO enlargement poses no danger to Russia and will benefit all 
members of the transatlantic community, including by helping to create 
a more secure and peaceful environment in which trade and economic 
growth can flourish. It will complement our aid programs. We recognize 
Russia's concerns about enlargement and want to ensure Russia has the 
opportunity to play a constructive rule in the creation of Europe's new 
security systems. Russia's willingness to work with NATO to develop a 
stronger NATO-Russia relationship through a charter or similar document 
and to adapt the CFE treaty is an important opportunity.
    Question. What effect does NATO's PFP program have on your programs 
in the NIS?
    Answer. First and foremost, by extending NATO's PFP program to the 
NIS (except for Tajikistan, which has chosen not to join PFP), the 
Alliance has demonstrated its commitment to build a new, inclusive 
European security space which breaks down old dividing lines and brings 
all the countries of Europe and the former Soviet Union together. 
Through PFP, the NIS countries are exposed to NATO's community of 
values as well as is methods of operation and interoperability.
    PFP complements our aid programs to the NIS by fostering and 
promoting many of the same objectives. PFP seminars, conferences and 
workshops address such issues as democratization, civilian control of 
the military, good neighborly relations, regional cooperation, and 
threats from weapons of mass destruction, transnational crime, and 
international drug smuggling. Participation in PFP exercises enables 
Partner countries to learn NATO's procedures and practices for dealing 
with crisis situations and to improve their interoperability with NATO 
in the humanitarian, search and rescue and peacekeeping fields. PFP has 
been the means by which Partners have joined NATO in IFOR and SFOR in 
Bosnia and will provide the basis for future joint peace support 
operations.
    PFP helps create a more secure and stable environment in which 
economic growth and reforms can prosper. Thus, it is an essential 
component of our overall relationship with the NIS.
    Question. How is NATO expansion viewed in the NIS?
    Answer. Most of the NIS countries (except for Russia and Belarus) 
have been cautious about stating an opinion about NATO enlargement. 
However, all the NIS have demonstrated an interest in developing a 
deeper relationship with NATO by joining the PFP, except for Tajikistan 
who chose to participate only in the North Atlantic Cooperation Council 
(NACC), a forum for political consultation with NATO. Many of the NIS 
countries have been actively supportive of the new initiative for a 
Euro-Atlantic Partnership Council which would merge PFP and the NACC to 
form a stronger and deeper consultative and cooperative mechanism 
between Allies and Partners/NACC members.
    Russia has clearly stated its opposition to NATO enlargement. 
Belarus has echoed that opposition. But it is clear that, although the 
elite in Russia is opposed to NATO enlargement, most ordinary Russians 
do not have a strong view one way or the other.
    Question. Does the military cooperation of PFP/NIS member nations 
translate into cooperation in business endeavors?
    Answer. To date, most NIS countries have not been very active in 
PFP, largely due to lack of funding. However, the recent signing of 
Presidential Determinations for eight of the countries (Russia, 
Ukraine, Kazakstan, Kyrgyszstan, Uzbekistan, Georgia, Moldova and 
Turkmenistan) will enable those countries to receive U.S. Warsaw 
Initiative assistance for use in promoting their participation in PFP.
    In Central Europe, Warsaw Initiative funds have been spent on goods 
and services from American suppliers, such as communications equipment 
and training. This has helped establish new business relationships 
between U.S. companies and CE firms which previously bought Soviet or 
East European goods. In turn, the experience under the Warsaw 
Initiative program has engendered contacts and greater familiarity 
between U.S. and CE companies leading to expanded business 
relationships. For example, Hungary has recently commissioned two major 
studies, one from the Rand Corporation, and one from a consultant firm. 
Many U.S. companies are actively competing for such contracts. U.S. 
defense contractors also have established good relationships with CE 
firms and are promoting U.S. products and services.
    We expect similar benefits to occur as the NIS countries become 
more actively involved in PFP.
    Question. In layman terms, could you explain what the Partnership 
for Freedom program is, and how this initiative will support the nation 
security strategy of the United States?
    Answer. The Partnership for Freedom (PFF) is not a new program, but 
is a strategic re-focusing of our existing programs that creates a new 
package of assistance that is both appropriate and urgent in supporting 
the NIS in their stage of transition to democratic market economies. 
This means that many forms of technical assistance will end--
particularly those activities that supported the first building blocks 
of reform such as privatization, bank sector reform, the building of 
capital markets, the creation of a whole new set of institutions, both 
governmental and non-governmental, which are the foundation of civil 
society.
    The Partnership for Freedom builds on the lessons learned from the 
past five years, as well as the reform progress made by the NIS 
nations, and supports the national security interests of the United 
States by staying engaged with these nations in ways that are mutually 
beneficial. The PFF works to further integrate each NIS nation, from 
the government to the grassroot levels into the community of Western 
democracies.
    The Partnership for Freedom will accomplish these goals by focusing 
on two primary groups of activities. The first, investment and capital 
mobilization, and the second, consolidation of democracy and civil 
society gains, are comprised of highly focused groups of activities 
that emphasize economic growth and the role of the private sectors in 
both the U.S. and Russia. The PFF will emphasize cooperative activities 
between a wide variety of U.S. and NIS organizations, such as 
industrial associations, municipal governments, universities, 
hospitals, bar associations, social services and charities. The PFF 
will more than double our activities in the area of fighting crime and 
corruption, and will more than double the number of exchange programs 
that are doing so much to help shape and prepare the NIS leaders of 
tomorrow.
    The national security of the United States is enhanced immeasurably 
and concretely by the quickest possible transition of the NIS nations 
to market democracies, for several reasons. First, Russia is still a 
nuclear military power. Second, the post-Cold War world presents still 
other threats to our security. A strong, active relationship with 
Russia and the other NIS nations is of tremendous strategic importance 
to the United States, in order to manage and reduce these other real 
threats. Third, there are significant economic opportunities for the 
United States in the NIS region. The energy and natural resource 
sectors, and a huge untapped consumer market, and fledgling capital 
markets are just the most striking and well-known examples of where our 
country is benefitting economically now, and where tremendous growth is 
possible as these NIS economies mature.

          Questions for the Record Submitted by Mr. Foglietta

                            albania projects
    Question. Much international attention has been focussed on a 
nation that has rarely, if ever been in the spotlight--Albania. While 
it is difficult to attribute the recent lawlessness and violence that 
has gripped Albania to one cause, citizens clearly became resentful 
because of wide scale and seemingly government sanctioned corrupt 
investment schemes. This, compounded with autocratic political 
leadership and the existence of armed and criminal factions, has 
spelled disaster for the nation.
    (a) The U.S. has provided a modest amount of aid to Albania over 
the past few years. Can you tell us what types of projects we have 
sponsored there?
    Answer. USAID activities have strongly supported democratic 
institutions and political processes in Albania. Both the International 
Republican Institute and National Democratic Institute have had 
representatives working in Albania to promote a more active exchange 
between politicians and their constituencies by providing training in 
the rights and responsibilities each has in a democracy. Strong support 
has been provided to non-governmental organizations (NGOs) to increase 
their advocacy role vis a vis government. Advisors also work with local 
governments to better equip them to serve their constituents and move 
toward greater decentralization. Over 50% of U.S. assistance to Albania 
supports economic growth. Much of that assistance goes to the 
agricultural sector which accounts for over 50% of GDP and 50% of 
employment in Albania.
    Agriculture was one of the first sectors privatized in Albania, and 
it is worth noting that during the recent crisis, the agricultural 
sector has been little affected. Other U.S. support includes the 
Albanian-American Enterprise Fund, which provides loans and equity 
capital to private businesses, an MBA program, technical assistance to 
small and medium enterprises and technical skills training. When the 
situation allows for the return of U.S. advisors, assistance can 
quickly be provided to start rebuilding the Albanian economy. Little 
support in the area of economic growth is provided directly to the 
Government of Albania. Virtually all is directed to the private sector. 
With regard to social sector restructuring, USAID has supported 
programs in health service management and family planning, to both 
improve the quality of care and reduce the use of abortion as a means 
of contraception.
    Question. Over the past months, discussion on international affairs 
has been dominated by President Clinton's goal of enlarging NATO. In 
the budget we have talked about the significant increase for Russia and 
the NIS. One key component to stabilizing the Russian government and 
keeping them engaged must be helping them to get their own fiscal house 
in order. There was a goal embraced by President Clinton and Yeltsin at 
Helsinki. Can you tell us how the new funding would be used to work 
with the Russian government to help them make the structural 
adjustments to strengthen their fiscal system? Will we see an increase 
in the amount of aid we are giving Russia for this type of technical 
assistance?
    Answer. Under the Freedom Support Act, we have provided assistance 
to the Russian Government in the fiscal area. In particular, we have 
provided extensive technical assistance in the Russian government 
effort to draft and pass a new, more effective and market-oriented tax 
code. In addition, we have provided two budget advisors to assist the 
Russian Government under the Treasury advisor program. To their credit, 
the Russians have made a good deal of progress on fiscal issues, but 
continue to face problems with revenue shortfalls, an issue we have 
tried to help address through our tax program. The Partnership for 
Freedom Initiative envisions limited technical assistance to the 
Russian Government in FY 98, given the amount of progress made to date 
and our view on the need to redirect assistance toward promoting 
economic growth through support for trade and investment. Our FY 98 
plans call for providing some limited technical assistance to the 
Russian Government to help remove impediments to investment and 
economic growth, which would include the area of tax reform. Of course, 
the provision of such assistance will depend also on the desire and 
need of the Russian Government.

            Questions for the Record Submitted by Mr. Torres

                                armenia
    Question. Why is Armenia the only NIS country that you are 
requesting a significant decrease in assistance for in your FY98 
budget?
    Answer. We develop our budget request based on the progress of 
reform and the need to support reform in each NIS country within severe 
budget constraints. Our budget request for Armenia in FY97 was $55 
million; our budget request for Armenia in FY98 is $80 million. Hence, 
our request for Armenia has increased. As you are aware, Congress saw 
fit to earmark $95 million for Armenia in FY97.
                      turkey's blockade of armenia
    Question. 3. The State Department has said that Turkey's blockage 
of Armenia runs counter to U.S. interests in the region. The government 
of Armenia has repeatedly offered to establish normal, diplomatic 
relations with Turkey without pre-conditions. What is the 
Administration doing to support the Armenian government's offer to 
Turkey?
    Answer. The Administration has repeatedly urged the governments of 
Turkey and Armenia to normalize their relations and expand contacts in 
a broad spectrum of areas, including opening up cross-border trade. 
This is not only in the best interests of Armenia and Turkey, it is in 
the interests of the Untied States as well.
    Question. As you know, Turkey's blockade of U.S. humanitarian 
assistance designated for Armenia, now in its fourth consecutive year, 
is in violation of U.S. law. What specific steps has the Administration 
taken to assure Turkey complies with U.S. law? Is the Administration 
planning on enforcing the Humanitarian Aid Corridor Act or at the 
least, notifying us of your intention to exercise the waiver provision?
    Answer. Turkey kept its land border with Armenia open until March 
1993, when ethnic Armenian forces attacked and occupied Kalbajar 
province, in western Azerbaijan. Turkey closed its land border to 
protest this offensive, and has pledged to reopen the border if the 
parties can agree on a statement of principles for its resolution.
    The Humanitarian Aid Corridors Act (HACA) requires the 
Administration to cut off U.S. aid to any country that blocks the 
delivery of U.S. humanitarian aid, although the act also contained a 
national interest waiver provision. The Administration has strictly 
enforced the provisions of HACA, and will continue to do so. On April 
14, the President notified Congress of his intent to again exercise his 
right to waive the provisions of the HACA in accordance with the 
provisions of that law.
    The closure of the land border between Turkey and Armenia does not 
greatly constrict the flow of U.S. aid to Armenia. There is an 
extensive port, road and rail network through Georgia that effectively 
provides Armenia with goods, including aid. Most of the shipments that 
reach Armenia come through the Turkish Straits with the active 
cooperation of the Turkish Government authorities.
    Turkey has undertaken several multilateral and bilateral efforts to 
facilitate a resolution of the N-K conflict. In 1995, Turkey reopened 
the air corridor between Armenia and Turkey, and regular bus service 
now runs from Yerevan through Georgia to Turkey. It is in the U.S. 
national interest that Turkey continue to play an active, positive role 
in the search for a resolution to the conflicts in the Caucasus, and to 
take unilateral steps to improve its relations with Armenia. We will 
continue to encourage the Turkish government to pursue these policies, 
just as we will encourage the Armenian government to respond 
positively.
                                          Thursday, April 17, 1997.

                    EXPORT AND INVESTMENT ASSISTANCE

                                WITNESS

J. JOSEPH GRANDMAISON, DIRECTOR
RITA M. RODRIGUEZ, ACTING PRESIDENT AND CHAIRMAN
MILDRED O. CALLEAR, ACTING PRESIDENT AND CHIEF EXECUTIVE OFFICER

                 Chairman Callahan's Opening Statement

    Mr. Callahan. Well, good morning and welcome to the 
subcommittee. I know this may be the first time that you have 
appeared before our committee for some of you, and we are happy 
to have you here.
    We are having a Republican conference this morning. At the 
conference I just left, Speaker Gingrich announced how he was 
paying the $300,000 fine that has been assessed against him. He 
is borrowing the money from Mr. Dole and he is paying Bob Dole 
back at the rate of 10 percent per annum.
    Ms. Pelosi. At what interest?
    Mr. Callahan. With interest, and this hopefully will settle 
all of that for the time being anyway.
    Ms. Pelosi. Bob Dole is lending Newt Gingrich $300,000 to 
pay his fine?
    Mr. Callahan. Right. If I ever get in trouble, Nancy, I am 
coming to you.
    Ms. Pelosi. Anything you want, Mr. Chairman. And I will be 
there for you.
    Mr. Callahan. The committee is pleased to welcome you.
    We have Mr. Joe Grandmaison, the director of the Trade & 
Development Administration; Dr. Rita Rodriguez, the acting 
president of EXIM Bank and; Mrs. Mildred Callear acting 
President of OPIC.
    As you well know, this committee has been a strong 
supporter of your agency, for the past 3 years anyway. Mr. 
Grandmaison, your agency appeared to have escaped the label of 
``corporate welfare.''
    In this morning's paper I see that Ralph Nader has 
indicated that the other two of you are considered by him to be 
corporate welfare. I disagree with his allegation; I disagree 
with the logic and the innuendoes of his article. But it 
expresses a perception that many Members of Congress now have 
as a result of this misinformation that has been put out, and 
frankly, as I expressed and as did Mrs. Pelosi last night at a 
dinner at Blair House with the leaders of the administrative 
branch, unless we can muster together the truth, get the facts 
assimilated and delivered, and convince a number of our 
colleagues in the House, then OPIC and Eximbank are going to be 
facing some serious problems.
    The President committed to us last night that he, 
especially in the OPIC arena, is going to exercise a full court 
press that is going to become a top priority of his for the 
next several weeks.
    I emphasized how crucial the timing was with respect to 
OPIC since the International Relations Committee is coming 
forth with a bill that the Nader forces will probably try to 
attach an amendment that could very seriously impede our 
ability, as we did last year, to correct the problem in 
conference committee.
    This year your authorizing committees must do their jobs. 
Not only is it going to take them, but all of you, and all of 
you who are interested in the continuation, especially of OPIC, 
to get your statements out, to contact Members of Congress, 
contact members of this committee, and to make certain that we 
fully understand the ramifications of the abolition of either 
of the agencies.
    Mr. Grandmaison, your group owes us a vote of thanks for 
our support of you in helping to establish enough credibility 
about your agency to let you escape the problem OPIC and 
Eximbank face.
    I will submit my opening statement for the record and I 
will not force you to sit through a lengthy explanation of 
that. I am going to recognize in just a second Mrs. Pelosi for 
a brief opening statement. I would ask you all to respect the 
time limitations of this committee in your opening statements 
and let's get through this as expeditiously as we can.
    When Speaker Newt Gingrich makes his announcement on the 
Floor, which will be right after we go into session, there is 
no doubt going to be a flurry of activity by some of those who 
do not hold in the high esteem that I hold Mr. Gingrich in. 
There are probably going to be a lot of votes this morning. 
Probably about 10:30 we will have the first one and vote every 
15 minutes thereafter. We will apologize for the interruptions 
and try to keep the committee going.
    [Chairman Callahan's statement follows:]

[Pages 425 - 426--The official Committee record contains additional material here.]


    Good morning, Mrs. Pelosi. You have the Floor.

                     Ms. Pelosi's Opening Statement

    Ms. Pelosi. Thank you very much, Mr. Chairman. Good 
morning.
    I want to join you in welcoming our witnesses for today's 
hearing on the fiscal year 1998 request for Export-Import Bank, 
for OPIC, and for TDA. Mr. Grandmaison, it is always a pleasure 
to see you.
    This portion of our bill, as you know, provides funding 
through various mechanisms to help American business to promote 
the export of American products overseas. For this reason, both 
OPIC and Eximbank have enjoyed widespread support in Congress, 
except, as our Chairman has said, until recently.
    If I may say, our Chairman was a very vocal advocate for 
OPIC and Eximbank, at Blair House last night, and helped the 
President understand what exactly the task is before us in the 
Congress. So I think that you all have a very good friend in 
our chairman.
    You all know that the reauthorization of OPIC failed to 
pass the House in September. I think part of that was because 
of the larger request for a bigger amount of money, but it did 
serve as a wake-up call to many people on the Hill and in the 
business community.
    While I have concerns about some of the policies of both 
OPIC and Exim, I have generally supported funding for them in 
the context of this foreign operations bill and with balanced 
priorities.
    Last year, many people in the House voted against 
reauthorization based on what I thought were narrow 
considerations and not understanding how these programs work. 
So I know you both come here fully ready to address those 
concerns and educate the Congress on the effectiveness of your 
programs and how they help American business.
    I have specific concerns, and I will ask them during the Q 
and A--environmental concerns, Russian program, Colombia, and 
small business. I will end with that small business issue. I 
have said year in and year out, especially in the case of Exim, 
to the extent that more business is in our country, small and 
moderate size businesses receive some of the benefits of OPIC, 
women and minority-owned businesses receive the benefits of 
OPIC--excuse me, of Exim--then we will build a stronger 
constituency in the country. It cannot exist and have a 
constituency if it persists to be Boeing's bank or just the 
bank of some exporting elites without having as primary 
customers the smaller and more moderate sized businesses in the 
country.
    Thank you all. Thank you, Mr. Chairman.
    Mr. Callahan. Mr. Grandmaison, since you have appeared 
before the committee before and since you are sitting to the 
left, we will start with you.

                  Mr. Grandmaison's Opening Statement

    Mr. Grandmaison. Mr. Chairman, members of the committee, 
thank you for the opportunity to be with you this morning.
    As I point out, Mr. Chairman, this is the first time I have 
had the opportunity to lead off. Had I known to acquire this 
position all I had to do was get rid of Brody and Harkin, I 
would have tried to do it much earlier. However, what I won't 
do is abuse that, because I respect the fact that what you are 
really interested in is to get into the Q and A. I will try to 
this year use complete sentences, however, as opposed to when 
someone is situated at the end of the table.
    The task today, as we all know, is to help create jobs for 
Americans, and to a great extent the World Bank lays out for us 
what the picture is. The World Bank estimates that in the next 
5 years, to the year 2000 actually, we are talking about $200 
billion worth of infrastructure being developed around the 
world. And in those middle income and developing countries, 
what we have to work towards, we at TDA and our sister 
agencies, is to try to ensure that we get a piece of that 
business.
    It is a mistake, however, to assume that there isn't 
competition, as we all know, because the secret that the French 
and the Germans have used, and the Japanese, is to go in early 
and to do early project--provide early project planning 
assistance. And that is what TDA attempts to compete with. And 
compete is what we must do.
    Allow me just to ask my colleague to put up a chart that 
shows as a by-product of one's GDP the type of competition we 
face just in the area of feasibility studies or project 
planning assistance. As you can tell from this chart, as an 
example, Britain supports its firms 17 times more than we do, 
as it relates in this narrow area of export promotion. And as 
we go down the chart, we see that even our neighbor to the 
north, Canada, is more heavily involved in providing early 
project planning assistance than we would.
    Now, in a perfect world one would say this shouldn't be 
necessary, that each project should stand on its own merit. 
Unfortunately, we don't live in a perfect world, and what we 
try to do is just begin to level the playing field so that when 
an American company is competing overseas and one of their 
competitors gets what we would argue would be unequal support 
from their country of origin, we go in and say, but we want 
that business as well.
    Now, is that a guarantee that when the project is actually 
developed, that they buy U.S. goods and services? No, it is 
not. But if we go in and U.S. consultants develop the technical 
requirements, at the very least we know that the equipment 
manufactured here then qualifies.
    The one thing you can be certain of, that you can bet on, 
is if we aren't involved, our companies won't get the business, 
because our competitors in many respects don't develop their 
work for international competition, they more narrowly define 
it to their own narrow interests.
    So what we try to do is develop the codes, the technical 
requirements, the standards, for U.S. goods and services. And I 
want to offer what I think is a great example, to be very 
honest with you, Mr. Chairman, and this has to do with the 
telecommunications market in Poland.
    Poland is in the throes of defining its public policy on 
how to privatize their telephone company, TPSA. We came in and 
offered them a grant, $422,000, so they could hire a U.S. 
company to develop their policy options using an American 
model. Now, the American model would be a highly decentralized 
body, so that it would inspire competition.
    At the same exact time, as fate would have it, the British 
know-how fund went in and offered them similar money, actually 
more money, to develop the European model, and the European 
model is highly centralized. Now, what is at stake?2-plus 
billion dollars worth of export opportunities. That is what is at 
stake. So we come in and offer what we would suggest is a responsible 
amount of money to help move their policy in a fashion that opens that 
door for U.S. companies.
    Just 2 weeks ago in Chicago, as an example, we had the 
Minister of Telecommunications from Poland and several of his 
colleagues, and they met with over 50 people from the 
telecommunications industry, a third of which, by the way, Mrs. 
Pelosi, were small business people. What we tried to do was 
render the assurance to the Minister that he could be confident 
that if they make the right public policy decision, that U.S. 
interests would be there to back it up, that we have the 
companies that want to compete in that marketplace. But the 
ground rules have to be such that, from a business point of 
view, it is an intelligent investment.
    Nearly every other week we have an orientation visit, is 
what we call them here. An example: Next week we have the 
Argentine and Bolivian hydro and irrigation project officials, 
not ministry level, but the decision makers, and they will be 
visiting Alabama and Tennessee to see U.S. policy at work. The 
following week, it is African health ministers that will be in 
Boston, Philadelphia, New Jersey, and other locations looking 
specifically at the technology that they need to hopefully help 
their countries while at the same time, if you will, help our 
industry.
    A good example, however, is that next week we are working 
with the FAA on this conference in L.A. And this is an 
interesting one. This is aviation project opportunities in 
Asia. What we are doing is, we are bringing this, outlining 30 
airport projects in Asia, all of the information for the 
estimated 400 U.S. businesspeople in attendance. What we will 
do, we provide them with the information and then, during the 
course of the conference, set up one-on-one meetings between 
the project sponsor and the U.S. business.
    Now, the companies that benefit most by this sort of an 
investment by TDA are small businesses, because they, for all 
practical purposes, couldn't afford the time or the dollars to 
go to, in this case, the seven countries that are involved to 
learn by themselves what the opportunities are, much less get 
access to the individual that is going to be making the 
procurement decisions.
    So these sorts of investments, in addition to the early 
project planning assistance or feasibility studies, is really 
the meat and potatoes of what it is we try to do.
    Now, you make a most important point, Mr. Chairman. This 
committee, the Congress generally, we have benefited by the 
advice that we have received over the past 3 years. Example: 68 
percent of our agency's investments in feasibility studies are 
cost shared. So for every dollar we have put in of taxpayer 
money--and we try never to forget that--the private sector has 
come in with 72 cents of their actual costs, therefore bringing 
up the total value, monies that we impact.
    Additionally, when it comes to success fees, something that 
this committee expressed very strong interest in--and all I can 
explain is, we heard you--93 percent of our sole sourced 
feasibility studies now have a success fee attached to them. If 
the taxpayer comes in and helps you get the project, when the 
project is successful and implemented, pay the taxpayer back.
    Now, because we invest so early, that doesn't happen in the 
2 or 3 years, because we invest, usually it is a 4, 5, 6-year 
turnaround before the investments we make actually develop 
exports. But we are doing a better job stretching the monies 
that we have to work with.
    From a TDA point of view, this has been a most important 
year. And I want to show you one other chart, if you will, 
keeping in mind that we have been in business since 1981. This 
year, however, we finally passed--and we are pleased with 
this--the $10 billion mark in terms of exports that our 
agency's investments have facilitated, $10 billion. So that 
means that for every--and we track every project; it is the 
only way we can come up with these hard numbers--for every 
dollar we have invested, we have facilitated $30 in exports, 
and we believe that is something to be proud of. This committee 
and your support is obviously vital to our ability as a group 
of 38 professionals on our staff to use our money as wisely, as 
prudently as possible, bearing always in mind that what we are 
talking about is U.S. jobs.
    Thank you, Mr. Chairman.
    [The statement of Mr. Grandmaison follows:]

[Pages 431 - 438--The official Committee record contains additional material here.]


    Mr. Callahan. I thank you, Mr. Grandmaison, and say we are 
extremely pleased--at least I am--to hear about the 
reimbursement program that is working. I think that was an idea 
of this subcommittee, and we are happy that you have 
implemented it.
    Mr. Callahan. Dr. Rodriguez.

                   Opening Statement of Ms. Rodriquez

    Ms. Rodriguez. Thank you very much, Mr. Chairman.
    I must apologize for my voice, but it is considerably 
better than it was 2 days ago when I thought I would have no 
voice. I am delighted to appear in front of this subcommittee--
it seems I do this every 4 years--, during a transition period.
    As you know, I am the Acting President and Chairman of the 
Ex-Im Bank. Ex-Im Bank's mission is to protect and increase 
jobs in the United States by supporting exports that otherwise 
would not happen; and it is very important to focus on that 
point. Like Mr. Grandmaison has said, we shouldn't be needed 
were it not for the fact that every other major country in the 
world has a powerful export credit agency which tries to 
support their exports as broadly as possible. As a result, 
other countries support much larger percentages of their total 
exports than we do.
    Our efforts, however, are highly successful. We are 
targeted. They go to those transactions where we are really 
needed, because the competition from these other export credit 
agencies is a reality, a competition that comes not only from 
one but from several of them, usually at the same time.
    Last year, we authorized about $11.5 billion in financing, 
and we support $14.6 billion in exports. This is an increase of 
about $1 billion over the previous year.
    But, first I want to address the current state of 
management at the Bank, because I know that has been an issue 
of concern to this Committee and to the Congress in general. 
Over the past year, there have been extensive reforms in our 
management system, including the creation of a new position in 
our General Counsel's office, one that is devoted to 
administrative law. We have restructured the Bank and have 
strengthened the management ranks of the Bank. All this will 
assure that every major administrative decision is thoroughly 
examined. We have also obtained the advice of independent 
management consultants on many aspects of the Bank's processes 
and procedures. In short, I have complete confidence that Ex-Im 
Bank is able to do the vital work that we need to do.
    Ex-Im Bank's appropriations request for 1998 is $632 
million. This is a $94 million decrease from what was enacted 
for 1997. The decrease is based on $50 million that we are not 
requesting in tied aid, which we did last year, and a $44 
million decrease in program budget. This should be music to 
your ears. We are doing our part to contribute to a balanced 
budget.
    However, I must be very candid with this Committee, as I 
promised to be with Congress during my confirmation hearings 
some 15 years ago, almost in a situation similar to the one 
that we confront today. After reviewing our data for this first 
half of fiscal year 1997, we have determined that our spending 
rate for our program budget is a little over $1 billion for 
this year, which runs well ahead of the appropriation for the 
year. An overall increase in demand, especially in higher-risk 
markets, which we did not anticipate when we proposed the 
budget last year, accounts for a large part of this increase.
    We will, through management of our resources, probably be 
able to continue to provide finance to low-cost transactions 
and small business programs through the end of 1997. However, 
we must contemplate the possibility that some transactions 
requiring a large draw on our budget may have to be postponed 
until fiscal year 1998.
    Mr. Chairman, negotiated agreements in the OECD resulted in 
a large reduction in tied aid offers. We have also negotiated 
lower interest rates so we no longer lose money making loans at 
interest rates lower than our borrowing rates.
    One of the primary reasons for Ex-Im Bank besides meeting 
competition is to be at the negotiating table to bring 
competition to rates and prices that are commensurate with the 
market. I would just like to use as an example what I consider 
to be one of the great successes we have had in the 
negotiations in the OECD.
    In that chart, you have two lines. The red line is the cost 
of funds to the United States, essentially for 7-year 
treasuries. The blue line is the lowest permissible OECD rate. 
As you go back to the early eighties, you can see that the blue 
line, the rate that we are charged for export credits from OECD 
countries, was considerably below the cost of funds to their 
governments.
    This is not to say the cost of funds necessarily even to 
the borrowing country. Through negotiations, tough 
negotiations, as well as the willingness and capability to act, 
we were able to succeed in getting an agreement in the early 
nineties whereby that difference has disappeared. In fact, 
today on every loan that Ex-Im Bank makes, we are guaranteed a 
positive spread of 100 basis points over the cost of funds to 
the U.S. Treasury.
    To put a little bit of aggregate value on this, if we look 
at the books of Ex-Im Bank and we look at the period since 1980 
to the early nineties when we had this discrepancy in interest 
rate, U.S. taxpayers had to lose $3 billion--actually a little 
bit over $3 billion--because of the situation that existed in 
the competition with other export credit agencies.
    Since 1992, that situation has been reversed to the point, 
as I said, we make money when we make loans to foreign 
borrowers who are chosing between U.S. exporters and competing 
producers from other nations. That is one of our great 
successes in the OECD negotiations.
    But if we are to continue having successes, we need both 
top negotiating and financial resources to assist our efforts 
to level the playing field, and counter the goal of many of 
these countries.
    Our major competitors who pay attention to reports from the 
United States assume that Ex-Im Bank is an institution somewhat 
at risk at home. I know this from my personal negotiation 
experience. I would like to share just a couple of stories with 
you.
    When the OPIC vote took place in Congress last fall, the 
following week there were negotiations in Paris. I was met with 
paper clippings reporting on the vote in Congress on OPIC with 
a follow-up question: What does this mean for Ex-Im Bank? I 
answered, well, we are paying attention. Needless to say, this 
kind of situation gives them little incentive to agree to raise 
fees, one of our objectives in the current negotiations. We 
want to work with Congress and the Administration to solve this 
dilemma between saving money in the short term and keeping our 
exporters competitive.
    In the area of the administrative budget, this year we are 
requesting $48.8 million, which is an increase of $2 million 
over last year. This $2 million increase is primarily to allow 
for renovation of our building, which is considered one of the 
worst buildings by GSA. There are real health hazards in the 
building.
    Small business is a matter of great interest to many 
members of this Committee and to Congresswoman Pelosi. Congress 
has mandated that 10 percent of Ex-Im Bank's finances be set 
aside directly for small business. Last year, in fact, 21 
percent of our financing, which represented 81 percent of our 
deals went directly to support small business exporters. And 
that is in addition, of course, to the indirect support that 
small business receives as subcontractors from larger 
transactions. This chart illustrates my point.
    All in all, small business has been a real success story 
for us, as is shown by the quotes from letters we have 
received. As you see from the other chart, the number of small 
businesses receiving support from Ex-Im Bank, the absolute 
number of companies has significantly increased. In fact, not 
only has the total volume of business doubled but the number of 
companies receiving support through the various programs has 
also more than doubled, and that support is highly concentrated 
in the insurance program and the working capital guarantee 
program.
    Ms. Pelosi. May I just--is this directly because these 
businesses engage, or is this some kind of a ripple effect of 
subcontracts?
    Ms. Rodriguez. That is direct. That does not include the 
subcontractors of engineering companies, for example.
    Let me read to you a quote from one of the companies that 
testifies to the success of this program. John Crossno, 
chairman and CEO of Air-Dro Cylinders of Decatur, Alabama, 
which was carefully selected, manufacturers hydraulic 
cylinders. He writes to Ex-Im Bank, quote: If these programs 
are eliminated or altered significantly, the customers we have 
that utilize them will be placed at a disadvantage and we will 
lose the privilege of serving them. If these programs are 
eliminated or altered, over 30 percent of our employees will be 
affected.
    Mr. Chairman, I would like to submit four letters for the 
record in which small companies testify to the support and the 
difference that it makes to have support from Ex-Im Bank to 
sell their products abroad.
    [The information follows:]

[Pages 442 - 446--The official Committee record contains additional material here.]


    Ms. Rodriguez. Another area that the Committee also has 
shown interest in is Russia and the NIS, so I thought I would 
touch on what we are doing there. We are open for business in 
Russia, Ukraine, Uzbekistan, Turkmenistan, and Kazakstan. In 
1996, we approved nearly $1 billion in authorizations for the 
region, including nearly $200 million secured under non-
sovereign programs for long-term export contracts.
    The so-called OGFA agreement is an arrangement, which 
serves as, a template for many of our transactions in the 
region. Transactions of this nature are secure, and allow us to 
charge the program budget 25 percent less than if it were done 
on a sovereign-risk basis. We are proceeding in Russia and the 
NIS with all due caution, operating only in countries where 
economic conditions provide the needed reasonable assurance of 
repayment, and after insisting that ample security be provided 
before we approve a transaction.
    In conclusion, Mr. Chairman and other members, I am proud 
to be here representing an institution with a clear mission. We 
know what our goal is. We are staffed by loyal employees who 
are unsurpassed in either public or private sectors. We are 
confident of our future because we promote jobs and give 
excellent value to the U.S. taxpayer. And I will be happy to 
answer any questions.
    [The statement of Ms. Rodriguez follows:]

[Pages 448 - 468--The official Committee record contains additional material here.]


    Mr. Callahan. Thank you, Dr. Rodriguez.
    We will get to the questions in just a moment. I appreciate 
your brilliance in reading a letter from someone from Alabama. 
Maybe we could help you educate Mr. Grandmaison when you ask 
for a decrease, and maybe next year we will want to say you go 
first.
    Ms. Pelosi. Mr. Chairman, don't you think it is just 
alphabetical, Alabama?
    Mr. Callahan. Yes. The one in L.A. I assume is Lower 
Alabama.
    I am also planning to write to Willie Nelson. I had 
suggested that he rerecord that song, ``Mama, don't let your 
children grow up to be cowboys.'' I had suggested that he say 
``bankers.'' Now I am going to go back to ``lawyers.''
    Mr. Callahan. Ms. Callear, we are going to have to ask you 
to limit yourself to about 5 or 6 minutes. Then we are going to 
stand in recess.

                    Ms. Callear's Opening Statement

    Ms. Callear. Mr. Chairman and members of the committee, I 
thank you for holding this hearing and for your continued 
support.
    You played a very important role for OPIC last year, and we 
know we wouldn't be here without you. I appreciate this 
opportunity to testify, and I, like Ms. Rodriguez, have been at 
OPIC for 15 years. I am very pleased to join my colleagues to 
talk about the continuing commitment this administration has to 
a coordinated trade and investment strategy.
    OPIC's role in promoting American trade is to sell 
political risk insurance and financing to help qualified U.S. 
investors compete for projects in the emerging markets. OPIC is 
needed because private financing and political risk insurance 
is not always available in the markets in which companies want 
to compete. OPIC can only involve itself if the private sector 
is not available to fulfill 100 percent of the needs of these 
companies.
    Since 1971, with never more than 200 employees, OPIC has 
mobilized more than $107 billion in new U.S. investments around 
the world. These investments have had a very positive impact on 
the economies of these countries, and we are very proud of 
that. But OPIC is careful never to export U.S.jobs. In fact, 
over the past 25 years we have created more than 225,000 American jobs 
as well as $52 billion in U.S. exports, all-the-while supporting a 
strong foreign policy.
    We have been a Partner for Peace in the former Soviet 
Union, the Middle East, South Africa, and throughout Latin 
America. We have kept our commitment to operate on a self-
sustaining basis at no net cost to the taxpayer. And with this 
record in mind, I am pleased to tell you a little bit about our 
1998 budget request.
    We are requesting an end to direct appropriations. Instead, 
we are requesting the authority to use the income from our 
operations to cover our costs. In 1998, we anticipate that we 
will have gross collections of over $300 million and $60 
million of that would be used to fund our credit program. These 
funds will, in turn, support $2 billion in project financing.
    For administrative expenses we are requesting $32 million, 
which is the same as last year. At this level of authority, we 
will continue to provide valuable funds for the function 150 
account which this subcommittee oversees. We will provide $158 
million in 1998 for that assistance.
    Now, let me talk a little bit about reauthorization. As you 
know, the President has submitted legislation to the 
International Relations Committee for the 3-year 
reauthorization of OPIC and a slight adjustment in our 
contingent liability cap to give us room to operate for the 
next 3 years. This is a more modest proposal than the one we 
made last year, and it responds to many of the concerns we have 
heard across both sides of the aisle.
    I want to assure you of the administration's commitment. I 
am pleased to hear your words about the meeting last night, and 
that the Administration will be working closely with this 
Congress to achieve reauthorization as quickly as possible.
    Let me use my remaining time to speak to those who say we 
would be better off without OPIC and talk about what a decision 
to eliminate OPIC would mean. For starters, America's access to 
the growing markets in the world would be ceded in large part 
to our global competitors, and that is because, as many of the 
panelists up here have said, every one of our competing 
economies around the world are doing exactly the same thing, 
helping their industries compete. If we did not assist, U.S. 
business would be at a huge disadvantage in bidding on major 
privatization and infrastructure projects that are truly 
available to all countries today.
    In other words, without OPIC, instead of exporting American 
products overseas, the United States would be exporting jobs to 
our G-7 competitors, competitors who relish the thought of a 
global marketplace without OPIC. Without OPIC, environmental 
standards and worker rights around the world would be eroded, 
because many of the foreign agencies that would take our 
business do not care as much about these values as America 
does.
    Without OPIC, 140 developing countries would be deprived of 
critical American investment made possible by OPIC; investments 
that improve living standards and promote economic stability. 
In addition to this, without OPIC, a valuable foreign policy 
tool and a valuable member of the Government's trade promotion 
team would be lost. That is what life would be like without 
OPIC.
    Would we gain anything? Would the deficit be cut? No. I 
have already described how OPIC not only pays for itself but 
earns a profit for the Government. Would corporate welfare be 
reduced? Here too, reality defies the rhetoric.
    I want to correct some of the misperceptions, including 
some of the ones you mentioned up here as recently as this 
morning. First, all of OPIC's clients pay market-based fees, 
interest rates, and premiums in return for every service we 
provide. We do not give companies anything for free, there are 
no grants, there are no handouts of any kind. In support of 
this, I would point to the $2.7 billion in reserves that have 
grown up during the many years of OPIC's operation from the 
fees paid by our users.
    Second, all OPIC loan recipients make long-term equity 
commitments and assume risks. If things get bumpy in a new 
market, those investors can't just walk away and leave the 
Government holding the bag. They have a great deal at stake, 
and they are side by side with us, in terms of liability.
    Third, OPIC insures against political risks. We don't 
insure currency devaluation and we don't provide a guarantee 
that an investor will make a profit; those are outcomes 
determined by the market.
    Fourth, a large proportion of our clients are small 
business, not just big corporations. This doesn't even include 
the thousands of small companies that provide the goods and 
services to our projects. One example: In Peru today we are 
supporting an oil and gas project that has generated $20 
million in procurement for companies in 23 States, including 6 
companies in Alabama, 5 in Illinois, and 2 in California. The 
fact is that all transactions that--
    Mr. Knollenberg. What about Michigan?
    Ms. Callear. He is the chairman.
    Ms. Pelosi. He reminds me of that all the time.
    Ms. Callear. The fact is, all transactions in which OPIC 
engages in, involve fair deals between buyer and seller. It is 
wrong to describe a fair deal as welfare. We are not giving 
anything away when we sell political risk insurance and project 
financing to buyers who pay market-based prices that more than 
cover the cost of running OPIC.
    Do private American companies benefit from OPIC's services? 
Sure they do, and let's not forget we are promoting capitalism 
in countries that used to favor communism, as well as free 
enterprise around the world.
    But make no mistake, private companies have to pay for 
everything OPIC provides, and shareholders put their own money 
at risk in every project we support.
    To those who say our insurance program forces taxpayers to 
cover huge losses, I would simply point out that of all the 
insurance coverages we have sold in 25 years, less than 1 
percent has resulted in claims and we have been able to 
successfully recover 98 percent of these claims. Financially 
speaking, the bottom line is OPIC has not cost the taxpayer 
money but has made money for 25 straight years. This is a 
bargain all taxpayers should be pleased to support.
    In conclusion, a decision not to reauthorize OPIC would not 
reduce corporate welfare or save taxpayers a dime, but rather, 
it would cost American jobs, U.S. exports, business 
opportunities, millions of dollars in support of foreign 
assistance, and an effective tool of American diplomacy. I hope 
and trust that this Congress will reach the same conclusion.
    [The statement of Ms. Callear follows:]

[Pages 472 - 486--The official Committee record contains additional material here.]


    Mr. Callahan. I thank the three of you.
    We are going to recess the committee until 12:00. I 
apologize for this interruption, but we have to go and swear in 
Congressman Rodriguez, who is a new Member of Congress from 
Texas, and then we are going to listen to Speaker Gingrich 
explain his methodology of payment of the fine against him. So 
I apologize for this. We hope it gives you the opportunity to 
get a cup of coffee or a snack, and we will see you at 12:00.
    Mr. Callahan. The committee will come to order.
    We appreciate your testimony, and I too will submit some 
questions for each of you to respond back to us, and the entire 
Subcommittee will have the opportunity to do the same. Just let 
me go through some of the vital ones. I don't know if other 
members will be back, but I hope that we will be able to get 
out of here by 1:00, and I know that is only 40 minutes and 
gives you a little time to do so.

                  President's Budget Request Reduction

    Let me say, Dr. Rodriguez, some of the companies that make 
use of Eximbank are concerned about the impact of the 
President's reduction in his budget request. Some of those that 
utilize the bank wonder why do you no longer need the 
appropriation for the tied-aid war chest? And have our 
competitors stopped this practice? And to what extent would 
Exim fees increase under this budget request? Will the new fee 
structure reduce the competitiveness of American firms?
    Ms. Rodriguez. Thank you.
    Regarding the request or lack of request for increase in 
the tied-aid capital fund, I think that is because of the great 
success that we have had with our policy. That fund was 
established primarily as a deterrent force. It is a fund that 
is available for us to offer matching offers when other export 
credit agencies are using tied aid to compete. The ultimate 
objective of course, is to have these countries know that we 
have the money, we have the capability, and convince them to 
take their offers to other projects where U.S. exporters are 
not competing, because at that point it will become a zero sum 
game.
    Given the actual use of the fund, we consider that the 
current amount is adequate for the coming year in spite of the 
matching offers that we have outstanding.
    Mr. Callahan. Will we ever reach a stage where there is no 
longer any need for additional capital?
    Ms. Rodriguez. I surely hope so.
    Mr. Callahan. For the Eximbank. Will it be in this century 
or the next century?
    Ms. Rodriguez. I am not sure it will be in this century, 
given what is left of it.
    Mr. Callahan. I hope you can understand what I am saying. 
When Exim was founded, we continued to advance you capital, you 
would continue to give good loans, those loans would be repaid, 
and as a result of the repayment you would have sufficient 
capital to fully finance any needs that we, as a country, might 
have.
    And I know inflation and other factors play into that, but 
there must come a time when we recognize that capital infusion 
must stop and that repayment of loans and reserves will have to 
be sufficient. I know that you can't give me a date, you have 
already expressed that, but I know that that is basically the 
purpose of Eximbank. And maybe you can give me a projection of 
what we can expect for the next 20 years.
    [The Information follows:]

    Under Credit Reform procedures, each year the President 
will send to Congress a request for appropriations to cover any 
estimated losses which may be incurred, net of the risk fees 
the Bank charges for the business the Bank expects to do that 
year. We hope that as we negotiate subsidies down in the 
context of the OECD those subsidy amounts necessary will 
decrease. So we hope and expect that U.S. exporters will 
continue to be successful in the U.S. marketplace and we will 
continue to support our exporters, and we believe that over 
time the Bank's cost of doing business will become less and 
less.

                     Expansion of Small Businesses

    I know the global market is expanding, American businesses 
are interested in that market, and therefore the needs are 
going to expand. But I was real pleased to see the percentage 
of small business loans. I don't know how much that percentage 
has increased in the last 3 years, but I can remember, my first 
year as chairman, a real concern about the seeming pattern of 
Eximbank to only look at huge projects such as dams and 
electrical plants and things of that nature, and not to 
recognize that there are other needs that create jobs, such as 
small boat building, shipbuilding, and things of that nature 
that also create export opportunities and investments in other 
countries as well.
    So I would encourage you to continue to encourage small 
businesses to utilize the bank and the financing capabilities 
that the bank offers.
    I might also tell you that four members of our panel 
stopped me and said: Does the Exim or OPIC do business in any 
place but California and Alabama? I told them I kind of 
objected to California. So next year, I think it would be 
appropriate for you to just mention the other States of the 
other subcommittee members.

                        Ralph Nader Allegations

    Ms. Callear, I had an interesting conversation with you 
yesterday, and I think you know my feelings about OPIC. But at 
the same time, I am going to be one of the ones who has to 
answer to my colleagues on the Floor the allegations that are 
put forth by some Members of Congress about the continuation of 
OPIC.
    And I guess the most serious allegation that they have 
passed on to me is the fact that your investment fund is not a 
solvent fund to the extent that it is an almost guaranteed--or 
guarantee that the Federal Government is not going to be called 
upon to pay off some of these guarantees that OPIC has 
guaranteed on loans and that the liability is far greater than 
what OPIC is willing to admit.
    I don't believe that. I asked your predecessor to give me a 
detailed report. She did that. I am satisfied that your 
portfolio is fine. The history of OPIC indicates that it is 
fine. I think you mentioned 1 or 2 percent and that is fine.
    But nevertheless, I am going to have to have concrete 
figures, and we are going to have to answer the Ralph Naders of 
the world in a responsible fashion, because they are misleading 
the American people on the one hand by indicating that you are 
giving these companies a grant, you are giving them special 
consideration; they could immediately go to private companies 
and get the same insurance at a competitive rate; which I 
disagree with, because insurance companies don't have the wedge 
that the United States Government has in the event that 
something does go wrong, in the event of some kind of 
nationalization.
    The insurance company does not have the ability that the 
United States does. We may not have the legal, but we have the 
power, and we have countries depending upon us, and they are 
not going to renege or take away an asset that we have insured.
    But we must have detailed information arguing those points, 
and we would like for you to use every opportunity you have in 
order to convey the facts and the truth and to reveal the 
mistruths of the Nader allegations, because as I told the 
President last night, it is going to be soon. We look for the 
International Relations Committee to bring some bill before the 
House within the next several weeks. We anticipate that is when 
the attempt will be made, and we must be prepared.
    I don't know if we have a legal way for you to notify the 
pending danger to those users of OPIC, but nevertheless, if 
there is a way that they could be notified, they should be 
notified. Whether it is through some national organization or 
however, they should be made aware, because we are not going to 
be able to do, I don't think, what we did last year. We handled 
it, as you will recall, in conference committee. Congressman 
Kasich was very distressed over that, so I imagine that it is 
going to be very difficult if there is a test vote on the 
Floor, and if the OPIC authorization fails, it is going to be 
extremely, extremely difficult.
    The question comes up about the fact that last year you 
gave $150 million back to the Congress. That, I think, was 
scored as a plus for our ability to fund OPIC and the Eximbank. 
I brought this up to the President last night. If that ceases 
to be, then I imagine it would impede our ability to assist the 
President in fulfilling his request for other areas of foreign 
policy.
    I imagine it will be scored, and I don't know what your 
projections are for next year, but I imagine whatever that 
scoring is, that it conceivably could be reduced. I don't know 
the answers to that as yet, but that could be a double-edged 
problem for the administration.
    I don't know why Mr. Nader fails to mention that you are 
returning $159 million a year, that your portfolio is a safe 
one, that there is not an extreme danger of the United States--
like he refers to it, as a savings and loan, there is no 
similarity----
    Ms. Callear. That is right.
    Mr. Callahan [continuing]. To the problems. And somehow or 
other we have to open Mr. Nader's eyes to that fact, and if 
that is impossible, which it probably is, regardless of the 
facts, he has found another way to get national attention and 
he is going to milk it for all it is worth.
    That is his living, and that is his life, but I think he is 
doing the country a great disservice by his allegations, giving 
indication to the American people that this is some type of 
corporate welfare program, because it is not, as you well know.
    So with that, I am happy to see that some of our members 
have now joined us. Either one, whoever has questions.
    Mr. Packard.
    Mr. Packard. Thank you, Mr. Chairman.
    All of your programs, I think, are effective and are doing 
good things. I was not as enthusiastic, Mrs. Rodriguez, about 
your reduction in Eximbank funding as you are. I would prefer, 
frankly, to see it kept at level funding. I think the 
administration has cut back in that area perhaps to increase 
funds to Russia or other places, but I would prefer it go to 
Eximbank activities.

                 Taxpayers' Return on Ex-IM Investment

    What kind of--Dr. Rodriguez, what kind of return do the 
American taxpayers receive on their investment in theEx-Im 
Bank, I think you covered that to some degree in your testimony. For 
example, over the past 5 years, how many dollars of exports have you 
generated for every appropriated dollar in the program?
    Ms. Rodriguez. I am very happy to hear that question, 
because really the answer shows the great contribution the Ex-
Im Bank makes to the economy.
    Over the last 5 years, approximately $73 billion of exports 
have been supported by Ex-Im-Bank with appropriations of about 
$3 billion. That is, every dollar appropriated has directly 
supported about $20 of U.S. exports. If you include the 
accompanying finances since--we are allowed to support only 85 
percent of the export value--that leverage factor goes up to 
25, 25 to 1. I would say that is a great return to American 
taxpayers.
    Mr. Packard. That is very commendable.
    What efforts has Ex-Im Bank undertaken in the last few 
years to develop better programs and better use of your budget?
    Ms. Rodriguez. We are very mindful of the intent of the 
Congress and the Administration to eventually reach a balanced 
budget, and we want to do and have been doing our share. This 
has taken several forms. One is much tighter scrutiny of 
transactions in terms of whether we are really needed in a 
transaction.
    I mean, we have always done that as part of Ex-Im Bank's 
mandate, but as judgment, you can apply different levels of 
scrutiny, and there is no question in my mind that scrutiny has 
been intensified. We have also been working to structure the 
transactions in such a way that they require less funds in 
appropriations. Let me give you two examples.

                      The Project Finance Division

    The Project Finance Division was established as a separate 
division in 1994. Although we have done project finance before, 
we created a separate division with the explicit mandate of 
pricing so budgetary effect will be as close to zero as 
possible. Last year, we supported over $2 billion in project 
finance, and the budget used was around $50 million, which is 
quite a nice multiple.
    In addition to that, we have in Russia instituted the 
practice of pricing non-sovereign strcutured transactions 
separately, which led to better management of the price and the 
risk of the transaction. This has had a bonus in terms of 
budget use because under the previous regime, there would have 
been only one price charged for all private transactions. Once 
you are allowed to segregate them according to the risk, you 
are able to charge higher prices for the riskier transaction.
    Those are just three examples of what we have been doing.

                               Reductions

    Mr. Packard. Did I hear in your oral statement earlier 
today that you are having to cut back on staff and perhaps 
programs because of the reductions?
    Ms. Rodriguez. We have committed to a reduction in full-
time equivalent as part of the Government-wide program to do 
so.
    As to reductions in the use of the program budget, this 
year the submission is for a lower level than last year.
    Mr. Packard. Yes. I guess my question is, is there a 
linkage between the cutbacks in your proposed funding level and 
the need to cut back on full-time equivalents?
    Ms. Rodriguez. No, not necessarily. The two numbers, in a 
sense, are computed separately. The number for the program 
budget is calculated in terms of the demand and the composition 
of that demand, what countries and the risk associated with the 
demand in those countries.
    The number of employees of full-time equivalence is a 
function of what kind of work needs to be done. Sometimes the 
large transactions do not necessarily require the most time on 
the part of the staff. Sometimes it is the smaller transactions 
that require a larger amount of time by personnel.
    Mr. Packard. I guess the question I would really like 
answered--and maybe I am not stating it right--is if you were 
given funds equivalent, level, to last year, which is quite a 
bit more--what, $90 million--more than what the President is 
requesting, would you be able to do more export work and more 
leveraging of the funds?
    Ms. Rodriguez. The answer is yes. Given the problem we are 
confronting this year, as I mentioned during the oral 
testimony, there is a real possibility that we will run into 
1998 with an overflow of transactions from 1997. Under those 
conditions, clearly additional funds could be used.
    Mr. Packard. So the bottom line: As you are proposing to 
cut back, the bottom line is, we will be reducing services in 
our export and import work.
    Ms. Rodriguez. The bottom line: If the demand is larger 
than anticipated, we will have to create new ways of financing 
exports.
    Mr. Packard. Prioritizing?
    Ms. Rodriguez. Better risk assessment and risk sharing and 
other alternative ways of handling it.
    Mr. Packard. Thank you, Mr. Chairman. I have no further 
questions at this time.
    Mr. Callahan. Mr. Frelinghuysen.
    Mr. Frelinghuysen. Thank you, Mr. Chairman, and following 
your lead from earlier hearings, I would like to take a minute 
to introduce a student from my congressional district.
    Laurie Patrick, who is with us today, from Flanders, New 
Jersey, is a junior in college. And for our witnesses, Laurie 
has been doing a college research project on the Export-Import 
Bank, so she has been helping me prepare for these hearings. I 
won't place any responsibility on her for the way I may ask the 
questions, but she has been a valuable asset.
    Mr. Callahan. Laurie--welcome to our committee hearing. We 
encourage you, as you finish your project, to give us your 
estimation as to when Ex-Im Bank can be a freestanding entity.
    Welcome again, Laurie.
    Mr. Frelinghuysen. This is all within 30 days, Mr. 
Chairman.
    My question might be directed to all of you, but perhaps to 
Mr. Grandmaison, the director of the U.S. Trade and Development 
Agency. You talk with great optimism, and let me say that I am 
supportive of the work of all of your agencies, even as I learn 
more as a new member of this committee of what all of you do.
    But all of you have a high level of optimism, and you 
appear to show the committee tremendous results, greater rates 
of return, potential success fees, some pretty impressive 
figures. Cumulatively, TDA projects have resulted in higher 
exports.
    While you have the necessary optimism, which is what we, as 
a committee, want to hear--what have been some of the areas 
where you haven't been so productive? I wouldn't classify them 
as failures, but I assume you must have a win-loss record. 
Youhave dropped your wallet there and any available money--looks like 
it is a pretty thin billfold.
    In all seriousness, you come here telling a very positive 
story. I think we want to be supportive, but I would like to 
know whether there are aspects of this economic warfare, which 
one might consider to be rather ruthless, considering the money 
other governments are putting into the battle.
    What have you won and lost, and what have you expended in 
those types of situations?

                             win/loss ratio

    Mr. Grandmaison. Thank you very much for the question.
    Our win/loss ratio is really 1 in 3. It must be remembered 
that we invest very, very early in a project, and we divide the 
type of projects that come to us in three categories. The first 
third would be projects that will presumably go forward, 
irrespective of U.S. Government involvement. In those cases, we 
don't get involved. We don't believe--we don't bring 
additionality to the table. There is no reason why the American 
taxpayers should invest in that project. The last third are 
dogs; nothing is going to make that project happen. So 
therefore, what we have to try to figure out is the middle 
third--how, through our involvement, we can make them a 
successful project. We have a 1 in 3 record along that line.
    Mr. Frelinghuysen. So I guess this is clear: There are some 
you don't enter into; then there are some that you classify, as 
you call them, in the canine category, the dogs; and then there 
is a group where you assume a degree of risk, and that is what 
you are going to be concentrating on.
    Mr. Grandmaison. That is correct. And of those projects, 
one in three is successful, which is exceptionally high in 
terms of a win/loss ratio, given how early we invest in a 
project.
    Now, the reasons often why--keeping in mind some of the 
investments, the purpose of the feasibility study is to 
determine whether the proposed project is feasible, and 
obviously in some cases the research determines that it is not. 
Therefore, those are not going to move forward.
    In other cases, what happens--and this gets into Mrs. 
Rodriguez's point relative to the financing--it is conceivable 
we may come in and offer the study money and do the study, but 
at a point in time the OECF, the Japanese fund, comes in and 
says, we are going to do the financing. At that point in time, 
our company gets pushed out unless they are, in unusual 
circumstances, able to make arrangements to use OECF financing 
to use U.S. procurement, which is most often not the case.
    We are optimistic, I would guess, because there is an 
inherent belief that if our companies are given an opportunity 
to perform on that level playing field, we will offer best 
value, best goods, best services. Where, as an agency, we 
sometimes are discouraged, it is usually when an American 
company loses faith in making a project work. There is a--not 
every company should be going overseas. The reality is that you 
need deep pockets in these risky markets in order to survive.
    Mr. Frelinghuysen. Well, in the limited time I have, I 
would like an example. In other words, you have been somewhat 
country specific, and you have mentioned a lot of countries, 
but unless it is proprietary information, I would be interested 
in knowing an example of something that has not worked out, and 
give the committee an idea of how much it cost in terms of our 
partnering with somebody from the private sector.

                                 russia

    Mr. Grandmaison. A specific example by company I am not 
able to give you at this point in time, but I will give you a 
broad example--I will be happy to provide you with it, but let 
me give you a broader set of examples, and they have to do with 
Russia.
    We happen to have a very exciting program in Russia. Over 
the course of the past several years, it has been our largest 
program, primarily because of the money that has been 
transferred in under the Freedom Support Act. Companies have to 
have, in most cases--in our Russia program, there is a U.S. 
company that has been identified as being interested in a 
marketplace. The time it takes for anything to come about in 
Russia is truly unbelievable. Often what happens is, a U.S. 
company will lose faith, and we find ourselves going back to 
them and encouraging them to go the distance with us on this 
project, to the point, in all honesty, of saying: Let's go back 
and renew our partnership. What else can we do? Can we bring 
the U.S. Ambassador in? Can we use some advocacy over at the 
Commerce Department to help?
    Mr. Frelinghuysen.  You are giving me some parameters here, 
but what might be the average commitment of U.S. tax dollars 
towards a typical Russian project?
    Let me say I have a number of people in my district who are 
fairly ingenious, innovative, entrepreneurial driven, who are 
over there, who tell me--and I am very supportive of what your 
agency is doing--that it is a den of thieves in Russia, that 
there is thuggery, corruption, and we should watch very closely 
any money we send abroad.
    I am not going to worry with other countries' investments, 
but from my own perspective, I would like to know specifically 
if we have been taken to the cleaners. I will believe your 
optimistic statistics, but I think there are lessons to be 
learned from the failures. So what would be a project that did 
not succeed?

                          average feasibility

    Mr. Grandmaison. The average feasibility study is $33,000. 
The U.S. company, on average, would have added to that 72 
percent of their own money, which means the total cost of the 
feasibility study is somewhat over the half-a-million-dollar 
mark.
    Often a company will come to us, and again I will be happy 
to provide you with the specific examples of situations where, 
as I described it, a company has learned through the process 
they don't wish to follow through. But often what we get called 
upon to do--and if you will forgive me, I will use a New Jersey 
company as an example.
    Lummas Crest has had great success in Russia. However, as 
recently as last week, they were in to talk about a specific 
project. All they needed from us was $164,000 on a 400-and-
some-odd-thousand-dollar project, but what we lent them was the 
imprimatur of the U.S. Government being interested in that 
project, and when it comes about, they return the money to us.
    What you have to do, what we learned, what you have to do 
in that sort of an environment, is you have to keep the 
political profile, if you will, the priority, high on the 
project, if you want it to be successful. So that, yes, I have 
never been one to disparage the value of a dollar, and yes, 
that is a contribution, but more often than not it goes back to 
what the chairman referred to in terms of, it is the U.S. 
Government's credibility that comes in.
    Now, in that particular case, we have every reason to 
believe it will again be a successful project, but there are 
cases, and often businesses--we don't try to influence a business. We 
have no right to influence a business in terms of making its own 
business decisions. All we can do is say, if you make this decision, 
this is how we would be willing to work with you. In some cases the 
projects don't come about.
    The overall successes, I would suggest, are very, very 
high. We are the feeder system for Exim and OPIC to a great 
extent. A third of the exports that we facilitate are financed 
by Eximbank. A third are financed by the host country's own 
resources. But it is getting in early through the door that 
hopefully tilts it to our favor but, at the very least, makes 
it a level playing field.
    Allow me to get you more specific information, please.
    Mr. Frelinghuysen. I would like that. I am not sure if the 
chairman will give me leeway to ask some more general 
questions. I think all of you tie together quite nicely and 
complement one another, so this relates more to the OPIC 
mission.

                                  opic

    From what I can gather, OPIC provides sort of political 
risk insurance. And what about the whole idea that providing 
insurance against that risk--aren't we sending--to a certain 
extent, wrong sort of incentives to those governments. In one 
sense, we are providing political risk coverage, but, on the 
other hand, we are allowing these types of conditions to exist, 
tolerating their existence.
    Ms. Callear. Actually, it is far from that. The fact that 
OPIC is involved in a transaction puts the project company, the 
U.S. investor, on the host country's radar screen. These U.S. 
investors might not otherwise be on the radar screen if they 
were going in without the support of the U.S. Government. The 
host government knows that that company is coming in with 
insurance that covers against expropriation, against political 
violence and against convertibility. They also know that if 
they violate international law with respect to expropriation or 
if they violate their own internal rules on the convertibility 
of their currency, the U.S. Government is going to step in and 
an issue that might otherwise have been simply a private sector 
dispute becomes a government-to-government issue.
    So really, OPIC provides a very catalytic role to make sure 
that these problems receive high-level government attention and 
that they get resolved. And the fact that OPIC's a track record 
on claims recoveries is as good as it is, the 98 percent record 
that we had described earlier, says that when we sit down at 
the table and negotiate with these governments, these 
violations are corrected. The companies are compensated in the 
end for any acts that occur, and, during that process, these 
foreign governments begin to understand even more the fact that 
if they want to compete successfully for private investment--
and it is a very competitive environment, every developing 
country wants this foreign investment--that they have to play 
by a fair set of rules.
    Mr. Frelinghuysen. Does the scale exist as to who has been 
most cooperative? And is your involvement mirrored--your 
greater involvement in those particular cooperative countries, 
is that mirrored by a greater investment there? Let's say there 
are some bad actors. There are a few we saw on our recent 
committee trip to Haiti, for instance.
    Ms. Callear. Sure. It is a very, very good question and a 
good point. Private sector investment flows are going to follow 
good investment regimes and good investment climates. Companies 
need to know there is certainty, that there is transparency; if 
they make an investment and make a profit, they can repatriate 
it to the United States, and that is the market at work.
    Countries that have good regimes and good investment 
climates are going to garner more investment. What we are 
trying to do early on is to help level that playing field for 
the American companies so they can go in and compete with other 
countries who are already in there competing. We also are 
trying to make sure that the U.S. invstors have these 
protections and yet, at the same time, we are always pushing 
for reforms, both on a project-specific basis and in terms of 
working with the other elements of our Government as a foreign 
policy tool, as a development institution, making sure that 
appropriate reforms are always pursued.
    So we see it as a very catalytic role, not simply one where 
we suffer these bad actors but where we actively prompt them to 
make changes, and then the private sector reinforces that by 
making their investment decisions.
    Mr. Frelinghuysen. Just for the record, I am not sure 
whether you provided the committee or you will provide for the 
committee, you have a certain budget number. I would be 
interested in knowing what you actually sought from OMB.
    Ms. Callear. Well, we obviously support the 
administration's request----
    Mr. Frelinghuysen. Some people share that with the 
committee, and it actually helps to provide a greater degree of 
cooperation.
    Mr. Callahan. That is like asking General Shalikashvili if 
he asked for more money for defense or not. They are not going 
to tell you.
    Mr. Frelinghuysen. I figured no harm getting it on the 
record, Mr. Chairman. I have a number of questions I would like 
to submit more for the record, if I may.
    Mr. Callahan. Thank you. We are going to try to wrap this 
up. We are going to give Jack an opportunity in just a moment, 
but let me just run through, and I recognize your 
professionalism and your knowledge of these subjects. You must 
recognize we only have a few minutes for answers.

                                 russia

    But we have been hearing a lot. Senator Domenici told me 
last night he had just visited Russia and one problem they have 
there is the fee system in Russia. He says there is an 80 
percent tax on deposits. Therefore, if a businessman goes to 
Russia and he puts $100,000 in the bank to make his payroll, 
the Russians in some instances are taking $80,000 of that money 
in the form of a fee.
    We wonder if you are running into this type of opposition 
to the entrepreneurial investment in Russia or any other 
country, any type of fee on deposits, which, if that is the 
case, no one is going to invest in Russia, and your RBI of 333, 
as Congressman Frelinghuysen has mentioned, is going to go from 
333 to maybe 100.
    So we would like to know what you can find out about that 
deposit fee in Russia, because if that is the case, free 
enterprise will never prevail in Russia. He said the 
businessmen that he talked to actually had to carry cash in 
their briefcase to make their payrolls, and not deposit it in 
banks because of the fee.

                             latin america

    Secondly, I was pleased last night, and I want toemphasize 
to you, all three, that this committee has visited Central America, 
Latin America, and the Caribbean. We, as a body, think that this 
hemisphere has been ignored by the administration, that your 
concentration seems to be now in the Middle East or either the Far East 
or in Europe or the former Soviet Union.
    And the President last night emphasized that the direction 
of this administration is going to be that we are going to 
first recognize the needs of this hemisphere. And I was so 
pleased to hear him say it, because I have not heard anyone 
else in the administration say that as forcefully as he said it 
last night.
    This committee has been suggesting that. We think you 
should recognize the opportunities in Latin America, in Central 
America, in the Caribbean, and in South America, because we are 
losing out to the Europeans. We are losing out tremendously, 
because now South America is buying more from the Europeans 
than they are buying from the United States. We can correct 
that if we stop ignoring them and recognize that there is 
something in this hemisphere other than Haiti.

                                 haiti

    We visited Haiti, this committee did, and let me tell you, 
it was sickening to see it. Zero progress made. Now, maybe 
progress was made, maybe they have risks, but God help them if 
they were lower than they are now, because it was absolutely 
sickening to see. No indication of any progress there, yet the 
administration for the past couple of years has been saying 
let's spend all of our money that is available for this 
hemisphere in Haiti.
    We, as a committee, put a stop to that, and we have 
requested that only 20 percent of the monies available for this 
hemisphere will be spent in Haiti. We would encourage you to 
adopt the same type of percentage philosophy, to recognize the 
needs here and to recognize the opportunities here and what is 
going to happen if we permit the Japanese and the Germans and 
the French to take over the economics of this hemisphere.

                                jamaica

    The Japanese are spending millions and millions of dollars 
in Jamaica. While we are concerned about the human rights and 
all of the human misery in Haiti, the Japanese are building 
airports and roads and creating industry in Jamaica. That is 
taking all the opportunity away from American businessmen to be 
doing the same thing.
    So we have got to recognize it, and I encourage the three 
of you to emphasize to your staffs the importance to this 
committee of you recognizing that most--not all of it, but a 
higher percentage of your concentration should be made on 
countries in this hemisphere.
    I am not sure what OPIC would have to do with it, but I had 
suggested to the Ambassador when we were in Jamaica that the 
prominent Jamaicans try to get an enterprise fund established 
for Jamaica. There are, I think, 1 million Jamaicans living 
here in the United States, some of them extremely influential 
and successful businesspeople who would be willing to help fund 
an enterprise fund that could directly help Jamaica, and all it 
needs is organization and effort. And I think that we should 
concentrate on setting up an enterprise fund or some special 
fund.
    I talked with General Colin Powell. He indicated he would 
be the honorary chairman of it. So we have an opportunity there 
we are overlooking, and if any of you have the opportunity to 
move in that direction, I would appreciate it.
    And maybe in the essence of time, because we want to give 
Jack time, let me just tell you that we are concerned with what 
is now being referred to as participation by people connected 
with the government in any type of new endeavor in any country 
where they are being told, private businesspeople, if they want 
to obtain a contract where the government of that country is 
involved, they are going to have to allow participation without 
any contribution--incidentally, participation by either former 
political, or cronies of incumbent political, people in those 
countries.
    And we think your contracts should be transparent. We think 
the question should be asked: Have you ever been approached by 
an official suggesting participation without contribution in 
any of the countries where you are doing business? This is a 
grave concern of American businesspeople.
    This is why you can't get people interested, because when 
they go into a country like Haiti and are told that regardless 
of the size of the project or the cost of it, they must put up 
25 percent of the stock of that new company and give it to some 
former official or relative of that official, that has got to 
stop.
    And I don't know how you stop it, but I do think you should 
make extensive inquiry to the participants, to your customers, 
or to your vendors, if indeed they have been requested or that 
there is any participation by someone who is not making any 
contribution towards the establishment of the capital of that 
company or towards the establishment of the workings of that 
company. And I think that you should design questions which 
should be asked on every loan, if this has been requested of 
them and if indeed it is so.
    We talked about this to Jim Wolfensohn earlier this week. 
He indicated there is no problem, but I can assure you there is 
a problem.
    Mr. Kingston, we welcome you to the committee, and we are 
going to give you as much time as you wish. However, I am going 
to leave here in 4 minutes. But you can stay as long as you 
want, and I am sure they will be happy.

                                ukraine

    Before I go, let me announce to the committee that we have 
rolled all the members with regard to the supplemental bill 
that is floating through Congress now, some language for 
inclusion in the supplemental. It involves the former Soviet 
Union and especially, I guess, Ukraine, whereby we are 
suggesting that the earmark be removed that was put in in 
conference and by the Senate for the Ukraine. We have polled 
the committee; we find no objection, and having heard none, we 
will forward this language to the full committee for inclusion 
in the supplemental.
    Mr. Kingston.
    Mr. Kingston. Thank you, Mr. Chairman.
    Ms. Callear, I don't have it with me, but I understand 
there was an article in the Boston Globe a couple of weeks ago. 
Are you familiar with that article?
    Ms. Callear. Yes, I am familiar with that article.
    Mr. Kingston. Now, I only heard about it on the radio, I 
think, but the article said something like that of the number 
of companies who contributed to the Clinton administration, 
there were only three that did not get OPIC loans. Is that----
    Ms. Callear. No, I think that is not quite what it said. 
The article implies that there were companies who have received 
OPIC loans or insurance who may also have made contributions. The 
article did acknowledge that many of those companies have made 
contributions to both the Democrats and the Republicans.
    We had also written a response which the paper printed 
before Ruth Harkin left OPIC. Our response is very firm: there 
is no company who receives any OPIC support, whether it is 
political risk insurance or financing, that does not do so on 
the merits. We----
    Mr. Callahan. Why don't you provide a copy of your response 
for the record.
    Ms. Callear. We would be glad to do that.
    [The information follows:]

[Pages 500 - 501--The official Committee record contains additional material here.]


    Mr. Kingston. I guess I am really more concerned because I 
can understand the big dogs eat both sides of the aisle. There 
were only a few companies, though, that did not get loans.
    Ms. Callear. I don't think that is the case. It was a list 
of companies that apparently had been pulled out of our annual 
reports over the last several years. Our response also pointed 
out that when you look at that list many of those companies 
have been OPIC clients for many years.
    So there is nothing new or particularly interesting about 
this, other than someone comparing annual report listings with 
contribution records and, assuming that there is a connection. 
This connection absolutely does not exist.
    Mr. Kingston. Were there lots--well, now, I think--excuse 
me, I will stop on that, keep that thought in my head, Mr. 
Chairman. But there are, presumably, hundreds of other 
companies who participate in OPIC who are not politically 
active, who don't have lobbyists. Is that fair to say?
    Ms. Callear. Certainly.
    Mr. Kingston. And the reason I want to emphasize that is 
because I understand if you make a loan to McDonald's, there 
are other small interests who benefit from it, but McDonald's 
is the one that everybody is going to jump on as corporate 
welfare. But I just want to hear it directly from you, there 
are lots of other small companies that weren't in at that 
article that don't contract to politics, that don't have 
lobbies, that don't have Washingtonian and so forth.
    Ms. Callear. Absolutely. We support a tremendous number of 
small companies and have done so over the years. Some have 
never found their way to Capitol Hill, and many wish not to 
come here. So the bottom line is: OPIC financing, and insurance 
is provided on the merits and always has been.
    Mr. Kingston. All right.
    Mr. Chairman, I yield.
    Mr. Callahan. Thank you.
    We appreciate you all coming today. We are sorry to delay 
you with the interruption, but we appreciate your 
professionalism and thank you.
    [Questions and Answers for the Record Follow:]

               Submitted to Trade and Development Agency

            Questions for the Record From Mr. Frelinghuysen

                      levelling the playing field
    Question. In a perfect world where emerging markets posed no risk 
to investors and where the U.S. had a fair shot on a level playing 
field, would we need your program?
    I know that we are pursuing a more level playing field through OECD 
negotiations and other avenues. What are your thoughts on the success, 
or failure, of those efforts? What can we realistically anticipate the 
playing field to be in the near term and over the long term?
    Answer. Realistically, we do not anticipate a time when Export 
Credit Agencies will cease to exist, though we are pleased that U.S. 
leadership in OECD negotiations has produced tougher rules regarding 
their activities. In such an environment, our competitor nations will 
always seek to gain a competitive edge where ever they can find one. 
Support for feasibility studies is one example, and as long as our 
competitors are in this business, the U.S. must remain engaged as well.

                Questions for the Record From Ms. Lowey

                          middle east projects
    Question. Could you give us a status report on some of the Middle 
East regional projects TDA has been involved with in the last five 
years? Where do they stand now, and how has TDA involvement contributed 
to their success?
    Answer. TDA has an exciting program in the Middle East. Though we 
have supported a number of projects in North Africa and the wider 
Middle East for some time, we are proud to have been at the forefront 
of U.S. government agencies supporting the peace process, and we have 
significantly expanded out Middle East program since 1993.
    Following the signing of the Declaration of Principles between 
Israel and the PLO in September 1993, the State Department asked TDA to 
consider how we might make a contribution to advancing the peace 
process. TDA set out to demonstrate to Middle Eastern communities that 
peace will also bring economic prosperity. We do this by bringing the 
strength of the U.S. private sector to bear in developing Middle 
Eastern infrastructure that will improve the lives of local peoples.
    In January of 1994, the first TDA team arrived on the ground to 
identify projects and recommend potential TDA investments in the power, 
telecommunications, transportation, and water sectors in Gaza and the 
West Bank. Shortly thereafter, we sponsored two Training Visits of 
senior Palestinian officials in the telecommunications and power 
sectors to the United States to meet with U.S. firms active in those 
sectors.
    After the signing of the Israel-Jordan peace treaty in October, 
1994, we held our first major event in the region--the Jordan Rift 
Valley Development Symposium, January 30-February 1, 1995. Then Israeli 
Foreign Minister, Shimon Peres and HRH Crown Prince El Hassan Bin Talal 
of Jordan presided over the event. In fact, the occasion of this 
symposium represented the first visit to Jordan by a sizable Israeli 
delegation of Private sector firms. The symposium showcased business 
opportunities for U.S., firms in a region which is a development 
priority for both Israel and Jordan.
    Despite the great challenges of doing business in this region, TDA 
has achieved some notable successes. We have invested more than $5 
million of our roughly $40 million annual budget throughout the Middle 
East, including North Africa, since 1994. The following three projects 
exemplify what we have done and what we hope to do in this region in 
the future.
    Jordan Israel-Fiber Optic Telecommunications.--Telecommunications 
has been a target sector for TDA activity in the Middle East since our 
first Orientation Visits in early 1995. In 1996, TDA invested in a 
feasibility study of a proposed fiber optic telecommunications link 
between Jordan and Israel. This cable system will result in greater 
telecom connectivity between the two nations. Booz-Allen Hamilton is 
conducting the study which is expected to be completed this summer. 
Potential U.S. exports exceed $15 million, as the project will require 
optical fiber, switching, transmission and network management 
equipment.
    Gaza Business Center and Hotel.--In 1994, TDA made a grant to 
General Resources Design Group in support of its proposal to construct 
a business center and hotel just outside of Gaza City. This small 
Virginia based hotel developer has arranged engineering, construction 
and financial packages in support of the project, and construction 
began in March of this year. TDA's early support was critical to moving 
the project beyond the planning stages. Orders are already being placed 
for U.S. exports in excess of $20 million for water and sewerage 
equipment furnishings and fixtures, and construction management 
services.
    Cairo Metro Line 2.--TDA provided the Egyptian National Authority 
for Tunnels a Training Grant in 1992 to position Parsons-Brinkerhoff to 
compete for the engineering and project management contract in the 
construction of Line 2 of the Cairo Metro system. The grant enabled 
U.S. companies to beat tough French competition by getting in early and 
defining the project from the beginning. Parsons-Brinkerhoff has 
already been awarded a $32 million contract, of which $24 million will 
be sourced in the U.S. We have recently learned that the firm has been 
awarded a second contract worth $11 million which the original TDA 
activity was also instrumental in facilitating.

          Submitted to Overseas Private Investment Corporation

            Questions for the Record From Mr. Frelinghuysen

                        investment encouragement
    Question. OPIC wastes American capital by encouraging companies to 
undertake ventures they would not take if they had to bear the risk. 
OPIC alters where companies invest, not how much they invest. Please 
respond.
    Answer. OPIC does encourage U.S. companies to invest in regions of 
foreign policy importance. However, while OPIC programs mitigate some 
project risks in exchange for premiums and fees, OPIC does not 
guarantee the profitability of a project. These companies bear the full 
risk of the success of their projects. And the fact that OPIC has 
consistently generated profits in an indication that the premiums and 
fees it charges for its services are appropriate for the risk incurred.
    Instead, these U.S. companies are able to use OPIC programs to help 
them manage the risks of investing in developing countries, and thus 
take advantage of profitable investments in these fast-growing 
economics. For companies active in mature sectors of the U.S. economy, 
such as power, OPIC programs help them utilize and maintain their 
competitive edge and technical leadership position by expanding 
overseas. This helps to increase the global competitiveness of U.S. 
companies and actually increases the future capital base available here 
in America.
    After taking into account initial capital outflows and the reflow 
of profits, interest, principal, royalties, and technical fees over the 
first five years of operations, projects assisted by OPIC since its 
inception have resulted in a net positive gain of $274 million, with 
even larger gains thereafter.
    Furthermore, unavailability of OPIC assistance does not mean that 
companies will invest in the U.S. instead of investing abroad. They 
will simply seek assistance from other governments, and source the 
necessary equipment from the assisting country. For example, Enron 
International of Houston, Texas has $1.4 billion in current to 
prospective projects in China, Pakistan and Vietnam, where OPIC 
programs are not available for foreign policy reasons. Enron plans to 
use German, Japanese and French equipment and services, respectively, 
for those projects. However, a single OPIC-assisted Enron project will 
generate $310 million in procurement from 260 suppliers in 21 states, 
resulting in 1083 jobs for Americans. OPIC programs help capture the 
benefits of international investment without displacing investment in 
the U.S. economy.
                              self-funding
    Question. Although it is supposedly a corporation, OPIC pays no 
taxes. If anything, it displaces taxpaying activities. Furthermore, it 
pays no dividends to the Treasury. In 1994, two-thirds of OPIC's income 
was derived from interest on Treasury securities. This represents 
merely a transfer of funds from one government to another. Please 
respond.
    Answer. OPIC was established in 1971 as a wholly-owned government 
corporation to facilitate U.S. private investment in developing 
countries and emerging market economies. Its authorizing legislation 
specifically exempts the corporation from paying taxes of any kind, and 
as an agency of the Federal government, this is neither unusual nor 
atypical. OPIC has, in fact, paid dividends to the U.S. Treasury 
throughout its 25-year history. In 1982 and 1983, OPIC paid a total of 
$106 million in dividends, representing a return in full of the start-
up appropriations OPIC had received from 1971-1974. With the passage of 
the Credit Reform Act of 1990, OPIC was required to accept direct 
appropriations to fund its credit programs even though it had always 
funded these programs with its own earnings. To indicate that OPIC is 
capable of self-funding its credit programs, OPIC has, for every year 
it has received direct appropriations, declared and paid dividends 
equal to the direct appropriations it has used as result of the credit 
reform law. Between FY1992 and FY1996, OPIC paid dividends totaling $95 
million.
    OPIC's authorizing legislation further stipulates that OPIC can 
invest earnings in U.S. Treasury securities. Congress recognized that 
OPIC, like any prudently run financial institution, or insurance 
company, must invest its excess cash to build strong reserves. 
Congress' decision to permit investments only in U.S. Treasury 
securities no doubt stems from the recognition that:
    Treasury securities represent a reasonable rate of return with 
minimal risk.
    Treasury security investments guarantee that OPIC's significant 
cash reserves stay within the U.S. government and are available for the 
government's cash needs.
    If OPIC had been able to invest outside the government, its 
investments over the past 25 years would have created a portfolio worth 
nearly $7 billion, rather than OPIC's current reserves of over $2.7 
billion. Even at the $2.7 billion level, however, OPIC's reserves 
provide solid protection to the taxpayer that OPIC will not have to 
draw on tax dollars to cover claims, should they arise. This is backed 
by OPIC's impressive record of claims recoveries.
                           prudent management
    Question. OPIC is generally described by its proponents as a 
fiscally conservative agency that has a long history of managing risk. 
While that may have been true at one time, this claim is not supported 
by recent events. OPIC has changed dramatically in the past several 
years. It has grown rapidly, it has offered new products and it has 
entered some of the riskiest regions of the world. These trends call 
into question the agency's commitment to prudent management. Please 
respond.
    Answer. While OPIC's portfolio has grown over the past few years, 
it continues to apply the same stringent standards in reviewing 
projects and assessing project risk. OPIC recognizes that entering new 
markets and offering new products requires increased attention to risk 
management. OPIC continues to monitor its portfolio closely and insist 
on diversification. To date, there are no indications that the new 
regions in which we offer products demonstrate a level of risk higher 
than the areas in which we have traditionally been involved. Indeed, 
during our 25-year history, OPIC has been involved in certain very high 
risk areas--Iran and Vietnam, for example--and has provided investment 
support to our clients without exposing the U.S. taxpayers to major 
losses.
    It should be remembered, however, that one of OPIC's functions is 
to provide investment assistance to American businesses that cannot 
receive it from private sector sources, which may be unwilling or 
unable to operate in certain countries. Of course, once that climate 
improves, OPIC is ready to step aside to allow the private sector to 
take over or to cooperate with it in joint underwriting or co-lending. 
While OPIC is willing to accept a somewhat higher level of risk, in so 
doing, OPIC applies sound risk mitigation practices--such as portfolio 
and sector diversification--to ensure that the risk it accepts is 
carefully managed. We also require investors to share in the risk by 
contributing significant amounts of their own capital to the projects. 
Finally, OPIC manages its portfolio of projects on a case-by-case 
basis, and each project is structured to deal with the unique risk 
factors inherent in it. By applying all these measures, OPIC is able to 
ensure that the actual impact of the risk taken on is kept to a 
minimum.

                Questions for the Record From Ms. Pelosi

                         environmental reforms
    Question. The Authorization Committee is considering imposing 
several new requirements on OPIC that include more transparency and 
public participation, raising standards on environmental compliance, 
independent auditing and the submission of an annual report to 
Congress. Can you comment on your willingness to abide by new 
requirements in each of these areas in the context of reauthorization.
    Answer. Your office has been helpful in conveying to OPIC several 
proposals advanced by environmental organizations along the lines 
suggested in your question. Your staff has also organized a meeting 
with environmental groups to discuss various proposals. OPIC has always 
been a leader among its international counterparts in developing and 
maintaining environmental standards. In that spirit, we are developing 
new provisions on transparency and public participation and welcome the 
opportunity to report to Congress.
    Question. One concept is that OPIC be required to ``harmonize 
upward its environmental standards to meet the higher of the host 
country, World Bank, World Health Organization or US domestic 
standards. Can you comment on your work under this kind of requirement.
    Answer. OPIC rigorously implements the provisions contained in the 
Foreign Assistance Act (FAA), regarding environmental protection, 
social impacts and human rights. OPIC already applies the more 
stringent of host country or World Bank environmental standards to its 
assessment of each prospective project. It is worth noting that 
although the World Bank itself continues to apply standards issued in 
1988 OPIC applies a more rigorous version of the World Bank standards 
that were developed by the Bank as a draft in 1994, but not formally 
adopted. Where host country or World Bank standards are absent or 
dated, OPIC draws on U.S. domestic or, in some cases, World Health 
Organization (WHO) standards.
    With respect to current environmental practices, OPIC has assessed 
the environmental impacts of every project considered for support since 
1985, when the environmental provisions were added to OPIC's 
authorizing statute. As a result of these assessments OPIC has declined 
to support projects that did not meet the standards set forth in the 
FAA. OPIC has also thoroughly implemented the host country notification 
provisions set forth in the statute. The procedures set forth in OPIC's 
environmental handbook, including public notification of pending 
projects and public release of non-business confidential information 
during the application process go well beyond what is required by the 
FAA. The International Union for the Conservation of Nature has cited 
OPIC as an example of a bilateral investment financing and insurance 
agency that uses World Bank guidelines as minimum standards.
    OPIC has also faithfully implemented its mandates regarding worker 
rights and human rights OPIC's mandate requires that OPIC operate its 
programs only in those countries that are ``taking steps to adopt and 
implement internationally recognized worker rights.'' In implementation 
of this provision, OPIC has suspended its programs in a number of 
countries on worker rights grounds. These decisions have been made as a 
result of OPIC's annual public hearings at which labor and human rights 
organizations testify. OPIC's mandate also requires that OPIC insurance 
contracts and finance agreements contain language committing the US 
sponsor to observe internationally recognized worker rights. OPIC has 
not only applied this language to all projects, but has supplemented it 
to provide additional protection to workers where the standard contract 
language is not sufficiently protective.
    OPIC's implementation of its human rights mandate takes the form of 
consultation with and clearance by human rights officials at the 
Department of State for every project that OPIC considers for insurance 
or finance. This has been the case of every project OPIC has supported 
since OPIC's human rights mandate was enacted in 1978.
    Considering OPIC's record of implementation of its environmental, 
social and human rights mandates, we believe that OPIC's record is 
exemplary with respect to these mandates.
             opic participation in direct investment funds
    Question. OPIC Participation in Direct Investment Funds
    I understand that OPIC supports almost two dozen direct investment 
funds which are privately owned and managed. Some of these funds have 
screening requirements for meeting social and environmental criteria, 
however, the majority of them do not. How does OPIC ensure that its 
environmental, development and worker rights standards are upheld by 
the private financial intermediaries? (Examples of OPIC investment-
Africa Growth Fund, AIG Brunswick Millennium Fund, South Asia 
Integration Fund, Emerging Europe (Fund)
    Answer. In fact all OPIC supported investment funds have 
requirements for environmental, development and worker rights standards 
with respect to the funds itself as well as the subprojects in which 
the funds invests (`subprojects''). The environmental screening process 
is consistent with the assessment process used for prospective OPIC 
insurance and finance projects, including environmental impact 
assessments for projects with potentially diverse, significant and 
irreversible impacts and environmental reviews of other projects. In 
addition, three of the funds--the Global Environmental Emerging Markets 
Fund I and II and the Aqua Global Fund--are focused on projects that 
improve the environment. Fund subprojects are screened for their 
development impacts and standard worker rights representations and 
undertakings are applied to all subprojects.
    Question. Do you favor expanding and refining of the types of 
projects OPIC is prohibited from participation in?
    Answer. Yes. OPIC has categories of projects it will not support 
under any circumstances and this list is always under review to make 
certain we fulfill our environmental mandate.

                Questions for the Record From Mr. Lowey

                           project screening
    Question. One of the most important, and least discussed, benefits 
of OPIC is the requirements it places on projects to meet a high 
standard of protection of the environment, worker rights and the 
American economy. I understand that you screen new projects to ensure 
that they will meet these statutory mandates and you monitor ongoing 
projects for compliance with these mandates. Could you tell us a little 
about how the monitoring process works? What do you do when you find 
that a project is not meeting the mandates you have set up?
    Answer. All projects are subject to OPIC's annual investor 
reporting requirements for U.S. economic effects, environmental effects 
and worker rights. [Additional US effects monitoring requirements]. 
With respect to environmentally sensitive projects effects, OPIC 
requires regular reporting by investors on their compliance with OPIC 
guidelines on such matters as air and water quality as well as worker 
health and safety. All such projects are monitored on site by OPIC 
staff and/or OPIC consultants during construction and when the projects 
reach operational status. Worker rights conditions are also monitored 
on site when OPIC undertakes U.S. economic or environmental monitoring.
    If a project is not meeting OPIC contractual commitments, OPIC 
works with the investor to bring the project into compliance. If this 
is not possible, OPIC can take steps leading to termination of the 
insurance contract or loan commitment.
                            freeport mcmoran
    Question. I understand that OPIC has canceled its contract with the 
Freeport McMoran mining project in Irian Jaya. Let me just say that I 
am very pleased with this turn of events. The human rights and 
environmental conditions at the mine are deplorable. But I'm interested 
in knowing why the contract was canceled. Was there inadequate research 
done of the part of OPIC in entering into this contract, or did the 
situation with the project change mid-stream? I hope the answer to this 
question will give us a good indication of how effective monitoring 
OPIC-supported projects can spot trouble projects.
    Answer. We believe that the termination of OPIC's relationship with 
this project demonstrates the effectiveness of OPIC's environmental 
monitoring process and the fact that OPIC is willing to take necessary 
actions to ensure that projects it supports comply with its statutory 
mandates.
    OPIC's issuance of the insurance contract for the Freeport project 
in 1990 was based on representations by Freeport concerning the scale 
of the project and the information from consultants hired by OPIC to 
visit the site and report on the projected environmental impacts of 
that level of production.
    At the time OPIC monitored the project in 1994 the scale of the 
project had been expanded substantially beyond the initial 
representations and the resulting environmental impacts were no longer 
consistent with the projected impacts nor with OPIC's statutory 
standards of acceptable environmental impact. In other words, the 
situation with the project did ``change mid-stream.''
                         caribbean market fund
    Question. I know that OPIC has begun to offer loan guaranty 
commitments to investment funds. Have you looked at expanding your work 
with these types of funds into the Caribbean region? The Multilateral 
Investment Fund (a part of the Inter-America Development Bank) is in 
the process of establishing a Caribbean Market Fund, and they have 
asked for OPIC's support. Could you comment on the status of OPIC's 
support for the Caribbean Investment Fund?
    Answer. OPIC recognizes that the Caribbean Basin and Central 
America lack investment capital for their development as markets and 
trading partners for the United States. Consequently, we would like to 
support an investment fund serving this region, and have met with 
several potential sponsors and managers who have proposed such a fund. 
It is particularly important that we support a manager with significant 
experience and contacts in the region, since it is spread over a wide 
geographic area, and the capability and requirements of each country in 
the area is different. To date, we have not been presented with a plan 
which combines effective and experienced management with a program of 
investment which could attract private equity and offer safety and 
soundness for an OPIC loan. However, we are working with potential 
sponsors to develop a successful proposal for a fund in this region.

              Questions for the Record From Mr. Foglietta

                           corporate welfare
    Question. I know you can't come to Capitol Hill without defending 
your agency against accusations of being a corporate welfare program. I 
have had a chance to look at your program and the way it works. I don't 
personally think that OPIC is a corporate welfare program. Any program 
that returns money to the Treasury isn't welfare--it sounds like an 
investment that pays returns. Nonetheless, many of my colleagues do 
feel that OPIC is corporate welfare. One of the main problems is how we 
define corporate welfare. Could you give me an idea of how you would 
define corporate welfare. And how OPIC's programs differ from that 
definition.
    Answer. ``Corporate welfare'' lacks a precise definition, but some 
have suggested it is a special government subsidy. OPIC is not a 
welfare entitlement. If anything, OPIC is a model of corporate welfare 
reform: small, effective, non-bureaucratic government with no subsidy 
and where users pay the government's entire cost of operations.
    No corporation, big or small, receives any subsidy or grant or 
handout of any kind from OPIC. All clients pay fees for service--$1.2 
billion since 1971. All clients must repay the money they receive from 
OPIC plus interest at market-based rates, and all clients pay insurance 
rates that are among the highest in the world. (1.5-2% of amount 
covered per year, more than competing rates of OPIC counterparts in 
Europe and Asia. No client receives automatic assistance, even if they 
qualify. All projects are analyzed on a case-by-case basis and undergo 
rigorous due diligence before any loans or insurance are granted.
    Question. I, along with others, have devised the idea to create an 
Independent Commission similar to the Base Closure Commission, to 
strike genuine forms of corporate welfare. The Commission would weigh 
the costs and benefits of programs that give unfair advantages to 
corporations and would make reductions in those programs. How do you 
feel OPIC's benefits outweigh its costs? Do you feel confident the OPIC 
would pass muster with this type of Commission?
    Answer. OPIC would welcome the type of review an Independent 
Commission on Corporate Welfare would conduct. Because OPIC, by statue, 
operates as a self-sustaining program, we feel very confident that the 
Commission's conclusion on OPIC would indicate that OPIC programs are 
the very antithesis of corporate welfare. OPIC's benefits are very 
real--we promote the development of market economies in developing 
countries and emerging markets while at the same time providing 
significant positive U.S. effects in the form of American exports and 
the creation of U.S. jobs: Over the next five years alone, OPIC 
projects will generate $43 billion in U.S. exports and more than 
130,000 U.S. jobs. More importantly, we do all this at zero cost to the 
American taxpayer.

                Questions for the Record From Mr. Torres

           opic equity fund for caribbean and central america
    Question. Does OPIC have any plans to support an equity fund in 
Central America and the Caribbean Basin? How is OPIC encouraging the 
development of such a fund in Central America and the Caribbean Basin?
    Answer. OPIC recognizes that the Caribbean Basin and Central 
American lack investment capital for their development as markets and 
trading partners for the United States. Consequently, we would like to 
support an investment fund serving this region, and have met with 
several potential sponsors and managers who have proposed such a fund. 
It is particularly important that we support a manager with significant 
experience and contacts in the region, since it is spread over a wide 
geographic area, and the capability and requirements of each country in 
the area is different. To date, we have not been presented with a plan 
which combines effective and experienced management with a program of 
investment which could attract private equity and offer safety and 
soundness for an OPIC loan. However, we are working with potential 
sponsors to develop a successful proposal for a fund in this region.
    Question. What projects is OPIC undertaking to support the 
development of a private sector in the Caribbean and Central America?
    Answer. OPIC has been actively writing political risk insurance for 
this area for several years. OPIC is presently supporting $1 billion in 
political risk insurance for private sector projects in the Caribbean 
and Central America. Over the years OPIC has also financed a number of 
projects in the area. It currently has project finance commitments of 
$364 million and has a $250 million pipeline for additional finance 
projects. We have supported projects in a wide variety of sectors which 
will promote the private sector and sustainable development, including 
projects in power, telecommunications, financial services, food 
processing, and tourism.

                        Submitted to Ex-Im Bank

            questions for the Record From Mr. Frelinghuysen

                       leveling the playing field
    Question. In a perfect world where emerging markets pose no risk to 
investors and where the U.S. had a fair shot on a level playing field, 
would we need your programs?
    Quesion. I know that we are pursuing a more level playing field 
through OECD negotiations and other avenues. What are your thoughts on 
the sucess, or failure, of those efforts? What can we realistically 
anticipate the playing field to be in the near term and over the long 
term?
    Answer. In a perfect world in which U.S. exporters did not face an 
exaggerated perception of risk in emerging markets and a playing field 
titled by foreign official export credit, there would probably be no 
conceptual role for an Ex-Im Bank within the framework of current U.S. 
economic philosophy. However, this is not a perfect world and Ex-Im 
Bank is there to help correct market imperfections.
    Although some countries have been elevated economically such as the 
Asian tigers, it is highly unlikely that emerging market risk will 
disappear entirely in the foreseeable future. Regarding establishing a 
``level playing field,'' this is an area where Ex-Im Bank is capable of 
exerting some significant degree of influence--through both its actions 
in support of U.S. exports and by participating in multilateral 
negotiations held under the auspices of the Organization of Economic 
Cooperation and Development (OECD).
    Right now, Ex-Im Bank enables U.S. exporters to successfully 
compete for sales of high value-added capital goods and equipment and 
highly skilled services in emerging markets. Working within budgetary 
and personnel constraints--with which our major competitors are not 
burdened--Ex-Im Bank makes every effort to leverage its resources to 
the fullest extent possible. Nonetheless, we cannot neutralize every 
competitor's best offer on every deal, and should there be no ``rules 
of engagement,'' we would quickly be overwhelmed by the sheer weight of 
the competition--who are all actively engaged in ``picking winners'' 
and promoting exports at any cost.
    In this context, the best and brightest source of significant 
relief is the negotiation table. Over the course of the past fifteen 
years of negotiations, the U.S. has been able to achieve significant 
reductions in foreign subsidies in the areas of interest rates and tied 
aid. We now are engaged in further efforts to tighten the existing 
rules and come up with the first ever set of restrictions on the 
subsidies inherent in exposure fees.
    The process of adopting multilateral rules to eliminate official 
export credit subsidies involve the following three steps:
    1. creation of a system or framework of rules which can lead to 
reductions in subsidy;
    2. establishment of a yardstick within the framework by which 
progress can be measured (e.g., charging ``market'' level interest 
rates or requiring a project to be ``commercially non-viable'' in order 
to allow tied aid); and
    3. moving the yardstick higher (i.e., requiring ever-higher 
interest rates until ``zero'' subsidy is achieved, or increasing the 
minimum concessionality in tied aid).
    With respect to the interest rates that must be charged by official 
export credit agencies, we have already succeeded in reaching the final 
stages of step three. Tied aid represents another success story which 
can be characterized as having moved from step 2 to the beginnings of 
step 3. Finally, we hope to soon ink a deal on exposure fee subsidies 
which would create a framework for continuing reductions in these 
subsidies and establish the needed yardsticks as well.
    In summary, we have already achieved significant results via 
negotiation, and the prospect for further positive developments is 
bright--both in the near as well as far term. Although progress in the 
negotiations is slow and halting, once achieved it has a significant 
and lasting impact. Hence, there is no question that multilateral 
negotiations represent the best and most viable possibility for 
creating the ideal world identified in the first part of the question.
              in the real world--demand for ex-im services
    Question. What is the current demand for EX-IM financing and what 
is your projected spending for this year?
    Answer. Currently, Ex-Im Bank is experiencing a higher level of 
demand for its financing, particularly in the higher risk markets, than 
had been anticipated. For the first seven months of FY 1997, the Bank 
authorized $8.4 billion in loans, guarantees, and insurance which 
utilized $555 million of program budget. At this time, we are 
projecting that Ex-Im Bank will use all of the $726 million of program 
budget appropriated for FY 1997.
    Question. If you are ahead of schedule, will you cut off activity 
for the rest of the year? How will this affect your efforts to get more 
small U.S. companies involved overseas?
    Answer. Ex-Im Bank is looking at various options to handle the 
increased level of demand, and at this time we believe that this Bank 
will not have to cut off activity before the end of the year. But, some 
cases, which do not require approval this year, may be deferred into 
the next fiscal year. We do not anticipate that this budget situation 
will impact the Bank's short-term small business efforts, since those 
transactions are typically smaller in amount and require relatively 
less program budget.
    Question. Given this level of demand for your program, why are you 
asking for less next year?
    Answer. Ex-Im Bank's budget request for FY 1998 was based on the 
best estimates at the time the budget was prepared of the likely demand 
for the Bank's financing support. The Bank does not program funds but 
rather responds to requests for export finance assistance, and those 
requests have been running this year at a higher level than 
anticipated.
                                tied aid
    Often, when we talk about the role of EX-IM, we focus on the need 
for EX-IM because of the unfair practices of our competitors. In 
particular, the practice of ``tied aid'' by other countries.
    Question. If this is the case, why aren't you using your tied aid 
authority?
    Answer. The theory behind the Tied Aid Capital Projects Fund 
(TACPF) is simple: If we keep the playing field level at every stage in 
the bidding/negotiating process of a project, U.S. companies will win 
export sales on the basis of superior quality and value of their 
product. In addition, foreign governments will be unable to ``lock-in'' 
long-run commercial advantages for their exporters. However, the 
bidding/negotiating process for these tied aid transactions usually 
takes several years before the foreign borrower makes a decision to 
award the contract. Consequently, this is one of the reasons why Ex-Im 
Bank has not utilized much of the TACPF as we have out in preliminary 
commitments. Moreover, some transactions originally supported under the 
TACPF may not require Fund use due to the withdrawal of the foreign 
tied offer by the foreign government--allowing for competition to be 
based on standard financing terms. This is another illustration of the 
success of the TACPF in that the foreign government decides that it is 
not worth engaging in the costly subsidization of the project through 
tied aid. However, without the leverage and the ability to match tied 
aid, which comes from the availability of the TACPF, the foreign 
government would probably have continued to provide tied aid financing 
to the detriment of the U.S. exporters. Thirdly, there are transactions 
where Ex-Im Bank offered the availability of tied aid to match the 
foreign tied aid offers for an entire project, but the U.S. exporters 
may only be awarded a portion of the project. Lastly, there are those 
scenarios where Ex-Im Bank matched a tied aid offer and the U.S. 
exporter loses the contract--not because of Ex-Im Bank's failure to 
match foreign tied aid--but rather due to non-financial considerations. 
Ex-Im Bank was able to level the financing playing field so the U.S. 
exporter could compete fairly on price, technology and performance.
                    ex-im financial status and fees
    Question. Given your explanation of EX-IM's current shortage of 
funds, how do you assess your prospects for savings in the higher risk 
countries. (Background: Ex-Im currently projects a shortfall in 1997 of 
$200 million due to higher demand for loans and more loans to 
businesses in higher risk countries such as Russia, Venezuela, and 
Africa.)
    Answer. Ex-Im Bank, along with the Office of Management and Budget, 
is currently exploring options for savings in higher risk countries. 
Policies such as fee increases, and increasing the amount of direct 
loans as opposed to guarantees, can yield some savings in such markets.
    As far as project finance is concerned, Ex-Im Bank's projected 1997 
transaction backlog will not entail project finance transactions in 
higher risk countries. In fact, with respect to your specific reference 
to Venezuela, currently project finance transactions are being covered 
by the private market since they find projects in the oil sector 
acceptable risk. This is also true of the Philippines.
    However, it is apparent that for 1998, project finance activity 
will primarily be in the higher risk countries which are not as 
``appealing'' to the private market such as Turkey and Mexico. Further, 
we are mostly seeing infrastructure projects which earn local currency 
and not hard currency and do not exceed the country ceiling in terms of 
risk.
    Question. How are the companies being asked to pay higher costs for 
Ex-Im loans going to respond to this proposal. Will any loans not go 
forward due to the proposed increase in costs?
    Answer. There is a possibility that a fee increase will make U.S. 
exporters less competitive on some transactions. At present, Ex-Im Bank 
is already one of the most expensive lenders in most transactions. 
Raising costs further would be of concern since it may serve to steer 
export sales to other Export Credit Agencies if private financing is 
not available.
    Question. What is the status of your request for more funds within 
the Administration?
    Answer. As to the Bank's current program budget situation, the 
Administration is studying this issue and the various options that are 
available to address it but has not as yet reached a final decision on 
the appropriate action to take.
    Question. The FY 1998 budget assumes an increase in fees totalling 
$30-$40 million. That fee proposal has been stalled in the context of 
international negotiations with the French and Japanese. What 
difficulties does the fee proposal present in these negotiations, and 
what plan do you have to make up for the loss, if fees are not 
ultimately increased.
    Answer. The danger the fee proposal contained in the FY 1998 budget 
poses to the negotiations is that it strongly implies to our 
competitors that they do not need to negotiate seriously with the 
United States. Rather, external forces such as budget pressures will 
force Ex-Im Bank to raise fees unilaterally and our competitors will 
not need to give anything up to get the United States where they want 
us.
    Ex-Im Bank does have a variety of actions it could take to 
compensate for the absence of a fee increase. Which one and where would 
depend on strategic considerations at the time.
                          russia ex-im program
    Question. The Partnership for Freedom initiative originally 
contained a request for $160 million for the Ex-Im Bank to conduct a 
special program in the NIS which would have differed from the regular 
Ex-Im program. That proposal has been modified as I understand it (down 
to $20 million for small business only). Tell us how and why the 
proposal has changed so drastically from its original conception.
    Answer. Since Ex-Im Bank needs to have its overall statutory 
charter extended this year, both Ex-Im Bank and the Administration 
determined that it was better not to introduce at the same time a new 
program which would necessitate a change in Ex-Im Bank's statutory 
standard of creditworthiness. The lesser figure about $30 million 
reflects what Ex-Im Bank may be able to do to assist small business in 
the NIS without any change in the Bank's creditworthiness standard but 
with additional administrative resources. Moreover, a more in-depth 
analysis will be conducted in the coming months to develop the type of 
program that could most successfully accomplish the goal of providing 
financing on commercial terms for small business in the NIS.
    Question. What factors are responsible for the recent increase in 
Ex-Im loans to Russia?
    Answer. Many of the programs that we have been working on over the 
past several years have now reached the stage of implementation. Thus, 
a significant portion of our recent activity has been under the Oil and 
Gas Framework Agreement and the Gazprom memorandum. We are also 
expecting the first cases to be processed under the forestry sector 
memorandum. We will be developing similar programs in the fishing and 
other sectors of the Russian economy. Finally, in November 1996 we 
opened in the commercial banking sector and expect to become 
increasingly active there.
                        three gorges dam--status
    Question. Last year the Bank indicated that it was going to not 
approve the Three Gorges Dam project in China. However, they also 
indicated that they would continue to study the proposal. What is the 
status of your work on the Three Gorges project, and do you anticipate 
any change in your position on your participation in it?
    Answer. On May 30, 1996, Ex-Im Bank's Board of Directors withheld 
issuing Letters of Interest for the Three Gorges Project though it 
indicated that it could ``reconsider support for the project if the 
Bank received further information with respect to development and 
mitigation of the environmental issues involved in the project.''
    In June, 1996, Ex-Im Bank's former Chairman and President, Martin 
Kamarck, visited China and reiterated the Bank's position for 
reconsidering support for the project. After his return, Ex-Im Bank 
sent a letter the Chinese buyer in July containing a detailed 
explanation of our concerns and outlined the type and scope of 
information that we needed in order to adequately review the 
environmental effects of the project. We also provided copies of this 
letter to the U.S. exporters and discussed it with them. At that time, 
Ex-Im Bank informed them that the information we requested in our 
letter would be similar in nature to that contained in a comprehensive 
environmental assessment of the project.
    During September of 1996, the U.S. exporters that had applied for 
the letters of interest dispatched an engineering consultant to China 
in an attempt to secure the necessary information about the potential 
environmental effects of the project. Following his visit to the 
region, where the project is being constructed, the consultant briefed 
Ex-Im Bank staff, including members of the Engineering and Environment 
Division on the results of his visit, and provided Ex-Im Bank with a 
report detailing the information he had obtained. While in China he had 
been able to obtain some of the information we had requested. However, 
although the information was useful, it did not address the whole range 
or scope of environmental information we requested in our July letter. 
Based on the results of his visit, it became clear that the process of 
obtaining the requested information remained difficult to pursue.
    Ex-Im Bank's Board of Directors was subsequently briefed by the 
staff on the status of its activity on the project. Staff also pointed 
out that in October 1996, Rotec, one of the three applicants for an LI, 
was awarded a contract for an initial phase of construction equipment 
supply without Ex-Im Bank financial support.
    In the interim, Ex-Im Bank's Engineering and Environment Division 
continues to review any useful information it obtains with respect to 
the project's status and its environmental effects. The Bank has also 
shared information about the project with officials from Japan's MITI 
and Germany's export credit agency in an attempt to persuade these 
countries to follow Ex-Im Bank's position with respect to the obtaining 
of information about the environmental effects of the project.
    To date, the Chinese buyer has yet to respond to Ex-Im Bank's July 
1996 letter that outlined the type and scope of information needed for 
the Bank to adequately address the environmental effects of the 
project. In fact, it has received no official or useful information 
from the Chinese with respect to the environmental effects of the 
project since May, 1996. Nevertheless, Ex-Im Bank remains ``open'' to 
reconsider support for the project pending the receipt and result of 
the request information about the environmental effects of the project.

            Questions for the Record Submitted by Ms. Pelosi

                     opic and ex-im reauthorization
    Question. Both OPIC and Ex-Im Bank require reauthorization this 
year. Opponents of these programs argue that they should be eliminated 
because they are corporate welfare, expand the credit exposure of the 
U.S. government in risky investments, and ultimately hinder free trade 
by imposing governmental subsidies. Can each of you comment on the need 
for reauthorization, respond to the arguments of your critics, and 
finally give us some indication of what the impacts on U.S. business 
will be if Congress does not reauthorize these programs?
    Answer. Ex-Im Bank provides competitive financing to U.S. exporters 
facing sales competition from foreign exporters who enjoy unlimited 
financial access and support from their respective government's export 
credit agency. These are the export sales which are most competitive 
for the U.S. exporting community. While Ex-Im Bank provides financing 
for less than three percent of all U.S. exports, this support is 
critical for U.S. companies' position in the high-growth developing 
markets. Both Japan and France provide substantial financial support to 
their exporters. In 1995 (latest data reported), the Japanese 
government export credit programs financed 32% of its country's 
exports; and France financed 18% of its exports. If the U.S. Government 
were to walk way from its exporters in this extremely competitive 
arena, it would mean unilateral economic disarmament in the near term 
and ensure lost competitive positioning for the future.
    Ex-Im Bank is not corporate welfare since Ex-Im Bank's funding 
benefits society by strengthening the U.S. economy, because it charges 
fees to mitigate transaction risk and because the terms and conditions 
of credit approvals require repayment from the borrower. Ex-Im Bank's 
mission is to sustain jobs in the United States by providing financing 
for exports of U.S. manufactured products and services. In fiscal year 
1996, on less than $900 million in accumulated program budget, Ex-Im 
Bank authorized $11.5 billion which supported $14.6 billion in exports 
that would not otherwise have gone forward. These exports directly 
sustained 200,000 jobs and indirectly sustained one million jobs in the 
U.S. In the same time period, 81% of its 2,422 authorized transactions 
supported small businesses. Over the last five years, through financing 
authorizations of $65.6 million, Ex-Im Bank favorably impacted 
employment in 2,024 communities nationwide.
    Ex-Im Bank has not exposed the taxpayer to untoward risk, and, in 
fact, has been a prudent overseer of the public purse. Ex-Im Bank's 
philosophy has been to support only those transactions where the U.S. 
exporter faces foreign competition and on those deals where the private 
sector either cannot or will not act. This does tend to concentrate Ex-
Im Bank's activities in riskier, but often fast-growing markets in the 
major developing countries. However, Ex-Im Bank never displaces the 
private sector, and has done an outstanding job of risk assessment. Ex-
Im Bank's loan loss ratio is 1.9% for the period 1980-1995, a time 
period that was very tumultuous for international business. This loss 
ratio is better than that recorded by the private commercial banking 
sector, which reported a loss ratio of 3% on domestic credit card 
business.

                Questions for the Record From Ms. Lowey

                                 russia
    Question. In your statement, you indicate that Ex-Im Bank has been 
proceeding with caution in Russia and the NIS and only when you can 
secure assurances of repayment. I am very concerned about the stability 
in the that region and the rampant corruption that has spread 
throughout the country, impeding business and undermining economic 
reforms. Could you expand on what you are doing to ensure that this 
corruption does not negatively impact Ex-Im supported businesses in the 
region?
    Answer. Corruption is a major problem in the NIS as it is in many 
other parts of the world, and Ex-Im Bank is extremely concerned about 
it. However, it should be kept in mind that our financial support is 
structured so that either (i) the money is paid directly to the U.S. 
suppliers, or (ii) money is paid to reimburse the foreign borrower for 
payments which have already been made to the U.S. suppliers. (The first 
procedure is by far the most common, particularly in Russia). Thus, 
U.S. suppliers are the real recipients of the Ex-Im Bank-support funds, 
and they are subject to the Foreign Corrupt Practices Act and other 
relevant U.S. legislation. In addition, the supplier's certificates 
provided to us before every disbursement include a representation from 
the relevant supplier that to the best of its knowledge, as of the date 
of shipment (or, where no shipment occurred, as of the date of the work 
performed), the contract to sell the items being exported, and the 
performance by the parties of their respective obligations thereunder, 
did not violate any law then applicable. These supplier's certificates 
also must disclose whether there have been unusual payments. (A note to 
each certificate specifically warns the supplier that any person who 
makes a false representation to Ex-Im Bank may be subject to fine and/
or imprisonment pursuant to 18 U.S.C. Section 1001). Finally, we have 
developed a special document for use in the NIS--the so-called 
``disclosure certificate'' that financial intermediaries, offtake 
purchasers and others must complete regarding payments they may have 
made as well as other activities in which they may have engaged.
    Ex-Im Bank is not a regulatory or enforcement agency, but the 
documentation for each deal we support makes it clear that we will not 
tolerate corruption. If for any reason we believe that any 
representations or undertakings we have received in connection with a 
transaction have been false or violated, we turn the transaction over 
to the Department of Justice and the U.S. Attorney's office for 
investigation and possible civil and/or criminal actions.
                             small business
    Question. I am pleased that you mentioned Ex-Im Bank's efforts to 
increase its financing of small businesses. One of the criticisms we 
have heard about Ex-Im Bank is that your programs are too complicated 
for small businesses. Could you let us know how Ex-Im Bank has improved 
its programs to attract more small businesses, which I understand 
accounted for 81% of your deals last year?
    Answer. Because of our emphasis on reaching more potential small 
business exporters, Ex-Im Bank made a number of changes to various 
financial programs in an effort to make them more accessible and 
attractive to small business exporters. Specifically, Ex-Im Bank has 
made changes to its insurance and working capital guarantee programs as 
well as expanded our delivery systems to our City/State partners and 
outreach efforts through intermediaries. This has resulted in an 
explosion of small business activity, as demonstrated particularly by 
almost a doubling of authorizations under our working capital guarantee 
program.
    Under Ex-Im Bank's insurance program, we have changed the export 
credit insurance policy which is tailored specifically to small and new 
to export company needs. The eligibility level has been increased to $3 
million sales/annually, which has made the policy available to more 
small businesses and provides for a 95% cover with no deductible, as 
well as ``hold-harmless'' to lenders who finance the export sales 
insured under the policy. This ``hold harmless'' protection encourages 
lenders to provide financing to small company transactions that they 
otherwise might not support because it shifts the burden of exporter 
performance risk from the lender to Ex-Im Bank. Ex-Im Bank has also 
improved its Umbrella policy along the same lines as the small business 
policy. This policy is designed for use by state agencies, export 
trading and management companies, insurance brokers, and similar 
agencies which act as intermediaries between Ex-Im Bank and their small 
business clientele. In addition, we have introduced an Environmental 
Exports Policy as well as enhanced our medium-term insurance cover to 
100%. With the medium-term insurance policy, lenders are assured under 
a preapproved documentary format that as long as the documents reviewed 
are on their face in compliance with the policy requirements, they will 
be protected against exporter performance risk, disputes over product 
performance, or fraud. As a result of the acceptance by lenders of this 
change alone, Ex-Im Bank issued approximately 400 policies in 1996.
    Finally, we have provided a commission to insurance brokers on our 
small business insurance policies. This commission provides incentives 
for insurance brokers to offer their expertise and services to small 
business exporters that are typically under served. These broker 
services are invaluable to these inexperienced companies since they 
assist in the submission of applications as well as the handling of the 
administrative aspects of the policy.
    Of particular significance to Ex-Im Bank's increased small business 
activity are the changes made to Ex-Im Bank's Working Capital Guarantee 
Program, which is almost exclusively used by small business exporters. 
For example, language in the Working Capital Guarantee Program 
documentation was greatly simplified and clarified because of 
complaints from both the exporting and banking communities. In 
addition, Ex-Im Bank has expanded its Working Capital Guarantee 
Authority to lenders whereby qualified lenders can commit Ex-Im Bank's 
guarantee without seeking prior approval. This feature has been 
extremely instrumental in enabling an increasing number of banks 
throughout the U.S. to provide prompt and effective service. Moreover, 
there has been a harmonization of Ex-Im Bank's and SBA's Working 
Capital Guarantee. Under the harmonization of the programs, SBA handles 
those transactions with a maximum guaranteed amount of $750,000 and 
below and Ex-Im Bank focuses on transactions greater than $750,000.
    All of these changes have been important to Ex-Im Bank's increase 
in small business activity. But, none of the changes would have been 
quite as effective if it was not for our expanded focus on delivery 
systems with several different partners. In addition to Ex-Im Bank's 
lending programs for small business, we have been able to expand the 
breadth and depth of our reach through our City/State program. To date, 
Ex-Im Bank is working with 33 City/State entities to network Ex-Im 
Bank's programs to small and medium-sized exporters. One particular 
incentive network Ex-Im has provided to this program over the last year 
was to allow the City/State partners the ability to charge and earn 
fees on Ex-Im Bank applications which they package and submit for 
consideration. In addition, we have added a feature to the program that 
allows qualified City/State partners to become Delegated Authority 
lenders under the program. This enables qualified organizations to 
commit Ex-Im Bank on working capital guarantee transactions without 
seeking our prior approval.
    In addition, Ex-Im Bank's participation along with the Department 
of Commerce and the Small Business Administration in the U.S. Export 
Assistance Centers (USEAC) have enabled more outreach to potential 
small business exporters. These centers have provided an extremely 
important role to small exporters needing local hands-on assistance 
covering all aspects of their exporting strategies, including export 
finance. Since 1992, when President Clinton announced the creation of 
these centers in his ``National Export Strategy'', 10 USEACs have been 
created with another 14 District Export Centers.

         Questions Submitted for the Record From Mr. Foglietta

    Question. Dr. Rodriguez, the Ex-Im Bank allows American companies 
to trade with some of the U.S.'s best friends and some of our most 
troubled relationships. What foreign policy benchmarks do you use to 
decide where you make our investments when they involve nations where 
we may have foreign policy concerns? Some examples that come to mind 
are China, Indonesia and Colombia.
    Answer. Ex-Im Bank does not use any foreign policy benchmarks. In 
fact, Section 2(b)(1)(B) of the Bank's charter mandates that Ex-Im Bank 
has the ability to deny transactions only on the basis of financial or 
commercial considerations. We leave all foreign policy concerns to the 
State Department, which has the mandate as well as the personnel to 
handle such issues.







                           W I T N E S S E S

                              ----------                              
                                                                   Page
Atwood, J.B......................................................     1
Callear, M.O.....................................................   423
Dine, T.A........................................................   263
Grandmaison, J.J.................................................   423
Holmes, J.H......................................................   263
Morningstar, Ambassador, R.L.....................................   263
Rodriguez, R.M...................................................   423








                               I N D E X

                              ----------                              

                  Agency for International Development
                           (J. Brian Atwood)

                                                                   Page
Africa...........................................................    46
Agriculture......................................................   240
Albania..........................................................   248
American Schools and Hospitals Abroad (ASHA)...................231, 253
Assistance Priorities............................................   226
Basic Education..................................................    42
Bosnia...........................................................   248
Budget...........................................................   169
Bureaucracy......................................................    52
Cambodia........................................................63, 230
Campfire.......................................................172, 232
Chairman Callahan's Opening Statement............................     1
Child Survival....................39, 173, 205, 222, 234, 235, 241, 242
Children's Vaccines..............................................   217
Congressional Presentation Documents.............................   224
Consumers in the Developing World................................   249
Crisis Prevention................................................   244
Democracy and Foreign Assistance.................................   240
Disease Research.................................................   200
Earmarks.........................................................   254
Economic Growth..................................................   238
Environmental Programs..........................................61, 243
Family Planning Programs.........................................    49
Federal Triangle Building........................................   223
Food Security Initiative.........................................   226
Food Security...................................................63, 228
Former Soviet Union..............................................    43
Funding Levels...................................................    64
Global AIDS.....................................................62, 251
Grant and Contract Oversight.....................................   243
Haiti............................................................   258
Institute of Peace...............................................    60
International Financial Institutions.............................   229
International Education and Training.............................    47
Israel's Expedited Transmission..................................    57
Jordan...........................................................    48
Latin America....................................................    41
Legal Reform.....................................................   241
Liberia..........................................................   260
Malaria..........................................................   201
MED Bank.........................................................56, 58
Microenterprise....................................43, 47, 50, 236, 247
Middle East Development Bank.....................................    40
Mission Closings.................................................   227
Mongolia.........................................................   229
Mr. Atwood's Opening Statement...................................     4
Ms. Pelosi's Opening Statement...................................     2
Multilateral vs. Bilateral Assistance............................   246
Nagorno-Karabakh.................................................   233
NATO.............................................................    40
New Management System............................................   219
NGOs...........................................................173, 254
NMS-IG Report....................................................   220
Office of Emerging Markets.......................................   242
Partnership for Freedom.........................................40, 238
Polio............................................................   222
Political Freedom................................................   245
Poor Performance.................................................   218
Population Assistance............................................   250
Preventive Health Care...........................................   250
Public Perception of Foreign Aid.................................    44
Public Sector....................................................   239
Regional Funding Priorities......................................   225
Russia.........................................................236, 261
Southwest Voter Research Institute...............................   217
Subcommittee Jurisdiction........................................    54
Sustainable Development..........................................   228
Trade and AID....................................................   239
Tuberculosis.....................................................   253
U.S. Ships.......................................................   245
United Nations...................................................   203
Victims of Torture...................................230, 252, 261, 262
Vitamin C........................................................   222
Women in Development............................................61, 251
World Summit Goals...............................................   205

                         NIS and Central Europe
                  (Ambassador Richard L. Morningstar)
                           (James H. Holmes)
                            (Thomas A. Dine)

Accountability Measures..........................................   396
Administrative Costs.............................................   393
Albania...............................................90, 389, 402, 421
Ambassador Morningstar's Opening Statement.......................   268
Armenia...................................................414, 416, 422
Balancing the Budget.............................................   387
Bilateral Commissions............................................   379
Bosnia..........................................376, 384, 403, 411, 412
Budget Request.................................................363, 375
Bulgaria..................................................374, 386, 399
Central Europe...................................................   399
Chairman Callahan's Opening Statement............................   263
Changing Focus of Assistance.....................................   398
Chernobyl Shutdown...............................................   397
Cold War.........................................................   366
Corruption.......................................................   371
Democratization..................................................   361
Earmarks.......................................................356, 403
Effectiveness and Efficiency.....................................   394
Enterprise Funds.................................................   380
Family Planning..................................................   397
Haiti............................................................   344
Humanitarian Aid Corridor Act....................................   392
Investment Initiatives...........................................   358
Microenterprise Support..........................................   393
Mr. Dine's Opening Statement.....................................   312
Mr. Holmes' Opening Statement....................................   293
Ms. Pelosi's Opening Statement...................................   267
New Independent States.....................354, 391, 399, 404, 408, 413
Operation Support Freedom........................................   404
Pakistan.........................................................   416
Partnership for Freedom..............................364, 399, 401, 419
Positive Results.................................................   395
Poverty Lending Institutions.....................................   394
Public Perception of Foreign Aid.................................   375
Romania..........................................................   373
Russia....................................................368, 407, 410
Russian Arm Sales................................................   415
Section 907....................................................359, 372
SEED Program.....................................................   371
Ukraine.....................355, 357, 368, 388, 389, 398, 401, 406, 416
War Crimes Tribunal..............................................   412
World Bank.......................................................   412

                    Export and Investment Assistance
                        (J. Joseph Grandmaison)
                          (Rita M. Rodriguez)
                          (Mildred O. Callear)

Average Feasibility..............................................   494
Chairman Callahan's Opening Statement............................   423
Environmental Reforms............................................   505
Expansion of Small Businesses....................................   488
Export-Import Bank....................508, 509, 510, 511, 512, 513, 514
Haiti............................................................   497
Investment Encouragement.........................................   504
Jamaica..........................................................   497
Latin America....................................................   496
Middle East Projects.............................................   503
Ms. Callear's Opening Statement..................................   469
Mr. Grandmaison's Opening Statement..............................   427
Ms. Pelosi's Opening Statement...................................   427
Opening Statement of Ms. Rodriguez...............................   429
OPIC.......................................494, 504, 505, 506, 507, 508
President's Budget Request Reduction.............................   487
Project Finance Division.........................................   490
Prudent Management...............................................   505
Ralph Nader Allegations..........................................   488
Reductions.......................................................   491
Russia...............................................493, 496, 511, 513
Self-Funding.....................................................   504
Taxpayer's Return on Ex-Im Investments...........................   490
Trade and Development Agency...................................502, 503
Ukraine..........................................................   498
Win/Loss Ratio...................................................   492